Banks Urge RBI to Unlock Funds for Growth

Indian banks have requested the central bank to ease several liquidity regulations, seeking to unlock additional funds to support economic growth. This comes as demand for loans is expanding at a faster rate than deposits. The banks are in discussions with the Reserve Bank of India (RBI) regarding freeing up cash reserves typically held for short-term stress requirements.

These talks highlight the difficulties Indian lenders face in keeping pace with credit demand in the rapidly growing economy. Households are increasingly using savings for stock investments, reducing banks' traditional funding sources. Adjustments to liquidity rules, such as allowing more cash-reserve ratio balances to count towards liquidity coverage ratios, could free up substantial funds and potentially lower borrowing costs.

Further proposals include an earlier implementation of revised liquidity rules scheduled for April 1, which would permit banks to hold fewer government bonds, thereby releasing more capital for lending. Additionally, lenders have asked the RBI to reduce the minimum maturity period for infrastructure bonds from seven years, which would enable them to raise more funds through these instruments.