asset abd liability mgt to central co-op bank 2

7/31/2019 Asset Abd Liability Mgt to Central Co-op Bank 2

1/11

www.mbainfoline.com

Source: E-mail dt. 26 August 2011

A Study on Asset and Liability Management in Salem Co-operative

Bank

Mrs. S.Sreekala

Research Scholar PSG College of Technology, Coimbatore - 641 004.

Dr. V. Santhi

Professor, Department of Humanities, PSG College of Technology,

Coimbatore - 641 004.

INTRODUCTION

ASSET AND LIABILITY MANAGEMENT

The Asset and liability management includes all deposits and advances, maturity of deposits

and incremental assets and liabilities, etc. It is a decision making responsible for balance sheet

planning from risk and return standpoint including the strategic management of liquidity,

interest rate risks. The business and risk management strategy of the bank should ensure that

the bank operates within the limited parameters set by the Board. Besides monitoring the risk

levels of the bank, there should proper review the results and progress in realization of the

decisions made. In future business strategy decisions should be based on the banks current rate

of interest. In respect of the funding policy, for instance, its responsibility would be to decide

on source and liabilities mix or the assets sale. There should be efficient management of short

term deposits, medium term deposits and long term deposits, loans and advances, borrowings

and investments etc.

NEED OF ALM

ALM units create a properly aligned risk and return management process. The right mix

between skills and risk appetite must be identified, expected outcomes of activities

known and appropriate metrics established. The approach adopted needs to be aligned

to the realities of the market the bank.

A bank needs to realize that the right level of asset and liability need to be committed to

support the function.

Various techniques are used to examine the mismatch in a banks balance sheet and it

can be a difficult process if not supported with adequate systems. Depending on
http://www.mbainfoline.com/http://www.mbainfoline.com/


2/11

systems and analytical support the ALM process will undertake a number of analysis

designed to identify; static and dynamic mismatch.

OBJECTIVE OF THE STUDY

1. To study about the management of Assets and liabilities of the Salem District Central Co-

operative Bank.

2. To study about the effectiveness and performance of the Bank.

3. To suggest measures for the improvement of Salem District Central Co-operative Bank.

RESEARCH METHODLOGY

RESEARCH DESIGN

The methodology used in the study is analytical and descriptive in nature where the

researcher has to use facts (or) information already and study the characteristic of a particular

group respectively and there by analyze to make a critical evaluation of the study.

TYPES OF DATA

SOURCES OF DATA

The researcher is primarily based on secondary data, with addition information

gathered from the finance department. The main sources are companys previous years annual

reports and schedules.

DATA COLLECTION METHOD

SECONDARY DATA

The secondary data has been collected from the Annual Reports of the Salem District Central

Co-operative Bank.

TOOLS USED FOR ANALYSIS OF DATA

The tools used for analyzing the financial position of the company are

1. RATIO ANALYSIS

2. LEAST SQUARE ANALYSIS

3. CORRELATION

Ratio analysis is widely used tool of financial analysis. It can be used to compare the risk and

return relationship of firms of different sizes.


3/11

It is defined as the systematic use of ratio to interpret the financial statements so that the

strengths and weaknesses of a firm as well as its historical performance and current financial

condition can be determined.

The term ratio refers to the numerical or quantitative relationship between two items/variables.

This relationship can be expressed as percentage, fraction and proportion of numbers (1:4).

