©) studocu Final Project ALM - A Study on Asset Liability Management At South Indian BankA Study on Asset Liability Management At SOUTH INDIAN Bank Experience Next Generation Banking Project Report rtial fulfilment of the fourth semester requirements for the award of the degree or Master of Business Administration Mahatma Gandhi University, Kottayam Submitted By ‘MR. NIKHIL ROY Register No: 22014482 Under the Guidance Of DR JOYCHEN MANUEL Associate Professor Department of Business Administration = Berchmans INSTITUTE OF MANAGEMENT STUDIES, Renneke TET 2020-2022 aded by Rahul Rock (rahulrack45@email. com)CERTIFICATE This is to certify that this project report titled “A Study on Asset Liability Management at South Indian Bank” is an authentic record of the work done by Mr. Nikhil Roy (Register No: 22014482), in partial fulfillment of the requirement for the award of the Degree of Master of Business Administration (MBA) of Mahatma Gandii University, Kottayam, for the year 2020-2022. Dr Joyehen Manuel Dr. Thomas Varghese Faculty Guide Director Downloaded by Rahul Rock (rahulrock4DECLARATION I, Nikhil Roy, MBA student of Berchmans Institute Of Management Studies, do hereby declare that the project report entitled “A Study On Asset Liability Management At "South, Indian Bank.” is a record of bonafide work submitted to SB College (Autonomous) affiliated to Mahatma Gandhi University in partial fulfilment of the requirements for the award of Master of Business Administration. 1 further declare that this work is not partially or wholly submitted for any other purpose and the data included in the report are collected from various sources and am true to my knowledge. Place: Changanassery Nikhil Roy Date: unleaded by Rahul Rock (rahul ermal com)ACKNOWLEDGMENT As part of the curriculum of the Master of Business Administration degree of Berchmans lustitute of Management Studies, Changanassery, it has been my great pleasure to work on this project report. This has been made possible through the direct and indirect cooperation of various individuals to whom I would like to express my heartfelt appreciation and gratitude. I wish to express my sincere gratitude to Fr. Reji P Kurian, Principal, SB College, for creating an opportunity to develop the work skills through the Intemship. I would like to thank my college Director, Dr Thomas Varghese, for giving me this opportunity to gain exposure and increase the depth of my knowledge 1 also wish to express my sincere thanks to Mr. Sony Joseph, HOD, aud Department of Business Administration I take proud privilege in utilising this opportunity, to express my sincere and deep appreciation as well as gratitude to Dr Joychen Manuel, my faculty guide for his valuable guidance, support and encouragement throughout my project completion. I am particularly thankful to Mr Anoop T L, Manager Sreekandapuram Branch of South Indian Bank who took his valuable time to give important information regarding this project. Last but not the least, showering my love and gratitude on my parents, friends and all those who lent a hand in the process, for their unconditional support, encouragement and motivation. Nikhil Roy mioaded by Raul Rock (rahulrock’5@gmail com)Contents CHAPTER 1 INTRODUCTION. Introduction 1.1. Background of the Topic. 1.2. Statement of the Problem. 1.3. Significance of the Study... 1.4, Scope of the Study 1S. Objectives of the Study. 1.6. Limitations of the Study. CHAPTER 2 REVIEW OF LITERATURE 2.1. Theoretical Review. Theory of Asset Allocation and Risk. Expected utility theory Asset-liability management models. Single-period static models. Multi-period static models: ALM models. 2.2 Literature Review. CHAPTER 3 INDUSTRY AND ORGANIZATION PROFILE 3.1. Banking Industry 3.2. History of Banking,Indian History Phase I: Pre Independence Stage. Phase Il: 1947 to 1991 TIL: 1991 & beyond. IV: Banking Consolidation. 3.3 Indian Banking Present and Future. 3.4, South Indian Bank - Company Profile. 3.4.1 Vision. 3.4.2 Mission 3.4.3 Milestones 3.4.4 Awards and Recognition 3.4.5 Products and Services. 3.4.6 The Structure of SIB. CHAPTER 4. RESEARCH METHODOLOGY..... 4.0 Research Methodology 4.1 Research Design 4.2 Sources of Data. 4.3 Sampling Plan. 4.4 Hypothesis of the Study 4.5 Data Analysis Tools. 4.5.1 CAMELS Rating 4.5.2 Conelation 4.5.3 GAP analysis CHAPTER 5. DATA PRESENTATION AND ANALYSIS..... Table 5.0. CAMEL Rating... Downioaded by Rel Rock (4 arock¢5@sgmeil com)5.2 Correlation Analysis of CAMEL Variables and Financial Performance, GAP Analysis. CHAPTER 6 FINDINGS, SUGGESTIONS AND CONCLUSION 6.1 Findings 6.2 Suggestions 63 Conclusion BIBLIOGRAPHY. APPENDIX.LIST OF TABLES | Description | Successfiul Approach to Mergers and Acquisition | Integration 7 Recent Mergers CAMELS Rating | t Correlation table of CAMEL Variables | | Comelation with computed CAMEL Variables and Retum | on Equity GAP Report of SIB for the FY 2016-17 | GAP report of SIB for the FY 2017-18 t | GAP report of SIB for the FY 2018-19 T GAP report of SIB for the FY 2019-20 | T GAP Values of SIB for the FY 2020-21 Cumulative GAP report of SIB from 2016 -21 | Downloaded by Raul Rock (rahulrock’5@gmailcom)LIST OF FIGURES Description ALM Models South Indian Bank New Logo South Indian Bank Old Logo ‘Total Number of Data of SIB Logo SIB Mirror Plus CAMEL Rating Capital Adequacy values for 2017-2021 Asset Quality values for 2017-2021 Operational Efficiency Values for 2017-21 Earnings Values for 2017-2021 Liquidity Values for 2017-21 Sensitivity Ratio for 2017-18 ‘Cumulative GAP values for the FY 2016-17 Cumulative GAP Values for the FY 2017-18 Cumulative GAP Values for the FY 2018-19 Cumulative GAP Values for 2019-20 Cumulative GAP values for the FY 2020-21 Cumulative GAP report of SIB from 2016 -21 Downloaded by Rahul Rock (rahulrocka5@gmailcom)EXECUTIVE SUMMARY One of the most basic instruments of economic development is the banking industry. It must be stable because it serves as a vital link in a variety of socioeconomic activities. A thriving economy necessitates a healthy banking sector. The failure of a county's banking sector can harm other industries. Asset Liability Management is a new technique to build a fiamework for banking activities to take better decisions and perform efficiently. It became an essential tool to evaluate the risk faced by the bank in maintaining the assets and liabilities to ensure the profitability of the business. Assessing the quality of assets in the banking sector plays a vital role in development, this may make a study of ALM essential and significant. Since ALM has a direct effect on the financial performance of the banks, it is prudent to have an effective ALM process within banks that closely monitor and equalize both the assets and liability management This project aims to examine the concept of Asset Liability Management in Indian commercial banks, with a focus on the South Indian Bank. This study was conducted with the objectives to do an ALM, Calculate the ROE for the period, Perform a Correlation analysis between the CAMEL Variables and the ROE and to identify the GAP in the assets and liabilities of the bank for the coucemed period. The research is both diagnostic and exploratory, and it relies on secondary data for the past five years ranging from 2016-17 to 2020-21, mioaded by Raul Rock (rahulrock’5@gmail com)CHAPTER 1 INTRODUCTIONDowniaaded by Rhu Rock (rahulrock’S@gnai com)Introduction Banking is nearly as old as civilization. The history of banking could be said to have started with the appearance of money. The first record of minted metal coins was in Mesopotamia in about 2500B.C. the first European banknotes, which were handwritten appeared in1661, in Sweden, Cheque and printed paper money appeared in the 1700s and 1800s, with many banks created to deal with increasing trade, The history of banking in each country runs in line with the development of trade and industry, and with the level of political confidence and stability. The ancient Romans developed an advanced banking system to serve their vast trade network, which extended throughout Europe, Asia and Africa. Modem banking began in Venice. The word bank comes fiom the Italian word “banco”, meaning bench because moneylenders worked on benches in marketplaces. The bank of Venice was established in 1171 to help the goverment raise finance for a war. At the same time, in England merchants started to ask goldsmiths to hold gold and silver in their safes in return for a fee, Receipts given to the Merchant were sometimes used to buy or sell, with the metal itself staying under lock and key. The goldsmith realized that they could lend out some of the gold and silver that they had and charge interest, as not all of the merchants would ask for the gold and silver back at the same time. Eventually, instead of charging the merchants, the goldsmiths paid them to deposit their gold and silver. The bank of England was formed in 1694 to borrow money from the public for the government to finance the war of Augsburg against France. By 1709, goldsmiths were using the bank of England notes of their own receipts. New technology transformed the banki industry in the 1900s around the world, banks merged into larger and fewer groups and expanded into other countries. ‘The bauking system plays an important role in the modem economic world. Banks collect the savings of the individuals and lend them out to business people and manufacturing people. Bank loans facilitate commerce. Manufacturers borrow from banks the money needed for the purchase of raw materials and to meet other requirements such as working capital. The savings can be utilized to produce new capital. Banks arrange for the sale of shares and debentures. Thns, businesses and manufacturers can get fixed capital with the aid of banks. In today’s dynamic world banks are inevitable for the development of a country. Banks play a pivotal role in enhancing every sector. They have helped to bring development to the world’s horizon and developing country like India is no exception. Banks fulfil the role of a financial intermediary. This means that it acts as a vehicle for moving finance from those who have surplus money to (however temporarily) those who have a deficit. In layman's terms, the mioaded by Raul Rock (rahulrocka5@gmail com)banks channel funds from depositors whose accounts are in credit to borrowers who are in debit, Without the intermediary of the banks, both their depositors and their borrowers would have to contact each other divectly. This can and does happen of course. This is what has led to the very foundation of financial institutions like banks. A few decades ago there existed some influential people who used to land money. But a substantially high rate of interest was charged which made borrowing money out of the reach of the majority of the people so there arose a need for a financial intermediate. The Banks have developed their roles to such an extent that direct contact between the depositors and bonowers is now known as disintermediation, The banking industry has ahways revolved around the traditional function of taking deposits, money transfers and making advances. Those three are closely related to each