RBI/DOR/2025-26/330
DOR.LRG.REC.No.249/13-10-005/2025-26 November 28, 2025 Reserve Bank of India (All India Financial Institutions – Asset Liability Management) Directions, 2025 In exercise of the powers conferred by Section 45L of the Reserve Bank of India Act, 1934, and all other provisions / laws enabling the Reserve Bank of India (‘RBI’) in this regard, RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified. Chapter I – Preliminary A. Short Title and Commencement 1 These Directions shall be called the Reserve Bank of India (All India Financial Institutions – Asset Liability Management) Directions, 2025. B. Applicability 2 These Directions shall be applicable to All India Financial Institutions (hereinafter collectively referred to as ‘AIFIs’ and individually as an ‘AIFI’), viz., Export Import Bank of India (‘EXIM Bank’), National Bank for Agriculture and Rural Development (‘NABARD’), Small Industries Development Bank of India (‘SIDBI’), National Housing Bank (‘NHB’), and National Bank for Financing Infrastructure and Development (‘NaBFID’). 3 These Directions shall become effective from the date of issue. C. Definitions 4 In these Directions, unless the context otherwise requires, the terms herein shall bear the meaning as assigned to them below: (1) ‘Interest Rate Risk’ is the risk where changes in market interest rates might adversely affect an AIFI’s financial condition. (2) ‘Gap’ is the difference between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) for individual time bucket. (3) ‘Liquidity Risk’ means inability of an AIFI to meet cash and collateral obligations as they become due, without adversely affecting its financial condition. (4) ‘Stress Test’ means evaluation of the financial position of an AIFI under a severe but plausible scenario to assist in decision making within the AIFI. 5 All other expressions unless defined herein shall have the same meaning as have been assigned to them under the BR Act, the RBI Act, rules / regulations made thereunder, or any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be.
Chapter II – Role of Board A. Responsibilities of the Board 6 The Board shall have overall responsibility for management of risks and shall decide the risk management policy of an AIFl and set limits for liquidity, interest rate, exchange rate, and equity price risks. The Board shall constitute a Management Committee or any other specific Committee, that shall oversee the implementation of the Asset Liability Management (ALM) system and review its functioning periodically. B. Approval of policies, limits, and reviews 7 The Board shall formulate policy and strategy to manage liquidity risk, including the liquidity risk tolerance. 8 The Board / Asset Liability Management Committee (ALCO) shall approve the volume, composition, maximum maturity / duration, holding, and cut loss limits for the Trading Book. Where the Board is satisfied that the AIFI has necessary risk management capabilities, it shall adopt an integrated Value at Risk (VaR) limit for the entire balance sheet, including the "Banking Book" and the "Trading Book", for the rupee as well as foreign currency portfolio. 9 Where an AIFI has adequate MIS and technical capability, the Board / ALCO shall ensure to move to the modern techniques of Interest Rate Risk measurement like Duration Gap Analysis, Simulation, and Value at Risk 10 The Board / ALCO shall approve internal prudential limits for cumulative negative liquidity gaps across all time buckets. 11 The Board / ALCO shall approve the prudential limits for interest rate gaps in various time buckets. Such limits on interest rate risk shall be set as simple gap limits or in terms of impact on Net Interest Income (NII) / Net Interest Margin (NIM) or Earnings at Risk (EaR) of the AIFI. 12 The Board / ALCO shall approve the classification of components of assets and liabilities in the appropriate time buckets, through reasonable estimation of behavioural patterns, embedded options, and rolls-in and rolls-out based on past data or empirical studies. Chapter III – Asset Liability Management Governance A. Introduction 13 An AIFI shall establish an ALM framework for measuring, monitoring, and managing liquidity risk, interest rate risk, and foreign exchange risks. The system shall involve the identification and assessment of various types of risks and enable dynamic adjustment of balance sheet items (assets and liabilities) to manage these risks effectively. 