The Reserve Bank of India (RBI) has released draft guidelines for implementation of net stable funding ratio (NSFR) under Basel III Framework in the Liquidity Standards for banks.
The objective of NSFR is to the ensure that banks maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. A sustainable funding structure is intended to reduce the probability of erosion of a bank’s liquidity position due to disruptions in its regular sources of funding that would increase the risk of its failure and potentially lead to broader systemic stress.
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 RBI has proposed to make NSFR applicable to banks in India from January 1, 2018.
