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RBI to extend ALM guidelines to NBFCs

K Ram Kumar & Yashajit Saha

The Reserve Bank of India (RBI) will soon come out with an elaborate asset-liability management (ALM) guidelines for non-banking finance companies (NBFCs) to put them on an even footing with the commercial banks in the country.

The need for ALM mechanism has arisen because the NBFCs, like the commercial banks, face significant mismatch between assets and liabilities with implications for risks - interest rate as well as liquidity risks.

This move to come out with the guidelines for NBFCs is pursuant to the RBI governor's announcement in the last credit policy that these financial entities need to have comprehensive ALM systems in a bid to monitor and control risks.

"With both the NBFCs and banks offering the same range of services, save for the latter having the ability to issue cheques, there is felt a need to have an asset-liability management system in place to contain significant mismatches in assets and liabilities. This will avert an adverse fallout on liquidity and solvency of the sector," sources said.

The apex bank has already circulated draft guidelines on ALM among the NBFCs seeking feedback.

The proposed guidelines are likely to introduce two returns - covering liquidity risk management and interest rate risk management for the purpose of supervisory returns, they added.

Sources pointed out that management information system (MIS) was the most important element of any risk management strategy.

Though the larger non-banking finance players were fairly advanced in computerisation, the middle and small players will require to put in place strong database and data mining applications to study and also to monitor the relationship between the various financial parameters affecting their functioning.

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