assest liability management on heritage

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Introduction of topic

Statement of problem



Objectives of the study

Need for the study

Scope of the study

Limitations of the study

Review of literature











Asset Liability Management(ALM) is a strategic approach of managing the balance sheet dynamics in such a way that the net earnings are maximized. This approach is concerned with management of net interest margin to ensure that its level and riskiness are compatible with the risk return objectives of the bank.

If one has to define Asset and Liability management without going into detail about its need and utility, it can be defined as simply management of money which carries value and can change its shape very quickly and has an ability to come back to its original shape with or without an additional growth. The art of proper management of healthy money is ASSET AND LIABILITY MANAGEMENT (ALM).

The Liberalization measures initiated in the country resulted in revolutionary changes in the Banking sector. There was a shift in the policy approach of banks from the traditionally administered market regime to a free market driven regime. This has put pressure on the earning capacity of co-operative banks, which forced them to foray into new operational areas thereby exposing themselves to new risks.

As major part of funds at the disposal of banks come from outside sources, the bank management are concerned about RISK arising out of shrinkage in the value of asset, and managing such risks became critically important to them. Although co-operative banks are able to mobilize deposits, major portions of it are high cost fixed deposits. Maturities of these fixed deposits were not properly matched with the maturities of assets created out of them. The tool called ASSET AND LIABILITY MANAGEMENT provides a better solution for this.

ASSET LIABILITY MANAGEMENT (ALM) is a portfolio management of assets and liability of an organization. This is a method of matching various assets with liabilities on the basis of expected rates of return and expected maturity patter

In the context of banks, ALM is defined as a process of adjusting banks liability to meet loan demands, liquidity needs and safety requirements. This will result in optimum value of the bank, at the same time reducing the risks faced by them and managing the different types of risks by keeping it within acceptable levels.



To study process of CASH INFIOWS and OUTFLOWS in HERITAGE





The need of the study is to concentrates on the growth and performance of HERITAGE and to calculate the growth and performance by using asset and liability management. And to know the management of non performing assets.

To know financial position of HERITAGETo analyze existing situation of HERITAGETo improve the performance of HERITAGETo analyze competition between HERITAGE with other cooperative banks.


In this study the analysis based on ratios to know asset and liabilities management uder HERITAGE And to analyse the growth and performace of HERITAGE by using the calculations under asset and liability management based on ratio.

Ratio analysisComperartive statementCommon size balance sheet.


The study of ALM Management is based on two factors.

Primary data collection.

2. Secondary data collection


The sources of primary data were

The chief manager ALM cell

Department Sr. manager financing & Accounting

System manager- ALM cell

Gathering the information from other managers and other officials of the bank


Collected from books regarding Banking, journal, and management containing relevant information about ALM and Other main sources were

Annual report of the HERITAGE Published report of the BankRBI guidelines for ALM.


This subject is based on past data of HERITAGEThe analysis is based on structural liquidity statement and gap analysis.The study is mainly based on secondary data.



Asset Liability Management(ALM) is a strategic approach of managing the balance sheet dynamics in such a way that the net earnings are maximized. This approach is concerned with management of net interest margin to ensure that its level and riskiness are compatible with the risk return objectives of the bank.

If one has to define Asset and Liability management without going into detail about its need and utility, it can be defined as simply management of money which carries value and can change its shape very quickly and has an ability to come back to its original shape with or without an additional growth. The art of proper management of healthy money is ASSET AND LIABILITY MANAGEMENT (ALM).

The Liberalization measures initiated in the country resulted in revolutionary changes in the Banking sector. There was a shift in the policy approach of banks from the traditionally administered market regime to a free market driven regime. This has put pressure on the earning capacity of co-operative banks, which forced them to foray into new operational areas thereby exposing themselves to new risks.

As major part of funds at the disposal of banks come from outside sources, the bank management are concerned about RISK arising out of shrinkage in the value of asset, and managing such risks became critically important to them. Although co-operative banks are able to mobilize deposits, major portions of it are high cost fixed deposits. Maturities of these fixed deposits were not properly matched with the maturities of assets created out of them. The tool called ASSET AND LIABILITY MANAGEMENT provides a better solution for this.

ASSET LIABILITY MANAGEMENT (ALM) is a portfolio management of assets and liability of an organization. This is a method of matching various assets with liabilities on the basis of expected rates of return and expected maturity pattern.

In the context of banks, ALM is defined as a process of adjusting banks liability to meet loan demands, liquidity needs and safety requirements. This will result in optimum value of the bank, at the same time reducing the risks faced by them and managing the different types of risks by keeping it within acceptable levels.


The main objective of ALM approach is to manage market risk in a way so as to minimize the impact of net interest, income fluctuations in the short run and protect the net economic value of the bank in the long run. The objectives of the ALM process-

To control liquidity risk.

To control volatility of the net interest income.

To ensure a balance between profitability and growth rate.



In the normal course, the banks are exposed to credit and market risks in view of the asset liability transformation. With the liberalization in the

Indian financial markets over the last few years and growing integration of domestic markets and with external markets the risks associated with banks operations have become complex, large, requiring stragic management. Banks are now operating in a fairly deregulated environment and are required to determine on their own, interest rates on deposits and advance in both domestic and foreign currencies on a dynamic basis. The interest rates on banks investments in government and other securities are also now market related. Intense competition for business involving both the assets and liabilities, together with increasing volatility in the domestic interest rates, has brought pressure on the management of banks to maintain a good balance among spreads, profitability and long-term viability. Impudent liquidity management can put banks earnings an reputation at great risk. These pressures call for structured and comprehensive measuresand not just adahoc action. The management of banks has to base their business decisions on a dynamic and integrated risk management system and process, driven by corporate strategy. Banks are exposed to several major risks in course of their business-credit risk, interest rate and operational risk therefore important than banks introduce effective risk management systems that address the issues related to interest rate, currency and liquidity risks.

