Joint research paper for PGDM/MBA.

1. 1
A STUDY ON EFFECT OF LIQUIDITY MANAGEMENT ON
PROFITABILITY WITH SELECT PRIVATE AND PUBLIC SECTOR
BANKS IN INDIA
SUPRIYA MONDAL 1
and Prof. JEEVITHA R 2
1 . Student, Ramaiah Institute of Management, Bangalore
supriyamondalcse@yahoo.com
2 . Assistant Professor, Ramaiah Institute of Management, Bangalore
jeevitha@msrim.org
ABSTRACT: This study examines the relation between liquidity and profitability, as
measured by financial ratio on a sample of select private and public sector banks in India. In
public sector - State Bank of India, Bank of Baroda, Canara Bank & in private sector - HDFC
Bank, ICICI Bank, Axis Bank are considered.
The research uses MS Excel & graphs for examines the relation between liquidity and
profitability, as measured by financial ratio on a sample of select private and public sector
banks in India. Banks has been selected based on top ranking. For examine this study 5 years
data has been taken from the year 2014-15 to 2018-19. To measure the liquidity and
profitability between select public sector and private sector banks six key financial ratio has
been taken. For liquidity: Cash-Deposit Ratio (CDR), Credit-Deposit Ratio (CRDR),
Investment-Deposit Ratio (IDR) and for profitability Return on Assets (ROA), Return on
Equity (ROE), Return on Investment (ROI) are considered.
The overall analysis supports the conclusion that there is an inverse relationship between
liquidity management and profitability with select public and private banks in India. Which
means if the liquidity of the bank increase then profit earning capacity of the bank will decrease,
because of the inverse relationship between the liquidity management and profitability with
select public and private sector banks in India.
As profitability is an important factor for banks sustainability and growth, liquidity of the bank
also important factor for meeting net demand and time liability of the bank. So, for sustaining
in the market every bank have to trade-off between the liquidity and profitability.
For both the bank public sector and private sector need to balance between the two important
factor, liquidity management and profitability to continue the day to day banking operation
effectively.
KEYWORDS: Liquidity Management, Profitability, Public & Private sector banks

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INTRODUCTION: The trade-off between liquidity and profitability has been an important issue
in the corporate world. Theoretically, both liquidity and profitability are affected by the working capital
decisions of any company. Excess amount of investment in working capital may result in low
profitability and lower investment may result in poor liquidity. Therefore, the management needs to
trade-off between liquidity and profitability to maximize shareholders’ wealth. Every organization,
whether it is profit-oriented or not, irrespective of size and nature of business, requires necessary
amount of working capital.
Working capital is the most critical factor for maintaining liquidity, survival, solvency and profitability
of business. It is observed that if a firm wants to take a bigger risk for making profits, it minimizes the
amount of its working capital in relation to the revenues it generates. If it intends to improve its liquidity,
that in turn raises the level of its working capital. Nonetheless, this technique might reduce the sales
volume and consequently, it would affect the profitability. Thus, a company needs to have a good
balance between liquidity and profitability.
In order to maintain high profitability levels, companies might need to forfeit their solvency by
maintaining relatively low levels of current assets. As soon as the companies start doing so, their
profitability would improve as less amount of money is fastened up to the idle current assets and their
solvency would be in danger.
Therefore, excessive levels of current assets may have a negative effect on profitability of the firm,
whereas a low level of current assets may lead to lower level of liquidity and stock outs, resulting in
difficulties in maintaining smooth operations.
In today’s developing and competitive world, the banking sector has emerged as a key player that
contributes to the growth of economy, development of financial sector and more importantly, creation
of employment in the country. Banks are the supporting part of financial system of any economy and
they play an important role in contributing to a country’s economic development. The main role of
banks is to collect money from the public in the form of deposits and then along with its own funds to
serve the demands of the customers quickly, paying interest for the deposits and to meet out the
expenses to carry out banks activities.
For this reason, banks maintain adequate liquidity and earn profits from their activities. Profit is the
main reason for the continued existence of every commercial organization and profitability depicts the
relationship of the absolute amount of profit with various other factors. In any case, compared to other
business concerns, banks in general have to pay much more attention for balance between profitability
and liquidity. Liquidity is required to meet the prompt demands of customers and profitability is
required to meet the expenses of banks. But both the terms are contradictory in nature. If banks maintain
more liquidity, their profitability decreases, and if they increase their profitability, they will have to
reduce their liquidity.
Liquidity of bank refers to reserves of cash, securities, bank’s ability to convert an asset into cash, and
unused bank lines of credit. Liquidity must be adequate to meet all maturing unsecured debt obligations
due within a one-year time horizon. Despite different approaches that can be used to analyse bank’s
liquidity, the following are the key ratios that can be used to examine bank’s liquidity: Cash-Deposit

