CHAPTER-I

INTRODUCTION
NEED OF THE STUDY
OBJECTIVES OF THE STUDY
SCOPE OF STUDY
REASEARCH METHODOLOGY
LIMITATIONS

INTRODUCTION
Asset Liability Management (ALM) is a strategic approach of managing the balance sheet
dynamics in such a way that the net earnings are maximized. This approach is concerned with
management of net interest margin to ensure that its level and riskiness are compatible with the
risk return objectives of the.
If one has to define Asset and Liability management without going into detail about its
need and utility, it can be defined as simply management of money which carries value and
can change its shape very quickly and has an ability to come back to its original shape with or
without an additional growth. The art of proper management of healthy money is ASSET AND
LIABILITY MANAGEMENT (ALM).
The Liberalization measures initiated in the country resulted in revolutionary changes in
the sector. There was a shift in the policy approach of s from the traditionally administered
market regime to a free market driven regime. This has put pressure on the earning capacity of
co-operative s, which forced them to foray into new operational areas thereby exposing
themselves to new risks.
As major part of funds at the disposal of assets come from outside sources, the
management are concerned about RISK arising out of shrinkage in the value of asset, and
managing such risks became critically important to them. Although co-operatives are able to
mobilize deposits, major portions of it are high cost fixed deposits. Maturities of these fixed
deposits were not properly matched with the maturities of assets created out of them. The tool
called ASSET AND LIABILITY MANAGEMENT provides a better solution for this.
ASSET LIABILITY MANAGEMENT (ALM) is a portfolio management of assets and
liability of an organization. This is a method of matching various assets with liabilities on the
basis of expected rates of return and expected maturity patter
In the context of assets, ALM is defined as
A process of adjusting liability to meet loan demands, liquidity needs and safety
requirements. This will result in optimum value of the assets at the same time reducing the
risks faced by them and managing the different types of risks by keeping it within acceptable
levels.

OBJECTIVES OF THE STUDY

o To study the concept of ASSET & LIABLITY MANAGEMENT in ICICI
BANK
o To study process of CASH INFLOWS and OUTFLOWS in ICICI BANK
o To study RISK MANAGEMENT under ICICI BANK
o To study RESERVES CYCLE of ALM under ICICI BANK
o To study FUNCTIONS AND OBJECTIVES of ALM committee.

o Structural liquidity statement of three years.

NEED OF THE STUDY:

The need of the study is to concentrates on the growth and performance of ICICI and to
calculate the growth and performance by using asset and liability management. And to know the
management of non performing assets.

To know financial position of ICICI

To analyze existing situation of ICICI

To improve the performance of ICICI

To analyze competition between ICICI with other cooperatives.

SCOPE OF THE STUDY:

In this study the analysis based on ratios to know asset and liabilities management under
ICICI and to analyze the growth and performance of ICICI by using the calculations under asset
and liability management based on ratio.

Ratio analysis

Comparative statement

Common size balance sheet.

METHODOLOGY OF THE STUDY

The study of ALM Management is based on secondary data collection
PRIMARY DATA COLLECTION:
The sources of primary data were
The chief manager ALM cell
Department Sr. manager financing & Accounting
System manager- ALM cell
Gathering the information from other managers and other officials of the

SECONDARY DATA COLLECTION:

Collected from books regarding, journal, and management containing relevant information
about ALM and Other main sources were
Annual report of the ICICI
Published report of the times of India.
RBI guidelines for ALM.

LIMITATION OF THE STUDY:

This study is based on past data of ICICI three years data.

The analysis is based on structural liquidity statement and gap analysis.

The study is mainly based on secondary data.

CHAPTER-II
REVIEW OF LITERATURE

ASSET LIABILITY MANAGEMENT (ALM) SYSTEM:

Introduction:
In the normal course, there are exposed to credit and market risks in view of the asset
liability transformation. With the liberalization in the Indian financial markets over the last few
years and growing integration of domestic markets and with external markets the risks associated
with s operations have become complex, large, requiring strategic management. There are now
operating in a fairly deregulated environment and are required to determine on their own, interest
rates on deposits and advance in both domestic and foreign currencies on a dynamic basis. The
interest rates on their investments in government and other securities are also now market
related. Intense competition for business involving both the assets and liabilities, together with
increasing volatility in the domestic interest rates, has brought pressure on the management of
their to maintain a good balance among spreads, profitability and long-term viability. Impudent
liquidity management can put s earnings and reputation at great risk. These pressures call for
structured and comprehensive measures and not just adios action. The management of there has
to base their business decisions on a dynamic and integrated risk management system and
process, driven by corporate strategy. There are exposed to several major risks in course of their
business-credit risk, interest rate and operational risk therefore important than their introduce
effective risk management systems that address the issues related to interest rate, currency and
liquidity risks.
Need to address these risks in a structured manner by upgrading their risk management
and adopting more comprehensive Asset-Liability management (ALM) practices than has been
done hitherto. ALM among other functions, is also concerned with risk management and
provides a comprehensive and dynamic framework for measuring, monitoring and managing
liquidity interest rate, foreign exchange and equity and commodity price risk of a that needs to
be closely integrated with their business strategy. It involves assessment of various types of risks
altering the asset liability portfolio in a dynamic way in order to manage risks.

The initial focus of the ALM function would be to enforce the risk management
discipline, viz., and managing business after assessing the risks involved.
In addition, the managing the spread and riskiness, the ALM function is more
appropriately viewed as an integrated approach which requires simultaneous decisions about
asset/liability mix and maturity structure.
RISK MANAGEMENT IN ALM
Risk management is a dynamic process, which needs constant focus and attention. The
idea of risk management is a well-known investment principle that the largest potential returns
are associated with the riskiest ventures. There can be no single prescription for all times,
decisions have to be reversed at short notice. Risk, which is often used to mean uncertainty,
creates both opportunities and problems for business and individuals in nearly every walk of life.
Risk sometimes is consciously analyzed and managed; other times risk is simply ignored,
perhaps out of lack of knowledge of its consequences. If loss regarding risk is certain to occur, it
may be planned for in advance and treated as to definite, known expense. Businesses and
individuals may try to avoid risk of loss as much as possible or reduce its negative consequences.
Several types of risks that affect individuals and businesses were introduced, together
with ways to measure the amount of risk. The process used to systematically manage risk
exposure is known as RISK MANAGEMENT. Whether the concern is with a business or an
individual situation, the same general steps can be used to systematically analyze and deal with
risk.
STEPS IN RISK MANAGEMENT:
Risk identification
Risk evaluation
Risk management technique
Risk measurement
Risk review decisions

10

Integrated or enterprise risk management is an emerging view that recognizes the

importance of risk, regardless of its source, in affecting a firms ability to realize its strategic
objectives. The detailed risk management process is as follows;
Risk identification:
The first step in the risk management process is to identify relevant exposures to risk.
This step is important not only for traditional risk management, which focuses on uncertainty of
risks, but also for enterprise risk management, where much of the focus is on identifying the
firms exposures from a variety of sources, including operational, financial, and strategic
activities.
Risk evaluation:
For each source of risk that is identified, an evaluation should be performed. At
this stage, uncertainty of risks can be categorized as to how often associated losses are
likely to occur. In addition to this evaluation of loss frequency, an analysis of the size, or
severity, of the loss is helpful. Consideration should be given both to the most probable
size of any losses that may occur and to the maximum possible losses that might happen.
Risk management techniques:
The results of the analyses in second step are used as the basis for decisions regarding
ways to handle existing risks. In some situations, the best plan may be to do nothing. In other
cases, sophisticated ways to finance potential losses may be arranged. The available techniques
for managing risks are GAP Analysis, VAR Analysis, Heinrich Domino theory etc., with
consideration of when each technique is appropriate.
Risk measurement:
Once risk sources have been identified it is often helpful to measure the extent of the risk
that exists. As part of the overall risk evaluation, in some situations it may be possible to measure

11

the degree of risk in a meaningful way. In other cases, especially those involving individuals
computation of the degree of risk may not yield helpful information.
Risk review decisions:
Following a decision about the optimal methods for handling identified risks, the
business or individual must implement the techniques selected. However, risk management
should be an ongoing process in which prior decisions are reviewed regularly. Sometimes new
risk exposures arise or significant changes in expected loss frequency or severity occur. The
dynamic nature of many risks requires a continual scrutiny of past analysis and decisions.
DIMENSIONS OF RISK
Specifically two broad categories of risk are the basis for classifying financial services risk.
(1) Product market Risk.
(2) Capital market Risk.
Economists have long classified management problems as relating to either The
Product Markets Risks or The Capital Markets Risks.

12

TOTAL FINANCIAL SERVICES FIRMS RISK.

