This post is continuance of the revision notes of the Risk Management paper – CAIIB & Diploma Course of TIRM for 2023 Exams.

As the Certified Associate of the Indian Institute of Bankers Exams are due Next year (June 2023) & IIBF Diploma in Treasury, Investment & Risk Management exams in January 2023, we are hereby providing the revisionary notes for the latest attempt as per the latest prescribed Syllabus of the two mentioned IIBF Exams.

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Before you start with the Risk Management notes, we would like present you our latest recorded classes of Risk Management paper for the CAIIB (Flagship Course) & TIRM (Diploma) Course.

The Recorded Lectures which are prepared by Learning Session’s expert faculty include:

  • Risk Management Lectures have unlimited views. They are also downloadable in the app.
  • Mock Tests of Risk Management Paper (including Prev Year Questions)
  • E-pdf notes
  • All the materials have 24-by-7 availability through apps & browser
  • Classes provide the Conceptual clarity of the syllabus
  • The language of the classes is Hindi mix English
  • The latest Risk Management Syllabus 2022 as IIBF has prescribed

The course is available at the most reasonable prices & can be accessed through:




  • The goal of ALM is to ensure profitability & liquidity.
  • The Interest Rate Risk, Market Risk, Operational Risk, Technology Risks and Foreign Exchange Risks can threaten the very solvency of the Bank.
  • Banks have to have some liquidity to finance loan demands & to fulfill deposit pullouts.
  • A Bank’s liquidity is depended on the variability of loan demands & deposits.
  • Liquidity is the capacity to accommodate a fall in liability &/or increase in assets.
  • A Bank is said to have sufficient liquidity if it can obtain adequate finance either by increasing its liability or by converting its assets timely at a reasonable cost.
  • If liquidity requirements are not met through liquid assets or holdings, bank may be forced to restructure or acquire additional liabilities under adverse market situations.
  • Liquidity Management is the technique of generating funds to meet contractual obligations or relationship obligations at reasonable price at all times.
  • Scrutinizing economic market & money market trends is one key to liquidity planning.
  • Liquidity Risks include Funding Risks, Time Risks, and Call Risks.
  • Call Risks include the Crystallization of contingent liabilities, Swaps & Options.
  • The basic contractual or relationship commitments that banks must met include the new loan demands, existing loan commitments & deposit withdrawals etc.
  • The maturity ladder compares the future cash inflows to its future cash outflows over a series of specific time intervals.
  • The mismatch levels for time buckets of 1 to 14 days & 15 to 28 days remain around 20% of cash outflows.
  • Short-term cumulative gap up to 1 year stands at 15% of total outflow of funds.
  • Measuring & Managing funds requirements can be done via Stock & Flow Approach. 
  • Core deposits, in the normal course of business, constitute public deposits.
  • Flow Approach is also called Gap Method of measuring & managing the liquidity or fund requirements.
  • Gap Method requires the preparation of a Structural Liquidity Gap report.
  • In Gap Method, the net funding requirement is measured on the basis of residual maturities of assets & liabilities. 
  • To analyze the net funding, construction of a maturity ladder is required.
  • A maturity ladder should basically be used to compare a bank’s future cash inflows to its future cash outflows over a series of time periods/intervals.
  • It has to be remembered that the closer the large gap gets the more difficult it will be to offset.
  • The banks should be collecting data on relatively distant periods in order to maximize the opportunities so that the gap could be closed before it gets too close.
  • Alternate scenarios involves measures on the behavior of cash flows under different situations.
  • Alternate scenarios are the general market conditions & crises specific to banks.
  • Under bank-specific crises many of the bank’s liabilities could not be rolled over or substituted and would have to be refunded when they mature so that the bank would have to wind its books of accounts to some degree.
  • Under General market crises, liquidity affects all the banks in 1 or more markets.
  • Bank’s saleable loans portfolio includes less liquid category assets.
  • Unmarketable assets are the least liquid assets of banks.
  • Effective contingency plan has 2 components: the strategy to handle a crisis and cash access in an emergency.
  • Bank’s liquidity is the procedure of generating funds to meet up the contractual relationship obligations at affordable prices at all times.
  • Some of the important functions of effective liquidity management are:
      1. To Present that the bank is safe and capable of refunding its borrowings
      2. To Avoid the un-profitable sale of assets and
      3. To Lower the cost of default risk premium for funds.
      4. To Enable to meet prior loan responsibilities
  • The liquidity position of banks depends upon:
      1. Historical funding needs
      2. Sources of funds
      3. Current liquidity status
      4. Alternatives for reducing funding needs
      5. Present and expected asset quality
      6. Present and future earning power
      7. Present and planned capital standing.
      8. Expected future funding needs
  • Liquidity is affected by following factors:
  • Decline in earnings 
  • Increase in Non-Performing Assets
  • Deposit engagements
  • Downgrading by rating agencies
  • Expanded business possibilities
  • Acquisitions and 
  • New tax initiatives.
  • The funding needs can be satisfied through the following needs:
      • Disposing-off liquid assets 
      • Increasing short term borrowings 
      • Decreasing holdings of ‘less liquid assets’ 
      • Increasing liabilities of term nature &
      • Increasing capital funds.
  • Liquidity Risks can be measured by: 
      • Developing a structure 
      • Setting the Tolerance level & putting limits for Liquidity Risks 
      • Measuring & Managing the Liquidity Risk.
  • Business in multiple currencies adds a larger complexity because the Foreign Liability holders may not be able to differentiate between rumors and facts and companies may not always be able to mobilize domestic liquidity to meet Foreign Currency funding needs.
  • The Tolerance level or limit for liquidity risk can be provided for any of the following: 
      • The cumulative cash flow mismatches 
      • Percentage of liquid assets to short-term liabilities 
  • A limit on loan-to-deposit ratio 
  • a limit on loan-to-capital ratio 
  • a general limit on funding needs and available sources 
  • Primary sources for meeting funding needs should be qualified 
  • Flexible limits on the percentage of relieve pm a particular liability category and 
  • Limit on dependence on individual customers.
  • Stock Approach consists of ratios of:
      • Core deposits to T. assets
      • Time deposits to T. deposits.
      • Net loans to deposits (Lower ratio is required)
      • Volatile liability to T. assets.
      • Short-term liabilities to liquid assets.
      • Liquid assets to T. assets.
      • Short-term liabilities to T. assets.
      • Prime assets to T. assets.
      • Market liabilities to T. assets.



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