Determinants of liquidity in nationalised banks of India
The purpose of this paper is to identify the determinants of liquidity among government owned nationalised banks in India. Nationalised banks in India are the biggest group of banks and any issue with nationalised banks can have the potential of affecting liquidity of entire banking system in India. The data covers a period from 1996 to 2012. Results of OLS regression show that the most significant factors influencing liquidity in nationalised banks of India are: call rate, cash reserve ratio and statutory liquidity ratio, gross domestic products, among the macroeconomic factors and capital to total assets and log of total assets for bank specific factors. Others factors have very little influence on liquidity of banks in India. Cash reserve ratio has a positive and expected relationship with liquidity ratios. As such statutory liquidity ratio are not very effective instruments of managing liquidity in nationalised banks of India. Supervision of each bank may become necessary for proper implementation of regulatory measures in India.
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