A Study On Asset And Liability Management In Salem Co-Operative Bank

Ms. S. P. Sreekala Lecturer, Mahendra Engineering College, Mahendhirapuri, Mallasamudram West, Tiruchengode, Namakkal Dist, Tamilnadu.
E-Mail: spskashok@gmail.com

Abstract The importance of Asset and Liability Management in every business operation is inevitable and needs due care attention during the course of operation. The attention would help the firm get into liquidation and can survive in the long run successfully. It can also make the stake holders feel little happy if they could witness the business help them in maximizing their wealth. The study shows that the bank should improve their customer service and technology they will come up with the standard level. . According to the least square method the Net Profit is expected to increase next five year. This study reveals the findings and recommendations which would be useful for the development and improvement to the bank.

A Study on Asset and Liability Management in Salem Co-operative Bank INTRODUCTION Asset And Liability Management The Asset and liability management includes all deposits and advances, maturity of deposits and incremental assets and liabilities, etc. It is a decision making responsible for balance sheet planning from risk and return standpoint including the strategic management of liquidity, interest rate risks. The business and risk management strategy of the bank should ensure that the bank operates within the limited parameters set by the Board. Besides monitoring the risk levels of the bank, there should proper review the results and progress in realization of the decisions made. In future business strategy decisions should be based on the banks current rate of interest. In respect of the funding policy, for instance, its responsibility would be to decide on source and liabilities mix or the assets sale. There should be efficient management of short term deposits, medium term deposits and long term deposits, loans and advances, borrowings and investments etc. Need Of ALM ALM units create a properly aligned risk and return management process. The right mix between skills and risk appetite must be identified, expected outcomes of activities known and appropriate metrics established. The approach adopted needs to be aligned to the realities of the market the bank. A bank needs to realize that the right level of asset and liability need to be committed to support the function. Various techniques are used to examine the mismatch in a banks balance sheet and it can be a difficult process if not supported with adequate systems. Depending on systems and analytical support the ALM process will undertake a number of analysis designed to identify; static and dynamic mismatch. OBJECTIVE OF THE STUDY To study about the management of Assets and liabilities of the Salem District Central Co-operative Bank. To study about the effectiveness and performance of the Bank. To suggest measures for the improvement of Salem District Central Co-operative Bank.

RESEARCH METHODLOGY Research Design The methodology used in the study is analytical and descriptive in nature where the researcher has to use facts (or) information already and study the characteristic of a particular group respectively and there by analyze to make a critical evaluation of the study. TYPES OF DATA Sources Of Data The researcher is primarily based on secondary data, with addition information gathered from the finance department. The main sources are companys previous years annual reports and schedules. DATA COLLECTION METHOD Secondary Data The secondary data has been collected from the Annual Reports of the Salem District Central Co-operative Bank.
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A Study on Asset and Liability Management in Salem Co-operative Bank can be expressed as percentage, fraction and proportion of numbers (1:4). Types Of Ratio Profitability Ratio Operating profit Ratio Net profit Ratio Liquidity Ratio Current ratio Activity Ratio Net profit to Net worth Ratio Fixed Assets to Net worth Ratio Net Profit to share capital Fund Ratio Fixed Assets Ratio Solvency Ratio Proprietary Ratio Cash to Current Asset Ratio Cash to Current Liability Ratio Cash to Share Holders fund Ratio

Tools Used For Analysis Of Data The tools used for analyzing the financial position of the company are: Ratio Analysis Least Square Analysis Correlation Ratio analysis is widely used tool of financial analysis. It can be used to compare the risk and return relationship of firms of different sizes. It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two items/variables. This relationship

Table 1: Calculation Of Operating Profit And Net Profit Ratio

Operating Profit Ratio Operating Income Expenses (Rs. in (Rs. in Crore) Crores) 10393 9056.6 11243 16108 14752 10398 9603.2 12387 17010 16228 Net Profit Ratio Net Profit Income (Rs. (Rs. in in Crore) Crore) 5.3 546.67 1143.9 901.93 1475.7 10398 9603.2 12387 17010 16228

Income Year 20052006 20062007 20072008 20082009 20092010

Ratio

Year

Ratio

0.99 0.94 0.91 0.95 0.91

20052006 20062007 20072008 20082009 20092010

0.05 5.69 9.23 5.3 9.09

Source: Annual Report

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A Study on Asset and Liability Management in Salem Co-operative Bank Table 1.2: Calculation Of Current & Net Profit To Net Worth Ratio Current Ratio Current Assets (Rs. in Crore) Current Liabilities (Rs. in Crore) Net Profit To Net Worth Ratio Net Profit (Rs. in Lakhs) 5.3 546.67 1143.9 901.93 1475.67 Net Worth (Rs. in Crore)

Year

Ratio

Year 20052006 20062007 20072008 20082009 20092010

Ratio

2005113509 2006 2006102064 2007 2007123851 2008 2008175766 2009 2009211142 2010 Source: Annual Report

