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Short Title and Commencement B. Applicability C. Definitions Chapter II – Role of the Board A. Responsibilities of the Board B. Approval of Policies, limits and reviews Chapter III – Liquidity Risk Management A. Introduction B. Governance of Liquidity Risk Management C. Liquidity Risk Management Policy D. Strategy for Managing Liquidity Risk E. Identification F. Risk Measurement – Flow Approach G. Risk Measurement – Stock Approach H. Risk Monitoring I. Liquidity Across Currencies J. Liquidity Risk Tolerance K. Management Information System (MIS) L. Internal Controls M. Monitoring of Liquidity N. Off-balance Sheet Exposures and Contingent Liabilities O. Collateral Position Management P. Incorporation of Liquidity Costs, Benefits, and Risks in the Internal Pricing Q. Funding Strategy - Diversified Funding R. Liquidity risk due to Intra Group transfers S. Stress Testing T. Contingency Funding Plan (CFP) U. Overseas Operations of the Indian Banks’ Branches and Subsidiaries Chapter IV – Intraday Liquidity Management A. Introduction B. Intraday liquidity sources and usage C. Intraday liquidity monitoring tools D. Intraday liquidity stress scenarios E. Monitoring tools applicable to all reporting banks (Category A) F. Monitoring tools applicable to a reporting bank that provides correspondent banking services G. Monitoring tool applicable only to reporting banks which are direct participants. H. Scope of Intraday Liquidity Risk Monitoring Chapter V – Liquidity Coverage Ratio (LCR) A. Objective B. Definition of LCR C. Scope D. Principles for calculating the LCR on a consolidated basis E. High Quality Liquid Assets E.1 Fundamental characteristics E.2 Market-related characteristics E.3 Operational Requirements F. Categories of HQLA F.1 Level 1 Assets F.2 Level 2 Assets G. Treatment of a Pool of Collateral towards Stock of HQLA H. Calculation of LCR I. Calculation of Total net cash outflows J. Cash Outflows K. Cash Inflows L. Liquidity Risk Monitoring Tools L.1 Contractual Maturity Mismatch L.2 Concentration of Funding L.3 Available Unencumbered Assets L.4 LCR by Significant Currency L.5 Market-related Monitoring Tools M. LCR Disclosure Standards Chapter VI – Net Stable Funding Ratio (NSFR) A. Objective B. Scope C. Definition of NSFR D. Calibrations of ASF and RSF - Criteria and Assumptions E. Definition and computation of Available Stable Funding E.1 Liabilities and Capital receiving a 100 per cent ASF Factor E.2 Liabilities receiving a 95 per cent ASF factor E.3 Liabilities receiving a 90 per cent ASF factor E.4 Liabilities receiving a 50 per cent ASF factor E.5 Liabilities receiving a zero per cent ASF factor F. Calculation of derivative liability amounts G. Computation of Required Stable Funding (RSF) G.1 Assets assigned a zero per cent RSF factor G.2 Assets assigned a 5 per cent RSF factor G.3 Assets assigned a 10 per cent RSF factor G.4 Assets assigned a 15 per cent RSF factor G.5 Assets assigned a 50 per cent RSF factor G.6 Assets assigned a 65 per cent RSF factor G.7 Assets assigned an 85 per cent RSF factor G.8 Assets assigned a 100 per cent RSF factor G.9 RSF factors for Off-balance sheet (OBS) items G.10 RSF Factors Assignment – General Principles H. Encumbered Assets I. Secured Financing Transactions J. Calculation of Derivative Asset Amounts K. NSFR Disclosure Standards Chapter VII – Interest Rate Risk (IRR) Management A. General Instructions B. Earnings Perspective – TGA C. Economic Value Perspective – DGA D. Monitoring of Interest Rate Risk E. Treatment of positions in various currencies F. Interest rate risk management Chapter VIII – Monitoring and Reporting A. Liquidity Risk A.1 Preparation and Review of Statements A.2 Regulatory Reporting and Periodicity of Returns B. Interest Rate Risk B.1 Preparation and Review of Statements B.2 Regulatory Reporting and Periodicity of Returns Chapter IX – Repeal and Other Provisions A. Repeal and Saving B. Application of other laws not barred C. Interpretations Annex-I: Liquidity Return Annex-II: Basel III Liquidity Returns Annex-III: Interest Rate Sensitivity Statement Annex- IV: Basel Principles for Liquidity Risk Management Annex- V: Guidance for Slotting Cash Flows Part A1 and B Annex- VI: Guidance for Slotting Cash Flows Part A2 Annex - VII: Guidance on Bucketing In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India (‘RBI’) in this regard, RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified. Chapter I – Preliminary A. Short Title and Commencement 1. These Directions shall be called the Reserve Bank of India (Commercial Banks – Asset Liability Management) Directions, 2025. 2. These Directions shall come into effect from the date of issue. B. Applicability 3. These Directions shall be applicable to Commercial Banks (hereinafter collectively referred to as 'banks' and individually as a 'bank'). For the purpose of these Directions, ‘Commercial Banks’ mean banking companies (other than Small Finance Banks, Payment Banks, and Local Area Banks), corresponding new banks, and the State Bank of India, as defined respectively under clauses (c), (da), and (nc) of Section 5 of the Banking Regulation Act, 1949. C. Definitions 4. In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below: (1) ‘Business Day’ means the opening hours of the Large Value Payment System (LVPS) or of correspondent banking services during which a bank can receive and make payments in a local jurisdiction. Explanation: An LVPS is a funds transfer system that typically handles large-value and high-priority payments. In India, Real Time Gross Settlement System (RTGS) is an LVPS. (2) ‘Cash in hand’ shall consist of total amount of notes and coins held by bank branches / ATMs / Cash deposit machines maintained by a bank, including transit cash on bank’s books as also cash with Business Correspondents (BCs), but shall exclude cash, where physical possession is with outsourced vendors / BCs, which is not replenished in bank’s ATM and / or is not reflected on bank’s books. (3) ‘Cash Reserve Ratio (CRR)’ shall have the same meaning as defined in the Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025 . (4) ‘Government security’ shall have the same meaning as assigned to it in Section 2(f) of the Government Securities Act, 2006. (5) ‘Interest Rate Risk (IRR)’ means the risk where changes in market interest rates might adversely affect a bank’s financial condition. (6) ‘Intraday Liquidity’ means funds which can be accessed during the business day, usually to enable a bank to make payments in real time. (7) ‘Intraday Liquidity Risk’ means the risk that a bank fails to manage its intraday liquidity effectively, which could leave it unable to meet a payment obligation at the time expected, thereby affecting its own liquidity position and that of other parties. (8) ‘Funding Liquidity Risk’ means the risk that a bank will not be able to meet efficiently the expected and unexpected current and future cash flows and collateral needs without affecting either its daily operations or its financial condition. (9) ‘Marginal Standing Facility (MSF)’ shall mean the facility as mentioned in RBI press release dated September 30, 