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Ratio (CDR), Credit-Deposit Ratio (CRDR) and Investment-Deposit Ratio (IDR) and whether they
could be converted quickly to cover redemptions.
On the other hand, profitability of the bank determines its ability to increase capital (through retained
earnings), support the future growth of assets, absorb loan losses and provide return to investors. The
key financial ratios that are used in assessing the profitability of a bank include: Return on Assets
(ROA), Return on Equity (ROE) and Return on Investment (ROI ). Keeping this in mind, banks have
to do a balancing act between liquidity and profitability.
REVIEW OF PREVIOUS LITERATURE:
1. The research paper on “The Effect of Liquidity Management on Profitability: A
Comparative Analysis of Public and Private Sector Banks in India” by Birajit
Mohanty and Shweta Mehrotra - This paper makes an attempt to study the effect of
liquidity management on the profitability of public and private sector banks in India.
For this purpose, 27 public sector banks and 20 private sector banks have been
considered for the periods 2011-12 and 2015-16. Cash-Deposit Ratio (CDR), Credit-
Deposit Ratio (CRDR) and Investment-Deposit Ratio (IDR) have been used as
independent variables to denote the liquidity management of the banks, while Return
on Assets (ROA) and Return on Equity (ROE) have been used as proxy variables for
the profitability of the banks. It is found that there is a significant negative effect of
CDR and IDR on ROA. However, in the case of ROE, it is found that there is no
significant relationship between banks’ profitability and liquidity taking all the
variables into consideration, irrespective of the type or form of commercial banks in
India. This leads to the conclusion that the commercial banks can focus on increasing
their profitability without affecting their liquidity and vice versa.
2. The research paper on “A Study on Liquidity Position of Public Sector Banks in
India after Liberalisation” by Dr.M.Krishnaveni, N. Umamaheswari - Introduction
of reforms in the banking sector has changed the face of Indian banking industry. The
globalization of operations and implementation of new technologies have led to
increase in resource productivity, increasing level of deposits, credit and profitability.
The objective of the study is to know the growth of the performance of Indian banks
and to analyses the liquidity position of public sector banks after liberalization. In this
study all the public sector banks were selected such as a19 Nationalised banks, 5 SBI
Associates and SBI. We have chosen the liquidity ratios to analyse the liquidity position
of the public sector banks. The statistical tools also used in this study such as standard
deviation, co-efficient of variation, compound annual growth rate and two way
ANOVA. Through this study we found that the overall liquidity position of
Nationalized banks and SBI Associates are comparatively better than SBI.
3. The research paper on “A Comparative Study on the Performance of Selected
Public Sector and Private Sector Banks in India ” by Cheenu Goel and Chitwan
Bhutani Rekhi - Efficiency and profitability of the banking sector in India has assumed

4. 4
primal importance due to intense competition, greater customer demands and changing
banking reforms. Since competition cannot be observed directly, various indirect
measures in the form of simple indicators or complex models have been devised and
used both in theory and in practice. This study attempts to measure the relative
performance of Indian banks. For this study, we have used public sector banks and
private sector banks. We know that in the service sector, it is difficult to quantify the
output because it is intangible. Hence different proxy indicators are used for measuring
productivity of banking sector. Segmentation of the banking sector in India was done
on bank assets size. Overall, the analysis supports the conclusion that new banks are
more efficient that old ones. The public sector banks are not as profitable as other
sectors are. It means that efficiency and profitability are interrelated. The key to
increase performance depends upon ROA, ROE and NIM.
4. The research paper on “Trade-Off between Liquidity and Profitability: A
Comparative Study between State Banks and Private Banks in Sri Lanka ” by
A.Nishanthini and J.Meerajancy - Banks are the one of the most popular financial
institution and those banks contribute the economic development and growth of
economic. The banks play a crucial role in the competitive environment. Nowadays
various types of human society wants to invest in banks and to earn more interest and
obtain the other additional facilities such as leasing, loan, pawing and mortgage. An
efficient and effective liquidity management provides an enjoyable profitability and
leads to survival. There the purpose arises on the study is to find out the effect of
liquidity on banks and also compare the banking organization that which bank play a
better role, and also give suggestion based on the findings. The present study is initiated
on liquidity and profitability trade –off with the samples of State Banks and private
Banks in Sri Lanka over period of 2008-2012. All samples are licensed commercial
banks. Current ratio (CR) and Quick ratio (QR) were used to measure liquidity as well
as Net Profit margin (NP), Return on Assets (ROA) and Return on Equity (ROE) were
used to measure the dependent variable as Profitability. The Statistical tests were used
to find out the effects of liquidity and Profitability these are: descriptive statistics,
correlation and regression analysis. The study found that insignificant correlation
between liquidity and profitability both State Banks and Private Banks. And regression
shows the negative impact of liquidity on profitability in selected Banks in Sri Lanka.
5. The research paper on “Efficiency and Profitability of Public and Private Sector
Banks in India: Data Envelopment Analysis Approach” by Ravi Inder Singh and
Simran Kaur - This paper examines the inter-bank relative efficiency of public and
private sector commercial banks in India. This study includes analysis of slacks which
remain to be explored for getting a clear picture about the causes of inefficiency.
Though the issue is important, no recent study, to the best of our knowledge, has
addressed it. Data Envelopment Analysis (DEA) approach has been used to examine
the efficiency level achieved and to identify the slacks. The results reveal that private
(Indian) sector banks are relatively more efficient compared to public sector banks. It
was found that State Bank of Hyderabad, Bank of Maharashtra, Central Bank of India,
United Bank of India, Dhanlaxmi Bank and ING Vysya could not achieve 100%
efficiency even in a single year, whereas the Federal Bank, HDFC Bank, Kotak

