ASSET-LIABILITY MANAGEMENT IN THE INDIAN BANKS: ISSUES AND IMPLICATIONS
Abstract
The development of the banking system is always associated with the contemporary changes in the economy. The Indian banking industry has undergone a metamorphosis in the last two decades due to changes in the political, economic, financial, social, legal and technological environments. The mind boggling advances in technology and deregulation of financial markets across the countries created new opportunities, tempting banks to enter every business that had been thrown open. The banks are now moving towards universal banking concepts, while adding new channels and a series of innovative product offerings catering to various segments at an attractive price. This makes it imperative for the banks to adopt sophisticated risk management techniques and to establish a link between risk exposures and capital. Effective management of risk has always been the focus area for banks owing to the increasing sophistication in the product range and services and the complex channels that deliver them. The challenge for the banks is to put in place a risk control system that minimizes the volatility in profit and engenders risk consciousness across the rank and file of the organization. Sound risk management will ensure a healthy bottom line for the bank as risk taken by the bank will be commensurate with return and will be within an approved risk management policy. As all transactions of the banks revolve around raising and deploying the funds, Asset-Liability Management (ALM) gains more significance as an initiative towards the risk management practices by the Indian banks. The present paper discusses the various risks that arise due to financial intermediation and by highlighting the need for asset-liability management; it discusses the Gap Model for risk management.

Introduction
As Alan Greenspan,