Concept of Asset Liability Management (ALM)

This is basically management of the structure of the balance sheet (which comprises the assets and liabilities) in such a way that interest gain is maximized and risk is minimized. Most of the banks have an elaborate institutional arrangement to manage the Asset liability Mismatch. They manage the above as follows:

  1. Pricing large percentage of loans at variable (Floating Rate Regime) interest rates which actually move in tandem with the markets.
  2. Pricing the fixed interest rate loans at a huge markup, this is usually done so that borrower is enticed to go for floating rate regime.

The above two generally take care of the Asset liability mismatch situation.

ALM Latest Developments:

In April 2010, the RBI has expressed a deep concern over the asset-liability mismatches (ALMs) in banks, which mainly arising out of lending to the infrastructure projects.

According to bankers present in a meeting, the main concern of the regulator is the huge pipeline of sanctions on which banks are sitting, mostly for core sector projects.

  • Infrastructure loans are of 10-15 years duration, while most bank deposits have a tenure of one-two years. In the last financial year, not much disbursement took place, and now every bank is sitting on huge sanctions waiting to be disbursed. This is going to create a major problem, as banks won’t have deposits of equal maturity.

6 Comments

  1. pallaviaj22

    May 21, 2011 at 12:24 pm

    This portion was asked in Canara Bank Specialist officer Descriptive paper of Financial Analyst.

    Reply
  2. amaresh

    June 14, 2011 at 4:22 am

    it is good material and very useful when who are going to Po interview

    Reply
  3. malapushkal

    November 9, 2011 at 3:34 pm

    thank u soooo much

    Reply
  4. malapushkal

    November 9, 2011 at 3:34 pm

    thank u soooo much

    Reply
  5. raman

    August 27, 2013 at 6:08 am

    Huge stock of useful knowledge,
    thanx 2 u

    Reply
  6. rohit

    August 27, 2013 at 6:10 am

    Sir i know this is an gk website,
    but plz also put a banking po ,reasoning, english and maths section on this website. .

    Reply

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