This document discusses asset liability management (ALM) strategies in banks, particularly in India and China. It summarizes various academic literature on ALM strategies and their impact. ALM involves managing the maturity mismatch between a bank's assets and liabilities to minimize risks from interest rate changes. While ALM is crucial for banks, debt markets in India are less liquid than in other countries, constraining banks' ability to trade debt and implement optimal ALM strategies. The document argues for developing more liquid debt markets in India to help banks better manage risks from maturity transformation.
Liquidity, capital adequacy and operating efficiency of commercial banks in k...Alexander Decker
This document summarizes a research journal article that examines the effect of liquidity and capital adequacy on the operating efficiency of commercial banks in Kenya. Specifically, it analyzes how bank liquidity ratios and capital adequacy ratios impact operational efficiency. The study found that the previous year's operational efficiency, liquid assets to short-term liabilities ratio, and total capital ratio positively and significantly affect bank operating efficiency. Regression analysis showed that 41.08% of banks' operational efficiency is explained by the study variables. Therefore, banks should focus on improving liquidity ratios and capital ratios to enhance operating efficiency.
1. The document discusses modern banking strategies for managing risk and selecting profitable investment portfolios. It addresses questions about optimal portfolio structure in variable interest rate environments, appropriate banking products, and successful risk management.
2. Banks can calculate expected returns on asset groups to inform investment decisions, though some may prefer lower risk assets even with similar expected returns. Duration matching of assets and liabilities can help mitigate interest rate risk.
3. Banks employ tools like gap analysis, repricing schedules, and derivatives to manage their exposure to interest rate movements and ensure accurate understanding of risks from their asset-liability mix. Portfolio structure and risk management techniques are crucial for banks' financial stability and performance.
Liquidity management and commercial banks profitability in nigeriaAlexander Decker
This document summarizes a research study that examined the relationship between liquidity management and profitability in commercial banks in Nigeria. The study found that liquidity and profitability are significantly related, with each influencing the other. Effective liquidity management is important for banks' success and survival, as both insufficient and excessive liquidity can erode profitability. The study recommends that central banks maintain a flexible interest rate policy to help banks manage liquidity and profitability, and promote alternative payment methods to reduce banks' need to hold excess cash reserves.
Risk management in banking a study with reference to state bank of india sbi aIAEME Publication
This document discusses risk management in banking with a focus on credit risk management practices at State Bank of India (SBI) and its associates. It provides an overview of SBI and its subsidiaries, and discusses how SBI has implemented the Basel accords on capital adequacy requirements and approaches credit risk measurement. The document analyzes trends in non-performing assets and capital adequacy ratios at SBI from 2007-2008 to 2012-2013 to assess its risk management practices.
Project on credit risk in indian banking system Babasab Patil
This document provides an overview of the banking industry in India. It discusses the evolution of banking from ancient times through the establishment of modern banks. It also describes the current structure of the Indian banking sector, which includes nationalized banks, private banks, cooperative banks, and specialized financial institutions. The banking industry has undergone significant changes in recent decades due to deregulation, competition from new entrants, and the growing importance of technology in serving customers. Banks are now focused on developing customer-centric business models to build relationships and retain customers.
The document discusses visions for banking, finance, and the broader Indian economy in 2020. Three key points:
1) Technology will be a major driver of competitiveness and changes like remote and digital banking will become more common. Financial inclusion will also expand to cover more of the population.
2) Mergers and acquisitions are expected to increase, especially in sectors like energy and utilities. Indian banks may also purchase stakes in foreign banks.
3) Commodities and capital markets are projected to grow substantially, aided by reforms and new regulations that expand participation in these markets.
Volume of Deposits, A determinant of Total Long-term Loans Advanced by Commer...iosrjce
Commercial banks have exponentially increased their total loans advanced over the period 2002-
2013. However commercial banks in Kenya have shown varying long term lending behavior. The main objective
of this study was to establish the effect of determinants of long term lending in the Kenyan banking industry, a
case of Bungoma County. This study was guided by the following specific objective; to determine the effect of
volume of deposit on total loan advanced, of selected commercial banks in Kenya. The target population
comprised 13 commercial banks in Bungoma County with a sample size of 52 respondents. From the findings,
for every unit increase in volume of deposits, a 10.9%, unit increase in total loans advanced is predicted. The
model hypothesizes that there is functional relationship between the dependent variable and the independent
variable. The study then recommends that commercial banks should focus on mobilizing more deposits as this
will enhance their lending performance.
Liquidity, capital adequacy and operating efficiency of commercial banks in k...Alexander Decker
This document summarizes a research journal article that examines the effect of liquidity and capital adequacy on the operating efficiency of commercial banks in Kenya. Specifically, it analyzes how bank liquidity ratios and capital adequacy ratios impact operational efficiency. The study found that the previous year's operational efficiency, liquid assets to short-term liabilities ratio, and total capital ratio positively and significantly affect bank operating efficiency. Regression analysis showed that 41.08% of banks' operational efficiency is explained by the study variables. Therefore, banks should focus on improving liquidity ratios and capital ratios to enhance operating efficiency.
1. The document discusses modern banking strategies for managing risk and selecting profitable investment portfolios. It addresses questions about optimal portfolio structure in variable interest rate environments, appropriate banking products, and successful risk management.
2. Banks can calculate expected returns on asset groups to inform investment decisions, though some may prefer lower risk assets even with similar expected returns. Duration matching of assets and liabilities can help mitigate interest rate risk.
3. Banks employ tools like gap analysis, repricing schedules, and derivatives to manage their exposure to interest rate movements and ensure accurate understanding of risks from their asset-liability mix. Portfolio structure and risk management techniques are crucial for banks' financial stability and performance.
Liquidity management and commercial banks profitability in nigeriaAlexander Decker
This document summarizes a research study that examined the relationship between liquidity management and profitability in commercial banks in Nigeria. The study found that liquidity and profitability are significantly related, with each influencing the other. Effective liquidity management is important for banks' success and survival, as both insufficient and excessive liquidity can erode profitability. The study recommends that central banks maintain a flexible interest rate policy to help banks manage liquidity and profitability, and promote alternative payment methods to reduce banks' need to hold excess cash reserves.
Risk management in banking a study with reference to state bank of india sbi aIAEME Publication
This document discusses risk management in banking with a focus on credit risk management practices at State Bank of India (SBI) and its associates. It provides an overview of SBI and its subsidiaries, and discusses how SBI has implemented the Basel accords on capital adequacy requirements and approaches credit risk measurement. The document analyzes trends in non-performing assets and capital adequacy ratios at SBI from 2007-2008 to 2012-2013 to assess its risk management practices.
Project on credit risk in indian banking system Babasab Patil
This document provides an overview of the banking industry in India. It discusses the evolution of banking from ancient times through the establishment of modern banks. It also describes the current structure of the Indian banking sector, which includes nationalized banks, private banks, cooperative banks, and specialized financial institutions. The banking industry has undergone significant changes in recent decades due to deregulation, competition from new entrants, and the growing importance of technology in serving customers. Banks are now focused on developing customer-centric business models to build relationships and retain customers.
The document discusses visions for banking, finance, and the broader Indian economy in 2020. Three key points:
1) Technology will be a major driver of competitiveness and changes like remote and digital banking will become more common. Financial inclusion will also expand to cover more of the population.
2) Mergers and acquisitions are expected to increase, especially in sectors like energy and utilities. Indian banks may also purchase stakes in foreign banks.
3) Commodities and capital markets are projected to grow substantially, aided by reforms and new regulations that expand participation in these markets.
Volume of Deposits, A determinant of Total Long-term Loans Advanced by Commer...iosrjce
Commercial banks have exponentially increased their total loans advanced over the period 2002-
2013. However commercial banks in Kenya have shown varying long term lending behavior. The main objective
of this study was to establish the effect of determinants of long term lending in the Kenyan banking industry, a
case of Bungoma County. This study was guided by the following specific objective; to determine the effect of
volume of deposit on total loan advanced, of selected commercial banks in Kenya. The target population
comprised 13 commercial banks in Bungoma County with a sample size of 52 respondents. From the findings,
for every unit increase in volume of deposits, a 10.9%, unit increase in total loans advanced is predicted. The
model hypothesizes that there is functional relationship between the dependent variable and the independent
variable. The study then recommends that commercial banks should focus on mobilizing more deposits as this
will enhance their lending performance.