Banks need to address these risks in a structured manner by upgrading their risk management and adopting more comprehensive Asset-Liability management (ALM) practices than has been done hitherto. ALM among other functions, is also concerned with risk management and provides a comprehensive and dynamic framework for measuring, monitoring and managing liquidity interest rate, foreign exchange and equity and commodity price risk of a bank that needs to be closely integrated with the banks business strategy. It involves assement of various types of risks altering the asset liability portfolio in a dynamic way in order to manage risks.

The initial focus of the ALM function would be to enforce the risk management discipline, viz., managing business after assessing the risks involved.

In addition, the managing the spread and riskiness, the ALM function is more appropriately viewed as an integrated approach which requires simultaneous decisions about asset/liability mix and maturity structure.


Risk management is a dynamic process, which needs constant focus and attention. The idea of risk management is a well-known investment principle that the largest potential returns are associated with the riskiest ventures. There can be no single prescription for all times, decisions have to be reversed at short notice. Risk, which is often used to mean uncertainty, creates both opportunities and problems for business and individuals in nearly every walk of life.

Risk sometimes is consciously analyzed and managed; other times risk is simply ignored, perhaps out of lack of knowledge of its consequences. If loss regarding risk is certain to occur, it may be planned for in advance and treated as to definite, known expense. Businesses and individuals may try to avoid risk of loss as much as possible or reduce its negative consequences.

Several types of risks that affect individuals and businesses were introduced, together with ways to measure the amount of risk. The process used to systematically manage risk exposure is known as RISK MANAGEMENT. Whether the concern is with a business or an individual situation, the same general steps can be used to systematically analyze and deal with risk.


Risk identification

Risk evaluation

Risk management technique

Risk measurement

Risk review decisions

Integrated or enterprise risk management is an emerging view that recognizes the importance of risk, regardless of its source, in affecting a firms ability to realize its strategic objectives. The detailed risk management process is as follows;

Risk identification:

The first step in the risk management process is to identify relevant exposures to risk. This step is important not only for traditional risk management, which focuses on uncertainty of risks, but also for enterprise risk management, where much of the focus is on identifying the firms exposures from a variety of sources, including operational, financial, and strategic activities.

Risk evaluation:

For each source of risk that is identified, an evaluation should be performed. At this stage, uncertainty of risks can be categorized as to how often associated losses are likely to occur. In addition to this evaluation of loss frequency, an analysis of the size, or severity, of the loss is helpful. Consideration should be given both to the most probable size of any losses that may occur and to the maximum possible losses that might happen.

Risk management techniques:

The results of the analyses in second step are used as the basis for decisions regarding ways to handle existing risks. In some situations, the best plan may be to do nothing. In other cases, sophisticated ways to finance potential losses may be arranged. The available techniques for managing risks are GAP Analysis, VAR Analysis, Heinrich Domino theory etc., with consideration of when each technique is appropriate.

Risk measurement:

Once risk sources have been identified it is often helpful to measure the extent of the risk that exists. As pert of the overall risk evaluation, in some situations it may be possible to measure the degree of risk in a meaningful way. In other cases, especially those involving individuals computation of the degree of risk may not yield helpful information.

Risk review decisions:

Following a decision about the optimal methods for handling identified risks, the business or individual must implement the techniques selected. However, risk management should be an ongoing process in which prior decisions are reviewed regularly. Sometimes new risk exposures arise or significant changes in expected loss frequency or severity occur. The dynamic nature of many risks requires a continual scrutiny of past analysis and decisions.


Specifically two broad categories of risk are the basis for classifying financial services risk.

Product market Risk.

Capital market Risk.

Economists have long classified management problems as relating to either The Product Markets Risks or The Capital Markets Risks.


Total Risk

(Responsibility of CEO)

Business Risk Financial Risk

Product Market Risk Capital Market Risk

(Responsibility of the (Responsibility of the

Chief Operating Officer) Chief Financial Officer)

Credit Interest rate

Strategic Liquidity

Regulatory currency

Operating Settlement

Human resources Basis



This risk decision relate to the operating revenues and expenses of the form that impact the operating position of the profit and loss statements which include crisis, marketing, operating systems, labor cost, technology, channels of distributions at strategic focus. Product Risks relate to variations in the operating cash flows of the firm, which effect Capital Market, required Rates Of Return;.







Risk in Product Market relate to the operational and strategic aspects of managing operating revenues and expenses. The above types of Product Risks are explained as follows.


The most basic of all Product Market Risk in a Bank or other financial intermediary is the erosion of value due to simple default or non-payment by the borrower. Credit risk has been around for centuries and is thought by many to be the dominant financial services today. Banks intermediate the risk appetite of lenders and essential risk ness of borrowers. Banks manage this risk by ; (A) making intelligent lending decisions so that expected risk of borrowers is both accurately assessed and priced; (B) Diversifying across borrowers so that credit losses are not concentrated in time; (C) purchasing third party guarantees so that default risk is entirely or partially shifted away from lenders.


This is the risk that entire lines of business may succumb to competition or obsolescence. In the language of strategic planner, commercial paper is a substitute product for large corporate loans. Strategic risk occurs when a bank is not ready or able to compete in a newly developing line of business. Early entrants enjoyed a unique advantage over newer entrants. The seemingly conservative act of waiting for the market to develop posed a risk in itself. Business risk accrues from jumping into lines of business but also from staying out too long.


Commodity prices affect banks and other lenders in complex and often unpredictable ways. The macro effect of energy price increases on inflation also contributed to a rise in interest rates, which adversely affected the value of many fixed rate financial assets. The subsequent crash in oil prices sent the process in reverse with nearly equally devastating effects.


Machine-based system offer essential competitive advantage in reducing costs and improving quality while expanding service and speed. No element of management process has more potential for surprise than systems malfunctions. Complex, machine-based systems produce what is known as the black box effect. The inner working of system can become opaque to their users. Because developers do not use the system and users often have not constitutes a significant Product Market Risk. No financial service firm can small management challenge in the modern financial services company.


