Professional Documents
Culture Documents
Overview of
mismatches :
what
are
asset
liability
theideaistolimitthemismatchesratherthanaim
atzeromismatches.
Evolution of ALM in Indian Banking
System:
In view of the regulated environment in India in
1970stoearly1990s,therewasnointerestraterisk
astheinterestratewereregulatedandprescribedby
RBI. Spreads between deposits and lending rates
wereverywide.AtthattimebanksBalanceSheets
were not being managed by banks themselves as
theywerebeingmanagedthroughprescriptionsof
theregulatoryauthorityandthegovernment.With
thederegulationofinterestrates,banksweregiven
alargeamountoffreedomtomanagetheirBalance
sheets. Thus, it became necessary to introduce
ALM guidelines so that banks can be prevented
from big losses on account of wide ALM
mismatches.
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Difference between life insurance and general
insurance:-
1. There is certainty
as to the happening of
event i.e. death
2. Life insurance is a
type of investment. It
is not a contract of
indemnity
3. In life insurance the
insurable interest must
be present at the time
of contract.
4. Life insurance
contract is for the
whole life of the
insured or for the
assured attaining a
specified agewhichever is earlier.
5. Principle of
subrogation does not
apply to life insurance.
6. Principle of
contribution does not
apply to life insurance.
In case of double
5. A contract of fire
insurance is for one
year. A contract of
marine insurance is
for a particular period
(not more than one
year) or for a
particular voyage or
for both.
6. This principle
applies to fire and
marine insurances.
7. This principle
applies to fire and
marine insurance. In
case of double
insurance, if one
insurance company
pays full amount of
loss to the insured; it
can claim retable
contribution from other
insurance companies.
8. The provision of
surrender value does
not exist, in fire and
marine insurance.