(WITH REFERENCE TO LEO LABS IT SOLUTIONS) A Project report submitted to Jawaharlal Nehru Technological University, Hyderabad, for the award of degree MASTER OF BUSINESS ADMINISTRATION
By P.KISHOR Reg. No. 10241E0023
Under the Guidance of Prof. DR. PB APPA RAO
Department of Management Studies Gokaraju Rangaraju Institute of Engineering & Technology (Affiliated to Jawaharlal Technological University, Hyderabad) 2
Hyderabad 2010-2012
CERTIFICATE
This is to certify that the project entitled A Study on Assets and Liabilities management has been submitted by Mr. P.KISHOR (Reg. No. 10241E023) in partial fulfillment of the requirements for the award of Master of Business Administration from Jawaharlal Nehru Technological University, Hyderabad. The results embodied in the project have not been submitted to any other University or Institution for the award of any Degree or Diploma.
Sri. Dr. PB. Appa Rao Sri. KVS Raju Internal Guide Professor & HOD Professor Department of management Studies Department of Management Studies GRIET GRIET
Mr. S. Ravindra Chary (Project Coordinator) Associate Professor Department of Management Studies GRIET
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DECLARATION
I hereby declare that the project entitled A study on Assets and Liabilities management a at t L LE EO O L LA AB BS S I IT T S SO OL LU UT TI IO ON NS S submitted in partial fulfillment of the requirements for award of the degree of MBA at Gokaraju Rangaraju Institute of Engineering and Technology, affiliated to Jawaharlal Nehru Technological University, Hyderabad, is an authentic work and has not been submitted to any other University/Institute for award of any degree/diploma.
P.KISHOR (10241E0023) MBA, GRIET HYDERABAD
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ACKNOWLEDGEMENT
Firstly I would like to express our immense gratitude towards our institution Gokaraju Rangaraju Institute of Engineering & Technology, which created a great platform to attain profound technical skills in the field of MBA, thereby fulfilling our most cherished goal. I would thank all the finance department of Leo Labs specially Mr.CH. JAGADEESH Asst Manager Finance for guiding me and helping me in successful completion of the project
I am very much thankful to our Prof. Dr. PB. APPA RAO (Internal Guide) sir for extending his cooperation in doing this project.
I am also thankful to our project coordinator Prof. S. RAVINDRA CHARY for extending his cooperation in completion of Project..
I convey my thanks to my beloved parents and my faculty who helped me directly or indirectly in bringing this project successfully.
P. KISHOR (10241E0023)
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INDEX S.No: Contents Page No.
Chapter-1 1-9 Introduction Need of the Study Scope of the study Objectives of the Study Methodology of the Study Limitations of the Study Chapter-2 10-36 Industry Profile Company Profile Chapter-3 37-59 Review of Literature Chapter-4 60-70 Data Analysis And Interpretation Chapter-5 71-74 Findings Suggestions Conclusion Chapter-6 75-76 6
Annexure Bibliography
CHAPTER-I INTRODUCTION 7
Introduction: Asset Liability Management (ALM) is a strategic approach of managing the balance sheet dynamics in such a way that the net earnings are maximized. This approach is concerned with management of net interest margin to ensure that its level and riskiness are compatible with the risk return objectives. If one has to define Asset and Liability management without going into detail about its need and utility, it can be defined as simply management of money which carries value and can change its shape very quickly and has an ability to come back to its original shape with or without an additional growth. The art of proper management of healthy money is ASSET AND Liability Management (ALM) The Liberalization measures initiated in the country resulted in revolutionary changes in the sector. There was a shift in the policy approach from the traditionally administered market regime to a free market driven regime. This has put pressure on the earning capacity of co- operative, which forced them to foray into new operational areas thereby exposing themselves to new risks. As major part of funds at the disposal from outside sources, the management are concerned about RISK arising out of shrinkage in the value of asset, and managing such risks became critically important to them. Although co-operatives are able to mobilize deposits, major portions of it are high cost fixed deposits. Maturities of these fixed deposits were not properly matched with the maturities of assets created out of them. The tool called ASSET AND LIABILITY MANAGEMENT provides a better solution for this.
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Asset Liability Management (ALM) is a portfolio management of assets and liability of an organization. This is a method of matching various assets with liabilities on the basis of expected rates of return and expected maturity pattern In the context of ALM is defined as a process of adjusting liability to meet loan demands, liquidity needs and safety requirements. This will result in optimum value of the same time reducing the risks faced by them and managing the different types of risks by keeping it within acceptable levels. RBI Revises Asset Liability Management Guidelines (February 6/2012) In the era of changing interest rates, Reserve Bank of India (RBI) has now revised its Asset Liability Management guidelines. Banks have now been asked to calculate modified duration of assets (loans) and liabilities (deposits) and duration of equity. This was stated by the executive director of RBI, V K Sharma, and here today. He said that this concept gives banks a single number indicating the impact of a 1 per cent change of interest rate on its capital, captures the interest rate risk, and can thus help them move forward towards assessment of risk based capital. This approach will be a graduation from the earlier approach, which led to a mismatch between the assets and liabilities. The ED said that RBI has been laying emphasis that banks should maintain a more realistic balance sheet by giving a true picture of their non performing assets (NPAs), and they should not be deleted to show huge profits. Though the banking system in India has strong risk management architecture, initiatives have to be taken at the bank specific level as well as broader systematic level. He also emphasized on the need for sophisticated credit-scoring models for measuring the credit risks of commercial and industrial portfolios. 9
Emphasizing on a need for an effective control system to manage risks, he said that the implementation of BASEL II norms by commercial banks should not be delayed. He said that the banks should have a robust stress testing process for assessment of capital adequacy in wake of economic downturns, industrial downturns, market risk events and sudden shifts in liquidity conditions. Stress tests should enable the banks to assess risks more accurately and facilitate planning for appropriate capital requirements. Sharma spoke at length about the need to extend the framework of integrated risk management to group-wide level, especially among financial conglomerates. He said that RBI has already put in place a framework for oversight of financial conglomerates, along with SEBI and IRDA. He also said that at the systematic level efforts are being made to create an enabling environment for all market participants in terms of regulation, infrastructure and instruments. 10
Need of the Study: Need of the study is to concentrates on the growth and performance of Leo Labs IT Solutions and to calculate the growth and performance by using asset and liability management and to know the management of nonperforming assets. To know financial position of Leo Labs IT Solutions To analyze existing situation of Leo Labs IT Solutions To improve the performance of Leo Labs IT Solutions To analyze competition between Leo Labs IT Solutions with other cooperatives.
Scope of the Study: In this study the analysis based on ratios to know asset and liabilities management under Leo Labs IT Solutions and to analyze the growth and performance of Leo Labs IT Solutions by using the calculations under asset and liability management based on ratio. Ratio analysis Comparative statement Common size balance sheet. 11
Objectives of the Study: To study the concept of Asset & Liablity Management in Leo Labs IT Solutions To study the process of Cash Inflows and Outflows in Leo Labs IT Solutions To study the Risk Management under Leo Labs IT Solutions To study the Reserves Cycle of ALM under Leo Labs IT Solutions To study Functions and Objectives of ALM committee. 12
Methodology: The study of ALM Management is based on two factors. 1. Primary data collection. 2. Secondary data collection Primary Data Collection: The sources of primary data were The chief manager ALM cell Department Sr. manager financing & Accounting System manager- ALM cell Gathering the information from other managers and other officials of the organization. Secondary Data Collection: Collected from books regarding journal, and management containing relevant information about ALM and Other main sources were Annual report of the Leo Labs IT Solutions Published report of the Leo Labs IT Solutions RBI guidelines for ALM.
