Asian Journal of Research in Banking and Finance
Year : 2017, Volume : 7, Issue : 6
First page : ( 51) Last page : ( 65)
Online ISSN : 2249-7323.
Article DOI : 10.5958/2249-7323.2017.00048.7

Asset-liability management a tool for risk management in banks

Roy Arunabha*

*aroy_87@outlook.com

Online published on 22 June, 2017.

Abstract

The developments that have taken place since liberalisation have led to a remarkable transition in the risk profile of the banks. With deregulation of interest rate, the banks are exposed to various risks viz. interest rate risk, liquidity risk, foreign exchange risk, market risk etc. Again, the spread of the banks get narrowed due to increase in competition. In this situation, RBI introduced the concept of Asset-Liability Management (ALM) and issued guidelines for the banks to implement it w.e.f. 1st April, 1999 to control risks by prudent management of asset-liability mismatches. Since then ALM has become the most important tool for risk management in banks as it manages various risks in a dynamic way in order to attain a predetermined risk-reward ratio. This paper discusses various components of assets and liabilities in the balance sheet of a bank, major risks that a bank is exposed to and some sophisticated methods to measure those risks. Then it describes different issues related to asset-liability management and the impact of recent developments in banking on ALM. Finally, the paper draws a conclusion after exploring some emerging issues of asset-liability management in the Indian context.

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Keywords

Gap Analysis, Duration Analysis, Value at Risk, Treasury, Basel-II, Securitisation, Derivatives.

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