Mumbai: Banks have consciously built a highliquidity coverage ratio(LCR) buffer in anticipation of tighter centralbanknorms kicking in next fiscal, with analysts anticipating a shrinkage in the buffer once the exact thresholds are known.. Bankers expect that the higher buffer will decrease once the final circular is published by the Reserve Bank of India (RBI), most likely by December for implementation from next fiscal. Analysts expect a reduction in LCR by 7 to 10 percentage points from current levels.. As of now, banks are mandated by the RBI to maintain 100% LCR, which is made up of high-quality liquid assets (HQLA), mainly consisting of government securities and publicly traded common stocks. Most banks have an LCR of about 120%, with some private banks maintaining this buffer over 130%.. Banking normsafter the financial crisis require banks to maintain investments in assets that can be quickly converted into cash to fund sudden cash outflows in stressed conditions to maintain normal operations at least for 30 days. In July, the RBI proposed to increase LSR requirements by 5 percentage points to cover run-off factors in retail deposits that have internet and mobile banking.. However, most banks in India are over the minimum required limits. HDFC Bank, India’s largest private lender has an LCR of 128% as of the September quarter, up from 123% in the previous quarter, and 110% a year ago. Kotak Mahindra Bank’s LCR improved to 136% in September 2024 from 127% a year ago.. “This 128% is a temporary phenomenon, which will normalise to median levels at which we have operated. I think this is just a timing difference and the slightly elevated LCRs will adjust itself into the future,” said HDFC Bank CEO Sashidhar Jagdishan. The bank’s LCR target is to be between 110% to 120% and it has historically operated at about 115% of LCR, Jagdishan said.. Some institutions that have their LCR closer to the 100% mark will have to increase their holdings of government securities, but this will not result in a significant increase in demand for government bonds as most banks are well covered, economists said.. “At this point, most banks are sitting with a massive buffer on their LCR, so the new LCR guidelines would in effect reduce the banks’ coverage ratio by 7% to 10%. However, there are some institutions, especially some public sector banks who have LCR closer to 100%, will have to shore up their assets,” said Madhavi Arora, chief Economist, at Emkay Global Financial Services.. Bank of Maharashtra, which has a current LCR of 105% plans to increase it to 110% by investing in more short-term government debt, bank officials said. “Since our LCR stands at 105%, we plan to increase it to 110%. So, keeping that in mind, we will invest more in short-term G-secs,” said Nidhu Saxena, MD, Bank of Maharashtra, in a post-result conference call.. Nominations for ET MSME Awards are now open. The last day to apply is November 30, 2024. Click here to submit your entry for any one or more of the 22 categories and stand a chance to win a prestigious award.. (You can now subscribe to our Economic Times WhatsApp channel)