Over the last few years the Indian financial markets have witnessed wide ranging changes at fast pace. Intense competition for business involving both the assets and liabilities, together with increasing volatility in the domestic interest rates as well as foreign exchange rates, has brought pressure on the management of banks to maintain a good balance among spreads, profitability and long-term viability. These pressures call for structured and comprehensive measures and not just ad hoc action. The Management of banks has to base their business decisions on a dynamic and integrated risk management system and process, driven by corporate strategy. Banks are exposed to several major risks in the course of their business - credit risk, interest rate risk, foreign exchange risk, equity / commodity price risk, liquidity risk and operational risks. This note lays down broad guidelines in respect of interest rate and liquidity risks management systems in banks which form part of the Asset-Liability Management (ALM)function. The initial focus of the ALM function would be to enforce the risk management discipline viz. managing business after assessing the risks involved. The objective of good risk management programmes should be that these programmes will evolve into a strategic tool for bank management.

The ALM process rests on three pillars: ALM information systems => Management Information System => Information availability, accuracy, adequacy and expediency ALM organization => Structure and responsibilities => Level of top management involvement ALM process => Risk parameters => Risk identification => Risk measurement => Risk management => Risk policies and tolerance levels

How asset liability management reducing risks in Indian banking sector?

Though Basel Capital Accord and subsequent RBI guidelines have given a structure for ALM in banks, the Indian Banking system has not enforced the guidelines in total. The banks have formed ALCO as per the guidelines; but they rarely meet to take decisions. Public Sector banks are yet to collect 100% of ALM data because of lack of computerization in all branches. With this background, this research aims to find out the status of Asset Liability Management across all commercial banks in India with the help of multivariate technique of canonical correlation. The discussion paper has following objectives to explore: •To study the Portfolio-Matching behavior of Indian Banks in terms of nature and strengths of relationship between Assets and Liability

1 Research Design 5. The banks were grouped based on ownership proposed to spilt the requirement for providing statement of mismatches for 1-14 days into 3 times buckets.3 Scope and Limitations . Private Banks( 30) 4. RBI proposed that banks monitor mismatched between their assets and liabilities more frequently for a sharper assessment of liquidity management and providing stimulus to term money market. websites and Dion database 5. so that banks liquidity management will improve. company’s annual reports. 10% for 2-7 days and 15% for 8-14 days . Earlier banks have to report to RBI every monthly about the mismatches but according to new norms of RBI . The groups were 1. Sources of Data: The secondary data is mainly collected from the research papers. Nature of Data: Data collection for this research is completely based on the secondary sources of data 2.2007 “RBI releases draft norms for asset liability management ” published in Economic times. Study is carried out about the new norms set by the RBI on mismatch of asset liability of banks. The basic idea behind this is a banks outflow should not be more than inflow . LITERATURE REVIEW Sept 5 . SBI and Associates ( 8) 3. The period of the study was from 1992 – 2004. RESEARCH METHODOLOGY The study covers all scheduled commercial banks except the RRBs (Regional Rural Banks).2 Data Collection 1.•To find out the component of Assets explaining variance in Liability and vice versa •To study the impact of ownership over Asset Liability management in Banks •To study impact of ALM on the profitability of different bank-groups 4. 5. Mismatch should not exceed 5 % of cash flow for next day . Foreign Banks(36) 5. Nationalized Banks except SBI & Associates ( 19 ) 2.