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Limitations of the Study: 1. This subject is based on past data of Leo Labs IT Solutions 2. The analysis is based on structural liquidity statement and gap analysis. 3. The study is mainly based on secondary data. 4. The results are approximated, as no accurate data is Available. 5. Study takes into consideration only LTP and issue prices and their difference for concluding whether an issue is overpriced or under priced leaving other. 6. The study is based on the issues that are listed on NSE only. 14
CHAPTER-II A PROFILE OF THE INDUSTRY AND THE COMPANY 15
Company Profile: Leo Labs IT Solutions Pvt. Ltd. has built a reputation of delivering software and business management solutions that provide measurable results. It has been recognized as one of the fastest growing companies in Hyderabad, India. Leo Labs growth can be attributed to the company's focus on quality, consistency, and long-term vision. While many Software companies chased the market to find revenue in the latest fads, Leo Labs IT Solutions remained focused on delivering proven business solutions to its clients Utilizing our project management methodology that has produced esteemed results for our clients, we are strategically establishing new offices in markets that offer opportunity. This methodology, combined with the extraordinary talent of the local managing directors and exceptional consultants with their years of experience, will develop offices to serve our clients and partners. In order to thrive in an interconnected economy, the service offerings by Leo Labs IT Solutions meet the demands of an ever-changing business environment. Leo Labs delivers fresh solutions with seasoned professional developers and consultants who have one singular focus: Ensure that everything we do delivers value to our clients and moves their businesses forward giving them the edge in the demanding business world. Vision: We provide our customers with the highest levels of service, quality, and efficiency. The enduring and personal relationships we hold with our clients, gives us the advantage of a loyal, well-established client and partnership base. We offer the assurance that company needs will be met now and in the future. 16
Mission: To be globally recognized as a provider of a trusted, reliable resource to quality Information Technology (IT) solutions. To build worldwide partnerships for success. To give the clients a competitive edge. To enhance the operational efficiency and financial advantage to clients. Solutions: Business Strategy E-Business/Web Services Enterprise Application Integration Integrated Marketing It Strategy Development Process Development Business Strategy: Business Consulting: The greatest accomplishments begin with an architect plan. We believe that Leo Labs IT Solutions is the advisor that the company needs most as you begin to conceptualize the business road map. Our business consulting team is the cohesive mortar that unites our various disciplines. By focusing on company's strategic objectives, we are able to design, develop, and 17
implement the solutions that will produce measurable change across the enterprise. As the foundation of Leo Labs IT Solutions, this business-centric philosophy permeates our various discipline leaders. Whether a developer or a designer, the goal of producing custom business solutions is paramount. Defining Directions: Our ability to offer guidance throughout the highest levels of leadership is cultivated by our ability to architect and execute solutions that matter most. This focus on sound strategic direction provides a high-level road map that can manage and expand channels, enhance revenue, and penetrate markets that may have previously been inaccessible. Our knowledge and use of business intelligence tools allows our clients to make calculated decisions based on real- time data, thus providing accurate and effective results Forming a Structure: Our skill in analyzing company's internal structure enables Leo Labs IT Solutions to enhance business processes, operational efficiencies and manage or reduce overall costs. By optimizing supply chain through supplier collaboration and rationalization we can improve the relationships that support business. Extending Relationship: By helping to orientate leadership direction and formulate operational practices, Leo Labs IT Solutions can also effectively refine how company goes to market. By improving the ways in which the company deploy their sales force, manage traditional customer relationships and build an integrated marketing and communications plan, we can help the craft every touch point between the company and customers. 18
E-Business/Web Services: E-Business is much more than buying and selling over the Web. In the simplest sense, it is the use of Internet technologies to improve core business processes. And, while technology makes e-business possible, e-business isn't about technology. It's about connecting core business systems and processes to customers, suppliers, and employees24 hours a day, 7 days a week. E-Business? E-Business can help companies meet today's business challenges head-on. Whether it's increasing revenue or decreasing costs, reaching new customers or better serving existing ones, a solid e-business infrastructure provides the foundation to deliver true value to stakeholders. Important reasons to become an e-business include the following: Increase revenue Decrease costs Improve employee efficiency Expand market reach Strengthen business relationships Improve customer satisfaction At Leo Labs IT Solutions, we know that the success of our company depends on our ability to provide world-class, e-business solutions with real business value to our clients. We understand the business impact of e-business. Our experts have helped many companies leverage the Internet with the following solutions: 19
E-commerceallows companies to buy and sell products and services online. Business intelligenceallows companies to acquire data about their customers to provide better service. Customer relationship managementprovides the ability to support and retain profitable customers. Supply chain managementstreamlines end-to-end processes associated with the flow of products. Enterprise Application Integration: Leo Labs IT Solutions development team is designed to partner with our clients to address many business critical issues and objectives. Leo Labs IT Solutions knows how to use state-of-the-art technologies to provide targeted, world-class integration solutions that address unique business needs. The Need: Are the companies getting the most out of the Web and core business-system implementations? Are these applications connected throughout the organization? Does the company question whether or not the integration between applications is able to support the company changing business process needs? Do your business associates have access to accurate, relevant, and timely information for critical decision-making? With ever-increasing pressure to be as efficient as possible, Enterprise Application Integration is becoming vital to organizations of every size. EAI is used to interconnect existing information systems, prior technology investments, and business partners systems and data. As enterprises grow and recognize the need for their information to be shared between systems, 20
companies are investing in EAI to streamline processes and keep disparate elements of the enterprise interconnected. The Solution: SAP--This solution provides end-to-end functionality for business analytics, financials, human capital management, operations, and corporate services -- and allows you to upgrade to the full range of SAP solutions. Enterprise Resource Planning [ERP]--Seamless ERP Implementations and Upgrades, Efficient Support and Quicker Return on Investment (ROI) on their Enterprise Applications is what every organization dreams of. Leo Labs ERP team has over 50 highly qualified Consultants, offering a unique blend of business vertical knowledge and technical expertise that meets its customers' Enterprise Application requirements from a Short- Term Goal Realization perspective, as well as a Long-Term Total Cost Operations Reduction Leo Labs solutions are implemented using a framework that enables your organization to integrate and extend your business applications across and beyond the enterprise. Our solutions address specific business challenges such as: Finding cost savings by integrating business applications and processes with flexible and scalable long-term solutions Maximizing the return-on-investment from the Web site and core business system implementations by creating tight inter-application integration Having real-time access to more accurate and timely business data to make better decisions, reduce cycle times and increase operational efficiencies Selecting the right technical architectures and vendor products to maximize efficiencies and compliment your existing and future state enterprise architecture 21
Creating integration between co-existing business units as well as for the assimilation of mergers and acquisitions Linking to and collaborating with a variety of customers and partners with different needs or standards directly or through market exchanges Our Experience: Leo Labs IT Solutions development team continues to deliver solutions across a wide range of industries and functional areas. Our solutions are aided by our strong partnerships with leading industry vendors. As a result, our consultants are well versed in the latest trends, tools and technologies best suited for the particular business and technical challenges. The Advantage: Leo Labs IT Solutions focus is on delivering solutions that will be effective in the unique environment. Our experience and vendor neutral position allows us to choose the best mix of technologies for the particular environment. May organization has invested significant time, effort, and financial resources into the applications and information systems that run business. Leo Labs IT Solutions, solutions are designed to minimize these investments by identifying and simplifying the processes that will provide secure and timely access to your companys information assetsgiving the organization a strong competitive advantage. Integrated Marketing: Successful Integrated Marketing solutions take three key elements in order to produce value: solid strategy, quality design, and measurability.
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Solid Strategy: By understanding competitive landscapes, identifying audiences, and estimating the return on investment, Leo Labs IT Solutions can help out making intelligent marketing decisions that provide maximum returns. We analyze the company business objectives and determine a path of communication that will reach the consumer or client base on a more consistent basis. Quality Design: Integrated Marketing utilizes a variety of media and channels. It employs designers that understand these mediums and can translate their designs into effective communications. Leo Labs designers have the expertise to match visual design with the appropriate language and elements, essential in improving response rates and reaching near to intended audience. Measurability: Leo Labs IT Solutions specializes in business intelligence tools that can analyze data, response rates, and demographics. By having access to this information in real time, we can effectively tailor communications to increase response rates, measure return on investment, and make Intel suited for your business objectives. Leo Labs IT Solutions can enable the company to take advantage of the technology and talent that is available to drive consumer demand, sales, and the message of the organization. ITS Strategy Development: Over the past few years the role of technology in business has become a critical success factor. Many organizations leverage information technology to help them deliver their products and services. But few organizations truly realize the business benefits that can be achieved from 23
an effective technology strategy. The rapid pace of change in technology provides companies with new, cost-effective mechanisms to communicate with their customers, suppliers, employees, and key business partners. Properly harnessed, technology initiatives can enrich customer relationships, shorten supply chains, and streamline a number of internal processes so that a true return on investment is realized. The first step is to create alignment and consensus within the organization and build an action plan around those initiatives that will deliver the highest return. Strategic Planning Solutions: Leo Labs IT Solutions Strategic solutions leverage a proven methodology to help our clients fundamentally align and leverage technology in order to achieve enterprise business objectives. We devise these strategies by examining the current infrastructure, IT organization, business processes, organizational objectives, and key stakeholders. Then we align technology solutions in a way that ties these stakeholders to the business systems and processes within the organization. Strategic Planning Service Features Aligns technology infrastructure and initiatives with high-priority business processes and organizational objectives Focuses on the needs of the key stakeholders (customers, suppliers, employees) and not on the limitations of technology. Provides qualitative and quantitative measures of the success of the strategy or business continuity plan. 24
Creates alignment, consensus, and accountability for the prioritized initiatives among executive leadership and line of business management. Our strategic planning solutions can be used to help the organization during its annual planning, or throughout the year as industry and market trends demand. Strategic planning may be necessary in the following situations: When a competitive advantage is needed to demonstrate quality of service When the organization seeks to expand while maintaining existing operational infrastructure (capital and human resources) When audits have identified gaps or weaknesses in business or IT capability When structural organizational changes occur (acquisition, merger, or divestiture) When no business continuity, disaster recovery, or emergency management plan exists Process Development: Leo Labs Business Process Improvement solutions are designed to help the company to streamline the processes that are critical to managing business.Organizations need to optimize the business process, but seldom do. Thats where Leo Labs Business Process Improvement solutions come in.Using our proven methodology and toolsets, we deliver key business results in a timely fashion. We help to achieve improved customer service, cost reductions, and capacity expansion.
