Available and Required Stable Funding with NSFR Calculation - Article

Introduction

The Net Stable Funding Ratio (NSFR) is the Basel III standard designed to strengthen a bank's funding structure over a longer horizon.

While the Liquidity Coverage Ratio focuses mainly on a 30-day stress period, NSFR considers whether the bank has sufficient stable funding to support its assets and off-balance-sheet activities over approximately one year.

The 2026 IIBF BFM syllabus specifically includes Net Stable Funding Ratio under the Basel III Framework on Liquidity Standards.

The current Basel standard requires NSFR to be at least 100% on an ongoing basis. RBI's current regulatory handbook also states that applicable commercial banks in India must maintain a minimum NSFR of 100% on an ongoing basis.

For CAIIB numerical questions, think of NSFR as two sides:

Funding Side → Available Stable Funding (ASF)

Asset Side → Required Stable Funding (RSF)

The basic question is:

Does the bank have enough stable funding for the amount and type of stable funding required by its assets and commitments?

Learning Objectives

After studying this topic, you should be able to:

• understand the NSFR calculation structure;

• distinguish ASF from RSF;

• apply major ASF and RSF factors;

• classify funding according to stability and maturity;

• classify assets according to liquidity, maturity and encumbrance;

• understand off-balance-sheet treatment; and

• identify common CAIIB numerical calculation traps.

Core NSFR Relationship

NSFR = Available Stable Funding ÷ Required Stable Funding × 100

This measures whether the bank's available stable funding is sufficient relative to its required stable funding.

Refer to the Formula Section for a detailed explanation, variables, and solved examples.

The regulatory interpretation is straightforward:

NSFR ≥ 100%

Available stable funding is at least equal to required stable funding.

NSFR < 100%

The bank has less stable funding than required under the regulatory calculation.

Available Stable Funding — ASF

ASF represents the portion of the bank's:

• capital; and

• liabilities

that is expected to remain sufficiently reliable over the one-year NSFR horizon.

Basel determines funding stability mainly through:

1. Funding tenor — longer-term funding is generally considered more stable.

2. Funding type and counterparty — short-term retail and small-business deposits are considered behaviourally more stable than similar-maturity wholesale funding.

The calculation principle is:

ASF Amount = Carrying Value of Funding × Applicable ASF Factor

This converts each capital or liability category into its recognised stable-funding amount.

Refer to the Formula Section for a detailed explanation, variables, and solved examples.

Main ASF Factors

Basel's current NSFR framework uses five main ASF factors. RBI's Indian NSFR framework follows the same core factor structure.

100% ASF Factor

The strongest funding receives a 100% ASF factor.

Basel includes, broadly:

• regulatory capital, excluding relevant short-dated Tier 2 amounts;

• qualifying capital instruments with effective maturity of at least one year; and

• secured or unsecured borrowings and liabilities with effective residual maturity of one year or more.

RBI's NSFR framework follows the same basic approach.

Numerical Meaning

A liability receiving 100% ASF contributes its full recognised carrying amount to Available Stable Funding.

The logic is:

Longer remaining maturity → Greater funding stability

95% ASF Factor

A 95% ASF factor applies to qualifying stable:

• demand deposits; and

• shorter-term deposits

from retail and qualifying small-business customers.

Such funding is considered highly stable, but not completely permanent.

Important Distinction

Do not confuse:

• the LCR deposit run-off percentage; and

• the NSFR ASF factor.

They perform different functions.

LCR estimates how much funding might leave during a 30-day stress.

NSFR estimates how much funding is regarded as stable over its longer horizon.

90% ASF Factor

Qualifying less-stable retail and small-business deposits receive a 90% ASF factor.

RBI's January 6, 2022 amendment confirms the 90% treatment for less-stable retail and qualifying small-business deposits and increased the qualifying Small Business Customer funding threshold to ₹7.5 crore.

The examination principle is:

Stable retail funding → 95%

Less-stable retail funding → 90%

50% ASF Factor

The 50% category broadly includes:

• funding with residual maturity below one year from non-financial corporates;

• qualifying operational deposits;

• short-term funding from sovereigns and PSEs;

• funding from multilateral or national development banks; and

• certain other funding with residual maturity of six months to less than one year, including funding from central banks and financial institutions.

This funding contributes only half its carrying amount to ASF.

Why?

Because it is less reliable over the one-year horizon than:

• regulatory capital;

• long-term liabilities; or

• retail deposits.

0% ASF Factor

A 0% ASF factor generally applies to liabilities that provide little recognised funding stability over the one-year horizon.

Examples include:

• certain short-term funding below six months from financial institutions or central banks;

• liabilities not included in stronger ASF categories;

• certain NSFR derivative liabilities; and

• qualifying trade-date payables.

Numerical Meaning

0% ASF does not mean the liability has no accounting value.

It means:

It contributes no recognised stable funding for NSFR purposes.

Required Stable Funding — RSF

RSF represents the amount of stable funding that the bank is required to maintain because of the liquidity characteristics of its:

• assets; and

• off-balance-sheet exposures.

