Asset – Liability

Management

(ALM)
 Define ALM
 The process of adjusting liabilities to meet loans
and assets demand, liquidity needs and safety
requirements.
 It should take care to ensure the following:
1. An active management of liabilities or deposits.
2. Ensuring bank profitability
3. Securing the long-term operating viability.
 ALM is management of funds.
 It should ensure that bank rates are competitive
on both liabilities and assets.
 Objectives of ALM

 To maximize the income, and control risk

exposure.
 Liquidity should be ensured and the spread
between return and costs should be
maximum.
 Bank interest income minus interest
expense should be termed as gap which
should be maximized.
 Instruments for ALM
 Use of CDs and active primary and
secondary market in them
 Call and notice money
 Inter bank participation certificates are also
used since 1988.
 Liability in the process of collection or cash
and credit in the process of collection
 Refinance from RBI and IDBI etc.