5. 5
Mahindra Bank, Nainital Bank and Yes Bank Ltd., all private sector banks, achieved
full efficiency in all the ten years. The strategies suggested in this study to the
comparatively less efficient banks would help them not only in improving their
efficiency, but also in lowering the cost of their products for the overall benefit of their
customers. Efficiency is also found to be directly affecting the profitability of banks.
6. The research paper on “Financial Analysis of Public and Private Sector Banks of
India: A Comparative Study of Punjab National Bank and HDFC Bank” by Dr.
Mohd Taqi and Maj. S.M. Mustafa - Banking sector occupies an important role in
the economic development of a nation. It is one of the fastest growing sectors in India
as it is featured by a large network of bank branches, serving many kinds of financial
services to its customer. Bank plays an important role to mobilize savings of general
public, remittance of money and other general banking services. The performance of a
bank may be evaluated for several reasons depending upon various objectives. Profit is
the main motive for the continued existence of every commercial organization and
profitability depicts the relationship between the absolute amounts of profit with
various other factors. As compared to other business concerns, banks in general have
to pay much more attention for balancing profitability and liquidity. Liquidity is
required to meet the prompt demands of customers whereas profitability is required to
meet the expenses of banks. Hence, the present research is an effort to measure and
compare the financial performance of Punjab National Bank and HDFC Bank as both
the banks are big giants in public and private sector respectively. The study focused on
the growth and performance analysis of both the banks for a period of ten years, i.e.
from 2006-07 to 2015-16. Quantitative analysis has been undertaken by looking at
various financial ratios like management efficiency, liquidity and profitability which
are the reliable indicators of a bank performance. It is found that PNB is more
financially sound than HDFC Bank but in context of deposits and expenditure HDFC
bank has better managing efficiency than PNB.
7. The research paper on “PERFORMANCE EVALUATION OF PUBLIC SECTOR
AND PRIVATE SECTOR BANKS – A COMPARATIVE STUDY ” by Mrs. N.
VIJAYALAKSHMI and Dr. G. KARUNANITHI - Banking sector occupies an
important role in the economic developmentof a nation. It is one of the fastest growing
sectors in India as it is featured by a large network of bank branches, serving many
kinds of financial services to its customer. Bank plays an important role to mobilize
savings of general public, remittance of money and other general banking services. The
performance of a bank may be evaluated for several reasons depending upon various
objectives. Profit is the main motive for the continued existence of every commercial
organization and profitability depicts the relationship between the absolute amounts of
profit with various other factors. As compared to other business concerns, banks in
general have to pay much more attention for balancing profitability and liquidity.
Liquidity is required to meet the prompt demands of customers whereas profitability is
required to meet the expenses of banks. Hence, the present research is an effort to
measure and compare the financial performance of Punjab National Bank and HDFC
Bank as both the banks are big giants in public and private sector respectively. The
study focused on the growth and performance analysis of both the banks for a period

