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.
A Study on Asset and Liability Management in Salem Co-operative Bank
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.
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.
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.
Need Of ALM
TYPES OF DATA

Sources 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
Namex International Journal of Management Research
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.
2
Vol. 1, Issue No.1, December 2011
A Study on Asset and Liability Management in Salem Co-operative Bank
can be expressed as percentage,
fraction and proportion of numbers
(1:4).
Tools Used For Analysis Of Data
The tools used for analyzing the
financial position of the company are:
 Ratio Analysis
 Least Square Analysis
 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.
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
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
Income
Year
20052006
20062007
20072008
20082009
20092010
Operating Profit Ratio
Operating
Income
Expenses
(Rs. in
(Rs. in Crore)
Crores)
Ratio
10393
10398
0.99
9056.6
9603.2
0.94
11243
12387
0.91
16108
17010
0.95
14752
16228
0.91
Year
20052006
20062007
20072008
20082009
20092010
Net Profit Ratio
Net Profit Income (Rs.
(Rs. in
in Crore)
Crore)
Ratio
5.3
10398
0.05
546.67
9603.2
5.69
1143.9
12387
9.23
901.93
17010
5.3
1475.7
16228
9.09
Source: Annual Report
Namex International Journal of Management Research
3
Vol. 1, Issue No.1, December 2011
A Study on Asset and Liability Management in Salem Co-operative Bank
Table 1.2: Calculation Of Current & Net Profit To Net Worth Ratio
Current Ratio
Year
Current
Assets
(Rs. in
Crore)
Current
Liabilities
(Rs. in
Crore)
2005113509
2006
2006102064
2007
2007123851
2008
2008175766
2009
2009211142
2010
Source: Annual Report
Net Profit To Net Worth Ratio
Ratio
106012 1.0707
77098.4
1.323
128127
0.966
150664
1.166
179748
1.174
Year
20052006
20062007
20072008
20082009
20092010
Net Profit
(Rs. in
Lakhs)
Net Worth
(Rs. in
Crore)
Ratio
5.3
118144.51 0.0044
546.67
125572.02 0.4353
1143.9
150666.52
0.759
901.93
179318.6
0.502
1475.67
213408.8
0.691
Table1. 3: Calculation Of Fixed Assets To Net Worth And Net Profit To Share
Capital Fund Ratio
Net Profit To Share Capital Fund
Ratio
Net
Share
Profit
Capital
Year
Ratio
(Rs. in (Rs. in
Lakhs) Crore)
20052006
5.3
2460
0.22
20062007
546.67
5673
9.64
20072008
1143.9
9046 12.64
20082009
901.93 12483
7.23
20092010
1475.7 15704
9.4
Fixed Assets To Net Worth Ratio
Year
Fixed
Sh. Fund
Assets
(Rs. in
Ratio
(Rs. in
Crore)
Crore)
4635.6
2459.98
1.88
20052006
200623507.76
2007
200726815.71
2008
200823918.65
2009
200923450.87
2010
Source: Annual Report
5673.24
4.14
9046.32
2.96
12483.05
1.92
15703.88
1.49
Namex International Journal of Management Research
4
Vol. 1, Issue No.1, December 2011
A Study on Asset and Liability Management in Salem Co-operative Bank
Table 1.4: Calculations Of Fixed Assets Ratio And Proprietory Ratio
Year
FIXED ASSETS RATIO
Fixed
Long
Ratio
Assets
Term
(Rs. in
Fund
Crore)
(Rs. in
Crore)
20054635.6
2984.8
2006
200623507.76 19982.65
2007
200726815.71 20286.8
2008
200823918.65 20366.13
2009
200923450.87 21184.3
2010
Source: Annual Report
PROPRIETORY RATIO
Year
20052006
20062007
20072008
20082009
20092010
1.55
1.17
1.32
1.17
1.1
Proprietor’s
Fund
(Rs. in
Crore)
Total
Assets
(Rs. in
Crore)
Ratio
2459.98 118144.5
2.082
5673.24
125572
4.517
9046.32 150666.5
6.004
12483.05 179318.6
6.961
15703.88 213408.8
7.358
Table 1.5: Calculations Of Cash To Current Assets And Current Liabilities
Ratio
Cash To Current Assets Ratio
Year Cash &
Current Ratio
Bank
Assets
(Rs.In
Balance
(Rs. in
Crore)
Crore)
200522080.97 113508.9 0.19
2006
200624276.14 102064.26 0.23
2007
200733333.76 123850.8 0.26
2008
200848760.96 175766
0.27
2009
200949706.22 211142.22 0.23
2010
Source: Annual Report
Cash To Current Liabilities Ratio
Year
Cash &
Current
Ratio
Bank
Liability
(Rs.In
Balance
(Rs.In
Crore)
Crore)
200522080.97 106012
0.21
2006
200624276.14 77098.38 0.31
2007
200733333.76 128126.9 0.26
2008
200848760.96 150664.1 0.32
2009
200949706.22 179748.4 0.27
2010
Namex International Journal of Management Research
5
Vol. 1, Issue No.1, December 2011
A Study on Asset and Liability Management in Salem Co-operative Bank
Table1.6: Calculation Of Current Assets To Share Holders Fund Ratio
Current Assets To Proprietors Fund Ratio
Year
Current assets
(Rs.in crore)
2005-2006
113508.9
2006-2007
102064.26
2007-2008
123850.8
2008-2009
175766
2009-2010
211142.22
Source: Annual Report
Share holders Fund
(Rs.in crore)
2459.98
5673.24
9046.32
12483.05
15703.88
Ratio
46.14
17.99
13.69
14.08
13.44
LEAST SQUARE ANALYSIS
FORMULAE:
Least S quare y
 a  bx
y
a 
n
 XY
X
b 
2
Table 2: Calculation Of Least Square Method
NET PROFIT (Y) (Rs.in
lakhs)
X
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
YEAR
X2
XY
2
Namex International Journal of Management Research
6
Vol. 1, Issue No.1, December 2011
A Study on Asset and Liability Management in Salem Co-operative Bank
EXPANSION
a
y