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The Need: Are the company key performance metrics out of alignment with the competitors? Are the customers reducing their lead times? And do the company employees continually executive a process that is loaded with no valueadd tasks?These are the questions that many organizations are faced with on a daily basis.The reality is that most organizations could be handling these processes much more efficiently, providing significant business value and competitive advantage. The Solution: Leo Labs IT Solutions Business Process Improvement solutions are designed to position the organization to take advantage of the opportunities and quickly address the challenges. Our solutions are able to seamlessly cross the department and operational boundaries within the organization. Our focus is to ensure that participants within a process are all working off the same vision and driving toward the same goals.Leo Labs IT Solutions Business Process Improvement solutions are customized to your specific needs. In addition to delivering the customer business metrics, we leverage our experience in order to rapidly deliver best practices that have proven to be important to many of the organizations that we have worked with. Our Experience: Leo Labs IT Solutions Business Process Improvement team has delivered solutions across a wide range of industries. Our consultants are versed in the latest trends, tools, and technologies being deployed as part of these solutions. Having participated in numerous Business Process Improvement engagements 26
Our consultants are well equipped to architect and deploy the solution most suited for your particular business. Our solutions are aided by our strong focus on economic and financial analysis. The Advantage: Leo Labs IT Solutions has an entire practice dedicated to delivering Business Process Improvement solutions. Our focus is on delivering solutions that will be effective in the unique environment. We believe that our vendor focus on economic and financial analysis is a key differentiator from our competition.Many Organizations has invested a lot of time, effort, and financial resources into the applications and information systems that run your business. Leo Labs IT Solutions Business Process Improvement solutions are designed to minimize those investments by identifying and simplifying the processes that support the company, giving the organization a strong competitive advantage. Services: Product Development: Leo Labs IT Solutions Pvt.Ltd. fosters rapid, framework and component-based development approach to build mission critical, off-the-shelf products and applications. We have developed products and solutions on leading technologies with a strong orientation toward standards-driven architecture. Our process driven approach forms the foundation for engaging with customers, to build high quality, cost-effective products and applications. Over and above, we lay our thrust in understanding customer needs to devise optimum design and development strategies that would enable them to market their product quickly. Leo Labs IT Solutions has the concept of Framework and "Component Based Development" for product / application 27
development and reusability and provides cost-effective services to our customers for outsourced product development. Product Maintainance And Support: Leo Labs IT Solutions offers maintenance and support services to the customers as part of its service offering. Leo Labs has a clearly laid down methodology for such maintenance engagements. Over the years we have gained substantial experience in providing 24/7 maintenance support remotely, to the customers. Leo Labs has the expertise and ability to meet the needs and expectations to support the applications. Onsite Maintainence: In this approach, the Leo Labs team at onsite will carry out all the maintenance and support for the application. However the offshore team based at Leo Labs development center will be extending the support for the onsite team on any technical issues that they may have. They act as a backup and in the event of any emergency; can immediately act as a replacement. Offshore / Remote Maintainence: The remote maintenance approach adopted by Leo Labs IT Solutions Pvt. Ltd. to carry out the maintenance is explained below. Receiving the issue: The onsite technical support team receives the issue from client either through any of the following media like e-mail, telephone, mobile phone or instant messenger services. A ticket number generated would help the offsite team identify each issue. Study and Analysis: Once the problem Ticket issue is received, the Onsite technical team makes a careful study of the issue and analyzes its complexity. Estimation: After a thorough analysis the work estimation is made and it is placed before the client through an offsite support Manager. Based on the estimated time and priority, the issue is 28
then scheduled to be resolved either by the onsite team or by the offshore team. Scheduling: Identify the best suitable team member(s) for solving the issue and assign the tasks to that particular resource(s). Solution: The assigned team member(s) provides the solution as specified in the given task document in a scheduled time adhering to the quality standards, he also provides a standard document describing the work done.Testing: Test the changed code as per the Maintenance Manual. Update the documentation as required Log Maintenance: Logs will be maintained for future use by the offsite as well as offshore team for all the support issues that have come up. Application Development: With increasing demands, enterprises worldwide are finding it difficult to implement, and support new applications, while at the same time, maintaining and upgrading their existing systems. To overcome the situation, companies must seek to expand development capacity, accelerate time-to-market, and build flexible distributed delivery models to negotiate risk. There are benefits in building software to improve existing business processes rather than changing proven procedures in order of work within the constraints of off-the-shelf applications. Leo Labs addresses these issues and will help you to remain in step with and ahead of your competition by continuously improving your information technology-based business solutions. We remain focused on developing the best solution to respond to each client's individual business needs. Through our advanced consultative approach, Leo Labs assists in clearly defining organizational goals and determining where the current systems meet these goals, where they fail, and how they can be improved through our custom applications solutions. Our experienced team will work on the project from its conceptualization through and beyond its completion and implementation. 29
Our focus areas include extranet, intranet, business-to-business, e-commerce solutions, software, database and other industry applications. Our Services in these Areas are Focused On: Application Development - This includes web based, client/server application development and enhancements to legacy applications. Migration and Customization - This includes version Upgrade Services, Database migration, Re-engineering, Functionality upgrades and Porting. Implementation Support - Routine Maintenance and Functional Enhancements. Development and Testing - Component Development and Unit Testing, System and Integration testing Application Maintenance: Leo Labs IT Solutions provides comprehensive software application maintenance services for medium to large enterprises. Services range from undertaking maintenance of existing applications to adding new functionality. Deep experience in understanding and maintaining large applications coupled with an expertise in new technologies help to not only prolong the life of existing applications but also infuse fresh blood into the system. A team of dedicated software engineers are available round the clock both onsite and offsite to handle all maintenance related issues from defect fixing to adding new products and functionality.
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Application Maintenance Deals With: Promptly fixing software problems that cause the system to be non-operative or to perform incorrectly Implementing changes, improvements, and enhancements to the system. Interaction: Leo Labs IT Solutions has rich experience in successfully executing large IT outsourcing projects with well-established Infrastructure. Leo Labs Interactions, the BPO arm of Leo Labs IT Solutions Pvt. Ltd. Aims about reducing the operational costs for its Clients by improving the outsourced processes and increasing their productivity. The strong parentage of Leo Labs IT Solutions provides the right mix of Infrastructure, People and Processes to the clients. The partnership offers technical expertise coupled with global call center expertise. To keep pace with today's economic environment, organizations need to focus on their core competence. The easiest way of doing this is to partner with a service provider like Leo Labs Interactions, who understands the company business and solves non-core, yet critical business processes. Leo Labs Interactions interest lies in a long-term partnership addressing all aspects of the outsourcing requirements from clients. Leo Labs Interactions gives the very best in bringing cost efficiency with quality processes, round-the-clock operations, state-of-the-art infrastructure and a committed people force. It offers Industry-specific services to customers. For instance, in the Insurance and Healthcare sector, it addresses Claims Processing, Policy Issuance, Premium Accounting, etc. It also offers Front Office services like Contact Centers for Customer Service. It provides Product 31
Support & Technical Help Desk services as well as Back-Office Processes in the areas of Accounting, HR and other Transaction Intensive activities. Business Process Outsourcing: Business Process Outsourcing (BPO) has changed the way the world does business, and this trend is only likely to accelerate. BPO is quickly emerging as a key enabler of all high performing organizations. More and more businesses and governmental leaders-cross industry, organizational size and geography are turning to BPO to help them elevate their organizations performance.Through the right mix of business process improvement, labor arbitrage and technology enhancements, BPO is aimed at reducing cost, increasing service levels and thus improving the enterprise value of the business processes. Blending qualified workforce and faster adoption of well-defined business processes leads to higher productivity gains without compromising on quality. The availability of cost effective skilled resources - that is well educated and able to converse in English, well-developed communication infrastructure and software sector as well as an appropriate time difference with other countries, help in making India a favorite destination for the BPO industry. R&D Outsourcing: The story of Research and Development Outsourcing in IT in India dates back to 1985-86 when Texas Instruments (TI) established its development center in Bangalore. Today, the R&D services outsourced to Indian companies include product development, embedded technology, software engineering, encryption and network security and chip design services. After IT services (ITS) and IT-enabled services (ITES), a new opportunity for Indian companies is the arena of related product and technology services for independent software vendors (ISVs). 32
The factors driving the increasing momentum of R&D off-shoring / outsourcing industry are: Availability of highly skilled manpower Cost-effectiveness Proximity to fast-growing Asian markets Benefit of follow-the-sun schedules Information security solutions Organizations worldwide have begun focusing on outsourcing activities to ease the pressures of financial performance, quality, productivity and time-to-market. To increase the competitiveness of their businesses, organizations have been laying greater emphasis on R&D Outsourcing to leverage internal resources and capabilities with external sources of research and technology. Our Services Help Customers To: Avail cost-effective Offshore Development Service Protect their Intellectual Property Rights (IPR) by following established processes for secure communication and protection Build resource pools consisting of focused R&D teams for new initiatives in specific technologies Reduce development time and effort Minimize risks and improve product quality.
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Technology Excellence Group (TEG): Leo labs have established structured Technology Excellence Groups (TEG) to foster innovation. The following Technology Excellency Groups have been formed: .NET J2EE Web Services Legacy Security Embedded Systems Mobile Application Servers Database Knowledge Our Value Proposition: Leo labs Strategic Partnership with the client would help the client leverage our Technology labs and Development facilities, quickly build resource pools consisting of focused R & D teams for new initiatives in specific technologies Our dedicated Technology labs for the client's R&D division acts as Virtual Extension in terms of Vision, People, and Infrastructure 34
Protect client's Intellectual Property Rights (IPR) by following established processes for secure communication and protection. Our strong focus is towards the quality of solution we deliver and support we offer to our client. Our extensive skills in developing re-usable components, frameworks and expertise in executing complex solutions gives advantage of high-quality, cost- effective development to our customers. We make sure that our work is towards minimizing the business risks and speeding up the entry of new products in the market. Call Center Services: Our focus has been to continually find new and better ways to help our clients make profitable connections with their customers. Whether you need messaging or answering service, inbound call center services, outbound call center services, email support and online chat, we can help out to make the most of every contact Inbound Teleservices: Our call handling and inbound telemarketing services for business-to-business and business-to-consumer campaigns will help drive customer acquisition, increase customer retention, improve sales and rapidly expand your markets. Our inbound supports include: Help Desk: 24 Hours /Day, 365 Days /Year Technical Support Requests for Maintenance Support Requests for Maintenance Support Inbound Telemarketing / Up-Selling & Cross-Selling Requests for Samples Order Status: Customers can check on the status of their order at any time 35
Dealer Locate: Callers are given information on the store or dealer nearest to them. Ticketing Sales Subscriptions Fundraising Advertising Co-Op Claim Processing Rebate Processing Insurance Claims Processing Product Recall Management Customized Interactive Voice Services Overflow, Off-Hour and Weekend Call Handling Fax on Demand: An access channel for those customers who need documented answers or written confirmation Outbound Teleservices: Our tele-professionals help out to turn the company prospects into customers, and then our customers into advocates. We focus on building a relationship that lasts by using a personalized approach that provides the value addition necessary to maintain and grow your client base. Our outbound capabilities include:Telemarketing and Sales: We use predictive dialing to connect to customers. Our tele-sales techniques also include: Reactivation: Approaching your 'expired' customers with the right offer Targeting: Isolating key decision- makers and discovering their budgets before you spend resources on more costly mail or sales calls New Movers: Tapping people who have just moved residence, for example, and asking them to pre-register for your service or organization Renewals: for publishing and finance, telemarketing is by far the most efficient way to secure repeat buyers Aftermarket Sales: Contacting new customers and securing additional sales, even when other products are seemingly unrelated. 36
Clients:
BG Group is a leading player in the global energy market and is a dynamic growing business with operations in 20 countries over five continents. Onetel is part of the Centrica Group, which also operates under the British Gas, Scottish Gas and Dyno brands in the UK. Onetel is the UK 's largest integrated communications service provider Viasat AB's satellite-TV- platform covers 15 countries in Europe and reaches more than 50 million viewers.
