Home CAIIB Bank Financial Management Components of Assets and Liabilities in Bank’s Balance Sheet and their Management(BFM...

Components of Assets and Liabilities in Bank’s Balance Sheet and their Management(BFM Unit-22)


Components of Balance Sheet

Liabilities or Sources:

•Capital- owner`s funds

•Reserves & Surplus – Statutory, Capital Redemption , P& L, Rev. Res.


•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


•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


• 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


Intt. Paid on Deposit

Intt. On borrowings

Establishment cost

Rent Taxes Lighting

Printing  & Stationery



Law Charges     

Auditor`s & other Fees      



•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.



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