2025 . (10) ‘Market Liquidity Risk’ means the risk that a bank cannot easily offset or eliminate a position at the prevailing market price because of inadequate market depth or market disruption. (11) ‘Modified Duration’ means the approximate percentage change in value of an asset or liability for a 100-basis point change in the rate of interest. (12) ‘Net Worth’ comprises of Paid-up capital plus Free Reserves including Share Premium but excluding Revaluation Reserves, plus Investment Fluctuation Reserve, and credit balance in Profit & Loss Account, less debit balance in Profit and Loss Account, Accumulated Losses, and Intangible Assets. No general or specific provisions should be included in computation of Net Worth. (13) ‘Statutory Liquidity Ratio (SLR)’ shall have the same meaning as defined in Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025 . (14) ‘Time-specific obligations’ means the obligations which must be settled at a specific time within the day or have an expected intraday settlement deadline. (15) ‘Unencumbered’ means free of legal, regulatory, contractual, or other restrictions on the ability of the bank to liquidate, sell, transfer or assign an asset. 5. All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act, the RBI Act, rules / regulations made thereunder, or any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be. Chapter II – Role of the Board A. Responsibilities of the Board 6. The Board of Directors (Board) shall be responsible for the overall management of liquidity risk and shall decide the strategy, policies, and procedures for managing liquidity risk in accordance with the bank’s liquidity risk tolerance / limits. 7. The Board shall have a clear understanding of the bank’s liquidity risk, including the liquidity risk profile of all its branches, subsidiaries, and associates (both domestic and overseas). 8. The Board shall ensure that risk tolerance is understood at all levels of management. 9. The Board shall establish executive level authority and responsibility for liquidity risk, management, enforce management’s duties to identify, measure, monitor, and manage liquidity risk and formulate / review the Contingent Funding Plan (CFP). B. Approval of Policies, limits and reviews 10. The Board or its Committee shall oversee the establishment and approval of policies, strategies, and procedures to manage liquidity risk, and review them at least annually. The Board shall also approve the policy regarding inclusion and monitoring of only those intraday liquidity sources which are freely and readily available to the bank at the start of the day. 11. The Board shall approve the internal limits for liquidity stock ratios, based on a bank’s liquidity risk management capabilities, experience, and risk profile. It shall also set an explicit liquidity risk tolerance, which shall define the level of liquidity risk the bank is willing to assume and shall reflect the bank’s financial condition and funding capacity. 12. The Board shall review information necessary to maintain its understanding of liquidity risk, the key assumptions used to set the liquidity risk tolerance, the effectiveness and operational feasibility of contingency plans, at least annually. 13. The Board or Risk Management Committee (RMC) shall inter-alia approve the internal prudential limits for cumulative mismatches across all time buckets of structural liquidity statement (SLS) for monitoring by the bank, as also approve appropriate internal limits on Earnings at Risk (EaR), and volatility in the Market Value of Equity (MVE), based on bank’s risk bearing and risk management capacity. 14. The Board / ALCO shall periodically review the internal limits after assessing various scenarios of interest rates and the resultant volatility of earnings in terms of Net Interest Income (NII) and volatility in Net Worth. 15. A reliable Management Information System (MIS) designed to provide timely and forward-looking information on the liquidity position of the bank and the banking Group, under normal and stress situations, shall be presented before the Board and the Asset Liability Management Committee (ALCO). 16. Any vulnerability observed in the stress test results shall be reported to the Board and the Board shall ensure that the bank designs a plan of action to address the vulnerability immediately. 17. The Board shall ensure that the bank: (1) develops and adopts a suitable intraday liquidity risk management strategy that enables the bank to: (i) monitor and measure expected daily gross liquidity inflows and outflows. (ii) ensure availability of sufficient intraday funding to meet its payment obligations. (iii) manage unexpected disruptions to its liquidity flows. (iv) effectively manage collateral as integral part of intraday liquidity strategy. (2) establishes suitable policies, procedures, practices, and systems to support the intraday liquidity risk management in all financial markets and currencies in which it has significant payment and settlement flows, including when it chooses to rely on correspondents or custodians to conduct payment and settlement activities. 18. The Board shall approve the risk tolerance of individual business lines, for the bank to align the risk-taking incentives and the liquidity risk exposure of each business line. Chapter III – Liquidity Risk Management A. Introduction 19. A bank’s liquidity is its capacity to fund increase in assets and meet both expected and unexpected cash and collateral obligations at reasonable cost and without incurring unacceptable losses. The inability of a bank to meet such obligations as they become due, without adversely affecting the bank’s financial condition, creates liquidity risk. Effective liquidity risk management helps ensure a bank’s ability to meet its obligations as they fall due and reduces the probability of an adverse situation developing. This assumes significance on account of the fact that liquidity crisis, even at a single institution, can have systemic implications. Liquidity risk for a bank mainly manifests on account of Funding Liquidity Risk and Market Liquidity Risk. 20. After the global financial crisis, in recognition of the need for a bank to improve its liquidity risk management, the Basel Committee on Banking Supervision (BCBS) published ’Principles for Sound Liquidity Risk Management and Supervision‘ in September 2008 and subsequently reviewed in January 2019 ( https://www.bis.org/press/p190117.htm ). The broad principles as envisaged by BCBS have been provided in Annex-IV along with guidance on sound liquidity risk management for a bank. B. Governance of Liquidity Risk Management 21. Successful implementation of liquidity risk management process shall emanate from the Top Management in a bank with the demonstration of its strong commitment to integrate basic operations and strategic decision making with risk management. The organisational set up for liquidity risk management shall be as under: (1) Board of Directors (Board) (2) Risk Management Committee (RMC) (3) Asset Liability Management Committee (ALCO) (4) Asset Liability Management (ALM) Support Group 22. The Board shall be responsible for overall