A STUDY ON APPRAISAL OF WORKING

CAPITAL WITH RESPECT TO AMANATH

CO-OPERATIVE BANK LIMITED
A Project Report Submitted to Bangalore University
in partial fulfillment for the award of the Degree of
MASTER OF BUSINESS ADMINISTRATION
2003-2005
Submitted by
Waseem Bari
Reg. No. 03ACCM6057
Under the guidance of
Mr. Anirban Ghatak M.B.A

AL -AMEEN INSTITUTE OF MANAGEMENT
STUDIES
Affiliated to Bangalore University,
Hosur Road, Bangalore 560027
Chapter No Contents Page
1 Introduction to Banking Industry.
History of Indian Banking
Banking since Nationalization
Current Banking Scenario
Introduction to Co-Operatie Banks
Introduction to !inance
O"#ectie of !inance
Introduction of !inancial $anage%ent
O"#ecties of !inancial $anage%ent
Introduction to &orking Capital
Concept of &orking Capital
Need for &orking Capital
Operating Cycle and cash Cycle
!actors Influencing &orking Capital
'e(uire%ent
I%pact of Inade(uate and )*cessie of &orking Capital
Cash $anage%ent
Credit $anage%ent
Inentory $anage%ent
Short-+er% Sources of !inance
, 'esearch -esign
+itle of the Study
State%ent of the .ro"le%
O"#ecties of the .ro#ect
$ethodology of the Study
Sources of the -ate
Scope of the Study
/i%itations of the Study
Chapter Sche%e
0 .rofile of 1%anath Co-Operatie Bank
Origin Of 1%anath Co-Operatie Bank
2ro3th and -eelop%ent
!inancial Indicators of the Bank
1chiee%ents of the Bank
13ards
Credit .ortfolio
O"#ecties of the Bank
Ne3 products and Serices of the Bank
!uture plans and .rospects
Sche%es offered "y the Bank
Business .lan to 1chiee "y ,445
Office and Branches
6 -ata 1nalysis and Interpretation
5 Su%%ary of !inding
7 Suggestions and 'eco%%endation
1nne*ure
Bi"liography
/IS+ O! +1B/)S
+1B/)S .12)
+a"le sho3ing .rogress of Ur"an Co-operatie
Banks in 8arnataka
+a"le sho3ing 2ro3th and -eelop%ent of 1CB/
+a"le indicating 1CB/9s ranking in co%parison
3ith other %a#or Co-op Banks
+a"le Sho3ing Branch 3ise co%parison of 1CB/
3ith other Co-op Banks
+a"le sho3ing +ype of Organisation
+a"le Sho3ing Nature of Business
+a"le Sho3ing -ata of Bangalore Steel Industry
+a"le Sho3ing -ata of Nandakrishna +u"e
+a"le Sho3ing -ata of $etro 1gencies
+a"le Sho3ing -ata of Shahi +i%"ers
+a"le Sho3ing -ata of .uttura# and Bros
+a"le Sho3ing -ata of 2eneral Hard3are
+a"le Sho3ing -ata of Star .har%a
+a"le Sho3ing -ata of )s"ee Iron and Steel
LIST OF GRAPHS
2'1.H .12)
2raph Sho3ing Increase in Share Capital
2raph Sho3ing Increase in 'eseres
2raph Sho3ing Increase in -eposits
2raph Sho3ing Increase in 1dances
2raph Sho3ing Increase in &orking Capital
2raph Sho3ing Increase in .rofits
2raph Sho3ing Increase in Branches
2raph Sho3ing Increase in $e%"ership
2raph Sho3ing +ype of Organisation
2raph Sho3ing Nature of Business
2raph Sho3ing -ata of Bangalore Steel Inustry
2raph Sho3ing -ata of Nanda 8rishna +u"es
2raph Sho3ing -ata of Na"ila .rocess
2raph Sho3ing -ata of $etro 1gencies
2raph Sho3ing -ata of Shahi +i%"er and
.ly3oods
2raph Sho3ing -ata of B.'..uttra# an dBros
2raph Sho3ing -ata of 2eneral Hard3are
2raph Sho3ing -ata of Star .har%a
2raph Sho3ing -ata of )s"ee Iron and Steel

CHAPTER 1
Introduction to Banking: !inancial $anage%ent and &orking Capital $anage%ent
INTRODUCTION TO BANKING INDUSTRY
History of Indian Banking Industry
India has a syste% of Indigenous "anking fro% ery early ti%es: though it 3as not si%ilar to
"anking of %odern ti%es. +here is eidence to sho3 that %oney lending e*isted een during the ;edic
period. &ith the aent of the )nglish traders in the 1<
th
century and the esta"lis%ent of trading centers "y
the )ast India Co%pany: indigenous "ankers found their position precarious. Una"le to use indigenous
"ankers for their trading and "anking purpose: the )ast India Co%pany )ncourage the )sta"lish%ent of
3hat 3ere kno3 as the agaency houses- trading fir%s 3hich undertook "aking operations of the "enefit of
their constituents.
+he 2oern%ent of India did not a3aken to the needs for the "anks till 1=4>: the year in 3hich the
"ank of Bangal 3as esta"lished. +he Bank of Bo%"ay 3as first constituted in 1=64: 3ith a capital of 's.5,:
,5:444. +he Bank of $adras 3as for%ed in 1=60 3ith capital of 's.04 /akhs. 1 ne3 era in the history of
pu"lic "anks in India ca%e in 6=74: 3hen the principle of li%ited lia"ility 3as first applied to #oint stock
"anks. +he presidency Banks referred to a"oe 3ere a%alaga%ated 3ith the I%perial Bank of India: 3hich
3as "rought into esistence on ,<
th
?anuary:1>,1 "y the I%perial Bank of India 1ct: 1>,4. It 3as allo3ed to
hold 2oern%ent "alances and to %anage dpu"lic de"t and clearing houses till the esta"lish%ent of the
'esere Bank of India in 1>05. 1fter Independence the 2oern%ent of India setup the State Bank of India
on ?uly 1>55: 3hich took oer the "usiness of the I%peraial Bank of India.
Banking since Nationai!ation
-uring the congress regi%e in 1>54-74s there 3as de%and for nationalization of co%%ercial
"anks. It &as felt that nationalization 3as the only 3ay to sole the pro"le%s of "anking in interest and to
soften the intensity of "oo%s and depression. in a country :3hich had e%"arked on econo%ic planning
"ased on a socialist pattern of society.it is only desira"le "ut also necessary to nationalize so%e i%portant
"anking institution to sere the larger interest of the nation. Nationalization of "anks "egan 3ith the
passing of the resere "ank of India act of1>6=:3hich %onitors and controls the entire %onetary syste% of
the country. It 3as thought desira"le to nationalize the "ank to ensure greater co-ordination of %onetary:
econo%ic and fiscal policies. +he second %a#or atte%pt at nationalization of "anking in India 3hich ca%e
to "e kno3 as the state "ank of India in 1>55. the third %a#or atte%pt 3as %ade 3hen 16 leading
co%%ercial "anks: 3ith deposits e*ceeding rs.54crores each. 3ere nationalized on 1>
th
#uly1>7>. their
tack-oer 3as intended to sere "etter the needs of deelop%ent of the econo%y inconfor%ity 3ith nation
priorites and o"#ecties. +he pri%ary o"#ectie of nationalization of "anks 3as to shift ast financial
resources fro% the hands of a fe3 large "usiness houses to the true and rightful clai%ants. +he
nationalization process thus heralded the "eginning of social "anking: %ass "anking an innoatie "anking.
