Page 39 - Banking Finance December 2020

ARTICLE

Minimum Requirement of Stable Fund b) Bank behavior - The NSFR is calibrated under the
(Available Stable Funding (ASF)) assumption that banks may seek to roll over a significant
NSFR = > 100% proportion of maturing loans to preserve customer
(Required Stable Funding(RSF))
relationships.
c) Asset tenor - The NSFR assumes that some short-dated
The above ratio should be equal to at least 100% on an
assets (maturing in less than one year) require a smaller
ongoing basis. However, the NSFR would be supplemented
by supervisory assessment of the stable funding and liquidity proportion of stable funding because banks would be
risk profile of a bank. On the basis of such assessment, the able to allow some proportion of those assets to mature
Reserve Bank may require an individual bank to adopt more instead of rolling them over.
stringent standards to reflect its funding risk profile and its d) Asset quality and liquidity value - The NSFR assumes
compliance with the Sound Principles. NSFR would be binding that unencumbered, high- quality assets that can be
on banks with effect from a date which will be securitized or traded, and thus can be readily used as
communicated in due course. The NSFR would be applicable collateral to secure additional funding or sold in the
for Indian banks at the solo as well as consolidated level. market, do not need to be wholly financed with stable
For foreign banks operating as branches in India, the funding.
framework would be applicable on stand-alone basis for
Indian operations only. Additional stable funding sources are also required to support
at least a small portion of the potential calls on liquidity
Calibrations of ASF and RSF - Criteria arising from Off balance sheet (OBS) commitments and
contingent funding obligations.
and Assumptions
ASF and RSF reflect the amount of funding available and A. Definition and computation of Available
required for liabilities and assets (including off balance sheet Stable Funding(ASF)
assets).The amounts of ASF and RSF specified in the BCBS
The amount of ASF is measured, based on the broad
standard are calibrated to reflect the presumed degree of
characteristics of the relative stability of an institution's
stability of liabilities and liquidity of assets.
funding sources, including the contractual maturity of its
liabilities and the differences in the propensity of different
The calibration reflects the stability of liabilities
types of funding providers to withdraw their funding. The
across two dimensions: amount of ASF is calculated by first assigning the carrying
a) Funding tenor - The NSFR is generally calibrated such value of an institution's capital and liabilities to one of five
that longer-term liabilities are assumed to be more categories as presented below. The amount assigned to each
stable than short-term liabilities. category is then multiplied by an ASF factor, and the total

b) Funding type and counterparty - The NSFR is ASF is the sum of the weighted amounts. Carrying value
calibrated under the assumption that short-term
(maturing in less than one year) deposits provided by
retail customers and funding provided by small business
customers are behaviorally more stable than wholesale
funding of the same maturity from other counterparties.

In determining the appropriate amounts of required stable
funding for various assets, the following criteria are taken
into consideration, recognizing the potential trade-offs
between these criteria:
a) Resilient credit creation - The NSFR requires stable
funding for some proportion of lending to the real
economy in order to ensure the continuity of this type
of intermediation.

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