management of liquidity risk. The Board shall decide the strategy, policies, and procedures of the bank to manage liquidity risk in accordance with the liquidity risk tolerance / limits as detailed in paragraphs 46 to 48 of the Directions. The Board shall ensure that the risk tolerance is clearly understood at all levels of management. The Board shall also ensure that it understands the nature of the liquidity risk of the bank including liquidity risk profile of all branches, subsidiaries, and associates (both domestic and overseas), periodically reviews information necessary to maintain this understanding, establishes executive-level lines of authority and responsibility for managing the bank’s liquidity risk, enforces management’s duties to identify, measure, monitor, and manage liquidity risk and formulates / reviews the CFP. 23. The RMC, which reports to the Board, consisting of Chief Executive Officer (CEO) / Chairman and Managing Director (CMD) and heads of credit, market, and operational risk management committee, shall be responsible for evaluating liquidity risk faced by a bank. The RMC shall also include the potential interaction of liquidity risk with the other risks addressed by it. 24. The ALCO shall be responsible for ensuring adherence to the risk tolerance / limits set by the Board as well as implementing the liquidity risk management strategy of the bank in line with a bank’s decided risk management objectives and risk tolerance. 25. The size (number of members) of ALCO will depend on the size of institution, business mix and organizational complexity. The ALCO shall be headed by the CEO / CMD or the Executive Director (ED) of a bank. The ALCO members may include the Heads of Investment, Credit and Strategy, Treasury, International Banking, Risk Management, and Economic Research and other members as deemed suitable. 26. The ALCO shall perform the following functions with respect to the liquidity risk of the bank: (1) Decide on desired maturity profile and mix of incremental assets and liabilities. (2) Decide on source and mix of liabilities or sale of assets. Towards this end, it shall develop a view on future direction of interest rate movements and decide on funding mix between fixed v/s. floating rate funds, wholesale v/s retail deposits, money market v/s. capital market funding, and domestic v/s. foreign currency funding. The ALCO shall be aware of the composition, characteristics, and diversification of a bank’s assets and funding sources and shall regularly review the funding strategy in the light of any changes in the internal or external environments. (3) Determine the structure, responsibilities and controls for managing liquidity risk, oversee the liquidity positions of all branches and legal entities like subsidiaries, joint ventures, and associates in which a bank is active, and outline these elements clearly in the bank’s liquidity policy. (4) Ensure operational independence of Liquidity Risk Management function, with adequate support of skilled and experienced officers. (5) Ensure adequacy of cash flow projections and the assumptions used. (6) Review the stress test scenarios including the assumptions as well as the results of the stress tests and ensure that a well-documented CFP is in place, which is reviewed periodically. (7) Decide the transfer pricing policy of the bank and make liquidity costs and benefits an integral part of bank’s strategic planning. (8) Report bank’s liquidity risk profile regularly to the Board / RMC. 27. The ALCO shall have a thorough understanding of the close links between Funding Liquidity Risk and Market Liquidity Risk, as well as how other risks including credit, market, operational, and reputational risks affect the bank’s overall liquidity risk strategy. The ALCO shall identify events that could have an impact on market and public perceptions about bank’s soundness and reputation. 28. The ALM Support Group consisting of operating staff shall be responsible for analysing, monitoring, and reporting the liquidity risk profile to the ALCO. The Group shall prepare forecasts and simulations to assess the impact of various possible changes in market conditions on a bank’s liquidity position and recommend action needed to be taken to maintain the liquidity position and ensure adherence to bank’s internal limits. C. Liquidity Risk Management Policy 29. A bank shall put in place an effective liquidity risk management policy, which inter alia, shall spell out the liquidity risk tolerance, funding strategies, prudential limits, system for measuring, assessing and reporting / reviewing liquidity, framework for stress testing, liquidity planning under alternative scenarios / formal contingent funding plan, nature and frequency of management reporting, and periodical review of assumptions used in liquidity projection. The policy shall also address liquidity risk for individual currencies; legal entities including subsidiary and joint ventures, and associates; and business lines, when appropriate and material, and shall place limits on transfer of liquidity keeping in view the regulatory, legal, and operational constraints. 30. The Board or its delegated committee of board members shall oversee the establishment and approval of policies, strategies and procedures to manage liquidity risk, and review them at least annually. 31. A bank shall have a sound process for identifying, measuring, monitoring, and mitigating, along with a strategy for liquidity risk management. D. Strategy for Managing Liquidity Risk 32. The strategy for managing liquidity risk shall be appropriate for the nature, scale, and complexity of a bank’s activities. In formulating the strategy, a bank / banking group shall take into consideration its legal structures, key business lines, the breadth and diversity of markets, products, jurisdictions in which it operates, and home and host country regulatory requirements. The strategy shall identify primary sources of funding to meet daily operating cash outflows, as well as expected and unexpected cash flow (inflow / outflow) fluctuations. E. Identification 33. A bank shall define and identify the liquidity risk to which it is exposed for each major on and off-balance sheet (OBS) position. The identification process shall include the effect of embedded options and other contingent exposures that may affect the bank’s sources and uses of funds. Liquidity risk shall be identified for all currencies in which a bank is active. F. Risk Measurement – Flow Approach 34. Liquidity can be measured through stock and flow approaches. Flow approach measurement involves comprehensive tracking of cash flow mismatches. A bank shall adopt the format of the structural liquidity statement (SLS), provided in Annex-I , for tracking cash flow mismatches at different time buckets, for measuring and managing net funding requirements. The cash flows shall be placed in different time buckets based on the residual maturity of the cash flows or the projected future behaviour of assets, liabilities, and OBS items. The difference between cash inflows and outflows in each time period shall be starting point for the measure of the bank’s future liquidity surplus or deficit, at a series of points of time. 35. A bank shall prepare domestic SLS (₹) on a daily basis and report to RBI on a fortnightly basis. Further, SLS in respect of overseas branch operations shall be reported to RBI on monthly basis. The SLS shall include five parts: (1) Domestic Currency – Indian Operations (2) Foreign Currency – Indian Operations (3) Combined Indian Operations – Domestic and Foreign Currency. i.e.’ solo bank level (4) Overseas Branch Operations – Country-Wise (5) For Consolidated Bank Operations The guidance for slotting the future cash flows of a bank in the time buckets has been provided in Annex-V . 