6. 6
of ten years, i.e. from 2006-07 to 2015-16. Quantitative analysis has been undertaken
by looking at various financial ratios like management efficiency, liquidity and
profitability which are the reliable indicators of a bank performance. It is found that
PNB is more financially sound than HDFC Bank but in context of deposits and
expenditure HDFC bank has better managing efficiency than PNB.
8. The research paper on “Performance Evaluation of Public Sector, Private Sector
and Multistate Cooperative Banks in India-A Study” by Ashish M Joshi and K. G.
Sankaranaryanan - The banking industry in India as a whole is making significant
contributions for the development of the economy and helping to achieve sustainable
growth. The banks are helping the economy in terms of effective capital formation,
effective lending and contributing to the development of the nation, thus banks need to
be more closely watched. In India banks are one of the healthiest performers in the
world banking industry seeing tremendous competitiveness, growth, efficiency,
profitability and soundness, especially in the recent years. The main goal of banks today
is to ensure stability and make sure that they are internally sound and sensible. Hence,
it is important to measure soundness across various banks in the country and identify
the weaker sections of the banking sector, devise appropriate strategies and policies to
lift these sections and eventually create an environment that leads banks to be sound
and results in stability. The CAMEL model in banking sector is widely used all over
the world to ascertain the performance of the banks operating in various sectors. In the
present study an attempt is made to evaluate relative performance of banks in India
using CAMEL approach. In the present study while the comparing the performance of
three categories of banks in various sectors it is observed that among the banks in public
sector Bank of Baroda was considered to be better, whereas among private sector banks
ICICI banks was better and in multistate cooperative banks the Punjab Maharashtra
cooperative bank was better on certain parameters of camel model.
9. The research paper on “Performance Evaluation of Public Sector, Private Sector
and Multistate Cooperative Banks in India-A Study” by Kajal Chaudhary and
Monika Sharma - The economic reforms in India started in early nineties, but their
outcome is visible now. Major changes took place in the functioning of Banks in India
only after liberalization, globalisation and privatisation. It has become very mandatory
to study and to make a comparative analysis of services of Public sector Banks and
Private Sector banks. Increased competition, new information technologies and thereby
declining processing costs, the erosion of product and geographic boundaries, and less
restrictive governmental regulations have all played a major role for Public Sector
Banks in India to forcefully compete with Private and Foreign Banks. this paper an
attempt to analyze how efficiently Public and Private sector banks have been managing
NPA. We have used statistical tools for projection of trend.

7. 7
10. The research paper on “Profitability of Public Sector Banks in India : A Study of
Determinants” by Prashanta Athma, K.P.Venugopala Rao and Farha Ibrahim -
The “Profitability of Public Sector Banks in India: A Study of Determinants” examines
the factors influencing the financial performance of 26 Indian Public Sector Banks post
global financial crises. The Random Effect Model on the balanced panel data for the
period 2012-2017 was performed to determine the impact of the macroeconomic and
bank specific factors based on the CAMELS framework. The bank specific factors that
influence the profitability of the Public Sector Banks in India are Total Investments to
Total Assets, Operating Profit to Total Assets and Provisions on Loans whereas the
effect of macroeconomic factors on the banks profitability were insignificant.
11. The research paper on “A STUDY ON LIQUIDITY AND PROFITABILITY OF
INDIAN PRIVATE SECTOR BANKS” by DR. V. R. NEDUNCHEZHIAN and
MS. K. PREMALATHA - The study aims to know about the relationship between
liquidity and profitability of the Indian private sector banks.5out of the 20 new private
sector banks and new private sector banks involved in the study. The study was
descriptive in nature and it was adopted to collect secondary data for the study. The
selected financial reports of the ten private selected banks are studied for the relevant
liquidity and profitability were determined by the use of the time series analysis and
regression on profitability ratio. The result provides that there is no significant
relationship between ROA with cash and bank balances to total liabilities. In the
liquidity measures, here also there is no statistical significant relationship between ROE
with loans and advances to total assets, and cash and bank advances to total liabilities.
12. The research paper on “Management Efficiency and Profitability Of Selected Indian
Public And Private Sector Banks” by J.Kumar and Dr. R. Thamilselvan - Commercial
banks play a vital role in the development of the industry and trade. They are
performing not only the curator of the country but also resource of country. The
present study aims at identify Management Efficiency and Profitability of selected
Indian public and private sector banks. The study considered a sample of top ten Banks
(7 public sector banks and 3 private sector banks) for the period from 1, April 2005 to
March 31, 2016. The study is based on the secondary data, procured and extracted
from financial statements of the selected banks. The collected data has analysed using
various financial ratios and statistical tools like Geometric Mean Standard deviation
and Compounded Annual Growth Rate have been accomplished .Indian banking will
brace for new challenges for entry of new types of lenders intensifies competition
while high bad loan. I t is found that in management efficiency IDBI bank has top rank
followed by AXIS bank and ICICI bank it shows that better ability of the banks. Punjab
National Bank has last position followed by Canara Bank and State Bank of India. In
terms of profitability HDFC bank has top position followed by Canara Bank Punjab
National Bank. Industrial Development of India bank has last position due to under
utilization of assets followed by Bank of India and Canara Bank
13. The research paper on “Management Efficiency and Profitability Of Selected Indian
Public And Private Sector Banks” by M.Sukanya - CAMEL model analysis is an
important tool to analyse the banks’ and financial institutions’ performance and to
suggest the necessary measures for its improvement where it is required. In the

