ASSETLIABILITY MANAGEMENT The process by which an institution

ASSET-LIABILITY MANAGEMENT The process by which an institution manages its Balance Sheet in order to allow for alternative interest rate & liquidity scenarios. n An approach that provide institution with protection that makes such risk acceptable. n A model that enable institutions to measure & monitor risk & provide suitable strategies for their management. n

Banking Risks Credit Risk: The possibility of losses associated with a diminution in the credit quality of borrowers/counterparties. n Market Risks: It is caused due to changes in the market variables having an adverse impact on the earnings of the bank or its capital. n

Market Risks n n n n Interest Rate Risk: Deregulation of interest rates has caused keen competition and exposed bank to a greater interest rate risk. Gap Risk Basis Risk Price Risk Equity Price Risk Commodity Price Risk Liquidity Risk

Banking Risks Country Risk n Business Environment Risk n Operational Risk: Deficient & Fast changing internal processes, non-conducive work environment, demotivated, untrained and incompetent staff or external event and so on. n Capital Risk: Sound aspect of the banking practice is the maintenance of adequate capital on a continuous basis. n

Asset-Liability Management Process Liquidity Risk Management: For measuring and managing net funding requirements, the use of a maturity ladder and calculation of cumulative surplus or deficit of funds at selected maturity is adopted as a standard tool. n Currency Risk: If the liability in one currency exceed the level of assets in the same currency, then the currency mismatch can add/erode value depending upon the currency movements. n

Interest Rate Risk Change in the market interest rate affect banks in a larger way n A long term impact of changing interest rates is on bank’s market value of equity. n The immediate impact of change in interest rates is on Bank’s earnings by change in its net interest margin. n

Balance Sheet LIABILITIES ASSETS Capital Cash & Bank Balance with RBI Reserves & Surpluses Balance with Bank Deposits Money at Call Borrowings Advances Other Liabilities Fixed Assets Other Assets

Balance Sheet n n n n n CAPITAL AND LIABILITIES Schedule As at 31 March 2007 As at 31 March 2006 No: Capital 1856033 856030 Reserves & Surplus 2 14166045 11643843 Deposits 3215844402 178787372 Borrowings 4 7702077 6104947 Other Liabilities & Provisions 512330768 9036871 --------------Total 250899325 206429063 ================ n n n n ASSETS Cash & Balances with Reserve Bank of 61231542 12145857 India Balances with banks & money at call and short notice 7 10815953 6579060 Investments 8 70326621 62723790 Advances 9 148991002 117364667 Fixed assets 10 1860995 1738682 Other assets 11 6589327 5877007 --------------Total 250899325 206429063 ================ Contingent liabilities 12 129606897 165435677 Bills for collection 5247452 4361207