Total Risk
(Responsibility of CEO)

Business Risk

Financial Risk

Product Market Risk

Capital Market Risk

(Responsibility of the

(Responsibility of the

Chief Operating Officer)

Chief Financial Officer)

Credit

Interest rate

Strategic

Liquidity

Regulatory

currency

Operating

Settlement

Human resources

Basis
Legal

13

(I).PRODUCT MARKET RISK:

This risk decision relate to the operating revenues and expenses of the form that impact the
operating position of the profit and loss statements which include crisis, marketing, operating
systems, labor cost, technology, channels of distributions at strategic focus. Product Risks relate
to variations in the operating cash flows of the firm, which effect Capital Market, required Rates
Of Return;.
(1) CREDIT RISK
(2) STRATEGIC RISK
(3) COMMODITY RISK
(4) OPERATIVE RISK
(5) HUMAN RESOURCES RISK
(6) LEGAL RISK
Risk in Product Market relate to the operational and strategic aspects of managing
operating revenues and expenses. The above types of Product Risks are explained as follows.
1. CREDIT RISK:
The most basic of all Product Market Risk in a or other financial intermediary is the
erosion of value due to simple default or non-payment by the borrower. Credit risk has been
around for centuries and is thought by many to be the dominant financial services today. s
intermediate the risk appetite of lenders and essential risk ness of borrowers. s manage this risk
by ; (A) making intelligent lending decisions so that expected risk of

borrowers is both

accurately assessed and priced; (B) Diversifying across borrowers so that credit losses are not
concentrated in time; (C) purchasing third party guarantees so that default risk is entirely or
partially shifted away from lenders.

14

(2). STRATEGIC RISK:

This is the risk that entire lines of business may succumb to competition or obsolescence. In the
language of strategic planner, commercial paper is a substitute product for large corporate loans.
Strategic risk occurs when a is not ready or able to compete in a newly developing line of
business. Early entrants enjoyed a unique advantage over newer entrants. The seemingly
conservative act of waiting for the market to develop posed a risk in itself. Business risk accrues
from jumping into lines of business but also from staying out too long.
(3). COMMODITY RISK:
Commodity prices affect s and other lenders in complex and often unpredictable ways.
The macro effect of energy price increases on inflation also contributed to a rise in interest rates,
which adversely affected the value of many fixed rate financial assets. The subsequent crash in
oil prices sent the process in reverse with nearly equally devastating effects.
(4). OPERATING RISK:
Machine-based system offer essential competitive advantage in reducing costs and
improving quality while expanding service and speed. No element of management process has
more potential for surprise than systems malfunctions. Complex, machine-based systems
produce what is known as the black box effect. The inner working of system can become
opaque to their users. Because developers do not use the system and users often have not
constitutes a significant Product Market Risk. No financial service firm can small management
challenge in the modern financial services company.

15

(5). HUMAN RESOURCES RISK:

Few risks are more complex and difficult to measure than those of personnel policy; they are
Recruitment, Training, Motivation and Retention. Risk to the value of the Non-Financial Assets
as represented by the work force represents a much more subtle of risk. Concurrent with the loss
of key personal is the risk of inadequate or misplaced motivation among management personal.
This human redundancy is conceptually equivalent to safety redundancy in operating systems. It
is not inexpensive, but it may well be cheaper than the risk of loss. The risk and rewards of
increased attention to the human resources dimension of management are immense.
(6). LEGAL RISK:
This is the risk that the legal system will expropriate value from the shareholders of
financial services firms. The legal landscape today is full of risks that were simply unimaginable
even a few years ago. More over these risks are very hard to anticipate because they are often
unrelated to prior events which are difficult and impossible to designate but the management of a
financial services firm today must have these risks at least in view. They can cost millions.
(II). CAPITAL MARKET RISK:
In the Capital Market Risk decision relate to the financing and financial support of
Product Market activities. The result of product market decisions must be compared to the
required rate of return that results from capital market decision to determine if management is
creating value. Capital market decisions affect the risk tolerance of product market decisions
related to variations in value associated with different financial instruments and required rate of
return in the economy.
1. LIQUIDITY RISK
2. INTEREST RATE RISK
3. CURRENCY RISK
4. SETTLEMENT RISK

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5. BASIS RISK
1. LIQUIDITY RISK:
For experienced financial services professionals, the foremost capital market risk is that of
inadequate liquidity to meet financial obligations. The obvious form is an inability to pay desired
withdrawals. Depositors react desperately to the mere prospect of this situation.
They can drive a financial intermediary to collapse by withdrawing funds at a rate that
exceeds its capacity to pay. For most of this century, individual depositors who lost faith in s
ability to repay them caused failures from liquidity. Funds are deposited primarily as a financial
of rate. Such funds are called purchased money or headset funds as they are frequently
bought by employees who work on the money desk quoting rates to institutions that shop for the
highest return. To check liquidity risk, firms must keep the maturity profile of the liabilities
compatible with that of the assets. This balance must be close enough that a reasonable shift in
interest rates across the yield curve does not threaten the safety and soundness of the entire firm.
2. INTEREST RATE RISK:
In extreme conditions, Interest Rate fluctuations can create a liquidity crisis. The fluctuation
in the prices of financial assets due to changes in interest rates can be large enough to make
default risk a major threat to a financial services firms viability. Theres a function of both the
magnitude of change in the rate and the maturity of the asset. This inadequacy of assessment and
consequent mispricing of assets, combined with an accounting system that did not record
unrecognized gains and losses in asset values, created a financial crisis. Risk based capital rules
pertaining to s have done little to mitigate the interest rate risk management problem. The
decision to pass it off however is not without large cost, so the cost benefit tradeoff becomes
complex.

17

3. CURRENCY RISK:
The risk of exchange rate volatility can be described as a form of basis risk among
currencies instead of basis risk among interest rates on different securities. Balance sheets
comprised of numerous separate currencies contain large camouflaged risks through financial
reporting systems that do not require assets to be marked to market. Exchange rate risk affects
both the Product Markets and The Capital Markets. Ways to contain currency risk have
developed in todays derivative market through the use of swaps and forward contracts. Thus,
this risk is manageable only after the most sophisticated and modern risk management technique
is employed
4. SETTLEMENT RISK:
Settlement Risk is a particular form of default risk, which involves the s competitors.
Amounts settle obligations having to do with money transfer, check clearing, loan disbursement
and repayment, and all other inter- transfers within the worldwide monetary system. A single
payment is made at the end of the day instead of multiple payments for individual transactions.
5. BASIS RISK :
Basis risk is a variation on the interest rate risk theme, yet it creates risks that are less
easy to observe and understand. To guard against interest rate risk, somewhat non comparable
securities may be used as a hedge. However, the success of this hedging depends on a steady and
predictable relationship between the two no identical securities. Basis can negate the hedge
partially or entirely, which vastly increases the Capital Market Risk exposure of the firm.

18

RISK MANAGEMENT SYSTEM:

Assuming and managing risk is the essence of business decision-making. Investing in a
new technology, hiring a new employee, or launching a marketing campaign is all decisions with
uncertain outcomes. As a result all the major management decisions of how much risk to take
and how to manage the risk.
The implementation of risk management varies from business to business, from one
management style to another and from one time to another. Risk management in the financial
services industry is different from others. Circumstances, Institutions and Managements are
different. On the other hand, an investment decision is no recent history of legal and political
stability, insights into the potential hazards and opportunities.
Many risks are managed quantitatively. Risk exposure is measured by some numerical
index. Risk cost tradeoff many tools are described by numerical valuation formulas.
Risk management can be integrated into a risk management system. Such a system can
be utilized to manage the trading position of a small-specialized division or an entire financial
institution. The modules of the system can be implemented with different degrees of accuracy
and sophistication.

19

RISK MANAGEMENT SYSTEM

Dynamics of risk factors

Cash flows
Generator

Arbitrage
Pricing Model

Price and Risk

Profile Of Contingent Claims

Dynamic

Risk
Target

Trading Rules

Optimizer

20

Risk Profile

1.2 RISK MANAGEMENT SYSTEM

Arbitrage pricing models range from simple equations to large scale numerically
sophisticated algorithms. Cash flow generators also vary from a single formula to a
simulator that accounts for the dependence of cash flows on the history of the risk factors.
Financial engineers are continuously incorporating advances in econometric
techniques, asset pricing models, simulation techniques and optimization algorithms to
produce better risk management systems.
The important ingredient of the risk management approach is the treatment of risk
factors and securities as an integrated portfolio. Analyzing the correlation among the real,
financial and strategic assets of an organization leads to clear understanding of risk
exposure. Special attention is paid to risk factors, which translate to correlation among
the values of securities. Identifying the correlation among the basic risk factors leads to
more effective risk management.
CONCLUSION
They sell their services by bearing customers financial risks through the products they provide. A
financial firm can offer a fixed-rate loan to a borrower with the risk of interest rate movements
transferred from the borrower to the. Financial innovations have been concerned with risk
reduction than any other subject. With the possibility of managing risk near zero, the challenge
becomes not how much risk can be removed.
Financial services involve the process of intermediation between those who have financial
resources and those who need them, either as a principal or as an agent. Thus, value breaks into
several distinct functions, and it includes the intermediation of the following:
Maturity Preference mismatch, Default, Currency Preference miss-match, Size of
transaction and Market access and information.

