Reserve Bank of India (Non-Banking Financial Companies – Asset Liability Management) Directions, 2025 (Updated as on July 01, 2026)

1. What this book does

This book sets how a non-banking financial company must manage its assets against its liabilities.

1. Start date

These rules took effect from the date RBI issued them.

2. Who is covered

These rules bind deposit taking, investment, factoring, microfinance and infrastructure finance companies.

3. Housing finance too

A housing finance company registered under the National Housing Bank Act is also covered.

4. Core investment companies

A core investment company follows every chapter except the one on the coverage ratio.

5. Who is left out

Mortgage guarantee companies, peer to peer lenders and account aggregators are outside these rules.

6. What a defeasance period is

The defeasance period is the time needed to sell out of an investment position.

7. What interest rate risk is

Interest rate risk is the harm a change in market rates can do.

8. What embedded options are

Embedded options are customers closing deposits early or repaying loans early.

9. What secured funding is

Secured funding is a liability backed by named assets the borrower owns.

10. What a stress test is

A stress test checks the company's position under a severe but plausible scenario.

11. What unencumbered means

Unencumbered means the asset is free to sell, transfer or assign.

12. What liquidity means

Liquidity is the power to fund asset growth and meet cash calls on time.

13. What liquidity risk means

Liquidity risk is being unable to meet dues without harming the company's position.

14. Words from the Acts

Any other word takes its meaning from the Banking Regulation Act or the RBI Act.

1. Small companies exempt

The liquidity risk chapter does not bind a company with assets under one hundred crore rupees.

BankPulse example. An NBFC with ₹80 crore of assets in its last audited balance sheet is outside this chapter. One with ₹150 crore is inside it. The line is ₹100 crore.

2. Ninety day holding

A trading book holding period must not go beyond 90 days.

BankPulse example. A trading book position may be held for 90 days and no longer. One opened on 1 June is closed by 30 August. A position still open on day 91 breaks the rule.

3. Cap on the first week

Negative running gaps must not pass 10 per cent in the 1 to 7 days bucket.

BankPulse example. Suppose cumulative cash outflows in the 1 to 7 days bucket are ₹200 crore. The negative gap may not exceed 10 per cent of that, which is ₹20 crore. A gap of ₹30 crore would be too big.

4. Caps to thirty days

The cap is 10 per cent for 8 to 14 days and 20 per cent for 15 to 30 days.

5. Own limits to one year

Running gaps up to 1 year need internal limits approved by the board.

BankPulse example. Beyond the buckets RBI caps, the bank sets its own limits for everything up to 1 year. Those limits need the Board's approval. The running total is watched against them.

6. Six month short view

The company estimates its short liquidity profile from 1 day to 6 months.

7. Set up a committee

The board must set up a committee headed by the chief executive or managing director.

8. A dynamic framework

The system must measure and manage liquidity, interest rate, equity and currency risk.

9. A forward looking system

The information system must give timely, forward looking liquidity facts to the board.

10. Quarterly public disclosure

The company must publish the liquidity disclosure on its own website every quarter.

11. Independent review

Management must have an independent party review the liquidity process regularly.

12. Price the liquidity

The company should measure liquidity cost and build it into product pricing.

13. Project the cash flows

The process must project cash flows from assets, liabilities and off balance sheet items.

14. Spread the funding

The funding plan must spread sources and tenors and keep lender relations strong.

15. Test the fund raising

The company must regularly test how fast it can raise money from each source.

16. Manage the collateral

The company must track which collateral is free and where each piece is held.

17. Stress test regularly

Stress tests must run regularly for company specific and market wide scenarios.

18. A contingency funding plan

A contingency funding plan must answer a severe break in the ability to fund.

19. Watch the key ratios

The company must watch critical liquidity ratios against limits its board sets.

20. Foreign money on the books

Where the books carry foreign assets or liabilities, the board must prepare for that risk.

21. Hedge the rate risk

The company must set up systems to hedge risk from moving market rates.

22. Move to better tools

Over time the company must adopt duration gap, simulation and value at risk.

23. Tie limits to size

Those limits must relate to total assets, earning assets or equity.

24. Exempt but encouraged

A company that is exempt is still encouraged to follow the chapter by choice.

25. The board owns the system

The board carries overall responsibility for putting the asset liability system in place.

26. Approve the ratio limits

The board approves the internal limits for the critical liquidity ratios.

27. Approve the gap limits

The board approves careful limits on each gap in the set maturity buckets.

28. Three pillars

The system rests on three pillars: information systems, organisation and process.

29. Also in the accounts

The same disclosure goes into the notes to the annual financial statements.

30. Chief risk officer joins

Where the company has a chief risk officer, that officer joins the liquidity work.

31. Who sits on the committee

The committee holds the heads of investment, credit, treasury risk and economic research.

32. A support group

A support group of working staff studies and reports the liquidity risk profile.

33. Internal controls

The company needs internal controls and procedures to ensure the policies are followed.