Soft Service is committed to innovation designed to provide the clients with significant gains in the quality of their systems. Scarlet info systems is an Offshore Outsourcing Web Development Company and E-commerce Software Development firm offering IT Outsourcing. LogicSoftware, Inc.is specialized in the development of custom software applications and offshore software outsourcing services.
Richard Daley Silicon Valley is a leading Global IT Powerhouse based in India focused in developing online web applications. Qulix Systems is an offshore software development company from Belarus, offering an unbeatable combination of custom software development solutions, systems reengineering, software testing and QA services. Richard Daley Associates (RDA) provides software development, web development, software training and software consulting to its clients.
Alsoft Solutions,Inc a global IT Services firm specializing in end- to-end Solutions and Product Development StarSoft Development Labs is one of the fastest growing software outsourcing service providers in Russia and Eastern Europe. Agitar was founded in June 2002 and is working on test automation research and development since 1995. 37
Vested Development Inc. (VDI) is a leading global outsourcing provider of offshore software development services. Eurostudio Web Solutions is an offshore web design and development company based in Novosibirsk, Russia. We offer our customers a full range of IT services.
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Resources:
Stylus Inc was launched out of a 2 bedroom house in 1999 -- probably the reason why our employees, clients and vendors feel at home when they visit us in our current 3 storey office today. Inkorus Group of Companies have 24x7 operations and have a reach to the Global offshore outsourcing marketplace through their offshore software development centers across North America, Asia-Pacific, EU and Middle East regions. Brain Pulse is a premium managed web hosting company in India, providing web hosting solutions for Linux and Windows platforms.
CodeLance brings together those in need of Custom software envelopment with freelance programmers from all over the world. How does it work? Binary Semantics Driven by the vision to provide customer centric and cost effective solutions to organizations, we have grown into a company with wide range of service offerings to meet all your outsourcing needs and concerns. Cranberry Offshore web design and development company in Delhi India for web design, website development, e- commerce website, corporate website design, website maintenance and flash based web design services.
E-infinity solutions Is a leading provider of information technology service to business and government worldwide founded in 2003 infinity has the experience business operations. Gateway TechnoLabs Is a Software Outsourcing & Offshore Software Services Company specializing in the business of providing services to its clients globally. Developers.net Now you have a solution. Track-It! Standard. Its the perfect solution for tracking and managing of your IT assets and end- users help requests. It helps increase the level of IT support.
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CHAPTER-III REVIEW OF LITERATURE 42
Introduction: Asset liability management: Asset liability management (ALM) is the administration of policies and procedures that address financial risks associated with changing interest rates, foreign exchange rates and other factors that can affect a companys liquidity. Asset Liability Management (ALM) seeks to limit risk to acceptable levels by monitoring and anticipating possible pricing differences between a companys assets and liabilities. Assets and Liabilities Management (ALM) is a dynamic process of planning, organizing, coordinating and controlling the assets and liabilities their mixes, volumes, maturities, yields and costs in order to achieve a specified Net Interest Income (NII). Asset Liability Management (ALM) System: In the normal course, they are exposed to credit and market risks in view of the asset liability transformation. With the liberalization in the Indian financial markets over the last few years and growing integration of domestic markets and with external markets the risks associated with operations have become complex, large, requiring stragic management. are now operating in a fairly deregulated environment and are required to determine on their own, interest rates on deposits and advance in both domestic and foreign currencies on a dynamic basis. The interest rates on investments in government and other securities are also now market related. Intense competition for business involving both the assets and liabilities, together with increasing volatility in the domestic interest rates, has brought pressure on the management of to maintain a good balance among spreads, profitability and long-term viability. Impudent liquidity management can put earnings and reputation at great risk. These pressures call for structured and comprehensive measures and not just adahoc action. The management of has to base their business decisions on a dynamic and integrated risk management system and process, driven by corporate strategy. are exposed to several major risks in course of their business-credit risk, interest rate and operational risk therefore important than introduce effective risk management systems that address the issues related to interest rate, currency and liquidity risks. Its need to address these risks in a structured manner by upgrading their risk management and adopting more comprehensive Asset-Liability management (ALM) practices than has been done hitherto. ALM among other functions, is also concerned with risk management and 43
provides a comprehensive and dynamic framework for measuring, monitoring and managing liquidity interest rate, foreign exchange and equity and commodity price risk of a that needs to be closely integrated with the business strategy. It involves assement of various types of risks altering the asset liability portfolio in a dynamic way in order to manage risks. The initial focus of the ALM function would be to enforce the risk management discipline, viz., and managing business after assessing the risks involved. In addition, the managing the spread and riskiness, the ALM function is more appropriately viewed as an integrated approach which requires simultaneous decisions about asset/liability mix and maturity structure. Risk Management in ALM Risk management is a dynamic process, which needs constant focus and attention. The idea of risk management is a well-known investment principle that the largest potential returns are associated with the riskiest ventures. There can be no single prescription for all times, decisions have to be reversed at short notice. Risk, which is often used to mean uncertainty, creates both opportunities and problems for business and individuals in nearly every walk of life. Risk sometimes is consciously analyzed and managed; other times risk is simply ignored, perhaps out of lack of knowledge of its consequences. If loss regarding risk is certain to occur, it may be planned for in advance and treated as to definite, known expense. Businesses and individuals may try to avoid risk of loss as much as possible or reduce its negative consequences. Several types of risks that affect individuals and businesses were introduced, together with ways to measure the amount of risk. The process used to systematically manage risk exposure is known as RISK MANAGEMENT. Whether the concern is with a business or an individual situation, the same general steps can be used to systematically analyze and deal with risk. Steps In Risk Management Risk identification Risk evaluation Risk management technique Risk measurement Risk review decisions 44
Integrated or enterprise risk management is an emerging view that recognizes the importance of risk, regardless of its source, in affecting a firms ability to realize its strategic objectives. The detailed risk management process is as follows; Risk Identification The first step in the risk management process is to identify relevant exposures to risk. This step is important not only for traditional risk management, which focuses on uncertainty of risks, but also for enterprise risk management, where much of the focus is on identifying the firms exposures from a variety of sources, including operational, financial, and strategic activities. Risk Evaluation: For each source of risk that is identified, an evaluation should be performed. At this stage, uncertainty of risks can be categorized as to how often associated losses are likely to occur. In addition to this evaluation of loss frequency, an analysis of the size, or severity, of the loss is helpful. Consideration should be given both to the most probable size of any losses that may occur and to the maximum possible losses that might happen. Risk Management Techniques The results of the analyses in second step are used as the basis for decisions regarding ways to handle existing risks. In some situations, the best plan may be to do nothing. In other cases, sophisticated ways to finance potential losses may be arranged. The available techniques for managing risks are GAP Analysis, VAR Analysis, Heinrich Domino theory etc., with consideration of when each technique is appropriate. Risk Measurement Once risk sources have been identified it is often helpful to measure the extent of the risk that exists. As part of the overall risk evaluation, in some situations it may be possible to measure the degree of risk in a meaningful way. In other cases, especially those involving individuals computation of the degree of risk may not yield helpful information. Risk Review Decisions Following a decision about the optimal methods for handling identified risks, the business or individual must implement the techniques selected. However, risk management should be an ongoing process in which prior decisions are reviewed regularly. Sometimes new 45
risk exposures arise or significant changes in expected loss frequency or severity occur. The dynamic nature of many risks requires a continual scrutiny of past analysis and decisions. Dimensions of Risk Specifically two broad categories of risk are the basis for classifying financial services risk. Product market Risk. Capital market Risk. Economists have long classified management problems as relating to either The Product Markets Risks or The Capital Markets Risks. Total Financial Services Firms Risk. Total Risk (Responsibility of CEO)
Business Risk Financial Risk
Product Market Risk Capital Market Risk
(Responsibility of the (Responsibility of the Chief Operating Officer) Chief Financial Officer)
(I).Product Market Risk This risk decision relate to the operating revenues and expenses of the form that impact the operating position of the profit and loss statements which include crisis, marketing, operating systems, labor cost, technology, channels of distributions at strategic focus. Product Risks relate to variations in the operating cash flows of the firm, which affect Capital Market, required Rates of Return; (1) CREDIT RISK (2) STRATEGIC RISK (3) COMMODITY RISK (4) OPERATIVE RISK (5) HUMAN RESOURCES RISK (6) LEGAL RISK Risk in Product Market relate to the operational and strategic aspects of managing operating revenues and expenses. The above types of Product Risks are explained as follows. (1).Credit Risk The most basic of all Product Market Risk in a or other financial intermediary is the erosion of value due to simple default or non-payment by the borrower. Credit risk has been around for centuries and is thought by many to be the dominant financial services today. Intermediate the risk appetite of lenders and essential risk nests of borrowers. manage this risk by ; (A) making intelligent lending decisions so that expected risk of borrowers is both accurately assessed and priced; (B) Diversifying across borrowers so that credit losses are not concentrated in time; (C) purchasing third party guarantees so that default risk is entirely or partially shifted away from lenders. (2). Strategic Risk This is the risk that entire lines of business may succumb to competition or obsolescence. In the language of strategic planner, commercial paper is a substitute product for large corporate loans. Strategic risk occurs when its not ready or able to compete in a newly developing line of business. Eearly entrants enjoyed a unique advantage over newer entrants. The seemingly conservative act of waiting for the market to develop posed a risk in itself. Business risk accrues from jumping into lines of business but also from staying out too long.