The document analyzes Porter's Five Forces model in the context of the Indian banking industry. It discusses the competitive nature of the industry, with many public and private sector banks vying for customers. While it is difficult for new banks to enter due to customer trust in established brands, online banking has reduced switching costs between banks. The major suppliers of capital to banks are customers through deposits and loans from other institutions. While insurance and mutual funds can substitute some banking services, core banking functions have no real substitutes. Overall, the Indian banking sector has grown significantly in recent decades and remains an important part of the economy.
A study on effect of liquidity management on profitability with select privat...Supriya Mondal
This document provides a literature review on 9 previous research papers related to the relationship between liquidity management and profitability in banks. The papers examined liquidity ratios like CDR, CRDR and IDR and profitability ratios like ROA, ROE and ROI in various public sector, private sector and cooperative banks in India over different time periods. Most of the studies found an inverse or negative relationship between liquidity and profitability, indicating that increased liquidity leads to decreased profits and vice versa. The papers also compared performance between public and private sector banks, with most finding that private banks had better efficiency and profitability.
Indian Banking Industry - Challenges, Opportunities and Growth Driver of Bank...Resurgent India
Indian banks face challenges such as low banking access rates and rising customer expectations, but also opportunities for growth. Key challenges include implementing Basel III capital requirements, increasing competition, and rising non-performing assets. However, opportunities exist in expanding mortgage lending, wealth management, and rapid ATM/branch growth. Economic development, favorable demographics, and policy support can further drive the banking industry's growth in infrastructure financing, financial inclusion, and technological innovation.
The document discusses the banking industry in India. It outlines objectives like identifying market share and competition. It describes the market structure in India and globally, with public sector banks, private sector banks, and foreign banks in India. The top 10 banks in India and worldwide are listed. Industry concentration is examined using the Herfindahl Index. Technological changes, demand conditions, pricing, advertising, and mergers and acquisitions in the industry are analyzed. The future outlook is positive due to India's growing population and incomes.
The document summarizes the evolution of the Indian banking sector from the pre-1950 period to the present day. It discusses the foundational phase in the 1950s-1970s, the expansion phase in the 1970s-1980s following nationalization, the consolidation phase of the 1980s-1990s, and the ongoing reformatory phase since liberalization. It outlines the performance improvements seen in the sector as well as ongoing challenges around infrastructure, technology, skills, and competition in a changing market. Overall the banking sector has strengthened but continues transforming to meet new demands.
Assessing the effect of liquidity on profitability of commercial banks in kenyaAlexander Decker
This document discusses factors that affect the profitability of commercial banks in Kenya. It provides background on the banking sector in Kenya and reviews various theories on factors that influence bank profitability, including market power theory, efficiency structure theory, and the Modigliani-Miller theorem. The study aimed to determine the effect of internal factors like liquidity on the profitability of commercial banks in Kenya. It found that liquidity has a statistically significant and positive relationship with bank profitability.
This document provides an overview of public sector undertakings (PSUs) in India. It discusses that PSUs are government-owned companies that play an important role in India's economy. The document then covers several key topics regarding PSUs, including the financial management challenges they face, the role of financial advisors, examples of major PSUs, and reforms around disinvestment and increasing transparency. It analyzes issues like managing risks and growth in the changing banking environment in India. Overall, the document presents an introduction to PSUs and examines their operations, importance, and ongoing development.
Evaluating Loan Loss Provisioning for Non-Performing Loans and Its Impact on ...Fakir Tajul Islam
Using the aggregate data of 56 commercial banks in the last 9 years
(2009-2017), this study attempts to evaluate the Impacts of LLP maintained for NPLs on profitability, as it may help
to take the level of the LLP, and NPLs in the optimum level of business success.
A study on effect of liquidity management on profitability with select privat...Supriya Mondal
This document provides background information and a literature review for a study on the relationship between liquidity and profitability in select public and private sector banks in India. It begins with an introduction to the topic, outlining the trade-off between liquidity and profitability for banks. It then reviews 10 previous research papers on similar topics, analyzing factors like liquidity ratios, efficiency, and performance comparisons between public and private sector banks. The reviewed papers examine issues like the effect of liquidity on profitability, comparing liquidity positions between bank types, and evaluating banks' financial health using the CAMEL model.
A study on effect of liquidity management on profitability with select privat...Supriya Mondal
Here are the key ways that banks can achieve liquidity:
1. Holding cash reserves - Banks are required to hold a certain percentage of deposits in the form of cash reserves that can be used immediately to meet liquidity needs. However, excess cash reserves reduce potential earnings.
2. Investing in government securities - Banks invest in short-term government bonds and treasury bills that can be easily sold in the market to generate cash. However, the returns may be lower than other investments.
3. Borrowing from other banks - Banks can borrow from other banks in the interbank market through instruments like federal funds, commercial papers etc. This provides quick access to funds but interest rates may be higher during liquidity cri
CREDIT QUALITY IN INDIAN BANKING :QUANTITATIVE EVALUATIONDinabandhu Bag
This document summarizes a study examining factors that influence credit quality and non-performing loans in Indian banking. The study finds:
1) Both economic factors and bank-specific factors like capital adequacy ratios and credit deposit ratios influence credit quality and non-performing assets.
2) Analyzing data from 2002-2007 for 17 major Indian banks, the study finds higher capital adequacy ratios and credit deposit ratios are associated with lower non-performing loans.
3) Stronger economic growth, as measured by GDP growth, is also associated with lower non-performing loans for banks. The results provide insights into how banks can maintain better credit quality.
This document provides an overview of the historical development of the US banking system from 1782 to the present. It discusses the chartering of early banks, the creation of the Federal Reserve System in 1913, and the Glass-Steagall Act of 1933 which separated commercial and investment banking. It also describes how financial innovation eroded traditional banking by creating new shadow banking system activities and products, and led to industry consolidation and nationwide banking following the repeal of interstate banking laws.
The document compares private and public banks in India. It analyzes key performance metrics like return on assets, return on equity, net interest margin, demand and savings deposit ratios, and non-performing assets. Public sector banks have higher total assets due to greater penetration in rural areas, but private banks have higher profitability. Demand deposit ratios are higher for private banks, while savings deposit ratios do not differ significantly between public and private banks. Overall, the analysis finds that newer banks tend to be more efficient than older ones, and public sector banks are generally less profitable than banks in other sectors.
This document analyzes the performance and competitive position of state-owned commercial banks in Bangladesh from 2009-2012. It finds that while these banks have achieved stable growth in deposits, loans, and branches, they have struggled to improve key financial metrics like net profit, returns, and reducing non-performing loans. Trend analysis found positive growth in some areas but negative trends or low correlation for other financial indicators. The study aims to evaluate these banks' performance, conduct competitive analysis, and provide recommendations for improvement. Secondary data is used from annual reports and other sources to analyze metrics and compare the four largest state-owned commercial banks in Bangladesh.
The Indian banking sector consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks. Public sector banks control around 80% of the market. The document discusses the structure, market size, areas of banking (such as retail, corporate, microfinance), and provides a SWOT analysis of the Indian banking sector. It notes strengths like employment, GDP growth, and diversified services, as well as weaknesses like high non-performing assets and inability to reach underpenetrated markets.
A nexus between liquidity & profitability a study of trading companies in sri...Alexander Decker
This document summarizes a study that investigated the relationship between liquidity and profitability of trading companies in Sri Lanka. The study analyzed annual report data from 8 listed trading companies over a 5-year period from 2008 to 2012. Correlation and regression analyses were used to examine the nature and extent of the relationship between liquidity ratios like current ratio and quick ratio and profitability ratios like return on equity and return on assets. The findings suggest there is a significant relationship between liquidity and profitability among the sampled trading companies in Sri Lanka. However, the results may not be generalizable to non-public companies or other sectors. The document provides background on liquidity, profitability, prior studies on the relationship, and the methodology used
The document provides an overview of the Indian banking industry. It discusses advances, deposits, investments, non-performing assets, operating expenditures, net profit margins, and major players like SBI and ICICI Bank. The banking industry has grown at a healthy pace with advances increasing at a 17% CAGR. Deposits have also increased steadily. While NPAs pose some challenges, the future outlook remains positive due to government initiatives and increasing penetration of banking services.
Economies of Scale and Scope in Banking Industrydineshm9565
The document discusses economies of scale and scope in banking. It provides examples of State Bank of India utilizing economies of scale and scope. For economies of scale, SBI provides different ways for consumers to use banking services like deposits and payments, which increases efficiency. For economies of scope, SBI offers multiple financial services at one location like deposits, loans, and accounts, which reduces costs by spreading them across product lines. Both scale and scope allow banks to maximize profits.
