Definition
Net Stable Funding Ratio (NSFR)
The Net Stable Funding Ratio requires a bank to fund its assets with sufficiently stable sources of funding over a one-year horizon.
Where the LCR addresses short-term liquidity, the NSFR addresses structural funding. It is available stable funding divided by required stable funding, and must be at least 100%, under Basel III as implemented by the RBI.
NSFR discourages banks from funding long-dated loans with flighty short-term money, reducing maturity-mismatch risk. Stable retail deposits and long-term borrowings count as good funding, while volatile wholesale funding counts for less, nudging banks toward sticky CASA and term deposits.
Related terms
- CASA (Current and Savings Account)CASA refers to the combined balances in current and savings accounts, which are a bank's cheapest source of funds.
- Basel III NormsBasel III is the global bank regulation framework, adopted by the RBI, that strengthens capital quality, adds liquidity and leverage standards, and introduces capital buffers.
- Liquidity Coverage Ratio (LCR)The Liquidity Coverage Ratio requires a bank to hold enough high-quality liquid assets to cover its net cash outflows over a 30-day stress scenario.
- Asset-Liability MismatchAn asset-liability mismatch arises when the maturity or repricing profile of a lender's assets differs from that of its liabilities, creating liquidity or interest-rate risk.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.