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The liquid ratio in the banking sector started to decline in 2021, which fell to its lowest level in the last quarter (2Q 2022). But the ratio has shoot up in 3Q 2022. A high liquidity ratio indicates that a bank has a strong ability to meet its short-term obligations.
On the other hand, a low ratio suggests that a bank may face difficulty in meeting its obligations during times of financial stress. Regulators often require banks to maintain a minimum liquidity ratio as a safeguard against potential liquidity crises.