Asset-Liability Management to Control the Volatility in Net Interest Income and Economic Value through Gap Analysis of Selected Public and Private Sector Banks

Abstract

The formation of WTO has resulted in the integration of economies and markets and led to the creation of competitive environment across different markets in the world. Financial Markets as an integral part of the economic system has been subject to phenomenal changes in their structure and functioning, brought in new products, services and exposed to new business propositions. The change in the systems, compelled and inevitable exposure to news avenues of business, also make them exposed to new forms of market risk i.e. interest rate risk and exchange rate risk, transfer risk etc. over and above the conventional risk, credit risk under repressed markets. Due to the changes happening, there is tremendous pressure on the banks and financial institutions to manage their Assets and Liabilities and the associated risk in a scientific way to minimize the volatility in Interest Income and Economic value and to maximize the return. The recent financial crises that shook the entire global financial system is a clear testimony for the poor and inadequate attention given for Assets and Liabilities management. Three public sector banks and three private sector banks were taken for the study. According to the study based 0n facts and figures collected, private sector banks ALM is better than public sector banks.