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Asset Liability
Management
In banking, Asset Liability
Management is the practice of
managing risks that arise due to
mismatch between the assets and
liabilities (debts and assets) of the
bank.
It is a coordinated management of the
entire portfolio of a financial
institution.
Focus
Bank funds are obtained from
variety of sources including current
deposits, saving deposits, fixed
deposits, short term borrowings, long
term borrowings, equity capital etc.
Reserve requirement imposed by
RBI must of course be met
The funds available after meeting
reserve requirement can then be
invested to produce an income for
Asset liability management focuses
on the net interest income of the
institution
•CURRENT A\C
•LONG AND
SHORT TERM
BORROWINGS
•EQUITY CAPITAL
Sources of Fund
Core deposits
Purchased funds
Risks To Banks
• Liquidity Risk
• Interest rate Risk
• Credit risk
• Operational risk
• Foreign Exchange Risk
Need of ALM
• Intense Competition
• Spreads
Difference in Duration
Gap Analysis
Duration Analysis
Securitisation
ALM Desk
- Operative staff
- Analyses, Monitors, Reports &
Forecasts Risk
Effect of Rate,
Volume & Mix
Net interest income is basically determined by :-
Securitisation
Strategies for Asset
Liability Management
Defensive
Aggressive
Classification