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Assessing the value of Asset Liability Management

The Asset-Liability Management is one of the most crucial functions of a bank in the
highly competitive and complex business environment today. Asset-Liability
Management is a co-ordinated management of a bank's balance sheet to allow for
different interest rate, liquidity and optionality shocks. Post Liberalization in 1991,
deregulation of various banking operations, freeing of interest rates, entry of new
generation banks increasing the competition, diversifying of banking activities,
integration of Indian banking into the world, introduction of new, complex products in
the market, have all led to increase in the volatility in the financial market. In such a
scenario, there are various opportunities, but they all come up certain risks, which if
not handled carefully could wipe out a bank's profits and may even result in its
bankruptcy. The recent global financial crisis has further reinforced the importance of
asset-liability management in banks and the current market scenario in India has
meant that banks have been facing asset-liability mismatch in their balance sheets as
well. The 2 major types of market risks a banks faces are Liquidity Risk and Interest
Rate risks, which are primarily addressed by the Asset-Liability Management of a
bank. The methods and approaches towards Asset-Liability Management have
evolved over the years due to changes in the business environment and the governing
body for commercial banks in India, RBI, has prescribed certain guidelines from time
to time to make sure all commercial banks fall in line and follow a uniform method for
the same. In its recent Monetary Policy Review, RBI expressed concern towards the
current asset-liability situation in the banks and asked banks to curb their lending,
which has gone well In excess of their deposits, leading to straight negative mismatch
and liquidity crunch in the system. Also, the constant increases by RBI in the Repo
rates (due to inflationary pressure) over the past 1 year has led to increase in cost of
funds for the banks, hitting their Net Interest Margins. The banks recently have been
forced to increase their deposit rates significantly to attract fresh deposits to address
the liquidity problem, which will also lead to decrease in their profit margins in the
ongoing and future quarters. The paper will also discuss how the Asset-Liability
Management is carried out at State Bank of India, India's largest bank.
WHAT IS ASSET LIABILITY MANAGEMENT (ALM)
ALM is the management of total balance sheet dynamics with regard to the size and
quality. It is a process of adjusting bank liability to meet loan demands, liquidity needs
and safety requirements. Asset liability management is a philosophy under which the
bank can target assets growth by adjusting liabilities to suit their needs.
It's focus is on
Profitability
Long term operating viability
It is a co-ordinated management of a bank's balance sheet to allow for different
interest rate, liquidity and optionality shocks. It involves:
On balance-sheet match of the assets and liabilities being re-priced.
Off balance sheet hedging of the on balance-sheet risks.
Securitization, to remove the risk from the balance sheet.
Alignment of branch level targets with broader goals of bank.
Centralization of liquidity and interest rate risks.
It is a process to match Assets and liabilities In terms of maturities and interest rate
sensitivities to minimize Interest rate risk and liquidity risk.
ALM involves
Quantification of risks
Conscious decision making with regard to asset liability structure in order to maximise
interest earnings within the frame work of perceived risks.
BENEFITS OF ALM
There are various benefits of having a proper Asset-Liability Management:
Awareness of various risks in the banking book, beyond credit risk.
Risk appetite for the banking book and at the portfolio level is clearly defined once
hidden risks are known to the bank.
Strategies to manage or mitigate intermediation risks.
Hedging with capital or derivatives.
Enhancement of net worth.
Limits based on risk/ return trade-off - much larger low-risk positions can be assumed
with the knowledge of ALM.
Entry into lucrative high-risk businesses with the guidance of ALM, if (i) they are
weakly related to the existing portfolio or (ii) bank has access to options.
EVOLUTION OF ALM
ALM was in response to much sharper stock market, exchange rate, price and interest
rate volatility since the early 1970s. The following events led to its evolution globally:
The S&L crisis
Savings and Loans Associations (S&L) in California, USA offered LT, fixed-rate,
mortgage-backed housing loans, funded by ST deposits.
Money market funds offered higher deposit rates, to reduce S&L deposits on a large-
scale, in the 1970s.
S&L deposit rates were deregulated.
Cost of funding went up much faster than rise in yields on advances.
NII simulations showed high book value of capital - decline in reported NII was
gradual.
Regulatory capital lowered to 3% of assets.
Restrictions on S&L lending lifted.
Large-Scale book insolvency by mid-1980s.
Lessons from S&L crisis
The result of high exchange rate, price and interest rate volatility.
