Bank’s Efficiency & The Liquidity Coverage Ratio (LCR) of Indian Banks: Using Data Envelopment Analysis Approach

Many research studies on LCR (Liquidity Coverage Ratio) and bank efficiency have commonly examined the relationship between a bank's liquidity management and overall performance. This study used the panel data method to analyze the result. The efficiency is measured by using the Data Envelopment Analysis approach. This study reveals the moderating effect of RWA (Risk Weighted Assets) on the relationship between LCR and the efficiency of the banks post Covid-19 scenario for Indian banks. The research design presents a conceptual framework with liquidity as the dependent variable and defines the hypothesis based on the framework. The two models—Base and Interaction, are defined using variables, and the hypothesis is tested using the interaction model. The interaction model demonstrates the moderating impact of risk-weighted assets in the relationship between efficiency and liquidity. This study confirms that risk-weighted asset increases result in an increase in the values of liquidity along with efficiency. The study’s originality lies in the type of models (base and interaction) defined considering the log value of sales and assets. So, such a robust model helps to get the perfect results for all uncertain and stressful situations in banking environments.