A STUDY ON LIQUIDITY AND LOAN PORTFOLIO IN INDIAN BANKING

SECTORS

By

PRAVEENA T

19MBA127

Under the Guidance of

Dr. V. R. NEDUCHEZHIAN

PROFESSOR – FINANCE,

KCTBS.

A PROJECT REPORT

Submitted

In partial fulfilment of the requirements for the award of the

Degree of

MASTER OF BUSINESS ADMINISTRATION

KUMARAGURU COLLEGE OF TECHNOLOGY – BUSINESS SCHOOL

(An Autonomous Institution affiliated to Anna University, Chennai)

Coimbatore – 641 049

AUGUST 2020

1
 BONAFIDE CERTIFICATE

This is to certify that this project report titled “A STUDY ON LIQUIDITY AND
LOAN PORTFOLIO PERFORMANCE IN INDIAN BANKING SECTOR” is for the
course completion of Major Project is the Bonafide work of PRAVEENA T (19MBA127)
who carried out the project under my supervision. Certified, further, that to the best of my
knowledge the work reported herein does not form part of any other project report or
dissertation on the basis of which a degree or award was conferred on earlier occasion n this or
any other candidate.

FACULTY GUIDE HEAD OF THE DEPARTMENT

Dr. V. R. NEDUCHEZHIAN, Dr. MARY CHERIAN,

KCTBS. KCTBS

Hard and Soft Copy Submitted for the Project Viva – Voce Examination held on 15/09/2020.

INTERNAL EXAMINER EXTERNAL EXAMINER

(Signature) (Signature)

2
 DECLARATION

I hereby declare that this Research Project Report entitled as, “A STUDY ON
LIQUDITIY AND LOAN PORTFOLIO PERFORMANCE IN INDIAN BANKING
SECTOR “has been undertaken for academic purpose for the course submitted to Anna
University in partial fulfilment of requirement for the award of degree of Master of Business
Administration. The project report is the record of the original work done by me under the
guidance of Dr. V. R. Nedunchezhian, Head of the Department & Professor – Finance,
KCTBS during the academic year 2020.

I, also declare hereby, that the information given in this report is correct to the best of
my knowledge and behalf.

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 ACKNOWLEGMENT

We express our sincere and heart – felt gratitude to the Management of KCT Business
School, for their prime gratitude.

We express our thanks to Dr. Mary Cherian, Head of the Department, KCTBS for
implementing this project and providing under supervision in its execution. We are indebted to
our institution and our faculty members with whom this project would have been a distant
reality.

We also would like to give our sincere thanks to our project Guide Dr. V. R.
Nedunchezhian, Head of the Department & Professor - Finance, KCTBS for giving us
support and guidance for the project from inception to closure.

TABLE OF CONTENTS

4
CHAPTER CONTENTS PAGE
NUMBER
ABSTRACT 7
1 1.1 INTRODUCTION 8

1.2 NEED OF THE STUDY 8

1.3 OBJECTIVE OF THE STUDY 8
1.4 STATEMENT OF THE PROBLEM 9
2 REVIEW OF LITERATURE 10
2.1 HOW DOES ILLIQUIDITY AFFECT DELEGATED PORTFOLIO 10
CHOICE?
2.2 LIQUIDITY, MONETARY POLICY, AND UNEMPLOYMENT: A 10
NEW MONETARIST APPROACH
2.3 LIQUIDTY AND FIRM VALUE IN AN EMERGING MARKET 10
2.4 LIQUIDITY PROVISION ON DEMAND IN THE ARGENTINE 11
BANKING SYSTEM
2.5 INEFFICIENT LIQUIDITY PROVISION 11
2.6 THE EFFECT OF LOAN PORTFOLIO QUALITY ON THE 11
PERFORMANCE OF BANKS IN GHANA
2.7 THE IMPACT OF THE RECENT FINANCIAL CRISIS ON BANK 12
LOAN INTEREST RATES AND GUARANTEES
2.8 AN EMPIRICAL STUDY ON LIQUIDITY AND BANK LENDING 12
2.9 CREDIT RISK MANAGEMENT OF LOAN PORTFOLIOS BY 13
INDIAN BANKS: SOME EMPIRICAL EVIDENCE
2.10 EFFECTS OF LOAN PORTFOLIO MANAGEMENT ON THE 13
PROFITABILITY OF DEPOSIT TAKING MICROFINANCE
INSTITUTIONS I NAIROBI, KENYA
2.11 INFLUENCE OF LIQUIDITY ON LOAN PORTFOLIO 13
PERFORMANCE AMONGST LISTED COMMERCIAL BANKS IN
KENYA
2.12 THE IMPACT OF LIQUIDITY MANAGEMENT ON THE 14
PROFITABILITY OF BANKS IN NIGERIA

