The Reserve Bank of India in order to strengthen and raise the standard of the Asset Liability Management (ALM) framework, issued a Circular on 04.11.2019 (DOR.NBFC (PD) CC. No.102/03.10.001/2019-20) introducing Liquidity Risk Management Framework for Non-Banking Financial Companies and Core Investment Companies, the key applicability and requirements as given in the Circular are enlisted hereinbelow—

1. Guidelines on Liquidity Risk Management Framework
1. Applicability
1. Non-deposit taking NBFCs with asset size of Rs. 100 crore and above
2. Systemically important Core Investment Companies;
3. All deposit taking NBFCs irrespective of their asset size.

   *Not applicable to Type 1 NBFC-NDs (irrespective of size neither having customer interface nor accessing public funds), Non-Operating Financial Holding Companies and Standalone Primary Dealers, although the same may be adopted voluntarily.

2. Responsibility

   The board of NBFCs must ensure adherence to the guidelines. The internal controls as per these guidelines shall be subject to supervisory review.

3. Additional Requirements in addition to the existing guidelines

   The current regulatory prescriptions applicable to NBFCs on ALM framework have been recast under Annex-A of the Circular, additional features as introduced are listed hereinbelow—

1. Granular Maturity Buckets and Tolerance Limits

Segregation of Statement of Structural Liquidity (1-30 day time bucket)	Net cumulative negative mismatches cannot exceed cumulative cash outflows in respective bucket (in %)
1-7 days	10%
8-14 days	10%
15-30 days	20%

• Must monitor cumulative mismatches (running total) across all other time buckets upto 1 year by establishing internal prudential limits with the approval of the Board.
• The above granularity in the time buckets would also be applicable to the interest rate sensitivity statement required to be submitted by NBFCs.
2. Liquidity risk monitoring tools

   NBFCs shall adopt liquidity risk monitoring tools/metrics in order to capture strains in liquidity position, if any, tools to cover the following—

• concentration of funding by counterparty/ instrument/ currency;
• availability of unencumbered assets that can be used as collateral for raising funds; and
• certain early warning market-based indicators, such as, book-to-equity ratio, coupon on debts raised, breaches and regulatory penalties for breaches in regulatory liquidity requirements.

The Board of NBFCs shall put in place necessary internal monitoring mechanism in this regard.

3. Adoption of “stock” approach to liquidity
• Monitor liquidity risk based on a “stock” approach to liquidity by way of predefined internal limits as decided by the Board for various critical ratios pertaining to liquidity risk.
• Indicative liquidity ratios are—
• short-term liability to total assets;
• short-term liability to long-term assets;
• commercial papers to total assets;
• non-convertible debentures (NCDs) (original maturity less than one year) to total assets;
• short-term liabilities to total liabilities;
• long-term assets to total assets, etc.
4. Extension of liquidity risk management principles

   Cover other aspects of monitoring and measurement of liquidity risk, viz., off-balance sheet and contingent liabilities, stress testing, intra-group fund transfers, diversification of funding, collateral position management, and contingency funding plan.

2. Introduction of Liquidity Coverage Ratio (LCR)

   In addition to the above, the following categories of NBFCs (except Core Investment Companies, Type 1 NBFC-NDs, Non-Operating Financial Holding Companies and Standalone Primary Dealers) to adhere with condition of LCR and other requirements as provided in Annex B to the Circular—

1. Category I
1. Applicability
• All non-deposit taking NBFCs with asset size of Rs. 10,000 crore and above;
• All deposit taking NBFCs irrespective of their asset size.
2. Requirement
• Maintain a liquidity buffer in terms of LCR to promote resilience of NBFCs to potential liquidity disruptions by ensuring that they have sufficient High Quality Liquid Asset (HQLA) to survive any acute liquidity stress scenario lasting for 30 days.
• The stock of HQLA to be maintained by the NBFCs shall be minimum of 100% of total net cash outflows over the next 30 calendar days.
• The LCR requirement shall be binding on NBFCs from December 1, 2020 with the minimum HQLAs to be held being 50% of the LCR, progressively reaching up to the required level of 100% by December 1, 2024, as per the time-line given below:

From	December 1, 2020	December 1, 2021	December 1, 2022	December 1, 2023	December 1, 2024
Minimum LCR	50%	60%	70%	85%	100%

2. Category II
1. Applicability

   All non-deposit taking NBFCs with asset size of Rs. 5,000 crore and above but less than Rs. 10,000 crore.

2. Requirement

   Maintain the required level of LCR from December 1, 2020, as per the time-line given below:

From	December 1, 2020	December 1, 2021	December 1, 2022	December 1, 2023	December 1, 2024
Minimum LCR	30%	50%	60%	85%	100%