ASSET - LIABILITY MANAGEMENT IN BANKS :
It has been implemented wef April 01, 1999.
What is ALM : ALM is the management of structure of balance sheet (liabilities and assets) in such a way that the net earning
from interest is maximised within the overall risk-preference (present and future) of the institutions.
Maturity buckets are different time intervals (10 for the time being, namely next day, 2-7 days, 8-14 days, 15- 28, 29-90, 91-
180, 181-365 days, 1-3 years, 3-5 and above 5 years), in which value of an asset or liability is placed desending upon its
residual maturity
Mismatch position : When in a particular maturity bucket, the amount of maturing liabilities or assets does not match, such position is
called a mismatch position, which creates liquidity surplus or liquidity crunch position and depending upon the interest rate movement,
such situation may turnout to be risky for the bank.
Ceiling on mismatch position : Mismatches for cash flows for next day to 15-28 days' buckets to be kept to minimum (not to
exceed 5% for next day, 10% for 2-7 days, 15% for 8-14 days and 20% for 15-28 days, each of cash outflows for those
bRuoclekeotfsA).LCO : Asset-Liability Committee is the top most committee to oversee implementation of ALM system, to be headed by CMD
or ED. ALCO would consider product pricing for both deposits and advances, the desired maturity profile of the incremental assets and
liabilities in addition to monitoring the risk levels of the bank. It will have to articulate current interest rates view of the bank and base
its decisions for future business strategy on this view.
Call Money Money lent for one day
Notice Money Money lent for a period of 2-14 days
TermMoney Money lend for 15 days ormore in Inter-bankmarket
Held till maturity Govt. securities which are notmeant for sale and shall be kept till maturity by the banks.
Held for trading Govt. securities acquired by the banks with the intention to trade by taking advantage of the short-term
price/ interest ratemovements.
Available for sale Govt. securities which do not fall within the above two categories i.e. HTM or HFT.
Yield to maturity Expected rate of return on a security during the period, it is held by an investor which may
include capital gains and losses also.
Coupon Rate Specified interest rate on a fixedmaturity security, fixed at the time of issue.
Gilt Edged security Government security.
Dated securities Govt. security instruments which have tenure over one year.
Prudential limits For
money
call Borrowing : On a fortnightly basis, maximum 100% of capital fund of latest audited balance
sheet. It can go up to 125% on any particular day.
Lending: On a fortnightly basis, maximum 25% of capital fund of latest audited balance sheet.
It can go up to 50% on any particular day.
Inter-bank liability ceilings Max 200%of its net-worth as on 31st March of the previous year. Banks with CRAR is at least 25%more
than theminimum CRAR (9%) i.e 11.25%up to 300%of the net worth for IBL.
It has been implemented wef April 01, 1999.
What is ALM : ALM is the management of structure of balance sheet (liabilities and assets) in such a way that the net earning
from interest is maximised within the overall risk-preference (present and future) of the institutions.
Maturity buckets are different time intervals (10 for the time being, namely next day, 2-7 days, 8-14 days, 15- 28, 29-90, 91-
180, 181-365 days, 1-3 years, 3-5 and above 5 years), in which value of an asset or liability is placed desending upon its
residual maturity
Mismatch position : When in a particular maturity bucket, the amount of maturing liabilities or assets does not match, such position is
called a mismatch position, which creates liquidity surplus or liquidity crunch position and depending upon the interest rate movement,
such situation may turnout to be risky for the bank.
Ceiling on mismatch position : Mismatches for cash flows for next day to 15-28 days' buckets to be kept to minimum (not to
exceed 5% for next day, 10% for 2-7 days, 15% for 8-14 days and 20% for 15-28 days, each of cash outflows for those
bRuoclekeotfsA).LCO : Asset-Liability Committee is the top most committee to oversee implementation of ALM system, to be headed by CMD
or ED. ALCO would consider product pricing for both deposits and advances, the desired maturity profile of the incremental assets and
liabilities in addition to monitoring the risk levels of the bank. It will have to articulate current interest rates view of the bank and base
its decisions for future business strategy on this view.
Call Money Money lent for one day
Notice Money Money lent for a period of 2-14 days
TermMoney Money lend for 15 days ormore in Inter-bankmarket
Held till maturity Govt. securities which are notmeant for sale and shall be kept till maturity by the banks.
Held for trading Govt. securities acquired by the banks with the intention to trade by taking advantage of the short-term
price/ interest ratemovements.
Available for sale Govt. securities which do not fall within the above two categories i.e. HTM or HFT.
Yield to maturity Expected rate of return on a security during the period, it is held by an investor which may
include capital gains and losses also.
Coupon Rate Specified interest rate on a fixedmaturity security, fixed at the time of issue.
Gilt Edged security Government security.
Dated securities Govt. security instruments which have tenure over one year.
Prudential limits For
money
call Borrowing : On a fortnightly basis, maximum 100% of capital fund of latest audited balance
sheet. It can go up to 125% on any particular day.
Lending: On a fortnightly basis, maximum 25% of capital fund of latest audited balance sheet.
It can go up to 50% on any particular day.
Inter-bank liability ceilings Max 200%of its net-worth as on 31st March of the previous year. Banks with CRAR is at least 25%more
than theminimum CRAR (9%) i.e 11.25%up to 300%of the net worth for IBL.
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