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26 August 2011

A Study on Asset and Liability Management in Salem Co-operative Bank

Mrs. S.Sreekala Research Scholar PSG College of Technology, Coimbatore - 641 004. Dr. . Sant!i Professor, De artment of !"manities, PSG College of Technology, Coimbatore - 641 004.

"#$%&D'C$"&# ASS($ A#D L"AB"L"$) MA#A*(M(#$ The Asset and liability management includes all deposits and advances, maturity of deposits and incremental assets and liabilities, etc. It is a decision making responsible for balance sheet planning from risk and return standpoint including the strategic management of liquidity, interest rate risks. The business and risk management strategy of the bank should ensure that the bank operates within the limited parameters set by the Board. Besides monitoring the risk levels of the bank, there should proper review the results and progress in realization of the decisions made. In future business strategy decisions should be based on the banks current rate of interest. In respect of the funding policy, for instance, its responsibility would be to decide on source and liabilities mi advances, borrowings and investments etc. #((D &+ ALM A!" units create a properly aligned risk and return management process. The right mi between skills and risk appetite must be identified, e pected outcomes of activities known and appropriate metrics established. The approach adopted needs to be aligned to the realities of the market the bank. A bank needs to realize that the right level of asset and liability need to be committed to support the function. #arious techniques are used to e amine the mismatch in a bank$s balance sheet and it can be a difficult process if not supported with adequate systems. %epending on or the assets sale. There should be efficient management of short term deposits, medium term deposits and long term deposits, loans and

systems and analytical support the A!" process will undertake a number of analysis designed to identify& static and dynamic mismatch. &B,(C$" ( &+ $-( S$'D) '. To study about the management of Assets and liabilities of the (alem %istrict )entral )o* operative Bank. +. To study about the effectiveness and performance of the Bank. ,. To suggest measures for the improvement of (alem %istrict )entral )o*operative Bank. %(S(A%C- M($-&DL&*) %(S(A%C- D(S"*# The methodology used in the study is analytical and descriptive in nature where the researcher has to use facts -or. information already and study the characteristic of a particular group respectively and there by analyze to make a critical evaluation of the study. $).(S &+ DA$A S&'%C(S &+ DA$A The researcher is primarily based on secondary data, with addition information gathered from the finance department. The main sources are company$s previous year$s annual reports and schedules. DA$A C&LL(C$"&# M($-&D S(C&#DA%) DA$A The secondary data has been collected from the Annual /eports of the (alem %istrict )entral )o*operative Bank. $&&LS 'S(D +&% A#AL)S"S &+ DA$A The tools used for analyzing the financial position of the company are /. %A$"& A#AL)S"S 0. L(AS$ S1'A%( A#AL)S"S 2. C&%%(LA$"&# /atio analysis is widely used tool of financial analysis. It can be used to compare the risk and return relationship of firms of different sizes.

It is defined as the systematic use of ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two items0variables. This relationship can be e pressed as percentage, fraction and proportion of numbers -'12.. $).(S &+ %A$"& .rofitability %atio 3perating profit /atio 4et profit /atio

!iquidity /atio )urrent ratio

Activity /atio

Solvency %atio

4et profit to 4et worth /atio 5i ed Assets to 4et worth /atio 4et 6rofit to share capital 5und /atio 5i ed Assets /atio

6roprietary /atio )ash to )urrent Asset /atio )ash to )urrent !iability /atio )ash to (hare 7olders fund /atio $ABL( /3 Calculation of &perating .rofit and #et .rofit %atio

&.(%A$"#* .%&+"$ %A$"& Income 3perating 8ear e pense-/s.in crore. +99:* '9,<, +99; +99;* <9:;.; +99> +99>* ''+2, +99= +99=* ';'9= +99< +99<* '2>:+ +9'9 (ource1 Annual /eport Income -/s.in crore. '9,<= <;9,.+ '+,=> '>9'9 ';++= /atio 8ear

#($ .%&+"$ %A$"& 4et profit -/s.in lakhs. :., :2;.;> ''2,.< <9'.<, '2>:.> Income /atio -/s.in crore. '9,<= <;9,.+ '+,=> '>9'9 ';++= 9.9: :.;< <.+, :., <.9<

9.<< 9.<2 9.<' 9.<: 9.<'