8. 8
present study, Indian banks-five public and five private sector banks based on its total
assets have been considered. This study is taken up for the five year period from 2012-
17. The present study analyses the financial performance of the select banks. Five
parameters of CAMEL-Capital Adequacy, Asset Quality, Management Efficiency,
Earnings Ability and Liquidity are considered to rank the banks on its performance.
The study found that Kotak Mahindra has performed better and ranked first among
all the banks and Punjab National bank ranked the least position. Among all, private
sector banks have outperformed compared to public sector banks. The top five
positions are of private sector banks and Bank of Baroda being public sector bank
ranked top third with HDFC bank.
14. The research paper on “Analysis of Financial Performance of Selected Commercial
Banks in India” by Palamalai Srinivasan and John Britto - The present study
attempts to evaluate the financial performance of selected Indian commercial banks for
the period from 2012/13 to 2016/17. The study comprises 16 commercial banks, 11
representing public sector and 5 from private sector, and the financial performance of
these banks are analysed using the financial ratios. The study shows that the financial
performance of private sector banks is relatively better than the public sector banks
throughout the study period. Besides, the study examines the impact of liquidity,
solvency and efficiency on the profitability of the selected Indian commercial banks by
employing the panel data estimations, viz. the Fixed Effect and Random Effect models.
The empirical results from the panel data estimations revealed that the liquidity ratio
and solvency ratio, and the turnover ratio and solvency ratio are found to have positive
and significant impact on the profitability of selected public sector and private sector
banks, respectively, bearing testimony to the fact that profitability is a function of those
ratios.
15. The research paper on “An analysis of profitability position of private bank in India”
by Amit Kumar Singh - Profit is a measure of success of business and the means of its
survival and growth. Profitability is the ability of a business to earn profit for its
owners. The objective of this study was overall profitability analysis of different
private sector banks in India based on the performance of profitability ratio like
interest spread, net profit margin, return on long term funds, return on net worth,
return on assets & adjusted cash margin. Profitability is a measure of efficiency and
control it indicates the efficiency or effectiveness with which the operations of the
business are carried on. Profitability ratios provide different useful insights into the
financial health and performance of a company. A business that is not profitable
cannot survive. Conversely, a business that is highly profitable has the ability to reward
its owners with a large return on their investment. Increasing profitability is one of the
most important tasks of the business managers. Managers constantly look for ways to
change the business to improve profitability. These potential changes can be analysed
with a support of income statement and balance sheet.
STATEMENT OF THE PROBLEM: The study is undertaken to analyse the
relationship between liquidity management and bank’s profitability and also to the impact of
liquidity management on profitability between select public sector and private sector banks in
India for the period of last 5 years (2014-15 to 2018-19).

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OBJECTIVES OF THE STUDY: The objective of the study are given
bellow.
• To analyse the relationship between liquidity management and profitability of public
and private sector banks in India
• To understand the liquidity-profitability trade-off between public and private sector
banks in India
• To examine the effect of liquidity management on bank’s profitability of select public
and private sector banks in India
SCOPE OF THE STUDY: The scope of the study are given bellow.
Period: 5 years data (2014-15 to 2018-19)
Industry: Banking
Companies:
1) Public Sector Bank: State Bank of India, Bank of Baroda, Canara Bank
2) Private Sector Bank: HDFC Bank, ICICI Bank, Axis Ban
METHODOLOGY:
Types of Research: Descriptive Research
Sampling Plan: 3 Public sector banks & 3 private sector
banks
Sources of data: Secondary data
Tools use Ratio analysis, T-test, Correlation
Financial Ratios use:
For Liquidity: Cash-Deposit Ratio (CDR),
Credit-Deposit Ratio (CRDR) and
Investment-Deposit Ratio (IDR)
For profitability: Return on Assets (ROA),
Return on Equity (ROE) and Return on
Investment ( ROI )
Plain of analysis: Excel is used
LIMITATION: The study is done to analyse liquidity management on profitability on
select public and Private sector banks in India. There are 27 public sector bank and 21 private
sector banks In India. But the present study covers only 6 banks (3 public sector and 3 Private
sector). Only last 5 years data (2014 to 2019) are considered for the study because of the time
constrain. Also, there are only 6 key financial ratios (3 for liquidity and 3 for profitability) are
considered for the study. They are Cash-Deposit Ratio (CDR), Credit-Deposit Ratio (CRDR)
and Investment-Deposit Ratio (IDR) for examine the liquidity, on the other hand Return on
Assets (ROA), Return on Equity (ROE) and Return on Investment (ROI) for examine the
profitability.

