Page 43 - Banking Finance October 2019

ARTICLE

In calculating NSFR derivative assets, collateral received in are audited. The NSFR information must be calculated on a
connection with derivative contracts may not offset the positive consolidated basis and presented in Indian Rupee.
replacement cost amount, regardless of whether or not netting
is permitted under the bank's operative accounting or risk-based Banks must also make available on their websites, or through
framework, unless it is received in the form of cash variation publicly available regulatory reports, an archive of all
margin of the Revised Framework for Leverage Ratio. Any templates relating to prior reporting periods. Both un-
remaining balance sheet liability associated with (a) variation weighted and weighted values of the NSFR components
margin received that does not meet the criteria above or (b) must be disclosed unless otherwise indicated. Weighted
initial margin received may not offset derivative assets and values are calculated as the values after ASF or RSF factors
should be assigned a 0% ASF factor. are applied. In addition to the prescribed common template,
banks should provide a sufficient qualitative discussion
If an on-balance sheet asset is associated with collateral around the NSFR to facilitate an understanding of the results
posted as initial margin to the extent that the bank's and the accompanying data.
accounting framework reflects on balance sheet, for
purposes of the NSFR, that asset should not be counted as Conclusion
an encumbered asset in the calculation of a bank's RSF to NSFR is to ensure that banks maintain a stable funding profile
avoid any double-counting. in relation to the composition of their assets and off-balance
sheet activities. A sustainable funding structure is intended
Derivative transactions with central banks arising from the to reduce the probability of erosion of a bank's liquidity
latter's short-term monetary policy and liquidity operations position due to disruptions in a bank's regular sources of
to be excluded from the reporting bank's NSFR computation funding that would increase the risk of its failure and
and to offset unrealized capital gains and losses related to potentially lead to broader systemic stress. The NSFR limits
these derivative transactions from ASF. These transactions overreliance on short-term wholesale funding, encourages
include foreign exchange derivatives such as foreign better assessment of funding risk across all on- and off-
exchange swaps, and should have a maturity of less than balance sheet items, and promotes funding stability.
six months at inception. As such, the bank's NSFR would not
change due to entering a short-term derivative transaction Note:-
with its central bank for the purpose of short-term monetary *Level 1: these assets is the stock of liquid assets without
policy and liquidity operations. any limit as also without applying any haircut:i. Cash
including cash reserves in excess of required CRR. ii.
Frequency of Calculation and Reporting Government securities in excess of the minimum SLR
requirement etc
Banks are required to meet the NSFR requirement on an
ongoing basis and they should have the required systems in Level 2 assets (comprising Level 2A assets and Level 2B
place for such calculation and monitoring. The NSFR as at assets), the Stock of liquid assets, subject to the requirement
the end of each quarter (starting date will be announced in that they comprise not more than 40% of the overall stock
due course) should be reported to the RBI (Department of of HQLAs after haircuts have been applied.
Banking Supervision, CO) in the prescribed format (Base-III (a) **Level 2A Assets: A minimum 15% haircut should be
Liquidity Returns-BL R 7) within 15 days from the end of the applied to the current market value. Level 2A assets are
quarter. limited i. Marketable securities representing claims on or
claims guaranteed by sovereigns, Public Sector Entities (PSEs)
NSFR Disclosure Standards or multilateral development banks that are assigned a 20%
To promote the consistency and usability of disclosures risk weight.
related to the NSFR, and to enhance market discipline, banks (b) *** Level 2B Assets: Corporate debt securities (including
will be required to publish their NSFRs according to a commercial paper) in this respect include only plain-vanilla
common template as stipulated by RBI. Banks must publish assets whose valuation is readily available. A minimum 50%
this disclosure along with the publication of their financial haircut should be applied to the current market value of
statements, irrespective of whether the financial statements each Level 2B asset held in the stock. T

BANKING FINANCE | OCTOBER | 2019 | 43