5
 2.13 EFFECT OF LOAN PORTFOLIO MANAGEMENT ON 15
COMMERCIAL BANKS LIQUIDITY
2.14 LOAN PORTFOLIO MANAGEMENT AND PERFORMANCE OF 15
MICRO FINANCE INSTITUTIONS IN UGANDA
2.15 LIQUIDITY RISK PREMIUM ANDD LOAN PERFORMANCE OF 15
NON – LISTED COMMERCIAL BANKS IN KENYA
3 RESEARCH METHODLOGY 17
3.1 LIQUIDITY RATIO 17
3.2 CURREMT RATIO 17
3.3 QUICK RATIO 17
3.4 LOAN TO DEPOSIT RATIO 17
3.5 CASH RATIO 17
3.6 LOAN PORFOLIO PERFORMANCE 18
3.7 CONCEPTUAL FRAMEWORK 18
4 ANALYSIS AND INTERPRETATION 19
4.1 COMPARISION OF LIQUIDITY BETWEEN 2019 AND 2020 19
4.1.1 LIQUIDITY RATIO OF 2019 19
4.1.2 LIQUIDITY RATIO OF 2020 19
4.2 COMPARISON OF LOAN PORTFOLIO PERFORMANCE 20
4.3 BANK LIQUIDITY ANOVA 20
4.4 BANK LIQUIDITY CORRELATION RESULT 21
4.5 AUTO CORRELATION 21
4.6 REGRESSION 21
5 FINDINGS AND SUGGESSIONS 23
5.1 FINDINGS 23
5.2 SUGGESSIONS 23

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 ABSTRACT

The Covid’19 has impacted many businesses and one among them is banking sector.
This study is used to determine the impact of Covid’ 19 in bank liquidity and loan portfolio.
The liquidity is defined as measure of the cash and other assets banks have to quickly pay bills
to meet short terms debts. Loan Portfolio Performance (lending)is the major business of the
bank .in this study to know the performance of liquidity over loan portfolio performance .and
to know the impact of Covid’19 on loan portfolio and liquidity.

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 CHAPTER 1

1.1 INTRODUCTION:

Loan portfolio is the major business activity of the commercial bank. Liquidity
decides how the bank able to manage the financial obligation if the liquidity ratio is low its
known as liquidity risk. Both loan portfolio and liquidity play vital in performance of the bank.
Liquidity position of the bank is normally monitored by liquidity ratio. The banks with higher
liquidity will face lower liquidity risk. liquidity ratio generally compares current assets to
current liabilities. In recent ages the impact of Covid -19 is high on bank liquidity and loan
portfolio. The bank liquidity is measured with current ratio, quick ratio, cash to deposit ratio,
cash ratio and working capital ratio. These ratios will help to determine the bank liquidity .the
liquidity ratio is a computation that is used to measure the company’s ability to pay its short
term debts .Loan portfolio performance is one of the major activity of banks in India they are
computed based on return on assets, loan turnovers and net interest income. As Covid -19
impacted many countries economy it also impacted many commercial banks in and around
India. In order to know the performance of the bank in India this research has been initiated so
that the performance of the banks can be improved in order to maintain banks stability. It will
further help the bank to improve their performance. The profitability of the banks can be
improved with the help of this research. If the profitability of the bank is good. The bank faces
lower liquidity risk and it can be concluded that bank has good loan portfolio performance.