High bailout cost ($154 billion) - result of regulatory laxity and political connections.
Exposure to interest risk, even in the non-tradable banking book, with volatile rates.
Maturity mismatch between assets and liabilities.
Focus on opportunity costs even for non-tradable products, like loans, rather than their
book values.
Orange County Disaster
Composition of Orange County Investment Pool (OCIP) in 1994:
Long-term securities, with maturities between 3 and 5 years - around 47%.
Long-term inverse floaters, with maturities between 3 and 5 years - around 33%.
For an inverse floater, the coupon falls as rate rises.
They were both funded by short-term deposits and repo ( &lt; 180 days) borrowing.
Assumption of steady or declining rates worked till end-1993 - huge NII gains and
profits for OCIP.
Rise in market rates - Fed Funds and Long-term - by 250 bps in 1994.
Sharp fall in value of assets and repo collateral - funding liquidity crunch.
On December 1, 2004, Orange County announced a loss of USD 1.6 billion and filed
for bankruptcy.
The plea that Assets and Liabilities were HTM was rejected and assets liquidated at
low market value.
Asian Crisis
Near Collapse of LTCM
Sharp rise in funding costs (IRR) &THORN; liquidity squeeze (Funding liquidity Risk)
&THORN; distress sales &THORN; collapse in Market Value of Assets and Equity
(Market Risk and Asset Liquidity Risk).
Failure of NII gap simulations to consider erosion in Market Value of Equity.
Introduction of complex derivatives for risk reduction - interdependent credit, market
and ALM risk
Shift to MTM valuation of Assets and Liabilities.
Duration and Duration Gap analysis for sensitivity of risky and riskless cashflows.
Portfolio VaR for probabilities and correlations.
Emphasis on simulations and Economic Capital.
Rapid decrease in the cost of computer storage capacity and sharp rise in speed and
precision.
Widespread use of Monte Carlo (MC) simulation.
ALM MILESTONES IN INDIA
Early-mid 1990s: Interest Rate deregulation.
10.2.1999: First ALM circular. Focus on funding liquidity Risk and NII Gap analysis. No
discussion of Trading Book.
June 2001-April 2004: Steady decline in market rates. Focus on long-term G-secs.
Huge trading profits.
October 2002: Market Risk Guidelines. Inclusion of Banking Book Liquidity Risk and
IRR.
May 2004 -: Sharp rise in rates. Huge trading losses.
24.6.2004: Market Risk Capital Charges. Shift to Duration Analysis for Trading Book.
June 2004: Introduction of Basel II. Liquidity and Banking Book IRR in Pillar 2.
Separation of banking and trading books.
2.9.2004: Permission to shift SLR investments, upto 25% of NDTL, to the HTM
category.
17.4.2006: Draft guidelines on ALM. Focus on Duration Gap Analysis. Addition of
three regulatory buckets in RSG statement.
October, 2007: Revised ALM guidelines, dividing the Liquidity statement's first
maturity bucket into 3 buckets.
IMPLEMENTATION OF ASSET-LIABILITY MANAGEMENT
Organizing a Planning Team
Developing a Strategic Plan
Establishing an Asset Liability Committee
Developing an Annual Budget or Profit Plan
Developing a process for reviewing performance
The Planning Team
Team Usually Consists Of Staff Members Who Have Basic Skills And Knowledge And
Will Be Headed By CEO. It does the following:
Developing Strategic Plan
Initiate planning process
Assigns responsibility for developing overall plan
Review the components and recommend actions to board of directors.
Setting Goals For Risk Management
Profit Planning
The Strategic Plan
This plan has 5 key components:
Mission statement
Strategic financial goals
Situation analysis
Swot analysis
Action plan supported by financial plan
ALCO
It is the apex committee of a bank for asset-liability management.
ALCO comprises staff members and the CEO. ALCO meets more frequently.
ALCO develops , implements and manages bank's annual budget or profit plan and
risk management programme.
Timely, accurate data and analysis is a must for ALCO's success
Budget or Profit Plan
This is a tool to keep the bank on track to achieve its strategic financial goals.
ALCO helps to oversee the making of the financial budgets
It makes recommendations if necessarry
The ALCO considers all details like time covered by the plan , contingencies that may
cause the plan to change, and the action plans, goals and timetables so as to
effectively implement the plan.
Review System
Review helps to find out the short comings and alter it if necessary
As and when the plan is written the frequency of the reviewing is also decided
This helps the banks to be consistent with the bank's short and long range goals.
