RBI to prescribe net stable funding ratio for banks

In a bid to ensure banks maintain adequate liquid resources, Reserve Bank of India (RBI) plans to prescribe a net stable funding ratio (NSFR) under the Basel-III framework.

NSFR is the amount of available stable funding relative to the amount of required stable funding.

NSFR limits over reliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability. RBI proposes to make NSFR applicable to banks from January 1, 2018.

The available stable funding is a portion of capital and liabilities, expected to be reliable over the time horizon considered by the NSFR, which extends to one year. The amount of stable funding required is a function of the liquidity characteristics and residual maturities of the various assets held by banks.

The NSFR requirements are over and above the Liquidity Coverage Ratio (LCR) norms announced earlier. The NSFR would be applicable for Indian banks at the solo as well as consolidated level. For foreign banks operating as branches in India, the framework would be applicable on a stand-alone basis.

In the backdrop of the global financial crisis that started in 2007, the Basel Committee on Banking Supervision (BCBS) proposed certain reforms to strengthen global capital and liquidity regulations, with the objective of promoting a more resilient banking sector.

BCBS issued the final rules on NSFR in October 2014. RBI has started phasing in implementation of the LCR from January 2015.

Banks would be required to meet the NSFR limit on an ongoing basis. By December 2017 quarter, they should have the required systems in place for such calculation and monitoring.