1.2 NEED OF THE STUDY:

Maintaining liquidity and credit creation is the major activity of the bank to maintain
its performance. when the liquidity is lost due to improper loan portfolio performance the banks
cannot maintain the stability .so it’s necessary to study the liquidity and loan portfolio of banks
in India.

1.3 OBJECTIVE OF THE STUDY:

 To know the impact of covid’19 on liquidity and loan portfolio in Indian banking sector
 To determine the influence of liquidity on loan portfolio performance in Indian
commercial banks.

8
1.4 STATEMENT OF THE PROBLEM:

The India’s banking sector went back to basics during nationwide lock down, focusing
on lending to essential sectors and it’s not performing other activities. Because of the basic
activities the liquidity and loan portfolio of banks will be affected .as banks are not performing
in normal way its required to maintain the liquidity of banks and loan portfolio performance of
Indian commercial banks

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 CHAPTER 2

REVIEW OF LITERATURE

2.1 HOW DOES ILLIQUIDITY AFFECR DELEGATED PORTFOLIO CHOICE?

In response to how they are compensated, mutual fund managers who are
underperforming by mid-year are likely to increase the risk of their portfolios toward the year-
end. We argue that an increase in the liquidity of the stocks that managers use to shift risk can
lead to an increase in the size of their risky bets. This in turn hurts fund investors by increasing
the costs of misaligned incentives associated with delegated portfolio management. We provide
both theoretical and empirical results that are consistent with this argument. We use
decimalization as an exogenous shock to liquidity to identify causal effects.

2.2 LIQUIDITY, MONETARY POLICY, AND UNEMPLOYMENT: A NEW

MONETARIST APPROACH:

To discover a consumption channel of monetary policy in a model with money and

government bonds. When the central bank withdraws government bonds (short-term or long-
term) through open market operations, it lowers returns on bonds. The lower return has a direct
negative impact on consumption by households that hold bonds and an indirect negative impact
on consumption by households that hold money. As a result, firms earn less profits from
production, which leads to higher unemployment. The existence of such a consumption channel
can help us understand the effects of unconventional monetary policy.

2.3LIQUIDITY AND FIRM VALUE IN AN EMERGING MARKET:

This paper investigates the link between stock market liquidity and firm value in an
important emerging market, Vietnam. Specially, we examine this relationship using a sample
of firms listed on the Ho Chi Minh City stock exchange for the period 2006–2014. We show
that there is a negative relation between liquidity and firm value. This outcome is contrary to
previous results for many developed countries. Further, we demonstrate that this result may be
explained by differences in leverage effects and pricing-based theories, where stock liquidity
influences firm performance via an illiquidity premium or mispricing

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2.4 LIQUIDITY PROVISION ON DEMAND IN THE ARGENTINE BANKING
SYSTEM:

In recent decades, liquidity provision on demand has experienced more growth than
almost any other banking function. Banks have comparative advantages over other
intermediaries for providing liquidity on demand because of their ability to raise funds through
deposits. An overdraft facility is a product that provides liquidity on demand to firms and can
affect investment levels. Using panel data for 70 Argentine banks between 1995 and 2015, we
built an econometric model to analyse some determinants of the volume of bank-supplied
overdrafts, focusing on the role of deposits. This article is focused on understanding how banks
have financed their credit lines to firms and its evolution in the Argentinian banking system in
the examined period. We found evidence of a strong relation between demand deposits and
overdrafts supply. However, the features of this relationship are heterogeneous between
different types of banks and were affected by the 2001 Crisis. This heterogeneity among banks
could represent an inefficient liquidity provision.

2.5 INEFFICIENT LIQUIDITY PROVISION:

Inefficient liquidity provision: To prove that in competitive market economies with no

insurance for idiosyncratic risks, agents will always overinvest in illiquid long-term assets and
underinvest in short-term liquid assets. We take as our setting the seminal model of Diamond
and Dybvig (J Polit Econ 91(3):401–419, 1983), who first posed the question in a tractable
model. We reach such a simple conclusion under mild conditions because we stick to the basic
competitive market framework, avoiding the banks and intermediaries that Diamond and
Dybvig (1983) and others introduced.

