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Rbi Guidelines on Alm

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Submitted By abhinmims
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Asset - Liability Management System in banks - Guidelines
Over the last few years the Indian financial markets have witnessed wide ranging changes at fast pace. Intense competition for business involving both the assets and liabilities, together with increasing volatility in the domestic interest rates as well as foreign exchange rates, has brought pressure on the management of banks to maintain a good balance among spreads, profitability and long-term viability. These pressures call for structured and comprehensive measures and not just ad hoc action. The Management of banks has to base their business decisions on a dynamic and integrated risk management system and process, driven by corporate strategy. Banks are exposed to several major risks in the course of their business - credit risk, interest rate risk, foreign exchange risk, equity / commodity price risk, liquidity risk and operational risks. 2. This note lays down broad guidelines in respect of interest rate and liquidity risks management systems in banks which form part of the Asset-Liability Management (ALM) function. The initial focus of the ALM function would be to enforce the risk management discipline viz. managing business after assessing the risks involved. The objective of good risk management programmes should be that these programmes will evolve into a strategic tool for bank management. 3. The ALM process rests on three pillars: • ALM information systems => Management Information System => Information availability, accuracy, adequacy and expediency • ALM organisation => Structure and responsibilities => Level of top management involvement • ALM process => Risk parameters => Risk identification => Risk measurement => Risk management => Risk policies and tolerance levels.

4.

ALM information systems

Information is the key to the ALM process. Considering the large network of branches and

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