RBI/DOR/2025-26/310
DOR.LRG.REC.No.229/13-10-007/2025-26 November 28, 2025 Reserve Bank of India (Rural Co-operative Banks – Asset Liability Management) Directions, 2025 In exercise of the powers conferred by Section 35A read with Section 56 of the Banking Regulation Act, 1949 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 (Rural Co-operative Banks – Asset Liability Management) Directions, 2025. 2 These Directions shall come into effect from the date of issue. B. Applicability 3 These Directions shall be applicable to Rural Co-operative Banks (hereinafter collectively referred to as 'banks' and individually as a 'bank'). In this context, rural co-operative banks shall mean State Co-operative Banks and Central Co-operative Banks, as defined in the National Bank for Agriculture and Rural Development Act, 1981. C. Definitions 4 In these Directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below: (1) 'Defeasance period' means time taken to liquidate the investment in securities on the basis of liquidity in the secondary market. (2) 'Interest Rate Risk' is the risk where changes in market interest rates might adversely affect a bank's financial condition. (3) 'Embedded Options' means customers exercising their options (premature closure of deposits and prepayment of loans and advances). 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 the Board A. Responsibilities of the Board 6 The Board shall have an overall responsibility for risk management and shall decide the risk management policy of a bank including Asset Liability Management (ALM) Policy, and set limits for liquidity, interest rate, and equity price risks. 7 The Management Committee of the Board or any other specific Committee constituted by the Board shall oversee the implementation of the ALM system and review its functioning periodically. 8 The Board shall be responsible for providing adequate information to the stakeholders. B. Board approved policies, limits, and reviews 9 The Board / Management Committee shall approve internal prudential limits for cumulative mismatches (running total) across all time buckets of the structural liquidity statement (SLS) for monitoring by a bank. 10 The business and risk management strategy of the bank should ensure that the bank operates within the limits / parameters set by the Board. 11 The Board / Asset-Liability Management Committee (ALCO) of a bank shall approve the volume, composition, holding / defeasance period, and cut-loss limits for the investments in the 'current category'. 12 The Board / Management Committee of a bank shall approve prudential limits on individual gaps in Interest Rate Sensitivity (IRS). The prudential limits shall be based on the Total Assets, Earning Assets, or Equity. The Board / Management Committee of bank shall also approve a prudent level of Earnings at Risk (EaR) or Net Interest Margin (NIM). 13 The Board / ALCO of bank shall approve the estimates of 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 for classification of the same in the appropriate time buckets. Chapter III – Asset Liability Management Governance A. Introduction 14 A bank shall establish an ALM system that offers a comprehensive and dynamic framework for measuring, monitoring, and managing liquidity, interest rate, currency / foreign exchange, and equity price risks. The ALM framework shall be closely aligned with the bank's business strategy. 15 The bank shall use the ALM function to promote risk management discipline by making informed business decisions that account for inherent risks. ALM decisions shall be integrated, addressing asset-liability mix and maturity structure simultaneously. 16 The ALM system shall be developed into a strategic tool for a bank's management, clearly specifying the risk policies and tolerance limits. 17 A bank shall ensure that the ALM process encompasses the following: (1) Planning, directing and controlling the flow, mix, cost, and yield of the consolidated funds; (2) Assessment of various asset mixes, funding combinations, price volume relations, and their implications on Liquidity, Income, and Capital ratio; (3) Planning procedure covering all assets and liabilities by rate, amount, and maturity; (4) Management of the Net Margin to ensure that its level and riskiness are comparable with the risk / return objectives of a bank; (5) Simultaneous management of assets and liabilities for the purpose of mitigating the impact of the interest rate risk, providing liquidity, and enhancing the market value of equity; and (6) Managing the income spread while controlling the related risks. 18 A bank shall implement the ALM system on the following three pillars: (1) ALM Information Systems; (2) ALM Organisation; and (3) ALM Process. B. ALM Information Systems 19 A bank shall align its ALM operations within the risk policies and tolerance limits approved by the Board. The Top Management of the bank shall put in place a robust Management Information System (MIS) to facilitate timely and accurate data collection. A bank shall evolve the MIS to better capture the risk parameters, measurement of identified risks, and their management. 20 A bank shall supplement its balance sheet, income and cash flow statements with risk disclosures to promote efficient resource allocation, enforce financial discipline, enhance transparency and reflect its true financial health. C. ALM Organization 21 A bank shall establish an ALCO comprising its Top Management, including the CEO. The ALCO shall meet regularly, ensure compliance with Board-approved limits, and align asset-liability strategies with budget and risk objectives. 22 The size (number of members) of ALCO shall depend on the size of the bank's business mix and organisational complexity. The CEO / MD or General Manager shall head the ALCO, and Heads of Investment, Credit and Strategy, Resources Management, Treasury and Risk Management can be members of the ALCO, along with other members, as deemed suitable. The Head of IT will be a special invitee. A bank, at its discretion, may have Sub-Committees and Support Groups. 