34. Send the policy note

The approved note on the investment portfolio goes to the regional supervision office.

35. A sound process

The company needs a sound process to find, measure, watch and control liquidity risk.

36. Top management sets strategy

Top management builds the strategy to manage liquidity risk within the set tolerance.

37. Watch the off book risk

Special care goes to special purpose vehicles, derivatives, guarantees and commitments.

38. The group finance chief

The group chief financial officer keeps liquidity processes for every company in the group.

39. The maturity ladder

The maturity ladder is the standard tool for measuring net funding needs.

40. A maturity profile

The company prepares a maturity profile placing future cash flows in time buckets.

41. Two kinds of security

A deposit taking company splits its securities into mandatory and other securities.

42. Surplus is not mandatory

Securities held above the required amount count as non-mandatory.

43. No deposits, none mandatory

Where the company takes no public deposit, every security is non-mandatory.

44. Place mandatory freely

A deposit taking company may place mandatory securities in any bucket it thinks fit.

45. Unlisted go longest

An unlisted security with no fixed maturity goes in the longest bucket.

46. Mark them to market

Mandatory securities and listed securities are marked to market for this system.

47. The trading book option

The company may instead treat part of its portfolio as a trading book.

48. Board signs the trading book

The board or the committee approves the size, mix, holding period and cut loss.

49. Same for group accounts

The same running gap limits apply to the consolidated operations.

50. How to fill the statement

Cash flows go on the maturity ladder by when they are expected to arrive.

51. In and out defined

A maturing liability is money going out and a maturing asset is money coming in.

52. Which ratios to watch

The list holds short term liability to total assets and commercial paper to total assets.

53. Start with the gap

The company may start with the traditional gap approach to measure rate risk.

54. What is rate sensitive

An item is rate sensitive if it pays, reprices or can be repaid early.

55. Floating advances count

Advances that carry a floating rate count as rate sensitive.

56. Buckets for the gaps

Gaps are identified in set time buckets, with one bucket for non sensitive items.

57. Limits on each gap

Careful limits on each gap need board or management committee approval.

58. Earnings at risk

The company may work out earnings at risk in terms of net interest margin.

59. Send that note too

That note, once approved, also goes to the regional supervision office of RBI.

60. Transfer pricing inside

An internal transfer price is needed to run the system well.

61. Two returns to file

The company files a short term dynamic liquidity return and a structural liquidity return.

62. The quarterly return

The short term dynamic liquidity return goes in every quarter.

63. The monthly return

The structural liquidity and rate sensitivity return goes in every month.

64. Where the timelines live

Filing timelines come from RBI's rules on filing supervisory returns.

1. Keep the ratio at hundred

The liquidity coverage ratio must stay at 100 per cent or more at all times.

2. Fifteen per cent haircut

A 15 per cent haircut applies to certain sovereign claims and highly rated bonds.

3. Fifty per cent haircut

A 50 per cent haircut applies to weaker sovereign claims and index equity shares.

4. Thirty days of grace

If an asset stops qualifying it may stay in the stock for 30 more days.

5. What net outflow means

Net outflow is expected money out less expected money in over 30 days.

6. Stress the outflows

Outflows are multiplied by 115 per cent before the ratio is worked out.

7. Stress the inflows

Inflows are multiplied by 75 per cent before the ratio is worked out.

8. Cap on the inflows

Inflows counted cannot pass 75 per cent of the stressed outflows.

9. No double counting

An asset counted in the stock cannot also be counted as an inflow.

10. Tell RBI at once

Such use must be reported to supervision at once, with reasons and repair steps.

11. Always ready to sell

The assets must be free and ready to turn into cash at any time.

12. Test the sale

The company must sell or repo a part now and then to test saleability.

13. Disclose the ratio

The company must disclose its liquidity coverage ratio every quarter.

14. You may dip in stress

In real stress the company may use the stock and let the ratio fall.

15. What the stress assumes

The scenario mixes a shock to the company with a shock to the whole market.

16. What counts as liquid

Liquid assets are those sold or turned into cash with little loss of value.

17. Two sets of traits

Such assets need sound basic traits and a real, active and deep market.

18. Value on day one

Only assets held on the first day of the stress count, at market value.

19. No haircut assets

Cash and government securities count in full, with no haircut at all.

20. Keep them in one pool

All liquid assets sit in one common pool under set operating rules.

1. Old instructions repealed

The old asset liability rules for these companies stand repealed.

2. Earlier action stands

What was done or begun under the old rules is still ruled by them.

BankPulse example. A show cause notice was issued under the old rules last year. The repeal does not move it. Any action taken or initiated under the repealed directions is still governed by them. The new rulebook applies to what comes after.

3. Adds to other law

These rules add to other laws in force. They take nothing away.

BankPulse example. A bank follows these Directions and thinks the matter is closed. It is not. Any other laws, rules, regulations or directions in force still apply on top. Where another one asks for more, the bank does the more.

4. RBI's reading is final

RBI may clear up doubts, and its reading of any clause is final.