14 The ALM system shall introduce a formalised framework for management of market risks through measuring, monitoring and managing liquidity, exchange rate, and interest rate risks of an AIFI that need to be closely integrated with the AIFI’s business strategy. The ALM function shall also endeavour to enforce the discipline of market risk management, viz., managing business after assessing the market risks involved. 15 ALM process rests on following three pillars: (1) ALM Information System comprising: -
Management Information System; and -
Availability, accuracy, adequacy and expediency of information. (2) ALM Organisation comprising: -
Structure and responsibilities; and -
Level of top management involvement. (3) ALM Process comprising: -
Risk parameters; -
Risk identification; -
Risk measurement; -
Risk management; and -
Risk policies and tolerance levels. B. ALM Information System 16 The ALM framework shall be supported by risk policies and tolerance limits. The Top Management shall ensure the implementation of necessary information system and availability of timely, adequate, and accurate information, which shall be central to the ALM process. 17 An AIFI shall, at a minimum, establish systems sufficient to generate liquidity gap and interest rate gap reports in accordance with these Directions. C. ALM Organisation 18 The Top Management of the AIFI shall be responsible for successful implementation of the risk management framework. The risk management framework shall be integrated with the AIFI’s basic operations and strategic decision-making. 19 An AIFI shall set up an ALCO as a decision-making unit responsible for integrated balance sheet management from a risk-return perspective, including the strategic management of interest rate and liquidity risks. While each AIFI shall define the roles, responsibilities, and powers of its ALCO, its responsibility would normally include: (1) monitoring the market risk levels of the AIFl by ensuring adherence to the various risk limits set by the Board; (2) articulating the current interest rate view and a view on future direction of interest rate movements. Future business strategy shall be aligned with the interest rate outlook as also on other parameters considered relevant; (3) deciding the business strategy of the AIFl, both on the assets and liabilities sides, consistent with the AIFl’s interest rate view, budget, and pre-determined risk management objectives. This shall, in turn, include: -
the desired maturity profile and mix of the assets and liabilities; -
product pricing on both assets and liabilities side; and -
funding strategy covering the source and mix of liabilities or sale of assets; the proportion of fixed vs. floating rate funds, wholesale vs. retail funds, money market vs. capital market funding, and domestic vs. foreign currency funding. (4) reviewing the implementation status and outcomes of the decisions taken in the previous meetings. D. Composition of ALCO 20 The composition of ALCO in an AIFI shall depend on the size of the AIFI, business mix and its organisational complexity. The CEO / CMD / DMD or the ED should head the Committee. The Top Management from various relevant functions / departments shall be represented in the ALCO. The ALCO shall include, as its members, the Heads of Investment, Credit, Resources Management, Treasury, Risk Management, and other members as deemed suitable. An AIFI shall decide the frequency of ALCO meetings. 21 An AIFI may also constitute an ALM Support Group, consisting of the operating staff, which shall be responsible for analysing, monitoring, and reporting the risk profiles to the ALCO. The staff shall also prepare forecasts (simulations) reflecting the impact of various possible changes in market conditions on the balance sheet and recommend the action needed to adhere to internal limits. E. ALM Process 22 The scope of ALM function shall cover the following: (1) Liquidity risk management; (2) Management of market risks; (3) Trading risk management; (4) Funding and capital planning; and (5) Profit planning and growth projection.
