RBI/DOR/2025-26/237
DOR.LRG.No.156/13-10-009/2025-26
November 28, 2025
Reserve Bank of India (Local Area Banks – Asset Liability Management) Directions, 2025
Table of Contents
- Chapter I – Preliminary
- A. Short Title and Commencement
- B. Applicability
- C. Definitions
- Chapter II – Role of Board
- A. Responsibilities of the Board
- B. Approval of policies, limits, and reviews
- Chapter III – Asset Liability Management
- A. Introduction
- B. ALM Information Systems
- C. ALM Organisation
- D. ALM Process
- Chapter IV – Liquidity Risk Management
- A. Management of Liquidity Risk
- B. Structural Liquidity Statement (SLS)
- C. Short-Term Dynamic Liquidity (STDL) statement
- D. Monitoring of Liquidity
- Chapter V – Currency Risk Management
- Chapter VI – Interest Rate Risk (IRR) Management
- A. Introduction
- B. Traditional Gap Analysis
- C. Interest Rate Sensitivity (IRS) Statement
- Chapter VII – Miscellaneous
- A. Behavioural Patterns and Embedded Options
- B. Internal Transfer Pricing (ITP)
- Chapter VIII – Monitoring and Reporting
- A. Preparation and Review of Statements
- B. Regulatory Reporting and Periodicity of Returns
- Chapter IX – Repeal and Other Provisions
- A. Repeal and Saving
- B. Application of other laws not barred
- C. Interpretations
- Annex – I: Structural Liquidity Statement
- Annex – II: Short-term Dynamic Liquidity statement
- Annex – III: Interest Rate Sensitivity Statement
- Annex-IV: Maturity Profile – Liquidity
- Annex V- Interest Rate Sensitivity
In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India ('RBI') in this regard, the RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified.
Chapter I – Preliminary
A. Short Title and Commencement
- These Directions shall be called the Reserve Bank of India (Local Area Banks – Asset Liability Management) Directions, 2025.
- These Directions shall become effective from the date of issue.
B. Applicability
- The provisions of these Directions shall be applicable to Local Area Banks (hereinafter collectively referred to as 'banks' and individually as a 'bank')
Note: Mere mention of an activity, transaction or item in these Directions does not imply that it is permitted, and the bank shall refer to the extant statutory and regulatory requirements while determining the permissibility or otherwise of an activity, transaction, or item.
C. Definitions
- In these Directions, unless the context otherwise requires, the terms herein shall bear the meaning as assigned to them below:
'Cash Reserve Ratio (CRR)' shall have the same meaning as defined in the Reserve Bank of India (Local Area Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025.
'Defeasance period' is the time taken to liquidate the investment in securities on the basis of liquidity in the secondary market. The defeasance period is dynamic and in volatile environments, such period also undergoes changes on account of product-specific or general market conditions.
'Funding Liquidity Risk' means the risk that a bank will not be able to meet efficiently the expected and unexpected current and future cash flows and collateral needs without affecting either its daily operations or its financial condition.
'Interest Rate Risk (IRR)' means risk where changes in market interest rates might adversely affect a bank's financial condition.
'Market Liquidity Risk' means the risk that a bank cannot easily offset or eliminate a position at the prevailing market price because of inadequate market depth or market disruption.
'Statutory Liquidity Ratio (SLR)' shall have the same meaning as defined in Reserve Bank of India (Local Area Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025.
- All other expressions unless defined herein shall have the same meaning as have been assigned to them under the BR Act, the RBI Act, rules / regulations made thereunder, or any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be.
Chapter II – Role of Board
A. Responsibilities of the Board
- The Board shall have overall responsibility for management of risks and shall decide the risk management policy.
- The Board shall set limits for liquidity, interest rate, foreign exchange, and equity price risks.
- The Board shall constitute a Management Committee of the Board or any other specific committee to oversee the implementation of the Asset Liability Management (ALM) system and review its functioning periodically.
B. Approval of policies, limits, and reviews
- The Board shall approve the internal prudential limits for cumulative mismatches (running total) across all time buckets beyond 1-28 days of the structural liquidity statement (SLS).
- The Board / Asset Liability Management Committee (ALCO) shall approve the volume, composition, holding / defeasance period, cut loss, and other parameters of the 'Trading Book' in line with the Reserve Bank of India (Local Area Banks - Classification, Valuation and Operation of Investment Portfolio) Directions, 2025.
- The Board / Management Committee shall approve the prudential limits on 'Gaps' across individual time buckets for measurement of interest rate sensitivity.
- The Board / Management Committee shall approve prudent level of Earnings at Risk (EaR) or Net Interest Margin (NIM) based on their views on interest rate movements.
- The Board / ALCO shall approve the estimation of the behavioural pattern, embedded options, rolls-in and rolls-out, and other aspects related to classification of demand deposits into core and volatile portion on the basis of past data / empirical studies.
- Top Management / Board shall formulate corrective measures and devise suitable strategies wherever needed, basis feedback on the interest rate risk faced by the bank.
Chapter III – Asset Liability Management
A. Introduction
- These Directions shall serve as a benchmark for ALM systems in a bank. ALM, among other functions concerned with risk management, shall provide a dynamic framework for measuring, monitoring and managing liquidity, interest rate, foreign exchange (forex), and equity and commodity price risks of a bank that needs to be closely integrated with the bank's business strategy. It shall also involve assessment of various types of risks and dynamically altering the bank's portfolio to manage the risks.
- The ALM shall rest on three pillars:
(1) ALM Information Systems which comprise of
- Management Information Systems;
- Availability, accuracy, adequacy, and expediency of information.
(2) ALM Organisation which comprises of
- Structure and responsibilities; and
- Level of Top Management involvement.
(3) ALM Process which comprises of
- Risk parameters;
- Risk identification;
- Risk measurement;
- Risk management; and
- Risk policies and tolerance levels.
The above pillars have been discussed in subsequent paragraphs.
B. ALM Information Systems
- ALM shall be supported by specific risk policies and tolerance limits. The ALM framework shall be built on sound internal controls, with necessary information system as back up. The ALM framework shall ensure the availability of adequate and accurate information with expedience.
C. ALM Organisation
- The Top Management of the bank (direct reporting to the MD & CEO and / or Board) shall be responsible for integrating basic operations and strategic decision making with risk management, along with successful implementation of the risk management process.
- Asset Liability Management Committee (ALCO)
A bank shall constitute an ALCO consisting of the Top Management including CEO, which shall be responsible for ensuring adherence to the limits set by the Board as well as for deciding the business strategy of the bank (on the assets and liabilities sides) in line with the bank's budget and decided risk management objectives.
The size (number of members) of the ALCO shall depend on the size of each bank, business mix and organisational complexity. The CEO / CMD or the Executive Director of the bank shall head the ALCO. Its members may include the heads of Investment, Credit, Treasury, International Banking, Risk Management, Economic Research, and other members as deemed suitable. A bank shall decide the frequency for holding its ALCO meetings.
