A

STUDY
ON
ASSETS LIABILITY MANAGEMENT
AT

SYNDICATE BANK LIMITED

A project report submitted in partial fulfillment for the award of
MASTER OF BUSINESS ADMINISTRATION

BY
K.SHYAM KUMAR
Reg. No. 1423-17-672-030
the Guidance of
DR.B.RAMESH

ST.MARTIN’S INSTITUTE OF BUSSINESS MANAGEMENT

(Affiliated to Osmania University) Dhulapally
(v), Secundrabad --- 500014

(2017 – 2019)
 A
STUD
Y ON
“ASSETS LIABILITY MANAGEMENT”
AT
SYNDICATE BANK LIMITED

A project report submitted in partial fulfillment for the award of

MASTER OF BUSINESS ADMINISTRATION

BY
K.SHYAM KUMAR
Reg.No 1423-17-672-030

Under the Guidance of

DR.B.RAMESH

ST.MARTIN’S INSTITUTE OF BUSSINESS MANAGEMENT

(Affiliated to Osmania University) Dhulapally
(v), Secundrabad --- 500014
 DECLARATION

I hereby declare that this project report titled ASSETS LIABILITY

MANAGEMENT, submitted by me to the Department of Master of Business Administration, as
a record work done by me under the supervision and guidance of DR.B.RAMESH,
Assoc.Professor/ Asst. Professor of ST.MARTIN’S INSTITUTE OF BUSSINESS
MANAGEMENT. This is a bonafide work undertaken by me and it is not submitted to any other
University or Institution for the award of any degree/diploma/certificate or published any time
before.

Date: K.SHYAM KUMAR

Place: Hyderabad (Reg.No.1423-17-672-030)
 CERTIFICATE

This is to certify that the project report title “ ASSETS LIABILITY MANAGEMENT” in
"SYNDICATE BANK LIMITED”, submitted in partial fulfilment for the award of MBA programme
of department of business management, O.U. Hyderabad, was carried out by K.SHYAM KUMAR
under my guidance. This has not been submitted to any other university or institution for the award
of any degree/ diploma/ certificate.

Project guide External Examiner Principal

DR.B.RAMESH Dr. P.D. Diana David
Assoc./ Asst. Professor
COMPANY CERTIFICATE
 ACKNOWLEDGEMENT

I would like to express my sense of gratitude to KARUNKAR, my project supervisor,

for his guidance and continuous support on this project, without his endeavor the project would
not have been completed successfully.
I wish to express my sincere thanks to Dr. P. D. DIANA DAVID, Principal, ST.
MARTIN’S INSTITUTE OF BUSINESS MANAGEMENT for her valuable suggestions,
constant help and encouragement in every stage during the preparation of project report.
I extend my humble thanks to DR.B.RAMESH, Project Guide for his inspiring
guidance, valuable suggestions and for rendering helpful hand in completion of the project.
I retract my deepest sense of gratitude and indebtedness to my family, friends and
others who provided me with their full co-operation and support in successful completion of the
project.

K.SYAM KUMAR
(Reg.No.1423-17-672-030)
 CONTENTS

Chapters Particulars Page no’s

Chapter-I Introduction

Need of the study

Objective of the study 1-6

Scope of the study

Research Methodology

Limitations of the Study

Chapter-II Review of Literature 7 - 35

Chapter-III Industry Profile 36 - 53

Company Profile

Chapter-IV Data Analysis and Interpretations 54 - 66

Findings
Chapter-V
Suggestions 67 - 70

Conclusions

Bibliography 71

Questionnaire
1
 CHAPTER-I
INTRODUCTION

2
INTRODUCTION

Asset Liability Management (ALM) is a strategic approach of managing the balance sheet
dynamics in such a way that the net earnings are maximized. This approach is concerned with
management of net interest margin to ensure that its level and riskiness are compatible with
the risk return objectives.

If one has to define Asset and Liability management without going into detail about its need and
utility, it can be defined as simply “management of money” which carries value and can
change its shape very quickly and has an ability to come back to its original shape with or
without an additional growth. The art of proper management of healthy money is ASSET
AND LIABILITY MANAGEMENT (ALM).

The Liberalization measures initiated in the country resulted in revolutionary changes in the
sector. There was a shift in the policy approach from the traditionally administered market
regime to a free market driven regime. This has put pressure on the earning capacity of co-
operative, which forced them to foray into new operational areas thereby exposing themselves to
new risks. As major part of funds at the disposal from outside sources, the management is
concerned about RISK arising out of shrinkage in the value of asset, and managing such
risks became critically important to them. Although co-operatives are able to mobilize
deposits, major portions of it are high cost fixed deposits. Maturities of these fixed deposits
were not properly matched with the maturities of assets created out of them. The tool called
ASSET AND LIABILITY MANAGEMENT provides a better solution for this.

ASSET LIABILITY MANAGEMENT (ALM) is a portfolio management of assets and

liability of an organization. This is a method of matching various assets with liabilities on the
basis of expected rates of return and expected maturity pattern.

In the context of ALM is defined as “a process of adjusting s liability to meet loan demands,
liquidity needs and safety requirements”. This will result in optimum value of the same time
reducing the risks faced by them and managing the different types of risks by keeping it within
acceptable levels.

3
RBI REVISES ASSET LIABILITY MANAGEMENTGUIDELINES

On February 6/2014

Guidelines on ALM system issued in February 1999(first revised), covered, inter alia, interest
rate risk and liquidity risk measurement/ reporting framework and prudential limits. Gap
statements are prepared by scheduling all assets and liabilities according to the stated or
anticipated re-pricing date or maturity date. As a measure of liquidity management, banks were
required to monitor their cumulative mismatches across all time buckets in their statement of
structural liquidity by establishing internal prudential limits with the approval of their boards/
management committees. As per the guidelines, in the normal course, the mismatches
(negative gap) in the time buckets of 1-14 days and 15-28 days were not to exceed 20 per
cent of the cash outflows in the respective time buckets. In the era of changing interest
rates, Reserve Bank of India (RBI) has now revised its Asset Liability Management
guidelines. Banks have now been asked to calculate modified duration of assets (loans) and
liabilities (deposits) and duration of equity.

This was stated by the executive director of RBI, V K Sharma, and here today. He said that this
concept gives banks a single number indicating the impact of a 1 per cent change of interest
rate on its capital, captures the interest rate risk, and can thus help them move forward
towards assessment of risk based capital. This approach will be a graduation from the earlier
approach, which led to a mismatch between the assets and liabilities.

The ED said that RBI has been laying emphasis that banks should maintain a more realistic
balance sheet by giving a true picture of their non performing assets (NPAs), and they should
not be deleted to show huge profits. Though the banking system in India has strong risk
management architecture, initiatives have to be taken at the bank specific level as well as
broader systematic level. He also emphasized on the need for sophisticated credit-scoring
models for measuring the credit risks of commercial and industrial portfolios.

4
Emphasizing on a need for an effective control system to manage risks, he said that the
implementation of BASEL II norms by commercial banks should not be delayed. He said that
the banks should have a robust stress testing process for assessment of capital adequacy in
wake of economic downturns, industrial downturns, market risk events and sudden shifts in
liquidity conditions. Stress tests should enable the banks to assess risks more accurately and
facilitate planning for appropriate capital requirements.

Sharma spoke at length about the need to extend the framework of integrated risk
management to group-wide level, especially among financial conglomerates. He said that RBI
has already put in place a framework for oversight of financial conglomerates, along with
SEBI and IRDA. He also said that at the systematic level efforts are being made to create an
enabling environment for all market participants in terms of regulation, infrastructure and
instruments.

NEED OF THE STUDY:

The need of the study is to concentrates on the growth and performance of Syndicate
Bank Ltd and to calculate the growth and performance by using asset and liability management
and to know the management of nonperforming assets.
 To know financial position of Syndicate Bank Ltd

 To analyze existing situation of Syndicate Bank Ltd

 To improve the performance of Syndicate Bank Ltd

 To analyze competition between Syndicate Bank Ltdwith other cooperatives.

SCOPE OF THE STUDY:

In this study the analysis based on ratios to know asset and liabilities management under
Syndicate Bank Ltd and to analyze the growth and performance of Syndicate Bank Ltd by
using the calculations under asset and liability management based on ratio.

5
 Comparative statement
 Ratio analysis
 Common size balance sheet.

OBJECTIVES OF THE STUDY

 To Study the concept of ASSET &LIABILITY MANAGEMENTin SYNDICATE
BANK, LTD

 To Study Process of CASH INFLOWS and OUTFLOWS in SYNDICATE BANK, LTD

 To Study RISK MANAGEMENT under SYNDICATE BANK, LTD

 To Study RESERVES CYCLE of ALM under SYNDICATE BANK, LTD

 To Study FUNCTIONS AND OBJECTIVES of SYNDICATE BANK, LTD Committee.

METHODOLOGY OF THE STUDY

The study of ALM Management is based on two factors.

1. Primary data collection.

2. Secondary data collection

PRIMARY DATA COLLECTION:

The sources of primary data were

 The chief manager – ALM cell

 Department Sr. manager financing & Accounting

 System manager- ALM cell

6
Gathering the information from other managers and other officials of the organization.

SECONDARY DATA COLLECTION:

Collected from books regarding journal, and management containing relevant information
about ALM and Other main sources were

 Annual report of the Syndicate Bank Ltd

 Published report of the Syndicate Bank Ltd

 RBI guidelines for ALM.

LIMITATION OF THE STUDY:

This subject is based on past data of Syndicate Bank Ltd

The analysis is based on structural liquidity statement and gap analysis.

The study is mainly based on secondary data.

Approximate results: The results are approximated, as no accurate data is Available.

Study takes into consideration only LTP and issue prices and their difference for
concluding whether an issue is overpriced or under priced leaving other.

The study is based on the issues that are listed on NSE only.

7
 CHAPTER-II

REVIEW OF LITERATURE

8
ASSET LIABILITY MANAGEMENT (ALM) SYSTEM
Asset-Liability Management (ALM) can be termed as a risk management technique designed
to earn an adequate return while maintaining a comfortable surplus of assets beyond
liabilities. It takes into consideration interest rates, earning power, and degree of willingness to
take on debt and hence is also known as Surplus Management.

But in the last decade the meaning of ALM has evolved. It is now used in many different
ways under different contexts. ALM, which was actually pioneered by financial
institutions and banks, are now widely being used in industries too. The Society of
Actuaries Task Force on ALM Principles, Canada, offers the following definition for
ALM: "Asset Liability Management is the on-going process of formulating, implementing,
monitoring, and revising strategies related to assets and liabilities in an attempt to achieve
financial objectives for a given set of risk tolerances and constraints."

Basis of Asset-LiabilityManagement

Traditionally, banks and insurance companies used accrual system of accounting for

9
all their assets and liabilities. They would take on liabilities - such as deposits, life insurance
policies or annuities. They would then invest the proceeds from these liabilities in assets such
as loans, bonds or real estate. All these assets and liabilities were held at book value. Doing so
disguised possible risks arising from how the assets and liabilities were structured.