2.6 THE EFFECT OF LOAN PORTFOLIO QUALITY ON THE PERFORMANCE OF

BANKS IN GHANA:

The purpose of the study was to examine the effect of loan portfolio quality on the
financial performance of selected universal banks in Ghana. Using dataset from the annual
reports for 10 Ghanaian universal banks from 2007 to 2013, the study employed panel
regression technique with the aid of STATA Statistical Software. Among the various panel
data techniques, fixed effect model was identified as the best technique based on the Hausman
test between fixed and random effect. Return on Equity (ROE) and Net Interest Margin (NIM)
were used to proxy financial performance whiles Loan Portfolio Profitability (LPP) and Loan
Loss Provision to Gross Loan Advances (LLP/GLA) were used as proxies for loan portfolio

11
quality. Cost Income Ratio (CIR), Liquid Funds to Total Assets and Total Assets were used as
control variables. The result from the analysis indicates that LLP/GLA has a negative effect on
the financial performance of banks in Ghana. In addition, the findings of the study indicate that
net interest margin has a positive effect on the financial performance of the selected banks. The
result further established that firm size has positive effect on financial performance of banks.
Thus, the larger the size of the bank, the more profitable it becomes due to economies of scale.
Finally, the research findings revealed that cost-to-income ratio has a negative significant effect
on the performance of universal banks in Ghana. The findings of the study therefore established
that loan portfolio quality has significant effect on the financial performance of the selected
Ghanaian universal banks. The study recommends that universal banks in Ghana should
develop effective and efficient strategies and policies to improve the quality of their loans in
order to improve their profitability. It further recommends that; efficient cost management must
be adopted by Ghanaian universal banks to improve performance.

2.7 THE IMPACT OF THE RECENT FINANCIAL CRISIS ON INTEREST RATES

AND GUARANTEES:

The paper analyses the role of guarantees on loan interest rates before and during the
recent financial crisis in Italian firm financing. The paper improves on existing literature by
distinguishing between real and personal guarantees. Further, the paper investigates the
potential different role of guarantees in the bank-borrower relationship during the recent
financial crisis. This paper draws from individual Italian bank and firm data taken from the
Banks’ Supervisory Reports to the Bank of Italy and the Central Credit Register over the period
2006-2009

2.8 AN EMPERIRICAL STUDY ON LIQUIDITY AND BANK LENDING:

In this study, by using a panel data of Turkish banks, we empirically analyse whether
monetary policies that are able to manipulate liquidity positions of banks can affect bank
lending. Our results suggest that bank specific liquidity is important in credit supply. Moreover,
in determining their lending, banks consider not only their individual liquidity position but also
the systemic liquidity. Hence, any monetary policy which can alter liquidity is potentially
effective on credit supply.

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2.9 CREDIT RISK MANAGEMENT OF LOAN PORTFOLIOS BY INDIAN BANKS:
SOME EMPIRICAL EVIDENCE:

The basic functions of most of the banks are the acceptance of deposits from public
and lending funds to public, corporate, etc. This business of lending has brought trouble to
individual banks as well as to the entire banking system, thus giving rise to credit risk, which
is the risk of default. The present paper is designed to develop an internal credit rating model
for banks which improves their current predictive power of financial risk factors. It also studies
how banks assess the creditworthiness of their borrowers and how can they identify the
potential defaulters so as to improve their credit evaluation. To achieve the above-mentioned
objective, a research has been conducted considering the data for the last six years. Altman Z-
Score model is used to arrive at an equation of the Z-Score, which helps the banks to predict
future defaulters and take necessary action accordingly. The model, which has been developed,
is an application of multivariate discriminant analysis in credit risk modelling.