Few risks are more complex and difficult to measure than those of personnel policy; they are Recruitment, Training, Motivation and Retention. Risk to the value of the Non-Financial Assets as represented by the work force represents a much more subtle of risk. Concurrent with the loss of key personal is the risk of inadequate or misplaced motivation among management personal. This human redundancy is conceptually equivalent to safety redundancy in operating systems. It is not inexpensive, but it may well be cheaper than the risk of loss. The risk and rewards of increased attention to the human resources dimension of management are immense.


This is the risk that the legal system will expropriate value from the shareholders of financial services firms. The legal landscape today is full of risks that were simply unimaginable even a few years ago. More over these risks are very hard to anticipate because they are often unrelated to prior events which are difficult and impossible to designate but the management of a financial services firm today must have these risks at least in view. They can cost millions.


In the Capital Market Risk decision relate to the financing and financial support of Product Market activities. The result of product market decisions must be compared to the required rate of return that results from capital market decision to determine if management is creating value. Capital market decisions affect the risk tolerance of product market decisions related to variations in value associated with different financial instruments and required rate of return in the economy.







For experienced financial services professionals, the foremost capital market risk is that of inadequate liquidity to meet financial obligations. The obvious form is an inability to pay desired withdrawals. Depositors react desperately to the mere prospect of this situation.

They can drive a financial intermediary to collapse by withdrawing funds at a rate that exceeds its capacity to pay. For most of this century, individual depositors who lost faith in banks ability to repay them caused bank failures from liquidity. Funds are deposited primarily as a financial of rate. Such funds are called purchased money or headset funds as they are frequently bought by employees who work on the money desk quoting rates to institutions that shop for the highest return. To check liquidity risk, firms must keep the maturity profile of the liabilities compatible with that of the assets. This balance must be close enough that a reasonable shift in interest rates across the yield curve does not threaten the safety and soundness of the entire firm.


In extreme conditions, Interest Rate fluctuations can create a liquidity crisis. The fluctuation in the prices of financial assets due to changes in interest rates can be large enough to make default risk a major threat to a financial services firms viability. Theres a function of both the magnitude of change in the rate and the maturity of the asset. This inadequacy of assessment and consequent mispricing of assets, combined with an accounting system that did not record unrecognized gains and losses in asset values, created a financial crisis. Risk based capital rules pertaining to banks have done little to mitigate the interest rate risk management problem. The decision to pass it of, however is not without large cost, so the cost benefit tradeoff becomes complex.


The risk of exchange rate volatility can be described as a form of basis risk among currencies instead of basis risk among interest rates on different securities. Balance sheets comprised of numerous separate currencies contain large camouflaged risks through financial reporting systems that do not require assets to be marked to market. Exchange rate risk affects both the Product Markets and The Capital Markets. Ways to contain currency risk have developed in todays derivative market through the use of swaps and forward contracts. Thus, this risk is manageable only after the most sophisticated and modern risk management technique is employed


Settlement Risk is a particular form of default risk, which involves the banks competitors. Amounts settle obligations having to do with money transfer, check clearing, loan disbursement and repayment, and all other inter-bank transfers within the worldwide monetary system. A single payment is made at the end of the day instead of multiple payments for individual transactions.


Basis risk is a variation on the interest rate risk theme, yet it creates risks that are less easy to observe and understand. To guard against interest rate risk, somewhat non comparable securities may be used as a hedge. However, the success of this hedging depends on a steady and predictable relationship between the two no identical securities. Basis can negate the hedge partially or entirely, which vastly increases the Capital Market Risk exposure of the firm.


By stating productions in 1914 the story of Indian Foods is a stage of continuous growth. Foods is derived from the Latin word Foodsam.

Egyptians and Romans found the process of manufacturing Foods. In England during the first century the hydraulic Foods has become more versatile building material. Later on, Portland Foods was invented and the invention was usually attributed to Joseph Aspdin of Enland.

India is the worlds 4th largest Foods produced after China, Japan and U.S.A. The South Industries have produced Foods for the first time in 1904. The company was setup in Chennai with the installed capacity of 30 tonnes per day. Since then the Foods industry has progressing leaps and bounds and evolved into the most basic and progressive industry. Till 1950 1951, the capacity of production was only 3.3 million tones. So far annual production and demand have been growing a pace at roughly 78 million tones with an installed capacity of 87 million tones.

In the remaining two years of 8th plan an additional capacity of 23 million tones will actually come up.

India is well endowed with Foods grade limestone (90 billion tones ) and coal (190 billion tones). During the nineties it had a particularly impressive expansion with growth rate of 10 percent.

The strength and vitality of Indian Foods Industry can be gauged by the interest shown and support give by World Bank, considering the excellent performance of the industry in utilizing the loans and achieving the objectives and target. The World Bank is examining the feasibility of providing a third line of credit for further upgrading the industry in varying areas, which will make it global. With liberalization policies of Indian Government. The industry is posed for a high growth rates in nineties and the installed capacity is expected to cross 100 million tones and production 90 million tones by 2003 A.D.

The industry has fabulous scope for exporting its product to countries like the U.S.A., U.K., Bangladesh, Nepal and other several countries. But there are not enough wagons to transport Foods for shipment.

Foods The Product:

The natural Foods is obtained by burning and crushing the stones containing clayey, carbonate of lime and some amount of carbonate of magnesia. The natural Foods is brown in color and its best variety is known as ROMAN FOODS. It sets very quickly after addition of water.

It was in the eighteenth century that the most important advances in the development of Foods were which finally led to the invention of Portland Foods.

In 1756, John Sematon showed that hydraulic lime which can resist the action of water can be obtained not only from hard lime stone but from a limestone which contain substantial proportion of clayey.

In 1796, Joseph Parker found that modules of argillaceous limestone made excellent hydraulic Foods when burned in the usual manner. After burning the product was reduced to a powder. This started the natural Foods industry.

The artificial Foods is obtained by burning at a very high temperature a mixture of calcareous and argillaceous material. The mixture of ingredients should be intimate and they should be in correct proportion. The calcined product is known as clinker. A small quantity of gypsum is added to clinker and it is then pulverized into very fine powder, which is known as Foods.

