Page 41 - Banking Finance December 2020

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set of derivative exposures covered by the contract will date. The amount assigned to each category is then
be the net replacement cost. In calculating NSFR multiplied by its associated required stable funding (RSF)
derivative liabilities, collateral posted in the form of factor, and the total RSF is the sum of the weighted amounts
variation margin in connection with derivative added to the amount of OBS activity (or potential liquidity
contracts, regardless of the asset type, must be exposure) multiplied by its associated RSF factor.
deducted from the negative replacement cost amount.
1. Assets assigned 0% RSF factor comprises:
When determining the maturity of an equity or liability
a) coins and banknotes immediately available to meet
instrument, investors are assumed to redeem a call
obligations;
option at the earliest possible date. For funding with
options exercisable at the bank's discretion, the RBI may b) CRR (including required reserves and excess
take into account reputational factors that may limit a reserves);all claims on RBI with residual maturities of
bank's ability not to exercise the option. In particular, less than six months;
where the market expects certain liabilities to be
c) "trade date" receivables arising from sales of financial
redeemed before their legal final maturity date, banks instruments, foreign currencies and commodities that
should assume such behavior for the purpose of the
(i) are expected to settle within the standard settlement
NSFR and include these liabilities in the corresponding
cycle or period that is customary for the relevant
ASF category. For long- dated liabilities, only the portion exchange or type of transaction, or (ii) have failed to,
of cash flows falling at or beyond the six-month and one- but are still expected to, settle.
year time horizons should be treated as having an
effective residual maturity of six months or more and 2. Assets assigned 5% RSF factor
a) Assets assigned 5% RSF factor comprise unencumbered
one year or more, respectively.
Level1* assets excluding assets receiving a 0% RSF as
B) Definition and computation of Required Stable specified above, and including:
O marketable securities representing claims on or
Funding (RSF)
guaranteed by sovereigns, central banks, PSEs, the
The amount of required stable funding is measured based Bank for International Settlements, the
on the broad characteristics of the liquidity risk profile of an International Monetary Fund, the European Central
institution's assets and OBS exposures. The amount of
Bank and the European Community, or multilateral
required stable funding is calculated by first assigning the
development banks that are assigned a 0% risk
carrying value of an institution's assets of different
weight under the Basel II Standardized Approach
categories. Unless explicitly stated otherwise in the NSFR
for credit risk;
standard, assets should be allocated to maturity buckets
according to their contractual residual maturity. However, O certain non-0% risk-weighted sovereign or central
this should take into account embedded optionality, such as bank debt securities
put or call options, which may affect the actual maturity O Unencumbered SLR securities
3. Assets assigned a 10% RSF factor
a) Unencumbered loans to financial institutions with
residual maturities of less than six months, where the
loan is secured against Level 1* assets and where the
bank has the ability to freely re- hypothecate the
received collateral for the life of the loan.
4. Assets assigned a 15% RSF factor comprise:
a) unencumbered Level 2A** assets including:
O marketable securities representing claims on or
guaranteed by sovereigns, central banks, PSEs or
multilateral development banks that are assigned
a 20% risk weight under the Basel II Standardized
Approach for credit risk; and

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