other, the objective is to lend money, which is the profitable activity of the three. Taking. deposits generates funds for lending and money transfer services are necessary for the attention of deposits. The Banks have introduced progressively more sophisticated versions of these services and have diversified introduction innumerable areas of activity not directly relating to this traditional trinity like there are banks known as industrial banks, which assist the formation of new companies and new industrial enterprises and give long-term loans to manufacturers. The banking system can create money. When the business expands, more money is needed for exchange transactions. The legal tender money of a country cannot usually be expanded quickly. Bank money can be increased quickly and used when there is a need for more money. In a developing economy (like that of India), banks play an important part as the supplier of money. The banking system facilitates intemal and international trade A large part of the trade is done on credit. Banks provide references and guarantees, on behalf of their customers, based on which sellers can supply goods on credit. This is particularly important in international trade when the parties reside in different countries and are very often unknown to one another Indian banking has undergone a paradigm shift over the years, and the liberalization of the economy initiated in 1991 has set in motion dramatic changes that are fundamentally reshaping the Indian banking industry. In today's globalized environment, Indian banks present a picture of a vibrant, intemationally active banking system and they appear far stronger to face the challenges that are sure to come their way in the future in the coming years, While the introduction of various financial sector reforms has resulted in substantial improvement in the financial performance of the banking system, it is nevertheless true that there are several areas of concem that affect the efficiency of the banking system as a whole. Downloaded by Raul Rock (rahulrock’5@gmailcom)Risk management is an area of concern as banks are exposed to many risks during their business. In this context, Indian banks will also have to prepare for the effective implementation of the Basel 2 noms that became effeetive by March 2006 As the primary emphasis of the new Accord is on improving the measurement of risk, banks will need to prepare for changes in the regulatory framework to achieve their vision of an efficient and sound banking system Asset Liability Management (ALM) is defined as the management of all assets and liabilities of a bank. It involves the assessment of various types of risks and dynamically altering the asset-liability portfolio in order to manage risk. ALM is part of overall risk management in banks. It implies the examination of all the assets and liabilities simultaneously continuously to ensure a proper balance between the fund mobilization and their deployment with respect to their maturity profiles, continous yield, risk exposure ete. ALM is a holding response to the risk in financial intermediation ‘The concept of ALM has its genesis in USA and Canada in the 1970s. This was largely due to the emergence of volatile financial/commodity markets, new technologies and deregulation of the financial system. The Reserve Bank of India introduced the concept of Asset-Liability Management and Risk Management in India in the year 1998-99. Initially This concept was made mandatory for all Scheduled Commercial Banks excluding the Regional Rural Banks ALM is an integral part of the financial management process of any bank. It is concemed with strategic balance sheet management involving risks caused by changes in the interest rates, exchange rates and the liquidity position of the bank. While managing these three risks forms the crux of ALM, credit risk and contingency risk also form a part of the ALM. It can be termed as a risk management technique designed to earn an adequate return, while maintaining a comfortable surplus of assets beyond liabilities. It takes into consideration interest rates, earning power, and degree of willingness to take on debt and hence is also known as Surplus Management Downloaded by Rahul Rock (rahulrocka5@gmailcom)1.1. Background of the Topic Before 1970 in the industrial countries, hanks were heavily regulated and followed the 3-6 3 banking, that is accepting the deposits at 3%, lending at 6% and closing at 3 p.m. Due to high regulations, only the credit risk was in the picture, but after 1970 market risk came into the picture due to the deregulation of interest rates, Banking business has been transferred from mere deposit-taking and lending to a complex world of risk management. Hence the banks need to address the risks in a structured manner by adopting strategic risk management measures like the ALM. It involves the minimizing of various types of risks and dynamically altering the asset-liability portfolio in order to manage risk In banking institutions, Asset and Liability Management is the practice of managing various risks that arise due to mismatches between the assets and liabilities (loans and advances) of the bank. Banks face several risks such as the risks associated with assets, interest, and cueney exchange risks. Asset Liability Management (ALM) is a tool to manage interest rate risk and liquidity risk faced by various banks, and other financial services companies. In general, ALM refers to efforts by a bank's board and senior management team to carefully balance the bank's current and long-term potential earings with the need to maintain adequate liquidity and appropriate interest rate risk (IRR) exposures. Each bank has a distinct strategy, customer base, product selection, funding distribution, asset mix, and risk profile. These differences require that assessments of risk exposures and risk management practices be customized to each bank's specific risks and activities and not take a one-size- fits-all approach. 1.2. Statement of the Problem Asset Liability Management is a new technique to build a framework for banking activities to take better decisions and perform efficiently. It became an essential tool to evaluate the risk faced by the bank in maintaining the assets and liabilities to ensure the profitability of the business. Assessing the quality of assets in the banking sector plays a vital role in development, this makes the study of ALM essential and significant. Since ALM has a direct effect on the financial performance of the banks, it is prudent to have an effective ALM mioaded by Raul Rock (rahulrock’5@gmail com)process within banks that closely monitor and equalize both the assets and_ liability management. 1.3. Significance of the Study Over the last few years, the financial markets worldwide have witnessed a wide range of changes at a fast pace. Intense competition for business involving both the assets and liabilities, together with inereasing volatility in the domestic interest rates as well as foreign exchange rates, has brought pressure on the management of banks to maintain a good balance among spreads, profitability and long-term viability ‘These pressures call for structured and comprehensive measures and not just ad hoc action, The Management of banks has to base their business decisions on a dynamic and integrated risk management system and process, driven by corporate strategy. Banks are exposed to several major risks in the comse of their business-credit risk, interest rate risk foreign exchange risk, equity/commodity price risk, liquidity risk and operational risks In the present scenario, Asset Liability Management is important for the banking industry due to the increased importance of managing the Asset liability mix. It will help to assess the risks and manage the risks by taking appropriate actions 1.4. Scope of the Study The study is descriptive and analytical in nature. This study was mainly planned to evaluate the financial performance through CAMEL rating aud GAP analysis. This research, study surely will provide a parameter particular for a better understanding of Asset Liability Management in the banking sector. This attempt covers the extensive research work on ALM to measure the liquidity risk. The findings of the study present an evaluation of CAMEL variables with the Retum on Equity along with the time hockets in the case of GAP analysis The study depicts the emerging trend of GAP analysis in which proper resonance is kept between lending and borrowing Downloaded by Rahul Rock (rahulrocka5@gmailcom)1.5. Objectives of the Study 1. Todo an Asset Liability Management Study To calculate Retum on Equity ‘To measure the relationship between Retum on Equity and CAMEL variables. To determine the effect of Asset Liability Management using GAP analysis. 1.6. Limitations of the Study This study is based on secondary data derived from published annual reports of the bank. The reliability and finding are dependent upon the data published in the annual report, 1. The study is limited to five years only 2. ‘The GAP analysis considers only the liquidity risk unleaded by Rahul Rock (rahulrock¢5@emnail com)Downiaaded by Rel Rock (rahulrock!5@grnai com)CHAPTER 2 REVIEW OF LITERATUREDowniaaded by Rel Rock (rahulrock!5@grnai com)This chapter highlights the literature relating to the research topic. The section deals with the review of theories relating to asset-liability management and financial performance 2.1. Theoretical Review Capital adequacy refers to the sufficiency of the amount of equity to absorb any shocks that the bank may experience (Kosmides, 2000). The capital structure of banks is highly regulated This is because capital plays a erucial role in reducing the number of bank failures and loss to depositors when a bank fails as highly leveraged firms are likely to take excessive risk in ender to maximize shareholder value at the expense of finance providers (Kamau, 2009), Credit risk is one of the factors that affect the health of an individual bank. The extent of the credit risk depends on the quality of assets held by an individual bank. The quality of activities held by a bank depends on exposure to specific risks, trends in nonperforming loans, and the health and profitability of bank borrowers (Baral, 2005). Aburime (2008) asserts that the financial performance of a bank depends on its ability to foresee, avoid and monitor risk possibly to cover losses brought about by risks arising. Hence, in making decisions on the allocation of resources to asset deals, a bank must take into account the level of risk to the assets, Another important decision that the managers of commercial hanks take refers to liquidity management and specifically to the measurement of their needs related to the process of deposits and loans. The importance of liquidity goes beyond the individual bank as a liquidity shortfall at an individual bank can have systemic repercussions. It is argued that when banks hold high liquidity, they do so at the opportunity cost of some investment, which could generate high returns (Kamau, 2009), Poor expenses management is the main contributor to poor profitability. In the literature on bank