36. A bank shall analyse the behavioural maturity profile of various components of on / off-balance sheet items on the basis of assumptions and trend analysis supported by time series analysis. The behavioural analysis, for example, may include the proportion of maturing assets and liabilities that the bank can rollover or renew, the behaviour of assets and liabilities with no clearly specified maturity dates, potential cash flows from OBS activities, including draw-down under loan commitments, contingent liabilities, and market related transactions. 37. A bank shall undertake variance analysis, at least once in six months to validate the assumptions used in the behavioral analysis. The assumptions shall be fine-tuned over a period which facilitate near reality predictions about future behaviour of on / off-balance sheet items. 38. A bank shall also track the impact of prepayments of loans, premature closure of deposits, and exercise of options built in certain instruments which offer put / call options after specified times. Cash outflows can be ranked by the date on which liabilities fall due, i.e., the earliest date a liability holder could exercise an early repayment option, or the earliest date contingencies could be crystallised. 39. The assumptions used in projections of cash flows and measuring liquidity risk, shall be reasonable, appropriate, and adequately documented. They shall also be periodically reviewed by the Board / RMC. G. Risk Measurement – Stock Approach 40. A bank may consider measures / ratios in this regard. Some illustrative stock ratios with their significance in liquidity risk management are given in the Table 1 below. A bank may also use other measures / ratios. 41. A bank may monitor liquidity risk by putting in place internally defined limits approved by the Board for such measures / ratios. Such limits should be based on its liquidity risk management capabilities, experience, and risk profile. Such measures / ratios may be used to monitor the liquidity risk in ₹ and in major currencies at the solo bank level. Table 1 Sl. No Ratio Significance 1. (Volatile liabilities - Temporary Assets) / (Earning Assets - Temporary Assets) Measures the extent to which volatile money supports bank's basic earning assets. Since the numerator represents short-term, interest sensitive funds, a high and positive number implies some risk of illiquidity. 2. Core deposits / Total Assets Measures the extent to which assets are funded through stable deposit base. 3. (Loans + mandatory SLR + mandatory CRR + Fixed Assets) / Total Assets Loans including mandatory cash reserves and statutory liquidity investments are least liquid and hence a high ratio signifies the degree of 'illiquidity' embedded in the balance sheet. 4. (Loans + mandatory SLR + mandatory CRR + Fixed Assets) / Core Deposits Measure the extent to which illiquid assets are financed out of core deposits. 5. Temporary Assets / Total Assets Measures the extent of available liquid assets. A higher ratio could impinge on the asset utilisation of banking system in terms of opportunity cost of holding liquidity. 6. Temporary Assets / Volatile Liabilities A higher ratio is reflective of adequate cover of liquid investments relative to volatile liabilities while lower ratio indicate scope for increasing the liquid investments and/or decreasing the volatile liabilities. 7. Volatile Liabilities / Total Assets Measures the extent to which volatile liabilities fund the balance sheet. Explanation: A bank may refer to the following guidance for computation of above ratios: (1) Volatile Liabilities: (i) (Deposits + borrowings and bills payable up to 1 year). Borrowings include from RBI, call, other institutions, and refinance. Current deposits (CA) and Savings deposits (SA) reported by a bank as payable within one year (as reported in SLS) are included under volatile liabilities. (ii) Letters of credit – full outstanding. (iii) Component-wise Credit Conversion Factor of other contingent credit and commitments. (iv) Swap funds (buy/ sell) up to one year. (2) Temporary assets =Cash + Excess CRR balances with RBI + Balances with a bank + Bills purchased / discounted up to 1 year + Investments up to one year + Swap funds (sell / buy) up to one year. (3) Earning Assets = Total assets – (Fixed assets + Balances in current accounts with other banks + Other assets excluding leasing + Intangible assets) (4) Core deposits = All deposits (including CA / SA) above 1 year (as reported in SLS) + Net Worth H. Risk Monitoring 42. While the mismatches in SLS up to one year would be relevant, since these provide early warning signals of impending liquidity problems, the main focus shall be on the short-term mismatches, i.e., up to 30 days. A bank shall also monitor cumulative mismatches across all time buckets by setting internal prudential limits, with the approval of the Board or RMC. 43. The net cumulative negative mismatches in the domestic and overseas SLS (Refer Annex-I - Part A1 and Part B of Liquidity Return) during the next day, 2-7 days, 8-14 days, and 15-30 days bucket shall not exceed 5 per cent, 10 per cent, 15 per cent, and 20 per cent of the cumulative cash outflows in the respective time bucket. A bank shall also adopt the above cumulative mismatch limits for its SLS for consolidated bank operations ( Annex-I – Part C). I. Liquidity Across Currencies 44. A bank shall have a measurement, monitoring, and control system for liquidity positions in the major currencies in which it is active. For assessing the liquidity mismatch in foreign currencies, as far as domestic operations are concerned, a bank shall prepare Part A2 of Liquidity Return as provided in Annex-I . For slotting the various items of assets and liabilities in SLS, a bank shall refer to the guidance provided in Annex V . In addition to assessing its aggregate foreign currency liquidity needs and the acceptable mismatch in combination with its domestic currency commitments, a bank shall also undertake separate analysis of its strategy for each major currency individually by taking into account the outcome of stress testing. 