Exploring Liquidity Risk Management in Payment SYSTEM: In Search of Profitability

Very basic function of banking is accepting deposits for the purpose of lending; banking is a key
organ of financial system. Banks have vital role in development of the Nation and growth of economy.
Banks simplify the payments by offering various payment methods with easeness Banks as a financial
organization deals the demand and supply of liquidity in optimal way with several specifications to avoid
risks. Risk is inevitable in banking business hence we cannot avoid the risk despite it is to mitigate to avoid
the disaster. There are several risks associated with payment systems in 21st century an era of digital/
electronic payments such as NEFT, RTGS, IMPS, and NECS etc in Indian Financial system. There are
several risks in banking which are to be managed and mitigated; the liquidity issue happens due to failures in
the managing of resources. This paper is mainly focused to study liquidity risk in banks with in Indian
Territory using prediction through Multiple Regression Equation based on historical data. NEFT and RTGS
are the facilities which eases customers to transfers their funds to one bank account to another different
bank account. This happens at their finger tips. This sometimes causes sharp imbalance on CRR and SLR
which are statutory to maintain. Optimal utilization of Liquid funds leads increase in NIM for Banks. NIM
is key factor for Banks profitability.