MERGERS AND ACQUISITIONS PROSPECTS: INDIAN BANKS STUDYpaperpublications3
Abstract:This research paper looks at Mergers and Acquisitions (M&A’s) that have happened in Indian banking sector to understand the resulting synergies and the long term implications of the merger. The paper also analyses emerging future trends and recommends steps that banks should consider for future. The paper reviews the trends in M&A’s in Indian banking and then impact of M&A’s has been studied in three leading banks of India. The study covers the area of performance evaluation of M&A’s in Indian banking sector during the period from 2000 to 2013. The paper compares pre and post merger financial performance of merged banks with the help of financial parameters like, Net Profit margin, operating Profit margin, Return on Capital Employed, Return on Equity, earnings per share, capital adequacy ratio, dividend per share etc. The findings suggest that to some extent M&A’s has been successful in Indian banking sector. The Government and Policy makers should not promote merger between strong and distressed banks as a way to promote the interest of the depositors of distressed banks, as it will have adverse effect upon the asset quality of the stronger banks.
Keywords:Strategic alliance, capital adequacy, mergers, consolidation, ratios.
This document analyzes the socio-economic impact of deposit mobilization by Union Bank of India over a 13-year period from 1999-2000 to 2011-2012. It finds that there has been remarkable growth in all types of deposits, including term deposits, savings deposits, and current deposits. The study uses data from Union Bank of India's annual reports and statistical analysis techniques like averages and indices to examine deposit trends. Key findings are that deposit mobilization is essential for banks' operations and lending activities, and has helped boost various sectors of the Indian economy like agriculture and small businesses.
Alm in banks by Prabin kumar Parida, MFC, Utkal UniversityPrabin Kumar Parida
The document provides an overview of State Bank of India (SBI), the largest bank in India. It discusses SBI's history, operations, subsidiaries, international presence, management team, vision, mission and values. Some key points:
- SBI is India's largest bank with over 16,000 branches and assets of $388 billion as of 2013.
- It has domestic operations across India as well as an international presence with over 180 overseas offices.
- SBI has five associate banks and several non-banking subsidiaries that provide services like insurance, cards, and investment banking.
- The document outlines SBI's management structure and leadership team.
Asset liability management-in_the_indian_banks_issues_and_implicationsVikas Patro
This document discusses asset-liability management (ALM) in Indian banks. It provides background on the evolution of risk management practices in Indian banks over time in response to deregulation and other changes. It describes various types of risks banks face, such as interest rate risk, liquidity risk, and credit risk. Effective ALM is important for banks to manage these risks and balance risks with profits. The document outlines objectives to study the current status and impact of ALM practices in Indian banks.
The document analyzes Porter's Five Forces model in the context of the Indian banking industry. It discusses the competitive nature of the industry, with many public and private sector banks vying for customers. While it is difficult for new banks to enter due to customer trust in established brands, online banking has reduced switching costs between banks. The major suppliers of capital to banks are customers through deposits and loans from other institutions. While insurance and mutual funds can substitute some banking services, core banking functions have no real substitutes. Overall, the Indian banking sector has grown significantly in recent decades and remains an important part of the economy.
A study on effect of liquidity management on profitability with select privat...Supriya Mondal
This document provides a literature review on 9 previous research papers related to the relationship between liquidity management and profitability in banks. The papers examined liquidity ratios like CDR, CRDR and IDR and profitability ratios like ROA, ROE and ROI in various public sector, private sector and cooperative banks in India over different time periods. Most of the studies found an inverse or negative relationship between liquidity and profitability, indicating that increased liquidity leads to decreased profits and vice versa. The papers also compared performance between public and private sector banks, with most finding that private banks had better efficiency and profitability.
Indian Banking Industry - Challenges, Opportunities and Growth Driver of Bank...Resurgent India
Indian banks face challenges such as low banking access rates and rising customer expectations, but also opportunities for growth. Key challenges include implementing Basel III capital requirements, increasing competition, and rising non-performing assets. However, opportunities exist in expanding mortgage lending, wealth management, and rapid ATM/branch growth. Economic development, favorable demographics, and policy support can further drive the banking industry's growth in infrastructure financing, financial inclusion, and technological innovation.
The document discusses the banking industry in India. It outlines objectives like identifying market share and competition. It describes the market structure in India and globally, with public sector banks, private sector banks, and foreign banks in India. The top 10 banks in India and worldwide are listed. Industry concentration is examined using the Herfindahl Index. Technological changes, demand conditions, pricing, advertising, and mergers and acquisitions in the industry are analyzed. The future outlook is positive due to India's growing population and incomes.
The document summarizes the evolution of the Indian banking sector from the pre-1950 period to the present day. It discusses the foundational phase in the 1950s-1970s, the expansion phase in the 1970s-1980s following nationalization, the consolidation phase of the 1980s-1990s, and the ongoing reformatory phase since liberalization. It outlines the performance improvements seen in the sector as well as ongoing challenges around infrastructure, technology, skills, and competition in a changing market. Overall the banking sector has strengthened but continues transforming to meet new demands.
Assessing the effect of liquidity on profitability of commercial banks in kenyaAlexander Decker
This document discusses factors that affect the profitability of commercial banks in Kenya. It provides background on the banking sector in Kenya and reviews various theories on factors that influence bank profitability, including market power theory, efficiency structure theory, and the Modigliani-Miller theorem. The study aimed to determine the effect of internal factors like liquidity on the profitability of commercial banks in Kenya. It found that liquidity has a statistically significant and positive relationship with bank profitability.
This document provides an overview of public sector undertakings (PSUs) in India. It discusses that PSUs are government-owned companies that play an important role in India's economy. The document then covers several key topics regarding PSUs, including the financial management challenges they face, the role of financial advisors, examples of major PSUs, and reforms around disinvestment and increasing transparency. It analyzes issues like managing risks and growth in the changing banking environment in India. Overall, the document presents an introduction to PSUs and examines their operations, importance, and ongoing development.
Evaluating Loan Loss Provisioning for Non-Performing Loans and Its Impact on ...Fakir Tajul Islam
Using the aggregate data of 56 commercial banks in the last 9 years
(2009-2017), this study attempts to evaluate the Impacts of LLP maintained for NPLs on profitability, as it may help
to take the level of the LLP, and NPLs in the optimum level of business success.
A study on effect of liquidity management on profitability with select privat...Supriya Mondal
This document provides background information and a literature review for a study on the relationship between liquidity and profitability in select public and private sector banks in India. It begins with an introduction to the topic, outlining the trade-off between liquidity and profitability for banks. It then reviews 10 previous research papers on similar topics, analyzing factors like liquidity ratios, efficiency, and performance comparisons between public and private sector banks. The reviewed papers examine issues like the effect of liquidity on profitability, comparing liquidity positions between bank types, and evaluating banks' financial health using the CAMEL model.
A study on effect of liquidity management on profitability with select privat...Supriya Mondal
Here are the key ways that banks can achieve liquidity:
1. Holding cash reserves - Banks are required to hold a certain percentage of deposits in the form of cash reserves that can be used immediately to meet liquidity needs. However, excess cash reserves reduce potential earnings.
2. Investing in government securities - Banks invest in short-term government bonds and treasury bills that can be easily sold in the market to generate cash. However, the returns may be lower than other investments.
3. Borrowing from other banks - Banks can borrow from other banks in the interbank market through instruments like federal funds, commercial papers etc. This provides quick access to funds but interest rates may be higher during liquidity cri
CREDIT QUALITY IN INDIAN BANKING :QUANTITATIVE EVALUATIONDinabandhu Bag
This document summarizes a study examining factors that influence credit quality and non-performing loans in Indian banking. The study finds:
1) Both economic factors and bank-specific factors like capital adequacy ratios and credit deposit ratios influence credit quality and non-performing assets.
2) Analyzing data from 2002-2007 for 17 major Indian banks, the study finds higher capital adequacy ratios and credit deposit ratios are associated with lower non-performing loans.
3) Stronger economic growth, as measured by GDP growth, is also associated with lower non-performing loans for banks. The results provide insights into how banks can maintain better credit quality.
This document provides an overview of the historical development of the US banking system from 1782 to the present. It discusses the chartering of early banks, the creation of the Federal Reserve System in 1913, and the Glass-Steagall Act of 1933 which separated commercial and investment banking. It also describes how financial innovation eroded traditional banking by creating new shadow banking system activities and products, and led to industry consolidation and nationwide banking following the repeal of interstate banking laws.
