Asset Classification and Provisioning Norms
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Ensuring profitability?
assets must earn more than the cost of liabilities funding them.
Ensuring liquidity?
the bank must always have cash, or near-cash, available to meet outflows.
(a) Demonstrates safety to marketplace?
Counterparties accept the bank's name in inter-bank dealings without a risk premium.
(b) Meets prior loan commitments?
Sanctioned but undisbursed limits are honoured — preserves customer relationships.
(c) Avoids unprofitable sale of assets?
Bank is not forced into distress sale of G-Secs at a loss to raise cash.
(d) Lowers default-risk premium on funds?
Cost of wholesale borrowing stays close to the policy corridor, not above it.
Historical funding requirements?
the average and peak liquidity outflows experienced in the past 3–5 years.
Current liquidity position?
today's liquid assets, undrawn lines, repoable G-Secs.
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