Consider a bank that borrows 1 Crore (100 Lakhs) at 6 % for a year and lends the same
money at 7 % to a highly rated borrower for 5 years. The net transaction appears profitable-
the bank is earning a 100 basis point spread - but it entails considerable risk. At the end of a
year, the bank will have to find new financing for the loan, which will have 4 more years before
it matures. If interest rates have risen, the bank may have to pay a higher rate of interest on the
new financing than the fixed 7 % it is earning on its loan.

Suppose, at the end of a year, an applicable 4-year interest rate is 8 %. The bank is in serious
trouble. It is going to earn 7 % on its loan but would have to pay 8 % on its financing.
Accrual accounting does not recognize this problem. Based upon accrual accounting, the
bank would earn Rs 100,000 in the first year although in the preceding years it is going
to incur a loss.

The problem in this example was caused by a mismatch between assets and liabilities. Prior
to the 1970's, such mismatches tended not to be a significant problem. Interest rates in
developed countries experienced only modest fluctuations, so losses due to asset-liability
mismatches were small or trivial. Many firms intentionally mismatched their balance sheets
and as yield curves were generally upward sloping, banks could earn a spread by borrowing
short and lending long.

Things started to change in the 1970s, which ushered in a period of volatile interest rates that
continued till the early 1980s. US regulations which had capped the interest rates so that
banks could pay depositors, were abandoned which led to a migration of dollar deposit
overseas. Managers of many firms, who were accustomed to thinking in terms of
accrual accounting, were slow to recognize this emerging risk. Some firms suffered
staggering losses. Because the firms used

1
0
accrual accounting, it resulted in more of crippled balance sheets than bankruptcies. Firms had
no options but to accrue the losses over a subsequent period of 5 to 10 years.

One example, which drew attention, was that of US mutual life insurance company "The
Equitable." During the early 1980s, as the USD yield curve was inverted with short-term
interest rates sky rocketing, the company sold a number of long-term Guaranteed Interest
Contracts (GICs) guaranteeing rates of around 16% for periods up to 10 years. Equitable then

invested the assets short-term to earn the high interest rates guaranteed on the contracts. But
short-term interest rates soon came down. When the Equitable had to reinvest, it couldn't get even
close to the interest rates it was paying on the GICs. The firm was crippled. Eventually, it had
to demutualize and was acquired by the Axa Group.

Increasingly banks and asset management companies started to focus on Asset- Liability
Risk. The problem was not that the value of assets might fall or that the value of liabilities
might rise. It was that capital might be depleted by narrowing of the difference between assets
and liabilities and that the values of assets and liabilities might fail to move in tandem. Asset-
liability risk is predominantly a leveraged form of risk.

The capital of most financial institutions is small relative to the firm's assets or liabilities, and
so small percentage changes in assets or liabilities can translate into large percentage changes
in capital. Accrual accounting could disguise the problem by deferring losses into the future,
but it could not solve the problem. Firms responded by forming asset-liability management
(ALM) departments to assess these asset-liability risk.

Techniques for assessing Asset-Liability Risk

Techniques for assessing asset-liability risk came to include Gap Analysis and Duration
Analysis. These facilitated techniques of managing gaps and matching

10
duration of assets and liabilities. Both approaches worked well if assets and liabilities
comprised fixed cash flows. But cases of callable debts, home loans and mortgages which
included options of prepayment and floating rates, posed problems that gap analysis
could not address. Duration analysis could address these in theory, but implementing
sufficiently sophisticated duration measures was problematic. Accordingly, banks and
insurance companies started using Scenario Analysis.

Under this technique assumptions were made on various conditions, for example: -

Several interest rate scenarios were specified for the next 5 or 10 years. These specified
conditions like declining rates, rising rates, a gradual decrease in rates followed by a
sudden rise, etc. Ten or twenty scenarios could be specified in all.

Assumptions were made about the performance of assets and liabilities under each
scenario. They included prepayment rates on mortgages or surrender rates on insurance
products.
Assumptions were also made about the firm's performance-the rates at which new
business would be acquired for various products, demand for the product etc.
Market conditions and economic factors like inflation rates and industrial cycles were also
included.

Based upon these assumptions, the performance of the firm's balance sheet could be
projected under each scenario. If projected performance was poor under specific scenarios, the
ALM committee would adjust assets or liabilities to address the indicated exposure. Let us
consider the procedure for sanctioning a commercial loan. The borrower, who approaches the
bank, has to appraise the banks credit department on various parameters like industry
prospects, operational efficiency, financial efficiency, management qualities and other things,
which would influence the working of the company. On the basis of this appraisal, the banks
would then prepare a credit-grading sheet after covering all the aspects of the company and the
business in which the company is in.Then the borrower would then be charged a

11
certain rate of interest, which would cover the risk of lending.

But the main shortcoming of scenario analysis was that, it was highly dependent on the choice
of scenarios. It also required that many assumptions were to be made about how specific
assets or liabilities will perform under specific scenarios. Gradually the firms recognized a
potential for different type of risks, which was overlooked in ALM analyses. Also the
deregulation of the interest rates in US in mid 70 s compelled the banks to undertake active
planning for the structure of the balance sheet. The uncertainty of interest rate movements gave
rise to Interest Rate Risk thereby causing banks to look for processes to manage this risk.

In the wake of interest rate risk came Liquidity Risk and Credit Risk, which became inherent
components of risk for banks. The recognition of these risks brought Asset Liability
Management to the centre-stage of financial intermediation. Today even Equity Risk, which
until a few years ago was given only honorary mention in all but a few company ALM reports,
is now an indispensable part of ALM for most companies. Some companies have gone
even further to include Counterparty Credit Risk, Sovereign Risk, as well as Product
Design and Pricing Risk as part of their overall ALM.

Now a day's a company has different reasons for doing ALM. While some companies view
ALM as a compliance and risk mitigation exercise, others have started using ALM as
strategic framework to achieve the company's financial objectives. Some of the business
reasons companies now state for implementing an effective ALM framework include gaining
competitive advantage and increasing the value of the organization.

Asset-Liability Management Approach

ALM in its most apparent sense is based on funds management. Funds management
represents the core of sound bank planning and financial management. Although funding
practices, techniques, and norms have been revised substantially in recent years, it is not a
new concept. Funds management is the process of managing the spread between interest
earned and interest paid while ensuring adequate liquidity. Therefore, funds management has
following three components,

12
which have been discussedbriefly.

A. Liquidity Management
Liquidity represents the ability to accommodate decreases in liabilities and to fund increases in
assets. An organization has adequate liquidity when it can obtain sufficient funds, either by
increasing liabilities or by converting assets, promptly and at a reasonable cost. Liquidity is
essential in all organizations to compensate for expected and unexpected balance sheet
fluctuations and to provide funds for growth. The price of liquidity is a function of market
conditions and market perception of the risks, both interest rate and credit risks, reflected in
the balance sheet and off- balance sheet activities in the case of a bank. If liquidity needs are
not met through liquid asset holdings, a bank may be forced to restructure or acquire
additional liabilities under adverse market conditions. Liquidity exposure can stem from both
internally (institution-specific) and externally generated factors. Sound liquidity risk
management should address both types of exposure. External liquidity risks can be
geographic, systemic or instrument-specific. Internal liquidity risk relates largely to the
perception of an institution in its various markets: local, regional, national or international.
Determination of the adequacy of a bank's liquidity position depends upon an analysis of its: -

Historical funding requirements

Current liquidity position
Anticipated future funding needs
Sources of funds
Present and anticipated asset quality
Present and future earnings capacity
Present and planned capital position

As all banks are affected by changes in the economic climate, the monitoring of economic
and money market trends is key to liquidity planning. Sound financial management can
minimize the negative effects of these trends while accentuating the positive ones.
Management must also have an effective contingency plan that identifies minimum and
maximum liquidity needs and weighs alternative courses of action designed to meet those
needs. The cost of maintaining liquidity is another

13
important prerogative. An institution that maintains a strong liquidity position may do so at the
opportunity cost of generating higher earnings. The amount of liquid assets a bank should hold
depends on the stability of its deposit structure and the potential for rapid expansion of its loan
portfolio. If deposit accounts are composed primarily of small stable accounts, a relatively low
allowance for liquidity is necessary.

Additionally, management must consider the current ratings by regulatory and rating agencies
when planning liquidity needs. Once liquidity needs have been determined, management must
decide how to meet them through asset management, liability management, or a combination
of both.

B. Asset Management
Many banks (primarily the smaller ones) tend to have little influence over the size of their total
assets. Liquid assets enable a bank to provide funds to satisfy increased demand for loans. But
banks, which rely solely on asset management, concentrate on adjusting the price and
availability of credit and the level of liquid assets. However, assets that are often assumed to be
liquid are sometimes difficult to liquidate. For example, investment securities may be pledged
against public deposits or repurchase agreements, or may be heavily depreciated because of
interest rate changes. Furthermore, the holding of liquid assets for liquidity purposes is less
attractive because of thin profit spreads.

Asset liquidity, or how "salable" the bank's assets are in terms of both time and cost, is of
primary importance in asset management. To maximize profitability, management must
carefully weigh the full return on liquid assets (yield plus liquidity value) against the higher
return associated with less liquid assets. Income derived from higher yielding assets may be
offset if a forced sale, at less than book value, is necessary because of adverse balance sheet
fluctuations.

Seasonal, cyclical, or other factors may cause aggregate outstanding loans and deposits to
move in opposite directions and result in loan demand, which exceeds available deposit
funds. A bank relying strictly on asset management would restrict

14
loan growth to that which could be supported by available deposits. The decision whether or
not to use liability sources should be based on a complete analysis of seasonal, cyclical, and
other factors, and the costs involved. In addition to supplementing asset liquidity,
liability sources of liquidity may serve as an alternative even when asset sources are available.

C. Liability Management

Liquidity needs can be met through the discretionary acquisition of funds on the basis of
interest rate competition. This does not preclude the option of selling assets to meet funding
needs, and conceptually, the availability of asset and liability options should result in a lower
liquidity maintenance cost. The alternative costs of available discretionary liabilities can be
compared to the opportunity cost of selling various assets. The major difference between
liquidity in larger banks and in smaller banks is that larger banks are better able to control the
level and composition of their liabilities and assets. When funds are required, larger banks
have a wider variety of options from which to select the least costly method of generating funds.
The ability to obtain additional liabilities represents liquidity potential. The marginal cost of
liquidity and the cost of incremental funds acquired are of paramount importance in evaluating
liability sources of liquidity. Consideration must be given to such factors as the frequency with
which the banks must regularly refinance maturing purchased liabilities, as well as an evaluation
of the bank's ongoing ability to obtain funds under normal market conditions.

The obvious difficulty in estimating the latter is that, until the bank goes to the market to
borrow, it cannot determine with complete certainty that funds will be available and/or at a
price, which will maintain a positive yield spread. Changes in money market conditions may
cause a rapid deterioration in a bank's capacity to borrow at a favorable rate. In this context,
liquidity represents the ability to attract funds in the market when needed, at a reasonable cost
vis-e-vis asset yield. The access to discretionary funding sources for a bank is always a
function of its position and reputation in the money markets.