Chapter IV – Liquidity Risk Management A. Management of Liquidity Risk 23 An AIFI should assess the risks resulting from its inability to meet its obligations as they come due, because of difficulty in liquidating assets (market liquidity risk) or in obtaining adequate funding (funding liquidity risk). This assessment should include analysis of sources and uses of funds, an understanding of the funding markets in which the AIFI operates, and an assessment of the efficacy of a contingency funding plan for events that could arise. The Top Management shall consider the relationship between liquidity and capital since liquidity risk can impact capital adequacy which, in turn, can aggravate an AIFI’s liquidity risks. 24 A key element in the management of liquidity risk is the need for strong liquidity risk governance, including the setting of liquidity risk tolerance by the Board. The risk tolerance shall be communicated throughout the AIFI and be reflected in the strategy and policies that Top Management set to manage liquidity risk. Further, an AIFI shall take into account the cost, benefit, and risk of liquidity into its internal pricing, performance measurement, and new product approval process of all significant business activities. 25 An AIFI shall ensure time bucketing of contingent cash flows emanating from the off-balance sheet items as per the timing of the underlying cash flows for the purpose of compiling the liquidity and interest rate gap reports, as discussed in subsequent paragraphs. 26 An AIFI shall set up a robust framework to identify, measure, monitor, and control liquidity risk. The framework shall project cash flows arising from assets, liabilities, and off-balance sheet items over an appropriate set of time horizons. The process shall also ensure diversification in both the tenor and source of funding. 27 An AIFI shall utilise early warning indicators to identify the emergence of increased risk or vulnerabilities in its liquidity position or funding needs. It shall have the ability to control liquidity risk exposure and funding needs, regardless of its organisation structure, within and across legal entities, business lines, and currencies, taking into account any legal, regulatory and operational limitations to the transferability of liquidity. 28 An AIFI shall perform stress tests or scenario analyses on a regular basis in order to identify and quantify its exposures to possible future liquidity stresses, analysing possible impacts on the institutions’ cash flows, liquidity positions, profitability, and solvency. The results of these stress tests shall be discussed thoroughly by the Top Management. These discussions, shall form the basis for taking remedial or mitigating actions to limit the AIFI’s exposures, build up a liquidity cushion, and adjust its liquidity profile to fit its risk tolerance. The results of stress tests shall also play a key role in shaping the AIFI’s contingency funding planning, which shall outline policies for managing a range of stress events and clearly set out strategies for addressing liquidity shortfalls in emergency situations. B. Statement of Liquidity 29 An AIFI shall adopt the maturity ladder approach as the standard tool for measuring and managing net funding requirements through preparation of Statement of Liquidity as furnished in Annex-I. 30 The Maturity Profile, as detailed in Annex-III, shall be used for measuring the future cash flows of AIFIs in different time buckets. The time buckets, shall be distributed as under: (1) 1 to 14 days; (2) 15 to 28 days; (3) 29 days and upto 3 months; (4) Over 3 months and upto 6 months; (5) Over 6 months and upto 1 year; (6) Over 1 year and upto 3 years; (7) Over 3 years and upto 5 years; (8) Over 5 years and upto 7 years; (9) Over 7 years and upto 10 years; and (10) Over 10 years. 31 The securities which are held in the Trading Book shall be subject to the following preconditions: (1) The composition and volume of the Trading Book shall be clearly defined; (2) Maximum maturity / duration of the trading portfolio shall be restricted; (3) The holding period of the trading securities does not exceed 90 days; (4) Cut-loss limit(s) shall be prescribed; and (5) Such securities shall be marked-to-market on a daily / weekly basis and the revaluation gain / loss shall be charged to the profit and loss account. 32 An AIFI is permitted to slot the securities in the Trading Book, consisting of securities that comply with standards prescribed in paragraph 31, under the 1-14 days, 15-28 days, and 29-90 days buckets on the basis of the defeasance periods. 33 The Board / ALCO of the AIFI shall approve the volume, composition, maximum maturity / duration, holding / defeasance period, and cut loss limits of the Trading Book. 34 An AIFI that has the necessary risk management capabilities, shall have the option, with the approval of its Board, to adopt an integrated Value at Risk (VaR) limit for its entire balance sheet, including the "Banking Book" and the "Trading Book", for the rupee as well as foreign currency portfolio. A copy of the approved policy note in this regard, shall be submitted to the Department of Supervision (DoS), Reserve Bank of India. An AIFI shall also be guided by the Reserve Bank of India (All India Financial Institutions – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025. 