performance, operational expense efficiency is usually used to assess managerial efficiency in banks Mathuva (2009) observed that the CIR of local banks is high when compared to other countries and thus there is a need for local banks to reduce their operational costs to be competitive globally mioaded by Raul Rock (rahulrock’5@gmail com)‘The diversified nature of bank operations makes them vulnerable to various kinds of financial risks. Sensitivity analysis zeflects an institution's expose to interest rate risk, foreign exchange volatility aud equity price risks (these risks are summed in market risk). Risk sensitivity is mostly evaluated in terms of management's ability to monitor and control market risk, Guaranteed Asset Protection or Gap analysis is a technique of most liability management that can be used to assess interest rate risk or liquidity risk. Gap analyses were widely adopted by financial institutions during the 1980s when used to manage interest rate risk it was used in duration analysis. Both techniques have their strength and weaknesses. Simple maturity repricing schedules can be used to generate simple indicators of the interest and the risk sensitivity of both eamings and economic value to changing interest rates. When this approach is d assess the interest rate risk of current earnings, it is typically referred to as pp analysis. Gap analysis was one of the first methods developed to measure a bank's interest rate risk exposure. and continues to be widely used by banks. To evaluate earnings exposure. interest rate sensitive liabilities in each time band are subtracted from the comesponding intemet rats seusitive assets to produce are pricing gap for that timebank. This gap can be multiplied by an assumed change in interest rates to yield an approximation of the change in net interest income that would result from such an interest rate movement. The size of the interest rate movement used in the analysis can be based on a variety of factors, including historical experience, and simulation of potential future interest rates. Movements and the judgment of bank management. A negative, or liabilit 'y-sensitive gap occurs when liabilities exceed assets in a given time band, This means that an increase in market interest rates could cause a decline in net interest income. Conversely, a positive, or asset-sensitive gap oceurs when assets exceed liability in a given time band. Moreover, gap analysis ignores differences in spreads between interest rates that could arise as the level of market interest rates changes. In addition, it does not take into account any changes in the interest rate environment. Thus, it fails to account for differences in the sensitivity of income that may arise from option-related positions. The gap is the differences between rate-sensitive assets (RSA) and Rate sensitive liabilities (RSL) in various time buckets. The positive gap indicates that it has more RSAS than RSLS whereas the negative gap indicates that it has more RSLS. The gap reports indicate whether the institution is in a position to benefit fiom rising interest rates by having a positive gap (RSA>RSL) or whether it is in a position to benefit from declining interest rates by a negative gap (RSL-RSA). Downloaded by Rahul Rock (rahulrocka5@gmailcom)Financial institutions in recent years have increasingly been generating income from off- balance sheet business and fee income. Uzhegova (2010) noted that the decline in interest margins has forced banks to explore altemative sources of revenuies, leading to diversification into trading activities, other services and non-traditional financial operations. Theory of Asset Allocation and Risk Investing funds in different asset classes lies at the core of risk diversification philosophy Not putting all eggs in one basket is the proverbial saying, which embodies the wisdom of risk diversification, By allocating assets to a mix of investment classes, investors diversify their investments and minimize the downside risk Asset allocation makes intuitive sense bene when the price of one asset class goes down, other assets may perform better thereby reducing the likelihood of loss. Markowitz mean-variance efficiency Beginning of Portfolio Asset Allocation Markowitz (1952,1959) and Roy (1952) laid the foundations of modem portfolio theory (MPT). This theory propounded that risk and retum go hand in hand. The basic munition underlying MPT is that investors avoid taking risks (risk-averse) ie, they choose a low risky portfolio of assets over a high-risk portfolio for a given return, Thus, an investor will assume more risk only if he/she is expecting a higher return for the excessive risk. Assuming risk as an inherent part of the higher return, the constmction of return-optimized portfolios by risk- averse investors for a given risk level is explained by MPT theory. For a given level of risk, it is possible to find an "efficient frontier" of optimal portfolios yielding the maximum expected retum fora given risk level and vice-versa Mean-variance asset allocation efficiency is based on the premise that asset returns are mutually correlated and uses these correlations to minimize the overall portfolio variance This was a key insight of Markowitz (Rubinstein, 2002), Markowitz stressed the idea of evaluating securities concerning the portfolio to evaluate them based on the diversification benefit they bring to the overall portfolio. But correlations among assets vary with market characteristics In bear markets, asset correlations are stronger (and hence weaker diversification benefits) in comparison to bull markets. This varying correlation across markets needs to be cousidered for developing an efficient asset allocation framework (Ang and Bekaert, 2002) Downloaded by Raul Rock (rahulrock’5@gmailcom)Expected utility theory The main drawback of the MV approach is that it ignores the investor's risk appetite. This problem is overcome by the Expected utility theory. Von Neumann und Morgenstem (1944) formally developed the expected utility theory in the economic context. EUT helps in decision-making under uncertainty. The main argument of EUT is that for a typical rational risk-averse Individual ‘something is better than uothing and cousumption (of wealth) never results in satiation but marginal utility does decrease Asset-liability management models Band upon the time horizon ever which the asset-liability optimization decision is to be modelled and the conditions under which it is to be modelled, we can categorize the ALM models into four basic categories (Russen and Zenior, 2006) (1) Single-period static model (2) Single-period stochastic models (3) Multi-period static models (4) Multi-period stochastic models, Single-period static models: These models are used as a hedge against small changes in the interest rate and exchange rate which have a significant impact on the overall portfolio value. The portfolio behaviour is made predictable so that the investors find it acceptable. The main strategies under this category are dedication, immunization and Gap surplus management Multi-period static models: ‘As is evident fiom the name, these models consider an analytical optimal solution to the mean-variance formulation in multiperiod portfolio selection where investors can change or readjust their portfolios to maximize the expected value utility function of the wealth at the end of the investment period Downloaded by Rahul Rock (rahulrocka5@gmailcom)ALM models Single period Single period Mutti-period Multi-period static models stochastic models static models, stochastic modek Dedication — |{ tmmunication |{ Gap Scenario/Simul |] Stochastic Stochastic Managemen | | ation Analysis |] Optimal Programming Figure 2.0 Classification of ALM Models 2.2 Literature Review ALM is a generic term that is used to refer to many things by different market participants. The principal objective of the ALM function is to manage interest rate risk and liquidity risk. It also sets overall policy for credit risk and credit risk management, although tactical-level credit policy is set at a lower level within credit committees. Although the basic tenets of ALM would seem to apply more to commercial banking, rather than investment banking, in reality, it must be applied to both functions. A trading desk still deals in assets and liabilities, and these must be managed for interest rate risk and liquidity risk. In a properly integrated banking function, the ALM desk will have a remit covering all aspects of a bank's operations. ALM deals with the optimal investment of assets in view of meeting current goals, and future liabilities. ALM is concemed with an attempt to match assets and liabilities in terms of maturity and interest rate sensitivity to minimize interest rate and liquidity risks. The paper discusses the effects of asset-liability management on financial performance. Financial performance is a measure of how well a firm can use assets from its primary mode of business and generate revenues Anjichi Davis Anjili (2013) ALM is concemed with an attempt to match assets and liabilities in terms of maturity and interest rate sensitivity to minimize interest rate and liquidity risks The paper discusses the effects of asset-liability management on financial performance u Downloaded by Raul Rock (rahulrock’5@gmailcom)Financial performance is a measure of how well a firm can use assets from its primary mode of business and generate revenues Chetan Shetty, Pooja Patel, Nandini (2016) ALM is a systematic and dynamic process of planning, organizing, coordinating and controlling the assets and liabilities or in the sense management of balance sheet structure in such a way the net eamings from interest are maximized within the overall risk preference of the banks. This study examined the effect of ALM on the five private sector bank's profitability in the Indian financial market by using GAP Analysis and Ratio Analysis Technique. The study revealed that the banks have been exposed to liquidity risks Madhu Vij (2016) The importance of managing the asset-liability mix in the Indian financial markets has emerged fiom the increased volatility in the domestic interest rates as well as foreign exchange rates that has evolved after liberalization. The deregulated interest rate environment has brought pressure on the management of banks to maintain a good balance among spreads, profitability and long-term viability, Over the last few years, there as been intense competition and banks have been required to take up strategic planning as an exercise for asset-liability management in order to survive and grow in the ever-increasingly competitive and risky environment. The paper presents a case study of four banks- Citi bank, ICICI Bank, IDBI Bank and SBI and studies how Asset Liability Management can be used as an important tool for managing liquidity risk and interest rate risk. Umarani, Jayanthi Mahaswamy (2017) ALM by banks is critically dependent on the maturity profile of their assets and liabilities. This paper is aimed at measuring the liquidity risk in SBI and associate banks in India, by using the GAP aualysis technique. The findings revealed that the banks are