Although the acquisition of funds at a competitive cost has enabled many banks to meet
expanding customer loan demand, misuse or improper implementation of

15
liability management can have severe consequences. Further, liability management is not
riskless. This is because concentrations in funding sources increase liquidity risk. For
example, a bank relying heavily on foreign interbank deposits will experience funding problems
if overseas markets perceive instability in U.S. banks or the economy. Replacing foreign
source funds might be difficult and costly because the domestic market may view the bank's
sudden need for funds negatively. Again over- reliance on liability management may cause a
tendency to minimize holdings of short-term securities, relax asset liquidity standards,
and result in a large concentration of short-term liabilities supporting assets of longer
maturity. During times of tight money, this could cause an earnings squeeze and an illiquid
condition.

Also if rate competition develops in the money market, a bank may incur a high cost of funds
and may elect to lower credit standards to book higher yielding loans and securities. If a bank
is purchasing liabilities to support assets, which are already on its books, the higher cost of
purchased funds may result in a negative yield spread.

Preoccupation with obtaining funds at the lowest possible cost, without considering maturity
distribution, greatly intensifies a bank's exposure to the risk of interest rate fluctuations. That is
why banks who particularly rely on wholesale funding sources, management must constantly
be aware of the composition, characteristics, and diversification of its fundingsources.

Procedure for Examination of Asset Liability Management

In order to determine the efficacy of Asset Liability Management one has to follow a
comprehensive procedure of reviewing different aspects of internal control, funds
management and financial ratio analysis. Below a step-by-step approach of ALM
examination in case of a bank has been outlined.

Step 1

The bank/ financial statements and internal management reports should be reviewed to assess
the asset/liability mix with particular emphasis on: -

Total liquidity position (Ratio of highly liquid assets to total assets).

Current liquidity position (Minimum ratio of highly liquid assets to demand

16
 liabilities/deposits).
Ratio of Non Performing Assets to Total Assets.
Ratio of loans to deposits.
Ratio of short-term demand deposits to total deposits.
Ratio of long-term loans to short term demand deposits.
Ratio of contingent liabilities for loans to total loans.
Ratio of pledged securities to total securities.

Step 2

It is to be determined that whether bank management adequately assesses and plans its
liquidity needs and whether the bank has short-term sources of funds. This should include: -
Review of internal management reports on liquidity needs and sources of satisfying these
needs. Assessing the bank's ability to meet liquidity needs.

Step 3

The banks future development and expansion plans, with focus on funding and liquidity
management aspects have to be looked into. This entails: -

Determining whether bank management has effectively addressed the issue of need for
liquid assets to funding sources on a long-term basis.
Reviewing the bank's budget projections for a certain period of time in the future.
Determining whether the bank really needs to expand its activities. What are the sources of
funding for such expansion and whether there are projections of changes in the bank's
asset and liability structure?
Assessing the bank's development plans and determining whether the bank will be able to
attract planned funds and achieve the projected asset growth.
Determining whether the bank has included sensitivity to interest rate risk in the
development of its long term funding strategy.

Step 4

Examining the bank's internal audit report in regards to quality and effectiveness in terms of
liquidity management.

17
Step 5

Reviewing the bank's plan of satisfying unanticipated liquidity needs by: -

 Determining whether the bank's management assessed the potential expenses that the
bank will have as a result of unanticipated financial or operational problems.
 Determining the alternative sources of funding liquidity and/or assets subject to necessity.
 Determining the impact of the bank's liquidity management on net earnings position.

Step 6

 Preparing an Asset/Liability Management Internal Control Questionnaire which should

include the following: -
 Whether the board of directors has been consistent with its duties and responsibilities
and included: -
 A line of authority for liquidity management decisions.
 A mechanism to coordinate asset and liability management decisions.
 A method to identify liquidity needs and the means to meet those needs.
 Guidelines for the level of liquid assets and other sources of funds in relationship to
needs.
 Does the planning and budgeting function consider liquidity requirements?
 Are the internal management reports for liquidity management adequate in terms of
effective decision making and monitoring of decisions.
 Are internal management reports concerning liquidity needs prepared regularly and
reviewed as appropriate by senior management and the board of directors.
 Whether the bank's policy of asset and liability management prohibits or defines certain
restrictions for attracting borrowed means from bank related persons (organizations) in
order to satisfy liquidity needs.
 Does the bank's policy of asset and liability management provide for an adequate control
over the position of contingent liabilities of the bank?
 Is the foregoing information considered an adequate basis for evaluating internal control
in that there are no significant deficiencies in areas not covered

18
 in this questionnaire that impair any controls?

Asset Liability Management in Indian Context

The post-reform banking scenario in India was marked by interest rate deregulation, entry of
new private banks, and gamut of new products along with greater use of information
technology. To cope with these pressures banks were required to evolve strategies rather than
ad hoc solutions. Recognising the need of Asset Liability management to develop a strong
and sound banking system, the RBI has come out with ALM guidelines for banks and FIs in
April 1999.The Indian ALM framework rests on three pillars: -

ALM Organization (ALCO)

The ALCO or the Asset Liability Management Committee consisting of the banks senior
management including the CEO should be responsible for adhering to the limits set by the
board as well as for deciding the business strategy of the bank in line with the banks budget
and decided risk management objectives. ALCO is a decision-making unit responsible for
balance sheet planning from a risk return perspective

including strategic management of interest and liquidity risk. The banks may also authorize
their Asset-Liability Management Committee (ALCO) to fix interest rates on Deposits and
Advances, subject to their reporting to the Board immediately thereafter. The banks should
also fix maximum spread over the PLR with the approval of the ALCO/Board for all advances
other than consumer credit.

ALM Information System

The ALM Information System is required for the collection of information accurately,
adequately and expeditiously. Information is the key to the ALM process. A good
information system gives the bank management a complete picture of the bank's

19
balance sheet. ALM

Process

The basic ALM processes involving identification, measurement and management of risk
parameter .The RBI in its guidelines has asked Indian banks to use traditional techniques like
Gap Analysis for monitoring interest rate and liquidity risk. However RBI is expecting Indian
banks to move towards sophisticated techniques like Duration, Simulation, VaR in the future.
For the accrued portfolio, most Indian Private Sector banks use Gap analysis, but are gradually
moving towards duration analysis. Most of the foreign banks use duration analysis and are
expected to move towards advanced methods like Value at Risk for the entire balance sheet.
Some foreign banks are already using VaR for the entire balance sheet.

ALM has evolved since the early 1980's. Today, financial firms are increasingly using market
value accounting for certain business lines. This is true of universal banks that have trading
operations. Techniques of ALM have also evolved. The growth of OTC derivatives markets
has facilitated a variety of hedging strategies. A significant development has been
securitization, which allows firms to directly address asset- liability risk by removing assets or
liabilities from their balance sheets. This not only eliminates asset-liability risk; it also frees up
the balance sheet for new business.

Thus, the scope of ALM activities has widened. Today, ALM departments are
addressing (non-trading) foreign exchange risks as well as other risks. Also, ALM has
extended to non-financial firms. Corporations have adopted techniques of ALM to address
interest-rate exposures, liquidity risk and foreign exchange risk. They are using related
techniques to address commodities risks. For example, airlines' hedging of fuel prices or
manufacturers' hedging of steel prices are often presented as ALM. Thus it can be safely said
that Asset Liability Management will continue to grow in future and an efficient ALM
technique will go a long way in managing volume, mix, maturity, rate sensitivity, quality and
liquidity of the assets and liabilities so as to earn a sufficient and acceptable return on the
portfolio.

ALM is a comprehensive and dynamic framework for measuring, monitoring and managing
the market risk of a bank. It is the management of structure of balance

20
sheet (liabilities and assets) in such a way that the net earnings from interest ismaximized
within the overall risk-preference (present and future) of the institutions. The ALM functions
extend to liquidly risk management, management of market risk, trading risk management,
funding and capital planning and profit planning and growth projection.

Benefits of ALM - It is a tool that enables bank managements to take business decisions in a
more informed framework with an eye on the risks that bank is exposed to. It is an
integrated approach to financial management, requiring simultaneous decisions about the
types of amounts of financial assets and liabilities
- both mix and volume - with the complexities of the financial markets in which the institution
operates the concept of ALM is of recent origin in India. It has been introduced in Indian
Banking industry w.e.f. 1st April, 1999. ALM is concerned with risk management and
provides a comprehensive and dynamic framework for measuring, monitoring and managing
liquidity, interest rate, foreign exchange and equity and commodity price risks of a bank that
needs to be closely integrated with the banks’ business strategy.

Therefore, ALM is considered as an important tool for monitoring, measuring and managing
the market risk of a bank. With the deregulation of interest regime in India, the Banking
industry has been exposed to the market risks. To manage such risks, ALM is used so that
the management is able to assess the risks and cover some of these by taking appropriate
decisions.

The assets and liabilities of the bank’s balance sheet are nothing but future cash inflows or
outflows. With a view to measure the liquidity and interest rate risk, banks use of maturity ladder
and then calculate cumulative surplus or deficit of funds in different time slots on the basis of
statutory reserve cycle, which are termed as time buckets.

As a measure of liquidity management, banks are required to monitor their cumulative

mismatches across all time buckets in their Statement of Structural Liquidity by establishing
internal prudential limits with the approval of the Board / Management Committee.

21
The ALM process rests on three pillars:

i) ALM Information Systems

 Management Information Systems
 Information availability, accuracy, adequacy and expediency
ii) ALM Organization
 Structure and responsibilities
 Level of top managementinvolvement
iii) ALM Process
 Risk parameters
 Risk identification
 Risk measurement
 Risk management
 Risk policies and tolerancelevels.

As per RBI guidelines, commercial banks are to distribute the outflows/inflows in different
residual maturity period known as time buckets. The Assets and Liabilities were earlier
divided into 8 maturity buckets (1-14 days; 15-28 days; 29-
90 days; 91-180 days; 181-365 days, 1-3 years and 3-5 years and above 5 years), based on
the remaining period to their maturity (also called residual maturity). All the liability figures
are outflows while the asset figures are inflows. In September, 2007, having regard to the
international practices, the level of sophistication of banks in India, the need for a sharper
assessment of the efficacy of liquidity management and with a view to providing a stimulus
for development of the term- money market, RBI revised these guidelines and it was provided
that

(a) The banks may adopt a more granular approach to measurement of liquidity risk by
splitting the first time bucket (1-14 days at present) in the Statement of Structural Liquidity
into three time buckets viz., next day , 2-7 days and 8-14 days. Thus, now we have 10 time
buckets.

After such an exercise, each bucket of assets is matched with the corresponding

22
bucket of the liability. When in a particular maturity bucket, the amount of maturing
liabilities or assets does not match, such position is called a mismatch position, which
creates liquidity surplus or liquidity crunch position and depending upon the interest rate
movement, such situation may turn out to be risky for the bank. Banks are required to
monitor such mismatches and take appropriate steps so that bank is not exposed to risks
due to the interest rate movements during that period.

(b) The net cumulative negative mismatches during the Next day, 2-7 days, 8-14 days
and 15-28 days buckets should not exceed 5 % ,10%, 15 % and 20 % of the cumulative
cash outflows in the respective time buckets in order to recognize the cumulative impact on
liquidity.

The Boards of the Banks have been entrusted with the overall responsibility for the
management of risks and is required to decide the risk management policy and set limits for
liquidity, interest rate, foreign exchange and equity price risks.

