MUMBAI, India — Indian lenders are urging the Reserve Bank of India to soften RBI liquidity rules as a widening gap between loan demand and deposit inflows tightens funding conditions, Feb. 5, 2026.
Treasury officials say the push centers on delaying tougher liquidity buffers, easing limits around bond portfolios and giving banks new room to raise longer-tenor wholesale funds ahead of the RBI’s Feb. 6 policy decision, according to people familiar with recent discussions.
Why RBI liquidity rules are back in the spotlight
Banks say the combination of relatively firm government bond yields and persistent system-level liquidity tightness is keeping funding costs elevated even after the RBI cut the repo rate by 125 basis points since February 2025. Officials cited foreign exchange interventions absorbing rupee liquidity, while demand for government securities has cooled as lenders hesitate to rebuild bond holdings sold via central bank operations.
One flashpoint is the liquidity coverage ratio, or LCR, which requires banks to hold enough high-quality liquid assets to withstand a stress scenario. Bank treasurers want an implementation delay for revised LCR requirements due from April 1 and more flexibility to move bonds between held-to-maturity and trading books—requests they argue would reduce forced buying and selling and smooth transmission of rate cuts.
What banks want changed in RBI liquidity rules
Officials and market participants describe three immediate asks:
Delay the revised LCR timeline and ease the operational burden tied to digitally linked deposits.
CRR relief by allowing part of the cash reserve ratio—cash parked with the RBI—to count toward high-quality liquid assets under RBI liquidity rules.
3-year certificates of deposit to reduce rollover pressure in wholesale funding markets.
On the CRR front, the central bank has already used reserve-ratio cuts to inject durable liquidity, including a June 2025 move that lowered CRR by 100 basis points to 3 percent in tranches, aimed at improving policy transmission. Bankers now want the remaining CRR requirement to do double duty under RBI liquidity rules by partially qualifying as a liquidity buffer.
On longer-tenor funding, banks are seeking permission to issue bulk deposits via CDs for up to three years—an option currently restricted for banks even as deposit growth lags credit. In the fortnight ended Dec. 31, bank credit rose 14.5 percent year-on-year while deposits grew 12.7 percent, according to a separate Reuters report. “There is no way deposit growth can match credit growth and banks are left with no option but to rely on CDs to meet balance sheet requirements,” one source told Reuters. Axis Bank’s Neeraj Gambhir said allowing up to three-year CDs would help asset-liability management as rollover pressure rises.
Under current RBI guidance, bank-issued CDs typically must mature within one year, while select financial institutions can issue CDs up to three years, according to the central bank’s certificate of deposit rules.
Continuity: how RBI liquidity rules have evolved since 2024
The latest lobbying follows a multiyear tightening-and-calibration cycle. In July 2024, the RBI floated draft changes to the Basel III LCR framework, including higher run-off assumptions for digitally accessible deposits, prompting concerns about a bigger liquidity hit. A month later, the Indian Banks’ Association prepared to seek softer treatment and a slower rollout, sources told Reuters. When the RBI finalized the digital-deposit buffer in April 2025, it lowered the additional run-off and pushed implementation to April 1, 2026, while still flagging the risk of fast withdrawals.
Now, as deposit competition intensifies and bond-market conditions stay tight, lenders say additional flexibility in RBI liquidity rules would help lower funding costs without diluting resilience—an argument the central bank will weigh against financial stability risks.
