CHAPTER I

INTRODUCTION
1
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 risiness are compatible with the ris return ob!ectives.
"f 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 %uicly and has an
ability to come bac to its original shape with or without an additional growth.
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 of from the
traditionally administered maret regime to a free maret 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 riss.
As ma!or part of funds at the disposal of come from outside sources# the
management is concerned about RISK arising out of shrinage in the value of
asset# and managing such riss became critically important to them. Although co&
operative are able to mobilize deposits# ma!or 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.
2
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.
"n the context of ALM is defined as $a process of adjusting liability to
meet loan demands, liquidity needs and safety requirements. This will result in
optimum value of the# at the same time reducing the ris faced by them and
managing the different types of riss by eeping it within acceptable levels.
OB#ECTI$ES O% THE STUDY
o To study the concept of A''(T ) L"A*L"T+ MA,A-(M(,T in
"."."
o To study process of .A'/ ",0L12' and 13T0L12' in ".".".
o To study 4"'5 MA,A-(M(,T under "."."
o To study 4('(46(' .+.L( of ALM under "."."
o To study 03,.T"1,' A,7 1*8(.T"6(' of ALM committee.
3
,((7 10 T/( 'T37+9
The need of the study is to concentrates on the growth and performance of
"."." and to calculate the growth and performance by using asset and liability
management# and to now the management of nonperforming assets.
To now financial position of "."."
To analyze existing situation of "."."
To improve the performance of "."."
To analyze competition between "."." with other cooperative.
'.1:( 10 T/( 'T37+9
"n this study the analysis based on ratios to now asset and liabilities
management under "."." and to analyze the growth and performance
of "."." by using the calculations under asset and liability
management based on ratio.
4atio analysis
.omparative statement
.ommon size balance sheet.
4
METHODOLOGY O% THE STUDY
The study of ALM Management is based on two factors.
1. :rimary data collection.
;. 'econdary data collection
:4"MA4+ 7ATA .1LL(.T"1,9
The sources of primary data were
The chief manager < ALM cell
7epartment 'r. manager financing ) Accounting
'ystem manager& ALM cell
-athering the information from other managers and other officials of the
'(.1,7A4+ 7ATA .1LL(.T"1,9
5
.ollected from boos regarding# !ournal# and management containing relevant
information about ALM and 1ther main sources were.
Annual report of the ICICI
:ublished report of the
RBI guidelines for ALM"
LIMITATION O% THE STUDY&
1. This sub!ect is based on past data of ".".".
2. The analysis is based on structural li%uidity statement and gap analysis.
3. The study is mainly based on secondary data.
6
CHAPTER II
RE$IE' O% LITERATURE
7
ASSET LIABILITY MANAGEMENT ALM! SYSTEM
"n the normal course# they are exposed to credit and maret riss in
view of the asset liability transformation. 2ith the liberalization in the
"ndian financial marets over the last few years and growing integration of
domestic marets and with external marets the riss associated with operations
have become complex# large# re%uiring strategic management are now operating in
a fairly deregulated environment and are re%uired 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 maret related. "ntense 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. "mpudent li%uidity
management can put earnings a reputation at great ris. These pressures call for
structured and comprehensive measures and not !ust Adahoc action. The
management of has to base their business decisions on a dynamic and integrated
ris management system and process# driven by corporate strategy. are exposed to
several ma!or riss in course of their business&credit ris# interest rate and
operational ris therefore important than introduce effective ris management
systems that address the issues related to interest rate# currency and li%uidity riss.
,eed to address these riss in a structured manner by upgrading their ris
management and adopting more comprehensive Asset&Liability management
(ALM) practices than has been done hitherto. ALM among other functions# is also
concerned with ris management and provides a comprehensive and dynamic
framewor for measuring# monitoring and managing li%uidity interest rate# foreign
exchange and e%uity and commodity price ris of a that needs to be closely
integrated with the business strategy. "t involves assessment of various types of
riss altering the asset liability portfolio in a dynamic way in order to manage
riss.
The initial focus of the ALM function would be to enforce the ris management
discipline# viz.# and managing business after assessing the riss involved.
"n addition# the managing the spread and risiness# the ALM function is more
8
appropriately viewed as an integrated approach which re%uires simultaneous
decisions about asset=liability mix and maturity structure.
RIS( MANAGEMENT IN ALM
4is management is a dynamic process# which needs constant focus and
attention. The idea of ris management is a well&nown investment principle that
the largest potential returns are associated with the risiest ventures. There can be
no single prescription for all times# decisions have to be reversed at short notice.
4is# which is often used to mean uncertainty# creates both opportunities and
problems for business and individuals in nearly every wal of life.
4is sometimes is consciously analyzed and managed> other times ris is
simply ignored# perhaps out of lac of nowledge of its conse%uences. "f loss
regarding ris is certain to occur# it may be planned for in advance and treated as to
definite# nown expense. *usinesses and individuals may try to avoid ris of loss
as much as possible or reduce its negative conse%uences.
'everal types of riss that affect individuals and businesses were introduced#
together with ways to measure the amount of ris. The process used to
systematically manage ris exposure is nown as RIS( MANAGEMENT"
2hether the concern is with a business or an individual situation# the same general
steps can be used to systematically analyze and deal with ris.
STEPS IN RIS( MANAGEMENT &
4is identification.
4is evaluation.
4is management techni%ue.
4is measurement.
4is review decisions.
"ntegrated or enterprise ris management is an emerging view that recognizes
the importance of ris# regardless of its source# in affecting a firm?s ability to
realize its strategic ob!ectives. The detailed ris management process is as follows>
9
Ris) identi*i+ati,n&
The first step in the ris management process is to identify relevant
exposures to risk. This step is important not only for traditional ris management#
which focuses on uncertainty of riss# but also for enterprise ris management#
where much of the focus is on identifying the firm?s exposures from a variety of
sources# including operational# financial# and strategic activities.
4is evaluation9
0or each source of ris that is identified# an evaluation should be
performed. At this stage# uncertainty of riss can be categorized as to how
often associated losses are liely to occur. "n addition to this evaluation of
loss fre%uency# an analysis of the size# or severity# of the loss is helpful.
.onsideration should be given both to the most probable size of any losses
that may occur and to the maximum possible losses that might happen.
4is management techni%ues9
The results of the analyses in second step are used as the basis for decisions
regarding ways to handle existing riss. "n some situations# the best plan may be to
do nothing. "n other cases# sophisticated ways to finance potential losses may be
arranged. The available techni%ues for managing riss are -A: Analysis# 6A4
Analysis# /einrich 7omino theory etc.# with consideration of when each techni%ue
10
is appropriate.
4is measurement9
1nce ris sources have been identified it is often helpful to measure the
extent of the ris that exists. As part of the overall ris evaluation# in some
situations it may be possible to measure the degree of ris in a meaningful way. "n
other cases# especially those involving individuals computation of the degree of
ris may not yield helpful information.
4is review decisions9
0ollowing a decision about the optimal methods for handling identified
riss# the business or individual must implement the techni%ues selected. /owever#
ris management should be an ongoing process in which prior decisions are
reviewed regularly. 'ometimes new ris exposures arise or significant changes in
expected loss fre%uency or severity occur. The dynamic nature of many riss
re%uires a continual scrutiny of past analysis and decisions.
DIMENSIONS O% RIS(
'pecifically two broad categories of ris are the basis for classifying financial
services ris.
(1) P-,d.+t ma-)et Ris)"
(2) Ca/ital ma-)et Ris)"
(conomists have long classified management problems as relating to
either The :roduct Marets 4iss or The .apital Marets 4iss.
11
T1TAL 0",A,."AL '(46".(' 0"4M' 4"'5.
Total 4is
(4esponsibility of .(1)