Current Banking Scenario
/i"eralization )ra since 1>>4 has shaken up the old and
traditional "anking structure as there is a %a#or threat fro% the
foreign players in this industry. +he Indian "aking has co%e a long
3ay fro% "eing a sleepy "usiness institution to highly pricatie an
dyna%ic entity. +his transfor%ation has "een largely "rought a"out
"y the large dose of li"eralization and econo%ic refor%s that
allo3ed "anks to e*plore ne3 "usiness opportunity rather than
generating reenues fro% conentional strea%s. +he Indian
"anking has finally 3orked up to the co%petitie dyna%ics of the
ne3 Indian %arket and is addressing the releant issues to take on
the %ultifarious challenges of glo"alization.
+he gro3ing internationalization of "aking operations has altered the face of "anks fro% on of
%ere inter%ediate to one of proider of (uick: effectie and consu%er centric serices. +he "aking industry
in India is %oing to3ards international "est practices in "aking superision for achieing and %aintaining
sta"ility and also to co%"at co%petition for% 3ould "e ealuated "oth "y do%estic superising authorities
and "y glo"al rating are Capital to 'isk 3eighted 1sset 'ation @C'1'A: net N.1 and 'eturn On 1ssets
reflecting asset (uality: profita"ility and capacity to 3ithstand financial shocks.
+he "anking industry is also re(uired to ensure greater transparency and disclosure in their
financial state%ents for the infor%ation of %arket players: inestors: depositors and rating agencies.
Infor%ation +echnology is slated to play a key role in "anking sector as it 3ould not only ensure
s%ooth passage of interrelated transaction oer the electronic %ediu% "ut 3ill also facilitate co%ple*
financial product innoations such as deriaties. +he "aking industry in India 3ill hae to get its act
together to surie in the ne3 %illenniu% since it 3ould "e su"#ect to intense co%petition not only fro%
ne3 do%estic players "ut also fro% esta"lished glo"al outfits especially in the total conerti"ility scenario
in the not too distant furure. +he sustained pace of li"eralization 3ould necessitate that the nationalized
"anking sheds its fla": get leaner %ore agile and ac(uires the %uch needed %arket say and custo%er
focus 3hich are the crucial ingredients of success in the ne3 3orld.
Co-operative Banks
+he Co-operatie "anks hae a history of al%ost 144 years. +he co-operatie "anks are an
i%portant constituent of the Indian !inancial Syste%:#udging "y the role assigned to the%: the e*pectation
they are supposed to fulfill: their nu%"er: and the nu%"er of offices they operate. +he co-operatie
%oe%ent originated in the &est: "ut the i%portance that such "anks hae assu%ed in India is rarely
paralleled any3here else in the 3orld. +heir role in rural finanacing continues to "e i%portant een today:
and their "usiness in the ur"an areas also has increased pheno%entally in recent years %ainly due to the
sharp increase in the nu%"er of pri%ary cooperatie "anks.
&hile the cooperatie "anks in rural areas %ainly finance agricultural "ased actiities including
far%ing: cattle: %ilk: hatchery: personal finance etc.
So%e of the cooperatie "anks are (uite for3ard looking and hae deeloped sufficient core
co%petencies to challenge state and priate sector "anks. 1ccording to National !ederation of Ur"an
Cooperatie Banks and Credit Societies /td. @N1!CUBA the total deposits and lending9s of Cooperatie
Banks in %uch %ore than Old .riate Sector Banks and also the Ne3 .riate Sector Banks. +his
e*ponential gro3th of Cooperatie Banks is attri"uted %ainly to their %uch "etter local reach: personal
interaction 3ith custo%ers: and their a"ility to catch the nere of the local clientele. +hough registered
under the Cooperatie Societies 1ct of the 'espectie States @3here for%ed originallyA the "anking related
actiities of the cooperatie "anks are also regulated "y the 'esere Bank of India. +hey are goerned "y
the Banking 'egulations 1ct 1>6> and Banking /a3s @Cooperatie SocietiesA 1ct: 1>75.
aA .ri%ary Cooperatie Credit Society
+he .ri%ary Cooperatie Credit Society is an association of "orro3ers and non-"orro3ers residing in a
particular locality. +he funds of the society are deried fro% the share capital and deposits of %e%"ers and
loans fro% central cooperatie "anks. +he "orro3ing po3ers of the %e%"ers as 3ell as the society is
fi*ed. +he loans are gien to %e%"ers for the purchase of cattle: fodder: fertilizers: pesticides: i%ple%ents:
etc.
"A Central Cooperatie Banks
+hese are the federations of pri%ary credit societies in a district and are of t3o types B those haing a
%e%"ership of pri%ary societies only and those haing a %e%"ership of societies as 3ell as indiiduals.
+he funds of the "ank consist of share capital: deposits: loans and oerdrafts fro% state cooperatie and
#oint stock "anks. +hese "anks finance %e%"er societies 3ithin the li%its of the "orro3ing capacity of
societies. +hey also conduct all the "usiness of a #oint stock "ank.
cA State Cooperatie Banks
+he state cooperatie "ank is a federation of central cooperatie "ank and acts as a 3atchdog of the
cooperatie "anking structure in the state. Its funds are o"tained fro% share capital: deposits: loans and
oerdrafts fro% the 'esere Bank of India. +he state cooperatie "anks lend %oney to central cooperatie
"anks and pri%ary societies and not directly to far%ers.
dA /and -eelop%ent Banks
+he land deelop%ent "anks are organized in 0 tiers na%elyC state: central and pri%ary leel and they
%eet the long-ter% credit re(uire%ents of the far%ers for deelop%ental purposes. +he state land
deelop%ent "ank oerseas the pri%ary land deelop%ent "anks situated in the districts and tehsils in the
state. +hey are goerned "oth "y the state%ent goern%ent and 'esere Bank of India. 'ecently: the
superision of the land deelop%ent "anks has "een assu%ed "y National Bank for 1griculture and 'ural
-eelop%ent @N1B1'-A. +he sources of funds for these "anks are the de"entures su"scri"ed "y "oth
central and state goern%ent. +hese "anks do not accept deposits fro% the general pu"lic.
Progress of Urban Cooperative Banks in Karnataka
Sl.No. Particulars 2002 2003 2004
1 No. of Banks ,51 ,<, ,>0
, No. of Branches 661 6>< 56=
0 No. of $e%"ers
@in /acsA
1= 1> ,,
6 .aid up Share Capital 166 1=, @'s. In CroresA
5 'eseres and !unds 06, 0=> ,,,
7 O3n !unds 6=7 5<1 5=5
< -eposits ,=50 0>55 =4<
= /oans and 1dances ,41, ,57= 5,<<
> &orking Capital 0665 656> ,=<4
14 Net .rofit >4 >= 7,50
INTRODUCTION TO FINANCE
!inance is a ast area of facts: principles theories dealing 3ith arious 3ays of raising and using it
"y indiiduals and others. It deals 3ith ho3 indiiduals and co%panies diide their "usiness inco%e
"et3een consu%ption and ho3 to choose fro% a%ong the aaila"le inest%ent opportunities and also ho3
they raise %oney for increased consu%ption or inest%ent. It also enco%passes the study of financial
%arkets: institutions and actiities of goern%ent: 3ith stress on those aspects relating to financial
decisions of indiiduals and co%panies. In fact finance is so indispensa"le today that it is rightly said that
it is the life"lood of an enterprise. &ithout ade(uate finance: no enterprise can possi"ly acco%plish its
o"#ecties.
