Page 39 - Banking Finance October 2019

ARTICLE

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

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