Basel considers factors such as:

• asset maturity;

• liquidity;

• asset quality;

• encumbrance; and

• likelihood that funding will need to continue.

The calculation principle is:

RSF Amount = Carrying Value of Asset or Exposure × Applicable RSF Factor

This converts each asset or exposure into its stable-funding requirement.

Refer to the Formula Section for a detailed explanation, variables, and solved examples.

A higher RSF factor means:

More of the asset must be supported by stable funding.

Main RSF Factors

Current Basel NSFR uses major RSF factors of:

0%, 5%, 10%, 15%, 50%, 65%, 85% and 100%.

RBI's Indian framework uses the same core progression for on-balance-sheet assets.

0% RSF Factor

Basel gives a 0% RSF factor to items such as:

• coins and banknotes;

• central-bank reserves;

• claims on central banks with residual maturity below six months; and

• qualifying trade-date receivables.

RBI's framework similarly places:

• coins and banknotes;

• CRR including excess CRR; and

• qualifying short-term claims on RBI

in the 0% category.

These assets require little or no additional stable funding because of their high liquidity.

5% and 15% RSF Factors

Qualifying unencumbered Level 1 assets generally receive a 5% RSF factor.

Qualifying Level 2A assets generally receive 15%.

This shows an important NSFR relationship:

More liquid asset → Lower RSF requirement

Level 1 assets are more liquid than Level 2A assets and therefore normally require less stable funding.

10% RSF Factor

A 10% RSF factor applies to certain unencumbered loans to financial institutions with:

• residual maturity below six months;

• Level 1 collateral; and

• the ability to freely rehypothecate that collateral for the life of the loan.

This favourable treatment depends on the quality and usability of collateral.

50% RSF Factor

The 50% category covers several important assets, including broadly:

• Level 2B assets;

• HQLA encumbered for six months to less than one year;

• loans to financial institutions and central banks maturing in six months to less than one year;

• operational deposits held at other financial institutions; and

• many non-HQLA assets maturing within one year.

For numerical questions, residual maturity is therefore a key word.

65% RSF Factor

Basel assigns 65% RSF broadly to:

• qualifying unencumbered residential mortgages with residual maturity of at least one year and specified lower risk weight; and

• certain other qualifying lower-risk long-term loans, excluding loans to financial institutions.

These assets are longer term but considered comparatively better quality.

85% RSF Factor

Assets commonly receiving 85% RSF include:

• initial margin posted for derivatives;

• specified contributions to CCP default funds;

• other long-term unencumbered performing loans not qualifying for the 65% category;

• long-term non-HQLA securities; and

• physical traded commodities, including gold.

A high RSF factor indicates a substantial stable-funding requirement.

100% RSF Factor

The highest RSF category generally includes:

• assets encumbered for one year or more;

• specified net NSFR derivative assets;

• assets without a stated maturity;

• non-performing loans;

• long-term loans to financial institutions;

• fixed assets;

• non-exchange-traded equities;

• certain capital-deduction items; and

• other highly illiquid assets.

The interpretation is:

100% RSF → Entire recognised asset amount requires stable funding

Effect of Asset Encumbrance

Encumbrance is especially important in NSFR calculations.

Basel currently provides that:

• assets encumbered for one year or more generally receive 100% RSF;

• assets encumbered for six months to less than one year receive at least the prescribed intermediate treatment; and

• assets with less than six months remaining in the encumbrance period may generally receive the factor applicable to an equivalent unencumbered asset.

Therefore, the same security can receive different RSF treatment depending on whether it is freely available or tied up for a long period.

Off-Balance-Sheet Exposures

NSFR also recognises that off-balance-sheet commitments may create future funding requirements.

Under Basel, irrevocable and conditionally revocable credit and liquidity facilities receive stable-funding treatment based on 5% of the currently undrawn portion.

RBI's Indian framework additionally specifies:

• 5% of undrawn amount for specified credit and liquidity facilities and certain contingent obligations; and

• 3% of undrawn amount for specified trade-finance-related guarantees and letters of credit.

This means that:

Off-balance sheet ≠ No NSFR impact

Correct NSFR Calculation Sequence

For CAIIB numerical questions, follow this order.

Step 1 — Classify Capital and Liabilities

Identify whether each funding item receives:

• 100%;

• 95%;

• 90%;

• 50%; or

• 0% ASF.

Step 2 — Determine Total ASF

Apply the correct ASF factor to each category and aggregate the weighted amounts.

Step 3 — Classify Assets

Identify:

• asset type;

• residual maturity;

• HQLA category;

• risk characteristics; and

• encumbrance.

Step 4 — Apply RSF Factors

Use the correct RSF factor:

0 → 5 → 10 → 15 → 50 → 65 → 85 → 100

Step 5 — Add Off-Balance-Sheet RSF

Include the applicable stable-funding requirement for undrawn commitments and contingent exposures.