21

CHAPTER-III
INDUSTRY PROFILE
COMPANY PROFILE

22

Banking in India
Banking in India originated in the last decades of the 18th century. The oldest bank in
existence in India is the State Bank of India, a government-owned bank that traces its origins
back to June 1806 and that is the largest commercial bank in the country. Central banking is the
responsibility of the Reserve Bank of India, which in 1935 formally took over these
responsibilities from the then Imperial Bank of India, relegating it to commercial banking
functions. After India's independence in 1947, the Reserve Bank was nationalized and given
broader powers. In 1969 the government nationalized the 15 largest commercial banks; the
government nationalized the six next largest in 1980.
Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is
with the Government of India holding a stake), 31 private banks (these do not have government
stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They
have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by
ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the
banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively
Early history
Banking in India originated in the last decades of the 18th century. The first banks were The
General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now
defunct. The oldest bank in existence in India is the State Bank of India, which originated in the
Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was
one of the three presidency banks, the other two being the Bank of Bombay and the Bank of
Madras, all three of which were established under charters from the British East India Company.
For many years the Presidency banks acted as quasi-central banks, as did their successors. The
three banks merged in 1921 to form the Imperial Bank of India, which, upon India's
independence, became the State Bank of India.

23

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a
consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and
still functioning today, is the oldest Joint Stock bank in India. It was not the first though. That
honor belongs to the Bank of Upper India, which was established in 1863, and which survived
until 1914, when it failed, with some of its assets and liabilities being transferred to the Alliance
Bank of Simla.
When the American Civil War stopped the supply of cotton to Lancashire from the
Confederate States, promoters opened banks to finance trading in Indian cotton. With large
exposure to speculative ventures, most of the banks opened in India during that period failed.
The depositors lost money and lost interest in keeping deposits with banks. Subsequently,
banking in India remained the exclusive domain of Europeans for next several decades until the
beginning of the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire
d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862;
branches in Madras and Pondichery, then a French colony, followed. HSBC established itself in
Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the
British Empire, and so became a banking center.

The Bank of Bengal, which later became the State Bank of India.

24

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in
1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in
Lahore in 1895, which has survived to the present and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a relative period
of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial
and other infrastructure had improved. Indians had established small banks, most of which
served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange banks and
a number of Indian joint stock banks. All these banks operated in different segments of the
economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign
trade. Indian joint stock banks were generally undercapitalized and lacked the experience and
maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon
to observe, "In respect of banking it seems we are behind the times. We are like some old
fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome
compartments."
The period between 1906 and 1912, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures
to found banks of and for the Indian community. A number of banks established then have
survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda,
Canara Bank and Central Bank of India.
The fervor of Swedish movement lead to establishing of many private banks in Dakshina
Kannada and Udupi district which were unified earlier and known by the name South Canara
(South Canara ) district. Four nationalised banks started in this district and also a leading private
sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian
Banking".

25

26

Company Profile

COMPANY PROFILE
ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$ 77
billion) at December 31, 2014 and profit after tax Rs. 30.19 billion (US$ 648.8 million) for the
nine months ended December 31, 2014. The Bank has a network of 1,675 branches and about
4,883 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking

27

products and financial services to corporate and retail customers through a variety of delivery
channels and through its specialized subsidiaries and affiliates in the areas of investment
banking, life and non-life insurance, venture capital and asset management. The Bank currently
has subsidiaries in the United Kingdom, Russia and Canada, branches in United States,
Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and
representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand,
Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the
National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are
listed on the New York Stock Exchange (NYSE).
Corporate Profile
ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$ 77
billion) as on December 31, 2014.
Board Members
Mr. K. V. Kamath, Chairman
Mr. Sridar Iyengar
Mr. Homi R. Khusrokhan
Mr. Lakshmi N. Mittal
Mr. Narendra Murkumbi
Dr. Anup K. Pujari
Mr. Anupam Puri
Mr. M.S. Ramachandran
Mr. M.K. Sharma
Mr. V. Sridar
Prof. Marti G. Subrahmanyam
Mr. V. Prem Watsa
Ms. Chanda D. Kochhar,
Managing Director & CEO

28

Mr. Sandeep Bakhshi,

Deputy Managing Director
Mr. N. S. Kannan,
Executive Director & CFO
Mr. K. Ramkumar,
Executive Director
Mr. Sonjoy Chatterjee,
Executive Director
Mr. K. V. Kamath is a mechanical engineer and did his management studies from the Indian
Institute of Management, Ahmadabad. He joined ICICI in 1971 and worked in the areas of
project finance, leasing, resources and corporate planning. In 1988, he joined the Asian
Development Bank and spent several years in south-east Asia before returning to ICICI as its
Managing Director & CEO in 1996. He became Managing Director & CEO of ICICI Bank in
2002 following the merger of ICICI with ICICI Bank. Under his leadership, the ICICI Group
transformed itself into a diversified, technology-driven financial services group, that has
leadership positions across banking, insurance and asset management in India, and an
international presence. He retired as Managing Director & CEO in April 2014, and took up the
position of non-executive Chairman of ICICI Bank effective May 1, 2014. He was the President
of the Confederation of Indian Industry (CII) for 2013-09. He was awarded the Padma Bhushan
by the President of India in May 2013. He was conferred the Lifetime Achievement Awards at
the Financial Express Best Bank Awards 2013 and the NDTV Profit Business Leadership Awards
2013; was named 'Businessman of the Year' by Forbes Asia and The Economic Times' 'Business
Leader of the Year' in 2007; Business Standard's "Banker of the Year" and CNBC-TV18's
"Outstanding Business Leader of the Year" in 2006; Business India's "Businessman of the Year"
in 2005; and CNBC's "Asian Business Leader of the Year" in 2001. He has been conferred with
an honorary PhD by the Banaras Hindu University. He is a member of the Board of the Institute
of International Finance, a Director on the Board of Infosys Technologies and a member of the
Board of Governors of the Indian Institute of Management, Ahmadabad.

29

Awards:

For the third year in a row ICICI Bank has won The Asset Triple A Country Awards for
Best Domestic Bank in India

ICICI Bank won the Most Admired Knowledge Enterprises (MAKE) India 2014 Award.
ICICI Bank won the first place in "Maximizing Enterprise Intellectual Capital" category,
October 28, 2014

Ms Chanda Kochhar, MD and CEO was awarded with the Indian Business Women
Leadership Award at NDTV Profit Business Leadership Awards , October 26, 2014.

ICICI Bank received two awards in CNBC Awaaz Consumer Awards; one for the most
preferred auto loan and the other for most preferred credit Card, on September 30, 2014

Ms. Chanda Kochhar, Managing Director & CEO ranked in the top 20 of the World's 100
Most Powerful Women list compiled by Forbes, August 2014

Financial Express at its FE India's Best Banks Awards, honoured Mr. K.V. Kamath,
Chairman with the Lifetime Achievement Award , July 25, 2014

ICICI Bank won Asset Triple A Investment Awards for the Best Derivative House, India.
In addition ICICI Bank were Highly commended , Local Currency Structured product,
India for 1.5 year ADR GDR linked Range Accrual Note., July 2014

ICICI bank won in three categories at World finance Banking awards on June 16, 2014
o

Best NRI Services bank

Excellence in Private Banking, APAC Region

Excellence in Remittance Business, APAC Region

ICICI Bank Mobile Banking was adjudged "Best Bank Award for Initiatives in Mobile
Payments and Banking" by IDRBT, on May 18, 2014 in Hyderabad.

ICICI Bank's b2 branchfree banking was adjudged "Best E-Banking Project

Implementation Award 2013" by The Asian Banker, on May 12, 2014 at the China World
Hotel in Beijing.

ICICI Bank bags the "Best bank in SME financing (Private Sector)" at the Dun &
Bradstreet Banking awards 2014.

30

ICICI Bank NRI services win the "Excellence in Business Model Innovation Award" in
the eighth Asian Banker Excellence in Retail Financial Services Awards Programme.

ICICI Bank's Rural Micro Banking and Agri-Business Group win WOW Event &
Experiential Marketing Award in two categories - "Rural Marketing programme of the
year" and "Small Budget On Ground Promotion of the Year". These awards were given
for Cattle Loan 'Kamdhenu Campaign' and "Talkies on the move campaign' respectively.