The common variety of artificial Foods is known as normal setting Foods or ordinary Foods. A mason Joseph Aspdn of Leeds of England invented this Foods in 1824. He took out a patent for this Foods called it PORTLAND FOODS because it had resemblance in its color after setting to a variety of sandstone, which is found a abundance in Portland England.

The manufacture of Portland Foods was started in England around 1825. Belgium and Germany started the same 1855. America started the same in 1872 and India started in 1904. The first Foods factory installed in Tamilnadu in 1904 by South India limited and then onwards a number of factories manufacturing Foods were started. At present there are more than 150 factories producing different types ofFoods.

Composition of Foods:

The ordinary Foods contains two basic ingredients, namely, argillaceous and calcareous. In argillaceous materials the clayey predominates and in calcareous materials the calcium carbonate predominates.

A good chemical analysis of ordinary Foods along with desired range of ingredients.




Lime (CaO)


62 67

Silica (SiO2)


17 25

Alumina (Al2O3)


3 8

Calcium Sulphate (CaSO4)


3 4

Iron Oxide (Fe2O3)


3 4

Magnesia (MgO)


1 3

Sulphur (S)


1 3



0.2 1

Industry Structure and Development:

With a capacity of 115 million tones of large Foods plants, Indian Foods industry is the fourth largest in the world. However per capita consumption in our country is still at only 100 Kgs against 300 Kgs of developed countries and offers significant potential for growth of Foods consumption as well as addition to Foods capacity. The recent economic policy announFoods by the government in respect of housing, roads, power etc., will increase Foods consumption.

Opportunities and Threats

In view of low per capita consumption in India, there is a considerable scope for growth in Foods consumption and creation of new capacities in coming years.

The Foods industry does not appear to have adequately exploited Foods consumption in rural segment where damaged where damaged growth is possible.

Landed cost of Foods (with import duty) continues to be higher than home market prices but with reduced import duty, increasing imports, may pose a serious threat to the domestic Foods industry.


The recent change in the budget 2001 2002 relating to fiscal incentives for individual housing and reduction in borrowing cost for this purpose and with the government reaffirmation to accelerate the reform process, infrastructure development should logically get priority leading to increase in demand of Foods in coming years. The addition capacity of Foods in the pipeline is limited and therefore the demand and supply situations is expected to be more favorable and Foods prices are likely to firm up.

Risks and concerns

Slow down of Indian economy or drop in growth rate of agriculture may adversely affect the consumption. The recent increase in railway freight coupled with diesel / petrol price like will increase the cost of production and distribution, as being dulky, Foods is freight intensive increase in Limestone royalty also adds to the cost of production, which is considerably higher than corresponding costs of many other developing countries.

In our country there is a need to under take a massive programme of house construction activity into the rural and urban areas. It is impossible to construct a house without Foods and steel, in other words, Foods is one of the basic construction materials and therefore it is one of the vital elements for the economic development of the nation.

India inspite of being the 4th biggest produces of Foods in the world has still a very low per capital consumption of Foods.

Foods Companies

51 Nos

Foods Plants

99 Nos

Installed Capacity

64.8 mt

Total Investment (approx)

Rs. 10,000 Crores

Total Manpower

Over 1.25 Lakhs

Management Award of the Government of Andhra Pradesh. Heritage is also conscious of its social responsibilities. Its rural and community development programmes include adoption of two nearby villages, running an Agricultural Demonstration Farm, a Model Dairy Farm etc., Impressed by these activities, FAPCCI chose Heritage to confer the Award for Best efforts of an Industrial Unit in the State to Develop Rural Economy twice, in the year 1994 as well as in 1998. Heritage also has to its credit the National Award (Shri. S.R. Rangta Award for Social Awareness) for the year 1995 1996, for the Best Rural Development Efforts made by the Company. In the same year Heritage got the First Prize for Mine Environment and Pollution Control for year 1999 too, for the 3rd year in succession in July, 2001 Heritage annexed the Vana Mithra Award from the Government of Andhra Pradesh.

Quality conscious and progressive in its outlook, Heritage Foods is an OHSAS 08001 Company and also joined the select brand of ISO9001-2000 Companies.


The first unit was installed at Basanthnagar with a capacity of 2.5 lack TPA (tones per annum) incorporating humble supervision, preheated system, during the year 1969.

The second unit followed suit with added a capacity of 2 lack TPA in 1971.

The plant was further expanded to 9 lack by adding 2.5 lack tones in August, 1978, 1.13 lack tones in January, 1981 and 0.87 lack tones in September, 1981.


Singareni Colleries makes the supply of coal for this industry and the power was obtained from AP TRANSCO. The power demand for the factory is about 21MW. Heritage has got 2 diesel generator sets of 4MW each installed in the year 1987.

Heritage Foods now has a 15 KW captive power plant to facilitate for uninterrupted power supply for manufactured of Foods.


One among the industrial giants in the country today, serving the nation on the industrial front HERITAGE FOODS INDIA LIMITEDhas a chequered and eventful history dating back to the Twnties when the Industrial House of Birlas acquired it. With only a Textile Mill under it banner in 1924, it grew from strength to strength and spread its activities to never firlds like Rayon, Pulp, Transparent paper, Spun pipes and Refractories, Tyres, Oil Mills and Refinery Extraction.

Looking to the wide gap between demand and supply, of a vital commodity, Foods, which plays an important role in nation building the Government of India de licensed the Foods Industry in the year 1966 with a view to attract private entrepreneurs to argument the Foods product Heritage rose to the occasion and decided to set up a few Foods plants in the country.

The first Foods Plant of Heritage with a capacity of 2.5 lack tones per annum based on dry process, was established in 1969 at Basanthnagar a backward area in Karimnagar District, Andhra Pradesh, and christened it Heritage Foods. The second unit followed suit, which added a capacity of 2.00 lack tones in 1971. The plant was further expanded to 9.00 lack tones by adding 2.5 lack tones in August 1978. 1.14 lack tones in January, 1981 and 0.87 lack tones in September, 1981.