LIQUIDITY RISK MANAGEMENT IN BANKS
A bank faces liquidity risks of the following types:
Funding Risk
It happens when there is a need to replace net outflows due to unanticipated
withdrawals of deposits or non-renewal of deposits, delayed payment or default on
loans, unexpected new loan demands from existing or new customers and so on
Time Risk
It happens when there is need to compensate for non-receipt of expected inflows of
funds
Call Risk
It happens due to Crystallization of Contingent Liabilities like Letter of Credit, Bank
Guarantee etc. The bank is forced to make immediate arrangement of funds if the
claims on these liabilities are made.
The maturity buckets given by RBI initially in its February 1999 guidelines were as
follows:
1.1 to 14 days
2. 15 to 28 days
3. 29 days and upto 3 months
4. Over 3 months and upto 6 months
5. Over 6 months and upto 1 year
6. Over 1 year and upto 3 years
7. Over 3 years and upto 5 years
8. Over 5 years
But, RBI realized that the first bucket (1-14 days) was not good enough to capture the
liquidity requirements adequately and the bucket had to be more granular. So, RBI
mandated splitting the bucket into 3 time buckets i.e Next Day, 2-7 days and 8-14
days.
In every bucket, the bank has to calculate the cash inflows and cash outflows
depending on the residual maturity of its assets and liabilities and then find out the
mismatches in each bucket.
If the Maturing Assets (M.A) &gt; Maturing Liabilities (M.L), there is a positive
mismatch
If the Maturing Assets (M.A) &lt; Maturing Liabilities (M.L), there is a negative
mismatch
In case of positive mismatch, there is excess liquidity in the bank for the concerned
maturity bucket and this excess liquidity can be deployed in money market
instruments, interbank lending in call money market, bill discounting, creating new
assets, investment swaps etc.
In case of a negative mismatch, there is shortage of liquidity in the bank for the
concerned maturity bucket and this can be financed from interbank borrowings in call
money market, bill rediscounting, Repo borrowings, liquidation of investments,
deployment of foreign currency converted into Rupee and so on.
This is the statement of Structural Liquidity which a bank must prepare daily and
report to RBI atleast once every month, as on the 3rd Wednesday of every month.
RBI has prescribed limits for the negative mismatches in the first 4 buckets. The net
cumulative negative mismatches during the Next day, 2-7 days, 8-14 days and 15-28
days buckets should not exceed 5 % ,10%, 15 % and 20 % of the cumulative cash
outflows in the respective first 4 buckets.
However, a bank may keep additional limits at their own discretion in addition to these
limits.
A sample statement of Structural Liquidity that a bank prepares is as follows:
INTEREST RATE RISK MANAGEMENT IN BANKS
The deregulation of interest rates and the operational flexibility given to banks to price
most of their assets and liabilities has led to the need of Interest Rate Risk
Management. Interest Rate Risk arises when the change in the market interest rates
adversely affect the bank's financial condition by hitting its profits. The immediate
impact of changes in interest rates is on bank's earnings (i.e. reported profits) by
changing its Net Interest Income (NII) and Net Interest Margin (NIM). A long-term
impact of changing interest rates is on bank's Market Value of Equity (MVE) or Net
Worth because the economic value of bank's assets, liabilities and off-balance sheet
positions get affected due to fluctuations in market interest rates.
The Interest Rate Risk can be viewed from 2 perspectives:
Earnings Perspective
The risk from the earnings perspective is measured by changes in the bank's Net
Interest Margin (NIM) and Net Interest Income (NII). There are many techniques for
measuring the same such as Gap Analysis, Duration Gap Analysis, Simulation, Value
at Risk (VaR) and so on.
Traditional Gap Analysis
The focus of the Traditional Gap Analysis is to measure the level of a bank's exposure
to interest rate risk in terms of sensitivity of its NII to interest rate movements. It
involves bucketing of all Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities
(RSL) and off balance sheet items as per their residual maturity/re-pricing date in
various time bands.
It may also involve computing Earnings at Risk (EaR) i.e. loss of income under
different interest rate scenarios over a time horizon of one year.
In every time bucket given by RBI, the RSA and RSL are computed and the positive or
negative Gap is found out.
If RSA&gt;RSL, there is a Positive Gap and in such a scenario, an increase in market
interest rates will lead to increase in the bank's NIM as there are more assets which
are re-pricing in the concerned time bucket than the liabilities which are re-pricing.