Asset-Liability Committee (ALCO) is the top most committee to oversee the

implementation of ALM system and it is to be headed by CMD or ED. ALCO considers
product pricing for both deposits and advances, the desired maturity profile of the
incremental assets and liabilities in addition to monitoring the risk levels of the bank. It will
have to articulate current interest rates view of the bank and base its decisions for future
business strategy on this view.

Rate Sensitive Assets &Liabilities: An asset or liability is termed as rate sensitive when

(a) Within the time interval under consideration, there is a cash flow,

(b) The interest rate resets/reprises contractually during the interval,

(c) RBI changes interest rates where rates are administered and,

(d) It is contractually pre-payable or withdrawal before the stated maturities.

23
Assets and liabilities which receive / pay interest that vary with a benchmark rate are re-priced at
pre-determined intervals and are rate sensitive at the time of re-pricing.

INTEREST RISK:

The phased deregulation of interest rates and the operational flexibility given to banks in
pricing most of the assets and liabilities imply the need for the banking system to hedge the
Interest-Rate Risk. Interest Rate Risk is the risk where changes in market interest rates might
adversely affect the Bank’s Net Interest Income. The gap report should be generated by
grouping interest rate sensitive liabilities, assets and off balance sheet positions into time
buckets according to residual maturity or next reprising period, whichever is earlier. Interest
rates on term deposits are fixed during their currency while the advance interest rates are floating
rates. The gaps on the assets and liabilities are to be identified on different time buckets from
1–28 days, 29 days upto 3 months and so on. The interest changes should be studied vis-a
-vis the impact on profitability on different time buckets to assess the interest rate risk.

GAP ANALYSIS:

The various items of rate sensitive assets and liabilities and off-balance sheet items are
classified into time buckets such as 1-28 days, 29 days and up to 3 months etc. and items non-
sensitive to interest based on the probable date for change in interest. The gap is the difference
between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) in various time
buckets. The positive gap indicates that it has more RSAS than RSLS whereas the negative
gap indicates that it has more RSLS. The gap reports indicate whether the institution is in a
position to benefit from rising interest rates by having a Positive Gap (RSA > RSL) or whether it
is a position to benefit from declining interest rate by a negative Gap (RSL > RSA).

24
TOTAL FINANCIAL SERVICES FIRMS RISK.

Total Risk (Responsibility

of CEO)

Business Risk Financial Risk

Product Market Risk Capital Market Risk

(Responsibility of the (Responsibility of the

Chief Operating Officer) Chief Financial Officer)

Credit Interest rate

Strategic Liquidity
Regulatory currency
Operating Settlement
Human resources Basis
Legal

25
(I).PRODUCT MARKET RISK:

This risk decision relate to the operating revenues and expenses of the form that impact the
operating position of the profit and loss statements which include crisis, marketing, operating
systems, labor cost, technology, channels of distributions at strategic focus. Product Risks
relate to variations in the operating cash flows of the firm, which effect Capital Market, required
Rates of Return:

(1) CREDIT RISK

(2) STRATEGIC RISK

(3) COMMODITY RISK

(4) OPERATIVE RISK

(5) HUMAN RESOURCES RISK

(6) LEGAL RISK

Risk in Product Market relate to the operational and strategic aspects of managing operating
revenues and expenses. The above types of Product Risks are explained as follows:

(1). CREDIT RISK:

The most basic of all Product Market Risk or other financial intermediary is the erosion of
value due to simple default or non-payment by the borrower. Credit risk

26
has been around for centuries and is thought by many to be the dominant financial services
today’s intermediate the risk appetite of lenders and essential risk ness of borrowers. manage
this risk by ; (A) making intelligent lending decisions so that expected risk of borrowers is
both accurately assessed and priced; (B) Diversifying across borrowers so that credit losses
are not concentrated in time; (C) purchasing third party guarantees so that default risk is
entirely or partially shifted away from lenders.

(2). STRATEGIC RISK:

This is the risk that entire lines of business may succumb to competition or obsolescence.
In the language of strategic planner, commercial paper is a substitute product for large corporate
loans. Strategic risk occurs when a is not ready or able to compete in a newly developing line of
business. Early entrants enjoyed a unique advantage over newer entrants. The seemingly
conservative act of waiting for the market to develop posed a risk in itself. Business risk
accrues from jumping into lines of business but also from staying out too long.

(3). COMMODITY RISK:

Commodity prices affects and other lenders in complex and often unpredictable ways. The
macro effect of energy price increases on inflation also contributed to a rise in interest rates,
which adversely affected the value of many fixed rate financial assets. The subsequent crash in
oil prices sent the process in reverse with nearly equally devastating effects.

(4). OPERATING RISK:

Machine-based system offer essential competitive advantage in reducing costs and
improving quality while expanding service and speed. No element of management process
has more potential for surprise than systems malfunctions. Complex, machine-based systems
produce what is known as the “black box effect”. The inner working of system can become
opaque to their users. Because developers do not use the system and users often have not
constitutes a significant Product Market Risk. No financial service firm can small
management challenge in the modern financial services company.

27
(5). HUMAN RESOURCES RISK:
Few risks are more complex and difficult to measure than those of personnel policy; they
are Recruitment, Training, Motivation and Retention. Risk to the value of the Non-Financial
Assets as represented by the work force represents a much more subtle of risk. Concurrent
with the loss of key personal is the risk of inadequate or misplaced motivation among
management personal. This human redundancy is conceptually equivalent to safety
redundancy in operating systems. It is not inexpensive, but it may well be cheaper than the risk
of loss. The risk and rewards of increased attention to the human resources dimension of
management are immense.

(6). LEGAL RISK:

This is the risk that the legal system will expropriate value from the shareholders of financial
services firms. The legal landscape today is full of risks that were simply unimaginable even a
few years ago. More over these risks are very hard to anticipate because they are often unrelated
to prior events which are difficult and impossible to designate but the management of a financial
services firm today must have these risks at least in view. They can cost millions.

(II). CAPITAL MARKET RISK:

In the Capital Market Risk decision relate to the financing and financial support of
Product Market activities. The result of product market decisions must be compared to the
required rate of return that results from capital market decision to determine if management is
creating value. Capital market decisions affect the risk tolerance of product market decisions
related to variations in value associated with different financial instruments and required rate of
return in the economy.
1. LIQUIDITY RISK

2. INTEREST RATE RISK

3. CURRENCY RISK

4. SETTLEMENT RISK

28
 5. BASIS RISK

1. LIQUIDITY RISK:
For experienced financial services professionals, the foremost capital market risk is that
of inadequate liquidity to meet financial obligations. The obvious form is an inability to pay
desired withdrawals. Depositors react desperately to the mere prospect of this situation.They
can drive a financial intermediary to collapse by withdrawing funds at a rate that exceeds its
capacity to pay. For most of this century, individual depositors who lost faith in ability to repay
them caused failures from liquidity. Funds are deposited primarily as a financial of rate. Such
funds are called “purchased money” or “headset funds” as they are frequently bought by
employees who work on the money desk quoting rates to institutions that shop for the highest
return. To check liquidity risk, firms must keep the maturity profile of the liabilities compatible
with that of the assets. This balance must be close enough that a reasonable shift in interest
rates across the yield curve does not threaten the safety and soundness of the entire firm.

2. INTEREST RATE RISK:

In extreme conditions, Interest Rate fluctuations can create a liquidity crisis. The fluctuation
in the prices of financial assets due to changes in interest rates can be large enough to make
default risk a major threat to a financial services firm’s viability. There’s a function of both the
magnitude of change in the rate and the maturity of the asset. This inadequacy of assessment
and consequent mispricing of assets, combined with an accounting system that did not record
unrecognized gains and losses in asset values, created a financial crisis. Risk based capital
rules pertaining to have done little to mitigate the interest rate risk management problem. The
decision to pass it of, however is not without large cost, so the cost benefit tradeoff becomes
complex.

3. CURRENCY RISK:
The risk of exchange rate volatility can be described as a form of basis risk among

29
currencies instead of basis risk among interest rates on different securities. Balance sheets
comprised of numerous separate currencies contain large camouflaged risks through financial
reporting systems that do not require assets to be marked to market. Exchange rate risk
affects both the Product Markets and The Capital Markets. Ways to contain currency risk
have developed in today’s derivative market through the use of swaps and forward contracts.
Thus, this risk is manageable only after the most sophisticated and modern risk management
technique is employed

4. SETTLEMENT RISK:
Settlement Risk is a particular form of default risk, which involves the competitors. Amounts
settle obligations having to do with money transfer, check clearing, loan disbursement and
repayment, and all other inter- transfers within the worldwide monetary system. A single
payment is made at the end of the day instead of multiple payments for individual
transactions.

5. BASIS RISK:
Basis risk is a variation on the interest rate risk theme, yet it creates risks that are less easy to
observe and understand. To guard against interest rate risk, somewhat non comparable
securities may be used as a hedge. However, the success of this hedging depends on a
steady and predictable relationship between the two no identical securities. Basis can negate
the hedge partially or entirely, which vastly increases the Capital Market Risk exposure of the
firm.

RISK MANAGEMENT IN Syndicate Bank

Narasimham committee II ,advised to address market risk in a structured manner by adopting
Asset and Liability Management practices with effect from April 1st 1989.

Asset and liability management (ALM) is “the Art and Science of choosing the best mix of
assets for the firm’s asset portfolio and the best mix of liabilities for the firm’s liability portfolio”.
It is particularly critical for Financial Institutions.

For a long time it was taken for granted that the liability portfolio of financial firms was
beyond the control of the firm and so management concentrated its efforts on choosing the
asset mix. Institutions treasury department used the funds

30
provided by deposits to structure an asset portfolio that was appropriate for the given liability
portfolio.

With the advent of Certificate of Deposits (CDs), a tool by which to manipulate the mix
of liabilities that supported their Asset portfolios, which has been one of the active management
of assets and liabilities.
Asset and liability management program evolve into a strategic tool for management, the
main elements of the ALM system are:

 ALM INFORMATION.
 ALM ORGANISATION.
 ALM FUNCTION.

ALM INFORMATION:
ALM is a risk management tool through which Market risk associated with business are
identified, measured and monitored to maintain profits by restructuring Assets and Liabilities.
The ALM framework needs to be built on sound methodology with necessary information
system as back up. Thus the information is key element to the ALM process.

There are various methods prevalent worldwide for measuring risks. These range from the
simple Gap statement to extremely sophisticate and data intensive Risk adjusted profitability
measurement (RAPM) methods. The central element for the entire ALM exercise is the
availability of adequate and accurate information.

However, the existing systems in many Indians do not generate information in manner
required for the ALM. Collecting accurate data is the biggest challenge before, the particularly
those having wide network of branches, but lacking full-scale computerization.

Therefore the introduction of these information systems for risk measurement and
monitoring has to be addressed urgently.

31
 The large network of branches and the lack of support system to collect information
required for the ALM which analysis information on the basis of residual maturity and
behavioral pattern, it would take time for s in the present state to get the requisite information.

ALM CELL
The ALM desk / cell consisting of operating staff should be responsible for analyzing,
monitoring and reporting the profiles to the HDFC. The staff should also prepare forecasts
(simulations) showing the effects of various possible changes in market conditions related to
the balance sheet and recommend the action needed to adhere to the internal limits.

