RBI Issues Comprehensive Asset Liability Management Directions for Banks (2025)
The Reserve Bank of India has issued the Reserve Bank of India (Commercial Banks – Asset Liability Management) Directions, 2025, establishing a strengthened regulatory framework for liquidity risk management across commercial banks. Issued under Section 35A of the Banking Regulation Act, these Directions apply to all commercial banks except Small Finance Banks, Payment Banks, and Local Area Banks.
A central focus of the Directions is the enhanced oversight role of the Board of Directors. Boards must define liquidity risk tolerance, approve policies, strengthen intraday liquidity strategies, review stress-test results, and ensure robust governance structures. They must also oversee internal prudential limits, including mismatches across time buckets, earnings-at-risk, and market value of equity.
The Directions prescribe a detailed, multi-layered liquidity risk management structure comprising the Board, Risk Management Committee, Asset Liability Management Committee (ALCO), and the ALM Support Group. Banks must maintain comprehensive policies covering risk identification, measurement, stress testing, funding strategies, and currency-wise liquidity planning.
Banks are required to prepare Structural Liquidity Statements (SLS) daily, track behavioural maturity profiles, and monitor mismatches within prescribed limits. Strong Management Information Systems and internal controls must ensure timely reporting and independent evaluation.
Additionally, banks must monitor off-balance-sheet exposures, bulk deposit concentrations, and inter-bank liabilities, reducing systemic vulnerabilities and reinforcing financial stability under both normal and stressed conditions.
The Reserve Bank of India’s Directions emphasise robust intraday liquidity management as a core component of banking stability. Banks must monitor daily inflows and outflows, maintain sufficient intraday funding, manage collateral efficiently, and remain prepared for disruptions. The Liquidity Coverage Ratio (LCR) framework further strengthens short-term resilience by requiring banks to hold adequate High-Quality Liquid Assets (HQLA) to withstand a 30-day stress scenario. Banks must maintain a minimum LCR of 100%, monitor liquidity across entities and currencies, and ensure assets included as HQLA meet strict quality, liquidity, and operational standards. Retail deposit classifications and outflow rules guide prudent liquidity planning.
The RBI’s Directions on liquidity, funding, and interest rate risk set comprehensive standards for banks. Cash inflows must include only fully performing loans and maturing securities, while concentration across counterparties is monitored. Liquidity risk tools cover maturity mismatch, funding concentration, available unencumbered assets, and currency-specific LCR. The NSFR ensures stable funding relative to assets and off-balance sheet exposures, assigning ASF and RSF factors based on liability stability and asset liquidity. Interest rate risk is measured via Traditional Gap and Duration Gap approaches, monitoring impacts on earnings and economic value. Banks must report, monitor, and manage risks using prescribed frameworks and reporting formats.