35 Within each time bucket, an AIFI shall monitor mismatches arising from cash inflows and outflows. The negative gap for 1-14 days and 15-28 days time-buckets shall not exceed 10 per cent and 15 per cent respectively, of the cash outflows in each time bucket. An AIFI shall also monitor the cumulative mismatches (running total) across all time buckets by establishing internal prudential limits approved by the Board / ALCO. 36 An AIFI shall prepare the Statement of Liquidity in the format prescribed at Annex-I, by placing all cash inflows and outflows in the maturity ladder according to the expected timing of cash flows. A maturing liability shall be a cash outflow while a maturing asset will be a cash inflow. 37 The Statement of Liquidity would also take into account the rupee inflows and outflows on account of forex operations. Thus, the foreign currency resources raised abroad but swapped into rupees and deployed in rupee assets, would be reflected in the rupee liquidity statement. Rupee loans to exporter clients denominated in foreign currency in the books, which are extinguished by the export proceeds, would be part of the rupee liquidity statement since such loans are created out of rupee resources. As regards the foreign currency loans granted out of foreign currency resources on a back-to-back basis, a currency-wise liquidity statement for each of the foreign currencies in which liabilities and assets have been created, will need to be prepared in formats at Annex I-A and Annex-II-A, which are similar to the formats prescribed for rupee resources. Chapter V – Management of Currency Risk 38 In order to capture the Liquidity and Interest Rate Risk arising out of the foreign currency portfolio, an AIFI shall prepare, on an ongoing basis, currency-wise Statement of Liquidity and Interest Rate Sensitivity (IRS) Statement, separately for each of the currencies in which it has an exposure. These statements shall be prepared in the formats prescribed at Annex I-A and Annex-II-A, which are similar to the formats prescribed for the rupee resources, at Annex-I and Annex-II.
Chapter VI – Interest Rate Risk Management (IRR) A. Introduction 39 Interest rate risk from ‘earnings perspective’ is the immediate impact of interest rate changes on an AIFl's earnings (i.e., reported profits) through changes in its NII. Interest rate risk from ‘economic value perspective’ is the long-term impact of interest rate changes on an AIFl's MVE or Net Worth as the economic value of its assets, liabilities, and off-balance sheet positions get affected due to variation in market interest rates. The risk from the earnings perspective can be measured as changes in the NII or NIM. 40 An AIFI shall use the Traditional Gap Analysis (TGA) to measure the interest rate risk. Where an AIFI has adequate MIS and technical capability, it can deploy advanced techniques of interest rate risk management like Duration Gap Analysis, Simulation, and Value at Risk, with the approval of its Board / ALCO, in addition to the Gap Analysis prescribed in the Directions. B. Traditional Gap Analysis 41 Under TGA, an AIFI shall measure Gap or Mismatch risk by calculating Gaps, i.e., difference between rate sensitive liabilities and rate sensitive assets (including off-balance sheet positions), over different time intervals at a given date. An asset or liability is normally classified as rate sensitive where: (1) within the time interval under consideration, there is an associated cash flow; (2) the associated interest rate resets / re-prices contractually during the interval; (3) it is contractually pre-payable or withdrawable before the stated maturities; and (4) It is dependent on the changes in the Policy Rates by RBI. 42 An AIFI shall prepare the Gap Report by grouping rate sensitive liabilities, assets and off-balance sheet positions into time buckets according to residual maturity or next re-pricing period, whichever is earlier. All investments, advances, deposits, borrowings, and purchased funds, that mature / re-price within a specified timeframe, shall be treated as interest rate sensitive. Any principal repayment of loan, including final principal payment and interim instalment expected to be received within the time horizon shall also be classified as rate sensitive. Interest bearing assets and liabilities that vary with a reference rate and reprice at pre-determined intervals shall be treated as rate sensitive at the time of repricing. While the interest rates on term deposits are fixed during their currency, the tranches of advances portfolio with floating rates shall be treated as rate sensitive. C. Interest Rate Sensitivity Statement 43 An AIFI shall prepare Interest Rate Sensitivity statement as per the reporting format provided in Annex-II. 44 An AIFI shall identify the interest rate gaps in the following time buckets: (1) 1-28 days; (2) 29 days and upto 3 months; (3) Over 3 months and upto 6 months; (4) Over 6 months and upto 1 year; (5) Over 1 year and upto 3 years; (6) Over 3 years and upto 5 years; (7) Over 5 years and upto 7 years; (8) Over 7 years and upto 10 years; (9) Over 10 years; and (10) Non-sensitive. 