There is a considerable amount of work done in the field of asset-liability management in banks. One of the key motivators of asset-liability management worldwide was the Basel Committee which has recently come out with Basel III guidelines. Though there is ample literature available on the subject I have considered only ten which are more related with my study in this area.
Asset-Liability Management: Issues and Trends in Indian Context
R. Vaidyanathan in 1999 discussed issues in asset-liability management and has elaborated various categories of risk that is required to be managed. He has also described the models which are used for gap analysis. The objective of his study was to examine the strategies for asset-liability management from both the asset side as well as the liability side, mainly in the Indian context. The report says that asset driven strategies for correcting the mismatch focuses on shortening the duration of the asset portfolio whereas liability driven strategies basically focuses on lengthening the maturity profiles of liabilities. He has also mentioned the emerging issues in Asset Liability Management in India like inefficient management systems, market risk due to global exposure etc. The role of Information Technology in asset-liability management is also discussed.
Asset-Liability Management: An Overview
Yuliya Romanyuk in the year 2010 (Bank of Canada) described asset liability management as an ongoing process of formulating, implementing, monitoring and revising strategies related to assets and liabilities to achieve an organization's financial objectives (given the organization's risk tolerances and other constraints). She said that assets in the Exchange Fund Account are actively managed to take advantage of credit spreads, while the liabilities are managed passively. She also reviewed asset-liability management strategies and modelling frameworks and gave two research directions of developing a strategic ALM model for Canadian reserves. The first direction is to choose an objective function, and the second is to select a suitable modelling framework.
3) An Assessment - Asset and Liability Management of Scheduled Commercial Banks in India
Dr. N. Kavitha in 2012 examined asset liability management in the banking sector from 2001 till 2010. The objective of her study was to find out the optimal mix of asset and liability of Scheduled Commercial Banks in India. The paper mainly discussed about the SBI Group, other Nationalised Banks and Private Banks selected as the parameter. She used many ratios such as Debt Equity ratio, Credit Deposit ratio, Cash Deposit ratio etc to assess the optimum capital mix. It was found that from the Capital adequacy point of view SBI group and private banks were performing better than the nationalized banks. Liquidity position of the bank groups revealed that the nationalized banks stands first followed by private banks and SBI group. She also found that borrowings of private banks group have the least variability in terms of dispersion.
Asset Liability Management in Indian Banking Industry - with special reference to Interest Rate Risk Management in ICICI Bank
Dr. B. Charumathi 2008 (India) used publicly available information to assess the interest rate risk carried by the ICICI bank in March 2005, 2006, & 2007 using the technique of gap analysis. He has also shown the trends in domestic rates and yield curves for the last 10 years. The primary data required were collected through personal discussions with the staff to know the actual ALM practices followed in ICICI Bank. The secondary data were collected from the annual reports of ICICI Bank, circulars of the ICICI Bank, reading material on ALM provided by the Bankers Staff College, websites and various journals. The report states that ICICI Bank also uses interest rate derivatives to manage asset and liability positions. The bank is an active participant in the interest rate swap market and is one of the largest counterparties in India. There were many assumptions for measuring the interest rate risk such as introduction of negative and positive interest rate shock, adjusting and counter balancing the portfolio. It was found that the bank is exposed to interest rate risk.
Asset Liability Management in Banks and Financial Institutions: A case study of IDBI
Madhu Vij says that the objective of ALM at IDBI is to ensure adequate funding for each product at the most attractive available cost and to manage the currency composition, maturity profile and interest rate sensitivity characteristics of the portfolio of liabilities supporting each product within the prescribed risk parameters. She mentioned that the process of ALM will differ from bank to bank and the success of the technique depends upon how effectively banks are able to forecast and manage the risks they carry and are exposed to. Gap, Duration, Value at Risk and Simulation methods for the measurement of interest rate risk are also discussed in the paper. She mentioned that IDBI has also evolved a comprehensive framework for managing and measuring risk and also has an in-house Asset Liability Management Committee (ALCO). It is also mentioned in the paper that efficient liquidity and interest rate management is the two important activities of the banks and the financial institutions in maximising their income while controlling the risk exposure. In the emerging scenario the focus of ALM should be on bank profitability and long-term operating viability in a scientific way.