ICICI Bank's Germany Branch has been certified by "Stiftung Warrentest". ICICI Bank is
ranked 2nd amongst 57 savings products across 19 banks

ICICI Bank Germany won the yearly banking test of the investor magazine uro in the
"call money" category.

The ICICI Bank was awarded the runner's up position in Gartner Business Intelligence
and Excellence Award for Asia Pacific for its Business Intelligence functions.

ICICI Bank's Organizational Excellence Group was recently awarded ISO 9001:2013
certification by TUV Nord. The scope of certification comprised processes around
consulting and capability building on methods of quality & improvements.

ICICI Bank has been awarded the following titles under The Asset Triple A Country
Awards for 2014:
o

Best Transaction Bank in India

Best Trade Finance Bank in India

Best Cash Management Bank in India

Best Domestic Custodian in India

ICICI Bank has bagged the Best Cash Management Bank in India award for the second
year in a row. The other awards have been bagged for the third year in a row.

ICICI Bank Canada received the prestigious Canadian Helen Keller Award at the
Canadian Helen Keller Centre's Fifth Annual Luncheon in Toronto. The award was given
to ICICI Bank its long-standing support to this unique training centre for people who are
deaf-blind.

31

ICICI Foundation for Inclusive Growth (ICICI Foundation) was founded by the ICICI Group in
early 2013 to give focus to its efforts to promote inclusive growth amongst low-income Indian
households.
They believe our fundamental challenge is to create a just society one where everyone has
equal opportunity to develop and grow. Towards this end, ICICI Foundation is committed to
making Indias economic growth more inclusive, allowing every individual to participate in and
benefit from the growth process.
They hold a set of core beliefs and values that defines our pathway towards inclusive growth and
guides our five strategic partnerships.

Vision
Our vision is a world free of poverty in which every individual has the freedom and power to
create and sustain a just society in which to live.

Mission
Our mission is to create and support strong independent organizations which work towards
empowering the poor to participate in and benefit from the Indian growth process.
As a key partner in India's economic growth for more than five decades, the ICICI Group
endeavors to promote growth in all sectors of the nations economy. To give focus to its efforts to
promote inclusive growth amongst low-income Indian households, the ICICI Group founded
ICICI Foundation for Inclusive Growth in January 2013.

The foundations of ICICI Groups approach towards human and social development were
established with the Social Initiatives Group (SIG), a non-profit resource group within ICICI
Bank, in 2000.
ICICI Foundation for Inclusive Growth (ICICI Foundation) has been set up as a public charitable
trust registered at Chennai vide registration of the Trust Deed with the Sub-Registrars Office at

32

Chennai on January 04, 2013.

The application for registration of the Foundation under section 13AA of the Income tax Act,
1961 (the Act) was filed on February 7, 2013 and the application under section 80G of the Act
was filed on February 15, 2013. Subsequently, ICICI Foundation was registered as a PUBLIC
CHARITABLE TRUST under Section 13AA of the Act with effect from February 7, 2013.
Further, ICICI Foundation received approval under Section 80G (5) (vi) of the Act on March 19,
2013. This approval is valid in respect of donation received by ICICI Foundation from February
15, 2013 to March 31, 2014. Accordingly, ICICI Bank and Group Companies will be eligible to
get a deduction under section 80G on donations made during this period.
ICIC I Foundation has also obtained its Permanent Account Number (PAN) and Tax deduction
Account Number (TAN).
ICICI VENTURE FUNDS MANAGEMENT COMPANY LIMITED
With the recent spurt in entrepreneurship in the country, venture capital and private equity capital
financing are fast attaining a role of prominence. Uniquely positioned to take the Indian
entrepreneur further is ICICI Venture Funds, the wholly owned subsidiary of ICICI, with its keen
understanding of the Indian Financial Markets, entrepreneurial ethos, access to global capital and
a network through influential global alliances. Strong parentage and affiliates provide ICICI
Venture with access to a broad spectrum of financial and analytical resources. An affiliation with
(Trust Company of the West) provides a platform for networking Indian Companies to global
markets and technology. ICICI Venture Funds currently manages / advises 11 Funds aggregating
US$ 400 million, making it the most significant private equity investor in the country. The
investment experience of ICICI Ventures professionals is the foundation its strengths and
success in several areas of investing. ICICI Venture seeks to invest in opportunities where its
network through ICICI and TCW can create value for all involved. ICICI Ventures primary
investment objective is capital investment through investments by way of equity or equityrelated securities in unlisted companies with significant growth potential. ICICI Ventures

33

investments span a broad spectrum of industries and stages of development, the investment focus
being on

Information Technology

Biotechnology and Life Sciences

Media and entertainment

Retail Services

34

ICICI SECURITIES AND FINANCE COMPANY LIMITED

Formed in 1993 when ICICIs Merchant Banking Division was spun off into a new company, ISEC today are Indias leading Investment Bank and one of the most significant players in the
Indian capital markets. Its client list includes some of the best known, most respected names in
Indian business and industry, and I-SEC offers them what are probably the widest, most in-depth
range of services in the market, with the highest standards of professionalism. Backed by a
strong distribution network, I-SEC is acknowledged to be at the forefront of all new
developments in the Indian debt market. I-SEC Research Reports, Compendia, Updates, I-BEX
and sovereign Bond Index, have become industry standards, sought after by finance, business
and reputed publications alike. The Project Finance Group has helped take strategic projects
from the drawing board to financial closure, leveraging the expertise of parent organization. ISEC has also executed several assignments in M & A, including business valuations, spin-offs
and mergers, for both domestic and overseas clients. The range of products offered by i-SEC
includes:
Corporate Finance Mergers and Acquisitions, Equity, Bidding (especially for Telecom
Projects)
Fixed Income Primary Dealership, Debt Research
Equities Lend management, Underwriting, Syndication, Private Equity placement, Sales,
Trading, Broking, Sectoral and Company Research I - SEC
Continues to sustain a steady rate of growth by offering the most extensive range of
services combined with unrivalled standards of professionalism.

35

ICICI BROKERAGE SERVICES LIMITED

Set up in March 1995, ICICI Brokerage Services is a 100% subsidiary of I-SEC. It commenced
its securities brokerage activities in February 1996 and is registered with the National Stock
Exchange of India Limited and The Stock Exchange, Mumbai. We are a joint venture between
ICICI and the leading financial services provider in India, and prudential plc of U.K., one of the
finest Life insurance companies in the world. Together we provide you with an extensive range
of insurance products to suit your various needs at various life stages. We aim to keep you
covered, at every step in life. Their policies are need-specific and address particular age groups.
This means that no matter where in life you are, we offer specific products to suit your needs for
savings, protection and retirement. Our products can be categorized into the following:
Saving plans
Protection plans
Retirement plans
ICICI PERSONAL FINANCIAL SERVICES LIMITED
ICICI Personal Financial Services Limited (ICICI PFS), formerly ICICI-Credit, was one of the
first four companies to obtain registration as a Non-Banking Financial Company (NBFC) from
the Reserve Bank of India (RBI) on September 10, 1997 under the new section 45IA of the
Reserve Bank of India Act, 1934. During the year 1998-99, there was a significant shift in the
Companys operation from leasing to hire purchase to distribution and servicing of all rental
products for the ICICI Group. It is now a focal point for marketing and distribution of all rental
asset products for ICICI, including auto loans, consumer durable finance and other financial
products. The Company has thus become part of ICICIs retail strategy aimed at offering a
comprehensive range of products and services to retail customers. In view of this reorientation of
the business, the name of the Company was changed from ICICI Credit Corporation to ICICI
Personal Financial Services Limited (ICICI PFS) effective March 22, 1999.

36

ICICI CAPITAL SERVICES LIMITED

ICICI Capital Services Ltd. was incorporated in the name of SCICI Securities Ltd. on September
24, 1994 as a wholly owned subsidiary of erstwhile SCICI Ltd. with the objective of providing
stock broking services to the institutional clients and undertaking activities such as underwriting,
primary market placements & distribution industry & company research etc. After the
amalgamation of SCICI with ICICI effective from April 1, 1996, resulting in the change of the
name. The company is mandated, under review by ICICI, to carry out on its behalf the retail
resource raising activities and to provide front office services related to all retail and semi retail
liability products of ICICI. The company also operates the network of ICICI Centers being set up
by ICICI. As on date the company has set up 91 centers across the country.
ICICI INFOTECH
ICICI InfoTech is a leading provider of end-to-end IT solutions. We have an in-depth experience
of having worked on varied technologies with leading corporations worldwide. Our service
portfolio includes the following:
IS & IT Consulting
Software Design and Development
Enterprise Application Integration
Value Chain Management Solutions (SCM, CRM etc.)
Application Re-engineering and Management
Knowledge Management Solutions
Embedded System Applications
Technology Incubation, IT-enabled Services & IT Outsourcing

37

ICICI Capital Ltd.

