expand their balance sheet rapidly by depending on cheap short - term wholesale funding. this may weaken the ability of banks to respond to liquidity shocks. nsfr seeks to discourage banks to rely on short - term wholesale funding, thereby promoting funding stability and encourages better assessment of funding risk across all on - and off - balance sheet items. the nsfr is the ratio of available stable funding to required stable funding ; it is required to be equal to at least 100 % on an on - going basis. “ available stable funding ” is that portion of capital and liabilities which is expected to be reliably available up to one year. “ required stable funding ” is the stable assets held by a bank as also, its off - balance sheet ( obs ) exposures. though the guidelines are at draft stage, i would like to flag a few issues that you may like to discuss. the nsfr standard, unlike lcr, is not being phased - in. consequently, from january 1, 2018, banks would have to maintain nsfr of at least 100 per cent. our understanding is that indian banks would be comfortable on nsfr front. as of june 2015, based on data from a sample of indian banks, the nsfr was observed to be 121 per cent, much higher than the requirement of 100 per cent. some of the issues under nsfr relate to treatment of secured funding transactions, specifically regarding the rsf factor for the amount receivable by a bank under a plain vanilla reverse repo transaction, treatment for the collateral received if held unencumbered, bis central bankers ’ speeches treatment of collateral received in secured lending transactions if the collateral has been rehypothecated, etc. these require better understanding and wider debate. one of the peculiarities of our market is collateralised borrowing and lending obligation ( cblo ). it is akin to tri - partite repo. however, presently it is treated like an unencumbered loan to financial institutions with residual maturities of less than six months, and hence, carries a rsf factor of 10 per cent. there is another view that cblo is more like level 1 hqla and must be accorded a rsf of 5 per cent. cblo is a product that is unique to india. a cblo is created against the eligible securities that become encumbered. a bank trades this cblo with a counterparty, which lends money and buys cblo. what the counterparty is buying is

an instrument that is backed by encumbered government securities. i would be glad to hear your views on this debate. treatment of derivatives under nsfr is being actively debated internationally. further, margin requirement for otc derivatives is another area that is being widely discussed. the nsfr currently treats initial margin and contribution to ccps ’ default funds ( df ) equivalently, i. e., same rsf factors. this may be because in economic terms, these two types of collateralisation are close substitutes, and may require collateral for counterparty credit risk events. however, there is a view that the objectives of these funds are different and hence the treatment should also be different, and that seeking stable funding for ccps ’ default fund contributions may dis - incentivise the role of ccps, which is contrary to the current global thinking of increasing the role of ccps. i mentioned that i will give the rationale for some of the rules we have adopted. i will confine this to some of the rules related to lcr because we have issued the final guidelines ; • recognition of sdl as level 1 hqla – rbi allows banks to include indian state government securities, also known as state development loans ( sdl ), in the hqla buffer. although the treatment of such bonds is not explicitly mentioned in the basel lcr rules text, under the basel capital framework, securities issued by regional governments / local authorities qualify for the same treatment as claims on their sovereign or central government if these governments and local authorities have specific revenue raising powers and have specific institutional arrangements the effect of which is to reduce their risk of default. • the basel standard allows residential mortgage - backed securities and corporate debt securities ( including commercial paper ) that satisfy certain conditions as level 2b assets. we have not allowed this as yet because we have to make sure that the underlying conditions are met. • lcr and monitoring tools are mandatorily applicable to all scheduled commercial banks in much the same way as the prudential guideline. this ensures a level playing field. • the coverage of assets under level 2b hqla such as equity is limited. this is because indian banks ’ investments in equity markets have been kept under close supervision and more often than not, the equities they invest in are of the kind which is not eligible to be treated as hqla. before i conclude, let me summarise. liquidity risk did not get the due attention in the past and