A COMPARITIVE STUDY ON

ASSET LIABILITY MANAGEMENT

IN PUBLIC SECTOR AND PRIVATE
SECTOR BANKS IN INDIA

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 INTRODUCTION

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 Banking sector in India plays a crucial role in mobilization of deposits and disbursement of loans to the different
sectors of the economy. It is the prime duty of banker to maintain sound and efficient banking system to ensure
financial stability. Financial stability can be manageable through proper designing of asset and liability in the company.
Asset-liability management essentially refers to the practice by which a bank manages its balance sheet in order to set
aside for alternative interest rate and liquidity scenarios. Asset-Liability Management (ALM) is concerned with
strategic management of assets (uses of funds) and liabilities (sources of funds) of banks, against risks caused by
changes in the liquidity position of the bank, interest rates, and exchange rates, and against credit risk and contingency
risk. ALM can be defined as an operation for assessing the above mentioned risks, actively altering the asset-liability
portfolio, and for strategically taking actions and managing risks with the objective of maximizing profits. The central
objective of Asset- Liability Management is to stabilize and maximize the spread between interest paid to raise funds
and interest earned on the bank’s assets, and at the same time to ensure adequate liquidity and to constrain risk to
acceptable levels.

Assets and liabilities are the two most components of the commercial banking sector. Assets refer to what a company
and liabilities are what the firm owes. Moreover, both of these elements are listed on the balance sheet of the company.
The balance sheet is the financial statement that shows the financial health of the company. The net worth of the
company can be calculated by subtracting the liability of the company from the assets (Choudhry, 2018). This study is
based on the management of both assets and liabilities

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 REVIEW OF
LITERATURE

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 Md. Salimuddin, & Anamul Haque (2016) there is no underlying fact to ignore the importance of asset-liability
management policy to ensure profitability and long-run sustainability of financial institutions in any economy. The study
has been conducted to investigate the impacts of ALM policy on the profitability of sample banks working in
Bangladesh. The rationality of this study is to observe the degree of relationship of different assets and liability variables
with profitability through applying Statistical Cost Accounting (SCA) model using time series data from 2003 to 2014.
To identify the relationship among the variables. After analysis, Loans & Advances is found to have a significant positive
relationship with banks' profitability.

Mr. Chetan Shetty1 Ms. Pooja Patel 2, Ms. Nandini3 (2016) Assets and Liability Management (ALM) is a systematic
and dynamic process of planning, organizing, coordinating and controlling the assets and liabilities or in the sense
management of balance sheet structure in such a way the net earnings from interest are maximized within the overall
risk preference of the banks. This study examined the effect of ALM on the Five Private Sector Banks profitability in
Indian financial market by using Gap Analysis and Ratio Analysis Technique. The finding from the study revealed that
banks have been exposed to liquidity risk.

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 RESEARCH GAP

It is quite impossible to look into all the facts of the subject in a single study. Therefore, this study is limited
in nature because of certain constraints like less availability of resources that is time, cost and so on.

Most of the studies have theoretically investigated the different types of risks a bank is exposed to only
minimal studies have done their research on the quantification of these risks.

Most of the researches have drawn vague conclusions as to what exactly are the determinants of different
financial risks like Interest Rate Risk, Liquidity Risk and Credit Risk in particular. In addition, various
indicators have been taken as proxy measures for studying the phenomenon of Asset Liability Management.

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 STATEMENT OF THE PROBLEM

The banking sector plays an important factor of the financial sector of every country. Failure of a country‘s
banking system can ruin the whole economy. In the past, we have seen how the mismanagement of ALM has led to
failures of big names in the banking industry. The ALM process helps the study of interest rate fluctuations,
maturity gap of assets and liabilities, and liquidity position of banks.

This study may contribute and form the basis for further research into the applications of Asset Liability
Management strategies in the banking industry, which helps in forming better strategies that are specific to
different bank sizes, markets in which they operate and balancing of the different risk appetites that might occur
within the different banks.

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 TENTATIVE OBJECTIVES OF THE STUDY

•To Compare and Study the Asset Liability Maturity GAP of Selected Indian Commercial Banks.

•To Evaluate the Impact of Asset Liability Management on Profitability and Liquidity of Selected
Indian Commercial Banks.

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 RESEARCH DESIGN
Type of Research- Explanatory Research

Source of data- Annual reports.

Sampling- 10 banks: 5 public sector and 5 private sector banks

Tools for data analysis and interpretation: GAP management techniques

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 LIMITATIONS OF THE STUDY

The pattern of analysis has been restricted to certain variables. It does not cover all of them.

Only a certain period of time is considered for analyzing the financial performance of these banks

Only the quantitative aspect of these banks has been considered for analyzing financial performance

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 CHAPTER SCHEME

Chapter1- Introduction

Chapter2- Review of Literature

Chapter3- Research Methodology

Chapter4- Analysis and Interpretation of Results

Chapter5- Findings, Suggestions and Conclusion

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 PROBABLE OUTCOME OF THE STUDY

From the above research conducted, we can say that the banks which are classified as 0 on the basis of
Interest Sensitivity Ratio are rightly classified and also has discriminating factors as seen from the previous
findings or data such as high LC, low ROA, low in LIQ, low in CAR and again low in LDR which are
making these banks fall for asset liability mismatches and poor performance. It can be said that, this model
would fit for any bank and it can predict the discriminating factors which are important for the successful
functioning of the bank and help the banks to identify it’s performance impacting parameters which if
managed in advance and prevent them from failing.

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Information Classification: Limited Access