TYPES OF RATIO

Profitability Ratio

Operating profit Ratio

Net profit Ratio

Liquidity Ratio

Current ratio

Activity Ratio

Net profit to Net worth Ratio

Fixed Assets to Net worth Ratio

Net Profit to share capital Fund Ratio

Fixed Assets Ratio

Solvency Ratio

Proprietary Ratio

Cash to Current Asset Ratio

Cash to Current Liability Ratio

Cash to Share Holders fund Ratio

TABLE 1: Calculation of Operating Profit and Net Profit Ratio

OPERATING PROFIT RATIO NET PROFIT RATIO


4/11

Income

Year

Operating

expense(Rs.in

crore)

Income

(Rs.in

crore)

Ratio Year Net

profit

(Rs.in

lakhs)

Income

(Rs.in

crore)

Ratio

2005-

2006

10393 10398 0.99 2005-

2006

5.3 10398 0.05

2006-

2007

9056.6 9603.2 0.94 2006-

2007

546.67 9603.2 5.69

2007-

2008

11243 12387 0.91 2007-

2008

1143.9 12387 9.23

2008-

2009

16108 17010 0.95 2008-

2009

901.93 17010 5.3

2009-

2010

14752 16228 0.91 2009-

2010

1475.7 16228 9.09

Source: Annual Report

TABLE : 1.2 CALCULATION OF CURRENT & NET PROFIT TO NET WORTH

RATIO

CURRENT RATIO

NET PROFIT TO NET WORTH

RATIO

YEAR CURRENT

ASSETS

(Rs.in

crore)

CURRENT

LIABILITIES

(Rs.in crore)

RATIO

YEAR

NET

PROFIT

(Rs.in

lakhs)

NET

WORTH

(Rs.in

crore) RATIO2005-

2006

113509 106012 1.0707 2005-

2006 5.3 118144.51 0.0044

2006-

2007

102064 77098.4 1.323 2006-

2007 546.67 125572.02 0.4353

2007-

2008

123851 128127 0.966 2007-

2008 1143.9 150666.52 0.759

2008-

2009

175766 150664 1.166 2008-

2009 901.93 179318.6 0.502

2009-

2010

211142 179748 1.174 2009-

2010 1475.67 213408.8 0.691


TABLE1. 3 CALCULATION OF FIXED ASSETS TO NETWORTH AND NET PROFIT

TO SHARE CAPITAL FUND RATIO

FIXED ASSETS TO NET WORTH RATIO NET PROFIT TO SHARE

CAPITAL FUND RATIO

YEAR FIXED

ASSETS

(Rs.incrore)

SH.

FUND

(Rs.incrore)

RATIO

Year

Net

profit

(Rs.inlakhs)

Share

capital

(Rs.incrore) Ratio

2005-

2006

4635.6 2459.98 1.88 2005-

2006 5.3 2460 0.22

2006-

2007

23507.76 5673.24 4.14 2006-

2007 546.67 5673 9.64

2007- 26815.71 9046.32 2.96 2007- 1143.9 9046 12.64


5/11

2008 2008

2008-

2009

23918.65 12483.05 1.92 2008-

2009 901.93 12483 7.23

2009-

2010

23450.87 15703.88 1.49 2009-

2010 1475.7 15704 9.4



6/11

TABLE 1.4 CALCULATIONS OF FIXED ASSETS RATIO AND PROPRIETORY

RATIO


TABLE 1. 6 CALCULATION OF CASH TO CURRENT ASSETS AND CURRENT

LIABILITIES RATIO

CASH TO CURRENT ASSETS

RATIO

CASH TO CURRENT LIABILITIES

RATIOYear Cash &

bank

balance

(Rs.in

crore)

Current

assets

(Rs.in

crore)

Ratio Year Cash &

bank

balance

(Rs.in

crore)

Current

Liability

(Rs.in

crore)

Ratio

2005-

2006

22080.97 113508.9 0.19 2005-2006 22080.97 106012 0.21

2006-

2007

24276.14 102064.26 0.23 2006-2007 24276.14 77098.38 0.31

2007-2008 33333.76 123850.8 0.26 2007-2008 33333.76 128126.9 0.26

2008-

2009

48760.96 175766 0.27

2008-2009

48760.96 150664.1 0.32

2009-

2010

49706.22 211142.22 0.23 2009-2010 49706.22 179748.4 0.27


FIXED ASSETS RATIO PROPRIETORY RATIO

YEAR FIXED

ASSETS (Rs.in

crore)

LONG

TERMFUND

(Rs.in

crore)