COMMITTEE OF DIRECTORS
They should also constitute professional, management and supervisory
committee, consisting of three to four directors, which will oversee the
implementation of the ALM system, and review it’s functioning periodically.
HEAD OF ACCOUNTS Classification into time buckets
A.OUTFLOWS
1.Capital, Reserves and Surplus Over 5 years bucket.
2.Demand Deposits (Current & Demand Deposits may be classified into
Savings Deposits) volatile and core portions, 25 % of
deposits are generally withdraw able on
demand. This portion may be treated as
volatile. While volatile portion may be placed
in the first time bucket i.e., 1-14 days, the
core portion may be placed in 1
-2 years, bucket.
3. Term Deposits Respective maturity buckets.

4. Borrowings Respective maturity buckets.

5. Other liabilities and provisions (i) 1-14 days bucket

32
 (i) Bills Payable (ii) Items not representing cash
(ii) Inter-office Adjustment payable may be placed in over 5
(iii) Provisions for NAPs years bucket
a) sub-standard (iii) a) 2-5 yearsbucket.
b) doubtful and Loss b) Over 5 years bucket
(iv) provisions for depreciation in .(iv) Over 5 years bucket.
Investments (v) a) 2-5 years bucket.
(v) provisions for NAPs in b) Over 5 years bucket
investment (vi) Respective buckets depending on the
(vi) provisions for other purposes purpose.

B. INFLOWS

1. Cash 1-14 days bucket.

2. Balance with others
(i) Non-withdraw able portion on
(i) Current Account
account of stipulations of minimum
balances may be shown Less than 1-
14 days bucket.

(ii) Money at call and short Notice, (ii) Respective maturity buckets.

Term Deposits and other

Placements

3. Investments
(i) Respective maturity buckets
(i) Approved securities
excluding the amount required to be
reinvested to maintain SLR
(ii) Corporate Debentures and (ii) Respective Maturity buckets.
bonds, CDs and CPs, Investments classified as NPAs
redeemable preference Should be shown under 2-5 years
shares, units of Mutual bucket (sub-standard) or over 5
Funds (close ended). Etc. years bucket (doubtful and loss).
(iii) Share / Units of Mutual (iii) Over 5 years bucket.
Funds (open ended)

33
 (iii) Investment in (iv) Over 5 years bucket.
subsidiaries /
Joint Ventures.

4. Advances (performing / standard)

(i) Respective Maturity buckets.
(i) Bills Purchased and
(ii) they should undertake a study
Discounted
(including bills under of behavioral and seasonal pattern of a

DUPN) ailments based on outstanding and the

(iii) Cash Credit / Overdraft core and volatile portion should be

(including TOD) and Demand identified. While the volatile portion

Loan component of could be shown in the respective maturity

Working Capital. bucket. The core portion may be shown

under 1-2 years bucket.
(iii) Interim cash flows may be shown
(iii) Term Loans under respective maturity
buckets.

5. NPAs
(I) 2-5 years bucket.
a. Sub-standard
(ii) Over 5 years bucket.
b. Doubtful and Loss
6. Fixed Assets Over 5 yearsbucket.
7. Other-office Adjustment
(i) As per trend analysis,
(i) Inter-office Adjustment
Intangible items or items not
representing cash receivables
may be shown
in over 5 years bucket.
(ii) Others (i) Respective maturity buckets.
Intangible assets and assets not
representing cash receivables may
be shown in

34
 over 5 years bucket.

Terms used:
CDs: Certificate of Deposits.
CPs: Commercial Papers.
DTL PROFILE: Demand and Time Liabilities.
Inter office adjustment: (a)Outflows: Net Credit Balance (b)Inflows: Net Debt
Balances
Other Liabilities: Cash payables, Income received in advance, Loan Loss and Depreciation in
Investments.
Other assets: Cash Receivable, Intangible Assets and Leased Assets.

35
 CHAPTER-III

INDUSTRY & COMPANYPROFILE

INDUSTRY PROFILE

As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently
capitalized and well-regulated. The financial and economic conditions in the country are far
superior to any other country in the world. Credit, market and liquidity risk studies suggest
that Indian banks are generally resilient and have withstood the global downturn well.
Indian banking industry is expected to witness better growth prospects in 2015 as a sense of
optimism stems from the Government’s measures towards revitalizing the industrial growth in
the country. In addition, RBI’s new measures may go a long way

36
in helping the restructuring of the domestic banking industry.

A bank is a financial institution that accepts deposits and channels those deposits into lending
activities. Banks primarily provide financial services to customers while enriching investors.
Government restrictions on financial activities by banks vary over time and location. Banks
are important players in financial markets and offer services such as investment funds and
loans. In some countries such as Germany, banks have historically owned major stakes in
industrial corporations while in other countries such as the United States banks are prohibited
from owning non-financial companies. In Japan, banks are usually the nexus of a cross-
share holding entity known as the keiretsu. In France, bancassurance is prevalent, as most
banks offer insurance services (and now real estate services) to their clients.

Introduction
India’s banking sector is constantly growing. Since the turn of the century, there has been a
noticeable upsurge in transactions through ATMs, and also internet and mobile banking.
Following the passing of the Banking Laws (Amendment) Bill by the Indian Parliament in
2012, the landscape of the banking industry began to change. The bill allows the Reserve Bank
of India (RBI) to make final guidelines on issuing new licenses, which could lead to a bigger
number of banks in the country. Some banks have already received licences from the
government, and the RBI's new norms will provide incentives to banks to spot bad loans and
take requisite action to keep rogue borrowers in check.Over the next decade, the banking
sector is projected to create up to two million new jobs, driven by the efforts of the RBI and
the Government of India to integrate financial services into rural areas. Also, the traditional
way of operations will slowly give way to modern technology.

History

Origin of the word

The name bank derives from the Italian word banco "desk/bench", used during the
Renaissance by Jewish Florentine bankers, who used to make their transactions above a
desk covered by a green tablecloth. However, there are traces of banking

37
activity even in ancient times, which indicates that the word 'bank' might not necessarily
come from the word 'banco'.

In fact, the word traces its origins back to the Ancient Roman Empire, where
moneylenders would set up their stalls in the middle of enclosed courtyards called macella on
a long bench called a bancu, from which the words banco and bank are derived. As a
moneychanger, the merchant at the bancu did not so much invest money as merely convert
the foreign currency into the only legal tender in Rome—that of the Imperial Mint.

The earliest evidence of money-changing activity is depicted on a silver drachm coin from
ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350–325 BC,
presented in the British Museum in London. The coin shows a banker's table (trapeza) laden
with coins, a pun on the name of the city.

In fact, even today in Modern Greek the word Trapeza (Τράπεζα) means both a table and a
bank.

Market Size
The Indian banking system consists of 26 public sector banks, 25 private sector banks,
43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural
cooperative banks, in addition to cooperative credit institutions. Public- sector banks control
nearly 80 percent of the market, thereby leaving comparatively much smaller shares for its
private peers.

As of November 11, 2015, 192.1 million accounts had been opened under Pradhan Mantri
Jan DhanYojna (PMJDY) and 165.1 million RuPay debit cards were issued. These new
accounts have mustered deposits worth Rs 26,819 crore (US$ 4 billion).
Standard & Poor’s estimates that credit growth in India’s banking sector would improve to
12-13 per cent in FY16 from less than 10 per cent in the second half of CY14.
Investments/developments
In the past few months, there have been many investments and developments in the Indian
banking sector
Global rating agency Moody's has upgraded its outlook for the Indian banking

38
system to stable from negative based on its assessment of five drivers including
improvement in operating environment and stable asset risk and capital scenario.

Lok Capital, a private equity investor backed by US-based non-profit organisation

Rockefeller Foundation, plans to invest up to US$ 15 million in two proposed small
finance banks in India over the next one year.

The Reserve Bank of India (RBI) has granted in-principle licences to 10 applicants to open
small finance banks, which will help expanding access to financial services in rural
and semi-urban areas.

IDFC Bank has become the latest new bank to start operations with 23 branches, including
15 branches in rural areas of Madhya Pradesh.

The RBI has given in-principle approval to 11 applicants to establish payment banks.
These banks can accept deposits and remittances, but are not allowed to extend any loans.

The Bank of Tokyo-Mitsubishi (BTMU), a Japanese financial services group, aims to

double its branch count in India to 10 over the next three years and also target a 10 per cent
credit growth during FY16.

State Bank of India has tied up with e-commerce portal Snapdeal and payment gateway
Paypal to finance MSME businesses.

The United Economic Forum (UEF), an organisation that works to improve socio-
economic status of the minority community in India, has signed a memorandum of
understanding (MoU) with Indian Overseas Bank (IOB) for financing entrepreneurs from
backward communities to set up businesses in Tamil Nadu

The RBI has allowed third-party white label automated teller machines (ATM) to accept
international cards, including international prepaid cards, and said white label ATMs can
now tie up with any commercial bank for cash supply.

The RBI has allowed Indian alternative investment funds (AIFs), to invest abroad, in order
to increase the investment opportunities for these funds.

In order to boost the infrastructure sector and the banks financing long gestation projects, the
RBI has extended its flexible refinancing and repayment option for

39
 long-term infrastructure projects to existing ones where the total exposure of lenders is
more than Rs 500 crore (US$ 75.1 million).

RBI governor MrRaghuramRajan and European Central Bank President Mr Mario Draghi
have signed an MoU on cooperation in central banking. “The memorandum of
understanding provides a framework for regular exchange of information, policy dialogue
and technical cooperation between the two institutions. Technical cooperation may take
the form of joint seminars and workshops in areas of mutual interest in the field of central
banking,” RBI said on its website.

RBL Bank informed that it would be the anchor investor in Trifecta Capital’s Venture
Debt Fund, the first alternative investment fund (AIF) in India with a commitment of Rs
50 crore (US$ 7.51 million). This move provides RBL Bank the opportunity to support the
emerging venture debt market in India.

Bandhan Financial Services raised Rs 1,600 crore (US$ 240.2 million) from two
international institutional investors to help convert its microfinance business into a full
service bank. Bandhan, one of the two entities to get a banking licence along with
IDFC, launched its banking operations in August 2015.

Government Initiatives
The government and the regulator have undertaken several measures to strengthen the Indian
banking sector.
The Government of India is looking to set up a special fund, as a part of National
Investment and Infrastructure Fund (NIIF), to deal with stressed assets of banks. The
special fund will potentially take over assets which are viable but don’t have additional fresh
equity from promoters coming in to complete the project.

The Reserve Bank of India (RBI) plans to soon come out with guidelines, such as
common risk-based know-your-customer (KYC) norms, to reinforce protection for
consumers, especially since a large number of Indians have now been financially included
post the government’s massive drive to open a bank account for each

40
household.

To provide relief to the state electricity distribution companies, Government of India has
proposed to their lenders that 75 per cent of their loans be converted to state government
bonds in two phases by March 2017. This will help several banks, especially public
sector banks, to offload credit to state electricity distribution companies from their loan
book, thereby improving their asset quality.

The Reserve Bank of India (RBI), the Department of Industrial Policy & Promotion (DIPP)
and the Finance Ministry are planning to raise the Foreign Direct Investment (FDI) limit in
private banks sector to 100 per cent from 74 per cent.