+99:* +99; +99;* +99> +99>* +99= +99=* +99< +99<* +9'9

$ABL( 3 /.0 CALC'LA$"&# &+ C'%%(#$ 4 #($ .%&+"$ $& #($ 5&%$%A$"& C'%%(#$ %A$"& 8?A/ )@//?4T A((?T( -/s.in crore. +99:* '',:9< +99; +99;* '9+9;2 +99> +99>* '+,=:' +99= +99=* '>:>;; +99< +99<* +'''2+ +9'9 (ource1 Annual /eport )@//?4T !IABI!ITI? ( -/s.in crore. '9;9'+ >>9<=.2 '+='+> ':9;;2 '><>2= /ATI3 #($ .%&+"$ $& #($ 5&%$%A$"& 4?T 6/35IT -/s.in 8?A/ lakhs. +99:* +99; :., +99;* +99> :2;.;> +99>* +99= ''2,.< +99=* +99< <9'.<, +99<* +9'9 '2>:.;> 4?T A3/T7 -/s.in crore. ''='22.: ' '+::>+.9 + ':9;;;.: + '><,'=.; +',29=.=

/ATI3 9.9922 9.2,:, 9.>:< 9.:9+ 9.;<'

'.9>9> '.,+, 9.<;; '.';; '.'>2

$ABL(/. 2 CALC'LA$"&# &+ +"6(D ASS($S $& #($5&%$- A#D #($ .%&+"$ $& S-A%( CA."$AL +'#D %A$"& +"6(D ASS($S $& #($ 5&%$%A$"& )(A% +"6(D ASS($S -/s.in crore. 2;,:.; +,:9>.>; S-. +'#D -/s.in crore. +2:<.<= :;>,.+2 %A$"& #($ .%&+"$ $& S-A%( CA."$AL +'#D %A$"& 4et (hare profit capital -/s.in -/s.in 8ear lakhs. crore. /atio +99:* +99; :., +2;9 9.++ +99;* :2;.;> :;>, <.;2

+99:* +99; +99;*

'.== 2.'2

+99> +99>* +;=':.>' <92;.,+ +99= +99=* +,<'=.;: '+2=,.9: +99< +99<* +,2:9.=> ':>9,.== +9'9 (ource1 Annual /eport

+.<; '.<+ '.2<

+99> +99>* +99= +99=* +99< +99<* +9'9

''2,.< <9'.<, '2>:.>

<92; '+2=, ':>92

'+.;2 >.+, <.2

$ABL( /.7 CALC'LA$"&#S &+ +"6(D ASS($S %A$"& A#D .%&.%"($&%) %A$"& +"6(D ASS($S %A$"& +"6(D L&#* %A$"& ASS($ $(%M S -/s.in +'#D crore. -/s.in crore. 2;,:.; +<=2.= '.:: '.'> '.,+ '.'> '.' .%&.%"($&%) %A$"& .%&.%"( $&$AL $&%9S ASS($S +'#D %A$"& -/s.in -/s.in crore. crore. +2:<.<= :;>,.+2 <92;.,+ '+2=,.9: ':>9,.== ''='22.: '+::>+ ':9;;;.: '><,'=.; +',29=.= +.9=+ 2.:'> ;.992 ;.<;' >.,:=

)(A%

)(A % +99:* +99; +99;* +99> +99>* +99= +99=* +99< +99<* +9'9

+99:* +99; +99;* +,:9>.> '<<=+.;: +99> ; +99>* +;=':.> +9+=;.= +99= ' +99=* +,<'=.; +9,;;.', +99< : +99<* +,2:9.= +''=2., +9'9 > (ource1 Annual /eport

$ABL( /. 8 CALC'LA$"&# &+ CAS- $& C'%%(#$ ASS($S A#D C'%%(#$ L"AB"L"$"(S %A$"&

CAS- $& C'%%(#$ ASS($S %A$"3 )ear Cas! 4 Current %atio bank assets balance -/s.in -/s.in crore. crore. +99:* ++9=9.<> '',:9=.< 9.'< +99; +99;* +2+>;.'2 '9+9;2.+ 9.+, +99> ; +99>* ,,,,,.>; '+,=:9.= 9.+; +99= +99=* 2=>;9.<; '>:>;; 9.+> +99< +99<* 2<>9;.++ +'''2+.+ 9.+, +9'9 + (ource1 Annual /eport