*usiness 4is 0inancial 4is


:roduct Maret 4is .apital Maret 4is
(4esponsibility of the (4esponsibility of the
.hief 1perating 1fficer) .hief 0inancial 1fficer)

.redit "nterest rate
'trategic Li%uidity
4egulatory currency
1perating 'ettlement
/uman resources *asis
Legal
12
I!"PRODUCT MAR(ET RIS(&
This ris 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# mareting# operating systems# labor cost# technology# channels of
distributions at strategic focus. :roduct 4iss relate to variations in the operating
cash flows of the firm# which effect .apital Maret# re%uired 4ates 1f 4eturn9.
(1) .4(7"T 4"'5
(2) 'T4AT(-". 4"'5
(3) .1MM17"T+ 4"'5
(4) 1:(4AT"6( 4"'5
(5) /3MA, 4('134.(' 4"'5
(6) L(-AL 4"'5
4is in :roduct Maret relate to the operational and strategic aspects of
managing operating revenues and expenses.
T0e ab,1e ty/es ,* P-,d.+t Ris)s a-e e2/lained as *,ll,3s"
CREDIT RIS(&
13
The most basic of all :roduct Maret 4is in another financial
intermediary is the erosion of value due to simple default or non&payment by the
borrower. .redit ris has been around for centuries and is thought by many to be
the dominant financial services today. "ntermediate the ris appetite of lenders and
essential risiness of borrowers. Manage this ris by > A! maing intelligent
lending decisions so that expected ris of borrowers is both accurately assessed
and priced> B! 7iversifying across borrowers so that credit losses are not
concentrated in time> C! purchasing third party guarantees so that default ris is
entirely or partially shifted away from lenders.
4!. STRATEGIC RIS(&
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. 'trategic ris occurs when A is not ready or able
to compete in a newly developing line of business. (arly entrants en!oyed a uni%ue
advantage over newer entrants. The seemingly conservative act of waiting for the
maret to develop posed a ris in itself. *usiness ris accrues from !umping into
lines of business but also from staying out too long.
5!" COMMODITY RIS(&
.ommodity prices affected 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 subse%uent crash in oil prices sent the process in reverse with
nearly e%ually devastating effects.
14
6!" OPERATING RIS(&
Machine&based system offer essential competitive advantage in reducing
costs and improving %uality while expanding service and speed. ,o element of
management process has more potential for surprise than systems malfunctions.
.omplex# machine&based systems produce what is nown as the black box
effect. The inner woring of system can become opa%ue to their users. *ecause
developers do not use the system and users often have not constitutes a significant
:roduct Maret 4is. ,o financial service firm can small management challenge in
the modern financial services company.
7!" HUMAN RESOURCES RIS(&
0ew riss are more complex and difficult to measure than those of
personnel policy> they are Recruitment, Training, otivation and Retention. 4is
to the value of the ,on&0inancial Assets as represented by the wor force
represents a much more subtle of ris. .oncurrent with the loss of ey personal is
the ris of inade%uate or misplaced motivation among management personal. This
human redundancy is conceptually e%uivalent to safety redundancy in operating
systems. "t is not inexpensive# but it may well be cheaper than the ris of loss. The
ris and rewards of increased attention to the human resources dimension of
management are immense.

