Social ,23 Apr 2025

RBI Mandates 2.5% Additional Run-Off Factor on Digital Deposits

In a move aimed at bolstering the liquidity management frameworks of banks and strengthening the digital banking ecosystem, the Reserve Bank of India (RBI) has introduced a 2.5% additional run-off factor on digital deposits. This regulation is set to reshape how banks manage their liquidity coverage ratios (LCR) in an increasingly digitized financial environment.

The announcement comes amid surging digital transactions, growing reliance on online banking, and rising cybersecurity and outage-related risks. This regulatory measure is part of the RBI’s broader objective to ensure that banks maintain sufficient high-quality liquid assets (HQLAs) to withstand unexpected outflows — especially from digital channels.

 

What Is a Run-Off Factor?

In banking parlance, a run-off factor is a percentage that represents the potential outflow of a particular type of deposit during a stress scenario. When calculating Liquidity Coverage Ratios (LCR), regulators use run-off factors to assess how much cash banks might lose from deposits during times of stress.

A higher run-off factor indicates a higher likelihood of that deposit being withdrawn quickly — hence, requiring a larger buffer of liquid assets to meet such outflows.

 

Why the 2.5% Additional Run-Off for Digital Deposits?

The RBI has identified that digitally-sourced deposits (such as those received via internet banking, mobile apps, and digital-only banks or wallets) tend to be:

1. More volatile due to their ease of withdrawal,
2. Sensitive to market rumors or outages, and
3. Largely untested under systemic stress conditions.

This has led the RBI to classify these digital deposits as higher-risk, thereby mandating an additional 2.5% run-off factor over and above the existing regulatory outflow rates under LCR guidelines.

This buffer ensures banks are more resilient to sudden digital outflows, like mass withdrawals triggered by:

1. Cybersecurity breaches,
2. Banking app failures or downtime,
3. Market instability or loss of consumer trust in tech-led platforms.

 

Who Will Be Affected?

Banks and Digital-First NBFCs:

1. Will need to revise their LCR calculations, increasing holdings in HQLAs.
2. Potential capital reallocation towards safer and more liquid instruments.
3. Digital-only or tech-heavy banks could face higher liquidity cost pressures.

Payment Banks and Small Finance Banks:

1. May see a bigger operational impact, as they rely heavily on digital deposits.
2. Need to upgrade risk management frameworks and liquidity stress-testing tools.

Customers:

1. Unlikely to feel an immediate direct impact.
2. However, some banks may eventually adjust interest rates or tighten digital deposit terms to absorb higher liquidity costs.

 

RBI’s Rationale: Learning from Global Trends

Global financial regulators, especially in Europe, the US, and Singapore, have begun scrutinizing digital deposits more closely. Several incidents — such as the collapse of Silicon Valley Bank (SVB) — have highlighted the risk posed by fast-moving digital withdrawals, which can lead to liquidity runs within hours, not days.

By taking a proactive stance, RBI aims to:

1. Preemptively secure India’s BFSI sector against digital panic withdrawals.
2. Push banks to balance innovation with liquidity safety nets.
3. Encourage the building of more robust digital risk and liquidity infrastructure.

 

Implications and What Lies Ahead

1. The new 2.5% run-off factor will likely push banks to reassess digital growth strategies, particularly their reliance on online channels for deposit mobilization.
2. Expect more conservative digital savings schemes, along with greater focus on customer stickiness.
3. Fintechs may need to partner with banks to jointly manage compliance and digital trust.

Further clarity is expected in upcoming RBI circulars, where the central bank will detail the classification of digital deposits, monitoring mechanisms, and transitional guidelines for banks to comply.

 

Conclusion

The RBI’s mandate of a 2.5% additional run-off factor on digital deposits is a timely, forward-looking measure. It underlines the central bank’s commitment to safeguarding the financial system against fast-paced digital risks, without stifling innovation. As digital banking grows, so must the regulatory architecture — and this move is a clear step toward creating a secure, scalable, and shock-resistant digital financial ecosystem.