Its products are
RBI Bonds
E-invest (ICICI Direct.com)
Fixed Deposits
Mutual Funds
Bonds
Demat
Equity IPO
MICRO FINANCE
Need for Micro Finance
Evolution of Microfinance in India
Microfinance has been in practice for ages (though informally).
Legal framework for establishing the co-operative movement set up in 1904.
Reserve Bank of India Act, 1934 provided for the establishment of the
Agricultural Credit Department.
Nationalization of banks in 1969
Regional Rural Banks created in 1975.
NABARD established as an apex agency for rural finance in 1982.
Passing of Mutually Aided Co-op. Act in AP in Considerable gap between
demand and supply for all financial services.
Majority of poor are excluded from financial services. This is due to, the following reasons:
1. Bankers feel that it is fraught with risks and uncertainties.
2. High transaction costs.
3. Unfavorable policies like caps on interest rates which effectively limits.
38

While MFIs have shown that serving the poor is not an unviable proposition
there are issues that have constrained MFIs while scaling up. These include
1. Lack of an appropriate legal vehicle.
2. Limited access to equity.
3. Difficulty in accessing low cost on-lending funds (as of now they are unable to
offer savings services in a legitimate manner).
Limited access to Capacity Building support which is an important variable in
terms of quality of the portfolio, MIS, and the sustainability of operations.
About 56 % of the poor still borrow from informal sources.
70 % of the rural poor do not have a deposit account.
87 % have no access to credit from formal sources.
Less than 15 % of the households have any kind of insurance.
Negligible numbers have access to wealth.
Features of Indian MF
About 60 % of the MFIs are registered as societies.
About 20 % are Trusts.
About 65 % of the MFIs follow the operating model of SHGs.
Large concentration in South India.
600 MFI initiatives have a cumulative outreach of 1.25 crore poor hoseholds
NABARD's bank linkage program has cumulatively reached a total of 9.4 lakh
SHGs with about 1.4 crore households.
MF is a Tool for Poverty Reduction
Working capital.
Household investment in diversification.
Better balance sheets.

39

More assets
Secure stores of value
More profitable economic activities.
More productive savings strategies.
. Lower cash transactions costs.
Constraints to scaling access for the poor
Information Asymmetry
Inability of the poor to offer collateral.

High Costs of Intermediation

Low value, high volume transactions.

No credit history available.

Potential success of enterprises are

Low use of technology.

difficult to evaluate.

High supervision costs.

High Transaction Costs (8-20%)

High cash handling costs.

40

TWO INNOVATIVE MODELS

THE DIRECT-ACCESS-BANK LED MODEL
Promotion of Self Help Groups
Leveraging upon the merger with the Rural Banking institution Bank of Madura
THE INDIRECT CHANNEL PARTNERSHIP
With Micro-Finance Institutions
Hence, the ICICI Bank Partnership
ICICI
MFIS
Provider of loan funds, mezzanine
Undertakes
equity and technology.

loans

origination,

monitoring and collection.

Lends directly to clients with risk

sharing by NGO/MFI

MFI provided OD limit by bank

equivalent to amount of risk sharing,
which is drawn in event of default up to
specified limit.

Microcredit
In addition, ICICI Bank has been expanding its microcredit portfolio through
Partnership model
Portfolio buyouts
...a steady growth in group lending through MFIs continues
ICICI Venture Capital
Challenge in scaling up microfinance sector is lack of equity capital
To cover this shortage, ICICI Bank is encouraging venture capitalists to
Start entering the sector.
Lok Capital at Delhi
Aavishkar at Mumbai
Bell Weather at Hyderabad
41

The Funds
Bell Weather, Hyderabad has made 3 equity commitments for start up and
decided to raise fund amount from US $10mn to US $25mn.
Lok capital mobilizes and directs capital fund to finance microfinance initiatives
and technical support for MFI's.
Aavishkar provides micro-equity funding of $25000 to $100000.

42

CHAPTER-IV
DATA ANALYSIS AND INTERPRETATION

43

Funds Flow 2014-2015

ICICI Foundation received Rs.617.80 million from the following sources as grants:
(January 4, 2014 to March 31, 2015) (spanning two financial years)
Source (January 4, 2013 March 31, 2014)

Amount (Rs. million)

ICICI Bank

500.00

ICICI Prudential Life Insurance

67.72

ICICI Lombard General Insurance

17.13

ICICI Securities

15.98

ICICI Securities PD

6.99

ICICI Home Finance

1.99

ICICI Venture

9.00

Total

617.80

ICICI Foundation also incurred total expenses of Rs.1.25 million during this period and had a
fund balance of Rs.61.55 million as on March 31, 2015.
Disbursements (January 4, 2014 to March 31, 2015)
Grant Beneficiaries (January 4, 2014 March 31, 2015)

Amount (Rs. million)

ICICI Foundation Programmes

ICICI Centre for Child Health and Nutrition

150.00

IFMR Finance Foundation

200.00

Environmentally Sustainable Finance

20.00

CSO Partners

50.00

CARE (Policy Unit)

5.00

Strategy and Advisory Group

20.00

ICICI Group Corporate Social Responsibility Programmes

Read to Lead

25.00

44

MITRA (ICICI Fellows Program me)

55.00

CARE (Disaster Management Unit)

5.00

Rang De

25.00

Total

555.00

Grant Beneficiaries for 2014-2015

ICICI Foundation Programmes
ICICI Centre for Child Health and Nutrition (ICCHN)
The grant of Rs.150.00 million was provided to ICCHN by way of corpus support and for
pursuing various projects consistent with its mission.
IFMR Finance Foundation (IFF)
The grant of Rs.200.00 million was provided to IFMR Finance Foundation by way of corpus
support and for pursuing various projects consistent with its mission.
Environmentally Sustainable Finance (ESF)
The grant of Rs.20.00 million was provided to ESF for their collaboration work with Rural
Energy Network Enterprise (RENE) on sustainable energy and environment projects benefiting
remote rural end users. The proposed projects will promote developing tools and driving
innovation to scale rural energy access for remote rural users.
CSO Partners
The grant of Rs.50.00 million was provided to CSO Partners by way of corpus support and for
pursuing various projects consistent with its mission.
CARE (Policy Unit)
A grant of Rs.5.00 million was provided to CARE, an Indian NGO that is closely affiliated with
CARE (USA), to create a policy unit in Delhi. Learning from CAREs work in India and worldwide as well as from the work of ICICI Foundation and its partners, the unit will serve as a
platform to engage the government and policymakers in an effort to bring about required policy
changes in areas such as maternal and child health.

45

Strategy and Advisory Group (SAG)

Charitable foundations in India and world-wide struggle to fully develop the strategy
formulation, knowledge management and impact assessment dimensions of their work. A grant
of Rs.20.00 million was provided to Strategy and Advisory Group (SAG), a team at Centre for
Development Finance that provides strategic advisory services to clients in the development
sector, to develop these functions and to offer their expertise to foundations in general, including
ICICI Foundation.
ICICI Group Corporate Social Responsibility Programmers

Read to Lead
Read to lead is an initiative of ICICI Bank to facilitate elementary education for
disadvantaged children in the age group of 6-14 years. An amount of Rs.25.00 million has thus
far been disbursed to 100,000 children through 30 NGOs. The balance amount of Rs.75.00
million is planned to be disbursed during the period 2014-2015.
MITRA (ICICI Fellows Programme)
MITRA is an affiliate of CSO Partners that is focused on addressing the challenge of human
resources for civil society organisations (CSOs). In partnership with CSO Partners and MITRA,
ICICI Foundation proposes to launch an ICICI Fellows Programme. An amount of Rs.55.00
million has been disbursed to MITRA for developing and launching the programme over the
period 2014-2015.
CARE (Disaster Management Unit)
A grant of Rs.5.00 million has been given to CARE in India to enable it to prepare for any future
disasters that may strike and respond immediately with the required relief efforts.
Rang De (Micro Enterprise Development)
Rang De, an affiliate of CSO Partners, has partnered with ICICI Venture to roll out funds for
micro enterprise development in rural and semi-urban locations. The amount of Rs.25.00 million
that has been disbursed to them will support micro enterprises to the extent of Rs.15.00 million
and the balance amount of Rs.10.00 million will go towards meeting their expenses to build the
platform.
46

RISK MANAGEMENT IN ICICI

The s were required by the to introduce effective risk management systems to cover Credit
risk, market risk and Operations risk on priority.
Narasimham committee II, advised s to address market risk in a structured manner by
adopting Asset and Liability Management practices with effect from April 1st 1989.
Asset and liability management (ALM) is the Art and Science of choosing the best mix
of assets for the firms asset portfolio and the best mix of liabilities for the firms liability
portfolio. It is particularly critical for Financial Institutions.
For a long time it was taken for granted that the liability portfolio of financial firms was
beyond the control of the firm and so management concentrated its efforts on choosing the asset
mix. Institutions treasury department used the funds provided by deposits to structure an asset
portfolio that was appropriate for the given liability portfolio.
With the advent of Certificate of Deposits (CDs), s had a tool by which to manipulate the
mix of liabilities that supported their Asset portfolios, which has been one of the active
management of assets and liabilities.
Asset and liability management program evolve into a strategic tool for management, the
main elements of the ALM system are :
ALM INFORMATION.
ALM ORGANISATION.
ALM FUNCTION.

