A report from brokerage Motilal Oswal mentioned the shift towards an LCR-based framework for assessing liquidity and lending capability will permit banks to deploy surplus liquidity presently parked on their stability sheets into loans. Because of this, loan-to-deposit ratios (LDRs) might theoretically rise by 3-12% throughout the brokerage’s protection universe, with public sector banks (PSBs) set to be key beneficiaries.
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Giant non-public banks are anticipated to see a comparatively smaller improve in LDRs of 4-11%, whereas PSBs might see a acquire of 6-11%, reflecting their stronger liquidity buffers, the brokerage home estimates.
Not like the standard LDR metric, which hyperlinks lending capability largely to deposit development, the LCR framework permits banks to construct liquidity buffers from their whole legal responsibility base – together with deposits, borrowings and fairness.
“So long as banks keep an LCR cushion above the regulatory minimal, extra liquidity parked in low-yielding property could be redeployed into loans with out requiring further deposit mobilisation, supporting credit score development,” mentioned Nitin Aggarwal, head of BFSI at Motilal Oswal Securities.
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Individually, analysts at Macquarie Capital mentioned the LDR constraint is much less of a difficulty for banks equivalent to State Financial institution of India (SBI), which presently maintains an LCR of round 138%, considerably increased than the roughly 120% ranges seen amongst massive non-public sector friends. This surplus liquidity alone might permit SBI to extend its LDR by 300-400 foundation factors with out breaching LCR necessities, in response to the brokerage’s estimates.
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Analysts additionally pointed to optimisation underneath the Web Steady Funding Ratio (NSFR) framework as one other lever for lending growth. In response to Motilal Oswal, higher balance-sheet administration underneath the NSFR framework might raise LDRs by 3-23%, with PSBs once more higher positioned as a result of their stronger secure funding buffers.
Because the NSFR focuses on one-year funding stability, banks with ratios effectively above the 100% regulatory threshold can redeploy extra Accessible Steady Funding – together with fairness, long-term borrowings and secure deposits – into incremental loans with out a proportional improve in deposits. This permits banks to develop lending whereas sustaining structural funding power.
“As Indian banks more and more function underneath these liquidity frameworks – just like international friends – issues that top loan-to-deposit ratios might constrain lending development are anticipated to progressively ease,” Aggarwal added. “This might permit credit score development to outpace deposit development over time.”
Motilal Oswal mentioned it has assumed a minimal LCR threshold of 108% for banks. With the brand new pointers anticipated to raise the system-level LCR by about 6 share factors, the efficient LCR might rise to round 115%. Any liquidity above this stage might be deployed into loans, which supply increased yields than liquid property. For some mid-sized non-public banks, the brokerage assumed a barely increased LCR threshold to account for larger enterprise volatility.