8!" LEGAL RIS(&
15
This is the ris that the legal system will expropriate value from the
shareholders of financial services firms. The legal landscape today is full of riss
that were simply unimaginable even a few years ago. More over these riss 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 riss at least in view. They can cost millions.
(""). .A:"TAL MA45(T 4"'59
"n the .apital Maret 4is decision relate to the financing and financial
support of :roduct Maret activities. The result of product maret decisions must
be compared to the re%uired rate of return that results from capital maret decision
to determine if management is creating value. .apital maret decisions affect the
ris tolerance of product maret decisions related to variations in value associated
with different financial instruments and re%uired rate of return in the economy.
1. L"@3"7"T+ 4"'5
2. ",T(4('T 4AT( 4"'5
3. .344(,.+ 4"'5
4. '(TTL(M(,T 4"'5
5. *A'"' 4"'5
A. LI9UIDITY RIS(&
16
0or experienced financial services professionals# the foremost capital maret
ris is that of inadequate liquidity to meet financial obligations. The obvious form
is an inability to pay desired withdrawals. 7epositors 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. 0or most of this century# individual
depositors who lost faith inability to repay them caused failures from li%uidity.
0unds are deposited primarily as a financial of rate. 'uch funds are called
!purchased money or !headset funds as they are fre%uently bought by
employees who wor on the money des %uoting rates to institutions that shop for
the highest return. To chec li%uidity ris# firms must eep 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.
1. INTEREST RATE RIS(&
"n extreme conditions# "nterest 4ate 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 mae default ris a ma!or threat to a financial services firm?s
viability. There?s a function of both the magnitude of change in the rate and the
maturity of the asset. This inade%uacy of assessment and conse%uent mispricing of
assets# combined with an accounting system that did not record unrecognized gains
and losses in asset values# created a financial crisis. 4is based capital rules
pertaining to have done little to mitigate the interest rate ris management problem.
17
The decision to pass it of> however is not without large cost# so the cost benefit
tradeoff becomes complex.
2. CURRENCY RIS(&
The ris of exchange rate volatility can be described as a form of basis ris
among currencies instead of basis ris among interest rates on different securities.
*alance sheets comprised of numerous separate currencies contain large
camouflaged riss through financial reporting systems that do not re%uire assets to
be mared to maret. (xchange rate ris affects both the :roduct Marets and The
.apital Marets. 2ays to contain currency ris have developed in today?s
derivative maret through the use of swaps and forward contracts. Thus# this ris is
manageable only after the most sophisticated and modern ris management
techni%ue is employed.
3. SETTLEMENT RIS(&
'ettlement 4is is a particular form of default risk# which involves the
competitors. Amounts settle obligations having to do with money transfer# chec
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.
B. BASIS RIS(&
18
*asis ris is a variation on the interest rate ris theme# yet it creates riss
that are less easy to observe and understand. To guard against interest rate ris#
somewhat non comparable securities may be used as a hedge. /owever# the
success of this hedging depends on a steady and predictable relationship between
the two no identical securities. *asis can negate the hedge partially or entirely#
which vastly increases the .apital Maret 4is exposure of the firm.
19
CHAPTER III
INDUSTRY PRO%ILE
Ban)ing in India
Ban)ing in India originated in the last decades of the ACth century.
The oldest ban in existence in "ndia is the 'tate *an of "ndia# a government&
owned ban that traces its origins bac to 8une ACDE and that is the largest
commercial ban in the country. .entral baning is the responsibility of the
4eserve *an of "ndia# which in AFGH formally too over these responsibilities
from the then "mperial *an of "ndia# relegating it to commercial baning
functions. After "ndiaIs independence in AFBJ# the 4eserve *an was nationalized
and given broader powers. "n AFEF the government nationalized the AB largest
commercial bans> the government nationalized the six next largest in AFCD.
.urrently# "ndia has FE scheduled commercial bans ('.* s) & ;J public
20
sector bans (that is with the -overnment of "ndia holding a stae)# GA private
bans (these do not have government stae> they may be publicly listed and traded
on stoc exchanges) and GC foreign bans. They have a combined networ of over
HG#DDD branches and AJ#DDD ATMs. According to a report by ".4A Limited# a
rating agency# the public sector bans hold over JH percent of total assets of the
baning industry# with the private and foreign bans holding AC.;K and E.HK
respectively
Ea-ly 0ist,-y
*aning in "ndia originated in the last decades of the ACth century. The
first bans were The -eneral *an of "ndia which started in AJCE# and the *an of
/industan# both of which are now defunct. The oldest ban in existence in "ndia is
the 'tate *an of "ndia# which originated in the *an of .alcutta in 8une ACDE#
which almost immediately became the *an of *engal. This was one of the three
presidency bans# the other two being the *an of *ombay and the *an of
Madras# all three of which were established under charters from the *ritish (ast
"ndia .ompany. 0or many years the :residency bans acted as %uasi&central bans#
as did their successors. The three bans merged in AF;A to form the "mperial *an
of "ndia# which# upon "ndiaIs independence# became the 'tate *an of "ndia.
"ndian merchants in .alcutta established the 3nion *an in ACGF# but it
failed in ACBC as a conse%uence of the economic crisis of ACBC&BF. The Allahabad
*an# established in ACEH and still functioning today# is the oldest 8oint 'toc ban
in "ndia. "t was not the first though. That honor belongs to the *an of 3pper "ndia#
which was established in ACEG# and which survived until AFAG# when it failed# with
some of its assets and liabilities being transferred to the Alliance *an of 'imla.
2hen the American .ivil 2ar stopped the supply of cotton to Lancashire
21
from the .onfederate 'tates# promoters opened bans to finance trading in "ndian
cotton. 2ith large exposure to speculative ventures# most of the bans opened in
"ndia during that period failed. The depositors lost money and lost interest in
eeping deposits with bans. 'ubse%uently# baning in "ndia remained the
exclusive domain of (uropeans for next several decades until the beginning of the
;Dth century.
0oreign bans too started to arrive# particularly in .alcutta# in the ACEDs.
The .omptoire dL(scompte de :aris opened a branch in .alcutta in ACED# and
another in *ombay in ACE;> branches in Madras and :ondicherry# then a 0rench
colony# followed. /'*. established itself in *engal in ACEF. .alcutta was the
most active trading port in "ndia# mainly due to the trade of the *ritish (mpire# and
so became a baning center.
The *an of *engal# which later became the 'tate *an of "ndia.
The first entirely "ndian !oint stoc ban was the 1udh .ommercial *an#
established in ACCA in 0aizabad. "t failed in AFHC. The next was the :un!ab
,ational *an# established in Lahore in ACFH# which has survived to the present
and is now one of the largest bans in "ndia.
Around the turn of the ;Dth .entury# the "ndian economy was passing
through a relative period of stability. Around five decades had elapsed since the
"ndian Mutiny# and the social# industrial and other infrastructure had improved.
22
"ndians had established small bans# most of which served particular ethnic and
religious communities.
The presidency bans dominated baning in "ndia but there were also some
exchange bans and a number of "ndian !oint stoc bans. All these bans operated
in different segments of the economy. The exchange bans# mostly owned by
(uropeans# concentrated on financing foreign trade. "ndian !oint stoc bans were
generally undercapitalized and laced the experience and maturity to compete with
the presidency and exchange bans. This segmentation let Lord .urzon to observe#
"In respect of banking it seems #e are behind the times. $e are like some old
fashioned sailing ship, divided by solid #ooden bulkheads into separate and
cumbersome compartments."
The period between AFDE and AFAA# saw the establishment of bans
inspired by the 'wadeshi movement. The 'wadeshi movement inspired local
businessmen and political figures to found bans of and for the "ndian community.
A number of bans established then have survived to the present such as *an of
"ndia# .orporation *an# "ndian *an# *an of *aroda# .anara *an and .entral
*an of "ndia.
The fervor of 'wadeshi movement lead to establishing of many private
bans in 7ashina 5annada and 3dupi district which were unified earlier and
nown by the name S,.t0 Cana-a ( 'outh anara ) district. 0our nationalized
bans started in this district and also a leading private sector ban. /ence
undivided 7ashina 5annada district is nown as M.radle of "ndian *aningM.
23
24
COMPANY PRO%ILE
COMPANY PRO%ILE

25
T0e C,m/any
"."." :rudential Life "nsurance .ompany is a !oint venture between "."." *an# a
premier financial powerhouse# and :rudential plc# a leading international financial
services group head%uartered in the 3nited 5ingdom. "."." :rudential was amongst the
first private sector insurance companies to begin operations in 7ecember ;DDD after
receiving approval from "nsurance 4egulatory 7evelopment Authority ("47A).

"."." :rudential LifeIs capital stands at 4s. B#JCD crores (as of March GA# ;DAA) with
"."." *an and :rudential plc holding JBK and ;EK stae respectively. 0or the period
April A# ;DAD to March GA# ;DAA# the company has garnered total premium of 4s AJ#CCA
crores and has underwritten over A; million policies since inception. The company has
assets held over 4s. EC#DDD crores as on March GA# ;DAA.

0or the past decade# "."." :rudential Life "nsurance has maintained its dominant
position (on new business retail weighted basis) amongst private life insurers in the
country# with a wide range of flexible products that meet the needs of the "ndian
customer at every step in life.

