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Digital deposits drive up stressed outflows at Indian banks

Created at 7 Aug · 3:40 AM1 source↑ Market-relevant
IN SHORT

Indian banks, including HDFC and ICICI, experienced a significant surge in stressed retail deposit outflows in the second quarter. This increase is attributed to a regulatory change that raised run-off rate assumptions for digital deposits, impacting their liquidity coverage ratios.

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Key Numbers

31.3%increase in retail deposit outflows at HDFC and ICICI
two trillion rupeesHDFC Bank's retail deposit outflows
$20.7 billionHDFC Bank's retail deposit outflows in USD
1.2 trillion rupeesICICI Bank's retail deposit outflows

Who's Involved

HDFC Bank
experienced a 31.3% jump in retail deposit outflows
ICICI Bank
experienced a 31.3% jump in retail deposit outflows

↳ Why This Matters

The regulatory shift in run-off rate assumptions for digital deposits has increased the liquidity risk for Indian banks, forcing them to hold more assets against potential outflows and potentially impacting their lending capacity.

Key facts

  • Indian banks' liquidity coverage ratios were impacted by increased stressed outflows.
  • A regulatory change altered run-off rate assumptions for digital deposits.
  • HDFC Bank and ICICI Bank saw significant jumps in retail deposit outflows.

Indian banks faced a significant increase in stressed retail deposit outflows during the second quarter, a development driven by a recent regulatory adjustment to the run-off rate assumptions for digital deposits. This change has offset some of the relief anticipated from the overhaul of the liquidity coverage ratio (LCR) framework, particularly impacting wholesale funding.

HDFC Bank and ICICI Bank were notably affected, each reporting a 31.3% surge in retail deposit outflows. For HDFC Bank, this translated to outflows of two trillion rupees ($20.7 billion), while ICICI Bank saw outflows of 1.2 trillion rupees. The increased run-off rates mean banks must hold more liquid assets to cover potential withdrawals, thereby impacting their LCR calculations.

Frequently asked questions

The LCR is a regulatory liquidity ratio that ensures banks hold sufficient high-quality liquid assets (HQLA) to cover their total net cash outflows over a 30-day stress period.

The article implies a regulatory decision to increase the assumed rate at which digital deposits might be withdrawn during a stress event, likely to enhance banking system resilience.

HDFC Bank and ICICI Bank reported significant increases in stressed retail deposit outflows due to the regulatory change.

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How It Developed

Indian banks saw stressed retail outflows surge in Q2.
A regulatory change increased run-off rate assumptions for digital deposits.
HDFC Bank and ICICI Bank reported substantial increases in retail deposit outflows.

Sources

T1
Digital deposits blunt India’s LCR overhaulRisk.net

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