The document compares private and public banks in India. It analyzes key performance metrics like return on assets, return on equity, net interest margin, demand and savings deposit ratios, and non-performing assets. Public sector banks have higher total assets due to greater penetration in rural areas, but private banks have higher profitability. Demand deposit ratios are higher for private banks, while savings deposit ratios do not differ significantly between public and private banks. Overall, the analysis finds that newer banks tend to be more efficient than older ones, and public sector banks are generally less profitable than banks in other sectors.
This document analyzes the performance and competitive position of state-owned commercial banks in Bangladesh from 2009-2012. It finds that while these banks have achieved stable growth in deposits, loans, and branches, they have struggled to improve key financial metrics like net profit, returns, and reducing non-performing loans. Trend analysis found positive growth in some areas but negative trends or low correlation for other financial indicators. The study aims to evaluate these banks' performance, conduct competitive analysis, and provide recommendations for improvement. Secondary data is used from annual reports and other sources to analyze metrics and compare the four largest state-owned commercial banks in Bangladesh.
The Indian banking sector consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks. Public sector banks control around 80% of the market. The document discusses the structure, market size, areas of banking (such as retail, corporate, microfinance), and provides a SWOT analysis of the Indian banking sector. It notes strengths like employment, GDP growth, and diversified services, as well as weaknesses like high non-performing assets and inability to reach underpenetrated markets.
A nexus between liquidity & profitability a study of trading companies in sri...Alexander Decker
This document summarizes a study that investigated the relationship between liquidity and profitability of trading companies in Sri Lanka. The study analyzed annual report data from 8 listed trading companies over a 5-year period from 2008 to 2012. Correlation and regression analyses were used to examine the nature and extent of the relationship between liquidity ratios like current ratio and quick ratio and profitability ratios like return on equity and return on assets. The findings suggest there is a significant relationship between liquidity and profitability among the sampled trading companies in Sri Lanka. However, the results may not be generalizable to non-public companies or other sectors. The document provides background on liquidity, profitability, prior studies on the relationship, and the methodology used
The document provides an overview of the Indian banking industry. It discusses advances, deposits, investments, non-performing assets, operating expenditures, net profit margins, and major players like SBI and ICICI Bank. The banking industry has grown at a healthy pace with advances increasing at a 17% CAGR. Deposits have also increased steadily. While NPAs pose some challenges, the future outlook remains positive due to government initiatives and increasing penetration of banking services.
Economies of Scale and Scope in Banking Industrydineshm9565
The document discusses economies of scale and scope in banking. It provides examples of State Bank of India utilizing economies of scale and scope. For economies of scale, SBI provides different ways for consumers to use banking services like deposits and payments, which increases efficiency. For economies of scope, SBI offers multiple financial services at one location like deposits, loans, and accounts, which reduces costs by spreading them across product lines. Both scale and scope allow banks to maximize profits.
MERGERS AND ACQUISITIONS PROSPECTS: INDIAN BANKS STUDYpaperpublications3
Abstract:This research paper looks at Mergers and Acquisitions (M&A’s) that have happened in Indian banking sector to understand the resulting synergies and the long term implications of the merger. The paper also analyses emerging future trends and recommends steps that banks should consider for future. The paper reviews the trends in M&A’s in Indian banking and then impact of M&A’s has been studied in three leading banks of India. The study covers the area of performance evaluation of M&A’s in Indian banking sector during the period from 2000 to 2013. The paper compares pre and post merger financial performance of merged banks with the help of financial parameters like, Net Profit margin, operating Profit margin, Return on Capital Employed, Return on Equity, earnings per share, capital adequacy ratio, dividend per share etc. The findings suggest that to some extent M&A’s has been successful in Indian banking sector. The Government and Policy makers should not promote merger between strong and distressed banks as a way to promote the interest of the depositors of distressed banks, as it will have adverse effect upon the asset quality of the stronger banks.
Keywords:Strategic alliance, capital adequacy, mergers, consolidation, ratios.
This document analyzes the socio-economic impact of deposit mobilization by Union Bank of India over a 13-year period from 1999-2000 to 2011-2012. It finds that there has been remarkable growth in all types of deposits, including term deposits, savings deposits, and current deposits. The study uses data from Union Bank of India's annual reports and statistical analysis techniques like averages and indices to examine deposit trends. Key findings are that deposit mobilization is essential for banks' operations and lending activities, and has helped boost various sectors of the Indian economy like agriculture and small businesses.
Alm in banks by Prabin kumar Parida, MFC, Utkal UniversityPrabin Kumar Parida
The document provides an overview of State Bank of India (SBI), the largest bank in India. It discusses SBI's history, operations, subsidiaries, international presence, management team, vision, mission and values. Some key points:
- SBI is India's largest bank with over 16,000 branches and assets of $388 billion as of 2013.
- It has domestic operations across India as well as an international presence with over 180 overseas offices.
- SBI has five associate banks and several non-banking subsidiaries that provide services like insurance, cards, and investment banking.
- The document outlines SBI's management structure and leadership team.
Asset liability management-in_the_indian_banks_issues_and_implicationsVikas Patro
This document discusses asset-liability management (ALM) in Indian banks. It provides background on the evolution of risk management practices in Indian banks over time in response to deregulation and other changes. It describes various types of risks banks face, such as interest rate risk, liquidity risk, and credit risk. Effective ALM is important for banks to manage these risks and balance risks with profits. The document outlines objectives to study the current status and impact of ALM practices in Indian banks.
Asset and Liability Management in Indian BanksAbhishek Anand
This document provides an overview of asset and liability management in Indian banks. It discusses key concepts like risk management, non-performing assets (NPAs), Reserve Bank of India (RBI) guidelines, the Narasimham Committee recommendations, Basel accords, and the ALM process. The key points are:
1) Banks face risks like liquidity risk, interest rate risk, currency risk, and credit risk that must be managed. RBI provides guidelines on liquidity risk management.
2) NPAs are loans that are overdue by 90 days. Banks must classify and make provisions for NPAs.
3) The Narasimham Committee in the 1990s recommended reforms like stronger banks
1) Asset/liability management (ALM) is the process of making decisions about the composition of a bank's assets and liabilities in order to manage risks and ensure sustainable profits.
2) ALM decisions are typically made by a bank's asset/liability management committee (ALCO) and involve strategic balance sheet management to match assets and liabilities.
3) The goal of ALM is to manage sources and uses of funds with respect to interest rate risk and liquidity risk arising from mismatches between assets and liabilities.
This document discusses asset liability management (ALM) frameworks and concepts. It covers key dimensions of ALM including interest rates, maturities, funding, liquidity, and the relationship between liabilities and assets. It also outlines ALM frameworks including business models, risk analysis, capital and financial models, liquidity models, and simulation. Additional sections provide an ALM cheat sheet and discuss liquidity risk, stress testing, and examples of liquidity crises at Bear Stearns and Lehman Brothers.
Asset Liability Management (ALM) is concerned with strategic balance sheet management involving risks caused by changes in interest rates, exchange rates, and liquidity position. ALM aims to match assets and liabilities in terms of maturities and interest rate sensitivities to minimize interest rate risk and liquidity risk. It involves identifying, measuring, monitoring, and controlling risks like interest rate risk, liquidity risk, credit risk, and contingency risk through techniques like gap analysis and duration gap analysis. Effective ALM requires strong organizational framework, information systems, and regular monitoring and reporting to manage risks.
This document provides an overview of State Bank of India (SBI), including its history, operations, subsidiaries, competitors, and awards. Some key points:
- SBI is India's largest bank by assets and has a network of over 17,000 branches across India and 180 international offices.
- It has roots dating back to 1806 and was formed by the merger and nationalization of various state-associated banks.
- In addition to traditional banking, SBI has numerous non-banking subsidiaries and five associate banks that operate under the SBI brand.
- Major competitors in the public sector space include Punjab National Bank and major private sector competitors include HDFC Bank.
- SBI has received
CHAPTER:-1
INTRODUCTION OF THE STUDY
The report contains the brief description of the state bank of India. It contains the finding and analysis of the survey conducted to gather primary data to judge the importance of various attributes that influence the satisfaction of customer in different manner and to the different extent. These attributes are classified as initial experience, service delivery experience, relationship experience and grievance handling. Further an attempt has been made to know the overall satisfaction of the customer.
Customer satisfaction, a term frequently used in marketing, is a measure of how products and services supplied by a company meet or surpass customer expectation. Customer satisfaction is defined as "the number of customers, or percentage of total customers, whose reported experience with a firm, its products, or its services (ratings) exceeds specified satisfaction goals. Customer service proves to be one of the most important factors governing business.