47

ALM INFORMATION:
ALM is a risk management tool through which Market risk associated with business are
identified, measured and monitored to maintain profits by restructuring Assets and Liabilities.
The ALM framework needs to be built on sound methodology with necessary information
system as back up. Thus the information is key element to the ALM process.
There are various methods prevalent worldwide for measuring risks. These range from the
simple Gap statement to extremely sophisticate and data intensive Risk adjusted profitability
measurement (RAPM) methods. The central element for the entire ALM exercise is the
availability of adequate and accurate information.
However, the existing systems in many Indian s do not generate information in manner
required for the ALM. Collecting accurate data is the biggest challenge before the s, particularly
those having wide network of branches, but lacking full-scale computerization.
Therefore the introduction of these information systems for risk measurement and
monitoring has to be addressed urgently.
The large network of branches and the lack of support system to collect information
required for the ALM which analysis information on the basis of residual maturity and
behavioral pattern, it would take time for s in the present state to get the requisite information.
ALM ORGANISATION:
Successful implementation of the risk management process requires strong commitment on
the part of senior management in the to integrate basic operations and strategic decision making
with risk management.
The Board of Directors should have overall responsibility for management of risk and
should decide the risk management policy of the, setting limits for liquidity, interest rate, foreign
exchange and equity / price risk.
The Asset Liability Management Committee (ICICI) consisting of the s senior management,
including CEO/CMD should be responsible for ensuring adherence to the limits set by the Board

48

of Directors as well as for deciding the business strategy of the (on the assets and liabilities
sides) in line with the s budget and decided risk management objective.
The ALM support group consisting of operation staff should be responsible for analyzing,
monitoring and reporting the risk profiles to the ICICI. The staff should also prepare forecasts
(simulations) showing the effects of various possible changes in market condition related to the
balance sheet and recommend the action needed to adhere to s internal limits,
The ICICI is a decision-making unit responsible for balance sheet planning from a riskreturn perspective including the strategic management of interest rate and liquidity risks. Each
has to decide on the role of its ICICI, its responsibility as also the decision to be taken by it. The
business and risk management strategy of the should ensure that the operates within the limits /
parameters set by the Board. The business issues that an ICICI would consider, inter alia, will
include product pricing for deposits and advances, desired maturity profile and mix of the
incremental Assets and Liabilities, etc. in addition to monitoring the risk levels of the , the ICICI
should review the results of and progress in implementation of the decisions made in the
previous meetings. The ICICI would also articulate the current interest rate view of the and base
its decisions for future business strategy on this view. In respect of this funding policy, for
instance, its responsibility would be to decide on source and mix of liabilities or sale of assets.
Towards this end, it will have to develop a view on future direction of interest rate movements
and decide on funding mixes between fixed vs. floating rate funds, wholesale vs. retail deposits,
Money markets vs. Capital market funding, domestic vs. foreign currency funding etc. Individual
s will have to decide the frequency for holding their ICICI meetings.
TYPICAL BUSINESS OF ICICI

Reviewing of the impact of the regulatory changes on the industry.

Overseeing the budgetary process;

Reviewing the interest rate outlook for pricing of assets and liabilities(Loans and
Deposits)

Deciding on the introduction of any new loan / deposit product and their impact on
interest rate / exchange rate and other market risks;

49

Reviewing the asset and liability portfolios and the risk limits and thereby, assessing the
capital adequacy;

Deciding on the desired maturity profile of incremental assets and liabilities and thereby
assessing the liquidity risk; and

Reviewing the variances in actual and projected performances with regard to Net Interest
Margin (NIM), spreads and other balance sheet ratios.

COMPOSITION OF ICICI
The size (number of members) of ICICI would depend on the size of each institution,
business mix and organizational complexity, To ensure commitment of the Top management and
timely response to market dynamics, the CEO/MD or the GM should head the committee. The
chiefs of Investment, Credit, Resources Management or Planning, Funds Management / Treasury
(domestic), etc., can be members of the committee. In addition, the head of the computer
(technology) Division should also be an invitee for building up of
MIS and related computerization. Some s may even have Sub-Committee and Support
Groups.
ALM ORGANIZATION consists of following categories:
ALM BOARD
ICICI
ALM CELL
COMMITTEE OF DIREC

ALM BOARD
The Board of management should have overall responsibility for management of risk
and should decide the risk management policy of the and set limits for liquidity and
interest rate risks.
50

ICICI
The has constituted an Asset- Liability committee (ICICI). The committee may consists of the
following members.
i) General Manager

Head of Committee

ii) General Manager (Loans & Advances)

Member

iii) General Manager (CMI & AD)

Member

iv) AGM / Head of the ALM Cell

Member

The ICICI is a decision making unit responsible for ensuring adherence to the limits set by
board as well as for balance sheet planning from risk return perspective including the strategic
management of interest rate and liquidity risks, in line with the s budget and decided risk
management objectives.
The Business issues that an ICICI would consider internalized, will include fixation of
interest rates for both deposits and advances, desired maturity profile of the incremental assets
and liabilities etc.
The ICICI would also articulate the current interest rate due of the and base its decisions for
future business strategy on this view. In respect of funding policy, for instance, its responsibility
would be decided on source and mix of liability.
Individual s will have to decide the frequency for their ICICI meetings. However, it is
advised that ICICI should meet at least once in a fortnight. The ICICI should review results of
and process in implementation of the decisions made in the previous meetings

51

ALM CELL
The ALM desk /cell consisting of operating staff should be responsible for analyzing,
monitoring and reporting the profiles to the ICICI. The staff should also prepare forecasts
(simulations) showing the effects of various possible changes in market conditions related to the
balance sheet and recommend the action needed to adhere to s internal limits.
COMMITTEE OF DIRECTORS
The s should also constitute professional, management and supervisory committee,
consisting of three to four directors, which will oversee the implementation of the ALM system,
and review its functioning periodically.
ALM PROCESS
The scope of ALM function can be described as follows:
1. Liquidity Risk Management
2. Interest Rate Risk Management
3. Currency Risk Management
4. Settlement Risk Management
5. Basis Risk Management
The RBI guidelines mainly address Liquidity Risk Management and Interest Rate Risk
Management.
The following are the concepts discussed for analysis of their Asset-Liability Management under
above mentioned risks.
Liquidity Risk

52

 Maturity profiles
Interest rate risk
Gap analysis
1. Liquidity Risk Management :
Measuring and managing liquidity needs are vital activities of the s. By assuring a s ability
to meet its liability as they become due, liquidity management can reduce the probability of an
adverse situation development. The importance of liquidity transcends individual institutions, as
liquidity shortfall in one institution can have repercussions on the entire system.
Liquidity risk management refers to the risk of maturing liability not finding enough
maturing assets to meet these liabilities. It is the potential inability to meet their liability as they
became due. This risk arises because borrows funds for different maturities in the form of
deposits, market operations etc. and lock them into assets of different maturities.
Liquidity Gap also arises due to unpredictability of deposit withdrawals, changes in loan
demands. Hence measuring and managing liquidity needs are vital for effective and viable
operations.
Liquidity measurement is quite a difficult task and usually the stock or cash flow
approaches are used for its measurement. The stock approach used certain liquidity ratios.
The liquidity ratios are the ideal indicators of liquidity of s operating in developed
financial markets, the ratio do not reveal the real liquidity profile of s which are operating
generally in a fairly illiquid market. The assets, which are commonly considered as liquid
like Government securities, have limited liquidity when the market and players are in one
direction. Thus analysis of liquidity involves tracking of cash flow mismatches.
The statement of structural liquidity may be prepared by placing all cash inflows and
outflows in the maturity ladder according to the expected timing of cash flows.
The MATURITY PROFILE could be used for measuring the future cash flows in different
time bands.
The position of Assets and Liabilities are classified according to the maturity patterns a
maturing liability will be a cash outflow while a maturing asset will be a cash inflows. The
measuring of the future cash flows of s is done in different time buckets.

53

The time buckets, given the statutory Reserve cycle of 15 days may be distributed as under:
1. 1 to 15 days
2. 15 to 28 days
3. 29 days and up to 3 months
4. Over 3 months and up to 6 months
5. Over 6 months and up to 1 year
6. Over 1 year and up to 3 years
7. Over 3 years and up to 5 years
8. Over 5 years.