Heritage Foods has outstanding track record of performance and distinguished itself among all the Foods factories in India by bagging the coveted National Productivity Award for two successive years, i.e., in 1985 and 1936, so also the National Awards for Foods Safety for two year 1985 86 and 1986 - 87. Heritage also bagged NCBMs (National Council for Foods and Building Materials) National Award for Energy Conservation for the year 1989 90.

Heritage got the prestigious State Award Yajamnya Ratna & Best Management Award for the year 1989; so also the FAPCCI (Federation of Andhra Pradesh Chamber of Commerce and Industry) Award for the Best Family planning effort in the State. For the year 1987 88, Heritage also got the FAPPCI Award for Best Industrial Promotion / Expansion effort in the state. In the year 1991 Heritage also got the May day Award of the Government of Andhra Pradesh for Best Management and Pandit Jawaharlal Nehru Silver Rolling Trophy for the Best Productivity effort in the State, sponsored by FAPCCI, for 1993 Heritage got the Best.


The performance of Heritage Foods industry had been outstanding achieving over cent per cent capacity utilization although despite many odds like power cuts and which most 40% was waste due to wagon shortage etc.

The Company being a continuous process industry works round the clock and has an excellent record of performance achieving over 100% capacity utilization.

Heritage has always combined technical progress with industrial performance. The company had a glorious track record for the last 27 years in the industry.


Heritage Foods uses most modern technology and the computerized control in the plant. A team of dedicated and well experienced experts manages the plant. The quality is maintained much above the bureau of Indian Standards.

The raw materials used for manufacturing Foods are:

Lime stoneBauxiteHematiteGypsum

Environmental and Social Obligations

For environmental promotion and to keep up the ecological balance, this section has undertaken various social welfare programs by adopting ten nearly villages, organizing family welfare camps, surgical camps, children immunization camps, animal health camps, blood donation camps, distribution of fruit bearing trees and seeds, training for farmers etc., were arranged.

Welfare and Recreation Facilities

For the purpose of recreation facility 2 auditoriums were provided for playing indoor games, cultural function and activities like drama, music and dance etc.,

The industry has provided libraries and reading rooms. About 1000 books are available in the library. All kinds of newspaper, magazines are made available.

Canteen is provided to cater to the needs to the employees for supply snacks, tea, coffee and meals etc.,

One English medium and one Telugu medium school are provided to meet the educational requirements.

The company has provided a dispensary with a qualified medical office and paramedical staff for the benefit of the employees. The employees covered under ESI scheme have to avail the medical facilities from the ESI hospital.

Competitions in sports and games are conducted every year for August 15, Independence day and January 26, Republic Day among the employees.


The power consumption per ton for Foods has come down to 108 units against 113 units last year, due to implementation of various energy saving measures. The performance of captive power plant of this section continues to be satisfactory. Total power generation during the years was 84 million units last year. This captive power plant is playing a major role in keeping power costs with in economic levels.

The management has introduced various HRD programs for training and development and has taken various other measures for the betterment of employees efficiency / performance.

The section has installed adequate air polluting control systems and equipment and is ISO 14001 such as Environment Management System is under implementation.


Heritage Foods bagged many prestigious awards including national awards for productivity, technology, conservation and several state awards since 1984. The following are the some of important awards.

Awards of Heritage




National / State



Best family planning effort in the state



1985 86

National productivity award



1985 86 87

Foods safety



1987 88

Best industrial promotion / expansion effort



1987 89

Productivity award



1988 89

Best industrial promoter



1988 89

Expansion effort in the state



1988 89

Award for contribution given for rural economy




Best family planning effort




Yajamanya Ratna & Best Management Award



1988 90

Community development programs



1988 90

Energy conservation




May Day award of the Government of Andhra Pradesh for best management




Pandit Jawaharlal Nehru rolling trophy for best national productivity effort




Indira Gandhi National Award for Excellence in Industry (Best Management Award)




Best industrial rebellion award



1994 95

Rural development chief minister environmental and mineral conservation award.




Best industrial rebellion award.



1995 96

Best effort of an industrial unit to develop rural economy




Shri S.R. Rangta award for social awareness for best rural development efforts.




Best workers welfare.



1996 97

Best family welfare award.




First prize for mine environment & pollution control for the 3rd year in succession.




Vana Mithra award from Andhra Pradesh Government.




Best Management Award from Andhra Pradesh Government.


In this foods safety week celebrations, under the auspices of the Director General of Foods Safety, Heritages Basanthnagar limestone Foods won 2 first prizes for environment and pollution control and safe drilling and blatting and 14 2nd prizes for over all performance, productivity, operation and maintenance of machines publicity / propaganda etc.,

This section also bagged the award for Environment Protection in the Godavari River belt, sponsored by the Godavari Pradushna Pariharna Pariyavarana.


Last 20 years production of HERITAGE FOODS INDIA LIMITED Industry, Basanthnagar.


Production (in tones)

1983 84


1984 85


1985 86


1986 87


1987 88


1988 89


1989 90


1990 91


1991 92


1992 93


1993 94


1994 95


1995 96


1996 97


1997 98


1998 99


1999 00


2000 01


2001 02












Last 20 years production of HERITAGE FOODS INDIA LIMITED Industry, Basanthnagar.

Note: Production including internal consumption also Foods and clinker production were lower than the previous year mainly because of lower dispatches of Foods due to recession prevailing in Foods industry with slow down in demand during the year under review. This section had to curtail production due to accumulation of large stocks of clinker. However, sales realization during the second half of the year has improved and it is hoped that prices will stabilize at some reasonable levels.

Directors of Heritage Industries Limited


Syt. B.K. Birla.,


Smt. K.G. Maheshwari,

Shri. Pramod Khaitan,

Shri B.P. Bajoria,

Shri P.K. Chokesy,

Smt. Neeta Mukerji,

(Nominee of I.C.I.C.I.),

Shri D.N. Mishra,

(Nominee of L.I.C.),

Shri Amitabha Ghosh,

(Nominee of U.T.I.),

Shri P.K. Malik,

Smt. Manjushree Khaitan,.