OBJECTIVE OF THE STUDY:-
• TO find out the customer feedback i.e. improvement required or suggestion.
• To find out the relationship between bank and the customer.
• To study the Satisfaction of customers towards the ― state bank of India.
• To Identify the factors that influences the customer behavior of ―state bank of India.
• To identify the factors those influence the selection of SBI banking services in MUMBAI DISTRICT.
SCOPE OF THE STUDY:-
The present study was undertaken to know the preference of the customer towards state bank of India (SBI). The problem of the customer is they are not aware of the services provided by their bank. The study also force on the customer perception that how the banking services can be improved. In my study I have used both primary sources of data as well as secondary sources of data.
• The study has been conducted on behalf of ―STATE BANK OF INDIA.
• The study is confined to the Mumbai region.
• The study covers the service providers and users of ―STATE BANK OF INDIA.
• The study has put forward the Customers as well as acceptability behavior for the services.
• The scope of the study is to find out the ―Customer Satisfaction
Limitations of the Study:-
The study report consists of few limitations:-
• The report has been conducted within a limited time frame.
• The study is self financed.
• The study is limited to the customer of Mumbai only.
• Only selected Branches and Banks have been considered for the study.
• Samples were selected conveniently.
• The sample size does not represent the total population.
• The sample of size is limited to 30 only and the sample size may not represent whole market.
LITERATURE REVIEW:-
commercial banks are A class banks in Nepal. Nepal rastra banks regulated all banks in Nepal. commercial banks should uses the Basel ii for capital adequacy calculation and all commercial banks should fallow all the directives which provides by NRB.
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Lesson 6 Discussion Forum :
Discussion assignments will be graded based upon the criteria and rubric specified in the Syllabus.
550 Words
For this Discussion Question, complete the following.
1. Review the two articles about bank failures and bank diversification that are found below this. Economic history assures us that the health of the banking industry is directly related to the health of the economy. Moreover, recessions, when combined with banking crisis, will result in longer and deeper recessions versus recessions that do occur with a healthy banking industry.
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3. Summarize these journal articles. Please use your own words. No copy-and-paste. Cite your sources.
Please post (in APA format) your article citation.
Reply to Post 1: 160 words and Reference
Discussion on Bank’s failures and its diversification
Over the last two decades, business cycle volatility has decreased in the US. For example, some analysts claimed that companies handle inventory better today than ever, or that advances in financial systems have helped smooth industry volatility. Some emphasized stronger economic policy. Banking changes were also drastic in this same era, contributing to the restructuring and convergence of massive, global banking institutions in a better-organized structure. The article (Strahan, 2006) points out that some regulatory reform driven by individual countries rendered it possible for banks to preserve their resources and income by gradually diversifying from local downturns. Both low state volatility rates and a decline in partnerships between the local market and the central banking sector is a net influence on the diversification in banks. Considering the less fragile state economies following these intergovernmental financial reforms, there are some signs that financial convergence – while certainly not the only piece of the puzzle – has been less unpredictable.
Another article (Walter, 2005) argues that a long-standing reason for bank collapses during the crisis is a contagion, which contributes to systemic bank failures and the collapse of one bank initially. This indicates why several losses in the crisis period were unintentional, which ensured that the banks remained stable and endured without contagion-induced falls. The response to the contagion was the central government’s deposit policy, bringing an end to defaults. Nevertheless, since the sequence of errors began in the early 1920s, well before contagion was evident, the underlying trigger must be contagion.
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11.liquidity management and commercial banks profitability in nigeria
Term Paper_Contemporary Banking_The primacy of Asset Liability Management Strategy in banks and its impact in quasi-reformed banking structures
1. The primacy of Asset Liability Management
Strategy in banks and its impact in quasi -
reformed banking structures
Setting the path for a renewed industry to tread responsibly and face up to growth
Amit Mittal
Pursuinga Ph.D. inFinance
FPM15003
Submitted to Prof Prakash Singh
Keywords: AssetLiabilityManagement,MaturityTransformation,EmergingMarkets,India,China,Asia,
Commercial Banking, Treasury Management
INDIAN INSTITUTE OF MANAGEMENT
LUCKNOW
2. Contemporary Research in Banking and Risk AmitMittal,FINANCE,FPM15003
Management
2
The primacy of
Asset Liability
Management
Strategy in banks
and its impact in
quasi-reformed
banking
structures
Setting the path for a renewed industry to
tread responsibly and face up to growth
Abstract: After a debilitating crisis, returning to
the job at hand inabsence of wholesale banking
markets in the domestic industry, makes banks’
tasksunique andtime consuminginIndia.Banks
in India have shown the advantages of being
partners in the policy making and Economic
development process. They have been
recognized as leading the institutional
juggernaut across the world at the forefront of
profitability scores till before the crisis but
increasingly face up to larger NPAs and
decimated opportunities for Direct lending,
which can be a bane without lack of specialized
secondarymarkets.PrimaryTreasuryOperations
cannot substitute for Risk Management in
lending though there are advantages to a
conservative banking structure still lending 75%
of its assetportfoliotransformingdepositsfrom
retail branch networks
Keywords: Asset Liability Management,
Maturity Transformation, Emerging Markets,
India, China, Asia, Commercial Banking,
Treasury Management, Technology
Introduction
Traditional asset liability management accounts
for a majority of the bank’s wealth especially
when supplemented by modern Financial
technologythathasgloballyledtointense useof
interest rate swaps and other derivatives or
financial innovations to bridge the durationgap
carried between assets and liabilities in
incomplete and complete hedges and / or
speculation by the Bank’s Treasury to accrue
additional profits to that earned by Net Interest
Income from assets and Fee Income from Retail
consumers, Corporates and or Investment
Banking and Transaction Banking clients.
However, while Banks in India increasingly
rampedupthe use of swapsinthe lastdecade or
two foritself andfor itslendingclients,theystill
rely on the structured traditional asset liability
management to support business which in
operational terms accounts for deposits and
corresponding lending with limitedrecourse to
wholesale lending markets, directly interceding
in the inter-bank markets for requirements
including that of statutory reserves.
Governments have to step in directly to fund
banks’ balance sheets to make up for any gap
causedby inopportune lendingandotherforced
NPAs recently brought round to higher levels
through a twin move in completing
systemization and a contraction of demand in
lendingmarketsasrecoverytakesitstime toset
in.
Investigating ALM strategies: A Review of
the Literature
DeYoung et al (2008) comment on the
characteristics of ALM strategies in the context
of the other large universal banking system of
the US whichalongwithChinaisfrequentlycited
3. Contemporary Research in Banking and Risk AmitMittal,FINANCE,FPM15003
Management
3
in popular literature. The US system shows up a
distinct breach in the national banking industry
structure in the pre-crisis days enabling a new
classification of banks with weaker ALM and
strongeronriskmitigationstrategies.Eveninthe
US large banks remain strongly affiliated with
traditional ALMunderlining the criticality of the
strategy for banks. In effect the paper manages
to convey the primacy of ALM in Bank
management,forcingsmallerbankstoadoptthe
universal practice to lend stability to their
balance sheets.
In contrast to India, US banking markets and in
fact all US funding markets heavily rely on the
skewed strategy of funding longer term assets
with shorter liabilities as the ‘normal’ upward
rising yield curve turns it more profitable.
Needlesstosay,thestrategyishigheroninterest
rate riskand infactthe authorsgo onto blame it
inpartforthe 2008 crisis.The strategyisenticing
forsmallerbanksinthe thriftssectorthatrelyon
higher cost deposits and yet are a constant
burden on the exchequer with instant bailouts
after a real estate crash.
In its simplest form the ALM strategy is a
durationbasedimmunizationstrategy,liabilities
required to match assets’ duration to immunize
the portfolio from interest rate movements.
DeYoung uses canonical correlation analysis to
measure the matching of assets with liabilities
and equity whence its essential non directional
force accommodates banks with a primary
Depositfranchiseandotherswithaprimaryloan
franchise. Saha, Basu et al (2009) develop the
evidence of ALM in the Indian Banking sector
with a cross section of rates in a term structure
with causal linkages to the evidenced interest
rate risk.
