RBI announced the date of its implementation of the Net Stable Funding Ration (NSFR) norms to be from April 1, 2020. In the backdrop of global crises since 2007, the Basel Committee on Banking Supervision (BCBS) proposed certain reforms to strengthen global capital and liquidity regulations with the objective of promoting a more resilient banking sector.
- The NSFR norms were thus issued and from the aforesaid date the NSFR norms would be active in the Indian banking sector.
- The norms would be applicable for Indian banks at the solo as well as consolidated level, whereas, foreign banks operating as branches in India, the framework would be applicable on stand-alone basis (for Indian operations only).
- The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding.
It can be seen as:
- Available amount of stable funding/ Required amount of stable funding ≥ 100%
- This explains that ratio should be equal to at least 100% on an on-going basis. The available funds is the portion of the capital and liabilities that can hold enough stable funding to cover the duration of their long-term assets, that is mainly defined as more than one year.
- These basically require the banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities.