Asset-Liability Management

(ALM) is concerned with

strategic management of
assetsand liabilities of banks,
against risks caused by
changes in the liquidity
position of the bank, interest
rates, and exchange rates, and
against credit risk and
contingency risk Aneffecti!
e ALM technique aims to
manage the !olume, mix,
maturity, rate sensiti!
ity,quality and liquidity of the
assets and liabilities as
a whole so as to attain a
predeterminedacceptable
risk"reward ratio #he
purpose of ALM is to enhance
the asset quality,quantify the
risks associated with the
assets and liabilities and
further manage them, inorder
to stabili$e the short-term
profits, the long-term earnings
and the long-runsustenance of
the bank#he importance of
Asset Liability Management
in %ndian &anks is growing
at a rapid pace %ndian
&anks are now emphasi$ing
more on Asset Liability
Management as ameans of
sound financial management
of &anking 'perations #he
eser!e &ank of%ndia (&
%) has implemented the &asel
%% norms for the regulation
of %ndian banks which pro!
ided a framework for banks to
de!elop sound ALM
policies #he present
studyanalyses asset-liability
management practices in
%ndian banks in the context
of guidelines pro!ided by the
eser!e &ank of %ndia
Indian banking indutr!:
#he %ndian banking sector
has emerged as one of the st
rongest dri!ers of
%ndia s economic growth
#he
banking system of %ndia sh
ould not only be hassle free
but itshould be able to meet
new challenges posed by the
technology and any other
externaland internal factors
*ost %ndependence era,
%ndia s banking system h
as se!eraloutstanding achie!
ements to its credit #he
most striking is its extensi!e
reaches not onlymetropolitans
or cosmopolitans but e!en to
the remote corners of the
country #his is oneof the
main reasons of %ndias
growth process#he history
of %ndian &anking +ystem
can be segregated into three
distinct phases #heyare as
mentioned below
"#a$ I "r$
%Nationa&i'ation $ra:
arly phase from ./01 to .212
of %ndian &anks
"#a $ II Nationa&i'ation
tag$:
3ationali$ation of %ndian
&anks and up to .22. priorto
%ndian banking sector
eforms
 "#a $ III "o t
&ib$ra&i'ation $ra:
3ew phase of %ndian &ankin
g +ystem with thead!ent of
%ndian 4inancial 5 &anking
+ector eforms after .22. and
Liberali$ation
1