 Liquid Assets to Total Assets ratio.

Liquid Assets as a percent of total assets show the percentage of liquid assets in the
asset structure of the bank. Higher the proportion of Liquid Assets in the total assets,
higher is the liquidity of the bank. Assets that are treated as Liquid Assets by generally
are cash + balances with RBI + balances with other banks + Investments available for
sale + Money Market Instruments.

A. Liquid Assets to Total Deposits

This ratio indicates extent of liquidity maintained by a bank for meeting the demand
made by the depositors. The bank’s liquidity needs at any time are directly related to the
volume of its deposits as brought out by this ratio. Sometimes this is taken as a
measure of bank liquidity; however, most liquid assets are not available to meet liquidity
needs. Further total deposits are not a perfect measure of liquidity needs since bank is
required to maintain liquidity for meeting legitimate loan demands as well.

B.Loans to Deposits

Loans to Deposit ratio indicate the degree to which the bank has already used up its
available resources to accommodate the credit needs of the customers. The
presumption is that the higher the ratio of loans to deposits, the less able the bank will
be to make additional loans. Therefore higher the ratio, the lower is the liquidity. A high
loan deposit ratio indicates that a bank has a large proportion of its interest earning
assets in loans and small percent in securities. As loans are not easily saleable like
securities, a high loan deposit ratio indicates that a bank will have comparatively low
liquidity.

C.Loans to Assets

The loans, being illiquid assets for a bank, this ratio indicate the percentage of illiquid
assets to total assets. Other things being equal, a rise in this ratio would indicate lower
liquidity and the need to evaluate other liquidity ratios. Loans to Assets are also subject
to certain shortcomings as observed in loans to deposit ratio.
1. Total Loans to Total Investment ratio.

Bank has got two main channels for deployment of resources viz. loans and
investments. While loans are expected to provide higher returns compared to
investments, these suffer from higher credit risk and more illiquid than investments.
Thus a proper mix of loans and investments keeping in view liquidity and yield
consideration needs to be fixed.

Total Commitments to Total Assets ratio.

Commitments are total limits sanctioned for Letters of Credit, bank guarantees and
committed lines of credit. For the purpose of calculating this ratio, total contingent
liabilities are considered as the commitments of the bank.