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CMA Final · Risk Management in Banking and Insurance · Liquidity Risk Management

A bank's Net Stable Funding Ratio (NSFR) under Basel III is computed as available stable funding divided by required stable funding. Bank Kaveri has available stable funding of Rs 840 crore and required stable funding of Rs 700 crore. Which statement is correct?

The NSFR is 120%, obtained by dividing available stable funding of Rs 840 crore by required stable funding of Rs 700 crore. Since the Basel III minimum is 100%, the bank complies. Inverting the fraction would wrongly give 83.3% and suggest a shortfall.

  1. ANSFR is 83.3% and the bank falls short of the 100% minimum
  2. BNSFR is 120% and the bank meets the 100% minimumCorrect
  3. CNSFR is 120% and the bank falls short of the 100% minimum
  4. DNSFR is 83.3% and the bank meets the 100% minimum

Explanation

NSFR = 840/700 = 1.20, i.e. 120%. Check: 700 x 1.2 = 840. The minimum requirement is 100%, so the bank complies. Option 1 inverts the ratio (700/840 = 83.3%), which is the key mistake.

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