CAS- $& C'%%(#$ L"AB"L"$"(S %A$"& )ear Cas! 4 Current %atio bank Liability balance -/s.in -/s.in crore. crore. +99:*+99; ++9=9.< '9;9'+ 9.+' > +99;*+99> +2+>;.' >>9<=., 9.,' 2 = +99>*+99= ,,,,,.> '+='+;. 9.+; ; < 2=>;9.< ':9;;2. 9.,+ +99=*+99< ; ' +99<*+9'9 2<>9;.+ '><>2=. 9.+> + 2

$ABL(/. : CALC'LA$"&# &+ C'%%(#$ ASS($S $& S-A%( -&LD(%S +'#D %A$"& C'%%(#$ ASS($S $& .%&.%"($&%S +'#D %A$"& )ear Current S!are %atio assets !ol.+und -/s.in -/s.in crore. crore. +99:* '',:9=.< +2:<.<= 2;.'2 +99; +99;* '9+9;2.+ :;>,.+2 '>.<< +99> ; +99>* '+,=:9.= <92;.,+ ',.;< +99= +99=* '>:>;; '+2=,.9: '2.9= +99< +99<* +'''2+.+ ':>9,.== ',.22 +9'9 + (ource1 Annual /eport

L(AS$ S1'A%( A#AL)S"S 53/"@!A?1 !east square -y. B aCb a B

y
n

b B

D8 D+

$ABL( 0 CALC'LA$"&# &+ L(AS$ S1'A%( M($-&D

)(A%

#($ .%&+"$ ;)< -/s.in lakhs.

D+

6)

+99:*9; +99;*9; +99>*9> +99=*9= +99<*<

:., :2;.;> ''2,.< <9'.<, '2>:.;>

*+ *' 9 ' +

2 ' 9 ' 2

*'9.; *:2;.;> 9 <9'.<, +<:'.,2

(6.A#S"&# a B

y
n B ='2.;<

B 29>,.2> : b B

D8
D+

,+<; '9

,+<.;

+&%(CAS$"#* +&% $-( +'$'%( #($ .%&+"$ #($ .%&+"$ -/s.in lakhs. '=9,.2< +',,.9< +2;+.;< +><+.+< ,'+'.=<

)(A% +9'9*+9'9 +9''*+9'' +9'+*+9'+ +9',*+9', +9'2*+9'2

) = a > b? ='2.;< C ,+<.; -,. ='2.;< C ,+<.; -2. ='2.;< C ,+<.; -:. ='2.;< C ,+<.; -;. ='2.;< C ,+<.; ->.

$ABL( 2./ CALC'LA$"&# &+ C&%%(LA$"&# B($5((# #($.%&+"$ $& $&$AL ASS($S #($ .%&+"$;6< -/s.in lakhs. :.,9 :2;.;> ','2,.<9 <9'.<, ',2>:.;> 7ABC2.7C $&$AL ASS($S ;)< ;%s in crore< ''=,'22.:9 '+:,:>+.99 ':9,;;;.:9 '><,,'=.;9 +',,29=.=9 CDCA//B.7B

