04-08-2012, 12:59 PM
A Case Study of SBI and ICICI Bank
A Case Study.ppt (Size: 1.66 MB / Downloads: 144)
Introduction
ALM is a dynamic process of planning, organising, co-ordinating and controlling assets and liabilities, their mixes, volumes and yields in order to achieve a specified NII.
ALM is relevant to and crucial for sound management of the finances of any organization that invests to meet its future cash flow needs and capital requirements.
The interest rate is determined in the open market conditions, which are due to circumstances outside its control. This posses extra challenges to the banking sector and to that extent, they have to adopt innovative and sophiscated technique to meet some of these challenges.
All this paved the way to present study. The present study is an attempt to examine the interest rate risk in Indian banks.
Interest rate risk
Interest rate risk as defined by New Basel Accord (Basel II)- “interest rate risk of a bank is given by the maximum absolute decline of its economic value caused by an upward and downward 200 basis points parallel interest rate shocks in relation to its regulatory capital.”
Conclusions & Recommendations
The study concluded that SBI is in better position in comparison to ICICI on the basis of NII and NI.
But on the basis of residual maturity of rate sensitive assets and rate sensitive liabilities ICICI bank is in better position in comparison to SBI bank.
Due to negative gap of assets and liabilities of each time bucket both the banks are exposed to interest rate risk.
To control this situation banks are needed to regularly monitor and manage the rate sensitive assets and liabilities.
The degree of mismatch of asset- liability should be kept in manageable limits.
Banks should develop strong information system about these risks and use sensitivity analysis for risk management purpose to ensure their stability in the financial market.