Dist-ib.ti,n
"."." :rudential Life has one of the largest distribution networs amongst private life
insurers in "ndia. "t has a strong presence across "ndia with around A#BDD branches and
an advisor base of over A#JD#DDD (as on March GA# ;DAA).

The company has bancassurance partners having tie&ups with "."." *an and
:roddatur .o&1p Town *an Ltd.

P-,d.+ts
Ins.-an+e S,l.ti,ns *,- Indi1id.als
26
A3a-ds : Re+,gniti,ns

A3a-ds 4;<<
"."." :rudential Life "nsurance has been conferred the L"nsurance .ompany of the +ear
Award ;DAA? and L.ompany of the +ear Award ;DAA < Life "nsurance? at The "ndian
"nsurance Awards ;DAA instituted by the reputed insurance !ournal of "ndia L"nsurance
4eview?# in association with .elent# a research and consulting firm.
"."." :rudential Life "nsurance has been awarded the prestigious award for the L*est
Leading :rivate :layer < Life "nsurance ;DAA? at the .,*. T6AC *est *an and
0inancial "nstitution Awards for 0+AA.
"."." :rudential Life "nsurance was awarded the L".2A" ,ational Award for (xcellence
in .ost Management < ;DAD? under the L:rivate sector&'ervice (Large) category at ".2A"
annual event.

A3a-ds 4;<;
"ndiaIs Most .ustomer 4esponsive "nsurance .ompany. A-. ,etwors & (conomic
Times# .ustomer 4esponsiveness Awards# ;DAD.

A3a-ds 4;;=
27
"."." :ru Life raned as the Most Trusted :vt Life "nsurance brand in the *rand (%uity MMost
Trusted *rands ;DDFM survey
The "nternational .ouncil of .ustomer 'ervice 1rganizations ("..'1) recently awarded "."."
:rudential Life# the "nternational 'ervice (xcellence Awards ;DDF in the categories of
.ustomer .harter < 2inner# 'ervice (xcellence in Large *usiness < /ighly .ommended and
.ustomer 'ervice Leader awarded to Ms. :riya ,aya# 6:&'ervice @uality.
"."." :rudential Life "nsurance has won the first runner up award for the *est 7efect
(limination in 'ervice ) Transaction category at Asian 'ix 'igma (xcellence 'ummit ;DDF.
A3a-ds 4;;>
"ndiaIs Most .ustomer 4esponsive "nsurance .ompany . Avaya -lobal .onnect & (conomic
Times. .ustomer 4esponsiveness Awards# ;DDJ
"."." :rudential Life "nsurance won the award for the *est Life "nsurer&4unner up at the
1utloo Money ) ,7T6 :rofit Awards ;DDJ
"."." :rudential Life?s# retirement solutions campaign for the year ;DDE&DJ was awarded the
*ronze (ffie trophy in the services category."t also won the *rand (%uity *ravery Award ;DDJ#
instituted by Ad .lub.
"."." :rudential Life?s website# www.iciciprulife.com was awarded the best website among
private life insurers at the 2eb AC and 0rost ) 'ullivan -enius of the 2eb Awards ;DDJ for
commendable wor in the online medium.

28
B,a-d ,* Di-e+t,-s

The "."." :rudential Life "nsurance .ompany Limited *oard comprises reputed people from
the finance industry both from "ndia and abroad.
Ms" C0anda D" (,+00a-? .hairperson
M-" N" S" (annan? 7irector
M-" (" Ram).ma-? 7irector
M-" Ra@i1 Sab0a-3al? 7irector
M-" Ba--y St,3e? 7irector
M-" Ad-ian OAC,nn,-? 7irector
M-" (e)i Dadiset0? "ndependent 7irector
P-,*" Ma-ti G" S.b-a0manyam? "ndependent 7irector
Ms" Rama Bi@a/.-)a-? "ndependent 7irector
M-" $in,d (.ma- D0all? "ndependent 7irector
M-" S-ida- Iyenga-? "ndependent 7irector
M-" Sandee/ Ba)0s0i? Managing 7irector ) .(1
M-" P.neet Nanda? (xecutive 7irector
M-" Mad0i1anan Bala)-is0nan? (xecutive 7irector



29
CHAPTER I$
DATA ANALYSIS: INTERPRETATION
30
RIS( MANAGEMENT SYSTEM &
Assuming and managing ris is the essence of business decision&maing.
"nvesting in a new technology# hiring a new employee# or launching a mareting
campaign is all decisions with uncertain outcomes. As a result all the ma!or
management decisions of how much ris to tae and how to manage the ris.
The implementation of ris management varies from business to business# from
one management style to another and from one time to another. 4is management
in the financial services industry is different from others. .ircumstances#
"nstitutions and Managements are different. 1n the other hand# an investment
decision is no recent history of legal and political stability# insights into the
potential hazards and opportunities.
Many riss are managed %uantitatively. 4is exposure is measured by
some numerical index. 4is cost tradeoff many tools are described by numerical
valuation formulas.
4is management can be integrated into a ris management system. 'uch 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.
31
RIS( MANAGEMENT SYSTEM
7ynamics of ris factors

.ash flows Arbitrage
-enerator :ricing Model
:rice and 4is
:rofile of .ontingent .laims

7ynamic 4is
Target
Trading 4ules 1ptimizer 4is :rofile

32
A.; 4"'5 MA,A-(M(,T '+'T(M
Arbitrage pricing models range from simple e%uations to large
scale numerically sophisticated algorithms. .ash flow generators also vary
from a single formula to a simulator that accounts for the dependence of
cash flows on the history of the ris factors.
0inancial engineers are continuously incorporating advances in
econometric techni%ues# asset pricing models# simulation techni%ues and
optimization algorithms to produce better ris management systems.
The important ingredient of the ris management approach is the
treatment of ris 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 ris exposure. 'pecial attention
is paid to ris factors# which translate to correlation among the values of
securities. "dentifying the correlation among the basic ris factors leads to
more effective ris management.
33
4"'5 MA,A-(M(,T ", "."."
They were re%uired by the introduce effective ris management systems
to cover .redit ris# maret ris and 1perations ris on priority.
,arasimham committee ""# advised to address maret ris in a structured
manner by adopting Asset and Liability Management practices with effect from
April A
st
AFCF.


Asset and liability management (ALM) is $the Art and 'cience of choosing
the best mix of assets for the firm?s asset portfolio and the best mix of liabilities for
the firm?s liability portfolioN. "t is particularly critical for 0inancial "nstitutions.
0or a long time it was taen 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. "nstitutions treasury department
34
used the funds provided by deposits to structure an asset portfolio that was
appropriate for the given liability portfolio.
2ith the advent of .ertificate of 7eposits (.7s)# 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 are9

ALM ",014MAT"1,.