Liability Management in Commercial Banks in India: A Comparative Study of Bank Groups in Liberalized Era
Gupta, V; Jain, P K in 2004 examined the liability structure of 68 commercial banks in India from 1992-2000. Their paper talks about the management of owned funds, the management of deposit liabilities and the management of borrowings. The financial ratios has been calculated with total assets as the base for various liability groups over the 8 year period to see the trend of 68 banks vis-Ã -vis their subgroups in terms of ownership pattern and size. The liability structure of banks is analyzed as a means of analyzing their sources of funds. They have said that savings bank deposits are more important in public sector banks whereas term deposits are important for private and foreign banks. This importance of different types of deposits is mainly due to the nature and scale of operations of various banks. They have also done time series and cross-section analysis of the liability structure of sample banks which reveals that for every17 units of debt the banks have one unit of owned funds.
An analysis of Asset-Liability Management in Indian banks
Dash et. al. in 2011 mentioned in their paper that the objective of the ALM is two-fold, firstly it aims at profitability through price matching and secondly it ensures liquidity by means of maturity matching. They said that banks need to maintain the maturity gap as low as possible in order to avoid any liquidity exposure. Public sector banks according to their research had a better short-term liquidity position are they are even conservative in their liquidity risk management than the private sector banks and foreign banks. The private sector banks have a comfortable short term liquidity position whereas the foreign banks have a primary focus in corporate lending with a tenure range of 1-5 years.
Relationship between Asset and Liability of Commercial Banks in India, 1997-2008
Seema Jaiswal in 2010 studied the relationship between two sides of the balance sheet i.e. asset and liability of scheduled commercial banks in India for the period 1997-2008, using statistical tool multivariate canonical correlation analysis. She found that there is a strong linkage between asset and liability accounts of Indian banks. But over the period of time there is a decline in canonical correlation, indicating lower dependency between asset and liability accounts. She found that the liquid assets and short-term deposits for private sector banks and foreign banks were positively correlated during 1997-2008, which is a correct way of asset liability management. Although in public sector banks, short-term loan are positively correlated with long-term deposits and negatively correlated with borrowings during the period 2005-2008.
Combining Goal Programming Model with Simulation Analysis for Banks Asset Liability Management
Constantin et. al. in 2004 presented a paper on Asset Liability Management (ALM) technique, which combined a goal programming model with simulation analysis to determine the balance sheet of a bank for the year 2000. For this they analyzed the 1999 balance sheet of a Greek commercial bank facing conflicting goals such as returns, liquidity, solvency, and expansion of deposits and loans under uncertainty. The simulation analysis on interest rate scenarios as well as a sensitivity analysis in the order of goal priorities was investigated in order to obtain a wide range of non-dominated solutions. Out of the 2500 solutions they concluded to 207 solutions. All these solutions correspond to maximization of assets and liability variables. The final solution has been obtained by taking the average of the solution taken during post optimality analysis.
A Linear Programming model for assessing Asset-liability management in banks
Dash and Pathak in 2011 proposed a linear model for asset-liability assessment. They found that public sector banks have best asset-liability management positions, maintaining profitability, satisfying the liquidity constraints, and reducing interest rate risk exposure. Their analysis was done based on the guidelines provided by the Reserve Bank of India for assessing asset-liability management in banks operating within India.
Research Design
The research is exploratory in nature. The earlier work done on the topic will be thoroughly studied and once a greater clarity is achieved descriptive study will be carried out giving a more structured format to the study. The exploratory research will help in eliminating risk and redundant research objectives. The descriptive study will be cross-sectional in nature.
The data collection will be mainly secondary in nature. Most of the data will be collected from the websites of steel authority of various country & various websites which give overview and statistical data worldwide and across the different countries. The data collection will be also done by reviewing the literature work of others.
The present study will analyze sector analysis of steel industry with respect to Economic, Industrial and company analysis. The study will cover micro and macro-economic analysis of steel industry followed by industry and company analysis which include fundamental as well as technical analysis.
The study will be done with perspective of Indian steel industry