MATURITY PROFILE LIQUIDITY

HEAD OF ACCOUNTS

Classification into time buckets

A.OUTFLOWS
1.Capital, Reserves and Surplus

Over 5 years bucket.

2.Demand Deposits (Current &

Demand Deposits may be classified

Savings Deposits)

into volatile and core portions, 25 % of

deposits are generally withdraw able
on demand. This portion may be
treated as volatile. While volatile
portion may be placed in the first time
bucket i.e., 1-15 days, the core portion

54

may be placed in 1-2 years, bucket.

3. Term Deposits

Respective maturity buckets.

4. Borrowings
5. Other liabilities and provisions

Respective maturity buckets.

(i)

Bills Payable

(i)

1-15 days bucket

(ii)

Inter-office Adjustment

(ii)

Items not representing cash

payable may be placed in over 5
years bucket

(iii)

Provisions for NAPs

(iii)

a) sub-standard

a) 2-5 years bucket.

b) doubtful and Loss

b) Over 5 years bucket

.

(iv)

provisions for depreciation

(iv)

Over 5 years bucket.

in Investments
(v)

provisions for NAPs in

(v)

investment
a)

2-5 years bucket.

b) Over 5 years bucket

(vi)

provisions for other purposes (vi) Respective buckets depending on

the purpose.

55

B. INFLOWS
1. Cash
2. Balance with other s
(i)

1-15 days bucket.

Current Account

(i)

Non-withdraw able portion on

account of stipulations of
minimum balances may be shown
Less than 1-15 days bucket.

(ii)

Money at call and short Notice,

(ii)

Respective maturity buckets.

(i)

Respective maturity buckets

Term Deposits and other

Placements
3. Investments
(i)

Approved securities

excluding the amount required to

be reinvested to maintain SLR
(ii)

Corporate

(ii) Respective Maturity buckets.

Debentures

and

Investments classified as NPAs

bonds, CDs and CPs,

Should be shown under 2-5 years

redeemable

bucket (sub-standard) or over 5

preference

shares,

units

Mutual

of

years bucket (doubtful and loss).

(iii) Over 5 years bucket.

Funds (close ended).

Etc.

(iv)

Over 5 years bucket.

(iii) Share / Units of Mutual

Funds
(open ended)
(iii)

Investment

in

subsidiaries /
Joint Ventures.
4. Advances (performing / standard)

56

(i)

Bills Purchased and

(i) Respective Maturity buckets.

Discounted

(ii) Their should undertake a study

(including bills

under

DUPN)
(iii)

of behavioral and seasonal pattern

of a ailments based on outstanding

Cash Credit / Overdraft

and the core and volatile portion

(including TOD) and

should be identified. While the

Demand Loan component of

volatile portion could be shown in

Working Capital.

the respective maturity bucket. The

core portion may be shown under
1-2 years bucket.

(iii)

Term Loans

(iii) Interim cash flows may be

shown under respective maturity
Buckets.

5. NPAs
b. Sub-standard

(I) 2-5 years bucket.

c. Doubtful and Loss

(ii) Over 5 years bucket.

6. Fixed Assets

Over 5 years bucket.

7. Other-office Adjustment
(i)

Inter-office Adjustment

(i)

As per trend analysis,

Intangible items or items
not representing cash
receivables may be shown
in over 5 years bucket.

57

(ii)

Others

(i)

Respective

maturity

buckets. Intangible assets

and assets not representing
cash receivables may be
shown in over 5 years
bucket.

Terms used:
CDs: Certificate of Deposits.
CPs: Commercial Papers.
DTL PROFILE: Demand and Time Liabilities.
Inter office adjustment:
Outflows: Net Credit Balances
Inflows: Net Debt Balances
Other Liabilities: Cash payables, Income received in advance, Loan Loss and
Depreciation in Investments.
Other assets: Cash Receivable, Intangible Assets and Leased Assets
2. Interest Rate Risk :
Interest Rate Risk refers to the risk of changes in interest rates subsequent to the creation
of the assets and liabilities at fixed rates. The phased deregulations of interest rates and the
operational flexibility given to s in pricing most of the assets and liabilities imply the need for
ing system to hedge the interest rate risk. This is a risk where changes in the market interest rates
might adversely affect as financial conditions.

The changes in interest rates affect s in large way. The immediate impact of change in
interest rates is ones earnings by changing its Net Interest Income (NII). A long term impact of
changing interest rates is on s Market Value of Equity (MVE) or net worth as the economic
58

value of s assets, liabilities and off-balance sheet positions get affected due to variation in
market interest rates.
The risk from the earnings perspective can be measured as changes in the Net Interest
Income (NII) OR Net Interest Margin (NIM).
There are many analytical techniques for measurement and management of interest rate
risk. In MIS of ALM, slow pace of computerization in s and the absence of total deregulation, the
traditional GAP ANALYSIS is considered as a suitable method to measure the interest rate risk.

Gap Analysis:
The Gap or mismatch risk can be measured by calculating Gaps over different time
buckets as at a given date. Gap analysis measures mismatches between rate sensitive liabilities
and rate sensitive assets including off-balance sheet position.
An asset or liability is normally classified as rate sensitive if:
If there is a cash flow within the time interval.
The interest rate resets or reprises contractually during the interval.
RBI changes the interest rates i.e., on saving deposits, export credit, refinance, CRR
balances and so on, in case where interest rate are administered.
It is contractually pre-payable or with draw able before the stated maturities
The Gap is the difference between Rate Sensitive Assets (RSA) and Rate sensitive Liabilities
(RSA) for each time bucket.
The positive GAP indicates that RSAs are more than RSLs (RSA>RSL).
The negative GAP indicates that RSAs are more than RSALs (RSA<RSL).

59

2.2 TABLE
Months
Inflows
outflows
GAP

up to 3
69176.2
141724.6
62548.39

3 to 6
330487.3
95515.39
62467.15

6 to 13
157602.3
143159.8
-24442.5

above 1 yr
529926.8
430353.8
-99573

The above analysis reveals the extent of mismatches and the nature of sensitivity of
Assets and Liabilities which are having high liquidity. In short term maturity bucket of
their are having excess liquidity and the liquidity crisis is arising only in long term
maturity bucket. The can adequately plan their long liquidity according to the buckets
effect on profitability.
The can implement ALM policies for the better identification of the mismatch, risk and
for the implementation of various remedial measures.
GENERAL:
The classification of various components of assets and liabilities into different time
buckets for preparation of Gap reports (Liquidity and interest rate sensitivity) may be done as
indicated in Appendices I & II as a sort of bench mark. s which are better equipped to
reasonably estimate the behavioral pattern, embedded options, rolls-in and rolls-out etc of
various components of assets and liabilities on the basis of past date. Empirical studies could
classify them in the appropriate time buckets, subject to approval from the ICICI / Board. A copy
of the note approved by the ALOC / Board may be sent to the Department of ing Supervision.
The present framework does not capture the impact of embedded options, i.e., the
customers exercising their options (premature closure of deposits and prepayment of loans and
advances) on the liquidity and interest rate risks profile of s. The magnitude of embedded option
risk at times of volatility in market interest rates is quite substantial s should therefore evolve
suitable mechanism, supported by empirical studies and behavioral analysis to estimate the
future behavior of assets; liabilities and off-balance sheet items to changes in market variables
and estimate the embedded options.

60

A scientifically evolved internal transfer pricing model by assigning values on the basis of
current market rates to funds provided and funds used is an imported component for elective
implementation of ALM systems. The transfer price mechanism can enhance the management of
margin i.e., landings or credit spread the funding or liability spread and mismatch spread. It also
helps centralizing interest rate risk at one place which facilitates effective control and
management of interest rate risk. A well defined transfer pricing system also provides a rational
framework for pricing of assets and liabilities.
2.3 TABLE
STRUCTURAL LIQUIDITY STATEMENT AS ON 31-3-2015

S. No Particulars
A
Liabilities:
1Deposits
I. Current A/c
II. SB A/c
III. Fixed Dep.
Sub-Total
2Borrowings
3Paid-up Share Capital
4Reserves and Surpluses
5Other provisions
6Balance P & L A/C
7Other Liabilities
TOTAL (A)
B.
ASSETS:
1Cash in Hand
2 Balances
3Advances:
Soft ware-LT
Soft ware-ST
Bills purchased
Other Loans
4Current Assets / Investments
5Fixed Assets & other Assets
TOTAL (B)
C
Mismatches (B-A)
D
C as % to A

Rs in lakhs
Up to 3 months 3-6 months 6-13 months Above 1 year Total

797.51
2326.15
6527.21
9650.87
49186.96

15607.72
15607.72
62102.79

16270.14
16270.14
65967.38

16210.24
75048.07

829.28
77539.79

734.22
1505.71
25804.99
17632.22
329.64
574.44
25668.8
20134.38
92274.4
17226.33
22.95

