Coping With Liquidity Crunch

The liquidity crunch has been witnessed in the banking sector for the last few years. Technically, the liquidity crisis hitting the banking sector at present is not a liquidity crisis. A liquidity crisis is a situation in which banks and financial institutions (BFIs) are short of cash or near-cash assets. At present, BFIs are in a position to encash cheques presented by depositors. What the ongoing liquidity crunch denotes is lack of loanable funds. Owing to a tight position of deposits, commercial banks are not in a position to disburse loans.