This paper discusses issues in asset-liability management and elaborates on categories of risk that require to be managed. It examines strategies for asset-liability management from the asset side as well as the liability side, particularly in the Indian context. It also discusses the specificity of financial institutions in India and the new information technology initiatives that beneficially affect asset-liability management. The emerging contours of conglomerate financial services and their implications for asset-liability management are also described.

Asset-liability management basically refers to the process by which an institution manages its balance sheet in order to allow for alternative interest rate and liquidity scenarios. Banks and other financial institutions provide services which expose them to various kinds of risks like credit risk, interest risk, and liquidity risk. Asset liability management is an approach that provides institutions with protection that makes such risk acceptable. Asset-liability management models enable institutions to measure and

monitor risk, and provide suitable strategies for their management.

It is therefore appropriate for institutions (banks, finance companies, leasing companies, insurance companies, and others) to focus on asset-liability management when they face financial risks of different types. Asset-liability management includes not only a formalization of this understanding, but also a way to quantify and manage these risks. Further, even in the absence of a formal asset-liability management program, the understanding of these concepts is of value to an institution as it provides a truer picture

of the risk/reward trade-off in which the institution is engaged (Fabozzi & Kanishi, 1991), Asset-liability management is a first step in the long-term strategic planning process. Therefore, it can be considered as a planning function for an intermediate term. In a sense, the various aspects of balance sheet management deal with planning as well as direction and control of the levels, changes and mixes of assets, liabilities, and capital.