Shri S.K. Parik.,

Senior Executives:

Shri K.C. Jain (Manager of the Company),

Shri J.D. Poddar,

Shri O.P. Poddar,

Shri P.K. Goyenka,

Shri D. Tandon,


Messrs Price Water house.,

Subsidiary Companies of Heritage Industries

Bharat General & Textile Industries Limited,KICM Investment Limited,Assam Cotton Mills Limited,Softshree Estates Limited.,


To prepare development action plan at the apex level, DCCB level and at PACS level and organize implementation.

To cover all agricultural member of PACS under cooperative kisan credit card scheme to achieve 100 % coverage and also to provide timely and adequate credit support both short term and long term investments.

To improve the lending to the small and marginal farmers as also SC and ST agriculturists.

To provide more advances through Rythu Mirta Groups (RMGs)

To formulate and adopt appropriate strategy for improved loan recoveries and to reduce Non Performing Asstes (NPAs).

To ensure writing books of accounts and also ensure regular audit at all levels.

To ensure uniform accounts, Ledger maintenance at PACs level and DCCB level.

To provide ATM services at various important places in twin cities.

To provide anywhere banking services and Teller banking services.

To convert extension counters into full ledged branches.

To raise deposits upto Rs. 2040 crores.

To computerize the operations of DCCBs and their branches.

To provide basic training and also periodical refresher courses to staff members at all level.

To reduce cost of management.


Rs in crores











Chart1Rs in croresRs in croresRs in croresRs in croresRs in crores
Sheet1YearsRs in crores2002-20032.342003-20043.082004-20054.152005-20064.842006-20075.7


Assuming and managing risk is the essence of business decision-making. Investing in a new technology, hiring a new employee, or launching a marketing campaign is all decisions with uncertain outcomes. As a result all the major management decisions of how much risk to take and how to manage the risk.

The implementation of risk management varies from business to business, from one management style to another and from one time to another. Risk management in the financial services industry is different from others. Circumstances, Institutions and Managements are different. On the other hand, an investment decision is no recent history of legal and political stability, insights into the potential hazards and opportunities.

Many risks are managed quantitatively. Risk exposure is measured by some numerical index. Risk cost tradeoff many tools are described by numerical valuation formulas.

Risk management can be integrated into a risk management system. Such a system can be utilized to manage the trading position of a small-specialized division or an entire financial institution. The modules of the system can be implemented with different degrees of accuracy and sophistication.


Dynamics of risk factors

Cash flows Arbitrage

Generator Pricing Model

Price and Risk

Profile Of Contingent Claims

Dynamic Risk Target

Trading Rules Optimizer Risk Profile


Arbitrage pricing models range from simple equations to large scale numerically sophisticated algorithms. Cash flow generators also vary from a single formula to a simulator that accounts for the dependence of cash flows on the history of the risk factors.

Financial engineers are continuously incorporating advances in econometric techniques, asset pricing models, simulation techniques and optimization algorithms to produce better risk management systems.

The important ingredient of the risk management approach is the treatment of risk factors and securities as an integrated portfolio. Analyzing the correlation among the real, financial and strategic assets of an organization leads to clear understanding of risk exposure. Special attention is paid to risk factors, which translate to correlation among the values of securities. Identifying the correlation among the basic risk factors leads to more effective risk management.


The burden of the Risk and its Costs are both manageable and transferable. Financial service firms, in the addition to managing their own risk, also sell financial risk management to others. They sell their services by bearing customers financial risks through the products they provide. A financial firm can offer a fixed-rate loan to a borrower with the risk of interest rate movements transferred from the borrower to the bank. Financial innovations have been concerned with risk reduction then any other subject. With the possibility of managing risk near zero, the challenge becomes not how much risk can be removed.

Financial services involve the process of intermediation between those who have financial resources and those who need them, either as a principal or as an agent. Thus, value breaks into several distinct functions, and it includes the intermediation of the following :

Maturity Preference mismatch, Default, Currency Preference mis-match, Size of transaction and Market access and information.


The banks were required by the RBI to introduce effective risk management systems to cover Credit risk, market risk and Operations risk on priority.

Narasimham committee II , advised banks to address market risk in a structured manner by adopting Asset and Liability Management practices with effect from April 1st 1989.

Asset and liability management (ALM) is the Art and Science of choosing the best mix of assets for the firms asset portfolio and the best mix of liabilities for the firms liability portfolio. It is particularly critical for Financial Institutions.

For a long time it was taken for granted that the liability portfolio of financial firms was beyond the control of the firm and so management concentrated its efforts on choosing the asset mix. Institutions treasury department used the funds provided by deposits to structure an asset portfolio that was appropriate for the given liability portfolio.

With the advent of Certificate Of Deposits (CDs), Banks had a tool by which to manipulate the mix of liabilities that supported their Asset portfolios, which has been one of the active management of assets and liabilities.

Asset and liability management program evolve into a strategic tool for bank management, the main elements of the ALM system are :





ALM is a risk management tool through which Market risk associated with business are identified, measured and monitored to maintain profits by restructuring Assets and Liabilities. The ALM framework needs to be built on sound methodology with necessary information system as back up. Thus the information is key element to the ALM process.

There are various methods prevalent worldwide for measuring risks. These range from the simple Gap statement to extremely sophisticate and data intensive Risk adjusted profitability measurement (RAPM) methods. The central element for the entire ALM exercise is the availability of adequate and accurate information.

However, the existing systems in many Indian Banks do not generate information in manner required for the ALM. Collecting accurate data is the biggest challenge before the banks, particularly those having wide network of branches, but lacking full-scale computerization.

Therefore the introduction of these information systems for risk measurement and monitoring has to be addressed urgently.

The large network of branches and the lack of support system to collect information required for the ALM which analysis information on the basis of residual maturity and behavioral pattern, it would take time for banks in the present state to get the requisite information.


Successful implementation of the risk management process requires strong commitment on the part of senior management in the bank to integrate basic operations and strategic decision making with risk management.

