challenges in liability management : maintaining the balance 1 at the outset, i would like to thank the organisers for inviting me to this 17th edition of the mint bfsi summit & awards. i am delighted to get this opportunity to engage with you during this event. as a regulator for banks and non - banking financial companies ( nbfcs ), i thought this could be an occasion to reflect on a less debated area for the regulated entities - their liabilities management and the challenges. in flagging the mismatch between deposit and credit growth, governor das had previously drawn our attention to the rising challenge in this area. so, i thought of wading in with a few thoughts for your consideration. introduction 2. the core function of banking involves accepting deposits, which are usually shortterm, and funding loans, which generally have longer maturities. maturity transformation is thus an inherent feature of financial intermediation and banks are strongly exposed to the associated risks. as a result, strategic management of assets and liabilities is crucial to optimise profitability, improve liquidity and protect the bank against various risks. historically, regulatory frameworks, including the basel i and ii, placed a greater emphasis on the asset side of the balance sheet, focusing on credit risk management and capital adequacy. this focus arises from the belief that credit defaults and asset deterioration pose the main threats to a bank's solvency. liquidity and funding risks, primarily stemming from liabilities, were largely viewed as an issue that banks could manage themselves without requiring any regulatory oversight and intervention. 3. the global financial crisis ( gfc ) of 2008, during which banks faced vulnerabilities on both sides of the balance sheet, challenged this approach resulting in profound changes to the banking sector ’ s regulatory framework. during the crisis, many banks experienced liquidity crisis leading to insolvencies despite adherence to capital requirements, highlighting the fragility of funding structures reliant on short - term liabilities. this underscored the systemic importance of liquidity management and the need for regulatory oversight beyond asset - side vulnerabilities. the policy response was a paradigm shift that led to prescribing comprehensive global liquidity standards viz. liquidity coverage ratio ( lcr ) and net stable funding ratio ( nsfr ) which targeted short - term and medium - term liquidity resilience. keynote address delivered by shri m. rajeshwar rao, deputy governor at mint annual bfsi

profitability. the credit supply tensions that have arisen on several occasions in recent months are a reflection of these factors. on the other hand firms have seen their scope for self - financing diminish and the volume of overdue payments from general government sky - rocket. in such a situation, even healthy businesses need to be able to count on the availability of sufficient external sources of financing. m. pagano, f. panetta and l. zingales, “ why do companies go public? ” journal of finance, liii, no. 1, 1998, suggest that the relative underdevelopment of the italian stock market depends on firms ’ unwillingness to accept the obligations of transparency that listing entails. the impact of listing on the cost of credit is studied in pagano, panetta and zingales, op. cit. the effect of bond market access on the interest rates on bank loans is studied in f. panetta, 2001, “ le banche e i servizi finanziari alle imprese ”, address to the conference la concorrenza nell ’ offerta di servizi finanziari : mercati, banche e altri operatori, associazione per gli studi di banca e borsa, sadiba. bis central bankers ’ speeches this dangerous stalemate – the combined effect of a reduced supply of credit and the productive system ’ s increased dependence on external finance – can be overcome by enlarging direct recourse to the markets, with considerable benefits for firms and banks alike. in the present phase of the cycle, the benefits for firms of being able to access otherwise unavailable funds outweigh the costs of disclosure. the advantages of diversified sources of funding, greater negotiating power in raising bank loans, and the reputational gain that comes with access to the markets are another inducement towards openness and transparency. expanding the sources of funding requires a major commitment by businesses to increase the transparency of their financial statements, take concrete steps to open up to outside parties, and strengthen their capital base as a sign of confidence in the company ’ s soundness. it is unrealistic to suppose that today ’ s markets would be willing to support opaque or under - capitalized projects. the potential benefits are considerable for banks as well. to begin, chaperoning businesses in the market would allow banks to avoid the deterioration in credit risks that rationing their clientele might otherwise