Introduction: The Reserve Bank of India (RBI) has issued circular RBI/2023-24/103 on December 29, 2023, regarding the Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR). The circular announces a crucial review concerning National Development Banks (NDBs), specifically including EXIM Bank and National Bank for Financing Infrastructure and Development (NaBFID) in the NSFR computation.
Detailed Analysis:
1. Review Outcome: The circular revisits the classification of National Development Banks (NDBs) under the NSFR framework. While NABARD, NHB, and SIDBI were already recognized as NDBs, the RBI now includes EXIM Bank and NaBFID in this category.
2. Stable Funding Factor Adjustment: Unencumbered loans to NDBs with a residual maturity of one year or more, qualifying for a 35% or lower risk weight under the Standardised Approach for credit risk, will now have a Required Stable Funding (RSF) factor of 65%, a change from the previous 100%.
3. Amendments to Instructions: The circular amends select instructions detailed in Annex, primarily modifying references to NDBs, reflecting the expanded scope.
4. Applicability and Immediate Effect: The circular is applicable to all Scheduled Commercial Banks (excluding Payments Banks and Regional Rural Banks) and is effective immediately.
Conclusion: The RBI’s decision to include EXIM Bank and NaBFID as National Development Banks under the NSFR framework signifies a strategic alignment in the regulatory landscape. The adjustment in the Required Stable Funding (RSF) factor for certain loans to NDBs aims to optimize liquidity standards. Scheduled Commercial Banks are urged to implement these changes promptly, keeping in mind the immediate applicability. This move reflects RBI’s commitment to refining regulatory frameworks to address evolving financial dynamics.
RESERVE BANK OF INDIA
RBI/2023-24/103
DOR. LRG . REC.62/03. 10.001/2023-24
December 29, 2023
Madam / Dear Sir,
Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR) – Review of National Development Banks
Please refer to circular DBR.BP.BC.No.106/21.04.098/2017-18 dated May 17, 2018 on Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR) – Final Guidelines.
2. NABARD, NHB and SIDBI are considered as National Development Banks (NDBs) under the extant NSFR framework. On a review, it has been decided that the other All India Financial Institutions (AIFIs) i.e. EXIM Bank and National Bank for Financing Infrastructure and Development (NaBFID) shall also be considered as NDBs for NSFR computation.
3. Further, unencumbered loans to NDBs with a residual maturity of one year or more that would qualify for a 35 per cent or lower risk weight under the Standardised Approach for credit risk1 shall be assigned a Required Stable Funding (RSF) factor of 65 per cent (as against 100 per cent currently).
4. Accordingly, the select instructions have been amended as detailed in Annex.
Applicability
5. This circular is applicable to all Scheduled Commercial Banks (excluding Payments Banks and Regional Rural Banks).
6. These instructions shall come into force with immediate effect.
Yours faithfully
(R. Lakshmi Kanth Rao)
Chief General Manager-in-Charge
Annex
Circular DBR.BP.BC.No.106/21.04.098/2017-18 dated May 17, 2018 on Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR) – Final Guidelines
| Sr. No. | Reference Paragraph | Existing text | Amended text (in track-change mode) |
| 1 | 7.5 (c) | funding with residual maturity of less than one year from sovereigns, public sector entities (PSEs), and multilateral and national development banks (NABARD, NHB & SIDBI); and | funding with residual maturity of less than one year from sovereigns, public sector entities (PSEs), and multilateral and national development banks (EXIM Bank, NABARD, NaBFID, NHB and SIDBI); and |
| 2 | 9.6 (e) | all other non-HQLA not included in the above categories that have a residual maturity of less than one year, including loans to non- financial corporate clients, loans to retail customers (i.e. natural persons) and small business customers, and loans to sovereigns, PSEs and national development banks (NABARD, NHB & SIDBI). |
all other non-HQLA not included in the above categories that have a residual maturity of less than one year, including loans to non-financial corporate clients, loans to retail customers (i.e. natural persons) and small business customers, and loans to sovereigns, PSEs and national development banks (EXIM Bank, NABARD, NaBFID, NHB and SIDBI). |
| 3 | 9.7 (b) | other unencumbered loans not included in the above categories (including loans to sovereigns and PSEs with a residual maturity of one year or more), excluding loans to financial institutions, with a residual maturity of one year or more that would qualify for a 35% or lower risk weight under the Basel II Standardised Approach for credit risk. | other unencumbered loans not included in the above categories (including loans to sovereigns, and PSEs and national development banks {EXIM Bank, NABARD, NaBFID, NHB and SIDBI} with a residual maturity of one year or more), excluding loans to financial institutions, with a residual maturity of one year or more that would qualify for a 35% or lower risk weight under the Basel II Standardised Approach for credit risk., as per the Master Circular on Basel III Capital Regulations dated May 12, 2023 as amended from time to time. |
Note:
1 Standardised Approach for Credit Risk as per the Master Circular on Basel III Capital Regulations dated May 12, 2023 as amended from time to time
