What changed
RBI has introduced new directions on asset liability management for commercial banks, focusing on liquidity risk management, intraday liquidity, and interest rate risk management. The directions outline responsibilities of the board, liquidity risk management policy, and stress testing. They also introduce the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR).
What it means for you
These directions will impact commercial banks' liquidity risk management, intraday liquidity management, and interest rate risk management. Banks must ensure adequate liquidity, manage intraday liquidity, and monitor interest rate risk. They must also maintain a minimum LCR and NSFR.
What you must do
- Review and update liquidity risk management policies and procedures
- Implement stress testing and scenario analysis
- Maintain a minimum LCR and NSFR
- Monitor intraday liquidity and manage it effectively
- Implement interest rate risk management strategies
Who it affects
Commercial banks (excluding Small Finance Banks, Payment Banks, and Local Area Banks), Corresponding new banks, State Bank of India
What is the Liquidity Coverage Ratio (LCR)?
LCR is a measure of a bank's ability to meet its short-term liquidity needs. It requires banks to hold a minimum amount of high-quality liquid assets (HQLA) to cover 100% of their total net cash outflows over a 30-day stress period.