!inance is an i%portant co%ponent: 3hich cuts across all other areas of $anage%ent and is one of
the "asic foundations for all kinds of econo%ic actiities. It is regarded as the %aster key: 3hich proides
access to all other source e%ployed in the %anufacturing and %erchandising actiities. Ho3eer it is also
true that %oney "egets %ore %oney: only 3hen it is properly %anaged and this can "e achieed 3ith the
help of strategic for%ulation: planning and decision-%aking. Hence efficient %anage%ent of eery
"usiness is closely linked 3ith efficient %anage%ent of its finances.
Objectives of finance:
+he %ain ai% of finance is to arrange as %uch funds for the
"usiness as re(uired fro% ti%e to ti%e. +he other functions are as
follo3sD
1c(uiring sufficient fundsD +he ai% of finance is to assess the financial needs of an enterprise and
to find out suita"le sources for raising the%. +he funds could "e raised fro% long ter% sources
like share capital: de"entures: ter% loan and o3ners funds and fro% short ter% sources like short
ter% inest%ent: loan and adances etc.
.roper Utilization of !undsD effectie utilization of funds is ery i%portant function and it should
"e a 3ay that a %a*i%u% "enefit is deried fro% the%. +he returns fro% their use should "e %ore
than their cost and it should "e ensured that funds do not re%ain idle at any point of ti%e.
Increase .rofita"ilityD +he planning and control of finance function ai%s are increasing
profita"ility of the concern. +o increase profita"ility: sufficient funds 3ill hae to "e inested.
!inance function should "e so planned that the concern neither suffers for inade(uacy of funds nor
surplus of funds than re(uired. +he cost of ac(uiring funds should "e such that it results in
%a*i%u% returns.
$a*i%izing Concern9s ;alueD It is stated that concern9s alue is directly linked 3ith its
profita"ility. Besides profits: the type of sources used for raising funds: the cost of funds: the
condition of %oney %arket: the de%and of products are so%e other consideration 3hich
influences a fir%9s alue.
Introduction to Financial Management:
!inancial $anage%ent is that %anagerial actiity 3hich is concerned 3ith planning and
controlling of the fir%9s financial resources.
!inancial $anage%ent is %ainly concerned 3ith the proper %anage%ent of funds. +he finance
%anager %ust see that the funds are procured in a %anner that the risk cost and control consideration are
properly "alanced in a gien situation and there is opti%u% utilization of funds.
1s a separate actiity or a discipline: it is of recent origin. It 3as a part of econo%ics till 1=>4.
Only in the "eginning of the ,4
th
Century: did corporate finance got recognition. It 3as identified as a
separate function of the "usiness actiity. +he su"#ect %atter of financial %anage%ent deals 3ith the
%anagerial actiity: 3hich is concerned 3ith fir%9s financial resources that hae to "e properly allocated to
achiee the "est use of funds aaila"le.
Objective of Financial Management:
!inancial $anage%ent is concerned 3ith procure%ent and use
of funds. Its %ain ai% is to use "usiness funds in such a 3ay that
the earning is %a*i%ized i.e. to %a*i%u% the o3ner9s econo%ic
3elfare. +hese o"#ecties can "e achieed "yD
.rofit $a*i%izationD 1 "usiness "eing an econo%ic institution %ust earn profits to coer its cost
and proide funds for gro3th. +hus profit is %easure of efficiency of "usiness enterprises and
also seres as a protection against risks: 3hich cannot "e ensured. .rice syste% is the %ost
i%portant %echanizes of a %arket econo%y indicating 3hat goods and sericing the society
3ants. 2oods and sericing in great de%and co%%and higher prices: 3hich in turns results in
high profits. In case of stiff co%petition: there %ay "e no de%and for less de%and in the %arket
and %ay result in the fall in prices: 3hich %eans less or no profits. Hence: prices are deter%ined
"y de%and and supply conditions: as 3ell as co%petitie forces as they guide the allocation of
resources for arious productie actiities.
+he argu%ent: 3hich faors profit %a*i%ization: is as follo3sD
.rofita"ility helps in %easuring the efficiency and econo%ic prosperity of the "usiness
.rofits are %ain source for the gro3th and deelop%ent of the "usiness
.rofits %a*i%ization is also essential for fulfilling the socials goals: 3hich in turn: helps in
%a*i%izing the socio-econo%ic goals
.rofit %a*i%ization o"#ect has: ho3eer: "een criticized in recent years. It is agreed this o"#ectie
assu%es perfect co%petition and in the face of i%perfect co%%on %arkets: it cannot "e a legiti%ate
o"#ectie of the fir%.
In ne3 "usiness eniron%ent only profits %a*i%ization is regarded as unrealistic: difficult:
inappropriate and i%%oral.
It is also feared that the profits %a*i%ization "ehaior in %arket econo%y %ay tend to produce goods
and serices that are 3asteful and unnecessary fro% the society9s point of ie3 and also %ay tend to
ine(uality in inco%e and 3ealth. 1part fro% this: profit %a*i%ization fails to sere as an operational
criterion for %a*i%izing the o3ner9s econo%ic 3elfare.
It suffers fro% the follo3ing li%itationsD
It is ague.
It ignores the ti%ing of returns.
It ignores risk.
Wealth maximization:
It is an appropriate o"#ectie of an enterprise. In fact: it is
asserted to "e the single su"stitute for a stockholder9s utility.
&hen a fir% %a*i%izes the stockholder9s 3ealth: the indiidual
stockholder can utilize this 3ealth to %a*i%ize his indiidual
utility. +hus 3ealth %a*i%ization %eans %a*i%izing the net
present alue. +his o"#ectie is consistent 3ith %a*i%izing the
o3ner9s econo%ic 3elfare.
INTRODUCTION TO ORKIN! CAPITA"
Concepts of working capital
&orking capital %anage%ent is concerned 3ith decisions
relating to current assets and current lia"ility. +he key difference
"et3een long ter% financial %anage%ent and short-ter% financial
%anage%ent is in ter%s of ti%ing of cash. &hile long ter%
financial decisions are for "uying capital e(uip%ent or issuing
de"enture: 3hich inole cash flo3s oer a period of 5 to 15 years.
Short-ter% financial decision typically inoles cash flo3s 3ithin
a year or 3ithin the operating cycle to the fir%.
+here are t3o concepts of 3orking capitalD
2ross &orking CapitalD Is the total of all current assets. &hich include cash: short ter% securities: -e"tors:
Bills 'eceia"le and Inentory.
Net &orking CapitalD 'efers to the difference "et3een current assets and current lia"ilities.
&hich include Creditors: Bills paya"le and outstanding e*penses. Net 3orking capital 3ill arise 3hen
current assets e*ceed current lia"ility. 1 negatie net 3orking capital 3ill occur 3hen current lia"ility is in
e*cess of current assets.
.er%anent &orking CapitalD .er%anent 3orking capital is the %ini%u% a%ount of current assets:
3hich is needed to conduct a "usiness een during the dullest season of the year. It is the a%ount re(uired
to produce the goods and serices: 3hich are necessary to satisfy de%and at a particular point.
+e%porary or ;aria"le &orking CapitalD It represents the additional assets: 3hich are re(uired at
different ti%es during the operating year.
Cash &orking CapitalD It sho3s the real flo3 of %oney or alue at a particular ti%e and is
considered to "e the %ost realistic approach in 3orking capital. +he cash 3orking capital indicates the
ade(uacy of the cash flo3: 3hich is an essential pre-re(uisite of a "usiness.
Negatie &orking CapitalD Negatie 3orking capital e%erges 3hen current lia"ilities e*ceed
current assets.
Need for working capital:
+he need for 3orking capital arises to run the day-to-day "usiness actiity. &e 3ill hardly find a
"usiness fir%: 3hich does not re(uire any a%ount of 3orking capital. Indeed: fir%s differ in their
re(uire%ent of the 3orking capital. +he units needs %ore of 3orking capital finance in case it needsD
+o ac(uire any stock: ra3 %aterials: stores and spares.