2.10 EFFECT OF LOAN PORTFOLIO MANAGEMENT ON THE PROFITABILITY

OF DEPOSIT TAKING MICROFINANCE INSTITUTIONS IN NAIROBI, KENYA:

Loan portfolios are the major assets of the lending institutions; therefore, they should
be managed well to yield the desired profitability. Sound loan portfolio management is a
prerequisite for microfinance institutions’ stability and continuing profitability. The study
sought to assess the effect of loan portfolio management on the profitability of deposit taking
microfinance institutions in Nairobi, Kenya. In the study, correlation and regression analysis
were used to determine the relationship between the independent and the dependent variables.
The study found that loan portfolio management has a significant relationship with the
profitability of Deposit Taking Microfinance Institutions; with portfolio planning, client
screening and portfolio control predicting up to 68.2%, 3.8% (decrease) and 2.5% respectively.

2.11 INFLUENCE OF LIQUIDITY ON LOAN PORTFOLIO PERFORMANCE

AMONGST LISTED COMMERICAL BANKS IN KENYA:

The main objective of the study was to establish the influence of liquidity on loan
portfolio performance amongst listed commercial banks in Kenya. The major components of
Liquidity examined in this study were; current ratio, quick ratio and cash ratio. The dependent
variable was loan portfolio performance. The theories examined were; the liquidity premium
theory and portfolio management theory. This study used descriptive research design. The
target population of this study was top level managers; middle level managers and operational

13
managers of the 11 listed commercial banks licensed by the Central Bank of Kenya and were
in operation as on 31st December 2015. The total population was 176 respondents selected
purposely from the list of 11 commercial banks grouped according to management level.
Questionnaires were used to collect primary data while secondary and quantitative data was
collected from the statistical abstracts and bulletins of both the Central Bank of Kenya and the
Kenya National Bureau of statistics. Cronbach’s Alpha reliability test and factor analysis were
carried out in order to test the goodness of the research instrument. Multiple linear regressions
were used to analyze data and test the hypotheses using statistical package for the social
sciences (SPSS) version 24. All the hypotheses were tested at 95 percent confidence level
(α=0.05). The study results concluded that there is a negative relationship between liquidity
and loan portfolio performance amongst listed commercial banks in Kenya. As a result, the
study recommends that all the listed commercial banks put strategies in place for monitoring,
reporting and reviewing liquidity levels to ensure the long- and short-term stability of the entire
systems. Since the survival of commercial banks depend on liquidity management it should
also adopt measures that will ensure proper liquidity management. The measures will help to
minimize or avoid cases of excessive and deficient liquidity

2.12 THE IMPACT OF LIQUIDITY MANAGEMENT ON THE PROFITABILITY OF

BANKS IN NIGERIA:

The Impact of Liquidity Management on the Profitability of Banks in Nigeria: This

work investigated the impact of liquidity management on the profitability of banks in Nigeria.
The work is necessitated by the need to find solution to liquidity management problem in
Nigerian banking industry. Three banks were randomly selected to represent the entire banking
industry in Nigeria. The proxies for liquidity management include cash and short-term fund,
bank balances and treasury bills and certificates, while profit after tax was the proxy for
profitability. Elliot Rothenberg Stock (ERS) stationary test model was used to test the run
association of the variables under study while regression analysis was used to test the
hypothesis. The result of this study has shown that liquidity management is indeed a crucial
problem in the Nigerian banking industry. The study therefore recommends that banks should
engage competent and qualified personnel in order to ensure that right decisions are adopted
especially with the optimal level of liquidity and still maximize profit.

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2.13 EFFECT OF LOAN PORTFOLIO MANAGEMENT ON COMMERCIAL BANKS
LIQUIDITY:

The study examined the effect of loan portfolio management on the liquidity position
of commercial banks by specifically highlighting 2005 – 2014 financial year. This was targeted
to identify the effect of asset quality ratio (AQR) on current asset of the commercial banks as
well as to analyse the relationship between the loan to deposit ratio and the liquidity ratio of
the banks. Secondary data was employed and a panel data was generated for a period specified
for three 3 banks. Various theories such as the portfolio theory and credit risk theory suggested
that banks should balance their loans which forms their major source of revenue with their
liquidity. Banks by nature are inclined to lend as this activity ensures profitability. However, it
is imperative to give cognizance to liquidity which ensures solvency of the banks because if
the liquidity of banks is not sturdy it may create panic withdrawal.

