Summary:

Moody's has suggested that the Reserve Bank of India's recent draft guidelines for enhancing bank liquidity management in the face of increased digital transactions are credit positive. The early guidelines indicate a 5% decline in the stability of retail deposits with online and mobile banking access. However, they are likely to reduce banks' liquidity coverage ratios (LCR) by around 15 percentage points. Despite this, Moody's views tougher rules as advantageous since they strengthen banks' resilience and liquidity buffers against unexpected deposit withdrawals.

According to the rating agency, retail and small business deposits account for around two-thirds of overall deposits, with more than half presumably enabled via online and mobile banking. The drop in LCR will be determined by these deposits. Bank of Baroda expects a 12-15 percentage point decline in its LCR. Moody's anticipates banks will adjust loan growth before the April 1 implementation date, improving credit-to-deposit ratios.

Source: IBEF

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