+o hold finished goods in large (uantity due to lesser de%and and.
+o sell finished goods on credit and it takes ti%e for its realization.
Operating Cycle and Cash Cycle:
Operating cycle is the ti%e duration re(uired to conert sales: after the conersion of resources
into inentories: into cash. Inest%ent in 3orking capital is influenced "y four eents in the production and
sales cycle of the fir%D
- .urchase of ra3 %aterials
- .ay%ent of ra3 %aterials
- Sale of finished goods
- Collection of cash for sales
+he fir% "egins 3ith the purchase of ra3 %aterials: 3hich is paid for after so%e period: 3hich
represents the accounts paya"le period. +he fir% conerts the ra3 %aterials into finished goods and then
sells the sa%e. +he ti%e lag "et3een the purchase of ra3 %aterials and the sale of finished goods is the
inentory period. Custo%ers so%eti%es pay their "ills so%e ti%e after the sales. +he period that elapses
"et3een the date of sales and the date of collection of receia"les is the accounts paya"le period.
+he ti%e that elapses "et3een the purchase of ra3 %aterials and the collection of cash for the sale
is referred to as the operating cycle: 3hereas the ti%e length "et3een the pay%ent for ra3 %aterial
purchases and the collection of cash for sales is referred to as the cash cycle. +he operating cycle is the
su% of the inentory period and the accounts receia"le period: 3hereas the cash cycle is e(ual to the
operating cycle less the accounts paya"le period.
Factors Influencing Working Capital Requirement:
+he 3orking capital needs of the fir% are influenced "y
nu%erous factors. +he factors change for a fir% oer ti%e. +he
i%portant ones areD
Nature of BusinessD +he 3orking capital re(uire%ent of a fir% is closely related to the nature of
its "usiness. 1 serice fir% like +ransport Corporation: 3hich has long operating and sells largely
on credit 3ill re(uire su"stantial 3orking capital re(uire%ent.
Seasonality of operationsD !ir%s: 3hich hae %arked seasonality in their operations usually: hae
highly fluctuating 3orking capital re(uire%ents. 1 fir% %anufacturing ceiling fans 3ill re(uire
%ore of 3orking capital during su%%er period then 3inter period.
.roduction .olicyD 1 fir%: 3hich faces a seasonal fluctuation in the sales: %ay pursue a
production policy: 3hich %ay reduce the sharp ariations in 3orking capital re(uire%ent.
$arket ConditionsD +he degree of co%petition in the %arket place an i%portant "earing on
3orking capital. &hen co%petition is keen: a larger inentory of finished goods is re(uired to
%eet custo%er9s need. !urther: generous credit ter%s hae to "e gien to custo%er. In a strong
%arket and 3eak co%petition less a%ount of 3orking capital is re(uired.
Conditions of SupplyD If the supply is pro%pt and ade(uate: the fir% can %anage 3ith s%all
inentory. Ho3eer: if the supply is unpredicta"le and scant the fir% to ensure continuity
production should carry large inentory on an aerage.
Credit .olicyD +he credit policy of the fir% affects the 3orking capital "y influencing the leel of
-e"tors. 1 high collection period 3ill tie-up large funds in "ook de"ts. So the fir% should follo3
a rationalized credit policy.
1aila"ility of CreditD +he 3orking capital re(uire%ents of a fir% are also affected "y credit
ter%s granted "y its creditors.
Operating efficiencyD +he operating efficiency of the fir% relates to the opti%u% utilization of
resources at %ini%u% costs. +he 3orking Capital 3ill "e lo3: if the fir% controls its operating
cost and utilize its current assets efficiently.
Impact of inadequate and excessive working capital:
&hen 3orking capital is inade(uate: a co%pany faces the follo3ing pro"le%sD
It is not possi"le for it to utilize production facilities fully for 3ant of 3orking capital.
1 co%pany %ay not "e a"le to take adantage of cash discount facilities.
1 co%pany %ay not "e a"le to take adantage of profita"le "usiness opportunities.
1 co%pany 3ill not "e a"le to pay its diidend "ecause of the non-aaila"ility of funds.
+he %odernization of e(uip%ent and een routine repairs and %aintenance facilities %ay "e
difficult to ad%inister.
1 co%pany %ay hae to "orro3 funds at e*or"itant rate of interest.
/o3 li(uidity 3ould positiely threaten solency of the "usiness.
+oo %uch of 3orking capital is an dangerous as too little of it. )*cessie 3orking capital raises the
follo3ing pro"le%sD
1 co%pany %ay "e te%pted to oertrade and lose heaily
1 co%pany %ay keep ery "ig inentories and tie up its funds unnecessarily.
+here %ay "e i%"alance "et3een li(uidity and profita"ility.
Cas# $anage%ent
Cash is the %ost i%portant current asset for the operation of the
"usiness. Cash is the "asic input need to keep the "usiness running
on a continuous "asis: it is also the ulti%ate output e*pected to "e
realized "y selling the serice or product %anufactured "y the fir%.
+he fir% should keep sufficient cash: neither %ore: nor less. Cash
is %ost significant "ecause it is used to pay the fir%s o"ligations.
Ho3eer: cash is unproductie. Unlike fi*ed assets or inentories:
it does not produce goods for sale. Cash %anage%ent is concerned
3ith the %anaging of
Cash flo3s into and out of fir%
Cash flo3s 3ithin the fir%
Cash "alances held "y the fir% at a point of ti%e "y financing deficit or inesting surplus cash
+he fir%s need to hold cash %ay "e attri"uted to the follo3ing three %otiesD
+he transaction %otie
+he precautionary %otie
+he speculatie %otie
+he %anage%ent of cash is also i%portant "ecause it is difficult to predict cash flo3s accurately:
particular the inflo3s: and that there is no perfect coincidence "et3een the inflo3s and outflo3s of cash. In
order to resole the uncertainty a"out cash flo3 prediction and lack of difference "et3een the receipts and
pay%ents: the fir% should deelop strategies for cash %anage%ent: such as
Cash planningD Cash inflo3s and outflo3s should "e planned to pro#ect cash surplus or deficit for
each planning period.
$anaging the cash flo3sD +he flo3 of cash should "e properly %anaged. +he inflo3s of cash
should "e accelerated 3hile the outflo3s of cash should "e decelerated.
Opti%u% cash leelD +he fir% should decide a"out the appropriate leel of cash "alances. +he
cost of e*cess cash and danger of cash deficiency should "e %atched to deter%ine the opti%u%
leel of cash "alances.
Inesting surplus cashD +he surplus cash "alances should "e properly inested to earn profits. +he
fir% should decide a"out the diision of such cash "alances "et3een "ank deposits: %arketa"le
securities and inter corporate lending.
1 fir% should hold opti%u% "alances of cash: and inest any te%porary e*cess a%ount in short ter%s
@%arketa"leA securities. In choosing these securities: the fir% %ust keep in %ind safety: %aturity and
%arketa"ility of its inest%ent.
Cre&it $anage%ent
1n efficient control of stocks and li(uid resources in
con#unction 3ith the credit facility is an essential part of
%anage%ent control. In digesting facts and reaching a credit
decision: %any finance officers %ore or less e*plicitly keep in
%ind the four C9s of credit B Capital: Capacity: Character and
Condition 3hen fir%s sells goods or serices on deferred pay%ent
"asis: it is said that the fir% has granted trade credit to custo%ers.
