In a major relief to the banking sector, the Reserve Bank of India (RBI) has released its final guidelines aimed at easing liquidity management for banks. These measures are expected to free up capital, ease funding pressures, and help banks stay resilient during challenging periods — particularly while managing deposits raised through digital platforms like internet and mobile banking. The new norms will come into effect from April 1, 2026, giving banks sufficient time to prepare.
Let’s break down what’s changing and how it could impact banks.
What’s Happening?
As per the RBI guidelines, banks will now be required to maintain a 7.5% run-off rate for stable retail deposits and 12.5% for less stable deposits. The RBI has also simplified wholesale funding norms – corporate deposits continue to carry a 40% run-off rate, while deposits from financial institutions (such as IREDA and PFC) must be 100% backed by liquid assets.
A significant change applies to Other Legal Entities (OLEs) — like trusts, LLPs, and proprietorships. Their run-off rate has been reduced from 100% to 40%, providing a notable relief to banks.
Earlier, banks had to maintain only 5% in High-Quality Liquid Assets (HQLA) for stable retail deposits. However, in July 2024, the RBI had increased the run-off rates to 10% for stable and 15% for less stable deposits — which have now been moderated in the final framework.
To further ease liquidity conditions, the RBI has also announced fresh Open Market Operations (OMOs). It will purchase government securities worth Rs 1.25 lakh crore in four tranches between May 6 and May 19. This comes after a similar operation in March, where the RBI bought Rs 1 lakh crore worth of securities in two equal tranches — a clear signal of its continued commitment to supporting systemic liquidity.
What Does It Mean for the Banking Sector?
The RBI’s final guidelines are estimated to boost the liquidity strength of banks by approximately 6 percentage points. Currently, banks in India hold Rs 45–50 lakh crore in HQLAs. These revised norms could free up an additional Rs 2.7–3 lakh crore for lending. This could translate into a 1–2% increase in credit growth and 2–4 basis point improvement in banks’ net interest margins.
Credit growth — essentially how fast banks are extending loans — had been slowing for months. According to RBI data, loan growth declined for the eighth consecutive month in February 2025. However, the easing of norms could help reverse this trend.
What’s In It for Investors?
For investors, these liquidity reforms may spell good news for banking stocks. With more capital available to lend, banks could expand their loan portfolios faster, potentially leading to higher earnings and improved market valuations.
Additionally, with the reduced liquidity pressure, banks may not need to hike deposit rates aggressively to attract funds — a move that could help them preserve their margins.
What’s Next?
The RBI’s final liquidity norms, along with its significant open market operations, signal a strategic move to strengthen India’s banking system and fuel its next leg of growth. With greater lending capacity and reduced reliance on low-yield liquid assets like cash, central bank reserves, and government bonds, banks are well-positioned to pursue higher returns — all while maintaining a stronger liquidity profile.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
