Which approach to liquidity monitoring involves

Solution

The "stock" approach to liquidity involves monitoring predefined internal limits for various ratios, such as commercial papers to total assets. NBFCs are also mandated to monitor liquidity risk based on a “stock” approach to liquidity. The monitoring shall be by way of predefined internal limits as decided by the Board for various ratios pertaining to liquidity risk. Indicative liquidity ratios are: • short-term liability to total assets;  • short-term liability to long-term assets;  • commercial papers to total assets;  • NCDs (original maturity <1year) to total assets;  • short-term liabilities to total liabilities;  • Long-term assets to total assets; etc.