45. The assessment of foreign currency mismatches by a bank shall take into account: (1) bank’s ability to raise funds in foreign currency markets; (2) the likely extent of foreign currency back-up facilities available in its domestic market; (3) the ability to transfer liquidity surplus from one currency to another, and across countries / jurisdictions and legal entities; and (4) the likely convertibility of currencies in which the bank is active, including the potential for impairment or complete closure of foreign exchange swap markets for particular currency pairs. J. Liquidity Risk Tolerance 46. A bank’s Board shall set an explicit liquidity risk tolerance, which shall define the level of liquidity risk that a bank is willing to assume and reflect its financial condition and funding capacity. The tolerance should ensure that the bank manages its liquidity in normal times in such a way that it is able to withstand a prolonged period of, both institution specific and market wide, stress events. 47. The articulation of risk tolerance shall be explicit, comprehensive, and appropriate as per bank’s complexity, business mix, liquidity risk profile, and systemic significance; and also, be subjected to sensitivity analysis. The risk tolerance could be specified by way of fixing the tolerance levels for various maturities under flow approach depending upon a bank’s asset liability profile, extent of stable deposit base, the nature of cash flows, regulatory prescriptions, etc. In respect of mismatches in cash flows in the near-term buckets up to 30 days, a bank shall endeavour to keep the cash flow mismatches at the minimum levels. Risk tolerance may also be specified for various ratios under stock approach. 48. Liquidity risk tolerance may also be expressed in terms of minimum survival horizons under a range of severe but plausible stress scenarios, chosen to reflect the particular vulnerabilities of the bank. The Board shall periodically review the key assumptions. K. Management Information System (MIS) 49. A bank shall maintain a reliable MIS designed to provide timely and forward-looking information on the liquidity position of the bank and the group to the Board and ALCO, both under normal and stress situations. The MIS shall cover liquidity positions in all currencies in which a bank conducts its business – both on a subsidiary / branch basis (in all countries in which the bank is active) and on an aggregate group basis. It shall capture all sources of liquidity risk, including contingent risks and those arising from new activities, and have the ability to furnish more granular and time sensitive information during stress events. 50. Liquidity risk reports shall provide sufficient detail to enable management to assess the sensitivity of a bank to changes in market conditions, its own financial performance, and other important risk factors. The reports shall inter alia include: (1) cash flow projections and cash flow gaps; (2) asset and funding concentrations; (3) critical assumptions used in cash flow projections; (4) funding availability; (5) compliance to various regulatory and internal limits on liquidity risk management; (6) results of stress tests; (7) key early warning or risk indicators; and (8) status of contingent funding sources and collateral usage. L. Internal Controls 51. A bank shall maintain appropriate internal controls, systems and procedures to ensure adherence to liquidity risk management policies and procedure as also adequacy of liquidity risk management functioning. 52. Top Management (direct reporting to the MD & CEO and / or the Board) shall ensure that an independent party regularly reviews and evaluates the various components of the bank’s liquidity risk management process. These reviews shall assess the extent to which the bank’s liquidity risk management complies with the regulatory / supervisory instructions as well as its own policy. The independent review process shall report key issues requiring immediate attention, including instances of non-compliance to various guidance / limits for prompt corrective action consistent with the Board approved policy. M. Monitoring of Liquidity 53. A bank shall adhere to the following regulatory limits prescribed to reduce the concentration risk on the liability side of its balance sheet. (1) Inter-bank Liability (IBL) Limit (i) IBL of a bank shall not exceed 200 per cent of its Net Worth as on March 31 of the previous year. A bank may, with the approval of its Board, fix a lower limit for its IBL, keeping in view its business requirements. (ii) A bank whose Capital to Risk-weighted Assets Ratio (CRAR) is at least 25 per cent more than the minimum CRAR (9 per cent), i.e., 11.25 per cent as on March 31 of the previous year is permitted to maintain a higher IBL of up to 300 per cent of its Net Worth. (iii) The limit prescribed above shall include only fund-based IBL within India, including inter-bank liabilities in foreign currency to a bank operating within India. The IBL outside India shall be excluded. (iv) The IBL limits shall not include collateralized borrowings under Tri-Party Repo (TREPS) and refinance from NABARD, SIDBI, etc. (2) Call Money Borrowing and Lending Limit: A bank shall be guided by the Reserve Bank of India (Call, Notice and Term Money Markets) Directions, 2021 for limit on call money borrowings and lending. The call money borrowing limit shall operate as a sub-limit within the above IBL limit. 54. A bank having high concentration of bulk deposits or deposits in excess of threshold as approved by the Board shall frame suitable policies to monitor volatile liabilities and contain the liquidity risk arising out of excessive dependence on such deposits, both in normal and stress situations. N. Off-balance Sheet Exposures and Contingent Liabilities 55. A bank shall estimate and monitor the cash flows arising from OBS exposures (contingent liabilities) such as those related to special purpose vehicles (SPVs), financial derivatives, guarantees, and commitments under normal situation and the scope for increase in cash flows during periods of stress. 56. In case of securitization transactions, an originating bank shall monitor, at the inception and throughout the life of the transaction, potential risks arising from the extension of liquidity facilities to securitisation programmes. A bank shall establish processes for measuring contingent funding risks, which shall take into account the nature and size of its potential non-contractual obligations, that may expose it to such contingent funding risks, particularly in times of stress where support may be required for related OBS vehicles. A bank shall give specific attention to securitisation programmes where it considers such support critical for maintaining ongoing access to funding. Similarly, reputational concerns may prompt a bank to purchase assets from money market or other investment funds that it manages or is otherwise affiliated with in times of stress. 