A Study On Asset And Liability Management In Salem Co-Operative Bank Ms. S. P. Sreekala Lecturer, Mahendra Engineering College, Mahendhirapuri, Mallasamudram West, Tiruchengode, Namakkal Dist, Tamilnadu. E-Mail: spskashok@gmail.com Abstract The importance of Asset and Liability Management in every business operation is inevitable and needs due care attention during the course of operation. The attention would help the firm get into liquidation and can survive in the long run successfully. It can also make the stake holders feel little happy if they could witness the business help them in maximizing their wealth. The study shows that the bank should 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.
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 balance sheet and it can be a difficult process if not supported with adequate systems. Depending on systems and analytical support the ALM process will undertake a number of analysis designed to identify; static and dynamic mismatch. OBJECTIVE OF THE STUDY To study about the management of Assets and liabilities of the Salem District Central Co-operative Bank. To study about the effectiveness and performance of the Bank. 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 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 bank s Sources Of Data The researcher is primarily based on secondary data, with addition information gathered from the finance department. The main sources are company s previous year s 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. Namex International Journal of Management Research Vol. 1, Issue No.1, December 011
Tools Used For Analysis Of Data The tools used for analyzing the financial position of the company are: Analysis Least Square Analysis Correlation analysis is widely used tool of financial analysis. It can be used to compare the risk and return relationship of firms of different sizes. 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 Profitability Operating profit Net profit Liquidity Current ratio Activity Net profit to Net worth Fixed Assets to Net worth Net Profit to share capital Fund Fixed Assets Solvency Proprietary Cash to Current Asset Cash to Current Liability Cash to Share Holders fund Table 1: Calculation Of Operating Profit And Net Profit Income Operating Profit Operating Income Expenses Crores) Net Profit - - 10393 10398 0.99-9056.6 9603. 0.94 1143 1387 0.91-16108 17010 0.95 1475 168 0.91 Net Profit Income (Rs. in 5.3 10398 0.05 546.67 9603. 5.69 1143.9 1387 9.3 901.93 17010 5.3 1475.7 168 9.09 Namex International Journal of Management Research 3 Vol. 1, Issue No.1, December 011
Table 1.: Calculation Of Current & Net Profit To Net Worth Current Assets Current Current Liabilities 113509 10601 1.0707-10064 77098.4 1.33 13851 1817 0.966-175766 150664 1.166 1114 179748 1.174 - - Net Profit To Net Worth Net Profit Lakhs) Net Worth 5.3 118144.51 0.0044 546.67 1557.0 0.4353 1143.9 150666.5 0.759 901.93 179318.6 0.50 1475.67 13408.8 0.691 Table1. 3: Calculation Of Fixed Assets To Net Worth And Net Profit To Share Capital Fund Fixed Assets To Net Worth Fixed Assets Sh. Fund Net Profit To Share Capital Fund Net Share Profit Capital Lakhs) 4635.6 459.98 1.88 5.3 460 0. - 3507.76 5673.4 4.14-546.67 5673 9.64 6815.71 9046.3.96 1143.9 9046 1.64-3918.65 1483.05 1.9-901.93 1483 7.3 3450.87 15703.88 1.49 1475.7 15704 9.4 Namex International Journal of Management Research 4 Vol. 1, Issue No.1, December 011
Table 1.4: Calculations Of Fixed Assets And Proprietory FIXED ASSETS RATIO Fixed Long Assets Term Fund 4635.6 984.8 1.55-3507.76 1998.65 1.17 6815.71 086.8 1.3-3918.65 0366.13 1.17 3450.87 1184.3 1.1 - - PROPRIETORY RATIO Proprietor s Fund Total Assets 459.98 118144.5.08 5673.4 1557 4.517 9046.3 150666.5 6.004 1483.05 179318.6 6.961 15703.88 13408.8 7.358 Table 1.5: Calculations Of Cash To Current Assets And Current Liabilities Cash To Current Assets Cash To Current Liabilities Cash & Bank Balance Current Assets (Rs.In Cash & Bank Balance (Rs.In Current Liability (Rs.In 080.97 113508.9 0.19 080.97 10601 0.1 - - 476.14 10064.6 0.3 476.14 77098.38 0.31 33333.76 13850.8 0.6 33333.76 1816.9 0.6 - - 48760.96 175766 0.7 48760.96 150664.1 0.3 49706. 1114. 0.3 49706. 179748.4 0.7 Namex International Journal of Management Research 5 Vol. 1, Issue No.1, December 011
