Dissertation Case

Preface

The term finance refers to the study of how people allocate their assets over time. Finance is a very broad and wide aspect since it involves all the management of the assets that are pecuniary in nature and thus, helps in creating a plan of action to utilize these assets in the best possible manner with optimum utilization of the resources. Finance is considered as a lifeline of any business as all the activities in the economy in any sector of the market depends on the it. Finance plays a major role not just in corporate finance but also in personal management of money in the day-to-day operations of an individual.

Asset liability management forms a major component in the financial system of an economy since it helps in minimizing the risks and maximizing the profits by creating a balance between the assets and liabilities of an organisation. Finance is the basic need of any organisation wanting to commence its business.

Acknowledgement

First and Foremost I would like to thank God for blessing me with strength and power to complete this project. It is because of him that I was able to complete this report effectively and efficiently. As they say God helps those who helps themselves.

This study would not have been completed without the Patience, Support and guidance of the following people. It is to them that I owe my deepest gratitude.

I would like to thank my parents for supporting me through out the process of this report.

I would like to gratefully and sincerely thank all the faculty members from the bottom of my heart for giving me knowledge and wisdom. A very special thanks to my mentor MR.ASHISH for his inspiration, motivation, support and guidance.

Last but never the least I would like to thank all my friends and colleagues for their undying support and encouragement.

Statement of Objectives

==> To study the significance of asset liability management in the banking sector of India.

==> To study the various techniques of asset liability management which helps in maximizing the profit and minimizing the risks.

==> To study how asset liability management creates a balance between the asset and liabilities to ensure that it does not hampers the growth of the business.

Limitations of the study

==> Lack of a logical, acknowledged and practical policy is a major hindrance to the implementation of ALM in the banks. Most often, ALCO membership themselves may not be aware of implications of risks being measured and there impact on the banks functioning.

==> People working in a bank need to understand risk measurements and procedures of risk mitigation. Measurement of risk is a fairly simple occurrence and does go on regardless and unnoticed. Failures occur due to lack of understanding; along with a feeling that top management knows all that there is in banking.

==> A zero gap is not practical in the practical work. Returns are expected for taking the risks. Banks assume market and credit risk and hence they make returns. ALCO's job is to determine correct positions and put in place appropriate corrective measures using appropriate risks. It is not to show things as good when they are not.

Research methodology

Research methodology refers to the process of collection of data or knowledge from different sources. Research methodology can be collected in two ways:

1. Primary Research

Primary research refers to collecting of data by an individual himself/herself or a group. A primary data technique includes Natural Setting, Personal interviews, Field experiments, Telephone interviews, and Self-administered questionnaire.

2. Secondary Research

Secondary research refers to collecting of data by someone other than the user. A Secondary data technique includes Census, Focus groups, Structured and Semi-Structured interviews; Research related documents, Transcripts and other personal sources of the user.

In this paper, Secondary research is used as a method of collecting of data. The data is collected through WebPages, Magazines, Books, Newspapers etc.

Introduction

Asset Liability Management is the term that defines the balancing between the assets and liabilities of an organisation or in this case the banking institutions in the Indian banking system. It ensures that the maturity process of assets match with that of liabilities, it also combines the techniques of asset management, liability management and spread management so as to achieve an integrated management of the balance sheet.

Efficient liquidity and interest rate management controls risk exposure in banks and financial institutions. The services offered by banks and other financial institutions expose them to different kinds of risks such as credit risk, interest risk and liquidity risk. It is due to the approach of asset liability management that provides protection and makes these risks acceptable. Asset liability management models enables institutions to measure and monitor the risks, and provides suitable strategies to manage these risks.

Therefore, it is integral for an institution to pursue with the model of asset liability management since it provides a truer and a more clean image of the financial risks of various kinds that institutions and banks face in there working and processing.

Asset liability management is also the first and foremost step in the long term strategic planning process. Therefore, it is considered a very vital planning process for an intermediate term.

This study thus provides an overview on the different aspects of asset liability management that banks and financial institutions undertake in order to be well prepared for the risks and hurdles that they take in there functioning.

Chapter 1

An Overview of the Banking Sector