10. 10
DATA ANALYSIS:
PARAMETERS OF THE STUDY: In the present study the analysis and comparison
of the effect of liquidity management on profitability between select public and private sector
banks gone with reference of following parameters.
The parameters selected for analysis of liquidity management are:
CASH-DEPOSIT RATIO (CDR): Cash-Deposit ratio (CDR) is the ratio that identify
the amount of money a bank should have available as a percentage of the total amount of money
its customers have deposited into the bank. This is calculated so that customers can be sure that
they will be able to take their money out of the bank if they want to.
Cash-Deposit ratio ( CDR ) = (
!"#$% '$() & '$() +$%$,'-( ./#) 012
!"#$% 3-4"(/#
) * 100
CREDIT-DEPOSIT RATIO (CRDR): Credit-Deposit ratio is the ratio that shows
how much a bank lends out of the deposits it has mobilized. RBI does not stipulate a minimum
or maximum level for the ratio, but a very low ratio indicates bank are not making full use there
resource . alternatively a high ratio indicate more reliance on deposit for lending and a likely
on resources. Credit-Deposit ratio helps in assessing a banks liquidity and indicate its health-
it the ratio is too low, it means that the banks may not earnings as much as the could be. If the
ratio is too high, it means that banks might not have enough liquidity to cover any unforeseen
fund requirements, may affect capital adequacy and asset liability mis-match. A very high
Credit-Deposit ratio could have implications at the systemic level.
Credit-Deposit ratio ( CRDR ) = (
!"#$% %"$, & $35$,'-(
!"#$% 3-4"(/#
) * 100
INVESTMENT-DEPOSIT RATIO (IDR): Investment-Deposit Ratio is calculated as
Total Investments (Government securities and other approved securities)/aggregate deposits.
This helps to understand how much of the deposit is being invested in government securities.
Since, banks need extra government security to meet their day to day liquidity, this ratio
normally reflects the higher value than SLR.
Investment-Deposit ratio ( IDR ) = (
!"#$% /,5-(#6-,#
!"#$% 3-4"(/#
) * 100
The parameters selected for analysis of profitability management are:
RETURN ON ASSETS (ROA): Return on Assets (ROA) is an indicator of how much
profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst

11. 11
an idea as to how efficiently a company's management is using its assets to generate earnings.
Higher ROA indicate more asset efficiency.
Return on Assets ( ROA ) = (
7-# /,'"6-
!"#$% $((-#(
) * 100
Net income = Total income - Total expenses
RETURN ON EQUITY (ROE): Return on Equity (ROE) is a measure of the financial
performance calculated by dividing net income by shareholders' equity. Because of
shareholders' equity is equal to a company’s assets minus its debt, ROE could be thought of as
the return on net assets. ROE is considered as a measure of how effectively management is
using a company’s assets to create profits.
Return on Equity ( ROE ) = (
7-# /,'"6-
89:/#; ()$<-)"%3-< =:,3(
) * 100
Net income = Total income - Total expenses
RETURN ON INVESTMENT (ROI): The Return on investment (ROI) is an
important financial ratio which is used to calculate the benefit of an investor will receive in
relation to their cost of investment. It is most commonly measured ratio calculated by net
income divided by the original capital cost of the investment. The higher the ratio means the
greater the benefit earned. Return on Investment .
( ROI ) = (
7-# /,'"6-
!"#$% /,5-(#6-,#
) * 100
Net income = Total income - Total expenses
HYPOTHESIS TESTING: For understanding the effect of liquidity management on
profitability of select public and private sector bank in India, we will do the t-Test in this case
(Sample size less than 30).
t-TEST ANALYSIS: Based on the objectives of the studies, the following hypothesis are
framed.
H0: There is no significant relationship between the liquidity management and
profitability with public and private sector banks in India
H1: There is a significant relationship between the liquidity management and
profitability with public and private sector banks in India

12. 12
OBSERVATION : In the T-test analysis of the above hypothesis shows that the P value
is 0.000146664, which is less than the critical value of 0.05. Hence the null hypothesis ( H0 )
is rejected and the alternative ( H1) is accepted with 95% of confidence level.
INTERPRETATION : In the t-Test analysis of the above hypothesis we observe that the
alternative ( H1) is accepted with 95% of confidence level. That means there is a significant
relationship between the liquidity management and profitability with public and private sector
banks in India. So, from this t-Test analysis we can easily understand there is a relationship
between the liquidity management and profitability with public and private sector banks in
India, but this analysis can’t interpret about the type of relationship between the liquidity
management and profitability with public and private sector banks in India. For understanding
the type of relationship between liquidity management and profitability with public and private
sector banks in India Correlation analysis of the above hypothesis is performed.
CORRELATION ANALYSIS:
CDR ROA
CDR 1
ROA -0.5825732 1
t-Test: Paired Two Sample for
Means
CDR ROA
Mean 5.78679176 0.712666667
Variance 0.306641876 0.118436944
Observations 5 5
Pearson Correlation -
0.582573222
Hypothesized Mean Difference 0
df 4
t Stat 14.10433703
P(T<=t) one-tail 7.33322E-05
t Critical one-tail 2.131846786
P(T<=t) two-tail 0.000146664
t Critical two-tail 2.776445105

