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Asset Liability Managementin Banks

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Asset liability managemen

Asset liability management (ALM) is theadministration of policies and procedures address financial risks associated with chainterest rates, foreign exchange rates and factors that can affect a companys liquidit

Liability Management (ALM) seeks to limitacceptable levels by monitoring and anticpossible pricing differences between a comassets and liabilities.

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Components of a

Bank Balance sheet

Liability

Capital

Reserve & Surplus

Deposits

Borrowings

Other Liabilities

Contingent Liabilities

Assets

Cash & Balances w

Bal. With Banks & Call and Short Not

Investments

Advances

Fixed Assets

Other Assets

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Components of Liabilities

1.Capital:Capital represents owners contribution/sthe bank.

It serves as a cushion for depositors and

creditors. It is considered to be a long term sources

bank.

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Components of Liabilities

2. Reserves & Surplus

Components under this head includes:

I. Statutory Reserves-

II. Capital Reserves

III. Investment Fluctuation ReserveIV. Revenue and Other Reserves

V. Balance in Profit and Loss Account

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Reserves & Surplus

A statutory reserve is an amount of cash a financial institution, such as a bank,

or insurance company, must keep on hand to meet the obligations incurred byaccepting deposits and premium payments. The statutory reserves required ofcredit unions are generally set by the nation's central bank, and those requiredcompanies are set by statute or regulation by the national, state or provincial gregulatory authority. Calculated in various ways, statutory reserves are requirethat financial institutions are capable of paying claims even in a calamitous situ

Investment fluaction reserve -Investment reserves are established by not distr

of the investment income when fund earnings are high. They are then used torates credited to member accounts when earnings are low. In this way, the ratemembers on a year-to-year basis is not absolutely dependent on the market cySuperannuation Industry (Supervision) legislation permits such reserves to be provided trustees establish and follow a strategy for their prudential managem

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Reserves & Surplus

Capital reserve - A type of account on a municipality's or company's b

that is reserved for long-term capital investment projects or any otheanticipated expense(s) that will be incurred in the future. This type of

is set aside to ensure that the company or municipality has adequate

least partially finance the projects

Revenue and other reserves: Represents any reserve available for dist

other than capital reserves and includes all reserves other than those

classified.

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Components of Liabilities

3. Deposits

This is the main source of banks funds. Thdeposits are classified as deposits payabledemand and time. They are reflected inbalance sheet as under:

I. Demand Deposits

II. Savings Bank Deposits

III. Term Deposits

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Components of Liabilities

4. Borrowings

(Borrowings include Refinance / Borrowings froInter-bank & other institutions)

I. Borrowings in India

i) Reserve Bank of India

ii) Other Banks

iii) Other Institutions & Agencies

II. Borrowings outside India

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Components of Liabilities

5. Other Liabilities & Provisions

It is grouped as under:

I. Bills Payable

II. Inter Office Adjustments (Net)

III. Interest Accrued

IV. Unsecured Redeemable Bonds

(Subordinated Debt for Tier-II Capital)

V. Others(including provisions)