Asset Liability Management in Commercial Banks in India

Abstract

Globalization and liberalization of the Indian economy has brought many changes in the Indian financial markets. There is an increase in the level of competition in the financial market due to deregulation of interest rate, technological and operational reforms. The Indian banking sector is facing a variety of risks such as credit risk, capital risk, market risk, interest rate risk and liquidity risk etc. The nature and magnitude of these risks have changed over time and it is very important to understand and control these risks as they directly affect the bank’s efficiency and profitability. Banks have come up with new methods and techniques to measure and control these risks. Asset-Liability Management (ALM) is one such important technique which is now widely being applied in the banks. ALM is a mechanism to address the risk faced by banks due to mismatch in assets and liabilities It is a comprehensive and dynamic method for measuring, monitoring and managing the various risks of a bank. It involves identification of risk parameters, risk measurement and management and framing of risk policies and tolerance levels. This study is undertaken to understand the concept of ALM and application of ALM in Commercial Banks in India.