57. Where a bank provides contractual liquidity facilities to an SPV, or where it may otherwise need to support the liquidity of an SPV under adverse conditions, the bank shall consider how the bank’s liquidity might be adversely affected by illiquidity at the SPV. In such cases, a bank shall monitor the SPV’s inflows (maturing assets) and outflows (maturing liabilities) as part of its own liquidity planning, including in its stress testing, and scenario analyses. In such circumstances, a bank shall assess its liquidity position with the SPV’s net liquidity deficits. Net liquidity surplus to the SPV shall be ignored as it will not increase the liquidity position of a bank. 58. With respect to the use of securitization SPVs as a source of funding, a bank shall assess the continued availability of these funding under stress scenarios. The access to the securitisation market may be impaired, especially for a bank experiencing adverse liquidity conditions, such limitations shall be incorporated into bank’s prospective liquidity management framework. O. Collateral Position Management 59. A bank shall have sufficient collateral to meet expected and unexpected borrowing needs and potential increases in margin requirements over different timeframes, depending upon its funding profile. A bank shall also consider the potential for operational and liquidity disruptions that may necessitate the pledging or delivery of additional intraday collateral. 60. A bank shall have proper systems and procedures to calculate all of its collateral positions in a timely manner, including the value of assets currently pledged relative to the amount of security required and availability of unencumbered assets that may be pledged. A bank shall monitor these positions on an ongoing basis. It should also be aware of the operational and timing requirements associated with accessing the collateral given its physical location. P. Incorporation of Liquidity Costs, Benefits, and Risks in the Internal Pricing 61. A bank may implement a scientifically designed internal transfer pricing mechanism that assigns value to funds provided and funds used, based on prevailing market rates, thus ensuring the liquidity costs and benefits are an integral part of bank’s strategy planning. 62. A bank may develop a process to quantify liquidity costs and benefits so that these are incorporated in the internal product pricing, performance measurement, and new product approval process for all material business lines, products, and activities. Such process may aim to align the risk-taking incentives and the liquidity risk exposure of each business line, in accordance with the Board approved risk tolerance of individual business lines. Q. Funding Strategy - Diversified Funding 63. A bank shall establish a funding strategy that provides effective diversification in the sources and tenor of funding. A bank may regularly assess its ability to raise funds quickly from each source. It shall identify the main factors that affects its ability to raise funds and monitor those factors closely to ensure that estimates of fund-raising capacity remain valid. These factors shall also be incorporated in bank’s stress test scenario and CFP. 64. A bank shall avoid over-reliance on a single source of funding. Funding strategy shall also take into account the qualitative dimension of the concentrated behaviour of deposit withdrawal in typical market conditions and overdependence on non-deposit funding sources arising out of unique business model. Funding diversification may be implemented by way of placing limits based on parameters such as tenor, counterparty, secured v/s unsecured market funding, instrument type, currency, geography, and securitization. R. Liquidity risk due to Intra Group transfers 65. In order to mitigate the potentially high risk arising from Intra-Group transactions and exposures, the following shall be ensured: (1) The head of the Group financial conglomerate shall develop and maintain liquidity management processes and funding programmes that are consistent with the complexity, risk profile, and scope of operations of the financial conglomerate. (2) The liquidity risk management processes and funding programmes shall take into account lending, investment, and other activities, and ensure that adequate liquidity is maintained at the head entity and each constituent entity within the financial conglomerate. Processes and programmes shall fully incorporate real and potential constraints, including legal and regulatory restrictions, on the transfer of funds among these entities and between these entities and the head entity. (3) A bank shall manage liquidity risks through i) effective governance and management oversight as appropriate; ii) adequate policies, procedures, and limits on risk taking; and iii) strong management information systems for measuring, monitoring, reporting, and controlling liquidity risks. S. Stress Testing 66. A bank shall integrate stress testing into its overall liquidity risk governance and management framework. A stress test is commonly described as an evaluation of the financial position of a bank under a severe but plausible scenario to assist in decision making within the bank. Stress testing shall serve as forward looking risk assessment tool to alert a bank’s management to adverse unexpected outcomes and facilitate better planning to address the vulnerabilities identified. A bank shall put in place a stress testing framework as detailed in the Reserve Bank of India (Commercial Banks - Prudential Norms on Capital Adequacy) Directions, 2025 and as specified below: 67. Scenarios and Assumptions (1) A bank shall conduct stress tests on a regular basis for a variety of short term and protracted bank specific and market wide stress scenarios (individually and in combination). In designing liquidity stress scenarios, the nature of bank’s business, activities, and vulnerabilities shall be taken into consideration so that the scenarios incorporate the major funding and market liquidity risks to which it is exposed. These include risks associated with its business activities, products (including complex financial instruments and OBS items), and funding sources. The defined scenarios shall allow a bank to evaluate the potential adverse impact these factors can have on its liquidity position. While historical events may serve as a guide, a bank shall exercise judgment in designing the stress tests. (2) A bank shall specifically take into account the link between reductions in market liquidity and constraints on funding liquidity, especially one with significant market share in, or heavy reliance upon, specific funding markets. It shall also consider the insights and results of stress tests performed for various other risk types while stress testing its liquidity position and consider possible interactions with these other types of risk. (3) A bank shall recognise that stress events may simultaneously give rise to immediate liquidity needs in different currencies and multiple payment and settlement systems. It shall consider in the stress tests, the likely behavioural response of other market participants to events of market stress and the extent to which a common response might amplify market movements and exacerbate market strain as also the likely impact of its own behaviour or that of other market participants. The stress tests shall consider how the behaviour of counterparties (or their correspondents and custodians) would affect the timing of cash flows, including on an intraday basis. (4) Based on the type and severity of the scenario, a bank shall consider the appropriateness of a number of assumptions which are relevant to its business. A bank’s choice of scenarios and related assumptions should be well thought