ALM 14-A,"'AT"1,.

ALM 03,.T"1,.
ALM IN%ORMATION &
ALM is a ris management tool through which Maret ris associated with
business are identified# measured and monitored to maintain profits by
restructuring Assets and Liabilities. The ALM framewor needs to be built on
sound methodology with necessary information system as bac up. Thus the
information is ey element to the ALM process.
There are various methods prevalent worldwide for measuring riss. These
35
range from the simple -ap statement to extremely sophisticate and data intensive
Risk adjusted profitability measurement (4A:M) methods. The central element for
the entire ALM exercise is the availability of ade%uate and accurate information.
/owever# the existing systems in many "ndian do not generate information in
manner re%uired for the ALM. .ollecting accurate data is the biggest challenge
before the s# particularly those having wide networ of branches# but lacing full&
scale computerization.

Therefore the introduction of these information systems for ris measurement
and monitoring has to be addressed urgently.
The large networ of branches and the lac of support system to collect
information re%uired for the ALM which analysis information on the basis of
residual maturity and behavioral pattern# it would tae time for in the present state
to get the re%uisite information.
ALM ORGANISATION&
'uccessful implementation of the ris management process re%uires strong
commitment on the part of senior management is to integrate basic operations and
strategic decision maing with ris management.
The *oard of 7irectors should have overall responsibility for management of
ris and should decide the ris management policy of the# setting limits for
li%uidity# interest rate# foreign exchange and e%uity = price ris.
36
The Asset Liability Management .ommittee (".".") consisting of the senior
management# including .(1=.M7 should be responsible for ensuring adherence
to the limits set by the *oard of 7irectors as well as for deciding the business
strategy of the (on the assets and liabilities sides) in line with the budget and
decided ris management ob!ective.
The ALM support group consisting of operation staff should be responsible
for analyzing# monitoring and reporting the ris profiles to the ".".". The staff
should also prepare forecasts (simulations) showing the effects of various possible
changes in maret condition related to the balance sheet and recommend the action
needed to adhere to internal limits#
The "."." is a decision&maing unit responsible for balance sheet planning
from a ris&return perspective including the strategic management of interest rate
and li%uidity riss. (ach has to decide on the role of its "."."# its responsibility as
also the decision to be taen by it. The business and ris management strategy is to
ensure that they operate within the limits parameters set by the *oard. The business
issues that an "."." 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 ris levels of the # the "."."
should review the results of and progress in implementation of the decisions made
in the previous meetings. The "."." would also articulate the current interest rate
view of the and base its decisions for future business strategy on this view. "n
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#
37
Money marets vs. .apital maret funding# domestic vs. foreign currency funding
etc. "ndividual will have to decide the fre%uency for holding their "."." meetings.
TYPICAL BUSINESS O% ICICI
4eviewing of the impact of the regulatory changes on the industry.
1verseeing the budgetary process>
4eviewing the interest rate outloo for pricing of assets and liabilities
(Loans and deposits).
7eciding on the introduction of any new loan = deposit product and their
impact on interest rate = exchange rate and other maret riss>
4eviewing the asset and liability portfolios and the ris limits and thereby#
assessing the capital ade%uacy>
7eciding on the desired maturity profile of incremental assets and liabilities
and thereby assessing the li%uidity ris> and
4eviewing the variances in actual and pro!ected performances with regard to
,et "nterest Margin (,"M)# spreads and other balance sheet ratios.

COMPOSITION O% ICICI
38
The size (number of members) of "."." would depend on the size of each
institution# business mix and organizational complexity# to ensure commitment of
the Top management and timely response to maret dynamics# the .(1=M7 or the
-M should head the committee. The chiefs of "nvestment# .redit# 4esources
Management or :lanning# 0unds Management = Treasury (domestic)# etc.# can be
members of the committee. "n addition# the head of the computer (technology)
7ivision should also be an invitee for building up of
M"' and related computerization. 'ome may even have 'ub&.ommittee and
'upport -roups.

ALM ORGANIBATION consists of following categories9
ALM *1A47
"."."
ALM .(LL
.1MM"TT(( 10 7"4(.
ALM BOARD
The *oard of management should have overall responsibility for
management of ris and should decide the ris management policy of# and
set limits for li%uidity and interest rate riss.
39
ICICI
They have constituted an Asset& Liability committee ("."."). The committee
may consist of the following members.
i) -eneral Manager = /ead of .ommittee
ii) -eneral Manager (Loans ) Advances) Member

iii) -eneral Manager (.M" ) A7) Member
iv) A-M = /ead of the ALM .ell Member
The "."." is a decision maing unit responsible for ensuring adherence
to the limits set by board as well as for balance sheet planning from ris return
perspective including the strategic management of interest rate and li%uidity riss#
in line with the budget and decided ris management ob!ectives.
The *usiness issues that an "."." 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 "."." would also articulate the current interest rate due to the and
base its decisions for future business strategy on this view. "n respect of funding
policy# for instance# its responsibility would be decided on source and mix of
liability.
40
"ndividual will have to decide the fre%uency for their "."." meetings.
/owever# it is advised that "."." should meet at least once in a fortnight. The
"."." should review results of and process in implementation of the decisions
made in the previous meetings.
ALM CELL
The ALM des = cell consisting of operating staff should be responsible for
analyzing# monitoring and reporting the profiles to the ".".". The staff should also
prepare forecasts (simulations) showing the effects of various possible changes in
maret conditions related to the balance sheet and recommend the action needed to
adhere tointernal limits.
COMMITTEE O% 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 it?s functioning periodically.
41
ALM :41.(''
The scope of ALM function can be described as follows9
1. Li%uidity 4is Management
2. "nterest 4ate 4is Management
3. .urrency 4is Management
4. 'ettlement 4is Management
5. *asis 4is Management
The 4*" guidelines mainly address Li%uidity 4is Management and "nterest
4ate 4is Management.
The following are the concepts discussed for analysis of?s Asset&Liability
Management under above mentioned riss.
O Li%uidity 4is
O Maturity profiles
O "nterest rate ris
O -ap analysis
42
1. LiC.idity Ris) Management &
Measuring and managing li%uidity needs are vital activities of the s.
*y assuring ability to meet its liability as they become due# li%uidity management
can reduce the probability of an adverse situation development. The importance of
li%uidity transcends individual institutions# as li%uidity shortfall in one institution
can have repercussions on the entire system.
Li%uidity ris management refers to the ris of maturing liability not
finding enough maturing assets to meet these liabilities. "t is the potential inability
to meet the liability as they became due. This ris arises because borrows funds for
different maturities in the form of deposits# maret operations etc. and loc them
into assets of different maturities.
Li%uidity -ap also arises due to unpredictability of deposit withdrawals#
changes in loan demands. /ence measuring and managing li%uidity needs are vital
43
for effective and viable operations of the 4is Management.
Li%uidity measurement is %uite a difficult tas and usually the
stoc or cash flow approaches are used for its measurement. The stoc
approach used certain li%uidity ratios. The li%uidity ratios are the ideal
indicators of li%uidity of operating in developed financial marets# the ratio
do not reveal the real li%uidity profile of which are operating generally in a
fairly illi%uid maret. The assets# which are commonly considered as li%uid
lie -overnment securities# have limited li%uidity when the maret and
players are in one direction. Thus analysis of li%uidity involves tracing of
cash flow mismatches.
The statement of structural li%uidity may be prepared by placing all
cash inflows and outflows in the maturity ladder according to the expected
timing of cash flows.
The MAT34"T+ :410"L( 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 is done in different time
bucets.
The time bucets# given the statutory 4eserve cycle of AB days may be
distributed as under9
1. A to AB days
2. AH to ;C days
44
G. ;F days and upto G months
B.1ver G months and upto E months
H.1ver E months and upto A year
E.1ver A year and upto G years
J.1ver G years and upto H years
C.1ver H years.
MAT34"T+ :410"L( < L"@3"7"T+
HEAD O% ACCOUNTS
A.13T0L12'
Classi*i+ati,n int, time b.+)ets
A..apital# 4eserves and 'urplus 1ver H years bucet.
;.7emand 7eposits (.urrent )
'avings 7eposits)
7emand 7eposits may be
classified into volatile and core
portions# ;H K of deposits are
generally withdraw able on
demand. This portion may be
treated as volatile. 2hile volatile
portion may be placed in the first
45
time bucet i.e.# A&AB days# the
core portion may be placed in A&;
years# bucet.
G. Term 7eposits 4espective maturity bucets.
B. *orrowings 4espective maturity bucets.
H. 1ther liabilities and provisions
(i) *ills :ayable
(ii) "nter&office Ad!ustment


