Asset and Liability

7/31/2019 Asset and Liability

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A BRIEF INTRODUCTION ABOUT

SBI

The SBI is the country's oldest bank and a premier in terms of balancesheet size ,number of branches, market capitalization and profit.

The origin of SBI was from IMPERIAL BANK OF INDIA(amalgamation of

Bank of Bengal, Bank of Bombay & Bank of Chennai) in the year 1955 of1st July.

The SBI is the India's largest public sector bank, which is the number 1position in the banking industry and is the 4th largest PSU in India.

It is the only Indian bank to feature in the Fortune 500 lists.

The name of the chairman of SBI is Mr Pratip Chaudhuri & the entireteam consists of three MDs and the ten directors.


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Asset Liability Management ofSBI

AssetManagement

LiabilityManagement

How Liquid are theassets of the Bank

How easily canthe Bank generateloans from market


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Components of aBank Balance sheet

Liabilities Assets

1. Capital

2. Reserve & Surplus3. Deposits

4. Borrowings

5. Other Liabilities

1. Cash & Balances with

RBI

2. Bal. With Banks &

Money at Call and

Short Notices

3. Investments

4. Advances

5. Fixed Assets

6. Other Assets


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What are Banking Assets

1.Cash & Bank Balances with RBI

I. Cash in hand

(including foreign currency notes)

II.Balances with Reserve Bank of India


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2. BALANCES WITH BANKS AND MONEY ATCALL & SHORT NOTICE

I. In Indiai) Balances with Banks

a) In Current Accountsb) In Other Deposit Accounts

ii) Money at Call and Short Noticea) With Banksb) With Other Institutions

II. Outside India

a) In Current Accountsb) In Other Deposit Accountsc) Money at Call & Short Notice


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3. InvestmentsIt includes:

I. Investments in India

(i) Government Securities(ii) Other approved Securities(iii) Shares(iv) Debentures and Bonds( v) Subsidiaries and Sponsored Institutions( vi) Others (UTI Shares , Commercial Papers, COD &

Mutual Fund Units etc.)

2. Investments outside India in

Subsidiaries and/or Associates abroad


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4. Advances

The most important assets for a bank.

i) Bills Purchased and Discounted

ii) Cash Credits, Overdrafts & Loans

repayable on demand

iii) Term Loans


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5. Fixed AssetI. Premises

II. Other Fixed Assets (Including furniture and fixtures)

6. Other Assets

I. Interest accruedII. Tax paid in advance/tax deducted at source

(Net of Provisions)III. Stationery and Stamps


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Liabilities of Bank

1. Capital:

Capital represents owners

contribution/stake in the bank.

- It serves as a cushion for depositors and

creditors.

- It is considered to be a long term sources for

the bank.


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2. Reserves & Surplus

Components under this head includes:

I. Statutory ReservesII. Capital Reserves

III. Investment Fluctuation Reserve

IV. Revenue and Other Reserves

V. Balance in Profit and Loss Account


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3. Deposits

This is the main source of banks funds. The

deposits are classified as deposits payable on

demand and time. They are reflected in

balance sheet as under:

I. Demand Deposits

II. Savings Bank Deposits

III. Term Deposits


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4. Borrowings

(Borrowings include Refinance / Borrowingsfrom RBI, Inter-bank & other institutions)

I. Borrowings in India

i) Reserve Bank of India

ii) Other Banks

iii) Other Institutions & Agencies

II. Borrowings outside India


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5. Other Liabilities & Provisions

It is grouped as under:

1. Bills Payable

2. Interest Accrued

3. Unsecured Redeemable Bonds

(Subordinated Debt for Tier-II Capital)

4. Others(including provisions)


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Aim & Objective of ALM

An effective Asset Liability ManagementTechnique aims to manage the volume, mix,maturity, rate sensitivity, quality and liquidity

of assets and liabilities as a whole so as toattain a predetermined acceptablerisk/reward.

It is aimed to stabilize short-term profits, long-term earnings and long-term substance of thebank.


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SIGNIFICANCE OF ALM OF SBI

Volatility.

Product Innovations & Complexities.

Regulatory Environment. Management Recognition.


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NEED FOR ALM

Thrust to expand banking.

Integration of Indian banking to the

world.Changes in the global scene.


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About ALM

ALM is an integral part of the financial

management process of any bank.

ALM is concerned with strategic balance sheet

management involving risks caused by changes inthe interest rates, exchange rates and the

liquidity position of the bank.

While managing these three risks forms the cruxof ALM, credit risk and contingency risk also form

a part of the ALM . Cont


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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 asSurplus Management


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The stages of ALM

The ALM stages rests on Three

Pillars:

1.ALM Information Systems

2.ALM Organization

3.ALM Process


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ALM INFORMATION SYSTEM

Decision Support and Reporting Tool

Comparison between different Branches

Product Analysis

Risk Planning and Management

Flexible Design

Strategic Planning of the Asset-Liability Mix


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2. ALM ORGANISATION

ALM organization consists of staff members

including CEO.

A Support Group of Operational Staff

Strong Commitment of Senior Management


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ALM ORGANIZATIONAL STRUCTURE

INVESTMENT AND LOAN DEPARTMENT

Credit Analysis Credit risk Management Treasury

Finance Planning Department

Asset Liability Management Cell

Asset Liability Committee(ALCO)

Management Committee

Board of Directors


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Functions of ALCO

ALCO develops ,implements and manages

banks annual budget for profit plan and risk

management programme.

Timely, accurate data and analysis is a must

for ALCOSS success.


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ALM PROCESS OF SBI

ALM involves:

Quantification of risks.

Conscious decision making with regard toasset liability structure in order to maximise

interest earnings with in the frame work of

perceive risks.


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Implementation of Asset /Liability

management

Organizing a Planning team.

Developing a strategic plan.

Establishing Asset/Liability committee. Developing an annual budget or profit plan.

Developing a process for reviewing

performance


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Developing Strategic plan

It comprises the following:

Initiate Planning Process.

Assign responsibility for developing overallplan.

Review the component and recommend

actions to board of directors.


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SUCCESS OF ALM

The success of ALM depends on the following:1. Awareness for ALM in the Bank staff at alllevelssupportive Management & dedicatedTeams.

2. Method of reporting data from Branches/

other Departments. (Strong MIS).3. Computerization-Full computerization,networking.

4. Insight into the banking operations,economic forecasting, computerization,investment, credit.

5. Linking up ALM to future Risk ManagementStrategies.


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Documents

Asset and Liability