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The IUP Journal of Bank Management
Asset-Liability Management as a Risk Management Tool in Commercial Banks in India
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Amidst increased volatility in the domestic financial market as well as foreign market and increased competition among the commercial banks, Asset-Liability Management (ALM) has emerged as an important tool. The liberalized credit policy of the Indian financial market has brought pressure on the management of banks to maintain liquidity, profitability and long-term viability. In the recent years, the increased competition among banks has made it necessary to take up strategic planning as a practice of ALM to survive and grow in this competitive and risky environment. The present paper studies how ALM is used as a tool for managing liquidity risk using RBI-prescribed Gap model in four banks, namely, HDFC Bank, ICICI Bank, Punjab National Bank and State Bank of India.

 
 
 

In today’s uncertain economic conditions, risk management has a key role to play in modern banking. Commercial banks are exposed to various risks in their daily course of business, which might be either financial or non-financial like credit, interest rate, foreign exchange rate, liquidity, equity price, commodity price, legal, regulatory, reputational, operational, etc. (Lonkar, 2003). Banks are on the verge of taking stringent actions to prepare themselves for facing longer-term changes. They also are required to meet the new requirements and demands of customers due to the change in customer needs, preferences and technologies. The actions taken should keep up with the evolution of newer risks arising out of the aforesaid reasons. As mentioned earlier, management of risk is one of the major challenges faced by every bank. Hence Asset-Liability Management (ALM) is of great importance to commercial banks. Risk management in commercial banks has witnessed substantial changes over the past decade. The regulations which the banks were required to follow as a result of the global financial crisis as well as the aftereffects of the same have triggered a wave of change in risk functions (Härle et al., 2015). Further, the increased financial volatility, the current regulatory initiatives and government interventions also lead the banks to more complex situations.

 
 
 
Bank Management Journal, Asset-Liability Management (ALM), Indian financial market, The management of banks to maintain liquidity, Profitability and Long-term viability.