It is a measure of the banks' divorce from market discipline in this country that such norms were so far not required. They become essential as a consequence of a more liberalised financial system, and the Reserve Bank has now stipulated that all banks must have at least the rudiments of an asset-liability management system in place by April next year.

Simply put, in addition to credit and market risks, all financial companies face the risk of mismatches between the maturities of their assets and liabilities. To take an example, a financial institution locked into a fixed-rate long-term asset funded through short-term fixed deposits runs what is called a repricing risk. When interest rates move up, funding the asset through a replacement of the fixed depositwill result in higher costs, which will affect profitability and ultimately the net worth of the institution. These interest rate risks need to be managed by identifying different maturity periods (time buckets) and making an inventory of the assets and liabilities in each such time period. This is called GAP analysis, the gap being the difference between the rate sensitive assets and liabilities in each period. The RBI wants this kind of analysis to be used for at least 60 per cent of bank assets by April 2000. More sophisticated methods of analysis are needed, and question marks remain on the classification of demand and savings deposits. But the process marks a beginning, and should be extended without delay to the financial institutions, who arguably need it far more than banks, given the maturity profile of their assets and liabilities.