What changed
Previously, ALM guidelines applied only to scheduled UCBs. Now, all other Tier II UCBs must also implement ALM systems as per the enclosed guidelines. Banks must cover at least 60% of assets and liabilities initially, with estimates for the remaining 40%, and set interim targets to cover 100% by April 1, 2010.
What it means for you
Tier II UCBs must now formalize risk management for liquidity and interest rate risks, requiring setup of an Asset-Liability Committee (ALCO) and board oversight. This aims to prevent ad-hoc pricing and imprudent liquidity management, protecting depositor interests and ensuring long-term viability.
What you must do
- Set up an internal Asset-Liability Committee (ALCO) headed by the CEO.
- Ensure board oversight of ALM system implementation and periodic review.
- Cover at least 60% of assets and liabilities in the ALM framework initially, using estimates for the remaining 40%.
- Set interim targets to cover 100% of business by April 1, 2010.
- Fine-tune existing ALM systems if already in place to comply with the new guidelines.
- Upgrade MIS to meet ALM reporting requirements for structural liquidity and interest rate sensitivity.
Who it affects
All Tier II Urban Co-operative Banks (non-scheduled UCBs), Chief Executive Officers of Primary (Urban) Co-operative Banks, Risk management and treasury teams at UCBs
What is the deadline for implementing ALM systems?
The circular requires immediate adoption from September 17, 2008, with phased targets: cover at least 60% initially, set interim targets for 100% coverage by April 1, 2010, and move to fortnightly reporting from December 2008.
Do scheduled UCBs need to follow these guidelines?
No, scheduled UCBs already have ALM guidelines in place since June 2002 and must continue with their existing systems, fine-tuning if needed.
What if my bank already has a sophisticated ALM system?
You may continue your existing system but must ensure it complies with the enclosed guidelines and fine-tune as necessary.