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(3). Commodity Risk Commodity prices affect and other lenders in complex and often unpredictable ways. The macro effect of energy price increases on inflation also contributed to a rise in interest rates, which adversely affected the value of many fixed rate financial assets. The subsequent crash in oil prices sent the process in reverse with nearly equally devastating effects. (4). Operating Risk Machine-based system offer essential competitive advantage in reducing costs and improving quality while expanding service and speed. No element of management process has more potential for surprise than systems malfunctions. Complex, machine-based systems produce what is known as the black box effect. The inner working of system can become opaque to their users. Because developers do not use the system and users often have not constitutes a significant Product Market Risk. No financial service firm can small management challenge in the modern financial services company. (5). Human Resources Risk Few risks are more complex and difficult to measure than those of personnel policy; they are Recruitment, Training, Motivation and Retention. Risk to the value of the Non-Financial Assets as represented by the work force represents a much more subtle of risk. Concurrent with the loss of key personal is the risk of inadequate or misplaced motivation among management personal. This human redundancy is conceptually equivalent to safety redundancy in operating systems. It is not inexpensive, but it may well be cheaper than the risk of loss. The risk and rewards of increased attention to the human resources dimension of management are immense. (6). Legal Risk This is the risk that the legal system will expropriate value from the shareholders of financial services firms. The legal landscape today is full of risks that were simply unimaginable even a few years ago. More over these risks are very hard to anticipate because they are often unrelated to prior events which are difficult and impossible to designate but the management of a financial services firm today must have these risks at least in view. They can cost millions. (II). Capital Market Risk: In the Capital Market Risk decision relate to the financing and financial support of Product Market activities. The result of product market decisions must be compared to the required rate 48
of return that results from capital market decision to determine if management is creating value. Capital market decisions affect the risk tolerance of product market decisions related to variations in value associated with different financial instruments and required rate of return in the economy. 1. LIQUIDITY RISK 2. INTEREST RATE RISK 3. CURRENCY RISK 4. SETTLEMENT RISK 5. BASIS RISK 1. Liquidity Risk: For experienced financial services professionals, the foremost capital market risk is that of inadequate liquidity to meet financial obligations. The obvious form is an inability to pay desired withdrawals. Depositors react desperately to the mere prospect of this situation. They can drive a financial intermediary to collapse by withdrawing funds at a rate that exceeds its capacity to pay. For most of this century, individual depositors who lost faith in ability to repay them caused failures from liquidity. Funds are deposited primarily as a financial of rate. Such funds are called purchased money or headset funds as they are frequently bought by employees who work on the money desk quoting rates to institutions that shop for the highest return. To check liquidity risk, firms must keep the maturity profile of the liabilities compatible with that of the assets. This balance must be close enough that a reasonable shift in interest rates across the yield curve does not threaten the safety and soundness of the entire firm. 2. Interest Rate Risk: In extreme conditions, Interest Rate fluctuations can create a liquidity crisis. The fluctuation in the prices of financial assets due to changes in interest rates can be large enough to make default risk a major threat to a financial services firms viability. Theres a function of both the magnitude of change in the rate and the maturity of the asset. This inadequacy of assessment and consequent mispricing of assets, combined with an accounting system that did not record unrecognized gains and losses in asset values, created a financial crisis. Risk based capital rules pertaining to have done little to mitigate the interest rate risk management problem. The decision to pass it off; however is not without large cost, so the cost benefit tradeoff becomes complex.
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3. Currency Risk: The risk of exchange rate volatility can be described as a form of basis risk among currencies instead of basis risk among interest rates on different securities. Balance sheets comprised of numerous separate currencies contain large camouflaged risks through financial reporting systems that do not require assets to be marked to market. Exchange rate risk affects both the Product Markets and The Capital Markets. Ways to contain currency risk have developed in todays derivative market through the use of swaps and forward contracts. Thus, this risk is manageable only after the most sophisticated and modern risk management technique is employed 4. Settlement Risk: Settlement Risk is a particular form of default risk, which involves the competitors. Amounts settle obligations having to do with money transfer, check clearing, loan disbursement and repayment, and all other inter- transfers within the worldwide monetary system. A single payment is made at the end of the day instead of multiple payments for individual transactions. 5. Basis Risk: Basis risk is a variation on the interest rate risk theme, yet it creates risks that are less easy to observe and understand. To guard against interest rate risk, somewhat non comparable securities may be used as a hedge. However, the success of this hedging depends on a steady and predictable relationship between the two no identical securities. Basis can negate the hedge partially or entirely, which vastly increases the Capital Market Risk exposure of the firm. Risk Management System: Assuming and managing risk is the essence of business decision-making. Investing in a new technology, hiring a new employee, or launching a marketing campaign is all decisions with uncertain outcomes. As a result all the major management decisions of how much risk to take and how to manage the risk.
The implementation of risk management varies from business to business, from one management style to another and from one time to another. Risk management in the financial services industry is different from others. Circumstances, Institutions and Managements are different. On the other 50
hand, an investment decision is no recent history of legal and political stability, insights into the potential hazards and opportunities.
Many risks are managed quantitatively. Risk exposure is measured by some numerical index. Risk cost tradeoff many tools are described by numerical valuation formulas. Risk management can be integrated into a risk management system. Such a system can be utilized to manage the trading position of a small-specialized division or an entire financial institution. The modules of the system can be implemented with different degrees of accuracy and sophistication. Risk Management System
1.2 Risk Management System: Arbitrage pricing models range from simple equations to large scale numerically sophisticated algorithms. Cash flow generators also vary from a single formula to a simulator that accounts for the dependence of cash flows on the history of the risk factors. Financial engineers are continuously incorporating advances in econometric techniques, asset pricing models, simulation techniques and optimization algorithms to produce better risk management systems. The important ingredient of the risk management approach is the treatment of risk factors and securities as an integrated portfolio. Analyzing the correlation among the real, financial and strategic assets of an organization leads to clear understanding of risk exposure. Special attention is paid to risk factors, which translate to correlation among the values of securities. Identifying the correlation among the basic risk factors leads to more effective risk management. Conclusion: The burden of the Risk and its Costs are both manageable and transferable. Financial service firms, in the addition to managing their own risk, also sell financial risk management to others. They sell their services by bearing customers financial risks through the products they provide. A financial firm can offer a fixed-rate loan to a borrower with the risk of interest rate movements transferred from the borrower to the. Financial innovations have been concerned with risk reduction than any other subject. With the possibility of managing risk near zero, the challenge becomes not how much risk can be removed. Financial services involve the process of intermediation between those who have financial resources and those who need them, either as a principal or as an agent. Thus, value breaks into several distinct functions, and it includes the intermediation of the following: Maturity Preference mismatch, Default, Currency Preference mis-match, Size of transaction and Market access and information. Risk Management In Leo Labs It Solutions Pvt. Ltd: They were required to introduce effective risk management systems to cover Credit risk, market risk and Operations risk on priority. Narasimham committee II, advised to address market risk in a structured manner by adopting Asset and Liability Management practices with effect from April 1 st 1989. 52
Asset and liability management (ALM) is the Art and Science of choosing the best mix of assets for the firms asset portfolio and the best mix of liabilities for the firms liability portfolio. It is particularly critical for Financial Institutions. For a long time it was taken for granted that the liability portfolio of financial firms was beyond the control of the firm and so management concentrated its efforts on choosing the asset mix. Institutions treasury department used the funds provided by deposits to structure an asset portfolio that was appropriate for the given liability portfolio. With the advent of Certificate of Deposits (CDs), had a tool by which to manipulate the mix of liabilities that supported their Asset portfolios, which has been one of the active management of assets and liabilities. Asset and liability management program evolve into a strategic tool for management, the main elements of the ALM system are: ALM INFORMATION. ALM ORGANISATION. ALM FUNCTION. ALM Information: ALM is a risk management tool through which Market risk associated with business are identified, measured and monitored to maintain profits by restructuring Assets and Liabilities. The ALM framework needs to be built on sound methodology with necessary information system as back up. Thus the information is key element to the ALM process. There are various methods prevalent worldwide for measuring risks. These range from the simple Gap statement to extremely sophisticate and data intensive Risk adjusted profitability measurement (RAPM) methods. The central element for the entire ALM exercise is the availability of adequate and accurate information. However, the existing systems in many Indian do not generate information in manner required for the ALM. Collecting accurate data is the biggest challenge before the s, particularly those having wide network of branches, but lacking full-scale computerization. Therefore the introduction of these information systems for risk measurement and monitoring has to be addressed urgently. 53
