Managing Gap: A Case Study Approach to Asset-Liability Management of Banks

Abstract

The importance of managing the asset-liability mix in the Indian financial markets has emerged from the increased volatility in the domestic interest rates as well as foreign exchange rates that has evolved after liberalization. The deregulated interest rate environment has brought pressure on the management of banks to maintain a good balance among spreads, profitability and long-term viability. Over the last few years, theire has been an intense competition and banks have been required to take up strategic planning as an exercise for asset-liability management in order to survive and grow in the ever increasingly competitive and risky environment. The paper presents a case study of four banks- Citi bank, ICICI bank, IDBI bank and SBI and studies how Asset Liability Management can be used as an important tool for managing liquidity risk and interest rate risk.