23 The ALM Support Group consisting of operating staff shall be responsible for analysing, monitoring, and reporting the risk profiles to the ALCO. The staff shall also prepare forecasts (simulations) showing the effects of various possible changes in market conditions related to the balance sheet and recommend the action needed to adhere to prescribed internal limits. 24 The ALCO shall be responsible for balance sheet planning from risk-return perspective, including the strategic management of interest rate and liquidity risks. A bank shall define the roles and responsibilities of its ALCO, as also the decisions to be taken by it. A bank's business and risk management strategy shall ensure that it operates within the limits / parameters set by the Board. 25 The agenda / typical business of ALCO shall include the following: (1) Review of progress in implementation of the decisions made in the previous meetings; (2) Review of Assets and Liabilities position; (3) Review of Structural Liquidity position; (4) Review of Dynamic Liquidity Statement; (5) Review of Interest Rate Sensitivity Statement; (6) Pricing of both deposits and advances and suggest desired maturity profile and mix of the incremental assets and liabilities; (7) Review of various risks likely to be faced by the bank such as Liquidity, Interest Rate, Forex risk, etc; (8) Review of the impact of the regulatory changes on the industry; (9) Review of the variances in actual and projected performances with regard to Net Interest Margin (NIM), spreads, and other balance sheet ratios; (10) Decide the introduction of any new loan / deposit product and its impact on interest rate / exchange rate and other market risks; and (11) Oversee the budgetary process. 26 The agenda indicated above is illustrative and not exhaustive. A bank shall incorporate such other issues which, in its opinion, need to be discussed in the Committee based on the local conditions. A bank shall take a view on whether all the agenda items are required to be discussed in all the meetings, and agenda can be fixed for each meeting depending upon the emergent needs and priority. 27 A bank shall decide the frequency for holding its ALCO meetings, as also take steps for capacity building of the Nodal Officer and other officers involved in ALM functions. D. ALM Process 28 The bank shall ensure that the ALM process covers the following functional areas with focus on liquidity and interest rate risks: (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. Introduction 29 A bank's management shall measure its liquidity position on an ongoing basis, as also evaluate liquidity requirements under different assumptions by putting in place a system for ascertaining its cash flow mismatches periodically. B. Maturity / Cash flow mismatches 30 A bank shall use maturity ladder tool to measure and manage net funding requirements. A bank shall use the Structural Liquidity Statement (SLS) at Annex-I for calculation of cumulative surplus or deficit of funds at selected maturity dates. 31 A bank shall use the Maturity Profile as given in Annex-IV for measuring the future cash flows 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; and (8) Over 5 years. 32 The SLS shall place 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 shall be a cash inflow. A bank shall make appropriate assumptions according to its asset-liability profile while determining the likely cash inflows and outflows. A bank shall also take into account all relevant factors, based on its asset-liability base, and nature of business while determining the tolerance levels. 33 A bank shall primarily focus on the short-term mismatches (1-14 days and 15-28 days). The mismatches (negative gap) in the 1-14 days and 15-28 days buckets shall not exceed 20 per cent of the cash outflows in the respective time buckets. 34 A bank shall monitor its cumulative mismatches (running total) across all time buckets by establishing internal prudential limits with the approval of the Board / Management Committee. 35 A bank's investment in SLR securities and other investments in permanent category shall be shown under respective maturity buckets, corresponding to the residual maturity. 36 A bank maintaining securities in the 'current' category, distinct from investments made for complying with the Statutory Reserve requirements and for retaining relationship with customers, shall be permitted to place such trading securities into 1-14 days, 15-28 days, and 29-90 days buckets on the basis of the defeasance periods, provided following conditions are met: (1) Composition and value are clearly defined; (2) Maximum maturity / duration of the portfolio is restricted; (3) The holding period does not exceed 90 days; (4) Defeasance period is prescribed product-wise; and (5) Securities are 'Marked to market' as per extant regulatory instructions. 37 The Board / ALCO of a bank shall approve the volume, composition, holding / defeasance period and cut-loss limits of the 'current category' investments. A copy of the approved policy note shall be forwarded to the Department of Supervision, NABARD, and Financial Inclusion and Development Department (FIDD), RBI under advice to the respective Regional Office. C. Dynamic Liquidity Assessment 38 A bank shall estimate its short-term liquidity profiles on the basis of business projections and other commitments for planning purposes, to monitor its short-term liquidity on a dynamic basis over a time horizon spanning from 1-90 days, as per format of Statement of Dynamic Liquidity provided in Annex-II. D. Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) for Scheduled StCB 39 A Scheduled State Cooperative Bank (StCB) which is Core Banking Solution (CBS) enabled and maintains a Capital to Risk-weighted Assets Ratio (CRAR) of at least 9 per cent shall be eligible to access the Liquidity Adjustment Facility (LAF) and the Marginal Standing Facility (MSF). 