)(A% +99:* +99; +99;* +99> +99>* +99= +99=* +99< +99<* +9'9

6 +=.9< +<=,=2=.9< ',,9=,:9>.+' =',,2>>.>+ +,'>>,;9'.<: 7A:EDA782.B8

) ',,<:=,'++,==9.+: ':,>;=,,+>,'=2.99 ++,>99,,<2,+++.+: ,+,'::,';9,,9:.<; 2:,:2,,,':,<'>.22 /2BA/0:A20BA:BE.E B

@6) ;+;,';:.=: ;=,;2;,22:.+2 '>+,,2>,29<., : ';',>,+,=+2.< 9 ,'2,<+9,<;,.< 9 C/DA0C2ADBE.0 2

r B 9.=;, $ABL( 2.0 CALC'LA$"&# &+ C&%%(LA$"&# B($5((# #($5&%$- $& $&$AL ASS($S )(A% +99:* +99; +99;* +99> +99>* +99= +99=* +99< +99<* +9'9 $otal r B 9.<<< +"#D"#*S3 '. Table'.' 3perating 6rofit shows that the ratio was fluctuating and decreasing every year e cept +99=*9<. ii. 4et profit is very low in the year +99:*9; The net profit has been gradually increased in the year +99>*9=. e cept +99=*9< it has further decreased. +. Table '.+ (hows that the current ratio of the firm is below the standard i.e., +1'. There is '1' ratio for the bank. It shows that there is less liquidity position as specified in the table ii. 4et 6rofit to 4et worth ratio is gradually increasing trend. ,. Table '., 5i ed to 4etworth ratio is fluctuating every year. 3nly +99;*9> showing positive trend ii.4et 6rofit to (hare )apital 5und is declining e cept +99;*9> and 9>*9= 2. Table '.2 5i ed Asset /atio shows that declining trend e cept +99>*9= ii.6roprietary ratio has been increased every year, the debt equity ratio increased which indicates reduction in risk. #($ 5&%$-;6< ''=,'22.:' '+:,:>+.9+ ':9,;;;.:+ '><,,'=.;9 +',,29=.=9 CDCA//B.7: $&$AL ASS($S;)< ''=,'22.:9 '+:,:>+.99 ':9,;;;.:9 '><,,'=.;9 +',,29=.=9 CDCA//B.7B 60 ',,<:=,'+:,+2,.'2 ':,>;=,,,+,+9;.== ++,>99,299,+2=.<' ,+,'::,';9,,9:.<; 2:,:2,,,':,<'>.22 /2BA/0:A222AE00.2 2 )0 ',,<:=,'++,==9.+: ':,>;=,,+>,'=2.99 ++,>99,,<2,+++.+: ,+,'::,';9,,9:.<; @6) ',,<:=,'+2,9;'.>9 ':,>;=,,+<,;<:.22 ++,>99,,<>,+,:.:= ,+,'::,';9,,9:.<;

2:,:2,,,':,<'>.22 2:,:2,,,':,<'>.22 /2BA/0:A20BA:BE.E B /2BA/0:A20CA0/8./0

:. Table '.: shows that current asset have been maintained in the year +99:*9; and it has decreased every year. ;. Table '.; )ash to )urrent asset ratio is fluctuating and also decreasing e cept +99>* 9= and +99=*9<. )ash to )urrent !iability ratio shows that increasing trend e cept +99>*9= and +99<*'9. >. Table no + The 4et 6rofit is in good position. According to the least square method the 4et 6rofit is e pected to increase. =. Table ,.' )orrelation between 4et profit to Total Assets which shows a reasonably strong positive correlation. <. Table ,.+ )orrelation between 4etworth to Total Assets shows that is a strong positive correlation. S'**(S$"&#S3 The current ratio of the bank does not meet the standard ratio. It would be suggested that the bank to take necessary steps to increase the current assets of the bank. 3perating profit ratio shows that the e penses are higher than income. It is suggested that the bank can reduce the avoidable e penses It is suggested that the bank can increase the current account holders from the public. These funds can be utilized by the bank and increase their income without any payment of interest to the current account holders The 4et 6rofit of the bank in the year +99:*9; was very low, which have been is now increased in the year +99<*'9.. It is suggested to increase the net profit of the bank which would the risk of suffering from loss The 4et 6rofit, and Total asset correlated positively they should maintain the same in future. The investments are made in government securities with low revenue. The bank invest huge amount in these securities which is suggested to reduce the level of investments The bank has to do their maEor transaction with cash, so it has to be increased

Conclusion The bank$s performance is satisfactory. In some area they are lacking in banking position. If they improve their customer service and technology they will come up with the standard level. . According to the least square method the 4et 6rofit is e pected to increase ne t five year. This study reveals the findings and recommendations which would be useful for the development and improvement to the bank. %eferences 5abozzi, 5F., G Honishi, A. -'<<:.. Asset*liability management. 4ew %elhi1 ( )hand G )o. 7arrington, /. -'<=>.. Asset and liability management by banks. 6aris1 3?)%. Fain, F.!. -'<<;.. (trategic planning for asset liability management. The Fournal of the Indian Institute of Bankers, ;>-2.. Hannan, H -'<<;.. /elevance and importance of asset*liability management in banks. The Fournal of the Indian Institute of Bankers, ;>-2.. (aunders, A. -'<<>.. 5inancial institutions management -+nd ed.. )hicago1 Irwin. (inkey, F.5. -'<<+.. )ommercial bank financial management-2th ed.. 4ew 8ork1 "a well "acmillan International ?dition. The Aorld Bank -'<<:.. The emerging #sian bon$ mar%et& 'n$ia. 6repared by I(ec, "umbai. #aidyanathan, / -'<<:.. %ebt market in India1 )onstraints and prospects. Bangalore1 )enter for )apital "arkets ?ducation and /esearch, Indian Institute of "anagement * Bangalore