Liquidity means the capacity to produce cash on demand. Commercial banks keep sufficient cash in their own vaults as well as with the central bank of the country from where they can draw if necessity arises.
Deposits are the life blood of the commercial banks. These are the borrowings by the banks from the depositors. Depositors are repayable on demand or after expiry of a certain period. Everyday depositors either deposit or withdraw cash. To meet the demand for cash of the depositors, all commercial banks have to keep a certain amount of cash in their tills. This is called liquidity principle of bank.
Deposits are the life blood of the commercial banks. These are the borrowings by the banks from the depositors. Depositors are repayable on demand or after expiry of a certain period. Everyday depositors either deposit or withdraw cash. To meet the demand for cash of the depositors, all commercial banks have to keep a certain amount of cash in their tills. This is called liquidity principle of bank.