ABSTRACT

Asset-Liability Management (ALM) can be termed as a risk management technique designed

to earn an adequate return while maintaining a comfortable surplus of assets beyond liabilities. It
takes into consideration interest rates, earning power, and degree of willingness to take on debt
and hence is also known as Surplus Management.
But in the last decade the meaning of ALM has evolved. It is now used in many different ways
under different contexts. ALM, which was actually pioneered by financial institutions and banks,
are now widely being used in industries too. The Society of Actuaries Task Force on ALM
Principles, offers the following definition for ALM: "Asset Liability Management is the on-going
process of formulating, implementing, monitoring, and revising strategies related to assets and
liabilities in an attempt to achieve financial objectives for a given set of risk tolerances and
constraints."
The need of the study is to concentrates on the growth and performance of Company and to
calculate the growth and performance by using asset and liability management. And to know the
management of nonperforming assets.
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.

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 cooperative, 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.
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 s 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

On 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.
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.

NEED OF THE STUDY:

The need of the study is to concentrates on the growth and performance of The Housing
Development Finance Corporation Limited (HDFC) 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 The Housing Development Finance Corporation

Limited (HDFC)

To analyze existing situation of The Housing Development Finance Corporation

Limited (HDFC)

To improve the performance of The Housing Development Finance Corporation

Limited (HDFC)

To analyze competition between The Housing Development Finance Corporation

Limited (HDFC) with other cooperatives.

SCOPE OF THE STUDY:

In this study the analysis based on ratios to know asset and liabilities management under The
Housing Development Finance Corporation Limited (HDFC) and to analyze the growth and
performance of The Housing Development Finance Corporation Limited (HDFC) by using
the calculations under asset and liability management based on ratio.

Ratio analysis

Comparative statement

Common size balance sheet.

OBJECTIVES OF THE STUDY

o To study the concept of ASSET & LIABLITY MANAGEMENT in The Housing

Development Finance Corporation Limited (HDFC)

o To study process of CASH INFLOWS and OUTFLOWS in The Housing

Development Finance Corporation Limited (HDFC)

o To study RISK MANAGEMENT under The Housing Development Finance

Corporation Limited (HDFC)

o To study RESERVES CYCLE of ALM under The Housing Development

Finance Corporation Limited (HDFC)

o To study FUNCTIONS AND OBJECTIVES of The Housing Development

Finance Corporation Limited (HDFC) committee.

METHODOLOGY OF THE STUDY

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 Housing Development Finance Corporation Limited
(HDFC)
Published report of The Housing Development Finance Corporation Limited
(HDFC)
RBI guidelines for ALM.

LIMITATION OF THE STUDY:

1. This subject is

based on past data of The Housing Development Finance

Corporation Limited (HDFC)

2. The analysis is based on structural liquidity statement and gap analysis.
3. The study is mainly based on secondary data.
4. Approximate results: 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.

COMPANY PROFILE

PROFILE OF THE BANK

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The
bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered
office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank
in January 1995.

OVERVIEW OF THE INDUSTRY

HDFC is India's premier housing finance company and enjoys an impeccable track record
in India as well as in international markets. Since its inception in 1977, the Corporation has
maintained a consistent and healthy growth in its operations to remain the market leader in
mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has
developed significant expertise in retail mortgage loans to different market segments and also has
a large corporate client base for its housing related credit facilities. With its experience in the
financial markets, a strong market reputation, large shareholder base and unique consumer
franchise, HDFC was ideally positioned to promote a bank in the Indian environment.
As on 31st December, 2009 the authorized share capital of the Bank is Rs. 550 crore. The paidup capital as on said date is Rs. 455,23,65,640/- (45,52,36,564 equity shares of Rs. 10/- each).
The HDFC Group holds 23.87 % of the Bank's equity and about 16.94 % of the equity is held by
the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). 27.46
% of the equity is held by Foreign Institutional Investors (FIIs) and the Bank has about 4,58,683
shareholders.
The shares are listed on the Bombay Stock Exchange Limited and The National Stock Exchange

of India Limited. The Bank's American Depository Shares (ADS) are listed on the New York
Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository Receipts
(GDRs) are listed on Luxembourg Stock Exchange under ISIN No US40415F2002.
Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Capoor was
Deputy Governor of the RBI
MANAGEMENT
The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years, and
before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.
The Bank's Board of Directors is composed of eminent individuals with a wealth of experience
in public policy, administration, industry and commercial banking. Senior executives
representing HDFC are also on the Board.

