RBI Consults on Liquidity Risk Management Framework for NBFCs
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
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Previous Article
ESMA Consults to Amend Indices and Recognized Exchanges Under CRRRelated Articles
HKMA Sets Out Regulatory Treatment for Personal Loan Guarantee Scheme
HKMA has published a circular that sets out the regulatory and reporting treatment for loans that participating authorized institutions may grant to eligible borrowers under the 100% Personal Loan Guarantee Scheme.
ECB Completes Targeted Review of Internal Models of Banks
ECB published the results of the assessment of internal models that banks use to calculate risk-weighted assets for credit, market, and counterparty credit risks.
PRA on Regulatory Treatment of Loans Under Mortgage Guarantee Scheme
PRA published a statement on the regulatory treatment of retail residential mortgage loans under the Mortgage Guarantee Scheme, or MGS.
FCA Consults on Rules and Reporting Forms for Investment Firms Regime
FCA is consulting, via CP21/7, on the second phase of proposed rules to introduce the UK Investment Firm Prudential Regime (IFPR).
HMT and BoE Decide to Explore Central Bank Digital Currency in UK
HM Treasury and BoE announced the joint creation of a Central Bank Digital Currency (CBDC) Taskforce to coordinate the exploration of a potential central bank digital currency in UK.
EIOPA Sets Out Expectations on Use of Climate Risk Scenarios in ORSA
EIOPA published an opinion to set out its expectations on the supervision of the integration of climate change risk scenarios by insurers in their Own Risk and Solvency Assessment (ORSA).
EC Sets Out Standards for MREL Reporting by Competent Authorities
EC published the Implementing Regulation 2021/622 that lays down implementing technical standards for reporting of the minimum requirement for own funds and eligible liabilities (MREL).
BCBS to Advance Work on Suptech, Climate Risk, and Basel Monitoring
BCBS has set out the strategic work priorities, as part of its the work program for 2021-22.
Bundesbank Updates AnaCredit Reporting Requirements
Bundesbank published two circulars on AnaCredit reporting requirements. Circular 27/2021 covers changes to the reporting of branches, additional attributes to be reported for investment funds from August 01, 2021, and updates to the list of international organizations.
PRA Finalizes Supervisory Approach for Non-Systemic Banks in UK
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
