This document discusses liquidity management in commercial banks. It defines liquidity as the ability to easily convert assets into cash. The goal of liquidity management is to ensure a business or bank has cash available when needed. For banks, this involves developing strategies, measuring funding requirements, managing relationships, and having contingency plans. The key instruments of liquidity for banks are liquid assets like cash, reserves, and government securities; and liquid liabilities like deposits and borrowings. Liquidity risk for banks is measured using metrics like the finance gap and finance requirements. Proper liquidity management is important for commercial banks to meet obligations and support business activities.

1. MOTHERTHERESAINSTITUTEOF
MANAGEMENT
LIQUIDITY MANAGEMENT IN COMMERIAL BANKS
PRESENTED BY:
P PARAMESH
MBA
SUBJECT: BANK MANAGEMENT
FACULTY: Dr. N.VEENA.,MBA.,M.Com.,M.Phil.,Ph.D.,
SEMINAR:01

2. LIQUIDITY

3. INTRODUCTION
LIQUIDITY:
 Liquidity is defined as the state of
being liquidity (or) the ability to
easily turn assets (or) investments
into cash
 A Something (assets, securities)
can be easily converted into cash

4. LIQUIDITY MANAGEMENT
 Liquidity is the term used to describe
the liquid assets/cash
EX: a company can used to
pay it’s current and future debts and
other obligations, at the time company
decided to convert their shares and
assets into cash. This process of
conversation and management of assets
and shares are called liquidity
management.

5. LIQUIDITY MANAGEMENT
 The goal of liquidity management is to ensure the business has cash
avaliable when needed(when the company need cash in any time to
provided that cash to the company this is the main goal of liquidity
management.
 For this purpose the company manageing the company’s liquidity as
efficently as possible.

6. LIQUIDITY MANAGEMENT
 The companies are operate
multiple countries and multiple
currencies, and hold accounts with
many different banks, to manage
the liquidity in effectiviely.
 An important part of liquidity
management is the use of
techiniques such as cash flow,
corporate tresary team and
finance team with full visibility
over the company’s liquidity.

7. LIQUIDITY MANAGEMENT
 It is also important to have full visibilty over the lines of credit
avaliable for short term borrowings including balances and limits,
otherwise companies won’t know how much can be drawn from a
particular line of credit.
 Liquidity management also involues manageing the risk that the
company will not have enough liquidity avaliable to meet it’s
upcomming obligations.

8. TRACKINGLIQUIDITY
understanding of
conversations

9. COMMERICAL BANKS
 According to wikepedia ”a commerical bank is a financial
institution which accepts deposits from the public and
gives loans for the purpose of consumption and
investment to make profit.
 It can also refer to bank, or division of large bank, which
deals with corportions (or) large/middle-sized business to
differentitative it from a retail bank and an investment
bank
 Commercial banks include private sector banks and public
sector banks

10. LIQUIDITY MANAGEMENT IN COMMERCIAL MANAGEMENT
 Banks can enable real time access to
liquidity, global view of cash, faster
proccessing, to manage corporate liquidity
 Banks can help business to manage their
working capital and improve accessibility to
internal and external funding
 Banks can reduce operational
complexisities in global corporate by
automating process and back-end systems

11. PRINICIPLES OF LIQUIDITY MANAGEMENT IN BANKS
• Banks must develop a structure for liquidity management
• Banks must mesure and monitor net funding requirements
• Banks should manage market access
• Banks should have contigency plans
• Banks should manage their foregin currency liabilities

12. PRINICIPLES OF LIQUIDITY MANAGEMENT IN BANKS
Banks must develop a structure for liquidity management
 Each banks should have an agreed strategy for day-to-day liquidity
management. this strategy should be communicated through the
organization
 Each bank should have a management structure in place to effectively
execute the liquidity strategy.
 Banks must have adequte information systems for mesuring,
monitoring, controlling and reporting liquidity risks

13. PRINICIPLES OF LIQUIDITY MANAGEMENT IN BANKS
Banks must mesure and monitor net funding requirements
 Each bank should estblish a proccess
for ongoing measurement and
monitoring of net funding
requirements
 Banks should analyze liquidity
utilizing a variety of scenarious
 Banks should frequently review the
assumptions utilized in managing
liquidity determine that they continue
to be vaild.

14. PRINICIPLES OF LIQUIDITY MANAGEMENT IN BANKS
Banks should manage market access
 Each banks should periodically review
it’s efforts to establish and maintain
relationships with liquidity holders, to
maintain the divercification of
liabilities and aim to ensure it’s
capacity to sell assets.

15. PRINICIPLES OF LIQUIDITY MANAGEMENT IN BANKS
Banks should have contigency plans
 Banks should have contigency plans in place that address
the strategy for handling liquidity creies and which include
procedures for makeing up cashflow short falls in
emergency sittivations.

16. PRINICIPLES OF LIQUIDITY MANAGEMENT IN BANKS
Banks should manage their foregin currency liabilities
 Each bank should have mesurement, monitoring and
control system for i’s liquidity positions in the major
currencies in which it is active. In addition to assessing
it’s aggregate foriegn currency liquidity needs and the
acceptable mismatch in combination with it’s domestic
currency commitements, a bank should also undertake
separate analysis of it’s strategy for each currency
invidiually.

17. LIQUIDITY PROCEDURE
The main three procedure are there in liquidity
1. Identifying liquidity
2. Manageing liquidity
3. Optimizing liquidity

18. LIQUIDITY PROCEDURE
Identifying liquidity:
Identifying liquidity is primarily on
function of data gathering, and does not include the actual
movement or usuage of funds.
Manageing liquidity:
It involues using the identified liquidity
to support the banks revenue genereting activites. This
may include conslidating funds managing the release of
funds to maximize their use.

19. LIQUIDITY PROCEDURE
Optimizing liquidity:
It is an ongoing process with a focus
on maxmizing the value of the institutions fund. It requries
strong and detail understanding of banks liquidity position
across all currencies, accounts, business lines and counter
parties. the biggest challenge in the liquidity decesion
process is the limited and resource avaliable to it.

20. INSTRUMENTS OF LIQUIDITY
There are two instruments
1. Liquid assets
2. Liquid liabilities

21. INSTRUMENTS OF LIQUIDITY
Liquidity assets:
An asset is said to be liquid if it is eassy to sell or convert
into cash without any losses in its value
Cash in hand
Statutory liquidity ratio
Balance with other banks
Money at call and short notice
Investments
Government securities(bearer bonds)

22. INSTRUMENTS OF LIQUIDITY
Liquidity liabilites:
Time certificates of deposits
Borrowing from other commercial banks
Borrowing from central bank
Raising of capital fund

23. MESURING LIQUIDITY RISK
Mesuring liquidity risk basically in two ways
1. Finance Gap
2. Finance Requirements
Finance Gap = Avg loans - Avg deposits
Finance Requirements = Finance Gap+Liquid assets

24. ACCOUNTING LIQUIDITY
FORMULAS:
Current ratio = current assets/current liabilities
Quik ratio =(current assets-
inventories)/current liabilities
Cash ratio =(cash and cash equivalent+short
term investments)/current liabilities

25. THANKYOU