of, documented, and reviewed together with the stress test results. A bank shall take a conservative approach when setting stress testing assumptions. (5) A bank shall conduct stress tests to assess the level of liquidity it should hold, the extent and frequency of which shall be commensurate with the size of the bank and its specific business activities / liquidity for a period over which it is expected to survive a crisis. (6) A bank may conduct stress tests assuming the minimum stress period for an institution-specific crisis scenario to last for no less than five business days, and that for a general market crisis scenario and a combined scenario, no less than one calendar month. The bank should adopt longer minimum stress periods if its liquidity risk profile warrants this. 68. Use of Stress Test Results (1) A bank shall use the outcomes of liquidity stress tests to identify and quantify sources of potential liquidity strain and to analyse possible impacts on its cash flows, liquidity position, profitability, and solvency. The results of stress tests shall be discussed thoroughly by the ALCO. Remedial or mitigating actions shall be identified and taken to limit bank’s exposures, to build up a liquidity cushion and to adjust the liquidity profile to fit the risk tolerance. The results should also play a key role in shaping the bank’s contingent funding planning and in determining the strategy and tactics to deal with events of liquidity stress. (2) A bank shall maintain proper documentation of the stress test results and the corresponding action taken. If the stress test results indicate any vulnerability, these shall be reported to the Board and a plan of action charted out immediately. In such cases, the Department of Supervision (DoS), RBI shall be informed immediately. T. Contingency Funding Plan (CFP) 69. A bank shall formulate a CFP for responding to severe disruptions which might affect its ability to fund some or all of its activities in a timely manner and at a reasonable cost. A CFP should prepare a bank to manage a range of scenarios of severe liquidity stress that include both bank specific and market-wide stress and should be commensurate with bank’s complexity, risk profile, and scope of operations. 70. CFPs shall contain: (1) details of available / potential contingency funding sources and the amount / estimated amount which can be drawn from these sources, (2) clear escalation / prioritisation procedures detailing when and how each of the actions can and shall be activated, and (3) the lead time needed to tap additional funds from each of the contingency sources. 71. With a view to diversify, a bank may enter into contingency funding agreements with different banks / types of banks (public sector, private sector, foreign bank) for providing contingency funding lines and / or reciprocal lines of credit (e.g., agreement to receive contingent funds in India with a reciprocity agreement to provide funds at a cross border location or vice versa). The CFP shall be flexible to allow rapid response across various stress scenarios. The design, plans, and procedures shall be closely integrated with bank’s ongoing analysis of liquidity risk and with the results of the scenarios and assumptions used in stress tests. The plan shall address liquidity requirements over a range of different time horizons, including intraday. 72. CFP shall set out a clear decision-making process on what actions to take at what time, who can take them, and what issues need to be escalated to Top Management of a bank. There shall be explicit procedures for effective internal coordination and communication across bank’s different business lines and locations. It shall also address when and how to contact external parties, such as supervisors, central bank, or payments system operators. It is particularly important that in developing and analysing CFP and stress scenarios, a bank is aware of the operational procedures needed to transfer liquidity and collateral across different entities, business lines, and jurisdictions and the restrictions that govern such transfers like legal, regulatory, and time zone constraints. The CFP shall contain clear policies and procedures that will enable a bank’s management to make timely and well-informed decisions, execute contingency measures swiftly and proficiently, and communicate effectively to implement the plan efficiently, including: (1) clear specification of roles and responsibilities, including the authority to invoke the CFP. The establishment of a crisis team can facilitate internal coordination and decision-making during a liquidity crisis; (2) names and contact details of members of the team responsible for implementing the CFP and the locations of team members; and (3) the designation of alternates for key roles. 73. The CFPs must be tested regularly to ensure their effectiveness and operational feasibility and shall be reviewed by the Board at least on an annual basis. U. Overseas Operations of the Indian Banks’ Branches and Subsidiaries 74. General Guidelines (1) A bank’s liquidity policy and procedures shall include detailed guidelines for its overseas branches / subsidiaries to manage their operational liquidity on an ongoing basis. (2) Management of operational liquidity or liquidity in the short-term is expected to be delegated to local management as part of local treasury function. For measuring and managing net funding requirements, a SLS in respect of overseas operations shall be prepared country-wise on a daily basis, as per format provided in Annex-I Part B and reported to the Reserve Bank on monthly basis. For slotting the various items of assets and liabilities in SLS, bank shall refer to the guidance provided in Annex V . A bank shall also report figures in respect of subsidiaries / joint ventures in the same format on a stand-alone basis. The tolerance limit prescribed for net cumulative negative mismatches in case of domestic SLS i.e., 5 per cent, 10 per cent, 15 per cent, and 20 per cent of the cumulative cash outflows in respect of next day, 2-7 days, 8-14 days, and 15-30 days bucket shall also be applicable for overseas operations (country-wise). (3) The broad norms in respect of overseas liquidity management are as follow: (i) A bank shall not normally assume voluntary risk exposures extending beyond a period of ten years; (ii) A bank shall endeavour to broaden its base of long-term resources and funding capabilities consistent with its long-term assets and commitments; (iii) The limits on maturity mismatches shall be established within the following tolerance levels: (a) long term resources shall not fall below 70 per cent of long-term assets; and (b) long and medium-term resources together shall not fall below 80 per cent of the long and medium-term assets. (iv) These controls shall be undertaken currency-wise, and in respect of all such currencies which individually constitute 10 per cent or more of a bank’s consolidated overseas balance sheet. Netting of inter-currency positions and maturity gaps shall not be permitted. For the purpose of these limits, short term, medium term, and long term are defined as under: (a) ‘Short-term’ refers