Aarthi mba project final

7/27/2019 Aarthi mba project final

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TITLE of the PROJECT

Synopsis submitted to

Jawaharlal Nehru Technological University, Hyderabad, in partial fulfillment of the

requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by:

Mr/Ms._____________________________

H.T.No._____________________________

Under the esteemed guidance of

Mr/Ms._________________________

Associate/Assistant Professor

DEPARTMENT OF BUSINESS MANAGEMENT

VIJAY RURAL ENGINEERING COLLEGE, NIZAMABAD

(Approved by AICTE, New Delhi and Affiliated to JNTU Hyderabad)

2012



SYNOPSIS CONTENTS FOR MBA PROJECTS

1.

Introduction2.

Significance of Study

3.

Objectives of Study

4.

Scope of Study

5. Period of Study

6. Limitations of Study

7.

Research Methodology

a)

Data Collection

b)

Statistical Tools to be used

8.

Chapter Plan for presentation of Project Report

I. Chapter: Introduction

II.

Chapter: Literature Review

III.

Chapter: Profile of Industry and Company

IV.

Chapter: Related to Title

V.

Chapter: Data Analysis and Interpretation

VI. Chapter: Findings, Suggestions and Conclusion

Appendices

1). Sample Questionnaire

Bibliography

i.

References

(Sl. No Author (s) Book Tile Publisher Year Pages (PP))

ii.

Web sites

Signature of the Internal Guide Signature of the Students



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.

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 from the traditionally administered market

regime to a free market driven regime. This has put pressure on the earning capacity of co-

operative, which forced them to foray into new operational areas thereby exposing themselves to

new risks. As major part of funds at the disposal from outside sources, the management is

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 n

In the context of ALM is defined as “a process of adjusting s liability to meet loandemands, liquidity needs and safety requirements”. This will result in optimum value of the

same time reducing the risks faced by them and managing the different types of risks by keeping

it within acceptable levels.



RBI revises asset liability management guidelines

February 6/2012In the era of changing interest rates, Reserve Bank of India (RBI) has now

revised its Asset Liability Management guidelines. Banks have now been asked to calculate

modified duration of assets (loans) and liabilities (deposits) and duration of equity.

This was stated by the executive director of RBI, V K Sharma, and here today. He said that

this concept gives banks a single number indicating the impact of a 1 per cent change of interest

rate on its capital, captures the interest rate risk, and can thus help them move forward towards

assessment of risk based capital. This approach will be a graduation from the earlier approach,

which led to a mismatch between the assets and liabilities.

The ED said that RBI has been laying emphasis that banks should maintain a more realistic

balance sheet by giving a true picture of their non performing assets (NPAs), and they should not

be deleted to show huge profits. Though the banking system in India has strong risk management

architecture, initiatives have to be taken at the bank specific level as well as broader systematic

level. He also emphasized on the need for sophisticated credit-scoring models for measuring the

credit risks of commercial and industrial portfolios.

Emphasizing on a need for an effective control system to manage risks, he said that the

implementation of BASEL II norms by commercial banks should not be delayed. He said that the

banks should have a robust stress testing process for assessment of capital adequacy in wake of

economic downturns, industrial downturns, market risk events and sudden shifts in liquidity

conditions. Stress tests should enable the banks to assess risks more accurately and facilitate

planning for appropriate capital requirements.

Sharma spoke at length about the need to extend the framework of integrated risk

management to group-wide level, especially among financial conglomerates. He said that RBI

has already put in place a framework for oversight of financial conglomerates, along with SEBI

and IRDA. He also said that at the systematic level efforts are being made to create an enabling

environment for all market participants in terms of regulation, infrastructure and instruments.



NEED AND IMPORTANTS OF THE STUDY:

The need of the study is to concentrates on the growth and performance of HDFC and to

calculate the growth and performance by using asset and liability management and to know the

management of nonperforming assets.

To know financial position of HDFC

To analyze existing situation of HDFC

To improve the performance of HDFC

To analyze competition between HDFC with other cooperatives.

IMPORTANTS OF THE STUDY:

Fees and Charges:-

Fees payable on the Credit Card by the Card member:-

The fees may vary for each Card member, and from offer to offer. The same is

communicated to the Card member at the time of applying for the credit card. The above fees as

applicable are billed to the card account and are stated in the card statement of the month in

which it is card charged.

Annual Fees •

Renewal Fees

Cash Advance Fees:-

The Card member can use the Card to access cash in an emergency from ATMs in India or

abroad.



SCOPE OF THE STUDY:

In this study the analysis based on ratios to know asset and liabilities management under

HDFC and to analyze the growth and performance of HDFC by using the calculations under

asset and liability management based on ratio.

Ratio analysis

Comparative statement

Common size balance sheet.

GEOGRAPHICAL SCOPE:-

The same problem was with the all other branches of HDFC Bank even out of the pune city.