The large network of branches and the lack of support system to collect information required for the ALM which analysis information on the basis of residual maturity and behavioral pattern, it would take time for in the present state to get the requisite information. ALM Organization: Successful implementation of the risk management process requires strong commitment on the part of senior management in the to integrate basic operations and strategic decision making with risk management. The Board of Directors should have overall responsibility for management of risk and should decide the risk management policy of the , setting limits for liquidity, interest rate, foreign exchange and equity / price risk. The Asset Liability Management Committee (ICICI) consisting of the senior management, including CEO/CMD should be responsible for ensuring adherence to the limits set by the Board of Directors as well as for deciding the business strategy of the (on the assets and liabilities sides) in line with the budget and decided risk management objective. The ALM support group consisting of operation staff should be responsible for analyzing, monitoring and reporting the risk profiles to the ICICI. The staff should also prepare forecasts (simulations) showing the effects of various possible changes in market condition related to the balance sheet and recommend the action needed to adhere to internal limits, The ICICI is a decision-making unit responsible for balance sheet planning from a risk-return perspective including the strategic management of interest rate and liquidity risks. Each has to decide on the role of its ICICI, its responsibility as also the decision to be taken by it. The business and risk management strategy of the should ensure that it operates within the limits / parameters set by the Board. The business issues that an ICICI would consider, inter alia, will include product pricing for deposits and advances, desired maturity profile and mix of the incremental Assets and Liabilities, etc. in addition to monitoring the risk levels of the , the ICICI should review the results of and progress in implementation of the decisions made in the previous meetings. The ICICI would also articulate the current interest rate view of the and base its decisions for future business strategy on this view. In respect of this funding policy, for instance, its responsibility would be to decide on source and mix of liabilities or sale of assets. Towards this end, it will have to develop a view on future direction of interest rate movements and decide on funding mixes between fixed vs. floating rate funds, wholesale vs. retail deposits, 54
Money markets vs. Capital market funding, domestic vs. foreign currency funding etc. Individual will have to decide the frequency for holding their ICICI meetings. Typical Business Of Icici: Reviewing of the impact of the regulatory changes on the industry. Overseeing the budgetary process; Reviewing the interest rate outlook for pricing of assets and liabilities (Loans and Deposits) Deciding on the introduction of any new loan / deposit product and their impact on interest rate / exchange rate and other market risks; Reviewing the asset and liability portfolios and the risk limits and thereby, assessing the capital adequacy; Deciding on the desired maturity profile of incremental assets and liabilities and thereby assessing the liquidity risk; and Reviewing the variances in actual and projected performances with regard to Net Interest Margin (NIM), spreads and other balance sheet ratios. Composition Of Leo Labs It Solutions Pvt. Ltd: The size ( number of members) of Leo Labs IT Solutions Pvt. Ltd would depend on the size of each institution, business mix and organizational complexity, To ensure commitment of the Top management and timely response to market dynamics, the CEO/MD or the GM should head the committee. The chiefs of Investment, Credit, Resources Management or Planning, Funds Management / Treasury (domestic), etc., can be members of the committee. In addition, the head of the computer (technology) Division should also be an invitee for building up of MIS and related computerization. Some may even have Sub-Committee and Support Groups. ALM Organization consists of following categories : ALM BOARD Leo Labs IT Solutions Pvt. Ltd ALM CELL COMMITTEE OF DIRECTORS
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ALM Board: The Board of management should have overall responsibility for management of risk and should decide the risk management policy of the and set limits for liquidity and interest rate risks. Leo Labs It Solutions Pvt. Ltd: It has constituted an Asset- Liability committee (Leo Labs IT Solutions Pvt. Ltd). The committee may consist of the following members. i) General Manager / in Head of Committee ii) General Manager (Loans & Advances) Member iii) General Manager (CMI & AD) Member iv) AGM / Head of the ALM Cell Member The Leo Labs IT Solutions Pvt. Ltd is a decision making unit responsible for ensuring adherence to the limits set by board as well as for balance sheet planning from risk return perspective including the strategic management of interest rate and liquidity risks, in line with the budget and decided risk management objectives. The Business issues that an Leo Labs IT Solutions Pvt. Ltd would consider interalia, will include fixation of interest rates for both deposits and advances, desired maturity profile of the incremental assets and liabilities etc. The Leo Labs IT Solutions Pvt. Ltd would also articulate the current interest rate due of the and base its decisions for future business strategy on this view. In respect of funding policy, for instance, its responsibility would be decided on source and mix of liability. Individual will have to decide the frequency for their Leo Labs IT Solutions Pvt. Ltd meetings. However, it is advised that Leo Labs IT Solutions Pvt. Ltd should meet at least once in a fortnight. The Leo Labs IT Solutions Pvt. Ltd should review results of and process in implementation of the decisions made in the previous meetings ALM Cell: ALM desk / cell consisting of operating staff should be responsible for analyzing, monitoring and reporting the profiles to the Leo Labs IT Solutions Pvt. Ltd. The staff should also prepare forecasts (simulations) showing the effects of various possible changes in market conditions related to the balance sheet and recommend the action needed to adhere to internal limits. 56
Committee Of Directors: They should also constitute professional, management and supervisory committee, consisting of three to four directors, which will oversee the implementation of the ALM system, and review its functioning periodically. ALM PROCESS: The scope of ALM function can be described as follows: 1. Liquidity Risk Management 2. Interest Rate Risk Management 3. Currency Risk Management 4. Settlement Risk Management 5. Basis Risk Management The RBI guidelines mainly address Liquidity Risk Management and Interest Rate Risk Management. The following are the concepts discussed for analysis of Asset-Liability Management under above mentioned risks. Liquidity Risk Maturity profiles Interest rate risk Gap analysis (1)Liquidity Risk Management: Measuring and managing liquidity needs are vital activities of the s. By assuring an ability to meet its liability as they become due, liquidity management can reduce the probability of an adverse situation development. The importance of liquidity transcends individual institutions, as liquidity shortfall in one institution can have repercussions on the entire system. Liquidity risk management refers to the risk of maturing liability not finding enough maturing assets to meet these liabilities. It is the potential inability to meet the s liability as they became due. This risk arises because borrows funds for different maturities in the form of deposits, market operations etc. and lock them into assets of different maturities. Liquidity Gap also arises due to unpredictability of deposit withdrawals, changes in loan demands. Hence measuring and managing liquidity needs are vital for effective and viable operations 57
Liquidity measurement is quite a difficult task and usually the stock or cash flow approaches are used for its measurement. The stock approach used certain liquidity ratios. The liquidity ratios are the ideal indicators of liquidity of operating in developed financial markets, the ratio do not reveal the real liquidity profile of which are operating generally in a fairly illiquid market. The assets, which are commonly considered as liquid like Government securities, have limited liquidity when the market and players are in one direction. Thus analysis of liquidity involves tracking of cash flow mismatches. The statement of structural liquidity may be prepared by placing all cash inflows and outflows in the maturity ladder according to the expected timing of cash flows. The MATURITY PROFILE could be used for measuring the future cash flows in different time bands. The position of Assets and Liabilities are classified according to the maturity patterns a maturing liability will be a cash outflow while a maturing asset will be a cash inflows. The measuring of the future cash flows of is done in different time buckets. The time buckets, given the statutory Reserve cycle of 14 days may be distributed as under: 1. 1 to 14 days 2. 15 to 28 days 3. 29 days and up to 3 months 4. Over 3 months and up to 6 months 5. Over 6 months and up to 1 year 6. Over 1 year and up to 3 years 7. Over 3 years and up to 5 years 8. Over 5 years.
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Maturity Profile Liquidity Head Of Accounts A.Outflows Classification into time buckets 1.Capital, Reserves and Surplus
Over 5 years bucket. 2.Demand Deposits (Current & Savings Deposits) Demand Deposits may be classified into volatile and core portions, 25 % of deposits are generally withdraw able on demand. This portion may be treated as volatile. While volatile portion may be placed in the first time bucket i.e., 1-14 days, the core portion may be placed in 1-2 years, bucket.
3. Term Deposits
Respective maturity buckets. 4. Borrowings Respective maturity buckets. 5. Other liabilities and provisions (i) Bills Payable (ii) Inter-office Adjustment (iii)Provisions for NAPs a) sub-standard b) doubtful and Loss (iv)provisions for depreciation in Investments (v)provisions for NAPs investment (vi)provisions for other purposes (I)1-14 days bucket (ii)Items not representing cash payable may be placed in over 5 years bucket (iii) a) 2-5 years bucket. b)Over 5 years bucket (iv) Over 5 years bucket. (v)A)2-5 years bucket. b)Over 5 years bucket (vi)Respective buckets depending on the purpose.
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B. Inflows: 1.Cash 1-14 days bucket. 2. Balance with other s (i)Current Account (ii)Money at call and short Notice, Term Deposits and other Placements (i)Non-withdraw able portion on account of stipulations of minimum balances may be shown Less than 1-14 days bucket. (ii)Respective maturity buckets. 3Investments (i)Approved securities (ii) Corporate Debentures and bonds, CDs and CPs, redeemable preference shares, units of Mutual Funds (close ended). Etc. (iii)Share / Units of Mutual Funds (open ended) (iii) Investment in subsidiaries / Joint Ventures.
(i)Respective maturity buckets excluding the amount required to be reinvested to maintain SLR (ii)Respective Maturity buckets. Investments classified as NPAs Should be shown under 2-5 years bucket (sub-standard) or over 5 years bucket (doubtful and loss). (iii)Over 5 years bucket. (iv)Over 5 years bucket. 4.Advances (performing / standard) (i)Bills Purchased and Discounted (including bills under DUPN) (iii) Cash Credit / Overdraft (including TOD) and (i)Respective Maturity buckets. (ii)should undertake a styud ofbehavioral and seasonal pattern of a ailments based on outstanding and the core and volatile portion should be identified. While the volatile portion could be shown in 60
Demand Loan component of Working Capital. (iii)Term Loans
the respective maturity bucket. The core portion may be shown under 1-2 years bucket. (iii)Interim cash flows may be shown under respective maturity buckets.
5.NPAs b. Sub-standard c. Doubtful and Loss
(I) 2-5 years bucket. (ii) Over 5 years bucket. 6. Fixed Assets
Over 5 years bucket. 7.Other-office Adjustment (i) Inter-office Adjustment (ii) Others
(i) As per trend analysis, Intangible items or items not representing cash receivables may be shown in over 5 years bucket. (i) Respective maturity buckets. Intangible assets and assets not representing cash receivables may be shown in over 5 years bucket.
