RBI Governor Sanjay Malhotra relieves banks’ anxiety as new norms delayed at least till FY26

Governor Sanjay Malhotra relieved banks’ anxiety on implementing stricter liquidity coverage ratio (LCR), provisioning norms for project finance and expected credit loss (ECL) by assuring that these new norms would be implemented not before March 2026 and in a phased manner.In draft guidelines released in April RBI had asked regulated entities to set aside 5% of their infrastructure loan amounts to cover against potential losses when a project is in the construction phase, reducing it to 2.5% in the operational phase and to 1% after it generates adequate cash flow, up from a flat 0.4% currently.

This together with ECL based provisions and a modified LCR framework to account for quick withdrawal of deposits, bankers said would have proved to be triple whammy, crippling growth.

In his first press conference governor Malhotra said that no changes will be implemented not before FY26 and only after due consultation, in a phased manner.

“It will be a balancing act….we will be very conscious about the costs. Specifically, about LCR, we will give sufficient time. I do not think March 31 2025 is giving sufficient time. Certainly, they will not be implemented before March 31 2026. That’s the kind of timeline that is needed at the minimum,” Malhotra who was revenue secretary in the finance ministry before he was appointed governor said.

Malhotra said the RBI has received certain comments from stakeholders that there may be lower liquidity requirement for some other deposits, which are also being examined. “You can be rest assured that they will certainly not be implemented as quickly as March 31, 2025 because that will certainly not be sufficient time. We do not want to cause any disruption. We will ensure a smooth transition,” Malhotra said adding that a less that two-month time for implementation would be too short.Malhotra said there is a certain amount of overlap between ECL and project finance which are being examined. “We will come out with something which balances the interest of public, depositors and financial stability which is very important for our country and at the same time the concerns of the banks keeping in mind the efficient use of resources,” he said.Shivaji Thapliyal, head of research, Yes Securities said Malhotra’s comments signal a pro-growth and non-disruptive view towards banking. “Higher steady state SMA levels of specific banks, particularly PSU banks, could have led to higher steady state (ECL) provisions for such banks, even after the one-time adjustment would have been spread over five years,” Thapliyal said.