Business fir%s often sell on credit to facilitate sales and pressure of co%petition and the forces of
custo%er persuades. +he credit period e*tended "y "usiness fir% usually ranges to 15 to 74 days. +he
%a#or ter%s of pay%ent areD
Cash ter%s
Open account
Consign%ent
-raft and /etter of Credit
+he i%portant di%ensions of a fir%s credit policy areD
Credit Standard
Credit .eriod
Cash discount and
Collection efforts
1ll the a"oe di%ensions help to increase sales and attract %ore custo%ers.
Inventor' $anage%ent
Inentories generally represent a ery significant proportion of total assets. Hence the i%portance
of inentory %anage%ent cannot "e oere%phasized. +here are 0 types of inentoriesD ra3 %aterials:
3ork-in-process and finished goods. 'a3 %aterials are %aterials are %aterials and co%ponents that are
inputs in %aking the final product. &ork-in-process: also called stock-in-process: refers to goods in the
inter%ediate stages of production. !inished goods consist of final products that are ready for sale. &hile
%anufacturing fir%s generally hold all three types of inentories: distri"ution fir%s hold %ostly finished
goods.
+here are three general %oties E need for holding inentoriesD
+ransaction %otie: 3hich e%phasizes the need to %aintain inentories to facilitate s%ooth
production and sales operation
.recautionary %otie: 3hich necessitates holding of inentories to guard against the risk of
unpredicta"le changes in de%and and supply forces and other factors.
Speculatie %otie: 3hich influences the decision to increase or reduce inentory leels to take
adantage of price fluctuations.
Objectives of Inventory Management:
+he o"#ectie of inentory %anage%ent should "e to aoid
e*cessie and inade(uate leels of inentories and to %aintain
sufficient inentory for the s%ooth production and sales
operations. )fforts should "e %ade to place an order at the right
ti%e 3ith the right source to ac(uire the right (uantity at the right
price and (uality. +he effectie inentory %anage%ent shouldD
)nsure a continuous supply of %aterials to facilitate uninterrupted production
$aintain sufficient stock of ra3 %aterials in periods of short supply and anticipated price change
$aintain sufficient finished goods inentory for s%ooth sales operation and efficient custo%er
serice
$ini%ize the carrying cost and ti%e: and
Control inest%ent in inentories and keep it at an opti%u% leel
Inventory Management Techniques:
+o %anage inentories effectiely and efficiently the arious techni(ue of 3hich are as follo3sD
1BC analysis of Inentories
)cono%ic order (uantity
1BC analysis of inentoriesD under this syste% a alue ite% analysis is prepared 3here there are %any
ite%s in the inentory. It atte%pts to relate ho3 the inentory alue is concentrated a%ong the indiidual
ite%s. Under this syste% all the ite%s are grouped into 0 categories i.e. 1: B: C.
Ite%s included in F1G category %ay "e kept under strict control "y the top %anage%ent. Ite%s
included in the FBG category %ay "e kept under %oderate control "y the %iddle %anage%ent and ite%
included in the FCG category %ay "e %anaged 3ith little control at the lo3er leel.
+he a"oe analysis 3ill help the %anage%ent to concentrate its efforts for %anaging those ite%s of
inentory 3hich hae high i%portance: %anage%ent can take full care to ensure the aaila"ility of these
ite%s at the %ini%u% possi"le cost.
)cono%ic order (uantityD generally: if an order is gien for the purchase of large (uantity: the cost
incurred in procuring these goods is lo3: "ut at the sa%e ti%e carrying cost incurred in procuring these
goods is lo3: "ut at the sa%e ti%e carrying cost of the "ulk order is high. +herefore it is necessary to strike
a "alance "et3een the ordering cost keeping in ie3 the total re(uire%ent of the %aterial. +he (uantity of
the order 3here the annual total costs for "oth ordering and carrying inentories are %ini%u% is called as
)cono%ic order (uantity. In order 3ords: the opti%u% size of the purchase order is called )OH.
It decides keeping in ie3 the follo3ing pointsD
Consu%ption of the %aterial during the gien period
Cost of placing an order
Cost of carrying the inentories
(#ort)ter% so*r+es of finan+e
+he t3o %ost significant short ter% sources of finance for 3orking capital areD
+rade credit and Bank "orro3ing. +rade credit refers to the credit that a custo%er gets fro%
supplier of goods in the nor%al course of "usiness. In practice: the "uying fir%s hae not to pay cash
i%%ediately for the purchase %ade. Banks are the %ain institutional sources of 3orking capital finance in
India. 1fter trade credit: "ank credit is the %ost i%portant source of financing 3orking re(uire%ent of
fir%s in India. &orking capital finance "y "anks represents the %ost i%portant source for financing current
assets.
!or%s of "ank financeD
1 fir% can dra3 funds fro% a "ank 3ithin the %a*i%u% credit li%it sanctioned. +he for%s of
3ithdra3al "anks proides for 3orking capital finance areD
Cash creditsE oer draft
/oans
.urchase E discount of "ills
In addition to these for%s of direct finance: "anks help their custo%ers in o"taining credit fro% other
sources through letter of credit arrange%ent.
Security:
Banks generally do not proide 3orking capital finance 3ithout ade(uate security. +he follo3ing
are the %odes of security the "anks seek either in the for%s ofD
- Hypothecation
- .ledge
- $ortgage
- /ien
Margin amount:
Banks do not proide 144I finance. +hey insist that the custo%er should "ring a portion of the
re(uired finance fro% other sources. +his portion is kno3n as the %argin a%ount.
Regulation of bank finance:
Banks 3ere follo3ing certain nor%s in granting 3orking capital finance to co%panies. +hese
nor%s 3ere greatly influenced "y the reco%%endations of arious co%%ittees appointed "y the 'esere
Bank of India. +he nor%s of 3orking capital finance are %ainly "ased on the reco%%endations of the
+andon Co%%ittee. +he Core co%%ittee also %ade further reco%%endations to strengthen the procedures
and nor%s of 3orking Capital finance "y "anks. Ho3eer: these nor%s are no3 regarded as guidelines.
Banks hae discretion to deiate fro% the nor%s: taking into account the past holding leels and other
factors.
CHAPTER , - RE(EARCH DE(I!N
The title of the study:
+he title for the dissertation is F1 study of the %ethods
adopted "y 1%anath Co-operatie Bank /td. In the appraisal of
3orking capital re(uire%ent.G
Statement of the problem:
1 prealent feeling in s%all-scale sector is that "ank finance is not aaila"le ade(uately and in
good ti%e. On the other hand: the financing "anker alleges that the "orro3ing fir% oertrades and
therefore oer "orro3s.
+he pro"le% that this pro"le% addresses is to %easure the i%pact of "ank finance on a fir%9s
alue creation.
1 %a#or reason for "orro3ing a fir% not "eing a"le to add alue to itself through de"t capital is
stated to "e %ethod adopted "y the lending "anker in credit appraisal. Until recently: the credit appraisal
%ethods 3ere ad%inistered through +andon Co%%ittee and Core Co%%ittee reco%%endations. 1fter the
'esere Bank of India 3ithdre3 its control oer the lending "ankers in this regard: each lending "ank is
per%itted to adopt its o3n %ethod of credit appraisal for industry. Such freedo% has created a pro"le% for
the "anker standardizing a typical %ethod for appraising a fir%9s 3orking capital.
Objectives of the project:
+he %ain o"#ectie of the pro#ect areD
+o study the pattern of 3orking capital re(uire%ents of its clients
+o assess the financial appraisal policy e%ployed "y the "anks to finance 3orking capital
re(uire%ent of its clients
+o offer reco%%endations that 3ould help the "anks to eole their lending %ethods that 3ill
%atch the industry needs.