The Board of Directors should have overall responsibility for management of risk and should decide the risk management policy of the bank, setting limits for liquidity, interest rate, foreign exchange and equity / price risk.

The Asset Liability Management Committee (ALCO) consisting of the banks senior management, including CEO/CMD should be responsible for ensuring adherence to the limits set by the Board of Directors as well as for deciding the business strategy of the bank (on the assets and liabilities sides) in line with the banks budget and decided risk management objective.

The ALM support group consisting of operation staff should be responsible for analyzing, monitoring and reporting the risk profiles to the ALCO. The staff should also prepare forecasts (simulations) showing the effects of various possible changes in market condition related to the balance sheet and recommend the action needed to adhere to banks internal limits,

The ALCO is a decision-making unit responsible for balance sheet planning from a risk-return perspective including the strategic management of interest rate and liquidity risks. Each bank has to decide on the role of its ALCO, its responsibility as also the decision to be taken by it. The business and risk management strategy of the bank should ensure that the bank operates within the limits / parameters set by the Board. The business issues that an ALCO would consider, inter alia, will include product pricing for deposits and advances, desired maturity profile and mix of the incremental Assets and Liabilities, etc. in addition to monitoring the risk levels of the bank, the ALCO should review the results of and progress in implementation of the decisions made in the previous meetings. The ALCO would also articulate the current interest rate view of the bank and base its decisions for future business strategy on this view. In respect of this funding policy, for instance, its responsibility would be to decide on source and mix of liabilities or sale of assets. Towards this end, it will have to develop a view on future direction of interest rate movements and decide on funding mixes between fixed vs. floating rate funds, wholesale vs. retail deposits, Money markets vs. Capital market funding, domestic vs. foreign currency funding etc. Individual banks will have to decide the frequency for holding their ALCO meetings.


Reviewing of the impact of the regulatory changes on the industry.

Overseeing the budgetary process;

Reviewing the interest rate outlook for pricing of assets and liabilities (Loans and Deposits)

Deciding on the introduction of any new loan / deposit product and their impact on interest rate / exchange rate and other market risks;

Reviewing the asset and liability portfolios and the risk limits and thereby, assessing the capital adequacy;

Deciding on the desired maturity profile of incremental assets and liabilities and thereby assessing the liquidity risk; and

Reviewing the variances in actual and projected performances with regard to Net Interest Margin(NIM), spreads and other balance sheet ratios.


The size ( number of members) of ALCO would depend on the size of each institution, business mix and organizational complexity, To ensure commitment of the Top management and timely response to market dynamics, the CEO/MD or the GM should head the committee. The chiefs of Investment, Credit, Resources Management or Planning, Funds Management / Treasury (domestic), etc., can be members of the committee. In addition, the head of the computer (technology) Division should also be an invitee for building up of

MIS and related computerization. Some banks may even have Sub-Committee and Support Groups.

ALM ORGANIZATION consists of following categories :






The Board of management should have overall responsibility for management of risk and should decide the risk management policy of the bank and set limits for liquidity and interest rate risks.


The bank has constituted an Asset- Liability committee (ALCO). The committee may consists of the following members.

i) General Manager / Banking Head of Committee

ii) General Manager (Loans & Advances) Member

iii) General Manager (CMI & AD) Member

iv) AGM / Head of the ALM Cell Member

The ALCO is a decision making unit responsible for ensuring adherence to the limits set by board as well as for balance sheet planning from risk return perspective including the strategic management of interest rate and liquidity risks, in line with the banks budget and decided risk management objectives.

The Business issues that an ALCO would consider interalia, will include fixation of interest rates for both deposits and advances, desired maturity profile of the incremental assets and liabilities etc.

The ALCO would also articulate the current interest rate due of the bank and base its decisions for future business strategy on this view. In respect of funding policy, for instance, its responsibility would be decided on source and mix of liability.

Individual Banks will have to decide the frequency for their ALCO meetings. However, it is advised that ALCO should meet at least once in a fortnight. The ALCO should review results of and process in implementation of the decisions made in the previous meetings


The ALM desk / cell consisting of operating staff should be responsible for analyzing, monitoring and reporting the profiles to the ALCO. The staff should also prepare forecasts (simulations) showing the effects of various possible changes in market conditions related to the balance sheet and recommend the action needed to adhere to Banks internal limits.


The Banks should also constitute professional, management and supervisory committee, consisting of three to four directors, which will oversee the implementation of the ALM system, and review its functioning periodically.


The scope of ALM function can be described as follows:

Liquidity Risk Management

Interest Rate Risk Management

Currency Risk Management

Settlement Risk Management

Basis Risk Management

The RBI guidelines mainly address Liquidity Risk Management and Interest Rate Risk Management.

The following are the concepts discussed for analysis of banks Asset-Liability Management under above mentioned risks.

Liquidity Risk

Maturity profiles

Interest rate risk

Gap analysis

Liquidity Risk Management :

Measuring and managing liquidity needs are vital activities of the banks. By assuring a banks ability to meet its liability as they become due, liquidity management can reduce the probability of an adverse situation development. The importance of liquidity transcends individual institutions, as liquidity shortfall in one institution can have repercussions on the entire system.

Liquidity risk management refers to the risk of maturing liability not finding enough maturing assets to meet these liabilities. It is the potential inability to meet the banks liability as they became due. This risk arises because bank borrows funds for different maturities in the form of deposits, market operations etc. and lock them into assets of different maturities.

Liquidity Gap also arises due to unpredictability of deposit withdrawals, changes in loan demands. Hence measuring and managing liquidity needs are vital for effective and viable operations of the bank.

Liquidity measurement is quite a difficult task and usually the stock or cash flow approaches are used for its measurement. The stock approach used certain liquidity ratios. The liquidity ratios are the ideal indicators of liquidity of banks operating in developed financial markets, the ratio do not reveal the real liquidity profile of banks which are operating generally in a fairly illiquid market. The assets, which are commonly considered as liquid like Government securities, have limited liquidity when the market and players are in one direction. Thus analysis of liquidity involves tracking of cash flow mismatches.