Government of India aims to extend insurance, pension and credit facilities to those
excluded from these benefits under the Pradhan Mantri Jan DhanYojana (PMJDY).<

The Government of India announced a capital infusion of Rs 6,990 crore (US$

1.05 billion) in nine state run banks, including State Bank of India (SBI) and Punjab
National Bank (PNB). However, the new efficiency parameters would include return on
assets and return on equity. According to the finance ministry, “This year, the Government
of India has adopted new criteria in which the banks which are more efficient would only be
rewarded with extra capital for their equity so that they can further strengthen their position."

To facilitate an easy access to finance by Micro and Small Enterprises (MSEs), the
Government/RBI has launched Credit Guarantee Fund Scheme to provide guarantee
cover for collateral free credit facilities extended to MSEs uptoRs 1 Crore (US$ 0.15
million). Moreover, Micro Units Development & Refinance Agency (MUDRA) Ltd. was
also established to refinance all Micro-finance Institutions (MFIs), which are in the
business of lending to micro / small business entities engaged in manufacturing,
trading and services activities uptoRs 10 lakh (US$ 0.015 million).

The central government has come out with draft proposals to encourage electronic
transactions, including income tax benefits for payments made through debit or
credit cards.

41
 The Union cabinet has approved the establishment of the US$ 100 billion New
Development Bank (NDB) envisaged by the five-member BRICS group as well as the
BRICS “contingent reserve arrangement” (CRA).

The government has plans to set up a fund that will provide surety to banks against loans
given to students for higher education.

Road Ahead
The Indian economy is on the brink of a major transformation, with several policy initiatives
set to be implemented shortly. Positive business sentiments, improved consumer
confidence and more controlled inflation are likely to prop-up the country’s the economic growth.
Enhanced spending on infrastructure, speedy implementation of projects and continuation of
reforms are expected to provide further impetus to growth. All these factors suggest that
India’s banking sector is also poised for robust growth as the rapidly growing business
would turn to banks for their credit needs.
Also, the advancements in technology have brought the mobile and internet banking services to
the fore. The banking sector is laying greater emphasis on providing improved services to
their clients and also upgrading their technology infrastructure, in order to enhance the
customer’s overall experience as well as give banks a competitive edge.Many banks,
including HDFC, ICICI and AXIS are exploring the option to launch contact-less credit and
debit cards in the market shortly. The cards, which use near field communication (NFC)
mechanism, will allow customers to transact without having to insert or swipe.

Indian banking sector credit growth has grown at a healthy pace

• Credit off-take has been surging ahead over the past decade, aided by strong economic
growth, rising disposable incomes, increasing consumerism and easier access to credit
• Total credit extended went up to US$ 1,089 billion by FY15
• Credit to non-food industries increased 9.75 per cent to US$ 1,073.4 billion in FY15, from the
previous financial year
• Demand has grown for both corporate and retail loans

42
 Reserve Bank of India (RBI) in its fifth bi-monthly monetary policy review has
maintained status status quo in key policy interest rate. The Key policy interest rates are Repo rate under
the liquidity adjustment facility (LAF): unchanged at 6.75 per cent. Reverse repo rate under the LAF:
unchanged at 5.75 per cent Marginal standing facility (MSF) rate and the Bank Rate has unchanged at
7.75 per cent. Cash Reserve Ratio (CRR) of scheduled banks: Unchanged at 4.0 per cent of net demand
and time liability (NDTL). Continuation of liquidity under overnight repos at 0.25 per cent of bank-wise
NDTL at the LAF repo rate.Continuation of liquidity under 14-day term repos as well as longer term
repos of up to 0.75 per cent of NDTL of the banking
43
system through auctions.

COMPANY PROFILE

HISTORY

PROFILE OF THE BANK

Syndicate Bank was established in 1925 in Udupi, the abode of Lord Krishna in coastal
Karnataka with a capital of Rs.8000/- by three visionaries - Sri UpendraAnanthPai, a
businessman, Sri VamanKudva, an engineer and Dr.T M A Pai, a physician - who shared a
strong commitment to social welfare. Their objective was primarily to extend financial
assistance to the local weavers who were crippled by a crisis in the handloom industry through
mobilising small savings from the community. The bank collected as low as 2 annas daily at
the doorsteps of the depositors through its Agents under its Pigmy Deposit Scheme started in
1928. This scheme is the Bank's brand equity today and the Bank collects around Rs. 2 crore
per day under thescheme.

The progress of Syndicate Bank has been synonymous with the phase of progressive banking
in India. Spanning over 80 years of pioneering expertise, the Bank has created for itself a
solid customer base comprising customers of two or three generations. Being firmly rooted in
rural India and understanding the grassroot realities, the Bank's perception had vision of
future India. It has been propagating innovations in Banking and also has been receptive to
new ideas, without however getting uprooted from its distinctive socio-economic and cultural
ethos. Its philosophy of growth by mutual sustenance of both the Bank and the people has
paid rich dividends. The Bank has been operating as a catalyst of development across the
country with particular reference to the common man at the individual level and in rural/semi
urban centres at the area level.

The Bank is well equipped to meet the challenges of the 21st century in the areas of information
technology, knowledge and competition. A comprehensive IT plan is

44
being put in place and the skills and knowledge of the Bank's personnel are being upgraded
through a variety of training programmes to promote customer delight in every sphere of its
activity. The Bank has launched an ambitious technology plan called Centralised Banking
Solution (CBS) whereby 500 of our strategic branches with their ATMs are being networked
nationwide over a 4 year period. The Bank is pioneer among Public Sector Banks on
launching CBS. Our bank has already achieved CBS implementation among all its branches.
Thus, the bank is 100% CBS enabled.

Pigmy Deposit Scheme - Bank's Brand Equity

Launched in 1928 by Dr.T.M.A.Pai, one of the Founders to encourage the habit of thrift
and small savings. Pigmy Scheme symbolises the description of the Bank as "a small
man's big Bank" even today.
Bank collects as low as Rs.5 daily for 72 months at the doorsteps of 10.36 lac depositors
through its more than 4000 Pigmy agents.
Pigmy deposits of the Bank crossed Rs.1800 crore.

45
46
 MEMORABLE MILESTONES IN A 82-YEAR JOURNEY Growing Far And Wide

2006 Bank signs MOU with M/s.CMC Ltd., for making Syndicate Institute of Bank
Management (SIBM) a center of excellence of global standards and provide quality
management education.
2006 500th Branch of SyndicateBank in Karnataka opened at Navnagar, Bagalkot.
2006 2000th Branch of SyndicateBank opened at Tondiarpet, Chennai on 23.03.2006.
2006 Inauguration of SyndBank Services Limited, the 1st BPO outfit of a Nationalised Bank, a
wholly owned subsidiary of SyndicateBank& 525th CBS Branch by Hon'ble
Union Minister of Finance, Sri P Chidambaram on 24.03.2006 at Bangalore.
2006 2006th Branch of SyndicateBank opened at Gangtok, Sikkim on 27.03.2006
2006 First Branch opened in Arunachal Pradesh at Ita Nagar on 16th October 2006

2006 Branches opened for the first time in 19 additional districts

2007 First Branch opened in Nagaland at Dimapur on 17.03.2007

2007 First Branch opened in Mizoram in Aizawl on 29.03.2007

2008 Branches opened for the first time in 13 additional districts

2008 First Branch opened in Tripura at Agarthala on 11.01.2008

2009 Branch network expanded to all States and UTs except Manipur & Daman Diu

2010 Branches opened for the first time in 6 new districts.

2009- i.The Bank opened 3 new Regional Offices at Moradabad, Jaipur and Guwahati for
2010
better administrative cover over branches in the respective jurisdictions. The
Regional Office at Gauwahati is also expected to help the Bank to play a more
active role in the development of the North Eastern parts of the country.
ii. The Bank opened 50 branches on a single day (11.03.2010).

47
2010- The Bank opened 135 branches under the Financial Inclusion programme of the Govt. of
2011
India
2012- Credit to meet all genuine credit needs. Credit to the extent of ` 21292 crore was disbursed to
2013
priority sector activities under Annual Action Plan in these villages
2014- Priority Sector Advances as at March 2014 were ` 52016 crore accounting for 43.19% of
the Bank’s adjusted net credit as against the mandatory level of 40 %.
27.97 Lakh borrowers assisted under priority sector. Bank has adopted 13,820 Service
Area / Operational Area Villages for extending timely. Credit to meet all genuine credit
needs. Credit to the extent of ` 21292 crore was disbursed to priority sector activities under
Annual Action Plan in these villages. The agricultural credit disbursed during the financial
year 2013-14 was ` 13317 crore.

2015- Action Plan for development of UT of Lakshadweep through credit deployment has been
prepared.

MANAGEMENT
Sri Arun Shrivastava

Managing Director & CEO

Sri Arun Shrivastava has assumed charge as Managing Director & CEO of Syndicate Bank
on 15.05.2015. Prior to joining the Bank, Sri Arun Shrivastava was Executive Director of
Bank of India, looking after Finance, Strategy & Planning, Large Corporate & Mid Corporate
Business, Corporate Debt Restructuring, Project Finance & Syndication, Credit
Monitoring & Asset Recovery, Publicity & Public Relations portfolios of Bank. Was
also overseeing the Foreign Subsidiaries – BOI Indonesia & Botswana and Joint Venture –
India Zambia Bank. He holds Masters Degree in Science. In addition he is also a Certified
Associate of Indian Institute of Bankers and AIBM. He started his career as Direct Recruit
Officer in Bank of Baroda in 1979. He has been a professional Banker for over 36 years of
varied experience including his posting as Managing Director of Bank’s Subsidiary in Kenya
and also as Director on the Board of Bank’s subsidiary in Uganda and Tanzania. During his
tenure, Bank of Baroda Kenya Ltd was awarded ‘Most Efficient Bank” and the “Best Bank” in
Kenya. Prior to his elevation as Executive Director, Bank of India during August 2013, he was

48
General Manager, Wholesale Banking at Baroda Corporate Centre, Bank of Baroda, Mumbai.
He has a vast & rich experience in all facets of Banking..

Shri T K Srivastava
Executive Director
Shri T K Srivastava has assumed charge as Executive Director of Syndicate Bank on 1st
September 2013. Prior to joining the Bank, Shri. Srivastava was General Manager, Union Bank
of India.

Shri Srivastava holds Master in Management Studies and Commerce. In addition, he is also a
Certified Associate of Indian Institute of Bankers. Shri Srivastava has been a Professional
Banker for over 37 years of varied experience.

