The liability

Management Theory
By: Prabhat
 It emerged in the year 1960.
 This is one of the important liquidity
management theory.
 Says that there is no need to follow old
liquidity norms like maintaining liquid assets ,
liquid investments etc.
Praposes many alternatives
Certificate of deposits
 Is a negotiable instrument.

 Maturity date.

Limitations
 Interest rates.

 Commercial banks compete with each other

for it.
Borrowing from other banks
 Short term

 Sensitive to market condition

Limitation
 Every bank mostly faces shortage
Borrowing from the central bank
 Available in the form of discounting and day
to day and seasonal liquidity needs.
Limitations
 Costlier

 Restrictions
Raising of capital funds
 By issue of shares

 Depends on public response , dividend and

growth rate.
using profit
 Potentiality of liability management
theory in India
 Inter bank participation certificate

1.with risk sharing

2.without risk sharing
 RBI may not be a dependable source.

 Raising capital funds is not easy.

Conclusion
 This theory makes a limited contribution.
Thank You