2.14 LOAN PORTFOLIO MANAGEMENT AND PERFORMANCE OF MICRO

FINANCE INSTITUTIONS IN UGANDA: THE CASE OF WAKISO DISTRICT:

The purpose of the study was to establish the relationship between loan portfolio
management and performance of Microfinance Institutions (MFIs) in Wakiso district. This was
prompted by the fact that most of the MFIs in Uganda were failing to achieve their portfolio
performance; yet it was not clear whether this was due to how their loan portfolios were
managed. The study was conducted as a cross sectional survey involving an analytical design.
Its objectives were to establish and examine the relationship between: Loan portfolio planning,
Client screening, Portfolio control and the performance of MFIs. Data was collected from 10
MFIs represented by their purposively selected managers, loan officers and clients. The data
were collected using questionnaires and analysed using quantitative techniques with the aid of
the SPSS computer programme.

2.15 LIQUIDITY RISK PREMIUM AND LOAN PERFORMANCE OF NON –

COMMERCIAL BANKS IN KENYA:

Loans performances are widely associated with the liquidity risk premium which is
usually charged by the banks. Liquidity risk premium which is charged on loans can lead to
success or financial crises of non-listed commercial banks in Kenya. Due to the nature of their
business, non-listed commercial banks usually expose themselves to liquidity risks. Loans
performance usually determines the conditions to which it improves the economic status and
stability in the banking sector. When Non-Performing loans exist, resources are being locked

15
up in unprofitable sector; hence hindering the economic growth, impairing the economic
efficiency and hence causing collapsing of banks. In this study researcher carried out the
investigation on the effect of liquidity risk premium towards the loan performance of non-listed
commercial banks in Kenya. The guiding objectives includes: to establish the influence of
liquidity risk premium on loan performance. Literature review was undertaken to strengthen
the knowledge on liquidity risk premium variable and the eliciting gaps which are to be filled.
The study adopted descriptive research design of All 31 non-listed commercial bank in Kenya
were targeted and sampled through census sampling method. Data was derived from secondary
data from banks supervisory reports and audited financial reports of all 31 non-listed
commercial banks in Kenya. Data analysis was analyzed using the Statistical Package for
Social Science programme. Both descriptive and inferential statistics were used. Results from
data collected showed that there was a significant relationship between the loan interest factors
of liquidity risk premiums on loan performance in non-listed commercial banks in Kenya.
Adjustments on cash and cash balance with CBK and amount of loan issued were strong
predictors of liquidity risk premium affecting the loan performance. However, regulatory
requirements such as statutory reserve requirements or regulated minimum deposit rates lowly
contributed to loan performance. The study thus concluded that liquidity risk premium
significantly affected loan performance in non-listed commercial banks in Kenya. The study
recommends that the non-listed commercial banks should strengthen cash management
systems that reduce liquidity imbalance and ensure sufficient reserves in the institution and
with central bank of Kenya. They should also apply rigorous policies on loan advances so as
loans are awarded to those with ability to repay and mitigate moral hazards such as insider
lending and information asymmetry. Arising from this study recommendations were made for
further research. A study which will focus on challenges of interest rate capping by the CBK
in both listed and non-listed commercial banks in Kenya. Further, a comparative study should
be undertaken to establish the effect of the difference between liquidity risk premiums of
microfinance institutions on loan performance of commercial bank in Kenya.

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 CHAPTER 3

RESEARCH METHODOLOGY

The need for the study is to know the impact of Covid 19 on liquidity
and loan portfolio of Indian banking sector. It’s important to know to maintain liquidity for
stable performance of the bank. the study adopted descriptive statistics method. the data was
extracted from top 10 commercial banks in India and the data is secondary from the year
2019and 2020.SPSS and tableau is used for analysing data

3.1 LIQUIDITY RATIO:

There are many liquidity ratio for our study quick ratio, current ratio, cash ratio and
Loan to deposit ratio are taken for analysis

3.2 CURRENT RATIO:

The current ratio is a liquidity and efficiency ratio that measures a firm’s ability to pay
off its short-term liabilities with its current assets. The current ratio is an important measure of
liquidity because short-term liabilities are due within the next year.