Methodology of the study:
+he pri%ary data is "ased on the discussions conducted 3ith
the officials of the "ank and interie3ing the custo%ers of the
"ank through (uestionnaire. +he secondary data proided "y
the%: the 'BI circulars: %agazines: data fro% the Internet 3ere
thoroughly studied and interpretations %ade thereof.
Sources of data:
+he study is "ased on collection of .ri%ary as 3ell as
Secondary data. .ri%ary data are those: 3hich are collected afresh
and for the first ti%e: and thus happen to "e original in character.
+here are seeral %ethod of pri%ary data collectionD
+hrough (uestionnaire
Interie3 %ethod
+hrough Schedules etc.
Secondary data are those 3hich hae already "een collected "y so%eone else and 3hich hae already
"een passed through statistical process.
.reious Bank 'ecords
+hrough $agazines
Co%pany Brochures
'ecords and !iles etc.
Scope of the study:
+he present study is conducted keeping in ie3 the 3orking
capital financing to > selected clients of 1%anath Cooperatie
Bank /td.
Limitation of the study:
1s ti%e 3as li%iting factor a detailed study is not possi"le.
+he study is li%ited to the selected nu%"ers of clients of 1%anath Cooperatie Bank /td. of N.'.
'oad and '.;. 'oad "ranches
O.ER.IE OF THE CHAPTER( (CHE$E
Chapter ID +his chapter gies the history of the Nationalized
Banks and Cooperatie Banks in India and Introduction to
!inancial $anage%ent and &orking Capital $anage%ent.
Chapter IID +his chapter includes -esign of the Study
Chapter IIID +his chapter gies infor%ation a"out the history of
organization: gro3th and deelop%ent of the organization and
functions the organization.
Chapter I;D +his chapter gies details a"out -ata 1nalysis and
Interpretation
Chapter ;D +his chapter gies details a"out Su%%ary of !indings.
Chapter ;ID +his chapter gies details a"out 'eco%%endation and
Suggestion.
CHAPTER III - PROFILE OF AMANATH COOPERATIVE
BANK LIMITED
PROFILE OF THE BANK
Amanath Cooperative Bank Limited
Origin
-r. $u%taz 1h%ed 8han and ?ana" 8 'ah%an 8han esta"lished 1%anath Cooperatie Bank on
the 10
th
?anuary 1><<. It 3as indeed a ery hu%"le "eginning 3ith a capital of 's. 0 /akhs and a
%e%"ership of 0444 the %ain ai% of the "ank 3as to %o"ilize its resources fro% the 3eaker section of the
society and to plough it "ack to i%proe their socio-econo%ic conditions: trade and "usiness. +oday it has
co%e a long 3ay to "eco%e the largest Ur"an Cooperatie Bank in the state of 8arnataka.
!ro/t#
+oday the "ank has 07444 %e%"ers and %ore than 1.7 lakh custo%ers. It has a total of 15
"ranches in the state 3ith staff strength of 654 e%ployees. +he "ank posted a net profit of 's. <.10 crores:
3hich is the highest: recorded "y any cooperatie "ank in the state. +his e*traordinary gro3th of the "ank
earned it a scheduled status effectie fro% ,>
th
?uly ,446. 1s of today 1%anath Cooperatie Bank is the
only Scheduled Cooperatie Bank in the state of 8arnataka. +he inclusion of the "ank in second schedule
to 'BI 1ct 1>06 has infused %ore strength to the "ank and since then the pace of gro3th has "een
e*cellent.
A+#ieve%ents of t#e Bank
+he first Ur"an Cooperatie Bank in South India to "e
per%itted "y 'BI to open non-resident e*ternal and non-resident
ordinary accounts.
+he first Ur"an Cooperatie "ank to achiee the scheduled status
+he first Ur"an Cooperatie "ank to "e ad%itted as a direct %e%"er of the Bangalore Banker9s
Clearing House
+he first Ur"an Cooperatie "ank in 8arnataka to co%puterize all it operations and introduce &ide
1rea Net3ork @&1NA
Finan+ia0 In&i+ators
.articulars 04.0.41 04.0.40 01.1,.,446
.aid up capital 501.=4 5,7.0< 5,,.0>
'eseres 0>1<.44 60<7.=7 600=.6,
-eposits 6==>5.<4 60>75.=6 050>4.><
1dances 04=00.<< ,><4<.<> ,,,>1.64
&orking
Capital
571=5.=6 54571.05 615=5.>0
.rofits 6,5.>6 16>.46 1,>.=7
A+#ieve%ents of t#e Bank
+he first Ur"an Cooperatie Bank in South India to "e per%itted "y 'BI to open non-resident e*ternal
and non-resident ordinary accounts.
+he first Ur"an Cooperatie Bank to achiee the scheduled status
+he first Ur"an Cooperatie Bank to "e ad%itted as a direct %e%"er of the Bangalore Banker9s
Clearing House
+he first Ur"an Cooperatie Bank in 8arnataka to co%puterize all it operations and introduce &ide
1rea Net3ork @&1NA
+he first Ur"an Cooperatie "ank in 8arnataka to esta"lish its o3n staff training college
+he first Ur"an Cooperatie "ank in 8arnataka to install 1+$ facility for its custo%ers
+he first Ur"an Cooperatie "ank in 8arnataka to introduce $IC' che(ues and to install ;-S1+
A/ar&s
+he "ank 3as a3arded 3ith the shield of FBest ur"an cooperatie "ankGC By the 8arnataka state
ur"an cooperatie "anks federation on confer%ent of scheduled "ank status. National federation of ur"an
cooperatie "anks: Ne3 -elhi and also 8arnataka state ur"an cooperatie "ank federation a3arded shield
of %erit to the "ank.
Cre&it Portfo0io
+he "anks credit portfolio is 3ell dierse. +he "ank is
co%%itted to a healthy credit culture that recognizes the need to
insure high (uality processing ti%ely dis"urse%ent and easy
repay%ent. +he "ank has adopted custo%er friendly for assessing
credit re(uire%ents and has issued guidelines for arious types of
adances granted "y it.
Objectives of the bank:
+he %icrocos% of its o"#ect is F$ass BankingG right fro% its inception
+he %a#or thrust of the "ank has "een inculcating the "anking ha"its of saing a%ongst %iddle and
lo3er class section of the society
Sustained gro3th: serices and profita"ility to sustain future deelop%ent
)sta"lishing the "ank9s presence in all districts of 8arnataka
)sta"lishing its presence in all %a#or cities of the country
+o sere the society and act as a catalyst to achiee a "alanced socio-econo%ic gro3th that it is
co%%ensurate 3ith the national gro3th pattern.
New Product and services offered by bank:
/oan linked deposit sche%es
Cu%ulatie fi*ed deposit
2ifts che(ues
Credit cards
!oreign e*change
Internet "anking
Net3orking of 1+$9s
1ny3here "anking
FUTURE P"AN( AND PRO(PECT(
1+$s installations of 1+$s for "etter custo%er serices at all its "ranches
Introduction of %ore alue added serices such as ho%e "anking tele"anking serices: net3orking
serices and )-"anking
)*pansion of credit for %ediu% scale industries
!oreign e*change "usiness
Opening of F/adies "ranchesG in %inorities concentrated residential areas
Innoation sche%es for financing priority sectors E 3eaker section
Opening of currency chest and s%all coin deposit
SCHEMES OFFERED BY THE BANK:
DEPOSITS
1+$ facilities for round the clock "anking serice to the custo%ers
1ttractie rates of interest
.ay%ent of interest on ter% deposit at the choice of the depositors i.e. %onthly: (uarterly: etc.