106012 1.0707 77098.4 128127 150664 179748 1.323 0.966 1.166 1.174

118144.51 0.0044 125572.02 0.4353 150666.52 179318.6 213408.8 0.759 0.502 0.691

Table1. 3: Calculation Of Fixed Assets To Net Worth And Net Profit To Share Capital Fund Ratio Fixed Assets To Net Worth Ratio Fixed Sh. Fund Assets (Rs. in Ratio (Rs. in Crore) Crore) 4635.6 2459.98 1.88 5673.24 9046.32 12483.05 15703.88 4.14 2.96 1.92 1.49 Net Profit To Share Capital Fund Ratio Net Share Profit Capital Year Ratio (Rs. in (Rs. in Lakhs) Crore) 20052006 5.3 2460 0.22 20062007 546.67 5673 9.64 20072008 1143.9 9046 12.64 20082009 901.93 12483 7.23 20092010 1475.7 15704 9.4

Year

20052006 200623507.76 2007 200726815.71 2008 200823918.65 2009 200923450.87 2010 Source: Annual Report

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A Study on Asset and Liability Management in Salem Co-operative Bank

Table 1.4: Calculations Of Fixed Assets Ratio And Proprietory Ratio FIXED ASSETS RATIO Fixed Long Ratio Assets Term (Rs. in Fund Crore) (Rs. in Crore) 1.55 1.17 1.32 1.17 1.1 PROPRIETORY RATIO Proprietors Fund (Rs. in Crore) Total Assets (Rs. in Crore)

Year

Year

Ratio

20054635.6 2984.8 2006 200623507.76 19982.65 2007 200726815.71 20286.8 2008 200823918.65 20366.13 2009 200923450.87 21184.3 2010 Source: Annual Report

20052006 20062007 20072008 20082009 20092010

2459.98 118144.5 5673.24 125572

2.082 4.517 6.004 6.961 7.358

9046.32 150666.5 12483.05 179318.6 15703.88 213408.8

Table 1.5: Calculations Of Cash To Current Assets And Current Liabilities Ratio Cash To Current Assets Ratio Year Cash & Current Ratio Bank Assets (Rs.In Balance (Rs. in Crore) Crore) 200522080.97 113508.9 0.19 2006 200624276.14 102064.26 0.23 2007 200733333.76 123850.8 0.26 2008 200848760.96 175766 0.27 2009 200949706.22 211142.22 0.23 2010 Source: Annual Report Cash To Current Liabilities Ratio Year Cash & Current Ratio Bank Liability (Rs.In Balance (Rs.In Crore) Crore) 200522080.97 106012 0.21 2006 200624276.14 77098.38 0.31 2007 200733333.76 128126.9 0.26 2008 200848760.96 150664.1 0.32 2009 200949706.22 179748.4 0.27 2010

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A Study on Asset and Liability Management in Salem Co-operative Bank Table1.6: Calculation Of Current Assets To Share Holders Fund Ratio Current Assets To Proprietors Fund Ratio Current assets (Rs.in crore) 2005-2006 113508.9 2006-2007 102064.26 2007-2008 123850.8 2008-2009 175766 2009-2010 211142.22 Source: Annual Report LEAST SQUARE ANALYSIS FORMULAE: Year Share holders Fund (Rs.in crore) 2459.98 5673.24 9046.32 12483.05 15703.88 Ratio 46.14 17.99 13.69 14.08 13.44

Least S quare y a b

a bx

y XY X
2

Table 2: Calculation Of Least Square Method YEAR 2005-06 2006-06 2007-07 2008-08 2009-9 NET PROFIT (Y) (Rs.in lakhs) 5.3 546.67 1143.9 901.93 1475.67 X
2

X2 4 1 0 1 4

XY -10.6 -546.67 0 901.93 2951.34

-2 -1 0 1 2

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A Study on Asset and Liability Management in Salem Co-operative Bank

EXPANSION
a b

y
n 4073.47 5 XY

3296 10 329.6

Forecasting For The Future Net Profit NET PROFIT (Rs.in lakhs) 1803.49 2133.09 2462.69 2792.29 3121.89

YEAR 2010-2010 2011-2011 2012-2012 2013-2013 2014-2014

Y = a + bx 814.69 + 329.6 (3) 814.69 + 329.6 (4) 814.69 + 329.6 (5) 814.69 + 329.6 (6) 814.69 + 329.6 (7)

Table 3.1: Calculation Of Correlation Between Netprofit To Total Assets NET TOTAL PROFIT ASSETS YEAR (X) X Y XY (Y) (Rs in (Rs.in crore) lakhs) 20055.30 118,144.5 28.09 13,958,122,880.25 626,165.85 2006 2006546.67 125,572.0 298,848.09 15,768,327,184.00 68,646,445.24 2007 20071,143.90 150,666.50 1,308,507.21 22,700,394,222.25 172,347,409.35 2008 2008901.93 179,318.6 813,477.72 32,155,160,305.96 161,732,824.90 2009 2009213,408.8 2,177,601.95 45,543,315,917.44 314,920,963.90 2010 1,475.67 4,073.47 787,110.4 4,598,463.0 130,125,320,509.9 718,273,809.23