(iii) :rovisions for ,A:s
a) sub&standard
b) doubtful and Loss
(iv) provisions for
depreciation
in "nvestments
(v) provisions for ,A:s in
investment
(i) A&AB days bucet
(ii) "tems not representing cash
payable may be placed in
over H
years bucet
(iii)
a) ;&H years bucet.
b) 1ver H years bucet
.
(iv) 1ver H years bucet.
(v)
a) ;&H years bucet.
b) 1ver H years bucet
46
(vi) provisions for other
purposes

(vi) 4espective bucets
depending on
The purpose.
47
*. ",0L12'

A. .ash A&AB days bucet.
;. *alance with other s
(i) .urrent Account
(ii) Money at call and short
,otice#
Term 7eposits and other
:lacements
(i) ,on&withdraw able portion
on
account of stipulations of
minimum balances may be
shown
Less than A&AB days bucet.
(ii) 4espective maturity bucets.
G. "nvestments
(i) Approved
securities
(ii) .orporate
7ebentures and
bonds# .7s and
.:s# redeemable
preference shares#
units of Mutual
0unds (close
ended). (tc.
(iii) 'hare = 3nits of
Mutual 0unds
(i) 4espective maturity bucets
excluding the amount
re%uired to
be reinvested to maintain
SLR
(ii) 4espective Maturity bucets.
"nvestments classified as
,:As
'hould be shown under ;&H
years
bucet (sub&standard) or over
H
+ears bucet (doubtful and
loss).
48
(open ended)
(iii) "nvestment in
subsidiaries =
8oint 6entures.
(iii) 1ver H years bucet.
(iv) 1ver H years bucet.
B. Advances (performing =
standard)
(i) *ills :urchased and
7iscounted
(including bills under
73:,)
(iii) .ash .redit = 1verdraft
(including T17) and
7emand Loan
component of
2oring .apital.
(iii) Term Loans
(i) 4espective Maturity bucets.
(ii) should undertae a study
1f behavioral and seasonal
pattern of an ailments based on
outstanding and the core and
volatile portion should be
identified. 2hile the volatile
portion could be shown in the
respective maturity bucet. The
core portion may be shown
under A&; years bucet.
(iii) "nterim cash flows may be
shown under respective
maturity
*ucets.

H. ,:As
b. 'ub&standard (") ;&H years bucet.
49
c. 7oubtful and Loss (ii) 1ver H years bucet.
E. 0ixed Assets 1ver H years bucet.
J. 1ther&office Ad!ustment
(i) "nter&office Ad!ustment
(ii) 1thers
(i) As per trend analysis#
"ntangible items or
items
not representing cash
receivables may be
shown
"n over H years bucet.
(i) 4espective maturity
bucets. "ntangible
assets and assets not
representing cash
receivables may be
shown in over H years
bucet.
Terms used9
.7s9 .ertificate of 7eposits.
50
.:s9 .ommercial :apers.
7TL :410"L(9 7emand and Time Liabilities.
"nter office ad!ustment9

1utflows9 ,et .redit *alances
"nflows9 ,et 7ebt *alances
1ther Liabilities9 .ash payables# "ncome received in advance# Loan Loss and
7epreciation in "nvestments.
1ther assets9 .ash 4eceivable# "ntangible Assets and Leased Assets.
;. "nterest 4ate 4is9
"nterest 4ate 4is refers to the ris of changes in interest rates subse%uent
to the creation of the assets and liabilities at fixed rates. The phased deregulations
of interest rates and the operational flexibility given to pricing most of the assets
and liabilities imply the need for the system to hedge the interest rate ris. This is a
ris where changes in the maret 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 ,et "nterest "ncome (NII!"
A long term impact of changing interest rates is on ?s Maret 6alue of (%uity
M$E! or net worth as the economic value of ?s assets# liabilities and off&balance
51
sheet positions get affected due to variation in maret interest rates.
The ris from the earnings perspective can be measured as changes in the
,et "nterest "ncome (,"") 14 ,et "nterest Margin (,"M).
There are many analytical techni%ues for measurement and management of
interest rate ris. "n M"' of ALM# slow pace of computerization in and the absence
of total deregulation# the traditional -A: A,AL+'"' is considered as a suitable
method to measure the interest rate ris.
Ga/ Analysis&
The -ap or mismatch ris can be measured by calculating %aps over
different time buckets as at a given date. -ap 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 if9
"f there is a cash flow within the time interval.
52
The interest rate resets or reprises contractually during the interval.
4*" changes the interest rates i.e.# on saving deposits# export credit#
refinance# .44 balances and so on# in case where interest rate are
administered.
"t is contractually pre&payable or withdraw able before the stated maturities
The -ap is the difference between 4ate 'ensitive Assets (4'A) and 4ate sensitive
Liabilities (4'A) for each time bucet.
The /,siti1e GAP indicates that RSAs are more than RSLs RSADRSL!"
The negati1e GAP indicates that RSAs are more than RSALs RSAERSL!"
;.; TA*L(
months up to 3 3 to 6 6 to 12 above 1 yr
inflows 69176.2 330487.3 157602.3 529926.8
outflows 131724.6 95515.39 133159.8 430353.8
G! 62548.39 62467.14 "24442.5 "99573
The above analysis reveals the extent of mismatches and the nature of
sensitivity of Assets and Liabilities which are having high li%uidity. "n short
term maturity bucet of having excess li%uidity and the li%uidity crisis is
arising only in long term maturity bucet. The can ade%uately plan their long
li%uidity according to the bucets effect on profitability.
They can implement ALM policies for the better identification of the
mismatch# ris and for the implementation of various remedial measures.
53
-(,(4AL9
The classification of various components of assets and liabilities into
different time bucets for preparation of -ap reports (Li%uidity and interest rate
sensitivity) may be done as indicated in Appendices " ) "" as a sort of bench mar.
2hich are better e%uipped to reasonably estimate the behavioral pattern# embedded
options# rolls&in and rolls&out etc of various components of assets and liabilities on
the basis of past date# (mpirical studies could classify them in the appropriate time
bucets# sub!ect to approval from the "."." = *oard. A copy of the note approved
by the AL1. = *oard may be sent to the 7epartment of 'upervision.

