Asset Liability Management in Banks

.Asset liability management • Asset liability management (ALM) is the administration of policies and procedures that address financial risks associated with changing interest rates. foreign exchange rates and other factors that can affect a company’s liquidity. Asset Liability Management (ALM) seeks to limit risk to acceptable levels by monitoring and anticipating possible pricing differences between a company’s assets and liabilities.

Components of a Bank Balance sheet Liability • • • • • Capital Reserve & Surplus Deposits Borrowings Other Liabilities Contingent Liabilities Assets • Cash & Balances with RBI • Bal. With Banks & Money at Call and Short Notices • Investments • Advances • Fixed Assets • Other Assets .

Capital: Capital represents owner’s contribution/stake in the bank. • It serves as a cushion for depositors and creditors. .Components of Liabilities 1. • It is considered to be a long term sources for the bank.

Balance in Profit and Loss Account . Investment Fluctuation Reserve IV. Capital Reserves III.Components of Liabilities 2. Statutory ReservesII. Reserves & Surplus Components under this head includes: I. Revenue and Other Reserves V.

They are then used to top up the rates credited to member accounts when earnings are low. The Superannuation Industry (Supervision) legislation permits such reserves to be maintained. provided trustees establish and follow a strategy for their prudential management. In this way. or insurance company. statutory reserves are required to ensure that financial institutions are capable of paying claims even in a calamitous situation. such as a bank. state or provincial government or regulatory authority. the rate credited to members on a year-to-year basis is not absolutely dependent on the market cycle. Calculated in various ways.Reserves & Surplus • A statutory reserve is an amount of cash a financial institution. and those required of insurance companies are set by statute or regulation by the national. Investment fluaction reserve -Investment reserves are established by not distributing some of the investment income when fund earnings are high. • . The statutory reserves required of banks and credit unions are generally set by the nation's central bank. credit union. must keep on hand to meet the obligations incurred by virtue of accepting deposits and premium payments.

other than capital reserves and includes all reserves other than those separately classified. • • .Reserves & Surplus • Capital reserve . This type of reserve fund is set aside to ensure that the company or municipality has adequate funding to at least partially finance the projects Revenue and other reserves: Represents any reserve available for distribution.A type of account on a municipality's or company's balance sheet that is reserved for long-term capital investment projects or any other large and anticipated expense(s) that will be incurred in the future.

The deposits are classified as deposits payable on ‘demand’ and ‘time’.Components of Liabilities 3. Savings Bank Deposits III. They are reflected in balance sheet as under: I. Deposits This is the main source of bank’s funds. Demand Deposits II. Term Deposits .

Components of Liabilities 4. Borrowings in India i) Reserve Bank of India ii) Other Banks iii) Other Institutions & Agencies II. Borrowings (Borrowings include Refinance / Borrowings from RBI. Inter-bank & other institutions) I. Borrowings outside India .

IV. III.Components of Liabilities 5. Bills Payable Inter Office Adjustments (Net) Interest Accrued Unsecured Redeemable Bonds (Subordinated Debt for Tier-II Capital) Others(including provisions) . II. Other Liabilities & Provisions It is grouped as under: I. V.

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