Profitability and liquidity:
To be in a position to fulfill needs for money as when these are generally produced bank should never just organize to possess cash that is sufficient however it additionally needs to circulate its assets in a way that a few of them are easily changed into money.
Therefore, the bank’s cash reserves can be strengthened quickly in the big event of hefty drawings on it. Assets that are easily convertible into money are known as fluid assets, the absolute most fluid being cash itself. The shorter the size of that loan the greater amount of fluid as it shall quickly grow and get repayable in money; the less profitable because, other items being equal the interest rate differs straight utilizing the lack of liquidity skilled because of the loan provider.
Therefore a bank faces one thing of the dilemma in wanting to secure both profitability and liquidity. It satisfies these requirements that are apparently incompatible just how it distributes its assets. These assets have already been arranged into the table that is following probably the most liquid but minimum lucrative people towards the top and also the least liquid but most profitable towards the bottom.
The rupee assets of this banking institutions are the records and coin held within their vaults and also the bankers’ balances in the Central Bank are included in the banks’ reserves.