If RSA&lt;RSL, there is a Negative Gap and in such a scenario, an increase in market
interest rates will lead to decrease in the bank's NIM as there are more liabilities which
are re-pricing in the concerned time bucket than the assets which are re-pricing.
Hence, if the bank feels that the interest rates are going to rise under the current
scenario, it is favourable for the bank to maintain a positive Gap and if it feels that the
interest rates are going to decline in the near future, it is favourable for the bank to
maintain a negative Gap.
Economic Value Perspective - Duration Gap Analysis (DGA)
The focus of the DGA is to measure the bank's exposure to interest rate risk in terms
of sensitivity of Market Value of its Equity (MVE) to interest rate fluctuations. The DGA
involves bucketing of all RSA and RSL same as done in Traditional Gap analysis and
computing the Modified Duration Gap (MDG). This can be used to evaluate the impact
on the MVE of the bank under different interest rate scenarios.
Modified Duration (MD) of an asset or liability measures the approximate percentage
change in its value for a 1% change in the rate of interest.
The larger the Modified Duration Gap, the more is the bank exposed to interest rate
shocks.
Interest Rate Sensitivity Time Buckets
Earlier, the maximum bucket for sensitive items was over 5 years, but it has been
revised now to 'Over 5 yrs', 5 yrs to 7 yrs, 7 yrs to 10 yrs, 10 yrs to 15 yrs and over 15
yrs as the banks have forayed greatly into long term assets like home loans,
infrastructure loans and so on which have a maturity well in excess of 5 years.
Sample Statement of Interest Rate Sensitivity Analysis
ASSET LIABILITY MANAGEMENT AT STATE BANK OF INDIA (SBI)
The Asset and Liability Management Committee of the bank (ALCO) is given the
primary role of Liquidity Management and Interest Rate Risk Management.
ALM department provides various data, reports and information to ALCO to enable
them to monitor the same and provide necessary guidelines.
The Global Market Department gets the various reports, data from Asset Liability
Management Department on a daily basis and takes decisions regarding liquidity
management and interest rates on various instruments in consultation with ALCO.
ALCO can meet as and when required but at least once in a month.
ALCO
The Asset -Liability Management committee (ALCO) presently has the following
members:
Managing Director & Chief Credit and Risk Officer
Managing Director & Group Executive (Associates & Subsidiaries)
Deputy Managing Director & Group Executive (Global Markets)
Deputy Managing Director & Group Executive (Mid Corporate)
Deputy Managing Director & Group Executive (National Banking)
Deputy Managing Director (Corporate Strategy and New Business)
Deputy Managing Director & Group Executive (Rural Business)
Deputy Managing Director & Chief Financial Officer - Chairman
Deputy Managing Director & Group Executive(Corporate Banking)
Deputy Managing Director & Group Executive (International Banking)
Chief General Manager (Financial Control) - Member Secretary
LIQUIDITY RISK MANAGEMENT AT SBI
The bank measures the mismatches in cash inflow and cash outflow by calculating the
Maturity Gap Analysis over several time buckets.
While computing the gap, assets (inflow)/liabilities (outflow) are placed as per their
remaining maturities.
In the case of assets/liabilities without any contractual maturity (SB/CA/CC etc.,) the
maturity patterns are based on behavioral study of these portfolios with the approval
of ALCO.
A large portion (presently taken as 40%) of retail term deposits due for maturity are
assumed to be rolled over and accordingly put in longer time bucket of outflow.
Similarly a small portion of our Non Fund-Based business (for LC 5% and for BG
1.5%) are assumed to devolve and placed in outflows across several buckets.
For example, Current Account and Savings Account balances are bifurcated into core
and volatile portions and volatile portion is placed in the short-term buckets while core
portion is placed in longer term buckets of outflow.
This gap analysis has to be done on daily basis but reported to RBI on 1st and 3rd
Wednesdays of every month.
RBI has prescribed limits only for negative net cumulative mismatches in the first 4
buckets in short-term period (5% for 1 day, 10% in 2-7 days, 15% for 8-14 days, 20%
in 15-28 days).
ALCO has however prescribed the upper limit of 20% for all other time buckets.
Structural Liquidity report is compiled as above on a daily basis and put up to top
management {CGM (FC) and DMD & CFO}.
