Asset - Liability Management System in banks - Guidelines.doc

RISK MANAGEMENT IN BANKS (ASSETS AND LIABILITY MANAGEMENT
Dr Pawan kumar
Asstt Professor in MBA
DIMT Kurukshetra
Abstract: Over the last few years the Indian financial markets have witnessed wide ranging changes at fast pace. petition for business involving both the assets and liabilities, together with increasing volatility in the domestic interest rates as well as foreign exchange rates, has brought pressure on the management of banks to maintain a good balance among spreads, profitability and long-term viability. These pressures call for structured prehensive measures and not just ad hoc action. The Management of banks has to base their business decisions on a dynamic and integrated risk management system and process, driven by corporate strategy. Banks are exposed to several major risks in the course of their business - credit risk, interest rate risk, foreign exchange risk, equity / commodity price risk, liquidity risk and operational risks. This paper lays down broad view in respect of interest rate and liquidity risks management systems in banks which form part of the Asset-Liability Management (ALM) function. The initial focus of the ALM function would be to enforce the risk management discipline viz. managing business after assessing the risks involved. The objective of this paper is to assessment of the measurement and management of risk management in banks.
The ALM process rests on three pillars:
· ALM information systems:
=> Management Information System
=> Information availability, accuracy, adequacy and expediency.
· anization:
=> Structure and responsibilities.
=> Level of top management involvement.
· ALM process:
=> Risk parameters
=> Risk identification
=> Risk measurement
=> Risk management
=> Risk policies and tolerance levels.
ALM information systems
Information is the key to the ALM process. Considering the work of branches and the lack of an adequate system to collect information required for ALM which analyses information o