Banking stocks in focus as new LCR norms to be effective from next fiscal year

After a slight hiccup in early trade today, Nifty Bank has marked a new high of 55,929.8- zooming over 1 per cent in trade today. The banking stocks have gained action in Tuesday's trade amid the new LCR or liquidity coverage ratio guidelines, which augurs well for the banking space.

As we write, Nifty Bank is on the run led by banking majors including HDFC Bank, Kotak Mahindra Bank, SBI, Bank of Baroda and Canara Bank among others.

Strong buying in banking stocks

Primarily, the buying action in the pack is led amid the evolving macros in the domestic front as the headline inflation has cooled off significantly -and this has a positive bearing on interest-rate sensitive sectors including banks, NBFCs, and housing financiers.

New LCR norms to come into effect from April 1, 2026

New liquidity norms, which will come into effect from April 1, 2026 (deferred from April 1, 2025), are seen to boost the sector's liquidity. RBI had issued a draft of changes in the rules related to LCR on 25 July 2024 and sought suggestions from banks and other stakeholders.

Features of new LCR norms

Banks will now have to apply an additional 2.5 per cent run-off rate on retail and small business accounts linked to internet and mobile banking.
The valuation of Government Securities will now have to be cut as per the margin requirements prescribed under LAF (Liquidity Adjustment Facility) and MSF (Marginal Standing Facility).
The run-off rate on funding received from non-financial entities such as educational, religious and charitable trusts, partnership firms and LLPs has now been reduced from 100% to 40%.

RBI has analyzed the impact of these changes based on bank data till 31 December 2024, which estimates that these measures will improve the overall LCR level of banks by about 6 percentage points.

All banks will continue to meet their required LCR norms with ease, and these changes will strengthen the liquidity position of banks and align with international standards, noted Zee Business reporter.

Impact on banks and investors

The move is chiefly viewed as positive for large public sector and private banks with higher trust deposits or wholesale funding owing to the lower run-off rates on these deposits. Run-off rate is a metric that is used to determine how much of a bank’s deposits may be withdrawn in a short-term stress scenario.

For investors also, it is a win-win situation with the liquidity measure being boosted through the move.

Atul Parakh, CEO of Bigul held that LCR changes, such as the RBI’s 2026 guidelines, enhance banks’ liquidity resilience but pose challenges like reduced profitability, slower credit growth, and higher funding costs. For investors, these changes offer stability but may pressure dividends and stock valuations, particularly for banks with high digital deposit exposure. Banks that adapt through stable funding strategies and robust risk management will likely fare better, while investors should focus on those with strong LCR compliance and diversified deposits. The long-term impact hinges on how banks balance liquidity with growth in a high-interest-rate environment.