n
4073.47
5
 XY

b

X
2
3296
10
329.6


Forecasting For The Future Net Profit
YEAR
NET PROFIT (Rs.in
lakhs)
Y = a + bx
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
NET
TOTAL
PROFIT
ASSETS
YEAR
(X)
∑X
∑Y
∑XY
(Y) (Rs in
(Rs.in
crore)
lakhs)
20055.30
118,144.5
28.09
13,958,122,880.25
626,165.85
2006
2006546.67
125,572.0
298,848.09 15,768,327,184.00 68,646,445.24
2007
20071,143.90 150,666.50 1,308,507.21 22,700,394,222.25 172,347,409.35
2008
2008901.93
179,318.6
813,477.72 32,155,160,305.96 161,732,824.90
2009
2009213,408.8 2,177,601.95 45,543,315,917.44 314,920,963.90
2010 1,475.67
4,073.47 787,110.4 4,598,463.0 130,125,320,509.9 718,273,809.23
Namex International Journal of Management Research
7
Vol. 1, Issue No.1, December 2011
A Study on Asset and Liability Management in Salem Co-operative Bank
r

r

n xy   x  y 
n x 2    x 
2
n y 2    y 
2
0.863
Table 3.2: Calculation Of Correlation Between Networth To Total Assets
YEAR
20052006
20062007
20072008
20082009
20092010
Total
NET
WORTH
(X)
TOTAL
ASSETS
(Y)
∑X2
∑Y2
118,144.51
118,144.50
13,958,125,243.14
13,958,122,880.25
13,958,124,061.70
125,572.02
125,572.00
15,768,332,206.88
15,768,327,184.00
15,768,329,695.44
150,666.52
150,666.50
22,700,400,248.91
22,700,394,222.25
22,700,397,235.58
179,318.60
179,318.60
32,155,160,305.96
32,155,160,305.96
32,155,160,305.96
213,408.80
213,408.80
45,543,315,917.44
45,543,315,917.44
45,543,315,917.44
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:
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 200708. except 2008-09 it has further
decreased.
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.
Table 1.3 Fixed to Net worth ratio is
fluctuating every year. Only 2006-07
showing positive trend ii)Net Profit to
Namex International Journal of Management Research
Share Capital Fund is declining except
2006-07 and 07-08
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.
Table 1.5 shows that current asset
have been maintained in the year 200506 and it has decreased every year.
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.
Table no 2 The Net Profit is in good
position. According to the least square
8
Vol. 1, Issue No.1, December 2011
A Study on Asset and Liability Management in Salem Co-operative Bank
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 3.2 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
Namex International Journal of Management Research
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 (2nd ed).
Chicago: Irwin.
Sinkey, J.F. (1992). Commercial
bank financial management(4th





9
Vol. 1, Issue No.1, December 2011
A Study on Asset and Liability Management in Salem Co-operative Bank

ed).
New
York:
Maxwell
Macmillan International Edition.
The World Bank (1995). The
emerging Asian bond market:
India.
Prepared
by
ISec,
Mumbai.
Namex International Journal of Management Research

Vaidyanathan, R (1995). Debt
market in India: Constraints and
prospects. Bangalore: Center for
Capital Markets Education and
Research, Indian Institute of
Management-Bangalore
10
Vol. 1, Issue No.1, December 2011