RATIO

YEA

R

PROPRIE

TORSFUND

(Rs.in

crore)

TOTALASSETS

(Rs.in

crore)

RATIO

2005-

2006

4635.6 2984.8 1.55 2005-

20062459.98 118144.5 2.082

2006-

2007

23507.7

6

19982.65 1.17 2006-

20075673.24 125572 4.517

2007-

2008

26815.7

1

20286.8 1.32 2007-

20089046.32 150666.5 6.004

2008-2009 23918.65 20366.13 1.17 2008-2009 12483.05 179318.6 6.961

2009-

2010

23450.8

7

21184.3 1.1 2009-

201015703.88 213408.8 7.358


7/11

TABLE1. 5 CALCULATION OF CURRENT ASSETS TO SHARE HOLDERS FUND

RATIO

CURRENT ASSETS TO

PROPRIETORS FUND RATIO

Year Current

assets(Rs.in

crore)

Share

hol.Fund(Rs.in

crore)

Ratio

2005-

2006

113508.9 2459.98 46.14

2006-

2007

102064.26 5673.24 17.99

2007-

2008

123850.8 9046.32 13.69

2008-

2009

175766 12483.05 14.08

2009-2010

211142.22 15703.88 13.44


LEAST SQUARE ANALYSIS

FORMULAE:

Least square (y) = a + bx

a = y

n

b = XY

X 2

TABLE 2 CALCULATION OF LEAST SQUARE METHOD

YEAR NET

PROFIT

(Y) (Rs.in

lakhs)

X X 2 XY

2005-06 5.3 -2 4 -10.6

2006-06 546.67 -1 1 -546.67

2007-07 1143.9 0 0 0

2008-08 901.93 1 1 901.93

2009-9 1475.67 2 4 2951.34

2


8/11

EXPANSION

a = y

n

= 4073.47 = 814.69

5

b = XY = 3296 = 329.6

X 2 10

FORECASTING FOR THE FUTURE NET PROFIT

YEAR Y = a + bx

NET

PROFIT

(Rs.in lakhs)

2010-2010

814.69 + 329.6

(3) 1803.49

2011-2011

814.69 + 329.6

(4) 2133.09

2012-2012

814.69 + 329.6

(5) 2462.69

2013-2013

814.69 + 329.6

(6) 2792.29

2014-2014

814.69 + 329.6

(7) 3121.89

TABLE 3.1 CALCULATION OF CORRELATION BETWEEN NETPROFIT TO

TOTAL ASSETS

YEAR

NET

PROFIT(X)

(Rs.in lakhs)

TOTAL

ASSETS

(Y) (Rs in

crore) X Y XY2005-

2006 5.30 118,144.50 28.09 13,958,122,880.25 626,165.85

2006-

2007 546.67 125,572.00 298,848.09 15,768,327,184.00 68,646,445.24

2007-

2008 1,143.90 150,666.50 1,308,507.21 22,700,394,222.25 172,347,409.35

2008-

2009 901.93 179,318.60 813,477.72 32,155,160,305.96 161,732,824.90

2009-

2010 1,475.67 213,408.80 2,177,601.95 45,543,315,917.44 314,920,963.90

4,073.47 787,110.40 4,598,463.06

130,125,320,509.9

0 718,273,809.23


9/11

r = 0.863

TABLE 3.2 CALCULATION OF CORRELATION BETWEEN NETWORTH TO

TOTAL ASSETS

YEAR

NET

WORTH(X)

TOTAL

ASSETS(Y) X 2 Y 2 XY

2005-

2006 118,144.51 118,144.50 13,958,125,243.14 13,958,122,880.25 13,958,124,061.70

2006-

2007 125,572.02 125,572.00 15,768,332,206.88 15,768,327,184.00 15,768,329,695.44

2007-

2008 150,666.52 150,666.50 22,700,400,248.91 22,700,394,222.25 22,700,397,235.582008-

2009 179,318.60 179,318.60 32,155,160,305.96 32,155,160,305.96 32,155,160,305.96

2009-

2010 213,408.80 213,408.80 45,543,315,917.44 45,543,315,917.44 45,543,315,917.44

Total 787,110.45 787,110.40 130,125,333,922.33 130,125,320,509.90 130,125,327,216.12

r = 0.999

FINDINGS:

1. Table1.1 Operating Profit shows that the ratio was fluctuating and decreasing every

year except 2008-09.

ii) Net profit is very low in the year 2005-06 The net profit has been gradually

increased in the year 2007-08. except 2008-09 it has further decreased.