The present framewor does not capture the impact of embedded options#
i.e.# the customers exercising their options (premature closure of deposits and
prepayment of loans and advances) on the li%uidity and interest rate riss profile of
s. The magnitude of embedded option ris at times of volatility in maret interest
rates is %uite substantial should therefore evolve suitable mechanism# supported by
empirical studies and behavioral analysis to estimate the future behavior of assets>
liabilities and off&balance sheet items to changes in maret variables and estimate
the embedded options.
A scientifically evolved internal transfer pricing model by assigning values on
the basis of current maret rates to funds provided and funds used is an imported
component for elective implementation of ALM systems. The transfer price
mechanism can enhance the management of margin i.e.# landings or credit spread
the funding or liability spread and mismatch spread. "t also helps centralizing
interest rate ris at one place which facilitates effective control and management of
54
interest rate ris. A well defined transfer pricing system also provides a rational
framewor for pricing of assets and liabilities.
;.G TA*L(
STRUCTURAL LIQUIDITY STATEMENT AS ON 31-3-2012
#s in la$hs
%.&o !arti'ulars (pto 3 months 3"6 months 6"12 months bove 1 year )otal
A Liabilities:
1Deposits
*. +urrent ,' 797.51 2392.51 3190.02
**. %- ,' 2326.15 6978.46 9304.61
***. .i/e0 1ep. 6527.21 14607.72 16270.13 117894.11 155299.17
%ub")otal 9650.87 14607.72 16270.13 127265.08 167793.8
2-orrowin2s 49186.96 62102.79 65967.38 144680.44 321937.57
3!ai0"up %hare +apital 19013.72 19013.72
4#eserves an0 %urpluses 64270.99 64270.99
53ther provisions 47222.42 47222.42
6-alan'e ! 4 5 ,+ 415.72 415.72
73ther 5iabilities 16210.24 829.28 1070.16 16703.4 34813.08
TOTAL A! "#0$%&0" ""#3'&"' %330"&(" $1'#"1&"" (##$("&3
)& ASSETS:
1+ash in 6an0 734.22 734.22
2 -alan'es 1405.71 565.04 629.98 4931.5 7532.23
3A*+a,-es:
%oft ware"5) 25804.99 5618.56 148457.6 179881.15
%oft ware"%) 17632.22 49643.25 63833.34 80567.43 211676.24
-ills pur'hase0 329.64 329.64
3ther 5oans 574.44 653 10409.89 45096.54 56733.87
4+urrent ssets , *nvestments 25668.8 15400 11200 60506.4 112775.2
5.i/e0 ssets 4 other ssets 20124.38 672.05 9053.33 55954.99 85804.75
TOTAL )! '22"$&$ (('33&3$ 100"$#&1 3'##1$&$( (##$("&3
C Mis.at-/es )-A! 17226.33 "10606.45 17437.43 "24057.31
D + as 7 to 22.95 "13.68 20.93 "5.73
55
A.G -4A:/
0ap a,al1sis
"30000
"20000
"10000
0
10000
20000
(pto 3
months
3"6 months 6"12 months bove 1 year
'T43.T34AL L"@3"7"T+ 'TAT(M(,T A,AL+'"' ;DA;
(1) The total current liabilities for the three months are 4s. JHDBC.DJ is less than
the total assets for the G months are 4s.F;;JB.B. Therefore the assets are
more than the liabilities. 'o there is a positive gap of 4s.AJ;;E.GG.
(2) The total current liability for the G&E months is 4s.JJHGF.JF is more than the
total assets for the G&E months are 4s.EEFGG.GB. Therefore the liabilities are
56
more than the assets .This is a negative gap so the company should tae
steps to ensure the li%uidity position.
(3) The total current liabilities for the E&A; months are 4s.CGGDJ.EJ. current
assets are 4s.ADDJBH.A. current liabilities less than the current assets so there
is a positive gap of 4s.AJBGJ.BG.
(4) The total current liabilities for the above A year amount BAFHJA.JJ. .urrent
assets amount 4s.GFHHAB.BE. .urrent Liability is more than the current
assets. This is negative gap. 'o the company should tae steps to ensure the
li%uidity position.
57
;.B TA*L(
St-.+t.-al liC.idity statement as ,n 5<F5F4;<5
8#s. *n 5a$hs9
%.no. !arti'ulars (pto 3 months 3"6 months 6"12 months bove 1years )otal
A LIA)ILITIES:
1DE2OSITS
*9 +urrent ,+ 998.25 0 0 2994.76 3993.01
ii9 %avin2s ,+ 2351.63 0 0 7054.9 9406.53
iii9 )erm 1eposits 3860.87 21958.14 29535.68 118010.02 173364.71
%ub"total 7210.75 21958.14 29535.68 128059.68 186764.25
2-orrowin2 33421.23 73972.32 65328.19 139630.18 312351.92
33ther 5iabilities 22274 1926.62 1689.58 160740.84 186631.04
TOTAL 3A3 62905.98 97857.08 96553.45 428430.7 685747.21
) ASSETS
1+ash in han0 4 -alan'e 8614.44 0 0 411.04 9025.48
2A*+a,-es
*9 5) " operations 22602.8 0 0 222561.37 245164.17
ii9 %)"operations 80033.7 43083.29 80265.3 5832.45 209214.74
iii9 other loans in'lu0in2 -! 1809.51 17582.02 2860.37 39613.13 61865.03
3*nvestments 14775 6500 10850 61325.22 93450.22
43ther ssets 15755.15 678.46 81.37 50512.59 67027.57
TOTAL 3)3 134976.16 67843.77 94057.04 379844.76 676721.73
C MISMATC4ES )-A! 72070.18 "30013.31 "2496.41 "48585.94
D + as 7 to 128.26 "30.6 "2.59 "11.24
58
A.B -4A:/
0ap a,al1sis
"60000
"40000
"20000
0
20000
40000
60000
80000
(pto 3
months
3"6 months 6"12 months bove 1 year
St-.+t.-al liC.idity statement analysis as ,n 4;<<
(A)The total current liabilities for the G months are 4s.E;FDH.FC is less than the total
assets for the Gmonths are 4s.AGBFJE.AE. Therefore the assets are more than the
liabilities. 'o there is a positive gap of 4s.J;DJD.AC
(;)The total current liabilities for the G&Emonths are 4s.FJCHJ.DC is more than the
total assets for G&E months are 4s.EJCBG.JJ. This is a negative gap. 'o the
company should tae steps to ensure the li%uidity position.
(G) The total current liabilities for the E&A; months are 4s.FEHHG.BH is more than
the total assets for the G&Emonths are 4s.FBDHJ.DB.This is a negative gap. 'o the
company should tae steps to ensure the li%uidity position .
(B)The total current liabilities for the above Ayear amount 4s.B;CBGD.J. current
asset amount 4s.GJFCBB.JE. current liability is more than the current asset. This
is a negative gap. 'o the company should tae steps to ensure the li%uidity
59
position.
;.H TA*L(
STRUCTURAL LIQUIDITY STATEMENT AS ON 31-3-2012
#s. *n la$hs
S&,o 2a5ti-6la5s Upto 3 .o,t/s 3-( .o,t/s (-12 .o,t/s Abo+e 11ea5 Total
A Liabilities
1Deposits
*9 +urrent ,+ 1337.91 4013.73 5351.64
ii9 %- ,+ 3051.33 9153.97 12205.3
iii9.i/e0 1ep. 33172.78 14614.27 47364.4 57006.47 152157.92
S6b-Total 37562.02 14614.27 47364.4 70174.17 169714.86
2%) -orrowin2s 16493.88 15976.62 107647.03 82276.53 222394.06
35) -orrowin2s 42.8 1454.4 957.56 182624.56 185079.32
4!ai0"up %hare +apital 19192.55 19192.55
5#eserves 116703.38 116703.38
63ther #eserves,!rovisions 3246.47 3246.47
7-alan'e !45 ,+ 300.38 300.38
8*nterest !ayable 5021.66 987.81 1623.37 21921.62 29554.46
93ther 5iabilities 10055.84 15.15 9.97 33487.16 44568.12
TOTAL3A3 69176.2 33048.25 157602.33 529926.82 790753.6
) Assets:
1+ash in han0 954.44 954.44
2 -alan'es 9404.34 9404.34
3A*+a,-es:
*9 5)"operations 20383.8 4633.7 236705.36 261722.86
ii9 %)"operations 34340 76352.64 126802.3 64850.36 302345.3
4-ills pur'hase0 20.6 20.6
5+urrent ssets,*nvestments 48220 18442 835.31 76805.6 144302.91
6*nterest #e'eivable 18300.57 720.75 888.31 34583.98 54493.61
73ther ssets 100.84 17409.5 17510.34
TOTAL3)3 131724.59 95515.39 133159.62 430354.8 790753.6
+ MISMATC4ES )-A! 62548.39 62467.14 "24442.71 "99572.02
1 C as 7 to A 90.42 189.02 "15.51 "18.79
60
A.H -4A:/
0ap a,al1sis
"150000
"100000
"50000
0
50000
100000
(pto 3
months
3"6 months 6"12 months bove 1 year
St-.+t.-al liC.idity statement analysis ,n 4;<;
(A) The total current liabilities for the Gmonths are 4s.EFAJE.; is less than
the total assets for the months are 4s.AGAJ;B.HF.Therefore the assets are
more than the liabilities. 'o there is a positive gap of 4s.E;HBC.GF
(;)The total current liabilities for the G&E months are 4s.GGDBC.;H is less
than the assets for the Gmonths are 4s.FHHAH.GF. Therefore assets are more
than the liabilities. 'o there is a positive gap of 4s.E;BEJ.AB
(G)The total current liabilities for the E&A; months are 4s.AHJED;.GG is
more than total assets for E&A; months are 4s.AGGAHF.E;. Therefore the
liabilities are more than the assets. This is a negative gap. 'o the company
should tae steps to ensure the li%uidity position.
(B)The total current liabilities for the above A year are 4s.H;FF;E.C; is more
than the total assets for the above A year 4s.BGDGHB.C. Therefore the
61
liabilities are more than the assets. This is a negative gap. 'o the company
should tae steps to ensure the li%uidity position.
62