!acility for i%%ediate 3ithdra3al "efore %aturity in case of needs
On the spot loan facility on the ter% deposits of the "ankat a %argin of 15I of deposits
!acility for accepting N') E N'O deposits
/ucratie sche%es suited to the clientele like 'ozana "achat recurring deposits: ter% deposits: cash
certificates etc.
No%ination facility for deposit accounts
"OAN( AND AD.ANCE(
Business loans +o +raders 3orkshops: hotels and other "usiness enture
Industrial loans +o start s%all E %ediu% scale industries
;ehicle loans <5I loan against the cost of ehicles @+3o 3heelers and !our 3heelersA
.ersonal loans !or petty trade: education: housing: and %arriage
Housing loans !or construction E ac(uisition E repairs and renoations of properties
Consu%er loans !or ac(uiring consu%er dura"le products
.rofessional loans +o -octors: )ngineers: and Chartered 1ccountants for setting up their offices
)ducational loans +o 2raduates: .ost 2raduates and other .rofessional courses
Other /oans 1gainst tangi"le securities: gold orna%ents: NSC: /IC policies etc.
B*siness P0ans to a+#ieve b' ,112
74 Branches
's. 1444 crores -eposits
's. <44 crores 1dances
's. 04 crores .rofits
$anpo3er 1,44
Na%e of the
Cooperatie Bank
Jear
)nded
+otal
Inco%e
.1+ Capital
'esere
s
-eposit
s
1dances Inest%ents +otal
1ssets
1... $ahesh
Cooperatie Bank
$arch
>=
,>.< 7.6 ,0., 1>1.0 >0.6 ,<.6 ,66.>
1"hyudaya
Cooperatie Bank
$arch
>>
10=.4 11.0 ,,<.6 >6> 0=1.1 75=.0 1,4>.=
1%anth
Cooperatie Bank
$arch
>=
,5.< 6.5 1=.4 10=.5 50.> ,>.7 1=<.=
1pna Sahkari
Bank
$arch
>>
,7.7 1.0 0<.1 ,45.5 11, ,7.7 ,56.7
Bassein Catholic
Coop Bank
$arch
>=
50., <., 65.6 066 1,=.1 ,,1.= 640.>
SourceD +he )cono%ic +i%es 01
st
-ece%"er ,440
Bank Head Office Year of Establishment Total Branches
'a#kot Negarik
Sahakari Bank /td.
'a#kot 1>50 ,6
1"hyudaya Coop Bank
/td.
$u%"ai 1>76 05
Nutan Nagarik Sahakari
Bank /td.
1h%eda"ad 1><1 10
1%anath Coop Bank
/td.
Bangalore 1><< 14
?anasea Sahakari Bank
/td.
.une 1>=< 1,
Source: Swagat Indian Airlines Magazine
Board of -irectors
"resident
$r. Kiaulla Sheriff
Dire+tors
Mr. Mohamed Azam Jan
Mr. Syed Sadaqath Peeran
Mr. Sadath Ali Khan
Mrs. Jameela Khaleel
Mr. Hyder Ali Jeeva Bhai, F.C.A.
Mr. S. Shabbeer Pasha, F.C.A.
Mr. Syed Matheen Aga
Mr. ahed!lla Me""ai
Mr. C.#. Sageer Ahmed
Mrs. Mahala$ha M!sta%a
General Manager (Acting)
$r. $oha%ed Haneef
Offi+e an& Bran+#es
Regd. & Corporate Office
Amanath House, No. 43, Hospital Road, Shivajinagar, Bangalore-560001
Tel: 2863910 / 12-15
Branches
A&&ress
Phone Nos.
Banga0ore
Bran+#es
$ain Branch $illia Buildings: N.'. 'oad: Bangalore-, ,,07>7,-=0
Shia#inagar 60: Hospital 'oad: Shia#inagar:
Bangalore-1
,=700==-=>
Siddaiah 'oad H. Siddaiah 'oad: Bangalore-,< ,,0<65,
+annery 'oad B.S.1. 'oad: Bangalore-5 5676<16
2angenahalli 2anganagar: Bangalore-0, 0006<5<
B.;.8. Iyenagar 'oad B.;.8. Iyenagar 'oad: Bangalore-50 ,=<=646
Brigade 'oad 5
th
1enue: Brigade 'oad: Bangalore-1 55>=5>1->,
'.;. 'oad Basaangudi: Bangalore-6 757015<
?.?. Nagar ?.?. Nagar: Bangalore-,7 7<6,<4=
Ilyas Nagar 0=: 'ing 'oad: 2angadhara Nagar: ?... Nagar .ost:
Bangalore-<=
777<61,
1ustin +o3n 65E67: OSS +o3ers: Bazar Street: 1ustin +o3n:
Bangalore-6<
55747<<
O*tstation
Bran+#es
Belgau% 14,5: !ort 'oad: 'ai3arpet: Belgau% 6774,6
$ysore Sharada Nir%al Co%ple*: No. 17=: 8.+. Street:
$ysore-5<4441
606>45
$angalore &est Coast Co%%ercial Co%ple*: Nellikai 'oad:
Ha%ilton Circle: Near SBI: $angalore-1
6675=1-6
2ul"arga ?anatha Bazar: Super $arket 'oad:
2ul"arga B 5=5141
60<=<
516
518
520
522
524
526
528
530
532
2002 2003 2004
3600
3700
3800
3900
4000
4100
4200
4300
4400
2002 2003 2004
0
10000
20000
30000
40000
50000
2002 2003 2004
0
5000
10000
15000
20000
25000
30000
35000
2002 2003 2004
0
10000
20000
30000
40000
50000
60000
2002 2003 2004
0
50
100
150
200
250
300
350
400
450
2002 2003 2004
0
2
4
6
8
10
12
14
16
2002 2003 2004
31000
32000
33000
34000
35000
36000
37000
38000
39000
40000
41000
2002 2003 2004
CH1.+)' I;
DATA ANALYSIS AND INTERPRETATION
Types of Organization / Constitutions:
Type
Total Percentage
.roprietorship 5 57
.artnership 6 66
Corporate organization - -
+otal > 144
Interpretation:
+he a"oe ta"le sho3s out of > interie3ed the type of organization E constitutions. 1ccording to
the a"oe ta"le 57I of the% are proprietorship: and 66I of the% are partnership and no loans to the
corporate organization. +hus it is seen that %a#ority of the clients are proprietorship.
Proprietorship
Partnership
Corporate
Organization
Nature of Business:
Type
Total Percentage
$anufacturing 1 11
Serices -
+rading = =>
+otal > 144
Interpretation
+he a"oe ta"le sho3s out of > interie3ed the nature of "usiness. 1ccording to the a"oe ta"le
11I of the organizations are %anufacturing: =>I of the% are trading and for serice is nil. +hus it is seen
that %a#ority of the clients are traders.
0
10
20
30
40
50
60
70
80
90
Manufacturing Trading serices
3!" Co$u%n 1
Bangalore Steel Industry:
Sales @%ean of 0 yrsA 's. 1, crores
&orking capital 's. , crores
1%ount financed 's. 1 crore
Inentory holding 65 days
Credit to custo%ers 04 days
Credit fro% suppliers Cash pay%ent
Interpretation:
!ro% the a"oe data 3e find that the fir%9s 3orking capital
is financed in the ratio of 1D1 "y the "ank: since the fir% 3as a"le
to "ring in long ter% source of fund. @1ccording to the preailing
nor%s: the "ank can finance up to <5I of the 3orking capital
re(uire%ents.A +he fir%s inentory holding is 65 days. It also
allo3s ,5E04 days credit to its custo%er 3ithout discount. $ore
oer: its policy is to pay its supplier "y 3ay of adance cash
pay%ent: there"y en#oying cash discounts. +his sho3s that the
fir% has a good financial position 3ith respect to capital and
creditors. Hence: the "anker 3ill "e in a %uch safer position
financing only 54I to the fir%.
