RBI issued, for consultation, a draft circular on the liquidity risk management framework for non-banking financial companies (NBFCs) and core investment companies (CICs). The circular is to be adopted by all deposit-taking NBFCs, non-deposit taking NBFCs with an asset size of INR 1 billion and above, and all CICs registered with RBI. The draft circular proposes to introduce liquidity coverage ratio (LCR) for all deposit-taking NBFCs and non-deposit-taking NBFCs with an asset size of INR 50 billion and above. RBI seeks public comments on the consultation by June 14, 2019.
The existing guidelines on liquidity risk management for NBFCs are being revised to strengthen and raise the standard of Asset Liability Management (ALM) framework applicable to NBFCs. While some of the regulatory prescriptions applicable to NBFCs on ALM framework have been updated, a few additional features, including disclosure standards, have also been introduced. While the detailed guidelines on the liquidity risk management framework are given in Annex A to the draft circular, the important changes are related to the following:
- Granular maturity buckets and tolerance limits
- Liquidity risk monitoring tools
- Adoption of “stock” approach to liquidity
- Extension of liquidity risk management principles
The draft circular proposes that all non-deposit-taking NBFCs with asset size of INR 50 billion and above and all deposit-taking NBFCs irrespective of their asset size shall maintain a liquidity buffer in terms of LCR. This will promote resilience of NBFCs to potential liquidity disruptions by ensuring that they have sufficient High Quality Liquid Assets (HQLAs) to survive any acute liquidity stress scenario lasting for 30 days. The HQLA stock to be maintained by NBFCs shall be minimum of 100% of total net cash outflows over the next 30 calendar days. The LCR requirement shall be binding on NBFCs from April 01, 2020, with the minimum HQLAs to be held being 60% of the LCR, progressively increasing in equal steps reaching up to the required level of 100% by April 01, 2024, as per the time-line given in the draft circular. Annex B to the draft circular contains detailed draft guidelines on LCR, including disclosure standards.
Comment Due Date: June 14, 2019
Keywords: Asia Pacific, India, Banking, Securities, LCR, HQLA, ALM, Liquidity Risk, NBFC, RBI
Previous ArticleESMA Consults to Amend Indices and Recognized Exchanges Under CRR
HKMA is consulting on revisions to the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.
PRA provided further information on the application of regulatory capital and IFRS 9 requirements to payment holidays granted or extended to address the challenges arising from COVID-19 outbreak.
HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.
BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.
ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.
ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.
EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).
SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.
US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital.
ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.