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AIFIs – EXIM Bank and NaBFID Now Considered NDBs for NSFR Calculation

Against the backdrop of the global financial crisis that began in 2007, the Basel Committee on Banking Supervision (BCBS) had put forth a series of reforms aimed at enhancing global capital and liquidity regulations.

In this regard, the Basel III rules text on liquidity “Basel III: International framework for liquidity risk measurement, standards and monitoring” was issued in December 2010 which presented the details of global regulatory standards on liquidity.

The Basel Committee had prescribed two minimum standards, namely the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), to address funding liquidity.

The LCR guidelines aim to enhance the short-term resilience of a bank’s liquidity profile whereas the NSFR guidelines aim to decrease funding risk over an extended period by mandating that banks finance their operations with stable sources of funding. This requirement helps to mitigate the potential risk of future funding difficulties.

In light of the above, RBI has recently issued a circular bearing reference number RBI/2023-24/103 DOR.LRG.REC.62/03.10.001/2023-24 dated 29 December 2023 wherein it stated that the other All India Financial Institutions (AIFIs), namely EXIM Bank and National Bank for Financing Infrastructure and Development (NaBFID), shall also be regarded as NDBs for NSFR calculation. NABARD, NHB, and SIDBI were already recognized as National Development Banks (NDBs) within the current NSFR framework.

Additionally, RBI also instructed that loans without any restrictions to National Development Banks (NDBs) that have a remaining duration of one year or longer and meet the criteria for a risk weight of 35% or less under the Standardized Approach for credit risk1 will now be assigned a Required Stable Funding (RSF) factor of 65% instead of the current 100%.

This circular is applicable to all Scheduled Commercial Banks, excluding Payments Banks and Regional Rural Banks.

These instructions shall take effect immediately.