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RBI Liquidity Stress Tests and Climate Risk Plans

2 June 20251 min read
BANKING & FINANCERBI LiquidityStress Tests andClimate Risk Plans2 June 2025safalsetu.com

Why in the news

In June 2025 the Reserve Bank of India outlined wider stress testing across the financial system, plus climate transition risk in supervision.

Key facts

  • SCBs: cash flow based liquidity test checking short-term obligations, buffer adequacy, depositor protection and systemic risk containment.
  • NBFCs, rural co-operative banks, mid-sized UCBs: own liquidity frameworks.
  • Climate transition risk: tested on carbon-intensive sectors and banks exposed to high-emission industries.
  • Market portfolios: liquidity stress framework based on past market stress events.
  • Final climate guidelines may cover disclosure, scenario analysis and stress testing.

Significance

  • More forward-looking risk management and crisis preparedness.
  • Closer to global climate and ESG norms; stronger depositor confidence.

Exam angle

  • Related terms: climate transition risk, Growth-at-Risk (GaR).
  • New frameworks: NBFCs, rural co-operative banks, mid-sized UCBs.

Test yourself

1. Which tool did RBI propose to link current economic and financial indicators with chances of future adverse economic outcomes?

The Growth-at-Risk model is the macrofinancial tool joining current indicators to adverse outcome probabilities.

2. RBI's planned liquidity stress test for Scheduled Commercial Banks is based on which framework?

RBI will introduce a cash flow analysis framework simulating extreme but plausible scenarios.

3. Under RBI's stress testing plan, which pair will get frameworks similar to the NBFC one?

Similar frameworks are to be designed for rural co-operative banks and mid-sized Urban Co-operative Banks.

This topic is part of Daily Current Affairs 1 & 2 June 2025 (20 topics).

All topics of the dayDay quizJune 2025

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