Liquidity analysis of scheduled Commercial Banks: A comparative study

Sound financial health of a bank is the guarantee not only to its depositors but is equally significant for the shareholders, employees and whole economy as well. As a sequel to this maxim, efforts have been made from time to time, to measure the financial position of each bank and manage it efficiently and effectively. A bank, howsoever profitable and solvent shall not be able to carry on the business of banking unless it evokes the trust and confidence of the depositors at large, by promptly and fully meeting the claims of depositors as and when they rise, which is in other words, termed as liquidity. During 1920s and 1930s the bank capital percentage was high in relation to assets and deposits and profitability was quite good, the banks in these decades suffered only due to liquidity crunch which was due to large proportion of illiquid assets in the banks portfolio. Today, bank liquidity is much greater and therefore the banks are more safe. Thus, liquidity is the single most important consideration for depositors in choosing a bank for parking their money. In the banking business, liquidity is the most important critical factor for the continued existence of a bank. The whole edifice of banking operations is built on the deposits provided by the public .