CHAPTER $
.1,.L3T"1, ) '3--('T"1,'
63
CONCLUSION
The burden of the 4is and its .osts are both manageable and
transferable. 0inancial service firms# in the addition to managing their
own ris# also sell financial ris management to others. They sell their
services by bearing customers financial riss through the products they
provide. A financial firm can offer a fixed&rate loan to a borrower with
the ris of interest rate movements transferred from the borrower to the
0inancial innovations have been concerned with risk reduction then any
other sub!ect. 2ith the possibility of managing ris near zero# the
challenge becomes not how much ris can be removed.
0inancial 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 breas into several distinct
functions# and it includes the intermediation of the following9
Maturity :reference mismatch# 7efault# .urrency :reference mis&
match# 'ize of transaction and Maret access and information.
64
S.ggesti,ns
1. They should strengthen its management information system (M"') and
computer processing capabilities for accurate measurement of li%uidity
and interest rate 4iss in their *oos.
1. "n the short term the ,et interest income or ,et interest margins (,"M)
creates economic value of the which involves up gradation of existing
systems ) Application software to attain better ) improvised levels.
2. "t is essential that remain alert to the events that effect its operating
environment ) react accordingly in order to avoid any undesirable riss.
3. "."." re%uires efficient human and technological infrastructure which
will future lead to smooth integration of the ris management process
with effective business strategies.

65
CHAPTER $I
BIBILIOGRAPHY
BIBILIOGRAPHY
Title ,* t0e B,,)s A.t0,-
1. Risk management
Gustavson hoyt
2. Management Research magazine P.M.Dileep
Kumar
66
3. India fnancial system M.Y.
Khan
. !e" sites

'''"ICICI"SAP"IN
s WWW.RBI..ORG.COM


67