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Shah Dhara (80)
Zaveri Sonam (100)
Shah Kunjan (82)

V RBI had to step in and start off the process . V Banks are exposed many risks but did not have any risk management model. V Assets and liability management model has first introduced for risk management V ALM involves strategic decision based on risk assessment. V For strategic purpose bank felt the need of understand risk.  V Financial sector reforms in 1990 brought paradigm change.

½  c.

 V ALM is a comprehensive and dynamic framework for measuring. . V It is the management of structure of balance sheet (liabilities and assets) in such a way that the net earning from interest is maximized within the overall risk- preference (present and future) of the institutions. monitoring and managing the market risk of a bank.


V Liquidly risk management V Management of market risk V Trading risk management V Funding and capital planning and Profit planning V Growth projection. .


V Requiring simultaneous decisions about the types of amounts of financial assets and liabilities . V It provide framework with an eye on the market risk . V It helps to bank manager to take business decision.with the complexities of the financial markets in which the institution operates . V It is an integrated approach to financial management.both mix and volume .

Π c.

V ALM include planning to meet liquidity needs. V Controlling the rates earned and paid on assets and liabilities in order to maintain or maximize the spread between interest cost and interest income. planning the maturities of assets & liabilities to limit their exposure to interest rate. V ALM is coordinating the banks portfolios of assets and liability in order to maximize bank profitability. .

Deposits 2. With Banks & Money 4. Other Assets . º     Liabilities Assets 1. Advances 5. Bal. Fixed Assets 6. Capital 1. Investments 4. Cash & Balances with 2. Borrowings at Call and Short Notices 5. Reserve & Surplus RBI 3. Other Liabilities 3.

Cash & Bank Balances with RBI I. Balances with Reserve Bank of India In Current Accounts In Other Accounts . Cash in hand (including foreign currency notes) II. º c  1.

Balances with banks and money at call and short notice I. In India i) Balances with Banks a) In Current Accounts b) In Other Deposit Accounts ii) Money at Call and Short Notice a) With Banks b) With Other Institutions II.2. Outside India a) In Current Accounts b) In Other Deposit Accounts c) Money at Call & Short Notice .

Investments in India in : i) Government Securities ii) Other approved Securities iii) Shares iv) Debentures and Bonds v) Subsidiaries and Sponsored Institutions vi) Others (UTI Shares .3. Investments A major asset item in the bank¶s balance sheet. Investments outside India in Subsidiaries and/or Associates abroad . COD & Mutual Fund Units etc. Commercial Papers. Reflected under 6 buckets as under: I.) II.

Particulars of Advances : i) Secured by tangible assets (including advances against Book Debts) ii) Covered by Bank/ Government Guarantees iii) Unsecured . Overdrafts & Loans repayable on demand iii) Term Loans B.4. Advances The most important assets for a bank. i) Bills Purchased and Discounted ii) Cash Credits. A.

Others . Interest accrued II.5. Deferred Tax Asset (Net) VI. Premises II. Other Fixed Assets 6. Stationery and Stamps IV. Other Assets I. Non-banking assets acquired in satisfaction of claims V. Fixed Asset I. Tax paid in advance/tax deducted at source III.

. V It serves as a cushion for depositors and creditors. º    1. Capital: V Capital represents owner¶s contribution/stake in the bank. V It is considered to be a long term sources for the bank.

Balance in Profit and Loss Account . Reserves & Surplus Components under this head includes:  Statutory Reserves II. Capital Reserves III. Investment Fluctuation Reserve IV.2. Revenue and Other Reserves V.

Term Deposits . Savings Bank Deposits III.3. Demand Deposits II. The deposits are classified as deposits payable on µdemand¶ and µtime¶. Deposits This is the main source of bank¶s funds. They are reflected in balance sheet as under: I.

Inter-bank & other institutions) I. Borrowings outside India . Borrowings in India i) Reserve Bank of India ii) Other Banks iii) Other Institutions & Agencies II.4. Borrowings (Borrowings include Refinance / Borrowings from RBI.

Bills Payable II. Interest Accrued IV. Unsecured Redeemable Bonds (Subordinated Debt for Tier-II Capital) V.5. Inter Office Adjustments (Net) III. Other Liabilities & Provisions It is grouped as under: I. Others (including provisions) .

Guarantees.6. Acceptances on behalf of constituents and Bills accepted by the bank are reflected under this heads. . Contingent Liability Bank¶s obligations under LCs.

c     .

maximize stockholders long term earnings. V The objectives of ALCO are to improve the bank¶s net interest margin. chief financial and accounting officers. . division manager.  ºcºŒ V ALM strategies is performed by the ALCO. V In the committee the members are chief executive officer. and avoid excessive default risk.


. (2) Gap Management : ap management focuses on identifying and matching rate sensitive assets and liabilities to achieve maximum profits over the course of interest rate cycles.   (1) Spread Management: ocuses on maintaining an adequate spread between a banks interest expenses on liabilities and its interest income on assets.

volume.3) Interest Sensitivity analysis Focuses on improving interest spread by testing the effects of possible changes in the rates. . given alternative movement in interest rate. and mix of assets and liability.

Accuracy (b) ALM Organization V Structure and responsibility V Level of top management involvement .Three pillars of ALM Process (a) ALM Information System: V Management information system V Information availability.

ºŒ (c) ALM Process V Risk parameter V Risk Identification V Risk measurement V Risk Management V Risk Policy and tolerance levels .