61

1070.16
83307.67

2392.51
6978.46
127894.12
137265.08
154680.44
19014.72
64270.99
47222.42
415.72
16703.4
419571.77

3190.02
9304.61
155299.17
167793.8
321937.57
19014.72
64270.99
47222.42
415.72
34814.08
655467.3

565.04

629.98

4931.5

734.22
7532.23

49643.25

5618.56
63833.34

158457.6
80567.43

653
15400
672.05
66933.34
-10606.45
-14.68

10409.89
12300
9053.33
100745.1
17437.43
20.93

45096.54
60506.4
55954.99
395515.46
-24057.31
-5.73

179881.15
212676.24
329.64
56733.87
123775.2
85804.75
655467.3

1.3 GRAPH

STRUCTURAL LIQUIDITY STATEMENT ANALYSIS 2015

(1) The total current liabilities for the three months are Rs. 75048.07 is less than the total
assets for the 3 months are Rs.92274.4. Therefore the assets are more than the liabilities.
So there is a positive gap of Rs.17226.33.
(2) The total current liability for the 3-6 months is Rs.77539.79 is more than the total assets
for the 3-6 months are Rs.66933.34. Therefore the liabilities are more than the assets
.This is a negative gap so the company should take steps to ensure the liquidity position.
(3) The total current liabilities for the 6-13 months are Rs.83307.67. current assets are
Rs.100745.1. current liabilities less than the current assets so there is a positive gap of
Rs.17437.43.
(4) The total current liabilities for the above 1 year amount 419571.77. Current assets
amount Rs.395515.46. Current Liability is more than the current assets. This is negative
gap. So the company should take steps to ensure the liquidity position.
2.4 TABLE

Structural liquidity statement as on 31-3-2014

S. no. Particulars
A

Up to 3 months

LIABILITIES:
1DEPOSITS

62

(Rs. In Lakhs)
3-6 months 6-13 months Above 1years Total

C
D

I) Current A/C
ii) Savings A/C
iii) Term Deposits
Sub-total
2Borrowing
3Other Liabilities
TOTAL 'A'
ASSETS
1Cash in hand & Balance
2Advances
I) LT - operations
ii) ST-operations
iii) other loans including BP
3Investments
4Other Assets
TOTAL 'B'
MISMATCHES (B-A)
C as % to A

998.25
2351.63
3860.87
7210.75
33421.23
22274
62905.98

0
0
21958.15
21958.15
73972.32
1926.62
97857.08

0
0
29535.68
29535.68
65328.19
1689.58
96553.45

2994.76
7054.9
128010.02
138059.68
149630.18
160740.84
428430.7

3993.01
9406.53
173364.71
186764.25
313351.92
186631.04
685747.21

8615.44

412.04

9025.48

22602.8
80033.7
1809.51
15775
15755.15
144976.16
72070.18
138.26

0
43083.29
17582.02
6500
678.46
67843.77
-30014.31
-30.6

0
80265.3
2860.37
10850
81.37
94057.04
-2496.41
-2.59

222561.37
5832.45
39614.14
61425.22
50513.59
379844.76
-48585.94
-12.24

245164.17
209215.74
61865.03
93450.22
67027.57
676721.73

1.4 GRAPH

63

Structural liquidity statement analysis as on 2014

(1)The total current liabilities for the 3 months are Rs.62905.98 is less than the total assets
for the 3months are Rs.144976.16. Therefore the assets are more than the liabilities. So there
is a positive gap of Rs.72070.18
(2)The total current liabilities for the 3-6months are Rs.97857.08 is more than the total
assets for 3-6 months are Rs.67843.77. This is a negative gap. So the company should take
steps to ensure the liquidity position.
(3) The total current liabilities for the 6-13 months are Rs.96553.45 is more than the total
assets for the 3-6months are Rs.94057.04.This is a negative gap. So the company should
take steps to ensure the liquidity position

(4)The total current liabilities for the above 1year amount Rs.428430.7. current asset
amount Rs.379844.76. current liability is more than the current asset. This is a negative gap.
So the company should take steps to ensure the liquidity position.

64

2.5 TABLE
STRUCTURAL LIQUIDITY STATEMENT AS ON 31-3-2013

S.no
A

C
D

Rs. In Lakhs
Particulars
Up to 3 months 3-6 months 6-13 months Above 1year Total
Liabilities
1Deposits
I) Current A/C
1437.91
4014.73
5351.64
ii) SB A/C
3051.33
9153.97
13205.3
iii)Fixed Dep.
33172.78 15615.27
47364.4
57006.47
152157.92
Sub-Total
37562.02 15615.27
47364.4
70174.17
169715.86
2ST Borrowings
16493.88 15976.62 107647.03
82276.53
222394.06
3LT Borrowings
42.8
1554.4
957.56
182624.56
185079.32
4Paid-up Share Capital
19192.55
19192.55
5Reserves
126703.38
126703.38
6Other Reserves/Provisions
3246.47
3246.47
7Balance P&L A/C
300.38
300.38
8Interest Payable
5021.66
987.81
1623.37
21921.62
29554.46
9Other Liabilities
10055.84
15.15
9.97
33487.16
44568.13
TOTAL'A'
69176.2 33048.25 157602.33
529926.82
790753.6
Assets:
1Cash in hand
954.44
954.44
2 Balances
9404.34
9404.34
3Advances:
I) LT-operations
20383.8
4633.7
236705.36
261722.86
ii) ST-operations
34340 76352.64
136802.3
64850.36
302345.3
4Bills purchased
20.6
20.6
5Current Assets/Investments
48220
18442
835.31
76805.6
154302.91
6Interest Receivable
18300.57
720.75
888.31
34583.98
54493.61
7Other Assets
100.84
17409.5
17510.34
TOTAL'B'
141724.59 95515.39 143159.62
430354.8
790753.6
MISMATCHES (B-A)
62548.39 62467.15
-24442.71
-99572.02
C as % to A
90.42
189.02
-15.51
-18.79

65

1.5 GRAPH

Structural liquidity statement analysis on 2013

(1) The total current liabilities for the 3months are Rs.69176.2 is less than the total
assets for the months are Rs.141724.59.Therefore the assets are more than the liabilities.
So there is a positive gap of Rs.62548.39
(2)The total current liabilities for the 3-6 months are Rs.33048.25 is less than the assets
for the 3months are Rs.95515.39. Therefore assets are more than the liabilities. So there
is a positive gap of Rs.62467.15
(3)The total current liabilities for the 6-13 months are Rs.157602.33 is more than total
assets for 6-13 months are Rs.143159.62. Therefore the liabilities are more than the
assets. This is a negative gap. So the company should take steps to ensure the liquidity
position.
(4)The total current liabilities for the above 1 year are Rs.529926.82 is more than the
total assets for the above 1 year Rs.430354.8. Therefore the liabilities are more than the
assets. This is a negative gap. So the company should take steps to ensure the liquidity
position.

66

CHAPTER-V
FINDINGS
SUGGESTIONS AND CONCLUSION

67

FINDINGS

For the duration of 1 to 3 months, the bank has a positive gap Rs 17226.33 per the year
2015 &Rs72070.18 for the year 2014 however for the year 2015 there is a negative Gap
of Rs 62548.39.

For the duration of 3-6 months, the bank has a negative Gap of Rs 10606.45 for the year
2014&Rs 30014.31 for the year 2013. In the year 2014 is able to maintain a positive gap
of Rs 62467.15.

For the duration 6-13 months, the bank has positive Gap of Rs 17437.43 in the year 2015.
However for the year 2014 & 2015, the Gap is negative.

For the time duration of above 1 year the bank has negative Gap in all the 3 years is Rs
24057.31 In the year 2014, Rs 48585.94 in the year 2014 of& Rs 99572.02 in the year
2015.

Icici foundation incurred total expenses of Rs 1.25million during this period had a fund
balance of Rs.61.55 million as on march 31, 2015

Due to the variation in market value there was an impact on the long term assets,
liabilities and off balance sheet.

68

Suggestions

There should strengthen its management information system (MIS) and computer
processing capabilities for accurate measurement of liquidity and interest rate Risks in
their Books.

In the short term the Net interest income or Net interest margins (NIM) creates economic
values which involves up gradation of existing systems & Application software to attain
better & improvised levels.

It is essential that remain alert to the events that effect its operating environment & react
accordingly in order to avoid any undesirable risks.

ICICI requires efficient human and technological infrastructure which will future lead to
smooth integration of the risk management process with effectives their business
strategies.

69

BIBILIOGRAPHY

Title of the Books

Author

Risk management
Gustavson hoyt

Management Research magazine

P. M. Dileep kumar

India financial system

M.Y. Khan

Web sites

WWW.ICICI.SAP.IN
WWW.RBI.COM

70

71