Components of Balance Sheet
•Liabilities or Sources:
•Capital- owner`s funds
•Reserves & Surplus – Statutory, Capital Redemption , P& L, Rev. Res.
•Deposits
•Borrowings- Banks, RBI, Refinance- IDBI, NABARD, EXIM Bank
•Other Liabilities & Provisions– Bills Payable-Dft., TC, MT, Sundries
•HO cr. Balance
•Contingent Liabilities-Appear as a footnote
Contingent Liabilities
•Letter of Credit
•Letter of Gaurantee
•Co-acceptance of Bills
•Claims Against the bank not acknowledged as Debts
•Liability for partly paid Investments
•Forward Exchange Contract
•Arrears of cumulative Dividends
•Bills Rediscounted
•Underwriting Business
•Assets or Uses of Funds
•Cash & Bank Balance in India & abroad
•Balance with RBI-
•Money At Call & Short Notice- up to 15 days
•Investments
•Advances-CC, OD, TL, DL, BP, BD
•Fixed Assets
•HO Dr. Balance
•Other assets-Intt. O/S On advances, Suspense
P & L A/ C- components
INCOME
• Interest /Discount on Advance /Bills
•Income on Investment
•Interest on balances with RBI and Other Interbank Funds
Other Income:
•Comm./Exch./ Brok
•Profit on sale or investment
•Profit on Revaluation of Investment
•Profit on sale of Assets Dividend Earned
EXPENDITURE
Intt. Paid on Deposit
Intt. On borrowings
Establishment cost
Rent Taxes Lighting
Printing & Stationery
Depreciation
Advertisement
Law Charges
Auditor`s & other Fees
Insurance
ASSET LIABILITY MANAGEMENT
•Components of Balance Sheet •
•Components of P&L A/C •
•ALM – Most imp. Risk mgt. Function •
•Involves matching of Assets & Liabilities-against credit, interest, liquidity & exchange risks.
•It involves decision to hold certain mix of Assets & Liabilities to maximise profits & ensure liquidity
Growing Need for ALM
•Volatility of Interest, Exchange rates & prices of securities
•Innovative products- sweep in sweep out/ Flexi deposit products
•Regulatory guidelines- Basel/ RBI
•Management Awareness
3 Parameters To Monitor ALM
•N.I.I= Intt. Income – Intt Exp.
•N.I.M. = N.I.I./Average Earning Assets
•Economic Equity Ratio=
Shareholders Funds/Total Assets
Interest Rate Risk Management
•1) Gap or Mismatch Risk- • Mismatch of maturity dates of assets & liabilities- need for resetting of intt rate of one maturing earlier
•Basis risk- Maturity date of asset & liability same but ROI may vary for both in same or different magnitude
•Embedded Risk- due to pre payment of loans or pre mature withdrawal of deposit
•Yield Curve Risk- •If yield curve on deposits increases & yield curve on advances for same period remains constant, N.I.I. will reduce
•Price Risk- •There is inverse relationship between price & yield on Govt. Securities
•Reinvestment Risk •At that time yield on asset or liability may be up or down •
Reducing Interest rate risk
•1.Reduce Maturity Gaps
•2. Analysis of past trend & monitoring of Projected ROI`s
•3. Establishment of ALM Division & ALCO at HO
Be continue ……. for next Unit.