exposed to liquidity risk. Choudhry (2007) Bank Asset and Liability Management Strategy, Trading, Analysis The definitions of assets, liabilities, and risks are specific to each institution, but, very generally, assets may be viewed as expected cash flows and liabilities as expected cash outflows. Although short-term risks arising from the possibility that an institution's asset will not cover its short-term obligations are important to assess and quantify, ALM is usually conducted from a long-term perspective. As such, ALM is considered a strategic discipline as opposed to a tactical one Kumar, G. P. (2012) Analysis of Asset Liability Management Data of Banks, Hyderabad With the onset of liberalization Indian banks are now more exposed to uncertainty and globalcompetition. This makes it imperative to have a proper asset-liability management system in place. Through effective liquidity risk management banks can avoid unprofitable sale of assets and reduce bomowings from central bank and can demoustrate themselves as a safe bank. Maintaining a good interest risk management is vital for Indian banks in the present scenario, It enables the bank to reduce eamings volatility and allows getting benefited from changing interest rates. Mitrs, Schwaiger (2011)-Asset and liability management handbook ALM is a financial (analytic) tool for decision making that sets out to maximize stakeholder value. Its overall objective is to make judicious investments that increase the value of capital, mateh liabilities and protect from disastrous financial events. An integrated asset and liability management model set out to find the optimal investment strategy by considering assets and liabilities simultaneously. Simply stated, the purpose of such an approach is to reduce risk and inerease returns Madhu Vij (2016) The importance of managing the asset-liability mix in the Indian finaneial markets has emerged ftom the increased volatility in the domestic interest rates as well as foreign exchange rates that has evolved after liberalization. The deregulated interest rate environment has brought pressure on the management of banks to maintain a good balance among spreads, profitability and long-term viability. Over the last few years, there has been intense competition and banks have been required to take up strategic planning as an exercise for asset-liability management in order to survive and grow in the ever-increasingly competitive and risky environment. The paper presents a case study of four banks- Citi bank ICICI Bank, IDBI Bank and SBI and studies how Asset Liability Management can be used as ‘an important tool for managing liquidity risk and interest rate risk. Umarani, Jayanthi Maharwamy (2017) ALM banks are critically dependent on the maturity profile of their assets and liabilities. This paper is aimed at measuring the risk in SBI and associate banks in India, by using the GAP analysis technique. Lina Novickyté, IndvePetraityté (2014) Assessment of Banks Asset and Liability Management: Problems and Perspectives (Case of Lithuania) The ALM simply combines several bank portfolios - assets, liabilities, and the difference between the banks received and interest paid-management processes into a single coordinated process. In other words, the main feature of the ALM is coordination and does not break the total bank's balance sheet management. AL.M as a planning tool has evolved 1B mioaded by Raul Rock (rahulrock’5@gmail com)from the need to ensure the asset and liability time overlap for different periods. Nowadays this process is much more complex, overlapping terms to ensure interest rate management using both static and dynamic simulations. The main ALM purpose is to connect different bank activities into a single unit, facilitating liquidity and balance sheet management, which is crucial for ensuring the normal operation of the bank, service delivery and consistent and profitable growth of the bank. ALM provides timely identification of potential problems and risks of operating in the bank's balance sheet and income. The most common problem occurs, when the bank's liability costs are rising faster than revenues fiom the asset, or when falling interest rates asset income is declining faster than the liability side. ‘The main ALM funetions are interest risk, the structural differences between asset and liability and simultaneous liquidity management Structural imbalances in the balance management are one of the main fimetions of ALM This can be grounded on the fact that liquidity management is mainly focused on the short term, while ALM increasingly the focus of attention for a long period in an effort to balance asset and liability tems with the cash- flow on both sides of the balance sheet. ‘The structural differences during the ALM process are examined in several limits. The first is a static non-compliance evaluation, which consists of asset and liability division into groups according to the period and analysis of those groups reporting on fimnding shortages and surpluses during periods. Such an assessment must be carried out regularly according to the time changing the structure of the bank balance. This feature is important to evaluate the individual and the group's sensitivity to interest rate changes. Downloaded by Rahul Rock (rahulrocka5@gmailcom)CHAPTER 3 INDUSTRY AND ORGANIZATION PROFILEDowniaaded by Rel Rock (rahulrock!5@grnai com)3.1. Banking Industry A bank is a financial institution that provides banking and other financial services to their customers. A bank is generally understood as an institution which provides fundamental banking services such as accepting deposits and providing loans. There are also nonbanking institutions that provide certain banking services without meeting the legal Banks are a subset of the financial services industry. A banking system is also referred to as a system provided by the bank which offers cash management services for customers, reporting the transactions of their accounts and portfolios, throughout the day. The banking system in India, should not only be hassle-free but it should be able to meet the new challenges posed by the technology and any other extemal and internal factors. For the past three decades, India’s banking system has had several outstanding achievements to its credit. The Banks are the main participants of the financial system in India, Before the establishment of banks, the financial activities were handled by money lenders and individuals. At that time the interest rates were very high Again, there was no security of public savings and no uniformity regarding loans. To overcome such problems the organized banking sector was established, which was fully regulated by the government. The organized banking sector works within the financial system to provide loans, accept deposits and provide other services to their customers. The Banking sector offers several facilities and opportunities to its customers. All the banks safeguard the money and valuables and provide loans, credit, aud payment services, such as checking accounts, money orders, and cashier’s cheques. The banks also offer investment and insurance products, As a variety of models for cooperation and integration among finance industries have emerged, some of the traditional distinctions between banks, insurance companies, and securities firms have diminished. Despite these changes, banks continue to maintain and perform their primary role—accepting deposits and lending funds from these deposits 3.2. History of Banking The first banks were probably the religious temples of the ancient world and were probably established sometime during the 3rd millennium B.C. Banks probably predated the invention of money, Deposits initially consisted of grain, and later other goods including cattle, agricultural implements and eventually precious metals such as gold in the form of Downloaded by Raul Rock (rahulrock’5@gmailcom)easy-to-cary compressed plates. The London Royal Exchange was established in 1565, at that time Money-changers were already called bankers, though the term “bank” usually referred to their offices and did not cary the meaning it does today. There was also a hierarchical order among professionals; at the top were the bankers who did business with heads of state next were the city exchanges and at the bottom were the pawn shops or “Lombards”. Global banking and capital market services proliferated during the 1980s and 1990s as a result of a great increase in demand from companies, governments, and financial institutions, but also because financial market conditions were buoyant and on the whole’ “bullish”, Today universal banks are free to engage in all fonns of financial services, make investments in client companies and function as much as possible as a “non-stop” supplier of both retail and wholesale financial services. Indian History Banking in India originated in the first decade of the 18th century with the General Bank of India coming into existence in 1786. This was followed by the Bank of Hindustan. Both these banks are now defimet. The oldest bank in existence in India is the State Bank of India being established as “The Bank of Bengal” in Calcutta in June 1806. The first fully Indian-owned bank was the Allababad Bank, which was established in 1865. By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank in 1895 in Lahore and Bank of India in 1906 in Mumbai- both of which were founded under the respousibility of regulating the Indian banking sector from 1935. After India’s independence in 1947, the Reserve Bank was nationalized and given broader powers. From 1786 till today, the joumey of the Indian Banking System can be segregated into three distinct phases. They are explained as follows: Phase I: Pre-Independence Stage ‘The General Bank of India was set up in the year 1786. Next, the Bank of Hindustan and Bengal Bank. The East India Company established the Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called them Presidency Banks. These three banks were amalgamated in 1920 and the Imperial Bank of India was unleaded by Rahul Rock (rahulrock45@enailcom)established which started as a private shareholder’s bank. In 1865, Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank, was set up in 1894with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase, the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act 1949 which has later changed to the Banking Regulation Act 1949 as per amending Act of 1965 (Act No.23of 1965). Reserve Bank of India during those days the public has lesser confidence in the banks. As an aftermath deposit mobilization was slow. Abreast of it, the savings bank facility provided by the Postal department was comparatively safer. Moreover, finds were largely given to traders. Phase II: 1947 to 1991 The government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized the Imperial Bank of India with extensive banking facilities on a large scale, especially in rural and semi-rural areas. It formed the State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the county. By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. Seven banks forming subsidiaries of the State Bank of India were nationalized in 1960 on 19th July 1969, and a major process of nationalization was carried out, It was the effort of the Prime Minister of India; Mrs India Gandhi.14 major commercial banks in the country were nationalized. The second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to regulate banking institutions in the country > 1949: Enactment of Banking Regulation Act. > 1955: Nationalization of State Bank of India > 1959: Nationalization of SBI subsidiaties. unleaded by Rahul Rock (rahulrock¢5@emnail com)1961: Insurance cover extends to deposits. 