2. Table 1.2 Shows that the current ratio of the firm is below the standard i.e., 2:1. There

is 1:1 ratio for the bank. It shows that there is less liquidity position as specified in the

table

ii) Net Profit to Net worth ratio is gradually increasing trend.

3. Table 1.3 Fixed to Networth ratio is fluctuating every year. Only 2006-07 showing

positive trend

ii)Net Profit to Share Capital Fund is declining except 2006-07 and 07-08

4. Table 1.4 Fixed Asset Ratio shows that declining trend except 2007-08

ii)Proprietary ratio has been increased every year, the debt equity ratio increased which

indicates reduction in risk.


10/11

5. Table 1.5 shows that current asset have been maintained in the year 2005-06 and it has

decreased every year.

6. Table 1.6 Cash to Current asset ratio is fluctuating and also decreasing except 2007-08

and 2008-09.

Cash to Current Liability ratio shows that increasing trend except 2007-08 and

2009-10.

7. Table no 2 The Net Profit is in good position. According to the least square method the

Net Profit is expected to increase.

8. Table 3.1 Correlation between Net profit to Total Assets which shows a reasonably

strong positive correlation.

9. Table 3.2 Correlation between Networth to Total Assets shows that is a strong positive

correlation.

SUGGESTIONS:

The current ratio of the bank does not meet the standard ratio. It would be suggested

that the bank to take necessary steps to increase the current assets of the bank.

Operating profit ratio shows that the expenses are higher than income. It is suggested

that the bank can reduce the avoidable expenses

It is suggested that the bank can increase the current account holders from the public.

These funds can be utilized by the bank and increase their income without any payment

of interest to the current account holders

The Net Profit of the bank in the year 2005-06 was very low, which have been is now

increased in the year 2009-10.. It is suggested to increase the net profit of the bank

which would the risk of suffering from loss

The Net Profit, and Total asset correlated positively they should maintain the same in

future.

The investments are made in government securities with low revenue. The bank invest

huge amount in these securities which is suggested to reduce the level of investments

The bank has to do their major transaction with cash, so it has to be increased


11/11

Conclusion

The banks performance is satisfactory. In some area they are lacking in banking position. If

they improve their customer service and technology they will come up with the standard level. .

According to the least square method the Net Profit is expected to increase next five year. This

study reveals the findings and recommendations which would be useful for the development

and improvement to the bank.

References

Fabozzi, FJ., & Konishi, A. (1995). Asset-liability management. New Delhi: S Chand &

Co.

Harrington, R. (1987). Asset and liability management by banks. Paris: OECD.

Jain, J.L. (1996). Strategic planning for asset liability management. The Journal

of the Indian Institute of Bankers, 67(4).

Kannan, K (1996). Relevance and importance of asset-liability management in

banks. The Journal of the Indian Institute of Bankers, 67(4).

Saunders, A. (1997). Financial institutions management (2nd ed). Chicago: Irwin.

Sinkey, J.F. (1992). Commercial bank financial management(4th ed). New York:

Maxwell Macmillan International Edition.

The World Bank (1995). The emerging Asian bond market: India. Prepared by ISec,

Mumbai.

Vaidyanathan, R (1995). Debt market in India: Constraints and prospects.

Bangalore: Center for Capital Markets Education and Research, Indian Institute of

Management - Bangalore

asset abd liability mgt to central co-op bank 2

Documents