Sr. No. Name Of Director Category

1 Sri Arun Shrivastava Managing Director & CEO
2 Shri T K Srivastava Executive Director
3 Shri R S Pandey Executive Director
4 Shri H. Pradeep Rao Government Director
5 Shri Rudra Narayan Kar RBI Director
6 Shri SankaranBhaskarIyer Workman Director
7 Shri Sanjay Anant Manjrekar Officer Director
8 Dr. C R NaseerAhamed Part-Time Non-official Director
9 Shri Atul Ashok Galande Shareholder's Director

Shri Rudra Narayan Kar has been nominated as RBI Nominee Director on the Board of our
Bank by the Government of India w.e.f. 23.02.2015.
Shri Rudra Narayan Kar is currently working as Regional Director of Kolkata Office of Reserve
Bank of India which covers State of West Bengal & Sikkim. Earlier he has worked as Chief
General Manager-in-Charge of Foreign Exchange Department of the Bank looking after
administration of FEMA and policy formulation in the areas of Capital Account Management
and Foreign Exchange Market. As Chief General Manager in the Department of
External Investments and Operations he was involved with the deployment of foreign exchange
reserves of thecountry.
Dr. C R NaseerAhamed
Part-Time Non-official Director Shri
Atul Ashok Galande Shareholder's
Director

49
Our Bank offers a number of varied products under Deposits, Advances to suit the needs of
all types of customers. Details of products are available in each category under this head. We
offer other services for our customers like Cash Management Services and Gift Cheques.

We also have various delivery channels like ATM, Internet Banking, SMS
Banking offering specialised products and services at our branches which have been 100%
brought under Centralised Banking Solution.

Rate Of Interest, Charges & Fees at a glance

Please click here to know Rates of Interest on Deposits, Loans and Fees at a Glance

Rate Of Interest - Deposits

Please click here to know Domestic Deposit Interest Rates (latest)

"Your Deposits are Insured with DICGC" Please click here to know more about Deposit
Insurance
Please take a print of Account Opening Form - Common for all types of Domestic Deposit
accounts
Non-resident (External) Rupee Accounts (NRE A/cs.) - For Interest Rates Click NRE A/c
Foreign Currency Non-resident Accounts (FCNR(B) A/cs) -- For Interest Rates Click
FCNR (B)

Penalty for premature closure of deposits

For premature withdrawal of term deposits, the interest will be paid at the rate applicable
to the period for which the deposit remained with the Bank or at contracted rate whichever
is lower, less penalty, as under :

================================================

Before completion of 15 days : No interest payable

After completion of 15 days, : 1% up to and including one year

50
 After completion of 1 year : 0.5%

================================================

The SyndicateBank has promoted "SyndBank Services Limited" as a wholly owned

subsidiary to undertake BPO activities. The subsidiary, incorporated as a government company
commenced its operations in March,2006. This initiative of the Bank heralds a new
beginning in the Indian Banking industry by carving out the first BPO outfit of a Nationalized
Bank.

This BPO Company is undertaking/authorized to undertake the following activities:

Back Office functions relating to Debit Cards, Credit Card, ATMs, Banc assurance
Business and new products of the banks.
Follow-up of overdue accounts under retail loans by sending Notices/SMS messages and
tele-calling the customers to maintain a healthy retail credit portfolio of Banks
Pre-shipment hardware testing for the newly procured computer Hardware items like PCs,
Servers, ATMs, UPS, Routers, Switches, Modems and other peripherals such as
printers, (all types), scanners, digital cameras, etc., for Banks and Financial Institutions
Facilitating customers to file their Income Tax Returns
Back Office functions relating to Government Business Transactions & Interest / Dividend
Warrants issuance/ payments
Managing BCTT, Service Tax collection and Bonds Issue
Undertaking Credit Rating of Bank's borrowers
Providing guidance and maintenance of records for PF, Pension and Gratuity Trusts.
Syndicate Cash Management Services

Welcome to the world of complete peace of mind offered by SyndicateBank.

What is more, all these will be at your disposal if you choose to use our services now!
Incidentally, all these from the first Public Sector Bank that launched Centralised Banking
Solutions [CBS] to elevate you from a Branch customer to a Bank

51
customer.

Treasury Management

While on one hand, your business plans dictate reaching deep into the country's semi urban and
rural markets, you suddenly find that you need a Cash Management Services .

MOTIVATION PHILOSOPHY IN SYNDICATE BANK

SYNDICATE BANK recognizes that employees are the most important resource of any
organization. In the modern world, the human factor alone can provide a competitive edge to
any organization. As one author remarks – “Some of the best assets walk into and outside
the organization everyday”.
All HRD efforts are based on the fundamental concept that “Human-beings infinite
potential for growth and development that can be converted into performance by investment
of time and effort by management at all levels”. In SYNDICATE BANK “Human Resource
Management is identified as a key area providing the cutting edge to the organization in its
endeavor towards competitive excellence. The HRD philosophy of the organization is based
on “continuous efforts to enhance the knowledge develop skills and reorient attitude of
employees to keep pace with the changing environment”. An attempt is made to align HD
programmes with the basic businessstrategy.

TRAINING OBJECTIVES OF SYNDICATE BANK :

Objectives crystallize the fundamental principles enunciated in the mission and policy
statement. To operational the policy mission and statement, the following are the objectives of
SYNDICATE BANK of different trainingprogrammes.
1. To ensure that adequate time and efforts are invested at all levels of management
towards people management.

52
2. To instill in all employees a feeling of pride and belong with an intention to increase
organizational loyalty.
3. To design specific programmes with special focus on equipping the employees to meet
the emerging challenges and opportunities.
4. To help employees improve their core competency that has direct impact on their
performance and productivity.
5. To inculcate in the employee, the need for observing sound organization principles in
order to ensure healthy organization practices. A study of the fundamental mission
and philosophy of SYNDICATE BANK brings out to our notice the fundamental
assumptions behind all HRD attempts at

SYNDICATE BANK
 A high level of confidence in capacity and integrity of all employees.
 Recognition by the management of need for the integration of the objectives of the
organization and the needs of the individual employees.
 The need to recognize the fact that HRD attempts must be incorporated into the basic
business policies and practices.
 The conscious attempt to make every individual feel that he is a part of a team, which has a
specificobjective.
 The need to ensure that training is a proactive process, which must be designed taking into
consideration future changes in the environment, the business, and the competition and
customer expectations.
 The need to constantly update job specific skills among employees to make them more
efficient and effective in discharging their duties.
 To aim at attitudinal changes required making the employee more conscious of his role as
a representative of the organization.

53
 CHAPTER-IV

DATA ANALYSIS AND INTERPRETATION

54
 COMPARATIVE ASSET LIABILITY SHEET AS ON 31ST MARCH 2017-18

Table No 4.1

Increase (+) Percentage

/ Decrease(-)
Mar '18 (%)
PARTICULARS Mar '17
(in Rs)

Capital and Liabilities:

Total Share Capital 662.06 624.58 37.48 6.00083256
Equity Share Capital 662.06 624.58 37.48 6.00083256
Reserves 11,478.24 11,219.61 258.63 2.30516034
Net Worth 12,140.30 11,844.19 296.11 2.50004433
Deposits 255,388.10 212,343.30 43044.8 20.2713248
Borrowings 26,502.99 19,224.51 7278.48 37.8604188
Total Debt 281,891.09 231,567.81 50323.3 21.7315524
Other Liabilities & Provisions 8,185.39 8,449.46 -264.07 -3.12528848
Total Liabilities 302,216.78 251,861.46 50355.3 19.9932614
Assets

55
Cash & Balances with RBI 11,974.54 12,711.99 -737.45 -5.80121602
Balance with Banks, Money at Call 11,856.81 2,295.13 9561.68 416.607338

56
Advances 202,719.82 173,912.41 28807.4 16.5643211
Investments 69,339.67 55,539.38 13800.3 24.8477567
Gross Block 1,510.72 1,433.08 77.64 5.41770173
Revaluation Reserves 918.48 946.57 -28.09 -2.96755655
Net Block 592.24 1,433.08 -840.84 -58.673626
Capital Work In Progress 97.64 35.75 61.89 173.118881
Other Assets 5,636.06 5,933.72 -297.66 -5.01641466
Total Assets 302,216.78 251,861.46 50355.3 19.9932614
Contingent Liabilities 137,058.21 100,651.10 36407.1 36.1715967
Book Value (Rs) 183.37 189.63 -6.26 -3.30116543

Figure No 5.1

INTERPRETATION:

The total liabilities for the year are Rs. 302216.78 Cr is the investments are for the year Rs.
69339.67 Cr. Therefore the assets are more than the liabilities. So there is a positive gap of
Rs. 13800.29 i.e. 24.84

57
COMPARATIVE ASSET LIABILITY SHEET AS ON 31ST MARCH 2016-17
Table No 4.2

Increase (+) / Percentage

PARTICULARS Mar '17 Mar '16 Decrease ( - ) (%)

(in Rs)

Capital and Liabilities:

Total Share Capital 624.58 601.95 22.63 3.759448459
Equity Share Capital 624.58 601.95 22.63 3.759448459
Reserves 11,219.61 9,939.39 1280.22 12.8802673
Revaluation Reserves 0.00 0.00
Net Worth 11,844.19 10,541.34 1302.85 12.35943438
Deposits 212,343.30 185,355.89 26987.4 14.55978011
Borrowings 19,224.51 12,813.80 6410.71 50.02973357
Total Debt 231,567.81 198,169.69 33398.1 16.85329376
Other Liabilities &Provisions 8,449.46 6,411.30 2038.16 31.79012057
Total Liabilities 251,861.46 215,122.33 36739.1 17.07825031
Assets
Cash & Balances with RBI 12,711.99 8,095.31 4616.68 57.02906992
Balance with Banks, Money at Call 2,295.13 8,488.93 -6193.8 -72.96325921
Advances 173,912.41 147,569.02 26343.4 17.8515721

58
Investments 55,539.38 45,647.66 9891.72 21.66971976
Gross Block 1,433.08 2,255.32 -822.24 -36.45779756
Accumulated Depreciation 0.00 0.00
Net Block 1,433.08 1,407.38 25.7 1.826088192
Capital Work In Progress 35.75 26.58 9.17 34.49962378
Other Assets 5,933.72 3,887.44 2046.28 52.63824008
Total Assets 251,861.46 215,122.32 36739.1 17.07825576
Contingent Liabilities 100,651.10 78,034.82 22616.3 28.98229278
Bills for collection 0.00 0.00
Book Value (Rs) 189.63 175.12 14.51 8.285746916
Figure No 5.2

INTERPRETATION:

The total liabilities for the year are Rs. 251,861.46Cr is the investments are for the year Rs.
55,539.38Cr. Therefore the assets are more than the liabilities. So there is a positive gap of Rs.
36739.1 i.e 17.07 %

59
 COMPARATIVE ASSET LIABILITY SHEET AS ON 31ST MARCH 2015-16

Table No 4.3

Increase (+) / Percentage

PARTICLES Mar '16 Mar '15 Decrease ( - ) (%)

(in Rs)

Capital and Liabilities:

Total Share Capital 601.95 601.95 0 0
Equity Share Capital 601.95 601.95 0 0
Reserves 9,939.39 7,433.79 2505.6 0.33706
Revaluation Reserves 0.00 1,005.41 -1005.4 -1
Net Worth 10,541.34 9,041.15 1500.19 0.16593
Deposits 185,355.89 157,941.06 27414.8 0.17358
Borrowings 12,813.80 10,589.91 2223.89 0.21
Total Debt 198,169.69 168,530.97 29638.7 0.17587
Other Liabilities &Provisions 6,411.30 4,895.95 1515.35 0.30951
Total Liabilities 215,122.33 182,468.07 32654.3 0.17896
Assets
Cash & Balances with RBI 8,095.31 8,808.63 -713.32 -0.081
Balance with Banks, Money at Call 8,488.93 5,075.64 3413.29 0.67248

