Scribd Logo
Upload

Welcome to Scribd!

  • 596 views

    Risk Parameters and Currency Risk

    Uploaded by

    aishwaryadoshi
    The document discusses asset liability management (ALM) processes and risks. It analyzes the balance sheet of Bank of India from March 2008. Key risks discussed are currency risk, liquidity risk, and interest rate risk. The analysis finds that public sector banks have a lower equity ratio and larger gap between assets and liabilities compared to private sector banks. Suggestions are provided to improve ALM, such as increasing owner funds, reducing current liabilities, and investing more in fixed assets. ALM is concluded to be a vital activity for banks to maximize returns while reducing risk exposure.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Risk Parameters and Currency Risk

    Uploaded by

    aishwaryadoshi
    596 views8 pages
    The document discusses asset liability management (ALM) processes and risks. It analyzes the balance sheet of Bank of India from March 2008. Key risks discussed are currency risk, liquidity risk, and interest rate risk. The analysis finds that public sector banks have a lower equity ratio and larger gap between assets and liabilities compared to private sector banks. Suggestions are provided to improve ALM, such as increasing owner funds, reducing current liabilities, and investing more in fixed assets. ALM is concluded to be a vital activity for banks to maximize returns while reducing risk exposure.

    Original Description:

    ALM ppt

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses asset liability management (ALM) processes and risks. It analyzes the balance sheet of Bank of India from March 2008. Key risks discussed are currency risk, liquidity risk, and interest rate risk. The analysis finds that public sector banks have a lower equity ratio and larger gap between assets and liabilities compared to private sector banks. Suggestions are provided to improve ALM, such as increasing owner funds, reducing current liabilities, and investing more in fixed assets. ALM is concluded to be a vital activity for banks to maximize returns while reducing risk exposure.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    596 views8 pages

    Risk Parameters and Currency Risk

    Uploaded by

    aishwaryadoshi
    The document discusses asset liability management (ALM) processes and risks. It analyzes the balance sheet of Bank of India from March 2008. Key risks discussed are currency risk, liquidity risk, and interest rate risk. The analysis finds that public sector banks have a lower equity ratio and larger gap between assets and liabilities compared to private sector banks. Suggestions are provided to improve ALM, such as increasing owner funds, reducing current liabilities, and investing more in fixed assets. ALM is concluded to be a vital activity for banks to maximize returns while reducing risk exposure.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 8

    ALM Process

    Risk Parameters Risk Identification

    Risk Measurement
    Risk Management Risk Policies and Tolerance Level

    Risk Parameters
    Credit Risk

    Market Risk

    Capital Risk

    Risk Parameters

    Liquidity Risk

    Interest Rate Risk

    But under ALM risks that are typically managed are.


    Currency Risk Liquidity Risk

    Interest Rate Risk

    Will now be discussed in detail

    Currency Risk
    The increased capital flows from different nations following deregulation have contributed to increase in the volume of transactions Dealing in different currencies brings opportunities as well as risk To prevent this banks have been setting up overnight limits and undertaking active day time trading Value at Risk approach to be used to measure the risk associated with forward exposures. Value at Risk estimates probability of portfolio losses based on the statistical analysis of historical price trends and volatilities.

    Objectives of the study An effective Asset Liabilities Management technique aims to manage the volume, mix, maturity, and rate sensitivity, quality of assets and liabilities as a whole so as to attain a predetermined acceptable risk/reward ratio. The main purpose of ALM is to enhance the asset quality. To study the components of assets and liabilities in Banks To study the Asset Liability Management in public and private sector banks

    Bank of India - Balance sheet of March 2008

    Sources of Funds
    Equity share capital Reserve & surplus Unsecured loans Current Liabilities and provision Total

    Amount

    Uses Of Funds
    525.91 Fixed assets: Net block

    Amount
    636.05 26.92 41802.88 3407.32 45873.17

    8300.38 Capital work in progress 150011.98 Investments Current assets, Loan & advances 169894.43 Total 11056.16

    Parameter of Asset and Liability Management : Gap -: Total assets Total liability Gap-: 45873.17-169894.43 = (-124021.26) Equity Economic Ratio-: Owners fund / Total assets Equity Economic Ratio-: 525.91/4143.37 = 0.13 Interpretation: The equity economic ratio shows that owners stake is less(.13) as compare to total assets and huge gap between (-124021.26 crore) total assets and total liabilities.

    Findings In case of public sector banks, Equity Economic Ratio is very low rather than private sector banks (bank of Rajasthan Ltd.). In case of public sector banks, these banks have no more investment in fixed assets rather than the private sector banks. All banks (public as well as private sector) have more current liabilities over the current assets. All banks (public as well as private sector) have more unsecured loans. In case of public sector banks, there is huge gap between total assets and liabilities rather than private sector banks (Jammu and Kashmir bank). Suggestions All banks (public as well as private) should use more owners funds so that banks can manage their assets and liabilities in case of pre maturity of liabilities. All banks (public as well as private) should try to reduce their current liabilities or increase their current assets. All banks should (mostly public sector bank) invest more in fixed assets. All banks (public as well as private) should not use more unsecured loan otherwise there will be more default risk.

    CONCLUSION Vital activity to maximize yield and reduce their risk exposure.
    The Reserve Bank of India guidelines

    Maturity-gap analysis
    Banks have to maintain a stable liquidity position Vital tool for risk management

    You might also like