40 The terms and conditions for availing LAF and MSF would be as per the instructions issued by Financial Markets Operations Department (FMOD) of the Reserve Bank of India from time to time. 41 The Department of Regulation (DoR) shall communicate to the FMOD, the list of Scheduled StCBs eligible to participate in LAF and MSF ("Positive List") and the list of Scheduled StCBs found ineligible ("Negative List"). 42 The eligibility status of a Scheduled StCB in the Positive List shall be reviewed on an ongoing basis to ensure that the CRAR requirement is being complied with. Chapter V – Interest Rate Risk (IRR) Management A. Introduction 43 Interest rate risk from 'earnings perspective' is the immediate impact of interest rate changes on bank's earnings (i.e., reported profits) through changes in its Net Interest Income (NII). Interest rate risk from 'economic value' perspective is long-term impact of interest rates changes on bank's Market Value of Equity (MVE) or Net Worth as the economic value of bank's 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 Net Interest Margin (NIM). A bank shall follow the Traditional Gap Analysis to measure the Interest Rate Risk. 44 A bank is expected to gain sufficient expertise and sophistication in acquiring / handling MIS and transit to the modern techniques of Interest Rate Risk measurement like Duration Gap Analysis, Simulation, and Value at Risk (VaR). B. Traditional Gap Analysis 45 The Gap or Mismatch risk shall be measured by calculating Gaps over different time intervals as at a given date, by preparing the Interest Rate Sensitivity Statement as per format given in Annex-III. 46 'Gap analysis' means measurement of 'Gap', i.e., mismatches between rate sensitive liabilities (RSL) and rate sensitive assets (including off-balance sheet positions) through a Gap Report generated by grouping rate sensitive liabilities, assets and off-balance sheet positions into time buckets according to residual maturity or next repricing period, whichever is earlier. 47 The Gap reports shall cover the following aspects: (1) Segregations of assets and liabilities into various time buckets based on residual maturity or next repricing period, whichever is earlier; (2) Calculation of gaps within the bucket; (3) Calculation of cumulative gaps; and (4) Review assets and liabilities that reprice in different time buckets. C. Interest Rate Sensitivity Statement 48 The rate sensitive liabilities, assets, and off-balance sheet positions shall be grouped into time buckets based on residual maturity or next repricing period, whichever is earlier to prepare a gap report. The Gaps shall be identified 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 (8) Non-sensitive. 49 The various items of rate sensitive assets (RSA), rate sensitive liabilities (RSL) and OBS items shall be classified as explained in Annex-V. 50 A positive Gap (RSA > RSL) indicates that the bank is in a position to benefit from rising interest rates, while a negative Gap (RSL > RSA) indicates that the bank is in a position to benefit from declining interest rates. 51 A bank shall set prudential limits on individual Gaps with the approval of the Board / Management Committee. The prudential limits shall be based on the Total Assets, Earning Assets, or Equity. A bank shall also work out Earnings at Risk (EaR), or Net Interest Margin (NIM), based on its views on interest rate movements and fix a prudent level with the approval of the Board / Management Committee. Chapter VI – General A. Behavioural Patterns 52 Notwithstanding guidance provided in Annex-IV and Annex-V, a bank 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 shall classify the same in the appropriate time buckets, subject to approval from the ALCO / Board. A copy of the note approved by the ALCO / Board shall be sent to the Department of Supervision, NABARD and FIDD, RBI under advice to the respective Regional Office. B. Embedded Options 53 A bank shall evolve suitable mechanism, supported by empirical studies and behavioral analysis to estimate the future behaviour of assets, liabilities, and off-balance sheet items to the changes in market variables and estimate the embedded options. C. Transfer Price Mechanism 54 A bank shall follow a well-defined 'transfer pricing system' which provides a rational framework for pricing of assets and liabilities. A scientifically evolved 'internal transfer pricing model', that assigns values on the basis of current market rates to the funds provided / used, is an important component for effective implementation of ALM system. The 'Transfer Price Mechanism' (TPM) would enhance the management of margin, i.e., lending or credit spread, the funding or liability spread, and mismatch spread. It also helps centralising interest rate risk at one place which facilitates effective control and management of interest rate risk. D. Financial Reporting and Role of Auditors 55 The Board shall ensure that adequate financial information is disclosed to stakeholders in order to promote market discipline. The authenticity of financial statements shall be certified by the auditors, whose independence shall be ensured by the bank. The auditors shall exhibit the highest standards of integrity in the conduct of their responsibilities. Chapter VII – Monitoring and Reporting 56 A bank may submit the two ALM returns, viz., Structural Liquidity Statement (SLS) and Interest Rate Sensitivity (IRS) Statement at quarterly intervals. Formats of the returns are as per Annex I and Annex III. Further, a bank shall refer to relevant supervisory guidelines from NABARD for submission timelines for all ALM returns. Chapter VIII – Repeal and Other Provisions A. Repeal and Saving 57 With the issue of these Directions, the existing Directions, instructions, and guidelines relating to Asset Liability Management as applicable to Rural Co-operative Banks 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. 58 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 59 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 60 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 |