Step 6 — Determine Total RSF

Aggregate all weighted on- and off-balance-sheet requirements.

Step 7 — Calculate NSFR

Compare total ASF with total RSF.

Step 8 — Interpret against 100%

State whether the resulting ratio meets the minimum regulatory benchmark.

Numerical Decision Cases

Case 1: Retail Deposit vs Corporate Deposit

A deposit matures within one year.

If it qualifies as a stable retail deposit, it may receive 95% ASF.

If the same maturity funding comes from a non-financial corporate, it may receive 50% ASF.

CAIIB Lesson

Counterparty type can change ASF even when maturity is similar.

Case 2: Six-Month vs One-Year Funding

Funding from a financial institution has a short residual maturity.

A question may change the ASF treatment depending on whether it falls:

• below six months;

• between six months and one year; or

• at one year or more.

CAIIB Lesson

Maturity boundaries are critical in NSFR calculations.

Case 3: Same Asset, Different Encumbrance

Two identical securities have the same market value.

One is freely available.

The second is encumbered for more than one year.

The second may receive 100% RSF, even though the underlying security is identical.

CAIIB Lesson

Asset quality alone does not determine RSF; encumbrance matters.

Case 4: Performing vs Non-Performing Loan

A performing long-term loan may qualify for a lower RSF category depending on its characteristics.

A non-performing loan generally falls into the 100% RSF category.

CAIIB Lesson

Asset quality affects stable-funding requirements.

Case 5: Undrawn Credit Facility

The facility has no current funded outstanding.

That does not mean its NSFR requirement is automatically zero.

The applicable RSF factor is applied to the relevant undrawn amount.

CAIIB Lesson

Potential future funding needs matter under NSFR.

NSFR vs LCR Numerical Logic

Do not mix their numerical factors.

A 95% ASF factor is not an LCR inflow rate.

A 5% RSF factor is not an LCR haircut.

CAIIB Exam Focus

Remember these high-value points:

• NSFR promotes stable funding over a one-year horizon.

• NSFR must be at least 100% on an ongoing basis.

• ASF comes primarily from capital and liabilities.

• RSF comes from assets and off-balance-sheet exposures.

• ASF factors are mainly 100%, 95%, 90%, 50% and 0%.

• Stable retail/small-business deposits generally receive 95% ASF.

• Less-stable retail/small-business deposits generally receive 90% ASF.

• Long-term qualifying funding generally receives higher ASF.

• Short-term financial-institution funding may receive very little or no ASF.

• Main RSF factors are 0%, 5%, 10%, 15%, 50%, 65%, 85% and 100%.

• More liquid assets generally attract lower RSF.

• Less-liquid or longer-term assets generally attract higher RSF.

• Encumbrance can increase the RSF factor.

• Assets encumbered for at least one year generally attract 100% RSF.

• Non-performing loans generally attract 100% RSF.

• Off-balance-sheet commitments can create RSF requirements.

• LCR and NSFR use different factors and horizons.

• Correct classification should come before arithmetic.

Common Exam Traps

Trap 1: “NSFR is HQLA divided by net cash outflows.”

Incorrect. That is the LCR structure. NSFR compares ASF with RSF.

Trap 2: “95% ASF means 95% of the deposit will remain for exactly one year.”

Incorrect. It is a regulatory weighting for stable funding, not a literal prediction.

Trap 3: “Every retail deposit receives 95% ASF.”

Incorrect. Less-stable retail deposits generally receive 90%.

Trap 4: “A liability maturing within one year can never provide ASF.”

Incorrect. Several short-term funding categories receive 95%, 90% or 50% ASF.

Trap 5: “Every asset requires 100% stable funding.”

Incorrect. RSF factors range from 0% to 100%.

Trap 6: “HQLA always receive 0% RSF.”

Incorrect. For example, qualifying Level 1 assets generally receive 5% and Level 2A assets 15%.

Trap 7: “A high-quality security receives the same RSF whether pledged or unencumbered.”

Incorrect. Long encumbrance can materially increase RSF.

Trap 8: “Off-balance-sheet facilities do not affect NSFR.”

Incorrect. Undrawn commitments and specified contingent funding obligations can attract RSF.

Trap 9: “An LCR run-off factor can be directly used as the NSFR ASF factor.”

Incorrect. LCR and NSFR use different regulatory calculations.

Trap 10: “NSFR of 100% means ASF and total assets are equal.”

Incorrect. It means weighted ASF equals weighted RSF, not that liabilities equal total assets in accounting terms.

Memory Technique

Remember Funding Gives, Assets Need:

ASF = Funding Gives stability

RSF = Assets Need stability

For ASF factors, remember:

100 – 95 – 90 – 50 – 0

For RSF, think of a rising liquidity requirement:

0 – 5 – 10 – 15 – 50 – 65 – 85 – 100

The central numerical rule is:

Classify funding → Apply ASF → Classify assets → Apply RSF → Add OBS requirement → Calculate NSFR → Compare with 100%.