The statement of structural liquidity may be prepared by placing all cash inflows and outflows in the maturity ladder according to the expected timing of cash flows.

The MATURITY PROFILE could be used for measuring the future cash flows in different time bands.

The position of Assets and Liabilities are classified according to the maturity patterns a maturing liability will be a cash outflow while a maturing asset will be a cash inflows. The measuring of the future cash flows of banks is done in different time buckets.

The time buckets, given the statutory Reserve cycle of 14 days may be distributed as under:

1 to 14 days

15 to 28 days

29 days and upto 3 months

Over 3 months and upto 6 months

Over 6 months and upto 1 year

Over 1 year and upto 3 years

Over 3 years and upto 5 years

Over 5 years.




Classification into time buckets

1.Capital, Reserves and Surplus

Over 5 years bucket.

2.Demand Deposits (Current &

Savings Bank Deposits)

Demand Deposits may be classified into volatile and core portions, 25 % of deposits are generally withdraw able on demand. This portion may be treated as volatile. While volatile portion may be placed in the first time bucket i.e., 1-14 days, the core portion may be placed in 1-2 years, bucket.

3. Term Deposits

Respective maturity buckets.

4. Borrowings

Respective maturity buckets.

5. Other liabilities and provisions

Bills Payable

Inter-office Adjustment

(iii) Provisions for NAPs

sub-standarddoubtful and Loss

(iv) provisions for depreciation

in Investments

(v) provisions for NAPs in


(vi) provisions for other purposes

(i) 1-14 days bucket

(ii) Items not representing cash

payable may be placed in over 5

years bucket


a) 2-5 years bucket.

b) Over 5 years bucket


(iv) Over 5 years bucket.


a) 2-5 years bucket.

b) Over 5 years bucket

(vi) Respective buckets depending on

the purpose.


1. Cash

1-14 days bucket.

2. Balance with other Banks

(i) Current Account

(ii) Money at call and short Notice,

Term Deposits and other


(i) Non-withdraw able portion on

account of stipulations of

minimum balances may be shown

Less than 1-14 days bucket.

(ii) Respective maturity buckets.

3. Investments

(i) Approved securities

Corporate Debentures and bonds, CDs and CPs, redeemable preference shares, units of Mutual Funds (close ended). Etc.

(iii) Share / Units of Mutual Funds

(open ended)

Investment in subsidiaries /

Joint Ventures.

(i) Respective maturity buckets

excluding the amount required to

be reinvested to maintain SLR

(ii) Respective Maturity buckets.

Investments classified as NPAs

Should be shown under 2-5 years

bucket (sub-standard) or over 5

years bucket (doubtful and loss).

(iii) Over 5 years bucket.

(iv) Over 5 years bucket.

4. Advances (performing / standard)

(i) Bills Purchased and


(including bills under


Cash Credit / Overdraft

(including TOD) and

Demand Loan component of

Working Capital.

(iii) Term Loans

(i) Respective Maturity buckets.

(ii) Banks should undertake a styud

of behavioral and seasonal pattern of a ailments based on outstanding and the core and volatile portion should be identified. While the volatile portion could be shown in the respective maturity bucket. The core portion may be shown under 1-2 years bucket.

(iii) Interim cash flows may be

shown under respective maturity


5. NPAs

Sub-standardDoubtful and Loss

(I) 2-5 years bucket.

(ii) Over 5 years bucket.

6. Fixed Assets

Over 5 years bucket.

7. Other-office Adjustment

Inter-office Adjustment


As per trend analysis,

Intangible items or items

not representing cash

receivables may be shown

in over 5 years bucket.

Respective maturity buckets. Intangible assets and assets not representing cash receivables may be shown in over 5 years bucket.

Terms used:

CDs: Certificate of Deposits.

CPs: Commercial Papers.

DTL PROFILE: Demand and Time Liabilities.

Inter office adjustment:

Outflows: Net Credit Balances

Inflows: Net Debit Balances

Other Liabilities: Cash payables, Income received in advance, Loan Loss and

Depreciation in Investments.

Other assets: Cash Receivable, Intangible Assets and Leased Assets.

2.Interest Rate Risk :

Interest Rate Risk refers to the risk of changes in interest rates subsequent to the creation of the assets and liabilities at fixed rates. The phased deregulations of interest rates and the operational flexibility given to banks in pricing most of the assets and liabilities imply the need for banking system to hedge the interest rate risk. This is a risk where changes in the market interest rates might adversely affect a banks financial conditions.

The changes in interest rates affect banks in large way. The immediate impact of change in interest rates is on banks earnings by changing its Net Interest Income (NII). A long term impact of changing interest rates is on banks Market Value of Equity (MVE) or net worth as the economic value of banks assets, liabilities and off-balance sheet positions get affected due to variation in market interest rates.

The risk from the earnings perspective can be measured as changes in the Net Interest Income (NII) OR Net Interest Margin (NIM).

There are many analytical techniques for measurement and management of interest rate risk. In MIS of ALM, slow pace of computerization in banks and the absence of total deregulation, the traditional GAP ANALYSIS is considered as a suitable method to measure the interest rate risk.

Gap Analysis:

The Gap or mismatch risk can be measured by calculating Gaps over different time buckets as at a given date. Gap analysis measures mismatches between rate sensitive liabilities and rate sensitive assets including off-balance sheet position.

An asset or liability is normally classified as rate sensitive if:

If there is a cash flow within the time interval.

The interest rate resets or reprices contractually during the interval.

RBI changes the interest rates i.e., on saving deposits, export credit, refinance, CRR balances and so on, in case where interest rate are administered.

It is contractually pre-payable or withdrawable before the stated maturities

The Gap is the difference between Rate Sensitive Assets (RSA) and Rate sensitive Liabilities (RSA) for each time bucket.

The positive GAP indicates that RSAs are more than RSLs (RSA>RSL).

The negative GAP indicates that RSAs are more than RSALs (RSA