In earlier papers we refer Song and Thakor
(2007) thatcreatesa contrarianviewagainstthe
tenets of ALMfor the case of relationship loans
butin general explorethe loanbyloanconstruct
of a qualitative basis for piecewise ALMfor the
development of theory. Also in US banking
markets, the Central Bank discount window use
is limited to emergencies signaling weaknessin
the banks’ strategy which we attribute to the
existence of deeper debt trading markets and a
larger network of relationships with investors
and banks that are the banks’primarysource of
Capital. (Ennis and Weinberg, 2013)
Andreason and Ferman(2012) refer the
predominant use of the one period banking
model proposed by Diamond and Dybvig(1983)
as the reason why there is a lack of focus on
studiesof the impactof ALM. The papergoeson
to evidence the beneficial dampening impact of
ALMstrategyinpropagationof economicshocks
providing a lag between the consumption and
investment response of a technology shock
Recent libations and their counter response
from regulators have also added a liquidityand
additional tangible equityleveragelimitationson
banks’ balance sheets. Jean Dermine (2015)
relates the same to the ordinary maturity
mismatch model of the bank which makes it
subject to bank runs (ibid.) Both Andreason
(2013) and Dermine (2015) point to the
requirementof fundingwithshorttermdeposits
as a response to the assumedliquidityriskfrom
depositsbeingwithdrawable ondemandandthe
provision of liquidity thus being a challenge to
the Treasury’s immunization strategy.
Agca et al (2015) raise the concern relevant to
ALM in their contrast of Advanced Economies
and Emerging Markets that openness to Global
funding markets has led to shorter debt
maturitiesinthe emergingMarkets inthestudy.
Private Banks from India as well as PSBs now
frequently access International markets, for
small tranches of capital infusion.
Entrop et al(2014) summarize the problem of
ALM thus: a reinvestment opportunity risk from
rollingcontractsata disadvantageousrate when
the term structure moves against you and a
4. Contemporary Research in Banking and Risk AmitMittal,FINANCE,FPM15003
Management
4
valuationriskfromthe changedvaluationof the
assets as well as liabilities tackled in Saha, Basu
et al. (2009) IFRS regulations from 2016 (fully
turnedin 2019) require markingtomarket of all
assets and liabilities in financial statements.
Banks,howeverdonotmarksuchinvestmentsin
the HTM category to market values and carry
them at cost. Brunnermeier et al(2013)
additionally specify the continuing inability of
banks to handle liquidity shocks resulting from
the skewed build-up of depositsand assets. We
are convincedthe shorttermopportunismof the
strategy has been shown up by the overuse of
the same bybankswell exceedingthesizewhere
they were disadvantaged to employ an end to
end ALMstrategy.
The Brunnermeier et al (2013) model in
particular shows the reliance on creditors
instead of depositors to finance relationship
loans may offer a flawed dynamic that ends in
tears. This model (ibid) in particular provides a
clear picture as well on the disadvantage to
syndicate lenders in the case of traditional
models run in India without the mitigating
feature of secondarymarketsindebtandthusto
an extent over reliance on ALMstrategy
Leveraged borrowing on the other hand
acceleratesboombustcyclesin the economyas
a whole andtraditional ALMstrategiescaneasily
limit the exposure to such borrowings on the
bank balance sheet even if secondary debt
trading was to take off in the country providing
the flexibility of using other capital to finance
loans while fulfilling statutory bank capital and
liquidity requirements.
Allen, Carletti et al(2014) develop a model of
liquidity provision by the interbank markets
depending on trading of not just interbank
liquidity but secondary sale of debt assets. The
model of course goes on to rigorously treat the
mitigation of illiquidity by well advised central
bank intervention. However, one can intuitively
ascribe a bigger challenge to this liquidity
provision in markets with only trading in pure
liquidity such as in India
A Macroeconomic Bounty for India and
China
China has been much in the news as a new big
brother for the world at large, spreading its
global trade and investments during the
intervening crisis in line to grow to the highest
levelsof GDPgloballyevenasUSstallsupduring
2014 and 2015 ahead of the return of real
interest rates. Yet, China’s banks face an uphill
task lining up to a coming credit crunch before
growth proceeds again.
India is also facing some challenges in reviving
growth and investment but though it relies on
banksfor policybasedgrowth leadership,banks
are professionallyrun entities facing a stigma in
consistent government largesse while facing up
to the challenge of fresh lending while making
adjustmentsforgrowingNPLsexpectedtopeter
out in 2016.
Both banking models remain tuned to ALM
based banking leadership maintaining a
relationship between deposits and credit, while
India’s policy denizens never seem to have a
problem of China’s size in Balance sheet holes
caused by inopportune NBFC and real estate
lending.
Further research based on cross sectional
analysis of macroeconomic factors is likely to
show thus a more sustainable trajectory and
lesser required policy intervention in Indian
banks. In the current scenario, the most visible
gap between India and China in terms of
otherwise equable growth is the lack of scaling
up of credit in India because of the lack of
investorinterestinprotecteddebtmarketsthat
constrain Indian debt to be traded and reduce
the available growth in the real economy.
Though that problem is not essentially that of
the banking sector, Bank ALM proceeds to give
usa viable safetywallinallowingmore tradingin
5. Contemporary Research in Banking and Risk AmitMittal,FINANCE,FPM15003
Management
5
debtand enablingamore efficientdebtmarkets
mechanism
Trading in Indian Debt
Indian CDS trade at near the sovereign CDS
marks for the regularly traded name debts like
SBI and Reliance at near 160 bps which could
trade in more liquid markets and reduce the
reliance of banks and other issuers on the short
termdebtmarketsfromQIPinvestors.Asstudies
by Rao(2007) and others show, Indian Bank
profitability is best in class and NPL ratios are
unlikelytobe as worrisome asin China or other
comparable markets in Asia and Europe. The
debt segment on the NSE shows the average
ticketsize hasincreasedtoRs42.31 croresinthe
currentyearto date withvolumesof Rs8Trillion
in each of the last 3 years
That still means only 80 trades take place each
day while the interest term structure is still as
dynamicas inthe liquiddebtmarketsof US and
Europe.
In our specificcontext,thislackof depthin debt
tradingis likelytobe particularlychallengingfor
Bank Treasuries and shadow banking financial
institutions thattrade fordebtmutual fundsand
Project Finance investment vehicles. Pricing for
sanctioned and private OTC debt deals that still
take place by phone as much as on Terminals is
definitely a weakness of these markets as most
of the literature on the subject and from the
crisispointstothe wantonnegotiatingpowersof
the traders in an OTC deal armed with
management sensitive information on the
counterparty making bank treasuries
characteristically more defensive playersin the
market. Government treasuries make a large
proportionof thesetradesandbankscontinueto
hold larger than required high SLR and CRR
requirements of 25.5% as of date.
There is no stigma or sloth associated with
holdingmore of liquidgovernmentsecuritiesyet
some of thisexcessinventoryisareactiontothe
illiquidity of traded debt in the markets. Bank
sources suggest even for upbeat retail tranches
not more than a dozen securitization deals of
prime debt are conducted across private and
foreign banks and the presence of PSBs is
marked by just one or two players.
Institutional investors like LIC have virtually no
tradingindebtwhilebeingontapforPublicIPOs
and running concentration risk in equities, a
situation of significant connotations when
considering the difference in ticket sizes.
Foreign banks and ALM, and the inverted
yield curve
Claessens and Horens(2012) present an IMF
analysis of foreign banks the data wherein
confirms India’s situation to be aberrant to the
larger instability ascribed by foreign banks in
AEs (20% share of market) and Emerging
Markets (50% share of market) However , this
also means that foreign banks are choosing to
discard the extra regulatory burden and leave
the shores of India with just a 7% share of
business after peaking in the double digits .
The datasetcoversbankownershiptill 2009 and
the analysis covers a balanced analysis of the
limitations of foreign players including the post
crisis withdrawals from these markets
However even prior to this withdrawal post
crisis, foreign banks have notably been
significantunderperformersinlendingandcarry
much weaker Lending Deposit Ratios
(alternativelyCreditDepositRatios) especiallyin
India and OECD countries.
This confirms that the current trend by
regulators to demand commitments from
ForeignBanksisawell thoughtoutone andIndia
should continue to assesseach such application
carefully. This section corrects any bias
purportedto be inour analysisof the tea leaves
in laying the ground for good research. AE
modelsof macroeconomicdeterminantsof term
6. Contemporary Research in Banking and Risk AmitMittal,FINANCE,FPM15003
Management
6
structure are also unlikely to be any secular
determinants of the determinants of term
premia or the requirements of a continuing
inverted yield curve with more uncertainty
perceivedinlongermaturitydebtbecauseof the
commitments as shorter term rates could
continue to be determined by temporary
liquidity conditions.