13. 13
OBSERVATION: In the Correlation analysis of the above hypothesis ,it shows that the
coefficient of correlation is -0.5825732 which means that there is a negative relationship between the
liquidity management and profitability with public and private sector banks in India.
INTERPRETATION: In the Correlation analysis of the above hypothesis we observe that there
is a negative relationship between the liquidity management and profitability with public and private
sector banks in India . So, we can say they if the liquidity of the bank increase then the profit earning
capacity of the bank will decrease, because of the inverse relationship between the liquidity
management and profitability with public and private sector banks in India.
FINDINGS: Findings of the study are given bellow.
CASH-DEPOSIT RATIO ( CDR ):
Ø CDR of SBI has been decreased from 2015-16, but in the year of 2018-19 CDR of
SBI has been increased from the previous year.
Ø CDR of BOB is in increasing trend. Highest CDR of BOB was shown in the year of
2018-19 & lowest was in the year of 2014-15.
Ø CDR of Canara Bank has been decreased from 2014-15, but in the year of 2017-18
and 2018-19 CDR of Canara Bank has been increased.
Ø CDR of HDFC Bank has been decreased after the year of 2017-18. Highest CDR of
HDFC Bank was shown in the year of 2017-18 & lowest was in the year of 2018-19.
Ø CDR of ICICI Bank is in decreasing trend after the year of 2016-17. Highest CDR of
ICICI Bank was shown in the year of 2016-17 & lowest was in the year of 2014-15.
Ø CDR of Axis Bank has been decreased after the year of 2017-18. Highest CDR of
Axis Bank was shown in the year of 2017-18 & lowest was in the year of 2014-15.
CREDIT-DEPOSIT RATIO ( CRDR ):
Ø CRDR of SBI has been decreased from 2015-16, but in the year of 2018-19 CRDR
of SBI has been increased from the previous year.
Ø CRDR of BOB is in increasing trend after the year of 2016-17. Highest CRDR of
BOB was shown in the year of 2018-19 & lowest was in the year of 2016-17.
Ø CRDR of Canara Bank was in increasing trend, but in the year of 2018-19 it has been
decreased from the previous year.
Ø CRDR of HDFC Bank has been decreased after the year of 2019-17, but in the year
of 2018-19 it has been increased from previous year.
Ø CRDR of ICICI Bank is in decreasing trend after the year of 2015-16. Highest CRDR
of ICICI Bank was shown in the year of 2015-16 & lowest was in the year of 2014-
15.
Ø CRDR of Axis Bank has been decreased from the previous year in the year of 2018-
19.

14. 14
INVESTMENT-DEPOSIT RATIO ( IDR ):
Ø IDR of SBI was in increasing trend, but in the year of 2018-19 it has been decreased
from previous year.
Ø IDR of BOB is in increasing trend. Highest IDR of BOB was shown in the year of
2014-15 and lowest IDR of BOB was in the year of 2018-19.
Ø IDR of Canara bank has been decreased after 2016-17. The highest IDR of Canara
Bank was shown in the year of 2016-17 and lowest was in the year of 2018-19.
Ø IDR of HDFC Bank has been decreased after 2015-16, but in the year of 2018-19 it
has been increased from the previous year.
Ø IDR of ICICI Bank has been decreased after the year of 2017-18. The highest IDR
of ICICI Bank was shown in the year of 2017-18 and lowest is in the year of 2018-
19.
Ø IDR of Axis Bank has been decreased after 2015-16. Then in the year of 2017-18
IDR of Axis Bank has been increased from the previous year, but again in the year
of 2018-19 it has been decreased from the previous year.
RETURN ON ASSETS ( ROA ):
Ø ROA of SBI is in decreasing trend. The highest ROA of SBI was shown in the year
of 2014-15 and the lowest is in the year of 2018-19.
Ø ROA of BOB was highest in the year of 2014-15. After that ROA of BOB has been
decreased and it’s become negative in the year of 2015-16 and 2017-18. But in the
year of 2018-19 ROA of BOB has been increased from the previous year.
Ø ROA of Canara Bank was highest in the year of 2014-15. After that ROA of Canara
Bank has been decreased and it’s become negative in the year of 2015-16 and 2017-
18. But in the year of 2018-19 ROA of Canara Bank has been increased from the
previous year.
Ø ROA of HDFC Bank has been decreased from 2014-15, then in the year of 2017-18
it has been increased from the previous year. But again in the year of 2018-19 it has
been decreased.
Ø ROA of ICICI Bank is in decreasing trend. The highest ROA of ICICI Bank was
shown in the year of 2014-15 and lowest was in the year of 2018-19.
Ø ROA of Axis Bank was in decreasing trend. But in the year of 2018-19 ROA of Axis
Bank has been increased from the previous year. The highest ROA of Axis Bank
was shown in the year of 2014-15 and lowest was in the year of 2017-18.
RETURN ON EQUITY ( ROE ):
Ø ROE of SBI was in decreasing trend, but in the year of 2018-19 in increased from the
previous year.
Ø ROE of BOB was highest in the year of 2014-15, after that ROE of BOB has been
decreased and become negative in the year of 2015-16 and 2017-18. But in the year
of 2018-19 ROE of BOB has been increased from the previous year.
Ø ROE of Canara Bank was highest in the year of 2014-15, after that ROE of Canara
Bank has been decreased and become zero in the year of 2015-16 and 2017-18. But
in the year of 2018-19 ROE of Canara Bank has been increased from the previous
year.