The management is conducting the same research on a big ground while my

contribution is tiny. Though my sample size and geographical area was defined and

confine to a particular territory but the application of output from the research are going to

be wide.

PRODUCT SCOPE:-

Studying the increasing business scope of the bank.

Market segmentation to find the potential customers for the bank.

To study how the various products are positioned in the market.

Corporate marketing of products.

Customers’ perception on the various products of the bank



OBJECTIVES OF THE STUDY

To study the concept of ASSET & LIABLITY MANAGEMENT in HDFC

To study process of CASH INFLOWS and OUTFLOWS in HDFC

To study RISK MANAGEMENT under HDFC

To study RESERVES CYCLE of ALM under HDFC

To study FUNCTIONS AND OBJECTIVES of ALM committee.



METHODOLOGY OF THE STUDY

The study of ALM Management is based on two factors.

1. Primary data collection.

2. 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 organization.

SECONDARY DATA COLLECTION:

Collected from books regarding journal, and management containing relevant information

about ALM and Other main sources were

Annual report of the HDFC

Published report of the HDFC

RBI guidelines for ALM.



LIMITATION OF THE STUDY:

This subject is based on past data of HDFC

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

The study is mainly based on secondary data.

Approximate results: The results are approximated, as no accurate data is

Available.

Study takes into consideration only LTP and issue prices and their difference for

Concluding whether an issue is overpriced or under priced leaving other.

The study is based on the issues that are listed on NSE only.



REVIEW OF LITERATURE

Paper Title:-Sovereign Risk and Asset and Liability

Management Conceptual Issues(SRALM)

Authour: - G. Papaioannou, and Author Iva Petrova(2000)

Findings:- Country practices towards managing financial risks on a sovereign balance sheet

continue to evolve. Each crisis period, and its legacy on sovereign balance sheets, reaffirms the

need for strengthening financial risk management. This paper discusses some salient features

embedded in in the current generation of sovereign asset and liability management (SALM)

approaches, including objectives, definitions of relevant assets and liabilities, and methodologies

used in obtaining optimal SALM outcomes. These elements are used in developing an analytical

SALM framework which could become an operational instrument in formulating asset

management and debtor liability management strategies at the sovereign level. From a portfolio

perspective, the SALM approach could help detect direct and derived sovereign risk exposures.

It allows analyzing the financial characteristics of the balance sheet, identifying sources of

costs and risks, and quantifying the correlations among these sources of risk. The paper also

outlines institutional requirements in implementing an SALM framework and seeks to lay the

ground for further policy and analytical work on this topic.JEL

Paper Title :- Integrating Asset-Liability Risk Management with

Portfolio Optimization for Individual Investors II (IALRM)

Author :- Travis L. Jones, Ph.D.(2002)

Findings :- A majority of private client practitioners rely on mean-variance optimization

(MVO),rules of thumb, or model portfolios for making asset allocation recommendations.Considerations for income levels and other constraints figure into the typical approach. However,

not enough attention is given to the nature of an investor’s multiple time horizons and

implications for cash flows. These are the future demands placed upon the portfolio. The risks

that these demands will not be met need to be clearly understood in order to validate any asset

allocation decision. This study presents an approach of incorporating MVO within a multi-



horizon, asset-liability Management risk model. This approach allows for cash-flow matching of

a portion of an investor’s portfolio within the optimization framework. This allows an

individual’s portfolio to provide short-term cash flow, as needed, while also considering the

longer-term demands on the portfolio.

Part Title :- Asset & liability management (ALM) modelling with risk control by stochastic

dominance.

Author name :- Xi Yang, Jacek Gondzi & Andreas Grothey(2001)

Findings:-An Asset Liability Management model with a novel strategy for controlling the risk of

underfunding is presented in this article. The basic model involves multi-period decisions

(portfolio rebalancing) and deals with the usual uncertainty of investment returns and future

liabilities. Therefore, it is well suited to a stochastic programming approach. A stochastic

dominance concept is applied to control the risk of underfunding through modelling a chance

constraint. A small numerical example and an out-of-sample back test are provided to

demonstrate the advantages of this new model, which includes stochastic dominance constraints,

over the basic model and a passive investment strategy. Adding stochastic dominance constraints

comes with a price. This complicates the structure of the underlying stochastic program. Indeed,

the new constraints create a link between variables associated with different scenarios of thesame time stage. This destroys the usual tree structure of the constraint matrix in the stochastic

program and prevents the application of standard stochastic programming approaches, such as

(nested) Benders decomposition and progressive hedging. Instead, we apply a structure-

exploiting interior point method to this problem. The specialized interior point solver, object-

oriented parallel solver, can deal efficiently with such problems and outperforms the industrial

strength commercial solver CPLEX on our test problem set. Computational results on medium-

scale problems with sizes reaching about one million variables demonstrate the efficiency of the

specialized solution technique. The solution time for these non-trivial asset liability models

appears to grow sub linearly with the key parameters of the model, such as the number of assets

and the number of realizations of the benchmark portfolio, which makes the method applicable

to truly large-scale problems.