45 An AIFI shall slot the securities in the Trading Book as per their residual maturity or repricing maturity for floating rate securities. The various items of rate sensitive assets, liabilities and off-balance sheet items shall be classified into respective time-buckets, as explained in Annex-IV. 46 An AIFI shall set prudential limits on individual Gaps with the approval of the Board / ALCO. The prudential limits shall have a relationship with the Total Assets, Earning Assets, or Equity. In addition to the interest rate gap limits, an AIFI which has adequate systems in place may set the prudential limits linked to EaR or NIM based on its views on interest rate movements, with the approval of the Board / ALCO. Chapter VII – General A. Behavioural Pattern and Embedded Options 47 The classification of various components of assets and liabilities into different time buckets for preparation of Gap reports (Liquidity and Interest Rate Sensitivity) may be as indicated in Annex-I and Annex-II. 48 However, an AIFI which is better equipped to reasonably estimate the behavioural pattern, embedded options, rolls-in and rolls-out, etc., of various components of assets and liabilities on the basis of past data / empirical studies may choose to classify them in the appropriate time buckets, subject to the approval from its ALCO / Board. A copy of the note approved by the ALCO / Board shall be sent to the Department of Supervision (DoS), RBI. 49 An AIFI shall assess and manage the risk arising from embedded options such as premature closure of term deposits, early encashment of bonds, and prepayment of loans and advances, which can significantly affect its liquidity and interest rate risk profile, particularly during periods of market volatility. An AIFI shall develop suitable mechanism, supported by empirical studies and behavioural analysis, to estimate the future behaviour of assets, liabilities, and off-balance sheet items to changes in market variables and estimate the impact of embedded options. In the absence of adequate historical database, an AIFI shall classify the entire amount payable under the embedded options in the maturity ladder according to the residual period up to the earliest exercise date. B. Internal Transfer Pricing 50 An AIFI shall implement a scientifically designed internal transfer pricing (ITP) mechanism as part of its ALM system. The ITP model will assign value to funds provided and funds used based on prevailing market interest rates and support effective measurement and management of lending or credit spread, funding or liability spread, and mismatch spread. The transfer pricing mechanism shall enable centralisation of interest rate risk management, thereby facilitating effective oversight and control, and also provide a rational and consistent framework for the pricing of assets and liabilities. Chapter VIII – Monitoring and Reporting A. Preparation and Review of Statements 51. An AIFI shall prepare the Statement of Liquidity on a fortnightly basis, as per Chapter IV. 52. An AIFI shall prepare the Interest Rate Sensitivity statement on a monthly basis, as per Chapter VI. 53. Top Management / Board/ ALCO shall regularly review these statements and formulate corrective measures and devise suitable strategies wherever needed. B. Regulatory Reporting and Periodicity of Returns 54. An AIFI shall submit the Statement of Liquidity and the Interest Rate Sensitivity Statement to Department of Supervision (DoS), RBI on a quarterly basis. Chapter IX – Repeal and Other Provisions A. Repeal and Saving 55 With the issue of these Directions, the existing Directions, instructions, and guidelines relating to Asset Liability Management as applicable to All India Financial Institutions stands repealed, as communicated vide circular DOR.RRC.REC.302/33-01-010/2025-26 dated November 28, 2025. The Directions, instructions and guidelines already repealed shall continue to remain repealed. 56 Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions, or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions. Further, the repeal of these directions, instructions, or guidelines shall not in any way prejudicially affect: (1) any right, obligation or liability acquired, accrued, or incurred thereunder; (2) any, penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder; (3) any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions, instructions, or guidelines had not been repealed. B. Application of other laws not barred 57 The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations, or Directions, for the time being in force. C. Interpretations 58 For the purpose of giving effect to the provisions of these Directions or in order to remove any difficulties in the application or interpretation of the provisions of these Directions, the RBI may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the RBI shall be final and binding. (Sunil T S Nair)
Chief General Manager |