Current ratio=current assets /current liabilities

3.3 QUICK RATIO:

The Quick Ratio is used for determining a company's ability to cover its short-term debt
with assets that can readily be transferred into cash, or quick assets. The Current Liabilities
portion references liabilities that are payable within one year.

Quick ratio=current assets-inventory/current liabilities

3.4 LOAN TO DEPOSIT RATIO:

Loan to deposit ratio is defined as amount of loan taken and amount of deposits made
by the customer, the loan to deposit ratio is the major liquidity ratio when deposits are low and
loan taken is high there occurs liquidity risk

Loan to deposit ratio=loan /deposits

3.5 CASH RATIO:

A cash ratio is a measure of company's liquidity and how easily it can service debt and
cover short-term liabilities if the need arises. As a result, potential creditors use this ratio in

17
determining whether or not to make short-term loans. It is also called the liquidity ratio and the
cash asset ratio

Cash ratio=cash and cash equivalents/current liabilities

3.6 LOAN PORTFOLIO PERFROMANCE:

Major activity of the banking is lending and the performance of loan portfolio is
measured by three parameters they are loan turnovers, net interest income and return on assets.

3.7 CONCUPTUAL FRAMEWORK:

CURRENT RATIO

QUICK RATIO LOAN PORTFOLIO PERFORMANCE

1. LOAN TURNOVER
2. RETURN ON ASSETS
3. NET INTEREST INCOME
CASH RATIO

LOAN TO
DEPOSIT RATIO

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 CHAPTER 4

ANALYSIS AND INTERPRETATION

4.1 COMPARISION OF LIQUIDITY BETWEEN 2019 AND 2020

4.1.1 LIQUIDITY RATIO IN 2019

4.1.2 LIQUIDITY RATIO OF 2020

INTERPRETATION:

From the above charts it’s clear that liquidity ratio in 2020 is less compared to 2019.
the loan to deposit ratio is low when compared to 2019.

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4.2 COMPARISON OF LOAN PORTFOLIO PERFORMANCE:

INTERPRETATION:

From the above chart loan portfolio performance in2019 and 2020 is analysed from the
above chart it’s clear that net interest income is low when compared to 2019 .in 2019 it is 28.04
whereas in 2020 it is 27.62.the return on assets is also decreased when compared to 2019 .in
2019 the return on assets is 1.58 where as in 2020 it is 0.77 .so in 2020 the impact of covid’19
is seen in loan portfolio performance as there occurred nation-wide lockdown.

4.3 BANK LIQUIDITY ANOVA:

ANOVA
Significance
df SS MS F F
Regression 1 0.000229365 0.000229365 0.297718911 0.602262
Residual 7 0.005392857 0.000770408
Total 8 0.005622222

INTERPRETATION:

The F statistics tends to be greater when the null hypothesis of independence is not true.
P values of less than 0.05 indicates that the F statistics is high and that the null hypothesis of

20
independence needs to be rejected since it is not true. In this case the F ratio was found to be
statistically significant hence the model used for analysis was fit.

4.4 BANK LIQUIDITY CORRELATION RESULT:

INTERPRETATION:

In order to establish the relationship between bank liquidity and loan portfolio
performance in listed commercial banks in India correlation matrix was used. Maina et al.,
(2016) argued Karl Pearson correlation coefficient is most widely used method of measuring
the degree of relationship between two variables. This ranges from -1 to +1, where -1 denotes
a perfect negative correlation, 0 no correlation and +1 a perfect positive correlation. The aim
of the use of correlation matrix is to help the researcher to determine the direction and
magnitude of the relationship between two variables. From the results indicated by Table 10
below, the Pearson correlation coefficient was generated at a significant level of 1 percent (2-
tailed). This output indicates a perfect positive relationship between bank liquidity and loan
portfolio performance of listed commercial banks in India. Bank liquidity had a positive
coefficient which indicates that loan portfolio performance increases with increase in
magnitude of bank liquidity and vice versa.

