RBI Issues Framework for NBFC’s Liquidity Risk

RBI Issues Framework for NBFC’s Liquidity Risk

💼 RBI Issues Framework for NBFC’s Liquidity Risk

📅 Date: July 2025
 🏛️ Issued by: Reserve Bank of India (RBI)

📘 Introduction

To strengthen the financial system and improve liquidity risk management, the Reserve Bank of India (RBI) has released a revised Liquidity Risk Management Framework for Non-Banking Financial Companies (NBFCs). This move aligns with RBI’s broader vision to ensure that NBFCs remain resilient and well-equipped to handle financial shocks and market volatility.

🔍 Key Highlights of the Framework

🧮 1. Introduction of Liquidity Coverage Ratio (LCR)

NBFCs must maintain a minimum level of High-Quality Liquid Assets (HQLA) to cover potential net cash outflows over a 30-day stress period.

  • 🟢 100% LCR to be maintained by large NBFCs (asset size ₹10,000 crores and above)

  • 📆 Staggered implementation with full compliance expected by March 31, 2026

📊 2. Maturity Buckets and Cash Flow Projections

NBFCs must prepare detailed maturity ladder reports, classifying all assets and liabilities by their remaining maturity.

  • 🔁 Weekly, Monthly, and Quarterly reporting

  • 🧾 Stress testing to be done regularly based on various scenarios

📈 3. Asset-Liability Management (ALM) Enhancements

NBFCs must strengthen their ALM Committees and adopt real-time monitoring tools.

  • 🧠 Data-driven decisions using predictive models

  • 📡 Digital dashboards for early warning signals

💰 4. Liquidity Risk Tolerance Limits

NBFCs must define and disclose their liquidity risk tolerance, ensuring the board is aware of potential risk scenarios.

  • ⚠️ Identification of concentration risk

  • 🗂️ Maintenance of contingency funding plans

🔐 5. Governance and Disclosure Requirements

The framework stresses transparency and accountability in managing liquidity risk.

  • 📝 Public disclosures in annual financial statements

  • 👥 Enhanced board oversight and policy review

🧭 Implications for NBFCs

✅ Greater financial discipline
 ✅ Increased market confidence
 ✅ Better preparedness during financial shocks
 ✅ Stronger governance and investor trust

🔚 Conclusion

🔔 The RBI’s new liquidity risk framework is a significant reform to enhance the financial soundness of NBFCs. By enforcing better liquidity management practices, the RBI aims to mitigate systemic risks, improve investor confidence, and promote long-term stability in India’s financial ecosystem.

📌 NBFCs must now prioritize internal capacity-building, real-time monitoring systems, and governance improvements to ensure full compliance.

Created & Posted By Nishu Sharma

 Sales and Marketing Executive at TAXAJ      

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