The Indian Banks’ Association (IBA) is likely to ask the central bank to reduce the amount of additional funds lenders will need to set aside against some retail deposits and also seek a delayed and gradual implementation of the proposal, Reuters reported quoting seven sources.

The Reserve Bank of India (RBI) in July proposed an additional 5% ‘runoff’ requirement on retail deposits enabled with internet and mobile banking facilities to bolster the liquidity resilience of banks.

The RBI had sought feedback on the proposal until 31 August, after which it would finalise them for implementation from April 2025.

The IBA is likely to seek an extension of the deadline for giving feedback “as the process is taking some time”, Reuters reported quoting a senior official.

“Our primary suggestion is to reduce the runoff percentage to 2% or a maximum of 3%, as 5% is not feasible,” a treasury official said. “That too should be levied incrementally… instead of at one go.”

Lenders can experience ‘runoff’ when there are heavy withdrawals, which impact banks’ liquidity coverage ratio.

Under the liquidity coverage ratio, banks are required to hold a proportion of deposits in high-quality assets such as cash, central bank reserves and federal government bonds.

If the RBI implements the draft norms as proposed, there would be a sudden rush to buy government bonds, traders told Reuters.

Market estimates pegged the additional demand for government bonds between Rs 2 trillion to Rs 4 trillion.

The banks’ association is also expected to recommend the RBI allow funds parked with it under the cash reserve ratio (RBI) to be counted against banks’ liquidity coverage needs.