ASSET LIABILITY MANAGEMENT (ALM) SYSTEM:-

Asset-Liability Management (ALM) can be termed as a risk management technique

designed to earn an adequate return while maintaining a comfortable surplus of assets beyond

liabilities. It takes into consideration interest rates, earning power, and degree of willingness to

take on debt and hence is also known as Surplus Management.

But in the last decade the meaning of ALM has evolved. It is now used in many different

ways under different contexts. ALM, which was actually pioneered by financial institutions and

banks, are now widely being used in industries too. The Society of Actuaries Task Force on

ALM Principles, Canada, offers the following definition for ALM: "Asset Liability Management

is the on-going process of formulating, implementing, monitoring, and revising strategies related

to assets and liabilities in an attempt to achieve financial objectives for a given set of risk

tolerances and constraints."

Basis of Asset-Liability Management

Traditionally, banks and insurance companies used accrual system of accounting for all

their assets and liabilities. They would take on liabilities - such as deposits, life insurance

policies or annuities. They would then invest the proceeds from these liabilities in assets such as

loans, bonds or real estate. All these assets and liabilities were held at book value. Doing so

disguised possible risks arising from how the assets and liabilities were structured.



DATA ANALYSIS &INTERPRETATION

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.

RISK MANAGEMENT SYSTEM

Dynamics of risk factors

Cash flows Arbitrage

Generator Pricing Model



Price and Risk

Profile Of Contingent Claims

Dynamic Risk Target

Trading Rules Optimizer Risk Profile

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

The burden of the Risk and its Costs are both manageable and transferable. Financial service firms,

in the addition to managing their own risk, also sell financial risk management to others. 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 mis-match, Size of

transaction and Market access and information.



FINDINGS

ALM technique is aimed to tackle the market risks. Its objective is to stabilize and

improve Net interest Income (NII).

Implementation of ALM as a Risk Management tool is done using maturity profiles and

GAP analysis.

ALM presents a disciplined decision making framework for s while at the same time

guarding the risk levels.

There has been a small reduction in Gross Sales and with the performance of prefab Division

the Gross Profit gap has narrowed and contributing to the EBIT. The Gross Profit has

increased considerably from 6584124 Cr in Last year to 968547 Cr in year. The interest

payment has increased by 6987Cr in the Current year and the Profit before Tax at 69857

when compared to 5874568 cr in Last year.

Perform Division realization has increased by 8% even the Turnover has come to 641.80 Cr

from 400.09 Cr in last year.

The profit After Tax has came 856996 Cr to 6584548 in Current year because of slope in

Cement Industry.

The PAT is in an increasing trend from 2009-2010 because of increase in sale prices and

also decreases in the cost of manufacturing. In 2011 and 2012even the cost of manufacturing

has increased by 5% because of higher sales volume PAT has increased considerably, which

leads to higher EPS, which is at 98.366 in 2013.

The company also increased considerably which investors in coming period. The company

has taken up a plant expansion program during the year to increase the production activity

and to meet the increase in the demand



CONCLUSION

The purpose of ALM is not necessarily to eliminate or even minimize risk. The level of risk will

vary with the return requirement and entity’s objectives.

Financial objectives and risk tolerances are generally determined by senior management of an

entity and are reviewed from time to time.

All sources of risk are identified for all assets and liabilities. Risks are broken down into their

component pieces and the underlying causes of each component are assessed.

Relationships of various risks to each other and/or to external factors are also identified.

Risk exposure can be quantified 1) relative to changes in the component pieces, 2) as a

maximum expected loss for a given confidence interval in a given set of scenarios, or 3) by the

distribution of outcomes for a given set of simulated scenarios for the component piece over

time.

Regular measurement and monitoring of the risk exposure is required. Operating within a

dynamic environment, as the entity’s risk tolerances and financial objectives change, the existing

ALM strategies may no longer be appropriate.

Hence, these strategies need to be periodically reviewed and modified. A formal, documented

communication process is particularly important in this step.



SUGGESTIONS

They 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 value of the 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.

HDFC requires efficient human and technological infrastructure which will future

lead to smooth integration of the risk management process with effective business

strategies.



BIBILIOGRAPHY

Title of the Books Author Publications

1. Risk management Gustavson hoyt sout western, Division of Thomson

learning(2001)

2. India financial system M.Y. Khan Mcgraw Hill Sth Edition

3. Management Research magazine P.M.Dileep Kumar

Web sites

www.investoros.com

www.financeindia.com

www.google.com

http://www.investoros.com/


http://www.financeindia.com/

http://www.financeindia.com/


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