to those maturing within 6 months. (b) ‘Medium-term’ refers to those maturing in 6 months and longer but within 3 years. (c) ‘Long-term’ refers to those maturing after 3 years and longer. (v) The monitoring system shall be centralised in the International Division (ID) of a bank for controlling the mismatch in asset-liability structure of the overseas sector on a consolidated basis, currency-wise. The ID of a bank shall review the structural maturity mismatch position at quarterly intervals and submit the review/s to the Top Management of the bank. (4) In countries where the mismatches in the maturity structures are subject to regulatory or supervisory guidelines, those shall be controlled locally within the host country regulatory or prudential parameters. Additionally, at the corporate level (i.e., in respect of the overseas operation as a whole), the maturity mismatches shall also be controlled by bank’s management by establishing tolerance limits on the global asset-liability structures and monitored in the aggregate. A bank shall undertake / exercise relevant control on a centralised basis. 75. Maintenance of Liquidity (1) A bank shall adopt a decentralised liquidity management model, with flexibility to establish regional centres or hubs, that may fund / manage liquidity for some jurisdictions or currencies, keeping in view the constraints on the transfer of liquidity across jurisdictions / entities. (2) Notwithstanding the decentralised model, a bank with multiple platforms and legal entities shall establish a centralised liquidity management oversight function at the group level. A bank’s group level strategy and policy documents shall describe the structure for monitoring institution-wide liquidity risk and for overseeing operating subsidiaries and foreign branches. The bank’s liquidity risk management plan shall clearly document the assumptions regarding the transferability of funds and collateral. 76. Maintenance of Liquidity – overseas branches of Indian banks and branches of foreign banks in India (1) A bank shall maintain adequate liquidity at both the solo and consolidated levels. Irrespective of the organisational structure and degree of centralised or decentralized liquidity risk management, a bank shall actively monitor and control liquidity risks at the level of individual legal entities, foreign branches and subsidiaries, and the Group as a whole, incorporating processes that aggregate data in order to develop a group-wide view of liquidity risk exposures and identify constraints on the transfer of liquidity within the group. (2) If the legal entities, including subsidiaries, joint ventures, and associates are subject to a regulatory oversight other than by the Reserve Bank, that regulatory regime will prevail. In case they are not subject to any such regulatory oversight, a bank shall evolve and follow bank-like regulatory liquidity standards. On a consolidated basis, the regulatory standards as applicable for the Group shall also be adhered to. (3) Indian banks’ branches and subsidiaries abroad are required to manage liquidity according to the host or home country requirements, whichever is more stringent. The branches and subsidiaries of the bank are expected to be self-sufficient with respect to liquidity maintenance and should be able to withstand a range of severe but plausible stress test scenarios on their own within the stress testing framework laid down in paragraphs 66 to 68. However, in case of extreme stress situations, while Indian banks’ branches abroad can rely on liquidity support from their Head Office, their subsidiaries shall be self-reliant. (4) A foreign bank operating in India shall also be self-reliant with respect to liquidity maintenance and management. In case of extreme stress situation, parent entity / Head Office support can be relied upon. However, the possible constraints with respect to transferability of funds from the parent entity / Head Office, including possible time lag in availability of funds shall be taken into account while factoring this as a source of funds in CFP. A bank shall also take into account a stress situation when funds may not be available to them in case of market / Group-wide stress situation. Chapter IV – Intraday Liquidity Management A. Introduction 77. A bank shall effectively manage its intraday liquidity risk as a crucial part of liquidity risk management. Inability to effectively manage intraday liquidity may lead to default in meeting its payment obligations in time, which may affect not only its own liquidity position but also that of its counterparties. In the face of credit concerns or general market stress, failure to settle payments may be perceived as a sign of financial weakness, prompting counterparties to withhold or delay payments to bank, causing additional liquidity pressures, which given the inter-dependencies that exist among systems, can lead to liquidity dislocations that cascade quickly across many systems and institutions. 78. Principle 8 of ‘Principles for Sound Liquidity Risk Management and Supervision’ states that a bank should actively manage its intraday liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions and thus contribute to the smooth functioning of payment and settlement systems. 79. Principle 8 identifies six operational elements that should be included in a bank’s strategy for managing intraday liquidity risk. Accordingly, a bank should: (1) have the capacity to measure expected daily gross liquidity inflows and outflows, anticipate the intraday timing of these flows where possible, and forecast the range of potential net funding shortfalls that might arise at different points during the day; (2) have the capacity to monitor intraday liquidity positions against expected activities and available resources (balances, remaining intraday credit capacity, available collateral); (3) arrange to acquire sufficient intraday funding to meet its intraday objectives; (4) have the ability to manage and mobilise collateral, as necessary, to obtain intraday funds; (5) have a robust capability to manage the timing of its liquidity outflows in line with its intraday objectives; and (6) be adequately prepared to deal with unexpected disruptions to its intraday liquidity flows. 80. The qualitative guidance in the Sound Principles shall be complemented by set of quantitative tools to monitor a bank’s intraday liquidity risk and its ability to meet payment and settlement obligations on a timely basis under both normal and stressed conditions. 81. Accordingly, the Board shall ensure that the bank develops suitable strategy, risk management policies, and practices to monitor intraday liquidity, ensure integrity of regulatory reporting, and review the efficacy of the monitoring tools. The Board shall ensure that the bank: (1) develops and adopts suitable intraday liquidity strategy that enables it to: (i) monitor and measure expected daily gross liquidity inflows and outflows; (ii) ensure the availability of sufficient
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/DOR/2025-26/163 · issued 28 Nov 2025. The plain-English explanation above is BankPulse’s own independent summary.