The Reserve Bank of India said Monday it will unlock up to 3 trillion rupees—that’s $35.24 billion—from the banking system by loosening rules on liquidity coverage. This change will let banks lend more money and possibly push credit growth up by as much as 2 percentage points, while also giving Indian banks more breathing room at a time when loan growth has slowed for eight straight months, according to a report from Reuters. The central bank cut the percentage of high-quality liquid assets banks must keep tied to digitally connected deposits. These assets include things like cash, central bank balances, and federal bonds. The RBI expects this to bump the average liquidity coverage ratio (LCR) across banks by 6 percentage points by the end of December. This means banks can now do more with their money instead of letting it sit around just to meet regulatory limits. RBI reduces liquidity buffer and delays rollout Anil Gupta, who runs financial sector ratings at ICRA, said the system’s total HQLA sits between 45 trillion and 50 trillion rupees. After the changes, banks will have an extra 2.7 to 3 trillion rupees ready to lend out. Anil said this unlocks the ability to grow credit by 1.4 to 1.5 percentage points, which might sound small until you zoom out and look at how tight things have been lately. Macquarie also ran its own numbers. It pegged the added liquidity between 2.5 and 3 trillion rupees, pointing to the same credit boost range. Meanwhile, Morgan Stanley put their projection between 1 and 2 percentage points of extra loan growth, and they think some of that impact will hit this year’s earnings reports. Morgan Stanley said most banks are already holding LCR ratios of 115% to 130%, even though the minimum requirement is just 100%, so the wiggle room is already built in. The new liquidity rule was originally supposed to kick in earlier, but the RBI delayed the start to April 1, 2026. That’s a full year later than they first said. The RBI explained that every bank in the country will still meet the minimum rules even with the delay, so there’s no concern about anyone falling short. India’s loan growth slows as liquidity changes arrive The decision comes while the entire banking sector has been dealing with a loan slowdown. Credit growth at Indian banks has cooled off every month since July last year, with February marking eight straight months of decline. The drop is serious enough that even HSBC slashed its estimate for credit growth last financial year from 12.5% to 11.5%. The RBI’s adjustment now tries to shove things back in the other direction. There’s also a bigger picture in play. On Monday, India’s Prime Minister Narendra Modi met with U.S. Vice President JD Vance in New Delhi. While Vance was in the country mostly for personal reasons with his wife Usha Vance and their family, he still sat down with Modi to talk trade and strategy. A statement from Modi’s office said both leaders welcomed what they called “significant progress” on a possible India-U.S. Bilateral Trade Agreement. They also looked at broader cooperation on things like energy, defense, and advanced tech. Both said they supported more dialogue and diplomacy to keep things moving forward in their relationship. Later that day, Jamieson Greer, who handles trade for the U.S. Trade Representative, said that India and America’s Commerce Ministry had agreed on a formal structure to guide talks on future trade deals. Greer said, “there is a serious lack of reciprocity in the trade relationship with India,” but still added that “India’s constructive engagement so far has been welcomed and I look forward to creating new opportunities for workers, farmers, and entrepreneurs in both countries.” Cryptopolitan Academy: Coming Soon - A New Way to Earn Passive Income with DeFi in 2025. Learn More
