RBI issues final norms on net stable funding ratio
The NSFR limits overreliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability, RBI says
Mumbai: The Reserve Bank of India (RBI) on Thursday issued final guidelines on so-called net stable funding ratio (NSFR), to ensure banks have sufficient stable sources of funding to finance their activities over the long term.
The concept of NSFR emerged in the aftermath of the global financial crisis, proposed by the Basel Committee on Banking Supervision to make banking sector more resilient. “The NSFR limits overreliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability,” the Reserve Bank of India said, adding the ratio is defined as the amount of available stable funding (ASF) in relation to the amount of required stable funding (RSF).
ASF is defined as the portion of capital and liabilities expected to be reliable over a year, the RBI said.
The Reserve Bank of India has mandated an NSFR of at least 100%. But after an RBI assessment, individual banks may have to adopt stricter standards to reflect funding risk and compliance.
The date of NSFR implementation will be communicated later. Banks will have to submit NSFR data for every quarter within 15 days. According to the Reserve Bank of India, these guidelines are based on NSFR rules published by the Basel Committee in October 2014 and take Indian conditions into account.
Apart from NSFR, the Basel Committee also prescribed a liquidity coverage ratio (LCR), to ensure can banks respond promptly to potential liquidity disruptions over the short term. Here, banks must have high quality liquid assets to survive an acute stress scenario lasting for 30 days. In India, LCR would be fully implemented from 1 January, 2019.