Effects of Asset Liability Management On The Profitability And Liquidity Of Particular Indian Commercial Banks

Abstract

This study explores the influence of ALM on profitability and liquidity of Indian commercial banks, focusing on the most important factors that influence financial performance. Using a panel data approach, this research analyzed data from 10 major Indian commercial banks over five years (2018-2023). The result shows that effective ALM practices significantly improve profitability and liquidity positions. Specifically, banks with robust ALM strategies had a 15% higher Return on Assets (ROA) and a 12% lower Non-Performing Asset (NPA) ratio compared to banks with weak ALM frameworks. Also, liquidity ratios, like LCR, averaged 8% higher in effective ALM banks. The research further focused on the importance of capital structure, liquidity creation, and board governance in the determination of profitability outcomes where the importance of liquidity creation is paramount in profitability at a 95% level of confidence. The strategies applied towards risk management that could ensure further financial stability also manifested positively. The paper is a contribution to the body of knowledge regarding the role of ALM in the performance of banks and actioned knowledge to enhance the financial resilience of Indian commercial banks.