4.5 AUTO CORRELATION:

INTERPRETATION:

The size f Durbin Watson statistic which depends on the number of predictors and
number of observations, as conservative rule of thumb is that test statistic values in the range

21
of 1.5 to 2.5 are relatively normal. Values outside of this range could be cause for concern.
Above table shows a Durbin Watson statistic of 1.497 which indicates that the disturbance
generated by different cross-sectional observations is independent of each other and the data
lacks autocorrelation.

4.6 REGRESSION:

Regression Statistics
0.79727
Multiple R 5
0.63564
R Square 7
0.58359
Adjusted R Square 7
0.04642
Standard Error 1
Observations 9
ANOVA
Significan
df SS MS F ce F
Regressi 0.0263 12.212
on 1 0.026316 16 14 0.010066
0.0021
Residual 7 0.015084 55
Total 8 0.0414

Coefficien Standard Lower Upper Lower Upper

ts Error t Stat P-value 95% 95% 95.0% 95.0%
- - -
2.9357 0.0718 0.0978 0.9084 -
Intercept -0.50316 0.17139 5 45 -0.90843 9 3 0.09789
3.4945 0.0100 13.236 2.5527 13.2367
0.09 7.894737 2.259133 88 66 2.552737 74 37 4

INTERPRETATION:

The value of p is greater than 0.05 and it accepts null hypothesis and the model id fit
for the research.

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 CHAPTER 5

FINDINGS ANS SUGGESSIONS

5.1 FINDINGS:

The objective of the study was to determine the influence of bank liquidity on loan portfolio
performance among listed commercial banks in India due to impact of Covid ‘19. Bank
liquidity was assessed by three key measures namely current ratio, quick ratio, cash ratio. The
indicators of bank liquidity taken into consideration included leverage ratio, operational assets,
deposits held by banks, non-performing loans, cash over current liabilities, short term
marketable securities, fixed deposits and cash flow cycle. Descriptive and inferential statistical
methods were used to arrive at the findings where deductions and relationships were
established. A unit change in liquidity causes 4.23% change in loan portfolio performance
among commercial banks in India as indicated. Therefore, statements which sought influence
of liquidity variable were concluded to be statistically significant in explaining changes.

5.2 SUGGESSIONS:

 From the study it’s clear that bank liquidity has major effect on loan portfolio of the
banks.
 When the loan portfolio is affected the liquidity of the banks will also be affected
 It’s necessary to maintain loan to deposit ratio, when loan to deposit ratio is not stable
the bank will face the liquidity risk
 The loan to deposit ratio is low in 2020 when compared to 2019. the reduction in ratio
is one of the impacts of covid’19
 the research findings implied that there is relative linear relationship between the loan
portfolio and bank liquidity in 2020 the liquidity of the bank is affected and so the loan
portfolio performance is affected
 liquidity and loan portfolio are depending on each other
 The liquidity and loan portfolio is changed compared to last year .as the nation-wide
lock down was initiated in march the impact of Covid was started in last December

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 BIBLIOGRAPHY

1. AKASH KUMAR Research Scholar has conducted a study on the performance of

RRBs in Bihar an analytical study.
2. SYED MOHAMMAD G HOUSE has conducted a study on Indian Regional Rural
Banks Growth and Performance
3. Mr. DILEEP S, Dr. G.V. KESAVA RAO has conducted a study on Indian Rural
Banking Industry-Issues and Challenges.
4. SAMUEL KWAKU OBENG has conducted a study on Rural banking in GHANA:
It’s impact on Rural Famers.
5. EDWIN KITHAKA has conducted a study on the effect of mobile banking
performance
6. RACHITA GULATI, NIRMAL SINGH has conducted a study on An index of bank
stability for 66 commercial banks operating in the Indian banking industry for the
period 2007/08-2016/17.
7. ROBSON WILLIAM B.P (2012) has conducted a study on measuring performance
of regional rural banks of India
8. ALEXANDER S. PREKER has conducted a study on measuring performance of
regional rural banks of India

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