ASSET LIABILITY MANAGEMENT (ALM) POLICY
Asset Liability Management is defined as a mechanism to address the risk faced by the company due to mismatch between assets and liabilities either on account of maturities or on account of interest rates.
The company’s assessment of Liquidity Risk is two-fold:
- Short term dynamic liquidity assessment.
- Structural Liquidity assessment of assets and liabilities as on a reference date.
Short Term Dynamic Liquidity Assessment:
Based on the business plan, inflows and outflows over the next 6 months are forecast and plotted to ascertain the gaps, if any. The gaps are then matched with the available working capital limits from banks. Such a liquidity assessment statement is prepared and reviewed by the management every month.
Structural Liquidity Assessment:
Every half year, the company assesses the maturity pattern of assets and liabilities as on a reference date by plotting the values in various time buckets viz up to 1 month, 1-2 months, 2-3 months, 3- 6 months,6-12 months, 1-3 years, 3-5 years, 5-7 years, 7-10 years and Over 10 years.
The cumulative negative gap (excess of outflows or inflows) in any of the time bucket is identified and presented to the Asset Liability Management Committee. The Committee assesses whether the cumulative negative gap, if any, is within the prudential limits set by the Committee and the relevant regulatory requirements.
Interest Rate Risk:
Every half year, the company assesses the maturity pattern of interest rate sensitive assets and liabilities on a reference date by plotting the values in various time buckets. The impact of changes in interest rates applicable on the assets and liabilities on the profitability of the company is assessed. The impact shall be reviewed and suitable risk management measures as may be required from time to time shall be implemented.