15. 15
Ø ROE of HDFC Bank is in decreasing trend. The highest ROE of HDFC bank was
shown in the year of 2014-15 and the lowest was in the year of 2018-19.
Ø ROE of ICICI Bank is in decreasing trend. The highest ROE of ICICI bank was
shown in the year of 2014-15 and the lowest was in the year of 2018-19.
Ø ROE of AXIS Bank was in decreasing trend, but in the year of 2018-19 ROE of Axis
Bank has been increased from the previous year. The highest ROE of HDFC bank
was shown in the year of 2014-15 and the lowest was in the year of 2017-18.
RETURN ON INVESTMENT ( ROI ):
Ø ROI of SBI was highest in the year of 2014-15, then it has been decreased from the
previous year and it’s become negative in the year of 2018-19.
Ø ROI of BOB was highest in the year of 2014-15, then it has been decreased from the
previous year and it’s become negative in the year of 2016-17 and 2018-19.
Ø ROI of Canara Bank was highest in the year of 2014-15, then it has been decreased
from the previous year and it’s become negative in the year of 2016-17 and 2018-19.
Ø ROI of HDFC Bank has been increased after 2016-17. The highest ROI of HDFC
Bank was shown in the year of 2018-19 and the lowest was in the year of 2016-17.
Ø ROI of ICICI Bank has been decreased from 2015-16. The highest ROI of ICICI
Bank was shown in the year of 2015-16 and the lowest was in the year of 2018-19.
Ø ROI of Axis bank was highest in the year of 2015-16 and then it has been decreased
from the previous year. In the year of 2017-18 ROI of Axis bank was increased from
the previous year, but again in the year of 2018-19 ROI of Axis bank was decreased
from the previous year.
HYPOTHESIS:
Ø In t-Test analysis it shows that there is a significant relationship between the liquidity
management and profitability in select public and private sector banks in India.
Ø In Correlation analysis it shows there is a inverse relationship between the liquidity
management and profitability in select public and private sector banks in India.
CONCLUSION: This study is performed to examines the relation between liquidity
Management and profitability, as measured by financial ratio on a sample of select private and
public sector banks in India. In public sector - State Bank of India, Bank of Baroda, Canara
Bank & in private sector - HDFC Bank, ICICI Bank, Axis Bank are considered. For examine
this study 5 years data has been taken from the year 2014-15 to 2018-19. To measure the
liquidity and profitability between select public sector and private sector banks six key
financial ratio has been taken. For liquidity: Cash-Deposit Ratio (CDR), Credit-Deposit Ratio
(CRDR), Investment-Deposit Ratio (IDR) and for profitability Return on Assets (ROA),
Return on Equity (ROE), Return on Investment (ROI) are considered. This study helps us to
understand the relationship between the liquidity management and profitability with select
public and private sector banks in India.
From the data analysis and hypothesis the hypothesis testing we can conclude that:-

16. 16
¨ There is an inverse relationship between liquidity management and profitability in
select public and private sector banks in India. Which means if the liquidity of the bank
increase then then the profit earning capacity of the bank will decrease because of the
inverse relationship between the liquidity management and profitability with select
public and private sector banks in India.
¨ The overall liquidity position of the public sector banks is better than the private sector
banks. Public sector banks has better liquidity as compare to the private sector banks.
¨ The overall profitability position of the private sector banks is better than the public
sector banks. Private sector banks has better profit earning capacity as compare to the
public sector banks.
¨ Public sector banks are more focused on the liquidity of the bank for that reason profit
earning capacity of public sector banks are low as compared to the private sector banks.
On the other hand private sector banks are more focused on profitability of the bank
for that reason liquidity of the private sector banks are low as compared to public sector
banks.
SUGGESTION:
• We have understand the inverse relationship between the liquidity management and
profitability with select public sector banks in India. So, for sustaining in the market
every bank have to trade-off between the liquidity and profitability. As profitability
is an important factor for banks sustainability and growth, liquidity of the bank also
important factor for meeting net demand and time liability of the bank.
• Public sector banks can invest their excess liquidity in different loans and advances
for earning better profit.
• Private sector banks can improve their liquidity position for meeting the net demand
time liability of the bank.
• For both the bank public sector and private sector need to balance between the two
important factor, liquidity management and profitability to continue the day to day
banking operation effectively.

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• www.sbi.co.in
• www.bankofbaroda.com
• www.canarabank.com
• www.hdfc.com
• www.icici.com
• www.axisbank.com
• www.economictimes.com
• www.rbi.com