1969: Nationalization of 14 major banks 1971: Creation of credit guarantees corporation 1975: Creation of regional rural banks 1980: Nationalization of seven banks with deposits over 200 crores, After the nationalization of banks, the branches of the public sector bank of India rose to 1800 % in deposits and advances took a huge jump by 110%, Banking in the sunshine of Government ownership gave the public implicit faith and immense about the sustainability of these institutions, III: 1991 & beyond This phase has introduced many more products and facilities in the banking sector in its reform measures. In 1991, under the chairmanship of Mr Narasimham, a committee was set up by his name which worked for the liberalization of banking practices. ‘The next stage for Indian banking has been set up with the proposed relaxation in the norms of Foreign Direct Investment. The country is flooded with foreign banks and ATM stations. Efforts are being put to give a satisfactory service to the customers. Phone banking and net banking are introduced. The entire system became more convenient and swift. Time iven more importance than mone; The financial system of India has grown a great deal of resilience. It is sheltered fiom any crisis triggered by any extemal macroeconomies shock like other East Asian Countries This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure. The Reserve Bank of India fonmally took on the responsibility of regulating the Indian banking sector in 1935. Afler India’s independence in 1947, the Reserve Bank was nationalized and given broader powers. Banking Consolidation Mergers and acquisitions in the banking sector are a common phenomenon across the world. The primary objective behind this move is to attain growth at the strategic level in terms of size and customer base. This, in tun, increases the credit-creation capacity of the Downloaded by Rahul Rock (rahulrocka5@gmailcom)merged bank tremendously. Small banks fearing aggressive acquisitions by a large bank sometimes enter into a merger to increase their market share aud protect themselves from the possible acquisition, Banks also prefer mergers and acquisitions to reap the benefits of economies of scale through reduction of costs and maximization of both economic and non-economic benefits This is a vertical type of merger because all banks are in the same line of business of collecting and Mobilizing funds. Before Independence in 1921 three banks merged to form the Imperial Bank of India and became part of the State Bank of India in 1953. In the last few years, banking sectors have witnessed many tremendous mergers and one of the most prominent mergers is the merger of ICICI Ltd, with its banking arm ICICT bank Ltd. The merger of Global Trust Bank with Oriental Bank of Commerce and the merger of IDBI with its banking arm IDBI Bank Ltd. ‘Table 3.0: Successful Approach to Mergers and Acquisition Integration Years of Merged ‘Name of the Banks ‘Name of the Banks Acquired Merged into Canara Bank Lakshmi Commercial Bank Punjab National Bank New Bank of India Bank of India Bank of Karad Union Bank of India Sikkim Bank HDFC Bank Times Bank ICICI Bank Bank of Madura unleaded by Rahul Rock (rahulrock¢5@emnail com)2008 HDFC Bank Centurion Bank of Punjab Source: wivw.imra.us Through mergers, it will help the banks to scale up their business and gain a large no. of customers quickly It will bring a better efficiency ratio to the business and banking operations and minimize the risk factor ratio by merging into one, It will also help in the up-gradation of technology, increase profit and raise the standard of living. The amalgamation of two banking companies is under the provisions of Section 4A of the Banking Regulation Act, 1949. Section 45 of the Banking Regulation Act, 1949 talks about the compulsory amalgamation of banks. (Power of the Reserve Bank of India is to apply to Central Government for dissolution/suspension of business by a banking sector and to prepare the scheme of reconstruction/amalgamation). Selection 230 and 232 of the Companies Act, 2013 related to the mergers and amalgamation. The amalgamation of a banking company with a non-banking company is governed by sections 391 to 394 of the Companies Act, 1956. Section 35 states the acquisition of the business of other banks by the State Bank of India under the state bank of India Act 1955 ‘Table 3.1: Recent Mergers Years of Merged ‘Name of the Banks ‘Name of the Banks Acquired ‘Merged into 2020 April Indian Bank Allahabad Bank 2019 August Canara Bank Syndicate Bank 2020 April Union Bank of India Andhra & Corporation Bank Oriental Bank of Commerce 2019 August Punjab National Bank ‘& Linited Bonk of India 2019 April Bank of Baroda ‘Vijaya Bank & Dena Bank 2017 April SBI Bharatiya Mahila Bank All of the 5 associates of 2017 April SBI SBI 2014 November Kotak Mahindra Bank ING Vyasa Bank unleaded by Rahul Rock (rahulrock45@enailcom)2010 May ICICI Bank Bank of Rajasthan ‘Source: wawnw.ijmra.us 3.3 Indian Banking Present and Future Currently, banking in India is considered to be fairly mature in terms of supply and product range. Indian economy is one of the fastest-growing economies in the world the country’s GDP has been growing at an average rate of almost 7 per cent during the last decade with the GDP growth rate touching 9.4 per cent in the last year. The Indian banking industry also has obtained its share in the growth of the economy. During the pt uatioualization period, the country witnessed an unprecedented expansion in the branch, network of commercial banks with these banks reaching the people in far-flung unbanked areas, There was a gradual shift in the approach of nationalized banks from ‘class banking” 10 ‘mass banking’. The present focus on retail eredit such as housing loans and vehicle loans, regulatory norms for the flow of credit to the agricultural sector and changes in the attitude of the people now opting for availing loans to build their assets, has created a vast market potential for banks in India. On the other hand, the Indian household sector, which is one of the largest savers in the world, continues to lock up a major portion of its savings in the form of investments in gold and real estate. The need for huge investment in various infrastructure projects being undertaken for providing support to the economic development of the country opens up a hitherto untapped market in the financial sector in India. The overall banking scenario is proving to be a fast- growing profitable avenue for commercial banks, which is now attracting foreign banks for reaping the benefits of the developing economy. Further, the Indian banking industry has realized the critical importance of IT-based operational solutions for surviving the fierce competition to enhance the customer base Many banks have implemented T-based Core Banking Solutions in recent times. A considerable amount has been spent in the form of IT investments by major banks in the county. Whenever required, the banks have undertaken business process reengineering to suit the technology. Indian banks also seek to expand overseas considering both developing and developed nations. Expanding into developed economies will provide Indian banks with expertise, much needed to face competition from global players in the local market. High margins and opportunities to reap profits lure the Indian players to developing economies. 21 Downloaded by Raul Rock (rahulrock’5@gmailcom)The Reserve Bank of India in its road map for the banking industry has indicated that the Indian market will be opened to international banks by 2009. It is expected that apart fiom the existing foreign banks, many such other banks would gain entry into the Indian markets to tap the vast potential. These banks with the help of advanced technology, adequate capital for investment and their customer-centric approach attract profitable customers from the existing banks. Fierce competition between the existing banks and the new entrants provides the impetus for business growth. The new foreign banks entering the Indian market strive for creating a strong customer base. These banks with their teclnological solutions for quality in the form of capital infuse the latest [T-based technological solutions for quality financial services. To effectively competitive challenges, the Indian banking industry will have to gear up and adopt the global best practices which would make them stronger and comparable with the intemational banks. In the changed circumstances, the need for “customer delight overrides the need for ‘customer service. 3.4. South Indian Bank - Company Profile One of the earliest banks in South India, the South Indian Bank (STB) came into being under the Swadeshi movement. It was incorporated on 29th January 1929 by the fulfilment of the dreams of a group of enterprising men who joined together at Trissur to provide the people safe, efficient and service-oriented repository of savings for the community on one hand and to fiee die business community from the clutehes of greedy money lenders on the other by providing need-based credit at a reasonable rate of interest Company Logo Experiences Next Generation Banking Figure 3.0: South Indian Bank New Logo South Indian Bank Limited (SIB) is a private sector bank headquartered in Thrissur in Kerala, India, It is headed by Sri, V.G. Mathew, Managing Director & CEO of the bank. South Indian Bank has 970 offices spread across more than 27 states and 3 union tervitories in India. It has set up 1148 ATMs all over India. The bank offers major services in various segment-accountand deposits, loans, mutual funds, insurance, money transfers and other value-added services: The Kerala goverment had permitted SIB to accept commercial taxes. The banks have been appointed as the largest service provider (point of sale) for the New Pension Scheme (India) launched by the Government of India SIB provides retail and corporate banking, and Para-banking activities, such as debit cards and third-party product distribution, It operates in four segments. The treasury services segment primarily consists of the interest on investments of the bank, and eamings fom foreign exchange business. The Corporation’ Wholesale banking segment loans and other banking services to the corporate segment. The retail banking segment provides loans and other banking services to non-corporate customers. Revenues of this segment consist of interest eamed on loans made to non-corporate customers and the charges fees from other banking services. Other Banking operations include income from Para banking activities such as debit cards and third-party product distribution South Indian Bank has 928 branches. 