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In the backdrop of the gradual structural shift in deposits, banks want the Reserve Bank of India to relax the so-called “run-off factor” on institutional deposits under the Liquidity Coverage Ratio (LCR) framework so that they have more resources to lend.

The structural shift in bank deposits refers to a phenomenon whereby savers, in pursuit of higher returns are gravitating towards investments such as mutual funds, which in turn place deposits with banks.

LCR requires banks to maintain high quality liquid assets (HQLAs) to meet 30 days net outgo under stressed conditions. This ratio is currently at 100 per cent. As of March 2026, scheduled commercial banks’ liquidity buffers were robust, with an LCR of 123.70 per cent.

The run-off factor/ rate, representing the estimated percentage of deposits a bank expects to be withdrawn or transferred during a period of stress, for funds mobilised from banks/insurance companies & financial institutions and entities in the ‘business of financial services’ is pegged at 100 per cent, leaving banks with barely any surplus to lend.

In contrast, the run-off factor for retail deposits (without internet banking and mobile banking), the run-off factor is 5 per cent. What this means is that for every ₹100 raised by banks as retail deposits, they have to park only ₹5 in HQLAs such as Government Securities.

After taking into account, statutory pre-emptions such as the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR), currently at 3 per cent and 18 per cent, respectively of banks’ deposits, they still have ₹74 available to lend.

The chief of a private sector bank said, “The wholesaleisation of deposits is quietly reshaping the industry’s balance sheets. As money migrates from retail savers to institutions, banks are forced to hold far more high-quality liquid assets — 100 per cent LCR for institutional deposits versus barely 5 per cent for retail.’

Structural drag

“It’s a structural drag that locks up liquidity and leaves far less room for actual lending.” He emphasised this needs to be suitably re-calibrated lower.

He underscored that if the RBI and the government want banks to finance growth, they must first unshackle their balance sheets.

The treasury head of a private sector bank noted that a calibrated reduction in CRR, SLR and LCR would immediately release meaningful lendable resources.

“The industry isn’t asking for concessions; it’s asking for the freedom to put more money to work in the real economy,” he said.

Published on June 9, 2026