On Thursday evening, the central bank suggested that banks decrease the reliability of retail deposits with Internet and mobile banking access by an extra 5%.

According to traders, the Reserve Bank of India’s newest preliminary guidelines, designed to strengthen banks’ ability to handle financial challenges due to the growing use of digital infrastructure, are likely to increase interest in government bonds in the medium run.

Anil Gupta, senior vice president and co-group head of financial sector ratings at ICRA, noted that the proposed changes are likely to result in increased outflows for banks in the next 30-day bucket, given the widespread use of Internet and mobile banking. This will necessitate higher levels of high-quality liquid assets (HQLA).

The liquidity coverage ratio (LCR) represents a specific portion of HQLA that banks are mandated to uphold. It encompasses cash, reserves held with central banks, and federal government bonds, which can be readily converted into cash.

Gupta further stated that the new regulations will require banks to hold more liquid assets to strengthen their LCRs. In anticipation of implementing these guidelines, banks are expected to augment their holdings of government bonds.

The regulations also propose that government bonds should be valued at an amount not exceeding their current market value and adjusted for applicable haircuts by the margin requirements under the liquidity adjustment facility and marginal standing facility.

However, traders have suggested that the circular’s impact on government bond yields may take time, as it will come into effect later.

While state-run banks already hold more assets than what is mandated by regulatory norms, some private banks might need to bolster their holdings, leading to increased demand for bonds in the future.

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