Direct Tax
Consulting
ESG Advisory
Indirect Tax
Growth Advisory
Internal Audit
BFSI Audit
Industry Audit
Valuation
RBI Services
SEBI Services
IRDA Registration
AML Advisory
IBC Services
Recovery of Shares
NBFC Compliance
IRDA Compliance
Finance & Accounts
Payroll Compliance Services
HR Outsourcing
LPO
Fractional CFO
General Legal
Corporate Law
Debt Recovery
Select Your Location
The set of liquidity risk management criteria listed below must be followed by all non-deposit-taking NBFCs with assets of ₹100 crore or more, systemically important Core Investment Companies, and all deposit-taking NBFCs regardless of asset size. However, these regulations will not cover Type NBFC-NDs, Non-Operating Financial Holding Companies, and Standalone Primary Dealers.
The Board of each NBFC will be in charge of making sure that the rules are followed. The internal controls NBFCs must implement by these standards must pass supervisory inspection. Additionally, all other NBFCs are urged to voluntarily follow similar liquidity risk management principles as a matter of caution.
Although parts of the current regulatory requirements that apply to NBFCs regarding the ALM framework have been rewritten, certain new features, such as disclosure criteria, have also been included, and the detailed rules are provided in Annex A.
All non-deposit-taking NBFCs with asset sizes of at least 10,000 crore and all deposit-taking NBFCs, regardless of asset size, shall maintain a liquidity buffer in terms of LCR. This will help NBFCs be more resilient to potential liquidity disruptions by ensuring they have enough High-Quality Liquid Asset (HQLA) to last through any acute liquidity stress scenario lasting 30 days. The LCR requirement will be mandatory for NBFCs starting on December 1, 2020, with the minimum amount of HQLAs to be held being 50% of the LCR. According to the timeline below, this amount will rise to 100% by December 1, 2024.
Non-deposit-taking NBFCs with asset sizes of ₹ 5000 crore and above but less than ₹10,000 crore shall maintain the required level of LCR starting on December 1, 2020, as per the timeline.
All deposit-taking NBFCs except NBFC-NDs, Non-Operating Financial Holding Companies, and Standalone Primary Dealers and non-deposit-taking NBFCs with asset sizes of ₹100 crore and above, as well as systemically important Core Investment Companies, must abide by the rules outlined below. The Board will be in charge of making sure that the rules are followed.
The internal controls that NBFCs are required to implement in accordance with these standards must pass supervisory inspection. Additionally, all other NBFCs are urged to voluntarily follow similar liquidity risk management principles as a matter of caution. The guidelines cover the following elements of the framework for liquidity risk management.
The Board of the NBFC shall establish a liquidity risk management framework to ensure that it maintains adequate liquidity3, including a cushion of unencumbered, high-quality liquid assets to withstand a variety of stress events, including those involving the loss or impairment of both unsecured and secured funding sources. The entity-level liquidity risk tolerance, funding strategies, prudential limits, a system for measuring, stress testing framework, assessing, and reporting/reviewing liquidity, liquidity planning under alternative scenarios/formal contingent funding plan, nature and frequency of management reporting, periodic review of assumptions used in liquidity projection, etc., must all be spelt out in this document.
The following are important components of the framework for managing liquidity risk:
The NBFC’s senior management must successfully implement any risk management strategy, which must show a strong commitment to integrating risk management into fundamental operations and strategic decision-making. The Chief Risk Officer nominated by the NBFC shall be involved in identifying, measuring, and mitigating liquidity risks. A good organisational structure for managing liquidity risk should be as follows:
An NBFC must have a dependable MIS built to give the Board and ALCO accurate information about the liquidity position of the NBFC and the Group in both regular and emergency circumstances. It should be able to provide more precise and timely information during stressful situations, and it should be able to capture all sources of liquidity risk, including contingent risks and those resulting from new activities.
An NBFC must have the proper internal controls, systems, and procedures in place to ensure adherence to liquidity risk management policies and processes. According to management, the various parts of the NBFC’s liquidity risk management process should be reviewed and assessed regularly by an impartial party.
The use of a maturity ladder and the computation of the cumulative surplus or deficit of funds at chosen maturity dates is used as a standard instrument for assessing and managing net funding requirements. The future cash flows of NBFCs should be estimated using the Maturity Profile throughout various periods.
To measure and monitor certain crucial ratios for liquidity risk, NBFCs must use a “stock” method, with internal restrictions that their Board has authorized. The ratios and internal restrictions must take into account an NBFC’s expertise, track record, and profile in managing liquidity risk.
The risk profile of an NBFC’s balance sheets with foreign assets or liabilities takes on a new dimension as a result of exchange rate volatility. The NBFCs‘ Board should be aware of the liquidity risk posed by such exposures and make appropriate preparations for controlling the risk.
NBFCs must manage interest rate risk in accordance with current regulatory requirements.
One of the methods for required monitoring is now the Statement of Structural Liquidity. Additionally, the Board of the NBFC shall implement the following instruments for internal monitoring of liquidity requirements:
The Board or committee established for the purpose shall keep track regularly of changes to listed NBFCs’ book-to-equity ratios and the interest rates at which they issue long- and short-term debt. This also offers details on any possible regulatory liquidity requirement breaches or penalties.
The guidelines on the Liquidity Risk Management Framework for Non-Banking Financial Companies and Core Investment Companies are framed to enhance the liquidity risk management of NBFCs. Also, to ensure the proper governmental rules are proactively implemented to maintain the interest of their stakeholders.
On January 16, 2025, the Reserve Bank of India (RBI) released the list of Non-Banking Financial...
Over the decades, the Oil and Natural Gas Corporation (ONGC) has been a key pillar in the portf...
The Reserve Bank of India, on April 11, 2025, posted a Press Release No. 2025-2026/96 on their...
Hong Kong is widely recognized as a leading global business hub, known for its free-market econ...
With India’s growing economy, Non-Banking Financial Companies (NBFCs) have expanded significa...
Are you human?: 7 + 7 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
On October 22, 2021, the Reserve Bank of India announced a scale based revised regulatory framework for NBFCs with...
13 Sep, 2022
The Reserve Bank of India has given permission for CRIF Connect Private, a subsidiary of CRIF S.P.A., to begin oper...
30 Mar, 2023