Impact of Asset Liability Management for the Growth of Selected Private Sector Banks In India

Abstract

The bank plays an important role in mobilization of deposits and disbursement of credit to various classes of customers in the economy. The financial strength of the bank is the first line of defense against financial risks. The banks should be smart enough to protect themselves against the financial risks. As we all know the primary source of funds for the bank is coming from customers as deposits and majority of the deposits are short term in nature and results in shortest maturity period. On the other side banks usually provide loans which are long term in nature leads to longest maturity. The risk for the banks starts at this juncture. The situation of providing long term loan with short maturity funds is called as Asset liability mismatch and managing this mismatches by the bank is Asset liability management. The Asset Liability Management (ALM) process in a bank is multidimensional in nature. The objective of this research is to find the relative importance of rate sensitivity assets, rate sensitivity liabilities, interest sensitivity ratio, net interest income ratio, net interest margin ratio in managing the mismatches of the selected top 5 private sector banks in India like ICICI Bank, HDFC Bank, City Union Bank, Karnataka Bank and Lakshmi Vilas Bank. For this study, the secondary data has been collected from Capitaline between 2004-05 and 2013-14. For examining the asset liability management of the selected banks, Rate sensitivity assets, Rate sensitivity liabilities, Interest Sensitivity Ratio, Net Interest Income Ratio, Net Interest Margin Ratio and Gap Analysis have been calculated and to examine its impact with the help of mean, standard deviation and coefficient of variation. The graphical representation of the result is also included in analysis. The research found that ICICI recorded positive gap and HDFC, Karnataka Bank, City Union Bank, Lakshmi Vilas Bank have negative gap. The study also suggested the Banks to take necessary steps to reduce the asset liability mismatches that will lift the bank to retain its market in the public. © Serials Publications.