Important Liquidity Ratios
Liquidity Ratios
Percentage
Liquid Assets to Total Assets
Range
Liquid Assets to Total Deposits
Range
Liquid Assets to Near Short-Term Liabilities
&gt;100%
No regulatory definition of liquid Assets and benchmarks. Accordingly, liquid assets
are defined internally and the benchmarks are set matching with these definitions
keeping in view with the bank's risk appetite
The definition of liquidity ratios that are monitored and the bench marks are approved
by ALCO. ALM Department monitors these ratios
INTEREST RATE RISK MANAGEMENT AT SBI
The Gap Analysis statements prepared daily by ALM department and sent to Global
Markets Department.
Also, list of all deposit and lending rates of all commercial banks is prepared daily and
sent to Global Markets Department, who may take decisions on changes in interest
rates.
Details of Growth in Advances and Deposits prepared daily and sent to Global
Markets Department, who may look at the market conditions, the need for the bank
and tweak rates on things like bulk deposits almost every day.
The major changes in interest rates are done in consultation with ALCO.
CONTINGENCY FUNDING PLAN (CFP)
RBI guidelines say that all banks must prepare a contingency plan to measure the
ability to withstand any unexpected liquidity crisis.
Trigger Events:
 As per the ALM policy, trigger event is said to have occurred if:Â
Bank becomes a Net Borrower (Repo / CBLO / Money Market) continuously for 30
days and
During that period the unencumbered excess SLR securities fall below 2% of
fortnightly average deposits of previous quarter continuously for a period of 10 days.
Quantitative Warning Signals
Deposits decline by more than 5% of aggregate domestic deposits without
corresponding decline in loans and other assets during previous 3 months.
Loan portfolio increase by 5% without any significant increase in total deposits in last
3 months.
Cumulative negative gaps in the time bucket '29 days up to 90 days' exceeds 35% of
cumulative outflows in that time bucket.
The performance of the Bank as reflected from quarterly results has not been
satisfactory.
Qualitative Warning Signals
Depositors request for early withdrawal of their funds.
Accelerated run off of large fund providers.
Real or perceived negative publicity
Downgrade or announcement of potential down grade of rating by rating agencies.
A decline of asset quality.
The overall economy is witnessing a tight liquidity position.
The Contingency Funding Plan is reviewed every quarter. It is monitored by ALM
Department and report submitted to ALCO every quarter.
SBI RESULTS Q3FY 2011
The CASA ratio is quite healthy at 48%, which has primarily led to cost of deposits
coming down to 5.20%
NIM is above 3% which is a manageable figure
Provision Coverage Ratio is still well below stipulated 75%, stands at 64% and SBI
has asked for extention in period to comply with the same. To get this to 64%, there
has been huge amount of provisions made. In the current quarter also, the profit
would be hit due to provisions.
Net Interest Income has grown substantially both as compared to Q3 FY10 and also
compared to 9M FY10, which is a good sign.
As can be seen, Loan Loss provision has increased by more than 200% which has hit
the profitability greatly.
Deposits growth has been driven by strong growth in CASA (27%). Still deposit growth
is just 14% YOY, which is much less than Advances growth of 22%. This has been the
problem faced by most banks as the people have shifted from bank deposits to mutual
funds and equity due to negative rate of return offered by bank deposits. This has led
to concern as Credit-to-deposit ratio has increased across banks significantly. In some
banks, it has crossed 100%, which has alarmed RBI and RBI has warned banks to
see to it. The credit-to-deposit ratio for SBI is 77%, increased from 71% and has also
entered into caution area (tolerable is 60-70%)
The lack in deposit growth has meant tight liquidity condition for all banks in past few
months. Also, there is straight asset liability mismatch as the deposit growth was
mainly due to CASA and advances growth was led by long term infrastructure funding,
as much as 21% of total corporate advances.
NIM reached 3.40% from 2.56% a year earlier.
CAR of the bank remained at a healthy level of 13.16%, well above the min
requirement of 9%.
