CHAPTER-I
INTRODUCTION
INTRODUCTION
Asset Liability Management (ALM) is a strategic approach of managing the balance sheet
dynamics in such a way that the net earnings are maximized. This approach is concerned with
management of net interest margin to ensure that its level and riskiness are compatible with the
risk return objectives.
If one has to define Asset and Liability management without going into detail about its
need and utility, it can be defined as simply “management of money” which carries value and
can change its shape very quickly and has an ability to come back to its original shape with or
without an additional growth. The art of proper management of healthy money is ASSET AND
LIABILITY MANAGEMENT (ALM).
The Liberalization measures initiated in the country resulted in revolutionary changes in
the sector. There was a shift in the policy approach from the traditionally administered market
regime to a free market driven regime. This has put pressure on the earning capacity of co-
operative, which forced them to foray into new operational areas thereby exposing themselves to
new risks. As major part of funds at the disposal from outside sources, the management are
concerned about RISK arising out of shrinkage in the value of asset, and managing such risks
became critically important to them. Although co-operatives are able to mobilize deposits, major
portions of it are high cost fixed deposits. Maturities of these fixed deposits were not properly
matched with the maturities of assets created out of them. The tool called ASSET AND
LIABILITY MANAGEMENT provides a better solution for this.
ASSET LIABILITY MANAGEMENT (ALM) is a portfolio management of assets and
liability of an organization. This is a method of matching various assets with liabilities on the
basis of expected rates of return and expected maturity pattern
In the context of ALM is defined as “a process of adjusting s liability to meet loan
demands, liquidity needs and safety requirements”. This will result in optimum value of the same
time reducing the risks faced by them and managing the different types of risks by
keeping it within acceptable levels.
RBI revises asset liability management guidelines
On February 2013
In the era of changing interest rates, Reserve Bank of India (RBI) has now revised its Asset
Liability Management guidelines. Banks have now been asked to calculate modified duration of
assets (loans) and liabilities (deposits) and duration of equity.
This was stated by the executive director of RBI, V K Sharma, and here today. He said that this
concept gives banks a single number indicating the impact of a 1 per cent change of interest rate
on its capital, captures the interest rate risk, and can thus help them move forward towards
assessment of risk based capital. This approach will be a graduation from the earlier approach,
which led to a mismatch between the assets and liabilities.
The ED said that RBI has been laying emphasis that banks should maintain a more realistic
balance sheet by giving a true picture of their non performing assets (NPAs), and they should not
be deleted to show huge profits. Though the banking system in India has strong risk management
architecture, initiatives have to be taken at the bank specific level as well as broader systematic
level. He also emphasized on the need for sophisticated credit-scoring models for measuring the
credit risks of commercial and industrial portfolios.
Emphasizing on a need for an effective control system to manage risks, he said that the
implementation of BASEL II norms by commercial banks should not be delayed. He said that the
banks should have a robust stress testing process for assessment of capital adequacy in wake of
economic downturns, industrial downturns, market risk events and sudden shifts in liquidity
conditions. Stress tests should enable the banks to assess risks more accurately and facilitate
planning for appropriate capital requirements.
NEED OF THE STUDY:
The need of the study is to concentrates on the growth and performance of Icici Bank and to
calculate the growth and performance by using asset and liability management and to know the
management of nonperforming assets.
To know financial position of Icici Bank
To analyze existing situation of Icici Bank
To improve the performance of Icici Bank
To analyze competition between Icici Bank with other cooperatives.
OBJECTIVES OF THE STUDY
To study the concept of ASSET & LIABLITY MANAGEMENT in Icici Bank
To study process of CASH INFLOWS and OUTFLOWS in Icici Bank
To study RISK MANAGEMENT under Icici Bank
To study RESERVES CYCLE of ALM under Icici Bank
To study FUNCTIONS AND OBJECTIVES of Icici Bank committee.
SCOPE OF THE STUDY:
In this study the analysis based on ratios to know asset and liabilities management under Icici
Bank and to analyze the growth and performance of Icici Bank by using the calculations under
asset and liability management based on ratio.
Ratio analysis
Comparative statement
Common size balance sheet.
RESEARCH METHODOLOGY
The study of ALM Management is based on two factors.
1. Primary data collection.
2. Secondary data collection
PRIMARY DATA COLLECTION:
The sources of primary data were
The chief manager – ALM cell
Department Sr. manager financing & Accounting
System manager- ALM cell
Gathering the information from other managers and other officials of the organization.
SECONDARY DATA COLLECTION:
Collected from books regarding journal, and management containing relevant information
about ALM and Other main sources were
Annual report of the Icici Bank
Published report of the Icici Bank
RBI guidelines for ALM.
LIMITATION OF THE STUDY:
This subject is based on past data of Icici Bank
The analysis is based on structural liquidity statement and gap analysis.
The study is mainly based on secondary data.
Approximate results: The results are approximated, as no accurate data is Available.
Study takes into consideration only LTP and issue prices and their difference for
Concluding whether an issue is overpriced or under priced leaving other.
The study is based on the issues that are listed on NSE only.