4 service branches, 54 ext. Counters and 20 Regional Offices spread across more than 27 states and 3 union territories in India. It has set up 1148 ATMs and 42 Bulk Note Acceptor/Cash Deposit Machines all over India, South Indian Bank Old Logo The Figure 3.1: South Indian Bank's old logo 3.4.1 Vision To be the most preferred bank in the areas of customer service, stakeholder value and corporate governance. mioaded by Raul Rock (rahulrock’5@gmail com)3.4.2 Mission To provide a secure, agile, dynamic and conducive banking environment to customers with a commitment to values aud uishaken confidence, deploying the best technology, standards, processes and procedures where customer convenience is of significant importance and to increase the stakeholder’s value ee BRANCHES: 928 6 ExTCOUNTERS: 1 © ssevecomncniss 1 Y averrssconscrmera Figure 3.2: Total Number data of SIB TOTAL NUMBER OF D> 3.4.3 Milestones > First among the private sector banks in Kerala to become a scheduled bank in 1946 First bank in the private sector in India to open a Curreney Chest in April 1992 First private sector bank to open an NRI braneh in Jhumritalaiya in November 1992 First bank in the private sector to start an Industrial Finance Branch in March 1993. First among the private sector banks in Kerala to open an overseas branch in June Bank in Kerala to develop an in-house, fully integrated branch automation software. First Kerala-based bank to implement Core Banking System 8th largest branch network among private sector banks in India 3.44 Awards and Recognition > Best Bank in Asset Quality Award-Dun &Bradstreet. No.1 Asset Quality-Business Today Ranking of Banks. Best Performer in Asset Quality- Analyst 2008 Survey, ‘Top NPA Manager- ASSOCHAM - ECO Pulse Survey Best Old Private Sector Bank- Financial Express India’s Best Banks 2008-09 Best Asian Banking Website-Asian Banking &Finance Magazine, SingaporeBest private sector bank in India in the service quality sezment- Outlook Money- CFore Survey, Special award for excellence in Banking Teclmology from IDRBT (institute for Development & Research in Banking Technology) - the arm of the Reserve Bank of, India as a national-level recognition of the excellent contribution made in the area of Information System Secuity Policies and Procedures. SIB bagged the best website award fiom Kerala Management Association on th February 2010 Sti-Azim Premji, Chairman and Managing Director of Wipro inaugurated the renovated corporate office of SIB. Technology Excellence Award, instituted by IDRBT for managing IT risk. SIB Bags First MasterCard Innovation Award for Activation and Usage Program in 2013, SIB bags The IBA Technology Awards 2012-13. South Indian Bank won the ‘Best IT Team Award’-Banking Technology Excellence Award 2014. Best Bank (Private Sector) in the BSFI Awards 2015 SIB Receives “Social Banking Excellence Award 2015” (Rural Banking-Small Bank) instituted by ASSOCHAM from Hon. Minister of State of Finance Mr Jayanth Sinha on 29th January 2016. "SIB MIRROR" mobile banking application has Won THIRD Prize in IDRBT Banking Application Contest-IBAC-2016 conducted at IDRBT, Hyderabad Award for Best MSME Bank-Runner Up, instituted by Chamber of Indian Micro, Small & Medium Enterprises National Payments Excellence Award for RuPay instituted by NPCI unleaded by Rahul Rock (rahulrock¢5@emnail com)South Indian Bank won Banking Frontiers Inspiring Work Places Awards-2016 South Indian Bank bags NPCI award -2016 South Indian Bank Awarded with ISO 27001:2013 Certification South Indian Bank wins FIEO Export Excellence Award 2014-15 South Indian Bank wins IDRBT Best Bank Award for Electronic Payment-2016 South Indian Bank bags Digital India Excellence Award 2017 South Indian Bank wins two IDRBT Best Bank Awards in -2017 South Indian Bank Bags D&B Best Private Sector Bank Award-2017-18 South Indian Bank bags National Payments Excellence Award-2019 South Indian Bank bags Kerala Management Association(KMA)-Corporate Social Responsibility(CSR) Award-2019 IMC Chamber of Commerce award for Best end-user company-Large category won by South Indian Bank for Digital e-lock-2019-20 South Indian Bank bags Banking Frontiers Finnoviti Awards- 2021 South Indian Bank bags UiPath Automation Excellence Awards-2020 South Indian Bank bags ASSOCHAM National E-Summit & Awards for Digital Financial Services in Banking & Financial Lending-2021-22 3.4.5 Products and Services Personal Banking Under this category, the bank offers a wide range of personal banking products and services such as deposits, savings, loans, intemet banking, mobile banking, Demat services, cxedit card, debit card, etc 1, Accounts & Deposits a. Savings Account b. FIZA- Individual Current Accounts c. Term Deposits d. Financial Inclusion unleaded by Rahul Rock (rahulrock S@anailcom)Unclaimed Deposits/noperative Accounts 2. Loans a. Personal Loan b. Car Loan Home Loans Gold Loans Education Loans £ OTS Scheme For MSE g. Property Loan ‘h. SIB Commercial Vehicle Loan i STB Pharma Plus j. SIB DECOR k. SIB Rental Loan Scheme Life Insurance Health Insurance General Insurance ECGC PM’S Social Security Schemes Domestic Transfers Intemational Transfers SIB Rewards 3 In ONE Trading KIT Green Pin Any Branch Banking ATM Cum Shopping Card unleaded by Rahul Rock (rahulrock¢5@emnail com)£ Doorstep Banking Service g. Mobile Banking h, SIB Feebook i. Credit Card 5. FX Retail , Intemet Banking | KYC Periodic Updation m, NETC FASTAG un, SIBE Academia ©. DEMAT Services 3. Mutual Funds ‘The bank offers mutual funds products from various funds houses such as ICICI Prudential AMC, Franklin Templeton, TATA Mutual Fund, Sundaram BNP Paribas, UTI Mutual Funds Reliance Mutual Funds, HSBC Investments, HDFC Mutual Fund, Fidelity Fund Management, Principal Mutual Funds, Fortis Investments, Birla Sun Life Asset Management Company and DSP Blackrock Mutual Funds 4. Insurance 5. Money Transfers 6. Value Added Services p. National Pension System 4q. SIBER Trade 1 PAN Service Agency s. Co-Branded Credit Cards t. SIB Collect u. SIB Contactless Debit Card unleaded by Rahul Rock (rahulrockv, SIB Prepaid Gift Card w. Prepaid Digi/Cash Card x. KC Certification of Mutual Fund Investors y. Cash Management Services MasterCard SecureCode aa, Rupa PaySecure bb. Verified By VISA ce, SIB Travel Card dd. Sovergin Gold Bonds ee, Tax Payment ff. Tax Saving Investment gg. Centralized Direct Debit Services uh, Branches With Safe Deposit Lockers a, Products- Accounts & Deposits, Loans, lusurance And Investusent and Cards b. E-Service- Online NRI A/C Opening, Update Your KYC Details, Online FATCA-CRS Update, Online Remittance Enquiry, Branch Appointment c. Remittances- Exchange House Arrangements (GCC & Other Countries), Other Money Transfer Arrangements (MTSS), SWIFT Transfers Through Correspondent Banks 4. Money Transfers- Intemational Transfers, Within India, Foreign Exchange Advisory Cell, Online Remittance Enquiry e, Representative Office and Relationship Managers Abroad £ Digital Banking- Internet Banking, Mobile Banking unleaded by Rahul Rock (rahulrock4sg, Value Added Services- Any Branch Banking, ATM Cum Shopping Card, Green Pin, Demat Services, NRI Branches, NRI Division, FX Retail, Hadi Express Exchange, Portfolio Investment Scheme, Centvalized Direct Debit Services. 7. NRI Banking SIB also caters its banking products and services to NRI customers stich as deposits, ear loans, remittances, investment schemes, and insurance amongst others Distribution of Capital Gain Bonds & Tax-Free Bond, Overseas Representative Officers a, Business Accounts- Normal Accounts, Premitm Accounts General, premium CD SMART, ‘Trader Smart Current Account (TSCA), SIB Merchant Plus b. Domestic Finance- Working Capital Finance, Long term Finance, Non-Fund Based Finance, Time Frame for Disposal of Loan Proposals, Supply Chain Finance, Business Loan, SIB Commercial Vehicle Loan c. Intemational Finance- Foreign Exchange Advisory Cell d. Money Transfers- Domestic Transfers, Intemational transfers e. Value Added Services- Any Branch Banking, ATM Cum Shopping Card, MasterCard Business Debit Card, Internet Banking, Mobile Banking, Merchant Acquiring Services (POS), SIB PAYGATE- Payment Gateway Services, SIB Collect, Demat Services, DIGI CAMPUS, Insurance, FX-Retail, Centralized Direct Debit Services 8. Business Banking > Business Accounts > Domestic Finance > International Finance > Money Transfers Value-Added Services SIB-API Banking TASC unleaded by Rahul Rock (rahulrock S@anailcom)Sibertech Our bank had embarked upon a massive tecluology up-gradation drive-by introduction of a Centralized Core banking solution. For this a modem Data Centre has beers set up at Kochi, connecting all branches with all the Departments at Head Office. all Regional Offices, and the Treasury Dept. at Mumbai and the IBD at Kochi. This robust network facilitates anywhere banking, Networked ATMs, Intemet Banking, Mobile Banking, Global debit cuts ATM card operations, Online trading, online shopping ete. The Sibertech project was launched with a target of counecting the 200 odd branches in two phases by March 2004 ‘Towards this endeavour, the bank has concluded a technology partnership with M/s Infosys Technologies Ltd for Finale, the Core Banking Solution, M/s HCL Info systems Ltd. for Network Integration and M/S WIPRO for Data Centre set up and Maintenance. The Sibertech Project was formally launched on January 17, 2001, by Sri NRNarayana Murthy, Chief Mentor, Infosys Technologies Ltd in a colourful funetion at Kochi. The state-of-the-art Data Centre of intemational standards at Kochi is the only one of its kind in the banking industry in Kerala, Several dignitaries have visited this Data Centre Including Sri.Arim H. Premji, Chairman & Managing Director, Wipto Ltd. Per se bank has achieved 100% Core Banking Solutions by 24th March 2007. Further to strengthen the ATM reach and global acceptability Bank has introduced Master Card Global Debit-cum- ATM card, which can be used at ATMs and merchandise all over the world. We have launched intemet banking primarily focusing the individual as well as corporate clients ‘The Bank has also introduced Mobile banking for customers as a value addition. The Bank aims to offer the latest technology-driven value-added services to the customers without compromising our motto - Blending Tradition with Technology SIB Mirror Plus Figure 3.3 Logo- SBI Mirror Plus unleaded by Rahul Rock (rahulrock¢5@emnail com)SIB Mirror brings the customer Next Generation Digital Banking Experience from South Indian Bank- a comprehensive and secure Mobile Banking platfonn, offering the customer 100+ banking and utility services to take care of your daily banking needs conveniently from his/her smartphone. ‘The main highlighting features include Fund Transfer, BHIM UPI, All in one Sean and Pay E- Lock and E Limit, SIB E-Mart, Mutual Fund, Insurance ete 3.4.6 The Structure of SIB The structure of South Indian a bank is Head Office, Regional Office, Branch Office. Extension Counters and ATM Counters Head Office South Indian Bank's functions are controlled and coordinated by the Head office. The Head Office of South Indian Bank is in