Impact of RBI's Liquidity Policies on the Profitability of Commercial Banks

Abstract

RBI, the Central bank of India, plays a critical role in managing liquidity in the economy. CRR helps RBI to control the flow of money in the market whereas SLR helps the banks to handle a sudden increase in demand for deposits. CRR, SLR has a critical impact on the liquidity as well as the lending ability of the banks. The control on liquidity results in the availability of quantum of money for lending, which in tum affects the earnings of the banks. This paper examines the relationship between SLR and CRR and their impact on the profitability of Scheduled Commercial Banks. The paper analyses the conformity to the central bank's liquidity policy along with the impact on their profitability. The study highlighted the distinction between Public Sector Banks and Private Sector Banks with reference to resea rch parameters.