Brick (2012) and Birge and Judice(2013)
technically present the definition and current
symptoms and targets for an optimal bank ALM
strategy. ALM strategies depend on both static
and dynamicsimulations,includingaSims(1980)
advocated VAR simulation (VECM/Vector Auto
regression) and modeling interest rates nd the
consequent correlated impact on both dies of
the balance sheet. We recommend
Novickyte(2013) for the references in the
extensive literature review.
Retail deposit rates continue to be a cheap
funding source in India, unlike the rigidity
evinced by near zero rates and the consequent
high relative cost of deposits denting bank
profitability measures in the US. Markowitz led
ALM models are out of scope of our analysis as
they represent work specific to Insurance
interestsandhave a limitedapplicabilityinBank
balance sheets without perpetuities and no
significant exposure to stocks, though basic
stochastic models with some Markowitz like
characteristics are applicable. Simulation
methods and both stochastic and deterministic
implementations use linear and goal
programming to solve the ALM management
problem for banks.
Short term rate moves hurt on the increasing
side if liabilities have to be refinancedwhile the
literature suggests that consistent asset growth
during booms is likely to result in an increase in
non-core liabilities (riskier liabilities to finance
the boom) thoughtdespiteasustain13%lending
growth across the last decade in India with a
near20% lendingassetgrowthinleadingPrivate
sectortradedandeffectivePSBshasnotresulted
in such a capitalization conundrum for Indian
banks.
A review of quantitative ALM techniques
in the literature
Vector Auto Regression model in Birge and
Judice
The bank has following assets and liabilities
Equity E, Loans L with Interest Income I and N
alludestoNon-corefundingintheoriginal model
but we use it for all other liabilities in the
absence of traded debt markets and in the
likelihood of Inter-bank markets and STF from
external QIPs making the difference
In the Indianscenario,Depositsgrow at15% ina
creditenvironmentgrowingata17-18% rate and
the requirement of additional funds from Non
core deposits is probably not critical even after
changes in the market structure
Taking a power utility and maximizing Expected
utilityina first orderTaylor seriesexpansionfor
new Loans L* for new offtake n( includingretail
and home loans as well as business lending)
L*=E.E(n)/αE(n^2)-L.E(n(old)*n)/E(n^2)
The model can also be simply extended in
determinate terms of L(t+1) and L(t) in the
balance sheet measures to track the move in
ALM assets and Liabilities with or without
stochastic dependencies
Howevera simpleranalysisisperse essential to
take into account the macro trading
manifestations of the ALM correction
mechanisms which are the first recourse. The
AssetLiabilityManagementstrategychosenisa
functionof the periodof eachcorrectionandthe
change in market value of the assets and
liabilities independently and together to the
same change in interest rates measured by
duration measures including Dollar Duration
more commonlyreferredtoasthe PVBPandthe
7. Contemporary Research in Banking and Risk AmitMittal,FINANCE,FPM15003
Management
7
similarsensitivityof Income(NetInterestIncome
) from that change in interest rates.The change
in liquidityassetsof the bankfroma measure of
the DollarDurationwill give a directmeasure of
the Liquidity gap and will account for the
Liquidity Risk.
The Integrated ALM perspective
Gulpinar and Pachamova(2013) also recognize
the importance of optimizationbutagaininclude
the business of pension funds and insurance
companies and again focus on the problem of
extending ALM over infinite no. of periods as
possible computationallyusingacombinationof
stochastic and dynamic programming
techniques. In our opinion such a
computationally intensive simulation and
optimization solution will require a few months
of being operationally implemented as ALM to
garner effectiveness from the data and
experience thence available and the problem is
not as dynamic with effective duration based
techniques able to tractably manage interest
rate, liquidity and profitability risks on a bank
balance sheet with a longer or medium term
Treasury strategy by savvy traders and
accountants. One needs to effectively monitor
time varyingaspectsof assetreturnsandinterest
rates with the measure of the surplus
determined by the excess of liabilities over
assets.
Marketscontribute tothe ALMproblembybeing
concerned with the economic expansions and
recessions that translate to Bullish and Bearish
markets and thus Markowitz portfolio models
can be applied to the portfolio of assets and
liabilities including popular regime switching
models that identify expansion and recession
modes and equally subject to strategic
imperativesandmayincludetothatextentgame
theoretic solutions of incomplete information
and solutions remain Markovian with a
memoryless property
Continuous time Markowitz Mean Variance
implementations have been accepted as a
System of Stochastic Differential Equations with
the martingale property implementation with
GeometricBrownianMotionprocessesforasset
returns, first attributed to Lieppold (2004)
Sharpe and Tint(1990) applied MV optimization
in the static setting to the ALMproblem at first.
The recent coverage of economics and markets
linkages has confirmed that upturns follow or
lead bullish periods and downturns follow or
lead bearish periods. All Markov models
including traditional Mean Variance
Optimizationportfolioscanthusbe modifiedfor
a different ALM for bullish periods and bearish
periodsThisfollowstheworkofHardy(2001) and
Henderson and Quandt(1958) showing the
superiority of regime switching models in
Maximum likelihood maximization. Chen and
Yang(2014) applythe Asset –Liabilities=Surplus
Management model with uncontrollable
liabilities;assumingn+1 securitiesandaMarkov
Chain. However Hardy and ibid follow an
extended framework including insurance
companiesandthusincludeequitiesasassetsfor
the ALMprocedure
Rutkauskas(2006) consider the problem of
liquidityandperfectALMfora commercial bank.
and we recommend their literature review for
this section
Building on the first Linear programming and
Goal programming models, most notably the
ChamberandCharnes(1961) model,theirreview
sees the coming together of extended
simulations including Grubman(1987) and then
on to stochastic modeling using the above
Markowitz frameworks by Pyle (1971) which
howeverdoesnotbalance assets and liabilities
Brodt(1978) createda MV model that optimized
profits and the third approach used in banking
literature includes chance constrained models
8. Contemporary Research in Banking and Risk AmitMittal,FINANCE,FPM15003
Management
8
by Charnes et al (1968) and Pogue(1972) with a
12 period chance constrained model
The fourthapproachhighlightedinRutkauskasis
a decisiontheoreticapproachproposedbyWolf
(1969) The Bradley and Crane (1972) model is
based on the same. Eppen and Fama (1971)
concretized a fifth dynamic programming
approach whence the literature returns to
stochastic linear programming including the
Russell YasudaKasai model by Crane etal(1994)
Thus an amalgamated approach is used in ibid.
involvingmultipleobjectivesportfolioefficiency,
feasible risk and guarantee and utility
frameworks to meet objectives of liquidity,
solvency and average yield of assets and
liabilities solved with goal programming (the
Integrated ALM perspective)
Sovereign Debt portfolios
Before we move on to our main propositions
basedon the environmentandthe literature on
ALM, we must additionally include focus on
Central Bank ALM. One such research that
focuses on Sovereign debt portfolios is
Papaioannou(2011) basedonthe IMF’sobserved
denoument of the crises from unbalanced debt
portfolios , outlining normal recourse such as
debt swaps and buybacks available to a
sovereignand/oraCentral Bankinmanagingthe
unbalanced debt positions and the liquidity
concerns of nations
Innon-crisisconditions,Liabilitymanagementby
itself focusses on financial operations to
maximize the utility of the debt profile with
better terms on existing debt and a sustainable
medium debt maturity profile. In crises
conditions this desk additionally handles debt
restructurings to provide an adequately finance
debt program with at least medium term
viability
Thus debt managers are involved even at the
sovereignlevel inmanaging: (1) marketriskfrom
interest rates movements and exchange rate
volatility (2) refinancing risk near maturity (3)
liquidity risk including the availability of
sufficient demand for the debt to avoid price
distortion (4) credit risk as determined by its
creditratingand /orthe sovereign’sabilityto or
willingness to fulfil its obligations, its Credit
Default Spreads and the Contingent Claims
approach and 95) operational risk covering
financial markets and their technology and
settlement procedures
Risk measures remain the same in terms of
symmetrical and quantile measures like
Variance,S.D.and VaR quantilesfromabroader
class of Lower Partial Moments gleaned by the
author from risk literature
Sovereign liability management underlines the
need to identify ALMas an art and it cannot be
defined as a nuts and bolts or well-structured
policy area. Sovereign debt managers much like
bank debt managers rely on extensive
networkinganddebtswappingduringfavorable
market conditions and /or anticipated breaches
of risk thresholds
As a sovereign debt manager one I s also
concerned with a calendared and predictable
national financing program with transparent
auction programs and authorized dealers
Markets also expect defined policies of debt
swaps and buybacks. While paying down debt
care must be taken when shorter maturity debt
is swapped out for longer maturity to be
balanced with buybacks of longer term debt as
well (ibid)
Current business challenges for
Commercial Banks and the
pressures on ALM
Basedon the above literature review,one might
note the forced casualty in managing ALM
operations, emanating initially from its broader
9. Contemporary Research in Banking and Risk AmitMittal,FINANCE,FPM15003
Management
9
impact on the confidence in the banks’
operations and that of entire nations, but
divergent schools of thinking evenin developed
markets and a sometimes myopic non
recognition of the concurrent impact of active
ALM on Credit & Operational risk , liquidity,
profitabilityaswell asmitigationof interestrate
and exchange rate risks on the banks’ balance
sheets. The critical role of treasury in banks
operations between the Corporate Lendingand
Retail banking businesses, between liquidity
provision services of the bank including
Transaction Banking and the non-fund based
advisory services that standalone may not
immediatelybe available tomitigate the impact
of asynchronous ALM, assert and impact
manifestationof anyshortmediumorlongterm
bank strategy.
