Asset Liability Management in Banks and Financial Institutions

ALM as a concept is gradually gaining importance in the Indian conditions. It is the art of ensuring that the maturity profiles of assets match that of liabilities and combines the techniques of asset management, liability management and spread management into a cohesive process leading to an integrated management of the total balance sheet. 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. Efficient liquidity and interest rate management are the two important activities of the banks and financial institutions in maximizing their income while controlling the risk exposure. 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.