DEPOSIT RATES IN SBI
Tenors
Existing w.e.f. 03.01.2011
Â
Revised w.e.f. 14.02.2011
7 days to 14 days
4.00
7 days to 14 days
4.00
15 days to 45 days
5.00
15 days to 45 days
5.00
46 days to 90 days
5.50
46 days to 90 days
5.50
91 days to 180 days
6.00
91 days to 180 days
6.00
181 days to less than 1 year
7.75
181 days to less than 1 year
7.75
1 year to 554 days
8.25
1 year to 554 days
8.25
555 days
9.00
555 days
9.25
556 days to less than 2 years
8.25
556 days to less than 2 years
8.25
2 years to 999 days
8.75
2 years to 999 days
8.75
1000 days
9.00
1000 days
9.25
1001days to less than 3 years
8.75
1001days to less than 3 years
8.75
3 year to less than 5 years
8.25
3 year to less than 5 years
8.25
5 years to less than 8 years
8.50
5 years to less than 8 years
8.50
8 years and up to 10 years
8.75
8 years and up to 10 years
8.75
As we can see, SBI, like all other Indian banks has had to increase its deposit rates to
attract fresh deposits to bring their deposit growths and credit growth closer in line and
bring their Credit-to-Deposit ratio to a tolerable level.
This increase in deposit rates will affect the NIM of the bank in the ongoing quarter,
but this was a necessary step to address the liquidity problem and not having to rely
on repo borrowings to fund their credit growth.
The economy, as a whole, has faces a liquidity crunch due to huge outgo of funds
from the banking system to the Government on account of 3G auction, Broadband
wireless spectrum auction, disinvestment programme by Government and also the
fact that the people have shifted away from bank deposits to more lucrative
investments like Mutual funds and equities. This is because the bank deposits have
been giving negative real rate of returns in the current high inflationary scenario.
RATIOS COMPARISON
Banks
Base Rate
CASA
RoE
CAR
State Bank of India
8.25%
48%
18%
13.16%
Central Bank of India
9.50%
37%
11%
12.23%
HDFC Bank
8.20%
51%
11.58%
16.3%
Bank of Baroda
9.00%
38%
13%
14.36%
ICICI Bank
8.75%
44.2%
10.77%
19.98%
As we can see, SBI and HDFC have the lowest Base Rates and they have been able
to achieve this due to their high CASA ratios, as compared to other banks.
The Base Rates of all banks have gone up in the past few months as the RBI has
increased the Repo Rates (the rate at which banks borrow short term funds from RBI)
due to inflationary pressures in the economy. The Repo rate as of today is 6.50%.
The CAR of all banks is well in excess of the stipulated minimum level of 9%.
CONCLUSION
The Asset-Liability Management is one of the most crucial functions of a bank in the
highly competitive and complex business environment today. Asset-Liability
Management is a co-ordinated management of a bank's balance sheet to allow for
different interest rate, liquidity and optionality shocks. ALM involves quantification of
various market risks and conscious decision making with regard to asset liability
structure in order to maximize interest earnings within the frame work of perceived
risks. The apex governing body for commercial banks in India, RBI has given certain
guidelines for ALM and the banks have to follows these to prepare the Structural
Liquidity Statements and Interest Rate Sensitivity Statements. The Indian economy,
as a whole has been facing liquidity crunch in the banking system due to large outgo
of funds to Government due to 3G and Broadband auctions and Disinvestment
initiatives by Government. Also, the deposit growth has been very low as compared to
credit growth in banks due to negative real rate of return offered by bank deposits in
current high inflationary scenario. This has meant negative liquidity mismatch for the
banks, who have had to resort to short term Repo borrowings to fund their credit
growth, leading to very high Credit-to-Deposit Ratios, which is a serious cause of
concern as highlighted by RBI in its Monetary Policy Review. This has led to increase
in deposit rates by most banks to attract fresh deposits from public.
State Bank of India is the largest bank in India, having a very elaborate and complex
ALM process. The Contingency Funding Plan (CFP) is also quite comprehensive and
the Quarter 3 results showed that the ALM at SBI has been quite successful in
keeping its NIM above 3%, CASA at more than 45% and CAR in excess of 13%. The
only cause of concern has been the provisions made on NPA's, which have hit the
bank's profits a little bit. And, still the Provision Coverage Ratio is below the stipulated
limit of 70%, which means that huge provisions will have to made in the ongoing
quarter as well, leading to lower profitability for the bank.
SBI has also increased its deposit rates in the past 2 months to attract fresh deposits,
which has been the case with all other banks. SBI hopes to bring its credit growth and
deposit growth closer to each other in the ongoing and coming quarters to make its
Asset-Liability position better and reduce its Credit-to-Deposit ratio, which is slightly
higher than a tolerable level at present.
Hence, Asset-Liability Management comes with its various challenges and
complexities, but a bank has to give a lot of importance to this task, as it has a direct
impact on a bank's profitability and sustainability.

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