As a result the RBI might decide to ease the policy rate during end Jan 13.5% from Feb to Oct 2012. there has been some steady moderation in inflation in the recent period. In fact headline inflation as measured by WPI remained above 7. as revealed by the steep increase in non-performing assets (NPAs) of SCBs. . Gross NPAs value recorded a y-o-y growth of 45.2% witnessed in Oct 2011 over its corresponding month previous year. There was a significant increase noted in the NPA levels during FY12.4% during the same period. As a result the RBI has kept the repo rate at an elevated level. the non-food bank credit increased by 15. However. As per RBI's second quarter review of monetary policy for FY13. Amidst this economic scenario. RBI may lower key policy rates.7% respectively as against 23. As per RBI.6.4% in FY11 to 6.Any further slowdown in the Indian economic growth is likely to impact the demand for bank credit.2013 Published : January 7. credit to industry and services sector recorded a slower growth of 15.5% during FY12. asset quality of banks was severely impaired.5% registered during FYll.2% and 13. real estate and telecom. the Indian banking sector has displayed a high level of resiliency in the face of high domestic inflation. aviation.3% and net NPAs registered a y-o-y growth of 55. rupee depreciation and fiscal uncertainty in the US and Europe. CURRENT SCENARIO OF THE INDIAN AVIATION SECTOR Indian Banking Sector Outlook . Similarly.5% in Oct 2012 over its corresponding month previous year. in order to support the flow of funds to the productive sectors of the economy and ease the liquidity crunch in the banking system the RBI has cut the CRR by 175 basis points during the course of the year which stands at 4. particularly of crude. as on Nov 2012.As per the recent RBI data.The scheduled commercial banks' (SCBs) overall credit grew at a slower pace during FY12 at 17% y-o-y as compared to 21. Given the easing of international commodity prices. subdued industrial production and domestic consumption impacted the growth of the Indian economy which slowed down from 8. as compared to 18. in April-12 to support growth. this increase was due to inadequate credit appraisal process coupled with unfavorable economic situation in the domestic as well as foreign market. the GDP growth estimates for FY13 is revised downwards from 6. the key challenge for the Indian banking system continues in improving their operational efficiency and implement prudent risk management practices. Some of the key trends expected to emerge in the near future are as under-Economic slowdown likely to impact the demand for credit High interest rates.Afternoon Despatch & Courier Indian Banking Sector Outlook . reducing it by 50 basis points only once during 2012.25%.1% and 18.8%.2013 Over the past couple of years. 2013 . decline in core inflation as demand conditions moderate.5% forecasted earlier to 5. In order to stimulate the economy and support the growth of banking sector. Asset quality will need to be closely monitored During FY12. if inflationary pressures ease Inflation continued to remain sticky and much above the RBI's comfort zone through-out the year. the Reserve Bank of India (RBI) adopted severe policy measures such as increasing the key monetary policy rates such as repo and reverse repo 16 times since April 2'009 to Oct 2011 and tightening provisioning requirements. particularly for public sector banks (PSBs) owing to their significant exposure to troubled sectors such as power.6% during FY12.

5 bn as on Sep 2011. The parent company was formed in 1955 as a joint-venture of the World Bank. implementation of stringent policies could prevent a sharp deterioration in asset quality. They can set up captive operations or expand through inorganic means by undergoing M&A with banks in foreign countries. However. banks are likely to expand in the overseas market.873. before it changed its name to the abbreviated ICICI Bank. in which India has maintained good trade relations. the weakening asset quality trend was also apparent from the significant increase in restructured assets. The slowdown in the economy increases in the risk of default and restructuring of loans can increase which could further lead to deterioration of asset quality.2 bn were under finalisation of restructuring packages as on Sep 2012 as compared to 34 cases amounting to Rs. ICICI history 2. former Soviet region and other South East Asian countries. 3. with 327 cases amounting to Rs.5% in FY11 to 4.5% during FY12 and the ratio of restructured standard advances to gross advances also increased from about 3. The bank was initially known as the Industrial Credit and Investment Corporation of India Bank . They will try to tap emerging opportunities by expanding into newer markets such as Africa. 6. . high capital cost for setting up foreign operations can act a deterrent in the way of expansion. However. Banks will expand In overseas market In order to sustain the business growth amid highly competitive market and slowing Indian economy.7% in FY12. 311. ICICI Bank launched internet banking operations in 1998. ICICI Bank was established by the Industrial Credit and Investment Corporation of India. as a wholly owned subsidiary in 1994. 1. a total of 466 cases have been referred to the cell. The parent company was later merged with the bank.Apart from increase in NPAs. 264. India's public-sector banks and public[8][9] sector insurance companies to provide project financing to Indian industry. by IFR Asia ICICI Bank awarded the Best Bank (India) by Global Finance [52] ICICI Bank won the "Century International Quality Era Award" at Geneva [53] ICICI Bank was awarded the "Best Foreign Exchange Bank (India)" by Finance Asia Country [54] Awards. OVERVIEW OF THE LISTED INDIAN BANKS 1. Restructured standard advances of the SCBs. recorded a y-o-y growth of around 58. an Indian financial institution.9 bn have been approved since the start of CDR mechanism. 64 cases corresponding to Rs. AWARDS      Airtel. ICICI among 'top 100 global brands' [50] [51] ICICI Bank won the "Best Bond House (India) 2011". Of the total cases referred. As per the recent data available with CDR cell as on Sep 2012.

. ICICI Bank received the "Dataquest Technology Innovation Awards 2012" for Data center migration by Dataquest.