Commodity Financial Ratio Analysis

A commodity can be a physical thing such as wood, gold etc. that people such as investors use as a means to buy or sell. Commodity finance can therefore be termed as a financing technique that is used by trading companies for doing businesses in the developing markets. Liquidity management can be done for production, sale or purchase of raw materials with the help of commodity financing.
· Cash reserve requirement:

State banks usually require commercial banks to maintain a cash reserve ratio. This means that there is a minimum amount of cash that the banks need to maintain in their accounts as per the requirement of the state bank policy. This ratio is used as a tool in monetary policy.

Statutory Liquidity Requirement (SLR):
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In this form of borrowing, a collateral is necessary because state banks considers it as a privilege to meet short term liquidity needs rather than a device to increase earnings. This discount rate also sometimes becomes the base interest rate for consumer borrowings because banks usually use this discount rate as a benchmark to charge for the loans they provide.

Capital adequacy ratio is basically the ratio of a banks capital against its risks. This is used as a protection for the depositors and enables stability and efficiency of the worlds financial systems. The two types of capital that are measured as the tier one and tier two capital. Tier one means the bank being able to absorb loses without having to cease trading Tier two means the bank being able to absorb loses in the event of winding up, which provides lower degree of protection to depositors.

CAR can be calculated with the help of the following

The growth of commercial banks is growing yearly and has managed to increase the value of their portfolio.

Increasing diversity within the commercial banking industry
Diversity is taking place at a rapid speed pattern of operations, market focus, advertising emphasis and use of information technology. Banks are now more inclined towards building their organizations by divergent and distinctive strategies and by implementing differentiation through product and services. This enables them to gain competitive advantage or to at least follow the market trend.

Intensifying pressure of competition
Banking industry is facing a competition at an increasing rate. There are factors that are expanding the frontiers of competition in both funding and asset use. Competition for all kinds of savings will continue to deepen and broaden but constant consumer awareness about different markets; situations and alternatives will surely block the capacity of banks to collect savings at lower rates than said by their aggressive market