"Our bank has achieved around 65 per cent coverage of its assets and liabilities under the ALM system as against the stipulated 60 per cent and we are confident of a 100 per cent coverage by the April 1, 2000 deadline," PNB general manager, CP Swarnkar, told PTI.

"Risk management is inherent to banking operations. The present deregulated interest rate regime and competitive environment for banks' has resulted in pressure on banks' to maintain a good balance between spreads, profitability and long-term viability," he explained.

ALM is a tool which provides a comprehensive framework for measuring, monitoring and managing risks faced by a bank, he said adding banks' could alter their asset-liability portfolio enabling more dynamic risk management.

ALM, which has to be put in place byall banks except RRB's by April 1, 1999, is a strategic risk management tool to help banks' have a coordinated approach to their balance sheet to allow for alternative interest rate, liquidity, and prepayment scenarios. ALM also categorises the various inflows (assets) and outflows (liabilities) of a bank according to their residual maturity.

Tolerance levels for various maturities may be fixed by a bank's top management depending upon its asset-liability profile, extent of stable deposit base and the nature of cash flows, and enforced by April 1, 2000, according to the latest RBI directive.

"PNB has an asset-liabilty committee (Alco) in place, comprising of the bank's top management headed by the CMD, as per the RBI directive for implementing the ALM," Swarnkar said.

"We have four sub-committees working under our Alco, one each for liability, investment, credit and forex management. The Alco is responsibile for balance sheet planning from risk-return perspective including strategic management ofinterest rate and liquidity risks," he said.

The RBI in its latest directive to banks has said that among the issues that an Alco could consider, inter alia, will include product pricing for both deposits and advances, desired maturity profile and their incremental assets and liabilities.

Also, the ALCO will have to develop a view on future interest rate movements and decide on funding mixes between fixed Vs floating rate funds, wholesale vs retail deposits, money market vs capital market funding and domestic vs foreign currency funding.