Asset Liability Management (ALM)

Asset Liability Management (ALM) is a risk management framework used by banks, insurance companies, NBFCs, and other financial institutions to manage the structural balance sheet risks arising from mismatches between the maturity profiles, interest rate sensitivities, and cash flow timings of their assets (loans and investments) and liabilities (deposits and borrowings). The primary objectives of ALM are to optimise the net interest margin (NIM), ensure adequate liquidity to meet obligations as they fall due, and protect the institution's net worth from adverse interest rate and currency movements. The RBI mandates robust ALM frameworks for Indian banks and NBFCs, requiring regular liquidity coverage ratio (LCR) reporting and interest rate risk (IRR) monitoring. For investors on Ventura Securities analysing banking and financial sector stocks, ALM disclosures — including the interest rate sensitivity gap, liquidity coverage ratio, and duration mismatches — are key indicators of a financial institution's resilience to rate cycles and funding market stress.