Anomalies in Maturity GAP: Evidence from Scheduled Commercial Banks in India

Abstract

Sound ALM practices ensure the stability and liquidity of banks, thus enhancing the profitability. ALM is a mechanism to address the risk faced by banks due to mismatch in assets and liabilities. In the context of India, banking industry is closely monitored and supervised by Reserve Bank of India (RBI). As a part of many norms to ensure the sound banking system, RBI also has come out with the comprehensive framework on ALM that the banks in India has to follow. It includes measures such as earnings and economic value approach, traditional gap analysis, earnings-at-risk method, duration gap analysis, simulation method and funds transfer pricing. The scheduled commercial banks (SCBs) in India are divided into five categories based on bank group by RBI. They are, State Bank of India (SBI) and Associates, Nationalised Banks, Old Private Sector Banks, New Private Sector Banks and Foreign Banks. There could be differences between the banks based on bank groups in ALM. Therefore this study attempts to find out the differences in ALM of Indian banks based on bank groups. The empirical result suggests that there is a significant difference in the gap ratio amongst the bank groups. The null hypothesis can be rejected.