A Study of the Impact of Asset-Liability Management on the Profitability of Banks in India

Abstract

Asset-liability management in banks is the strategic management of assets and liabilities aimed to optimize profitability, while ensuring liquidity, and protecting against different risks. The study examines the impact of asset-liability management on the banks’ profitability for a sample of thirty-five public and private sector Indian banks. The results of the study indicate that most of the banks are exposed to short term risk, with negative maturity mismatches in the 1-90 days bracket, and more so for public sector banks. However, the regression results indicate that there is an incentive to maintain negative maturity mismatch in the short-term, as this improves profitabil-ity.