60
Advances 147,569.02 123,620.18 23948.8 0.19373
Investments 45,647.66 40,815.06 4832.6 0.1184

61
Gross Block 2,255.32 2,075.30 180.02 0.08674
Accumulated Depreciation 847.94 747.46 100.48 0.13443
Net Block 1,407.38 1,327.84 79.54 0.0599
Capital Work In Progress 26.58 23.74 2.84 0.11963
Other Assets 3,887.44 2,796.97 1090.47 0.38988
Total Assets 215,122.32 182,468.06 32654.3 0.17896
Contingent Liabilities 78,034.82 52,188.20 25846.6 0.49526
Bills for collection 4,252.33 6,533.86 -2281.5 -0.3492
Book Value (Rs) 175.12 133.50 41.62 0.31176
Figure No 5.3

INTERPRETATION:

The total liabilities for the year are Rs.215,122.32 Cr is the investments are for the year
Rs.45,647.66Cr. Therefore the assets are more than the liabilities. So there is a positive gap of
Rs. 32654.3 i.e 17.89 %

60
 COMPARATIVE ASSET LIABILITY SHEET AS ON 31ST MARCH 2014-15

Table No 4.4

Increase (+) / Percentage

PARTICLES Mar '15 Mar '14 Decrease ( - ) (%)

(in Rs)

Capital and Liabilities:

Total Share Capital 601.95 573.29 28.66 4.999215057

Equity Share Capital 601.95 573.29 28.66 4.999215057

Reserves 7,433.79 6,083.66 1350.13 22.19272609

Revaluation Reserves 1,005.41 393.90 611.51 155.244986

Net Worth 9,041.15 7,050.85 1990.3 28.22780232

Deposits 157,941.06 135,596.08 22344.98 16.47907521

Borrowings 10,589.91 9,527.64 1062.27 11.14935073

Total Debt 168,530.97 145,123.72 23407.25 16.12916896

Other Liabilities & Provisions 4,895.95 4,364.22 531.73 12.18384958

Total Liabilities 182,468.07 156,538.79 25929.28 16.56412446

Assets

61
Cash & Balances with RBI 8,808.63 10,443.12 -1634.49 -15.65135707

Balance with Banks, Money at Call 5,075.64 1,522.53 3553.11 233.3688006

62
Advances 123,620.18 106,781.92 16838.26 15.76883053

Investments 40,815.06 35,067.62 5747.44 16.38959245

Gross Block 2,075.30 1,347.77 727.53 53.98027853

Accumulated Depreciation 747.46 670.73 76.73 11.43977457

Net Block 1,327.84 677.04 650.8 96.1243058

Capital Work In Progress 23.74 15.69 8.05 51.30656469

Other Assets 2,796.97 2,030.87 766.1 37.72274936

Total Assets 182,468.06 156,538.79 25929.27 16.56411807

Contingent Liabilities 52,188.20 49,111.58 3076.62 6.264551049

Bills for collection 6,533.86 5,449.74 1084.12 19.89305912

Book Value (Rs) 133.50 116.12 17.38 14.96727523

Figure No 5.4

INTERPRETATION:

The total liabilities for the year are Rs.25926.27 Cr is the investments are for the year Rs.5747.44
Cr. Therefore the assets are more than the liabilities. So there is a positive gap of Rs.650.80 i.e
96.12 %

63
 COMPARATIVE ASSET LIABILITY SHEET AS ON 31ST MARCH 2013-14

Table No 4.5

Increase Percentage
(+) /
(%)
PARTICLES Mar '14 Mar '13 Decrease (
-)

(in Rs)

Capital and Liabilities:

Total Share Capital 573.29 521.97 51.32 9.831982681

Equity Share Capital 573.29 521.97 51.32 9.831982681

Reserves 6,083.66 4,700.89 1382.77 29.41506821

- 2.545832406
Revaluation Reserves 393.90 404.19 -10.29

Net Worth 7,050.85 5,627.05 1423.8 25.30277854

Deposits 135,596.08 117,025.79 18570.29 15.86854487

- 21.72937946
Borrowings 9,527.64 12,172.69 -2645.05

Total Debt 145,123.72 129,198.48 15925.24 12.32618217

Other Liabilities & Provisions 4,364.22 4,225.42 138.8 3.284880556

Total Liabilities 156,538.79 139,050.95 17487.84 12.57656996

Assets

Cash & Balances with RBI 10,443.12 7,189.12 3254 45.26284163

Balance with Banks, Money at Call 1,522.53 5,544.73 -4022.2 -72.5409533

64
Advances 106,781.92 90,406.36 16375.56 18.11328318

65
Investments 35,067.62 33,010.93 2056.69 6.230330378

Gross Block 1,347.77 1,279.20 68.57 5.360381488

Accumulated Depreciation 670.73 596.72 74.01 12.40280198

- 0.797092955
Net Block 677.04 682.48 -5.44

- 17.20316623
Capital Work In Progress 15.69 18.95 -3.26

- 7.619281559
Other Assets 2,030.87 2,198.37 -167.5

Total Assets 156,538.79 139,050.94 17487.85 12.57657805

- 1.417368292
Contingent Liabilities 49,111.58 49,817.68 -706.1

Bills for collection 5,449.74 4,993.24 456.5 9.142360471

Book Value (Rs) 116.12 100.06 16.06 16.05036978

Figure No 5.5

INTERPRETATION:
The total liabilities for the year are Rs.17487.84 i.e. 12.57 % investment for the year are
Rs.2056.69 i.e.6.23 % . Therefore the assets are less than the liabilities. So there is a negative gap
of Rs.5.44 Cr i.e -0.79 %

66
 COMPARATIVE ASSET LIABILITY SHEET AS ON 31ST MARCH 2012-13

Table No 4.6

Increase (+) / Percentage

PARTICULARS Mar '13 Mar '12 Decrease ( - ) (%)

(in Rs)

Capital and Liabilities:

Total Share Capital 521.97 521.97 0 0

Equity Share Capital 521.97 521.97 0 0

Reserves 4,700.89 4,073.10 627.79 15.41307604

Revaluation Reserves 404.19 414.95 -10.76 -2.593083504

Net Worth 5,627.05 5,010.02 617.03 12.3159189

Deposits 117,025.79 115,885.14 1140.65 0.984293586

Borrowings 12,172.69 2,190.48 9982.21 455.7087944

Total Debt 129,198.48 118,075.62 11122.86 9.420115685

Other Liabilities &Provisions 4,225.42 7,170.03 -2944.61 -41.06830794

Total Liabilities 139,050.95 130,255.67 8795.28 6.752320264

Assets

Cash & Balances with RBI 7,189.12 12,543.23 -5354.11 -42.68525731

Balance with Banks, Money at Call 5,544.73 1,861.18 3683.55 197.9147638

Advances 90,406.36 81,532.27 8874.09 10.8841444

Investments 33,010.93 30,537.23 2473.7 8.100603755

Gross Block 1,279.20 1,225.00 54.2 4.424489796

Accumulated Depreciation 596.72 504.84 91.88 18.19982569

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Net Block 682.48 720.16 -37.68 -5.232170629

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 Capital Work In Progress 18.95 21.87 -2.92 -13.35162323

Other Assets 2,198.37 3,039.73 -841.36 -27.6787741

Total Assets 139,050.94 130,255.67 8795.27 6.752312586

Contingent Liabilities 49,817.68 72,889.02 -23071.34 -31.65269611

Bills for collection 4,993.24 5,493.69 -500.45 -9.109542038

Book Value (Rs) 100.06 88.03 12.03 13.66579575

Figure No 5.6

INTERPRETATION:

The total liabilities for the year are Rs.8795.27 i.e. 6.75 % investment for the year are Rs.2473.7
i.e.8.10 % . Therefore the assets are less than the liabilities. So there is a negative gap of Rs.-
37.68 Cr i.e -5.27 %

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 CHAPTER V

FINDINGS, SUGGESTIONS & CONCLUSIONS

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FINDINGS

1. ALM technique is aimed to tackle the market risks. Its objective is to stabilize and improve
Net interest Income (NII)i.e 13800.29 for 2018.

2. Implementation of ALM as a Risk Management tool is done using maturity profiles and
GAP analysis and Gap is 24.84% for 2015-16

3. ALM presents a disciplined decision making framework for s while at the same time
guarding the risk levels.

4. The profit After Tax has came1,522.93 Cr in 2017 in Current year because of slope in
Industry.

5. The PAT is in an increasing trend from 2012-2013 because of increase in sale prices and
also decreases in the cost of sale. In 2015 and 2017 even the cost of service has increased
by 2.48% because of higher sales volume PAT has increased considerably, which leads to
higher EPS, which is at 47.01% in 2016.

6. The company also increased considerably which investors in coming period. The
company has taken up a plant expansion program during the year to increase the production
activity and to meet the increase in the demand

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SUGGESTIONS

1. They should strengthen its management information system (MIS) and

computerprocessing capabilities for accurate measurement of liquidity and interest rate
Risks in their Books.

2. In the short term the Net interest income or Net interest margins (NIM) creates economic
value of the which involves up gradation of existing systems & Application software to
attain better & improvised levels.

3. It is essential that remain alert to the events that effect its operating environment & react
accordingly in order to avoid any undesirable risks.

4. Syndicate bank requires efficient human and technological infrastructure which will future
lead to smooth integration of the risk management process with effective business
strategies.

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CONCLUSIONS

The purpose of ALM is not necessarily to eliminate or even minimize risk. The level of risk
will vary with the return requirement and entity’s objectives.

Financial objectives and risk tolerances are generally determined by senior management of an
entity and are reviewed from time to time.

All sources of risk are identified for all assets and liabilities. Risks are broken down into their
component pieces and the underlying causes of each component are assessed.

Relationships of various risks to each other and/or to external factors are also identified.

Risk exposure can be quantified 1) relative to changes in the component pieces, 2) as a

maximum expected loss for a given confidence interval in a given set of scenarios, or 3) by
the distribution of outcomes for a given set of simulated scenarios for the component
piece over time.

Regular measurement and monitoring of the risk exposure is required. Operating within a
dynamic environment, as the entity’s risk tolerances and financial objectives change, the existing
ALM strategies may no longer be appropriate.

Hence, these strategies need to be periodically reviewed and modified. A formal, documented
communication process is particularly important in this step.

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BIBILIOGRAPHY:-

 Financial Management by Jonathan Berk, Peter Demarzo, Ashok Thampy.

 India Financial System by M.Y.KhanMcgraw Hill 5thEdition (Jan-2016).

 Management Research Magazine by P.M.Dileep Kumar.

 Annual reports of Syndicate Bank-20113-2018.

 Risk Management by Gustavsonhoytsout western, division of Thomson learning (2013).

 Financial Management Theory and Practice 10th Edition by Thomson South- Wetern.

 Corporate Finance 7th Edition by Ross Westerfield Jaffe, TmhPubishers.

Newspapers

 Economic Times

 Business Line

Web sites
 https://www.syndicatebank.in/english/home.aspx

 https://www.investors.com/

 https://www.investopedia.com/

 https://www.moneycontrol.com/

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