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Terms used: CDs: Certificate of Deposits. CPs: Commercial Papers. DTL PROFILE: Demand and Time Liabilities. Inter office adjustment: Outflows: Net Credit Balances Inflows: Net Debt Balances Other Liabilities: Cash payables, Income received in advance, Loan Loss and Depreciation in Investments. Other assets: Cash Receivable, Intangible Assets and Leased Assets. (2)Interest Rate Risk: Interest Rate Risk refers to the risk of changes in interest rates subsequent to the creation of the assets and liabilities at fixed rates. The phased deregulations of interest rates and the operational flexibility given to in pricing most of the assets and liabilities imply the need for ing system to hedge the interest rate risk. This is a risk where changes in the market interest rates might adversely affect a s financial conditions. The changes in interest rates affect in large way. The immediate impact of change in interest rates is on s earnings by changing its Net Interest Income (NII). A long term impact of changing interest rates is on s Market Value of Equity (MVE) or net worth as the economic value of s assets, liabilities and off-balance sheet positions get affected due to variation in market interest rates. The risk from the earnings perspective can be measured as changes in the Net Interest Income (NII) OR Net Interest Margin (NIM). There are many analytical techniques for measurement and management of interest rate risk. In MIS of ALM, slow pace of computerization in and the absence of total deregulation, the traditional GAP ANALYSIS is considered as a suitable method to measure the interest rate risk.
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Data Interpretation: Gap Analysis: The Gap or mismatch risk can be measured by calculating Gaps over different time buckets as at a given date. Gap analysis measures mismatches between rate sensitive liabilities and rate sensitive assets including off-balance sheet position. An asset or liability is normally classified as rate sensitive if: If there is a cash flow within the time interval. The interest rate resets or reprises contractually during the interval. RBI changes the interest rates i.e., on saving deposits, export credit, refinance, CRR balances and so on, in case where interest rate are administered. It is contractually pre-payable or withdraw able before the stated maturities The Gap is the difference between Rate Sensitive Assets (RSA) and Rate sensitive Liabilities (RSA) for each time bucket. The positive GAP indicates that RSAs are more than RSLs (RSA>RSL). The negative GAP indicates that RSAs are more than RSALs (RSA<RSL). 63
CHAPTER-IV DATA ANALYSIS & INTERPRETATION 64
Table 1: Comparative Balance Sheet as on 31 st March 2007 -2008 Particulars 2007 (In 000) 2008 (in 000) Increase (+) / Decrease ( - ) (in Rs) Percentage (%) Assets Current Assets :- Closing stock 2523419 3090115 566696 2.2 Sundry Debtors 38797183 48406912 9609729 24.7 Cash & Bank balances 34839488 77625210 42785722 122.8 Deposits 10827156 14469733 3642577 33.64 Prepaid expenses 2471795 2330405 (141390) (5.7) Grant Receivable 590000 3080000 2490000 422.0 Loans & Advances 54052442 41251539 (12800903) (23.6) Total Current Assets 144101483 190253915 46152432 32.0 Fixed Assets 590065042 637244660 47179618 7.99 Capital works in progress 155223789 398294668 243070879 156.5 Miscellaneous expenses 4839890 2036739 (2803151) (57.9) Profit & loss A/C DR balance - 213107074 213107074 100 Total Assets 894230204 1440937056 546706852 61.13 Liabilities & Capital Liabilities Current Liabilities 206057914 246989936 40932022 19.8 Other liabilities 1520355 26311535 24791180 1630.6 Total Current Liabilities 207578269 273301471 252543202 121.6 Secured loans 197445339 223207392 25762053 13.0 Unsecured loans 19334436 223207392 203872956 1054.5 Deferred revenue 12007000 7638000 (4369000) (36.3) Grants 239241342 675969999 436728657 182.5 Total Liabilities 675606386 1403324254 727717868 107.7 Share Capital 37612802 37612802 0 0 Profit carried to balance sheet 181011016 - (181011016) (100) Total Liabilities & Capital 894230204 1440937056 546706852 61.13
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Interpretation of comparative balance sheet of 2007-2008: Sundry debtors increased by 24.7.17 % i.e., in Rupees 9609729. Cash and bank balances increased by 122.8 % i.e, in Rupees 42785722 Deposits increased by 33.64% i.e, in Rupees 3642577. Fixed assets increased by 7.99 % i.e., in Rupees 4717961. Current assets increased by 32.0 % i.e., in Rupees 46152432 . Secured Loans increased by 13.0 % i.e., in Rupees 25762053. And Un secured loans highly Increased by 203872956 Rupees. Current liabilities increased by 19.8 % ie., in Rupees 40932022 And other liabilities highly increased to Rupees 24791180. Share capital of Leo Labs remained unchanged in the year 2007-08.
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Table 2: Comparative Balance Sheet as on 31 st March 2008-2009 Particulars 2008 (In 000) 2009 (in 000) Increase (+) / Decrease ( - ) (in Rs) Percentage (%) Assets Current Assets :- Closing stock 3090115 3980610 890495 28.8 Sundry Debtors 48406912 366347339 317940427 656.8 Cash & Bank balances 77625210 48315438 (29309772) (37.7) Deposits 14469733 13534506 (935227) (6.4) Prepaid expenses 2330405 3975947 1645542 70.6 Grant Receivable 3080000 28389695 25309695 821.7 Loans & Advances 41251539 58465827 17214288 41.73 Total Current Assets 190253915 202737762 12483847 6.56 Fixed Assets 637244660 1328034574 690789914 108.4 Capital works in progress 398294668 288704250 (109590418) (27.5) Miscellaneous expenses 2036739 2036739 0 0 Profit & loss A/C DR balance 213107074 - (213107074) (100) Total Assets 1440937056 1821513325 380576269 26.41 Liabilities & Capital Liabilities Current Liabilities 246989936 20677415 (226312521) (91.62) Other liabilities 26311535 3155050 (23156485) (88.0) Total Current Liabilities 273301471 23832465 (249469006) (91.27) Secured loans 223207392 189980342 (33227050) (14.88) Unsecured loans 223207392 116594260 (106613132) (47.7) Deferred revenue 7638000 7638000 0 0 Grants 675969999 634082839 (41887160) (6.1) Total Liabilities 1403324254 972127906 (431196348) (30.7) Share Capital 37612802 37612802 0 0 Profit carried to balance sheet - 811772617 811772617 100 Total Liabilities & Capital 1440937056 1821513325 418189071 29.79
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Interpretation of comparative balance sheet of 2008-2009: Sundry debtors increased enormously by Rupees 317940427. Cash and bank balances decreased by 37.7 % i.e, in Rupees 29309772. Deposits decreased by 6.4% i.e, in Rupees 935227. Fixed assets increased by 108.4 % i.e., in Rupees 690789914. Total Current assets increased by 6.56 % i.e., in Rupees 12483847. Secured Loans decreased by 14.88 % i.e., in Rupees 33227050. And Un secured loans decreased by 106613132 Rupees. Current liabilities decreased by 91.62 % ie., in Rupees 226312521 And other liabilities highly decreased by 88 % i.e, Rupees 23156485. Share capital of Leo Labs remained unchanged in the year 2008-09.
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Table 3: Comparative Balance Sheet as on 31 st March 2009-2010 Particulars 2009 (In 000) 2010 (in 000) Increase (+) / Decrease ( - ) (in Rs) Percentage (%) Assets Current Assets :- Closing stock 3980610 3980610 0 0 Sundry Debtors 366347339 42244663 (324102679) (88.4) Cash & Bank balances 48315438 126441810 78126372 161.7 Deposits 13534506 16995779 3461273 25.5 Prepaid expenses 3975947 60544413 56568466 1422.7 Grant Receivable 28389695 9440000 (28389695) (100) Loans & Advances 58465827 81271376 22805549 39.0 Total Current Assets 202737762 286428651 83690889 41.28 Fixed Assets 1328034574 765762267 627727693 47.2 Capital works in progress 288704250 275740360 (12963890) (4.4) Miscellaneous expenses 2036739 243577 (1793162) (88.0) Total Assets 1821513325 1328174855 (493338470) (27.8) Liabilities & Capital Liabilities Current Liabilities 20677415 226600588 205923173 995.8 Other liabilities 3155050 23037559 19882509 630.1 Total Current Liabilities 23832465 249638147 225805682 947.4 Secured loans 189980342 128061341 (61919001) (32.59) Unsecured loans 116594260 15378314 (101215946) (86.81) Deferred revenue 7638000 6638000 (7000000) (91.6) Grants 634082839 613051364 (21031475) (3.3) Total Liabilities 972127906 1012767166 40639260 4.1 Share Capital 37612802 37612802 0 0 Profit carried to balance sheet 811772617 277794887 (533977730) 65.7 Total Liabilities & Capital 1821513325 1328174855 (493338470) (27.8)
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Interpretation of comparative balance sheet of 2009-2010: Sundry debtors decreased by 88.4 % i.e., in Rupees 324102679. Cash and bank balances increased by 161.7 % i.e, in Rupees 78126372. Deposits increased by 25.5 % i.e, in Rupees 3461273. Fixed assets increased by 47.2 % i.e., in Rupees 627727693. Total Current assets increased 41.28 % i.e., in Rupees 83690889. Secured Loans decreased by 32.59 % i.e., in Rupees 61919001. And Un secured loans decreased by 101215946 Rupees. Current liabilities enormously increased by Rupees 205923173 And other liabilities enormously increased by 630.1% i.e, Rupees 19882509. Share capital of Leo Labs remained unchanged in the year 2009-2010.
