Guidance Note on Liquidity Risk Management

This document is a guidance note on Liquidity Risk Management (LRM) prepared by the National Bank for Agriculture and Rural Development (NABARD). It outlines the importance of effective liquidity management for banking institutions, emphasizing that liquidity shortfalls can have widespread repercussions on the financial system. The note details the need for banks to implement robust risk management practices, particularly in light of evolving supervisory expectations. It describes key components of effective liquidity risk management, including governance structures, management information systems, and the necessity for stress testing and contingency funding plans. The guidance also references the Basel Committee on Banking Supervision's principles for sound liquidity risk management, which include establishing a clear liquidity risk tolerance, developing comprehensive funding strategies, and ensuring regular oversight by senior management and the Board of Directors. The document advises supervised entities to implement these guidelines by March 31, 2025.