Senior banking professionals with substantial experience in India and abroad head various
businesses and functions and report to the Managing Director. Given the professional expertise
of the management team and the overall focus on recruiting and retaining the best talent in the
industry, the bank believes that its people are a significant competitive strength.
BOARD OF DIRECTORS

Mr. Jagdish Capoor, Chairman

Mr. Keki Mistry
Mrs. Renu Karnad
Mr. Arvind Pande
Mr. Ashim Samanta
Mr. Chander Mohan Vasudev
Mr. Gautam Divan

Dr. Pandit Palande

Mr. Aditya Puri, Managing Director
Mr. Harish Engineer, Executive Director
Mr. Paresh Sukthankar, Executive Director
Mr. Vineet Jain (upto 27.12.2008)
REGISTERED OFFICE
HDFC Bank House,
Senapati Bapat Marg,
Lower Parel,
Website: www.hdfcbank.com
HDFC Bank offers a wide range of commercial and transactional banking services and treasury
products to wholesale and retail customers. The bank has three key business segments
Wholesale Banking Services
The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian
corporate to small & mid-sized corporates and agri-based businesses. For these customers, the
Bank provides a wide range of commercial and transactional banking services, including
working capital finance, trade services, transactional services, cash management, etc. The bank is
also a leading provider of structured solutions, which combine cash management services with
vendor and distributor finance for facilitating superior supply chain management for its corporate
customers. Based on its superior product delivery / service levels and strong customer
orientation, the Bank has made significant inroads into the banking consortia of a number of
leading Indian corporates including multinationals, companies from the domestic business
houses and prime public sector companies. It is recognised as a leading provider of cash
management and transactional banking solutions to corporate customers, mutual funds, stock
exchange members and banks.

Retail Banking Services

The objective of the Retail Bank is to provide its target market customers a full range of financial
products and banking services, giving the customer a one-stop window for all his/her banking
requirements. The products are backed by world-class service and delivered to customers
through the growing branch network, as well as through alternative delivery channels like ATMs,
Phone Banking, NetBanking and Mobile Banking.
The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and the
Investment Advisory Services programs have been designed keeping in mind needs of customers
who seek distinct financial solutions, information and advice on various
investment avenues. The Bank also has a wide array of retail loan products including Auto
Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. It is
also a leading provider of Depository Participant (DP) services for retail customers, providing
customers the facility to hold their investments in electronic form.
HDFC Bank was the first bank in India to launch an International Debit Card in association with
VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank launched
its credit card business in late 2001. By March 2009, the bank had a total card base (debit and
credit cards) of over 13 million. The Bank is also one of the leading players in the merchant
acquiring business with over 70,000 Point-of-sale (POS) terminals for debit / credit cards
acceptance at merchant establishments. The Bank is well positioned as a leader in various net
based B2C opportunities including a wide range of internet banking services for Fixed Deposits,
Loans, Bill Payments, etc.
Treasury
Within this business, the bank has three main product areas - Foreign Exchange and Derivatives,
Local Currency Money Market & Debt Securities, and Equities. With the liberalisation of the
financial markets in India, corporates need more sophisticated risk management information,
advice and product structures. These and fine pricing on various treasury products are provided
through the bank's Treasury team. To comply with statutory reserve requirements, the bank is
required to hold 25% of its deposits in government securities. The Treasury business is
responsible for managing the returns and market risk on this investment portfolio