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A Study on Asset and Liability Management in Salem Co-operative Bank

n x 2 x 0.863

n xy x y
2

n y 2 y

Table 3.2: Calculation Of Correlation Between Networth To Total Assets

NET WORTH (X) 118,144.51 125,572.02 150,666.52 179,318.60 213,408.80 787,110.45 TOTAL ASSETS (Y) 118,144.50 125,572.00 150,666.50 179,318.60 213,408.80 787,110.40

YEAR 20052006 20062007 20072008 20082009 20092010 Total

X2 13,958,125,243.14 15,768,332,206.88 22,700,400,248.91 32,155,160,305.96 45,543,315,917.44 130,125,333,922.33

Y2 13,958,122,880.25 15,768,327,184.00 22,700,394,222.25 32,155,160,305.96 45,543,315,917.44 130,125,320,509.90 13,958,124,061.70 15,768,329,695.44 22,700,397,235.58 32,155,160,305.96 45,543,315,917.44 130,125,327,216.12

r = 0.999 Findings: Table1.1 Operating Profit shows that the ratio was fluctuating and decreasing every year except 2008-09. ii) Net profit is very low in the year 2005-06 The net profit has been gradually increased in the year 200708. except 2008-09 it has further decreased. Table 1.2 Shows that the current ratio of the firm is below the standard i.e., 2:1. There is 1:1 ratio for the bank. It shows that there is less liquidity position as specified in the table ii) Net Profit to Net worth ratio is gradually increasing trend. Table 1.3 Fixed to Net worth ratio is fluctuating every year. Only 2006-07 showing positive trend ii)Net Profit to
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Share Capital Fund is declining except 2006-07 and 07-08 Table 1.4 Fixed Asset Ratio shows that declining trend except 2007-08 ii)Proprietary ratio has been increased every year, the debt equity ratio increased which indicates reduction in risk. Table 1.5 shows that current asset have been maintained in the year 200506 and it has decreased every year. Table 1.6 Cash to Current asset ratio is fluctuating and also decreasing except 2007-08 and 2008-09. Cash to Current Liability ratio shows that increasing trend except 2007-08 and 2009-10. Table no 2 The Net Profit is in good position. According to the least square

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A Study on Asset and Liability Management in Salem Co-operative Bank method the Net Profit is expected to increase. Table 3.1 Correlation between Net profit to Total Assets which shows a reasonably strong positive correlation. Table 3.2 Correlation between Networth to Total Assets shows that is a strong positive correlation. Suggestions: The current ratio of the bank does not meet the standard ratio. It would be suggested that the bank to take necessary steps to increase the current assets of the bank. Operating profit ratio shows that the expenses are higher than income. It is suggested that the bank can reduce the avoidable expenses. It is suggested that the bank can increase the current account holders from the public. These funds can be utilized by the bank and increase their income without any payment of interest to the current account holders. The Net Profit of the bank in the year 2005-06 was very low, which have been is now increased in the year 2009-10.. It is suggested to increase the net profit of the bank which would the risk of suffering from loss. The Net Profit, and Total asset correlated positively they should maintain the same in future. The investments are made in government securities with low revenue. The bank invest huge amount in these securities which is suggested to reduce the level of investments. The bank has to do their major transaction with cash, so it has to be increased

Conclusion The banks performance is satisfactory. In some area they are lacking in banking position. If they improve their customer service and technology they will come up with the standard level. . According to the least square method the Net Profit is expected to increase next five year. This study reveals the findings and recommendations which would be useful for the development and improvement to the bank. References Fabozzi, FJ., & Konishi, A. (1995). Asset-liability management. New Delhi: S Chand & Co. Harrington, R. (1987). Asset and liability management by banks. Paris: OECD. Jain, J.L. (1996). Strategic planning for asset liability management. The Journal of the Indian Institute of Bankers, 67(4). Kannan, K (1996). Relevance and importance of asset-liability management in banks. The Journal of the Indian Institute of Bankers, 67(4). Saunders, A. (1997). Financial institutions management (2nd ed). Chicago: Irwin. Sinkey, J.F. (1992). Commercial bank financial management(4th

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A Study on Asset and Liability Management in Salem Co-operative Bank ed). New York: Maxwell Macmillan International Edition. The World Bank (1995). The emerging Asian bond market: India. Prepared by ISec, Mumbai. Vaidyanathan, R (1995). Debt market in India: Constraints and prospects. Bangalore: Center for Capital Markets Education and Research, Indian Institute of Management-Bangalore

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