Reserve Bank of India (Small Finance Banks – Asset Liability Management) Directions, 2025

1. Liquidity rules for SFBs

This document sets how small finance banks must manage liquidity risk.

2. In force from issue

The rules took effect on the day RBI issued them.

3. Who is covered

These Directions apply to every small finance bank.

4. Intraday liquidity

Intraday liquidity is money the bank can use during the day to make payments on time.

5. Funding liquidity risk

Funding liquidity risk is the risk of not meeting cash and collateral needs when they fall due.

6. The overnight window

The marginal standing facility is the window named in the RBI press release.

1. Board must understand it

The Board must understand the liquidity risk of every branch and subsidiary.

2. Appetite understood everywhere

The Board must see that the risk appetite is understood at every level.

3. Yearly policy review

The Board must review the liquidity policies at least once a year.

4. Say how much risk

An explicit statement must define how much liquidity risk will be carried.

5. Board reviews the assumptions

The Board must review the information and assumptions behind the risk appetite.

6. Weak stress results go up

Any weakness a stress test shows must be reported to the Board.

7. Daily flows watched

The bank must watch its expected daily gross inflows and outflows.

8. Board owns the policies

The Board or its committee approves the liquidity policies and reviews them.

9. Only free intraday funds

Only funds freely available at the start of the day count as intraday liquidity.

10. Only usable intraday cash

Only intraday sources that are freely and readily available may be counted.

11. Board sets stock limits

The Board approves the internal limits for the liquidity stock ratios.

1. Six-monthly assumption check

The bank must test its behaviour assumptions at least once in six months.

2. Focus on short gaps

The main focus must stay on cash gaps in the first 30 days.

BankPulse example. A gap falling due in 12 days is a short-term mismatch. So is one falling due in 29 days. A gap 45 days out is not, because the focus is on gaps up to 30 days.

3. Next day gap limit

The cash shortfall for the next day cannot cross 5 per cent of that day's outflows.

4. Near-term gaps kept small

The bank must keep cash gaps up to 30 days as small as it can.

5. Inter-bank liability limit

Inter-bank liabilities cannot cross 200 per cent of net worth as on 31 March last.

6. Top management must lead

The process only works if top management shows it takes it seriously.

7. Risk committee joins it up

The risk committee must consider how liquidity risk meets the other risks.

8. The committee must know

The asset liability committee must know how assets and funding are made up.

9. Watch what harms reputation

Events that could damage the market's view of soundness must be identified.

10. Structure shapes the strategy

The strategy must allow for the group's legal structure and its business lines.

11. All currencies covered

Liquidity risk must be identified in every currency the bank works in.

12. Set format for statement

The bank must use the set format for tracking cash gaps by time bucket.

13. Daily statement, fortnightly report

The rupee liquidity statement must be prepared daily and sent to RBI every fortnight.

14. Test the guesses twice

The assumptions behind behaviour analysis must be tested at least twice a year.

15. Watch the running gap

Cumulative mismatches across all buckets must be watched against internal limits.

16. Foreign currency statement

For foreign currency gaps the bank must prepare the separate liquidity return.

17. Board sets the appetite

The Board must state in clear words how much liquidity risk the bank will take.

18. Say the appetite plainly

The statement of liquidity risk tolerance must be explicit and complete.

19. An outsider must review

An independent party must regularly review how liquidity risk is being run.

20. Securitisation support watched

The bank must watch the risk from liquidity support given to securitisation programmes.

21. Watch it continuously

These positions must be watched on a continuing basis, not at period ends.

22. Funding covers every activity

Liquidity processes must take in lending, investment and every other activity.

23. Stress tests run regularly

The bank must run stress tests for short and long crises, alone and together.

24. Fit the test

Stress scenarios must be built around the lender's own business and weak points.

25. Test how others behave

A stress test must allow for how counterparties would change their timing.

26. Careful assumptions

The bank must take a careful view when it sets stress test assumptions.

27. RBI told at once

The Department of Supervision at RBI must also be informed at once.

28. Contingency funding plan

The bank must draw up a plan for a severe disruption to its funding.

29. The plan names the decider

The contingency funding plan must say who acts, when, and what goes upward.

30. Board answers for it

Overall responsibility for managing liquidity risk rests with the Board.

31. Chief executive heads it

The asset liability committee is headed by the chief executive or a director.

32. Committee sets the profile

That committee decides the maturity profile and the mix of what comes in.

33. Committee decides the mix

The committee decides the maturity profile and the mix of new assets and liabilities.

34. A support group reports

A support group of operating staff analyses and reports the liquidity profile.

35. Cash flows into buckets

Cash flows are placed in time buckets by when they actually fall due.

36. What the limit leaves out

Interbank liability limits leave out tri-party repo and refinance from NABARD.

37. Call money sits inside

The call money borrowing limit sits inside that inter-bank limit.

38. A vehicle's shortfall counts

Where a special purpose vehicle runs short, that shortfall counts as the lender's.

1. If a market closes

A lender managing intraday cash across currencies must plan for a market closing.

2. Report the morning position

The average intraday liquidity available at the start of each day must be reported.

3. Report the daily flows

The average daily payments made and received must be reported as well.

4. Intraday, rupee and beyond

Intraday liquidity rules cover rupees and every significant foreign currency.

5. One line per correspondent

Where more than one correspondent bank is used, each is reported separately.

1. Thirty day survival

The stock of liquid assets must carry the bank to day 30 of a stress.

2. A month of cash

The liquidity coverage ratio must stay at a hundred per cent at all times.

3. Ratio may fall in stress

In a period of financial stress the bank may let that ratio fall below 100 per cent.

4. Shortfall reported at once

Any such shortfall must be reported to the Department of Supervision without delay.

5. Operating costs left out

Outflows for operating costs do not enter the coverage ratio.

6. Half of margin inflows

Only half of the inflows from maturing margin loans against other collateral may be counted.

1. Stable funding floor

The net stable funding ratio must stay at 100 per cent or above.

2. Trade finance factor

Undrawn trade finance obligations carry a stable funding factor of 3 per cent.

3. Stable funding ratio too

The net stable funding ratio must also be kept at the level RBI sets.

4. Quarter-end funding report

The stable funding ratio at each quarter end is reported in the set format.

5. Term deposits with penalty

A term deposit counts as fully stable funding only if early withdrawal carries a real penalty.

6. Assets tied for a year

Assets tied up for a year or more need full stable funding behind them.

1. Five per cent currency test

A currency holding 5 per cent or more of assets is measured on its own.

2. What duration shows

Modified duration shows the value change for a one per cent move in interest rates.

3. Both studies required

The bank must carry out both of those studies.

4. Two ways to measure

Interest rate risk is measured both from earnings and from economic value.

1. Monthly and quarterly returns

The coverage ratio is reported monthly. The stable funding ratio is reported quarterly.

1. Old actions preserved

Anything already done under the old rules stays governed by those old rules.

2. Approvals carried over

Approvals given under the cancelled rules are now treated as given under these rules.

3. Other laws still apply

These Directions add to other laws. They do not replace any of them.

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.