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Table 4: Comparative Balance Sheet as on 31 st March 2010 -2011 Particulars 2010 (In 000) 2011(in 000) Increase (+) / Decrease ( - ) (in Rs) Percentage (%) Assets Current Assets :- Closing stock 3980610 3980610 0 0 Sundry Debtors 42244663 144216404 101971741 241.38 Cash & Bank balances 126441810 81906596 (44535214) (35.22) Deposits 16995779 16998468 26890 0.01 Prepaid expenses 60544413 0 (6054413) (100) Grant Receivable 9440000 192739470 183299470 1941.73 Loans & Advances 81271376 7570116204 7488844828 9214.61 Total Current Assets 286428651 5155242691 4868814040 1699.83 Fixed Assets 765762267 746996158 (18766109) (2.45) Capital works in progress 275740360 554775067 (220263293) (79.88) Miscellaneous expenses 243577 0 (243577) (100) Profit & loss A/C DR balance - - - - Total Assets 1328174855 6457013916 5128839061 386.15 Liabilities & Capital Liabilities Current Liabilities 226600588 345361753 118761165 52.40 Other liabilities 23037559 16269037 (6768522) (29.38) Total Current Liabilities 249638147 508052128 258413981 103.51 Secured loans 128061341 573354104 445292763 347.71 Unsecured loans 15378314 6299037 (9079277) (59.3) Deferred revenue 6638000 1269000 (5369000) (80.88) Grants 613051364 849661467 236610103 38.59 Total Liabilities 1012767166 1938635736 925868570 91.41 Share Capital 37612802 37612802 0 0 Profit carried to balance sheet 277794887 6259365378 5981570491 2153 Total Liabilities & Capital 1328174855 6457013916 5128839061 386.15
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Interpretation of comparative balance sheet of 2010-2011: Sundry debtors increased enormously by 241.38 % i.e., in Rupees 101971741 Cash and bank balances decreased by 35.22 % i.e, in Rupees 44535214. Deposits increased by .01 % i.e, in Rupees 26890. Fixed assets decreased by 2.45% i.e., in Rupees 18766109. Total Current assets increased enormously by Rupees 4868814040. Secured Loans increased by 347.71 % i.e., in Rupees 445292763. And Un secured loans decreased by 9079277 Rupees. Current liabilities increased by 52.40 % ie., in Rupees 118761165. And other liabilities decreased by 29.38 % i.e, Rupees 6768522. Share capital of Leo Labs was remained unchanged in the year 2010-2011.
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Table 5: Analysis of Comparative Balance Sheets (2007-2008 to 2010-2011) Particulars 2007-2008 % 2008-2009
% 2009-2010 % 2010-2011 % Assets Current Assets :- Closing stock 2.2 28.8 0 0 Sundry Debtors 24.7 656.8 (88.4) 241.38 Cash & Bank balances 122.8 (37.7) 161.7 (35.22) Deposits 33.64 (6.4) 25.5 0.01 Prepaid expenses (5.7) 70.6 1422.7 (100) Grant Receivable 422.0 821.7 (100) 1941.73 Loans & Advances (23.6) 41.73 39.0 9214.61 Total Current Assets 32.0 6.56 41.28 1699.83 Fixed Assets 7.99 108.4 47.2 (2.45) Capital works in progress 156.5 (27.5) (4.4) (79.88) Miscellaneous expenses (57.9) 0 (88.0) (100) Profit & loss A/C DR balance 100 (100) - Total Assets 61.13 29.79 (27.8) 386.15 Liabilities & Capital Liabilities Current Liabilities 19.8 (91.62) 995.8 52.40 Other liabilities 1630.6 (88.0) 630.1 (29.38) Total Current Liabilities 121.6 (91.27) 947.4 103.51 Secured loans 13.0 (14.88) (32.59) 347.71 Unsecured loans 1054.5 (47.7) (86.81) (59.3) Deferred revenue (36.3) 0 (91.6) (80.88) Grants 182.5 (6.1) (3.3) 38.59 Total Liabilities 107.7 (30.7) 4.1 91.41 Share Capital 0 0 0 0 Profit carried to balance sheet (100) 100 65.7 2153 Total Liabilities & Capital 61.13 29.79 (27.8) 386.15
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Interpretation The above tables present the comparative balance sheets of the company for the period 2007 2008 to 2010-2011. During the year 2007 2008 total current assets were Rs. 190,253,915, Next year they increased to Rs.202, 737,762. In the year 2008-09 they were enhanced and in 2008-09 increased to Rs. 286,428,651. And in 2010-11 increased to Rs.5, 155,242,691. During the year 2007-2008, fixed assets were Rs. 637,244,660. The investment in fixed assets has also increased to 108.4 % in 2008-09. The investments in fixed assets has further increased to 47.72 % in the year 2009-10 ie. to Rs. 765,762,267 ( increased amt 627727693). In 2010-11 fixed assets were decreased to 2.45 % . Total fixed assets is showing an increasing trend. Which is good sign for the company. The Total current liabilities are showing an increasing trend. In year 2007 the total current liabilities were Rs 207,578,269. And Rs 508,052,128. In the year 2011. Which shows that the total current liabilities of Leo labs are in increasing trend The Shares capital of Leo Labs was constant. Reverses and surplus has increased and it may be because the company has started making substantial profits. The unsecured loans of Leo lebs are in decreasing trend. Which shows that firm is good in debt management. 74
CHAPTER-V FINDINGS SUGGESTIONS CONCLUSION
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Findings: 1. ALM technique is aimed to tackle the market risks. Its objective is to stabilize and improve Net interest Income (NII). 2. Implementation of ALM as a Risk Management tool is done using maturity profiles and GAP analysis. 3. ALM presents a disciplined decision making framework for while at the same time guarding the risk levels. 4. In 2009-10, the fixed assets has increased to Rs. 765,762,267 and in 2010-11 it has decreased to Rs 746,996,158. 5. In the year 2008-09 the Total Current Assets were increased to Rs 202,737,762, and in 2009- 10 to Rs. 286,428,651.They were further increased to Rs. 5,155,242,691 in the year 2010- 11.The total current assets are showing an increasing trend. This is good for the company. 6. The total liabilities were Rs. 1,403,324,254.during the year 2007-2008.They were Rs 1,938,635,736 in the year 2010-11. 7. The share capital of Leo Labs remained constant all the years. 76
Suggestions: 1. The company should strengthen its management information system (MIS) and computer processing capabilities for accurate measurement of liquidity and interest rate Risks in their Books. 2. In the short term the Net interest income or Net interest margins (NIM) creates economic value of the which involves up gradation of existing systems & Application software to attain better & improvised levels. 3. It is essential that remain alert to the events that effect its operating environment & react accordingly in order to avoid any undesirable risks. 4. Leo Labs IT Solutions Pvt. Ltd requires efficient human and technological infrastructure which will in future lead to smooth integration of the risk management process with effective business strategies. 5. The company should focus on its effective management of cash and bank balances. As they are fluctuating over the years.
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Conclusion: The purpose of ALM is not necessarily to eliminate or even minimize risk. The level of risk will vary with the return requirement and entitys objectives. Financial objectives and risk tolerances are generally determined by senior management of an entity and are reviewed from time to time. All sources of risk are identified for all assets and liabilities. Risks are broken down into their component pieces and the underlying causes of each component are assessed. Relationships of various risks to each other and/or to external factors are also identified. Risk exposure can be quantified 1) relative to changes in the component pieces, 2) as a maximum expected loss for a given confidence interval in a given set of scenarios, or 3) by the distribution of outcomes for a given set of simulated scenarios for the component piece over time. Regular measurement and monitoring of the risk exposure is required. Operating within a dynamic environment, as the entitys risk tolerances and financial objectives change, the existing ALM strategies may no longer be appropriate. Hence, these strategies need to be periodically reviewed and modified. A formal, documented communication process is particularly important in this step. 78
ANNEXURE Balance sheet of Leo Labs: Particulars 2007(In 000) 2008(In000) 2009(In000) 2010(In000) 2011(In000) Assets Current Assets :- Closing stock 2523419 3090115 3980610 3980610 3980610 Sundry Debtors 38797183 48406912 366347339 42244663 144216404 Cash & Bank balances 34839488 77625210 48315438 126441810 81906596 Deposits 10827156 14469733 13534506 16995779 16998468 Prepaid expenses 2471795 2330405 3975947 60544413 0 Grant Receivable 590000 3080000 28389695 9440000 192739470 Loans & Advances 54052442 41251539 58465827 81271376 7570116204 Total Current Assets 144101483 190253915 202737762 286428651 5155242691 Fixed Assets 590065042 637244660 1328034574 765762267 746996158 Capital WIP 155223789 398294668 288704250 275740360 554775067 Miscellaneous expenses 4839890 2036739 2036739 243577 0 Profit & loss A/C DR balance - 213107074 - Total Assets 894230204 1440937056 1821513325 1328174855 6457013916 Liabilities & Capital Liabilities Current Liabilities 206057914 246989936 20677415 226600588 345361753 Other liabilities 1520355 26311535 3155050 23037559 16269037 Total C Liabilities 207578269 273301471 23832465 249638147 508052128 Secured loans 197445339 223207392 189980342 128061341 573354104 Unsecured loans 19334436 223207392 116594260 15378314 6299037 Deferred revenue 12007000 7638000 7638000 6638000 1269000 Grants 239241342 675969999 634082839 613051364 849661467 Total Liabilities 675606386 1403324254 972127906 1012767166 1938635736 Share Capital 37612802 37612802 37612802 37612802 37612802 Profit carried to balance sheet 181011016 - 811772617 277794887 6259365378 Total Liabilities & Capital 894230204 1440937056 1821513325 1328174855 6457013916
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Bibliography: Title of the Books Author 1. Assets and Liabilities Management. Vansant Joshi. 2. India financial system M.Y. Khan Websites: Www. Leo Labs IT Solutions Pvt. Ltd.org www.assetmanagement.com