Ensuring the deployment of Statutory Bank
reservesmaybe one startingpointfor the need
for ALMto manifestitself atthe bank.However,
it seems more germaine to consider all the
movingpartsanddrawupanintegratedstrategy
for ALM in the bank especially in the current
environment. In terms of techniques there are
advantages of balancing your exposure on a
duration based matching with multiple
objectives of liquidity, profitability and
sensitivity to both credit and operational risks
While systemization has been indelibly
introduced the lack of credit monitoring or
restructuring systems continues to plague
lending margins.
The issue of bank profitabilityisfurtherclouded
by a global rising rate environment in the latter
part of thisdecade interspersedbyCentral bank
injected swathes of sub normal interest rates
andliquiditydrivenflowstoIndiaandotherparts
of Asia, LatAm,East Europe andAfrica.The issue
of Non-performingloansislikelytocome backto
us once this cycle is completed in 2016. Apart
from longer term pressures on recapitalization
from public and private Financial markets this
means more immediate active concerns for the
integratedobjectivesof abank’sALM’;sprogram
especially without sacrificing larger liquidity
needsof a highgrowth environmentconcurrent
with the current positive phase of the Business
cycle
Bank interest margins have been driven down
for a decade and the prior decades largely
dormant PSB ALM strategy of leaving a surplus
position in duration between Assets and
Liabilitieshasalreadyprovedtoocostlyforbanks
as evidenced by Das and Ghosh(2007)
In the meantime significant regulatory moves
like freeing up of deposit rates hardly had any
impactonALMinthe wake of stable depositrate
environments, but the new inflation targeting
policy environment may drive India’s nominal
GDP growth and longer term credit growth
measures also down and reduce avenues for
profitable lending. There is in fact a dearth of
rated Principals approaching the banks for
lendingandthe propensityof highriskSMEloans
may make ALM a murkier practice for the Bank
Treasury teams especially with hidden
challenges to liquidity in thinly traded Indian
debt markets.
Effective maturity management at the bank
requires a sensitized interest rate forecast that
takes into account the possible variationsin the
forecast and limits on the amount at risk in
moves in the opposite direction rather than
depend on recapitalization from the
government. This maturity management takes
into account the primacy of deposit liabilities
andlendingassetsbutalsoconsidersinvestment
horizons and the risk management policies and
exposure of the bank. While the primary bank
strategymay not be initiatedbythe ALMunitor
the Treasuryfunctionitrefersto,yetthe RARCO
allocation of capital is mapped to its Treasury
and the ALM function integrates an effective
profitability strategyfor the bank only if it gives
10. Contemporary Research in Banking and Risk AmitMittal,FINANCE,FPM15003
Management
10
due weighttoriskmanagementateachfunction
and unit levels and aggregates the same
Similarly the liquidity objective will have key
constraints not in terms of regulatory capital
which may be more than usually achievable but
to manage the issuance andduration/horizonof
the new debt in lieu of the old debt being
swapped/exchanged. Again as mentioned
earlier reliance on passivity in riding the yield
curve or in pursuing the carry trade servicing
long termassets with liquidshortterm deposits
may need to be assessed continuously with
simulation and goal programming exercises and
in light of sensitivity to changes in interest rate
and exchange rate risks
Investmentmaturitystrategiesavailableevento
small and large sized banking firms include the
less intervention intensive spaced maturity
policy after the decisionon average maturity of
securities to hold in the investment portfolio
both in Available for Sale and Held to Maturity
segments These strategies may be spaced
maturity or ladder strategies, Front end loaded
maturity policy or back end loaded maturity
policy.It can be gleanedfromFinancial intuition
that the backendpolicywillbe more favorableif
ratesare expectedtofall andvice versaandthat
the investment policy itself is not immune to
even parallel shifts of the interest rate term
structure. A financial institution that goes in for
a fully optimized rate expectation approach
impliesitsreadinessandrequirementonitspart
to actively manage the strategy as he could be
caught holding short term securities in a rising
rate environment instead. The Bar bell strategy
similarily provides for liquidity at the short end
and income from the designated long term
portfolio but is susceptible to moves in the
interestrate termstructure than a n investment
portfolio of intermediate maturities
For banks holding mortgages and other retail
securities an important risk to be considered in
deciding the ALM / investment strategy is to
what extent to provide for prepayment risk of
retail assetsand exactlywhat term and value to
hold in the liquidity portfolio which will be sold
whenliquiditybecauseof depositsorbecause of
asset demand is required or because of put
options on issued debt and call options on
investments
The qualityof collateral heldagainstloan assets
and repo transactions is also critical for banks
while current regulation measures have added
limits on inter-bank exposure to the extent of
15%
Banks can now actively choose between Asset
liquidity and Borrowed liquidity management
(Liabilitymanagement) ratherthanstayfixedon
one side of the coin. Borrowed liability
management one guesses may be a costly
exercise for a bank known to be a borrower for
liquidity purposes and similarly asset liquidity
may be a critical measure of the efficacy of the
Asset Liquidity management approach for the
liquidity segment of the banking firm’s ALM
strategy. Another traditionallyrobust approach
to liquidity management that is amenable to
monitoring and quantitative and qualitative
professional execution is the structure of funds
approach which uses a trifold structure of
liabilitiesinvolatileliabilitiesthatrequire95%of
liquidityincluding reserve bank borrowings, the
proportion of the traditional deposits or
Vulnerable funds and the core deposits. While
30% may be provided for Vulnerable deposits,
traditionallyonly15percentliquidityisprovided
to core deposits. On the liquidity management
front each challenge can be monitored using
simple traditional indicators including the ratio
of Reserve bank repos and reverse repos,
Capacityfornetloansandleases(vstotal assets)
Cash and Hot money (volatile funds) ratios and
others including unutilized commitments.
We are already operating in a completely
deregulated rates environment, but challenges
on the capital convertibility front or monetary
11. Contemporary Research in Banking and Risk AmitMittal,FINANCE,FPM15003
Management
11
andfiscal stressesfromforeignexchangepolicies
and monetary and fiscal stances of neighbors
and larger trade partners like China and the US
can become significant concerns for the
economy as a whole but will be a primary front
for ALMdesksthatneedtobe sensitizedtosuch
scenarios and policy changes in light of the
exceedingly precarious position with non-
performing assets and core spreads in PSBs.
IndianPSBsare today free toproactivelychoose
an ALM stance that works for them and are
continuouslychallengedbythe competitionand
the accountability forced by public Financial
markets to actively pursue a chosen ALM
strategy with both their eyes open and proven
potential to create profits on a long term basis
for the bank.
The new pressures of evolving micro finance,
Real estate and NBFC lending as financial
services spread because of the availability of
technologybuildonthebanks’accesstolow cost
retail andotherdepositstopursue amore active
ALM strategy with avenues for liquidity and
investment across a chosen maturity profile
while meeting challenges of liquidity
Traditional marketsharesof Publicsectorbanks
are also likelyto be challenged by the presence
of efficientprivate sectorplayersequippedwith
bettertalentandpayforperformance/qualityof
life initiativesthatconvertintoamore activeand
monitored ALM and even shared access to
regulatorswithlimitedavenuestoinfluence the
state to support their profitability with instant
regulatory estoppels and continuing regulatory
delays in redressal of uneven playing fields.
Focus on infrastructure financing may further
reduce the role of banks in the guise of shadow
bankinginstitutionsandforeigncapital accessas
well asALMmeasuresrequiredtomeasure upto
25 year maturity horizon assets if they grow to
their optimum size including the example of
China’s larger state owned banks and their
experience with local governments and SOEs in
debt assets
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