RBI dilutes ALM norms for banks

MUMBAI, Jan 14: The Reserve Bank of India on Thursday diluted the norms for asset liability management ALM system of banks. Although ba...

MUMBAI, Jan 14: The Reserve Bank of India on Thursday diluted the norms for asset liability management ALM system of banks. Although banks were directed to put in place the system by April 1999, in a significant climbdown from its earlier stance, the central bank extended the stringent deadline by directing banks to initially capture 60 per cent of the data on asset and liabilities in the first year and the rest by April 2000.

The RBI directive came at a meeting of the RBI deputy governor SP Talwar with senior bankers. Chiefs of all state-run banks, private sector ICICI Bank and HDFC Bank and at least two foreign banks 8212; CitiBank and Standard Chartered Bank 8212; attended the meeting. RBI8217;s special advisor MS Verma was also present.

In another meeting with bankers on Y2K compliance, Talwar drew up a contingency plan for the millennium change. He also issued a fresh warning to non-Y2K compliant banks that they will be penalised if their status is assessed unsatisfactory.

quot;Banks have been advised to initially report the data on asset-liability to the Reserve Bank on a quarterly basis. Banks will simultaneously work on putting in place management information system MIS to capture 100 per cent of data and also move over to a fortnightly reporting system by April 1, 2000,quot; an RBI release said.

It added that it will now be up to the individual bank8217;s board to decide on the constitution of a committee to oversee the ALM system in the bank.

Bank of Baroda chairman K Kannan said: quot;Once in place, this system will ensure on-line and real time cash-flow management in banks. The asset-liability management system as envisaged by RBI, will help determine the maturity profiles of almost all assets and liabilities of the bank.quot;

Based on this information, banks will be able to accurately price their time and demand deposits, rates of interest on various loans and advances, maturity profiles of their borrowings and disbursals, Kannan said.

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The biggest obstacle facing implementation of proper risk management system in India banks is the low level of computerisation. quot;Even the present level of computerisation is not adequate 8230; banks will be required to install additional software for real-time on-line analysis,quot; Kannan said.

At the meeting on Y2K compliance, Talwar expressed concern at the slow pace of the compliance. quot;He also stressed that the focus of compliance efforts should now shift from upgradation, implementation of compliant systems to rigorous testing and contingency planning. The deputy governor added that banks should ensure adequate budgets for their year 2000 programmes,quot; the RBI release said.

Talwar stated that banks should focus more on developing a contingency plan for operational areas where the customers could be directly affected by the disruption in the systems. quot;As a contingency planning it was decided to keep a printout of all the balances in the branches as on December 29, 1999 to facilitate business continuity across the millennium change and to keep adequate cash in hand to manage the cash transactions in order to meet exigencies,quot; the release said.

It added that the Reserve Bank will focus on its own contingency plans for the four MICR clearing centres and its public transactions. The periodicity of the steering committee8217;s meeting would now be monthly rather than bi-monthly. This committee, headed by Talwar, consists of two RBI executive directors Khizer Ahmed and A Vasudevan, heads of RBI departments exercising supervisory jurisdiction over institutions in the financial sector, NIBM, IBA and representatives of banks.