A Study on Asset and Liability Management in Salem Co-operative Bank Table1.6: Calculation Of Current Assets To Share Holders Fund Current Assets To Proprietors Fund Current assets Share holders Fund (Rs.in crore) (Rs.in crore) 113508.9 459.98 46.14-10064.6 5673.4 17.99 13850.8 9046.3 13.69-175766 1483.05 14.08 1114. 15703.88 13.44 LEAST SQUARE ANALYSIS FORMULAE: Least Square y a b a bx n y XY X Table : Calculation Of Least Square Method YEAR NET PROFIT (Y) (Rs.in lakhs) X X XY 06 5.3-4 -10.6-06 546.67-1 1-546.67 07 1143.9 0 0 0-08 901.93 1 1 901.93 9 1475.67 4 951.34 Namex International Journal of Management Research 6 Vol. 1, Issue No.1, December 011
EXPANSION a b n 4073.47 5 XY y X 396 10 39.6 Forecasting For The Future Net Profit YEAR Y = a + bx NET PROFIT (Rs.in lakhs) - 814.69 + 39.6 (3) 1803.49 011-011 814.69 + 39.6 (4) 133.09 01-01 814.69 + 39.6 (5) 46.69 013-013 814.69 + 39.6 (6) 79.9 014-014 814.69 + 39.6 (7) 311.89 YEAR Table 3.1: Calculation Of Correlation Between Netprofit To Total Assets NET PROFIT (X) (Rs.in lakhs) TOTAL ASSETS (Y) (Rs in crore) X Y XY 5.30 118,144.5 8.09 13,958,1,880.5 66,165.85-546.67 15,57.0 98,848.09 15,768,37,184.00 68,646,445.4 1,143.90 150,666.50 1,308,507.1,700,394,.5 17,347,409.35-901.93 179,318.6 813,477.7 3,155,160,305.96 161,73,84.90 1,475.67 13,408.8,177,601.95 45,543,315,917.44 314,90,963.90 4,073.47 787,110.4 4,598,463.0 130,15,30,509.9 718,73,809.3 Namex International Journal of Management Research 7 Vol. 1, Issue No.1, December 011
r n nxy x y x x n y y r 0.863 Table 3.: Calculation Of Correlation Between Networth To Total Assets NET TOTAL WORTH ASSETS YEAR (X) (Y) X Y 118,144.51 118,144.50 13,958,15,43.14 13,958,1,880.5 13,958,14,061.70-15,57.0 15,57.00 15,768,33,06.88 15,768,37,184.00 15,768,39,695.44 150,666.5 150,666.50,700,400,48.91,700,394,.5,700,397,35.58-179,318.60 179,318.60 3,155,160,305.96 3,155,160,305.96 3,155,160,305.96 13,408.80 13,408.80 45,543,315,917.44 45,543,315,917.44 45,543,315,917.44 Total 787,110.45 787,110.40 130,15,333,9.33 130,15,30,509.90 130,15,37,16.1 r = 0.999 Findings: Table1.1 Operating Profit shows that the ratio was fluctuating and decreasing every year except -09. ii) Net profit is very low in the year 06 The net profit has been gradually increased in the year 08. except -09 it has further decreased. Table 1. Shows that the current ratio of the firm is below the standard i.e., :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. Table 1.3 Fixed to Net worth ratio is fluctuating every year. Only -07 showing positive trend ii)net Profit to Share Capital Fund is declining except -07 and 07-08 Table 1.4 Fixed Asset shows that declining trend except 08 ii)proprietary ratio has been increased every year, the debt equity ratio increased which indicates reduction in risk. Table 1.5 shows that current asset have been maintained in the year 06 and it has decreased every year. Table 1.6 Cash to Current asset ratio is fluctuating and also decreasing except 08 and -09. Cash to Current Liability ratio shows that increasing trend except 08 and 10. Table no The Net Profit is in good position. According to the least square Namex International Journal of Management Research 8 Vol. 1, Issue No.1, December 011
method the Net Profit is expected to increase. Table 3.1 Correlation between Net profit to Total Assets which shows a reasonably strong positive correlation. Table 3. 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 06 was very low, which have been is now increased in the year 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 Conclusion The bank s 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 (nd ed). Chicago: Irwin. Sinkey, J.F. (199). Commercial bank financial management(4th Namex International Journal of Management Research 9 Vol. 1, Issue No.1, December 011
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 Namex International Journal of Management Research 10 Vol. 1, Issue No.1, December 011