Banks and Liquidity Management

The banks' liquidity crisis arises out of increased level of NPAs affecting the recycling of funds, poor mobilisation of deposits due to low interest rates, high level of persisting inflation, deteriorating customer service and reluctance of banks to accept Financial Inclusion as a business opportunity.The mismatch in ALM is bank's own making and despite this RBI has come to their rescue in several ways which include cut in CRR and interest rate. Banks' approach to business has undergone a sea change and their dependence on borrowed funds rather than deposits can be identified as the major cause for their liquidity problems. If the banks do not realise their mistakes and introduce corrective measures, many will face a severe crisis of confidence and may have to face the consequences. Dr.T.V.Gopalakrishnan (This comment apperaed in ET in response to a write up Are Indian Banks caught in a liquidity squeeze)