Major Indian banks, including HDFC and Union Bank, have strategically reduced their Liquidity Coverage Ratio (LCR) in the December 2025 quarter.
Most banks have reduced their liquidity coverage ratio (LCR) in the December quarter to efficiently manage the liquidity to support increased lending demand amid sluggish deposit growth, showed quarterly results announced by lenders so far. LCR is a key parameter which measures a bank’s capacity to handle sudden funding demands.
For instance, HDFC Bank has cut down LCR to 116% in the December quarter from 120%, Federal Bank has decreased it to 124% from 129%, while Union Bank of India has decreased its ratio to 123.6% from 127.3% a quarter ago.
The LCR norms require banks to hold high quality liquid assets (HQLA) such as government securities or cash to manage sudden cash outflows during a financial stress. It is computed as HQLA divided by total net cash outflows projected over 30 days. The regulation mandates banks to maintain minimum of 100% as LCR. Though ratios eased, all the lenders have their liquidity position well above regulatory requirement.
Yield Chase
“Banks have been deploying their excess SLR to meet lending demand. This also highlights a key point that deposit growth is sluggish compared to loan growth. On a yearly basis, LCR has has declined as banks carefully manage their buffers to support ongoing credit growth,” Saurabh Bhalerao, associate director, CareEdge.
Bank credit grew 14.54% while deposit growth is at 12.68% as on December 31, the latest RBI data showed.
“Deposits growth is lagging, so banks are liquidating investments to fuel credit growth for better yields than their investment portfolios. This also supports margins. However, most banks aim to maintain LCR of more than 110%, especially with new norms kicking in from April, set to boost LCR by 5-6%,” Sachin Sachdeva, vice president – Financial Sector Ratings, ICRA.
April 2026 Transition
A CareEdge report dated January 21 said that LCR is expected to stay above regulatory limits as banks actively manage liquidity, even while using part of their buffers to support lending going forward. It further noted the RBI’s revised LCR norms ease run-off rates for IMB-linked (internet and mobile banking) retail deposits and lower the run-off factor on certain wholesale funding, benefiting banks with a higher share of eligible wholesale deposits. “By expanding the deposit base considered for LCR, banks already holding buffers above the minimum will not need to maintain additional HQLA.”
The revised LCR norms mandate banks to maintain an additional run-off factor of 2.5% instead of the proposed 5% in the draft, for retail and small business deposits linked to internet and mobile banking (IMB), effective from April.
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