RBI Unleashes $35 Billion Liquidity Surge to Supercharge Credit Boom

In a massive relief to the banking system, the Reserve Bank of India's ( RBI ) final guidelines on banks' liquidity coverage ratio (LCR) is expected to free up capital worth nearly $35.24 billion which could eventually boost credit growth by as much as 2 percentage points.

The RBI on Monday reduced the proportion of high-quality liquid assets (HQLA) - cash, central bank reserves and federal government bonds, which banks are required to hold against digitally linked deposits, adding that the net impact will improve banks' LCR by approximately 6 percentage points by December-end, a Reuters report said.

Additionally, Morgan Stanley estimated a loan growth of 1-2 percentage points.

India's Push For Credit Growth

For India, slowing credit growth has remained a major cause of concern for lenders and the central bank at a time when the authorities are looking to push growth.

Indian banks' loan growth moderated for an eighth straight month in February, according to data by the RBI. HSBC cut its credit growth estimate earlier this month for the last financial year to 11.5% from 12.5%.

The guidelines are set to be implemented from April 1, 2026, a year later than the earlier proposal, with the RBI saying that all banks will continue to meet the minimum regulatory requirements comfortably until the implementation.

According to Morgan Stanley, some benefits are expected to be visible in the earnings for the current financial year as lenders have been maintaining the LCR at 115%-130% against a requirement of 100%.

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