Page 236 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 14: Core Banking Solution

EFT may be initiated by a cardholder when a payment card such as a credit card or debit card is Notes
used. This may take place at an ATM or a point of sale (EFTPOS), or when the card is not present,
which covers cards used for mail order, telephone order and internet purchases.

Notes Some of the common EFT services are:
ATMs
Direct Deposits

Pay-by-phone Systems
Personal Computer Banking
Debit Card Purchase or Payment Transactions
Electronic Check Conversion

Self Assessment

Fill in the blanks:

8. EFT refers to ..................................................
9. In case of ......……………deposit, payroll is deposited directly into an employee’s banking
account.

14.5 Asset Liability Management (ALM)

ALM stands for Asset Liability Management. It is the process involving decision making about
the composition of assets and liabilities including off balance sheet items of the bank and
conducting the risk assessment.
ALM is concerned with strategic balance sheet management involving all market risks. It means
managing both sides of balance sheet to minimize market risk.

Thus ALM is related to the strategic management of balance sheet by giving due weightage to
market risks viz. liquidity risk, interest rate risk and currency risk.
1. ALM involves planning, directing, controlling the flow, level, cost and yield of funds of
the bank.
2. ALM builds up assets and liabilities of the bank based on the concept of Net Interest
Income (NII) or Net Interest Margin (NIM).

Need of ALM

1. Globalization of financial markets
2. Multi-currency balance sheet
3. Deregulation of interest rates
4. Narrowing NII/NIM Prevalence of Basis Risk and Embedded Option Risk

(a) Integration of Markets – Money Market, Forex Market, Government Securities Market
Various risks are affecting banks/financial institutions Deregulation and competition
(b) Credit, Market, Operational

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