The Reserve Bank of India vide its notification dated 29th September 2020 has decided to defer the implementation of NSFR guidelines by a further period of six months. The guidelines shall now come into effect from April 1, 2021.
The NSFR guidelines will ensure reduction in funding risk over a longer time horizon by requiring banks to fund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress.
The objective of NSFR is to ensure that banks maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. A sustainable funding structure is intended to reduce the probability of erosion of a bank’s liquidity position due to disruptions in a bank’s regular sources of funding that would increase the risk of its failure and potentially lead to broader systemic stress. The NSFR limits overreliance on short-term wholesale funding encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability.
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