Trichur, Kerala, It controls the activities of regional offices od bench affairs, All most all the departments are there in the Head Office. Every decision is taken here. Since all the departments are there in the Head Office, every function is done here. The main fimetions of Head office are given below. It controls all the Activities of the bank The managing Director's Secretariat is there at the head office. So most all the decisious pertaining to the smooth administration of the bank are taken here. It checks all the accounts of different Regional Offices and Branch Offices through its accounts departments. Strong and sound DICT is there to make proper communication. Tt deals with all the legal issues of the bark through the legal departments. It checks the NRI account portfolio through its NRI division. It checks and reviews customer relationship management Regional Office: To make the administration and functions easier. Regional Offices are set up for each region, it acts as a link between branches and head office. In each region, a certain number of branches and extension counters are there. The administration is very difficult according to the increase of the branches Regional office makes the fiction of head office lesser through, its co-responsibility. The Regional Offices of South Indian Bank are the following Bangalore, Chennai, Coimbatore, Delhi, Emakulum, Hyderabad, Kolkata, Kottayam, Kozhikode, Mumbai, Pathanamthitta, Palakkad. Trivandrum, Trichur, and Madurai,Branch Offices ‘There are 928 branches of South Indian Bank. They come under a specific Regional office. To make personal contact with the customers, branches are very useful, In branch offices, we can't see all the departments. But every fimetion of the bank such as accepting, deposits issuing Soon and clearing is there Job natation is there in branch offices Extension Counter It is the same as a branch. It also has similar fimetions to branches except for issuing loans As of now, there are only three extension counters are there. It is the preceding stage to make a braneh. ATM Counters: The main purpose of the bank is to reduce the burden on the customer. So the banks have opened ATM Counters at different places to avoid the wastage of time and different formalities South Indian Bank has set up 1148 ATMCounters all over India. South Indian Bank's Global ATM-Cum-Debit Cards are now acceptable in the Master Card Intemational Network System as well as in the domestic National Financial Switch (NFS) Network System, Owned by IDRBT, the technical arm of RBL. Provide online access to Savings Bank or Current accounts of South Indian Bank. Tied up with the world-renowned service provider MasterCard International; can be used in 8, 30,000 ATMs & 7 million Point of Sale (POS) terminals worldwide. South Indian Bank is a member of the NFS network. South Indian Bank cards ate acceptable in other member banks’ ATMs. It can be used in 31000 ATMs in Iadia. ‘The Maestre Debit card is a PIN-based card and operates similar to ATM making it 100% secure, even in POS terminals, Global Cards are issued fiee of cost to the customers of South Indian Bank. The nominal fee is charged to the users at other banks' ATMs. Cash withdrawal limits through ATMs are up to Rs.20, 000/- per day mioaded by Raul Rock (rahulrock’5@gmail com)CHAPTER 4 RESEARCH METHODOLOGYDowniaaded by Rhu Rock (rahulrock’S@gnai com)4.0 Research Methodology This chapter clearly defines the research methods used to conduct the study. It is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. Research methods comprise the procedures used for generating and evaluating data, Research methodology is the path through which researchers need to conduct their research. It shows the path through which these researchers formulate their problem and objective and their results fiom the data obtained during the study period. This research design and methodology chapter also show how the research outcome at the end will be obtained in line with meeting the objective of the study. This chapter hence discusses the research methods used during the research process. It includes the research methodology of the study fiom the research strategy to the result dissemination. For emphasis, in this chapter, the author outlines the research strategy, research design, research methodology, the study area, data sources stich as primary data Sources and secondary data, population consideration and sample size determination such as questionnaires sample size determination and workplace site exposure measurement sample determination, data collection methods like primary data collection methods including workplace site observation data collection and data collection through desk review, data collection through questionnaires, data obtained from experts opinion, workplace site exposure measurement, data collection tools pretest, secondary data collection methods, methods of data analysis used such as quantitative data analysis and qualitative data analysis, data analysis software the reliability and validity analysis of the quantitative data, reliability of data, reliability analysis, validity, data quality management, inclusion criteria, ethical consideration and dissemination of result and its utilization approaches. In order to satisfy the objectives of the study, a qualitative and quantitative research method is apprehended in general. The study used these mixed strategies because the data were obtained fiom all aspects of the data source during the study time. Therefore, the purpose of this methodology is to satisfy the research plan and target devised by the researcher 4.1 Research Design A descriptive and analytical design has been used in this study to determine the statistical association between the relationship of CAMEL variables and the Retwn on Equity. The study variables are the Retumn on Equity (ROE), Capital Adequacy, Asset Quality. Operational Efficiency, Earnings and Liquidity Downloaded by Rahul Rock (rahulrocka5@gmailcom)4.2 Sources of Data The Analysis of Asset Liability Management in South Indian bank will be carried out for the sample period from 2016-17 to 2020-21. This study is purely based on secondary data the sources of data were collected through various financial statements of the South Indian bank. > Balance sheet > Profit and Loss statement 4.3 Sampling Plan In this study, sampling is not used. Data required for the study is available from the South Indian Bank website. It includes annual reports of South Indian Bank such as Profit and Loss Statement and Balance sheet. 4.4 Hypothesis of the Study HO: CAMEL variables have no relationship with the financial performance (ROE) of the bank. HI: CAMEL variables have a significant relationship with the financial performance (ROE) of the bank, So, This could be elaborated into, HO: There is no significant relationship between the financial performance (ROE) and Capital Adequacy HI: There is a significant relationship between the financial performance (ROE) and Capital Adequacy HO: There is no significant relationship between the financial performance (ROE) and Asset Quality HI: There is a significant relationship between the financial performance (ROE) and Asset Quality unleaded by Rahul Rock (rahulrock4sHO: There is no significant relationship between financial performance (ROE) and Operational Efficiency. HI: There is a significant relationship between financial performance (ROE) and Operational Efficien HO: There is no significant relationship between the financial performance (ROE) and Earnings HI: There is a significant relationship between financial performance (ROE) and Earnings HO: There is no significant relationship between the financial performance (ROE) and Liquidity HI: There is a significant relationship between financial performance (ROE) and Liquidity. 4.5 Data Analysis Tools >» CAMEL > Conrelation > GAP analysis 4.5.1 CAMELS Rating This system has been developed in the United States. It is a rating system wherein the bank regulators or examiners evaluate the overall performance of the banks and determine their strengths and weaknesses through six categories. CAMELS is an acronym for Capital Adequacy, Asset Quality, Management Capability, Eamings, Liquidity and Sensitivity. Capital Adequacy assesses an institution’s compliance with regulations on the minimum, capital reserve amount. Regulators establish the rating by assessing the financial institution’s capital position currently and over several years. Future capital position is predicted based on the institution’s plans for the future, such as whether they are planning to give out dividends or acquire another company. The CAMELS examiner would also look at trend analysis, the composition of capital, and the liquidity of the capital Asset Quality assesses the quality of a bank’s assets. Asset quality is important, as the value of assets can decrease rapidly if they are risk. For example, loans are a type of asset that can become impaired if money is lent to a high-risk individual. The examiner looks at thebank’s investment policies and loan practices, along with credit risks such as interest rate risk and liquidity risk. The quality and trends of major assets are considered. If a financial institution has a trend of major assets losing value due to credit risk, then it would receive a lower rating Management Capability measures the ability of an institution’s management team to identify and then react to financial stress. The category depends on the quality of a bank's business strategy, financial performance, and internal controls. In the business strategy and financial performance area, the CAMELS examiner looks at the institution’s plans for the next few years. It includes the capital accumulation rate, growth rate, and identification of the major risks. For intemal controls, the exam tests the institution’s ability to track and identify potential risks. Areas within internal controls include information systems, audit programs and record keeping. Information systems ensure the integrity of computer systems to protect customers’ personal information. Audit programs check if the company’s policies are being followed. Lastly, record keeping should follow sound accounting principles and include documentation for ease of audits. Earnings help to evaluate an institution’s long-term viability. A bank needs an appropriate retum to be able to grow its operations and maintain its competitiveness. The examiner specifically looks at the stability of earnings, retum on assets (ROA), net interest margin (NIM), and future earnings prospects under harsh economic conditions. While assessing earnings, the core eamings are the most important. The core eamings are the long-tenm and stable earnings of an institution that is affected by the expense of one-time items, For banks, Liquidity is especially important, as the lack of liquid capital can lead to a bank run. This category of CAMELS examines the interest rate risk and liquidity risk. Interest rates affect the earnings from a bank’s eapital market business segment. If the exposure to interest tate risk is large, then the institution's investment and loan portfolio value will be volatile Liquidity risk is defined as the risk of not being able to meet present or future cash flow needs without affecting day-to-day operations. Sensitivity is the last category and measures an institution’s sensitivity to market risks. For example, assessment can be made on energy sector lending, medical lending, and agricultural lending. Sensitivity reflects the degree to which earings are affected by interest rates. exchange rates, and commodity prices, all of which can be expressed by Beta Downloaded by Raul Rock (rahulrock’5@gmailcom)4.5.2 Correlation It is a statistic that measures the degree to which two units move concerning each other. The range of correlation lies between -1.0 and +1.0. A perfect positive correlation means that the correlation coefficient is exactly 1. This implies that as one unit moves either up or down, the other secuity moves in lockstep, in the same direction. A perfect negative correlation means that two assets move in opposite directions, while a zero correlation implies no relationship at all. Hence it is a statistical technique that can show whether and how strongly pairs of variables are related. If a change in one variable appears to be accompanied by a change in the other variable, Variables are said to be correlated and this inter-dependence is called comlation or co- efficient of correlation. It is a numerical index that tells us to what extent the two are related and to What extent the variations in one variable change with the variations in the other. The coefficient of correlation is always symbolized either by r or p (Rho). The calculation of the correlation coefficient is as follows, with x representing the values of the independent variable and y representing the values of the dependent variables E(x ~x)y-y) MBG -3)y-9) 4.5.3 GAP It measures mismatches between rate-sensitive liabilities and rate-sensitive assets. The Gap Report should be generated by grouping rate-sensitive liabilities, assets and off-balance sheet positions into time buckets according to residual maturity, All investments, advances, deposits, borrowings, purchased fimds etc. that mature/teprice within a specified timeframe are interest-rate sensitive. Similarly, any principal repayment of the loan is also rate-sensitive if the bank expects to receive it within the time horizon. This includes final prineipal payment and interim instalments. Certain assets and liabilities receive/pay rates that vary with a reference rate, These assets and liabilities are re-priced at pre-determined intervals and are rate-sensitive at the time of repricing. While the interest rates on term deposits are fixed Downloaded by Rahul Rock (rahulrocka5@gmailcom)during their currency, the advanced portfolio of the banking system is floating. The interest rates on advances could be se-prived on any number of occasions, coxesponding to the changes in PLR. The GAP is the difference between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) for each time bucket. The positive GAP indicates that it has more RSAs than RSLs whereas the negative GAP indicates that it has more RSLs. mioaded by Raul Rock (rahulrock’5@gmail com)CHAPTER 5 DATA PRESENTATION AND ANALYSISDowniaaded by Rhu Rock (rahulrock’S@gnai com)This chapter presents the analysis of the study and findings of the investigation on the effect of asset-liability management on the financial performance of SIB between the Years 2016-17 to 2020-21. In the study variables, points included are capital adequacy, asset quality, liquidity, operational efficiency, earnings and retum on equity as the measure of financial performance along with profitability ratios and maturity gap. Table 5.0. CAMELS Rating (in Percentage) Year Capital | Asset Operationa | Earnings | Liquidity | Sensitivity Adequac | Quality | 1 Efficiency y 2016- 12.37 5 15.831 037 2017 2017- 15988 043 2018 2018- 2 1633 2019 2019- 13.41 2020 2020- 15.42 2021 ‘Source: Secondary Data Figure 5.1 Capital Adequacy values for 2017-2021 Capital Adequacy 2016-2017 2017-2018 2018-2019 2019-2020 2020-2023, Source: Secondary Data Downloaded by Rahul Rock (rahulrocka5@gmailcom)Capital Adequacy shows an increasing trend, It indicates how much the bank lends with respect to the capital. The value is highest for the FY 2020-21 at 15.42. The value slightly increased from 12.37 to 12.70 in the year 2017-18 before slightly decreasing in the year 2018-19 and from there it was a continuous increase to the 15.42 which is the five years highest in 2020-21 Figure 5.2 Asset Quality values for 2017-2021 Asset Quality an eee 3.34 | 2016-2017 2017-2018 2018-2019, 2019-2020 2020-2021 Source: Secondary Data ‘The Asset Quality depicts the proper payback of loan amounts. The lower the ratio the more stable the assets. Here the graph shows an increasing trend. First, the value is increased from 1.45 to 2.60, which is increased to 3.45 in the year 2018-19 followed by a slight decrease to 34 showing a lower ratio, which is good for the bank. But, then the value increased to reach 4.71 in the year 2020-21 which is the five-year total indicating that the assets of the bank are not that stable and it’s bad for the bank Downloaded by Raul Rock (rahulrock’5@gmailcom)Figure 5.3 Operational Efficiency values for 2017-2021 Operational Efficiency 2016-2017 2018-2019, 2019-2020 2020-2021 Source: Secondary Data Operational Efficiency is measured in terms of Business per employee and shows an increasing trend. Business is the sum of net advances and deposits as reported to the RBI under section 27 of the Banking Regulation Act, 1949. Interbank deposits are excluded for the purposes of computation of this ratio. Fizst, it slightly increased from 15.831 to 15.988. and then again increased to 16.33, which is followed by an increase to 17.70. The ratio was highest during the FY 2020-21 which is 20.90. The trend line also shows that the ratio has been constantly increasing. Au efficiency ratio of 50% or under is considered optimal. If the efficiency ratio increases, it means a bank's expenses are increasing or ifs revenues are decreasing. So it is safe to say that the bank is in a good condition but the constant rise is a factor that needs to be considered. Downloaded by Rahul Rock (rahulrocka5@gmailcom)Figure 5.4 Earnings values for 2017-2021 Earnings 2016-2017 2or72018 2018-2019 2019-2020, 2020-202 Source: Secondary Data ‘The Eamings decreased from 0.57 to 0.43 then it is increased again to 0.29 which later is decreased to 0.11 and then reached the five-year low in the year 2020-21 with 0.06 depicting an overall decreasing nature Which indicates that the bank should increase its retums to carry out its operations and to maintain the competitiveness. Downloaded by Raul Rock (rahulrock’5@gmailcom)Figure 5.5 Liquidity values for 2017-2021 Liquidity 2016-2017 2017-2018 2018-2019 2019-2020 2020-2021 Source: Secondary Data The Liquidity decreases from 5.23 to 5.11 in 2017-18, which then increased to 5.23 again in 2018-19 and then it kept on increasing and reached the five years high of 6.57 in the year 2020-21 indicating an increasing trend. The higher the ratio higher the liquidity indicating that the bank has ample assets in the form of liquid cash to meet the day-to-day operations. So, the bank should take steps to improve it. Downloaded by Rahul Rock (rahulrocka5@gmailcom)Figure 5.6 Sensitivity values for 2017-2021 SENSITIVITY 2016-2017 2017-2018 2018-2019, 2019-2020 2020-2021 Source: Secondary Data From figure 5.6 we can understand that the value of sensitivity has been going upwards Which means that how much the bank will be affected by the changes in the market also known as the market risk. So in 2016-17, the value was at 7.31 and it has been continuously increasing, Very drastically in fact from the year 2018-19 to 2019-20 when the ratio jumped more than 10 points now the speed of increase has slowed down but the ratio is increasing indicating that the bank is still highly subject to the market risk Downloaded by Raul Rock (rahulrock’5@gmailcom)Figure 5.0 Return on Equity Year Return on Equity values for 2017-2021 2016-2017 8.10 2017-2018 639 2018-2019 464 2019-2020 191 2020-2021 1.07 Source: Secondary Return on Equity 10 639 Ng ABA I a 2016-2017 2017-2018 2018-2019 2019-2020 2020-2021 Source: Secondary Data The return on equity shows a negative trend indicating a decline in profitability. In 2016-17 It was at the five highest which was at 8.10 but after that fiom the trend line, it can be found that the trend has been constantly declining to touch the five year low in the year 2020-21. unleaded by Rahul Rock (rahulrock45@enailcom)5.2 Correlation Analysis of CAMEL Variables and Financial Performance Results in Table 5.2 show the couelations between CAMEL factors and the financial performance of the bank while holding the correlation coefficient value between plus and minus one. The study used the significance level of alpha equal to 0.05 %. Table 5.1 Correlation Table on CAMEL factors Correlations Retur | Capital [Asset Operationa Eaming | Liquidit non Adequac Qualit 1 5 y Equity y Efficiency y Retum on | Pearson | 1 -915" | =849 903" Equity Correlatio a Sig 069 tailed) N 5 5 Capital Pearson Adequacy Correlatio a Sig. 2 tailed) N Asset Pearson Quality Correlatio a Sig. tailed) N Operationa | Pearson 1 Correlatio Efficiency 1 Sig. tailed) N Eamings Pearson =799)-922" Correlatio a Siz tailed) N Liquidity Pearson Cotrelatio LB. = Sig @- Downloaded by Rahul Rock (+. Correlation is significant at the 0.05 level (2-tailed). **. Correlation is significant at the 0.01 level (2-tailed). Source: Secondary Data ‘The positive coefficients indicate that when the value of one variable increases, the value of the other variable also tends to increase. Here Capital Adequacy and Asset Quality have positive values, Negative coefficients represent cases when the value of one variable increases and the value of another variable tends to decrease. Here Operational Efficiency and Earnings have a negative correlation The significance value of operational efficiency and liquidity is less than 0.05. Hence, the correlation is not statistically significant. Hence, we reject Ho The significance value of Capital Adequacy and Return on equity is greater than 0.05 thus it has no association with ROE. Hence, we accept the Ho. The significance value of Asset Quality and Return on equity is less than 0.05 thus it has a significant association with ROE. Hence, we reject the Ho. The significance value of Operational Efficiency and Return on equity is greater than 0.05 thus it has no association with ROE. Hence, we accept the He. The significance value of Eamings and Retwm on equity is Jess than 0.01 thus it has an association with ROE. Hence, we reject the Ho. The significance value of Liquidity and Return on equity is less than 0.05 thus it has an association with ROE. Hence, we reject the He. Capital Adequacy and Asset quality are positively correlated while Capital Adequacy and Earnings have a negative comelation while Capital Adequacy, operational efficiency and Liquidity have no significant association. Asset Quality, Operational Efficiency and Liquidity are positively Correlated while Eamings have no significant relationship with Asset Quality