0
2
4
6
8
10
12
14
&a$es '%ean
of 3 (ears
)or*ing
capita$
+%ount
,inanced
Co$u%n 1
0
5
10
15
20
25
30
35
40
45
-nentor.
ho$ding
Credit to
Custo%er
Credit to
supp$iers
/ast
Nandakrishna Tubes:
Sales 's. 6 crores
&orking capital 's. 4.7 crores
1%ount financed 4.4= crores
Inentory holding 65 days
Cre&it to +*sto%ers
<5 days
Credit fro% suppliers 74 days
Intepretation:
!ro% the a"oe data 3e find that the fir%9s 3orking capital
is financed only to the e*tent of 10I "y the "ank. @1ccording to
the preailing nor%s: the "ank can finance up to <5I of the
3orking capital re(uire%entsA. +he fir%s inentory holding is 65
days: 3hich is satisfactory fro% the fir%9s point of ie3.
Secondly: it allo3 <5 days credit to its custo%er 3ithout discount
3hile it %akes pay%ents to its creditors 3ithin 74 days and it
aails cash discount in the range of ,-0I. +his sho3s that the fir%
has good li(uidity position and re(uires ery less 3orking capital
in proportion to total sales of the fir%.
Hence: the "anker has "een a"le to finance ery less proportion of the total 3orking capital
re(uired.
0
005
1
105
2
205
3
305
4
&a$es +%ount
,inanced
3!" Co$u%n 1
0
10
20
30
40
50
60
70
80
-nentor.
ho$ding
Credit to
supp$iers
3!" Co$u%n 1
$etro agen+ies
Sales 's. 04 lakhs
&orking capital 's. 5 lakhs
1%ount financed 's. , lakhs
Inentory holding 1 day
Cre&it to +*sto%ers
04 days
Credit fro% suppliers Cash pay%ent
Interpretation:
!ro% the a"oe data 3e find that the fir% has "een financed
only to the e*tent of 64I "y the "ank. @1ccording to the
preailing nor%s: the "ank can finance up to <5I of the 3orking
capital re(uire%entsA. +he fir%s inentory holding is 1 day: 3hich
is e*cellent fro% the fir%9s point of ie3. Secondly: it allo3s 04
days credit to its custo%er 3ith discounts ranging fro% ,-,5I on
pro%pt pay%ent 3hile it has to %ake cash pay%ents to its
suppliers. +his sho3s that the fir%9s re(uire%ent of 3orking
capital is large in proportion to its total sales. But the o3ner has
%anaged to "ring in 74I of the 3orking capital re(uire%ents fro%
his long ter% sources.
Hence: the "anker has "een a"le to finance a fair proportion of the total 3orking capital re(uired.
0
005
1
105
2
205
3
305
4
405
5
&a$es )or*ing
Capita$
+%ount
financed
3!" Co$u%n 1
0
5
10
15
20
25
30
-nentor.
1o$ding
Credit to
Cu%sto%ers
Credit to
&upp$iers
/ast
Shahi timbers and plywood`s
Sales 's. 06 lakhs
&orking capital 's. < lakhs
1%ount financed 's. 0 lakhs
Inentory holding 74 days
Cre&it to +*sto%ers
>4 days
Credit fro% suppliers 74 days
Interpretation:
!ro% the a"oe data 3e find that the fir% has "een financed
only to the e*tent of 6,.=7I "y the "ank. @1ccording to the
preailing nor%s: the "ank can finance up to <5I of the 3orking
capital re(uire%ents.A +he fir%s inentory holding is 74 days:
3hich is satisfactory fro% the fir%9s point of ie3. Secondly: it
allo3s >4 days credit to its custo%er 3ith discounts ranging fro%
,-5I on pro%pt pay%ent: 3hile it has to %ake pay%ents to its
suppliers 3ithin 74 days. +his sho3s that the fir%9s re(uire%ent
of 3orking capital is large in proportion to its total sales. But the
o3ner has %anaged to "ring in 5=I of the 3orking capital
re(uire%ents fro% his o3n sources.
Hence: the "anker has "een a"le to finance a fair proportion of the total 3orking capital re(uired.
0
5
10
15
20
25
30
35
&a$es )or*ing
Capita$
+%ount
,inanced
/ast
0
10
20
30
40
50
60
70
80
90
-nentor.
1o$ding
Credit to
Custo%ers
Credit to
&upp$iers
/ast
B R Putturaj and bros (Petrol Bank Owners):
Sales 's. ,4 crores
&orking capital 's. 5 crores
1%ount financed 's. 1 crore
Inentory holding , days
Cre&it to +*sto%ers
15 days
Credit fro% suppliers 15 days
Interpretation:
!ro% the a"oe data 3e find that the fir% has "een financed only to the e*tent of ,4I "y the
"ank. @1ccording to the generally accepted nor%s: the "ank can finance up to <5I of the 3orking capital
re(uire%ents.A +he fir%s inentory holding is , days: 3hich is satisfactory fro% the fir%9s point of ie3.
Secondly: it allo3s 15 days credit to its custo%er 3ithout discounts 3hile it has to %ake pay%ents to its
suppliers 3ithin 15 days. But the fir%9s re(uire%ent of 3orking capital is (uite large in proportion to its
total sales. +he o3ner has %anaged to "ring in =4I of the 3orking capital re(uire%ents fro% his long
ter% sources.
Hence: the "anker has "een a"le to finance a fair proportion of the total 3orking capital re(uired.
General Hardware:
Sales 's. 0 crores
&orking capital 's. 4.5 crore
1%ount financed 's. 4., crore
Inentory holding 65 days
Cre&it to +*sto%ers
04 days
Credit fro% suppliers Cash pay%ent
Interpretation:
!ro% the a"oe data 3e find that the fir% has "een financed only to the e*tent of 64I "y the
"ank. @1ccording to the generally accepted nor%s: the "ank can finance up to <5I of the 3orking capital
re(uire%ents.A +he fir%s inentory holding is 65 days: 3hich is satisfactory fro% the fir%9s point of ie3.
Secondly: it allo3s 04 days credit to its custo%er 3ithout discounts 3hile it has to cash pay%ents to its
suppliers. +his sho3s that the fir%9s re(uire%ent of 3orking capital is large in proportion to its total sales.
0
2
4
6
8
10
12
14
16
18
20
&a$es )or*ing Capita$ +%ount
,inanced
0
2
4
6
8
10
12
14
16
-nentor.
1o$ding
Credit to
&upp$iers
3!" Co$u%n 1
General hardware:
Sales 's. 0 crores
&orking capital 's. 4.5 crores
1%ount financed 's. 4., Crores
Inentory holding 65 days
Cre&it to +*sto%ers
04 days
Credit fro% suppliers Cash pay%ent
Interpretation:
!ro% the a"oe data 3e find that the fir% has "een financed
only to the e*tent of 64I "y the "ank. @1ccording to the generally
accepted nor%s: the "ank can finance up to <5I of the 3orking
capital re(uire%entsA. +he fir%s inentory holding is 65 days:
3hich is satisfactory fro% the fir%9s point of ie3. Secondly: it
allo3s 04 days credit to its custo%er 3ithout discounts 3hile it has
to %ake cash pay%ents to its suppliers. +his sho3s that the fir%9s
re(uire%ent of 3orking capital is large in proportion to its total
sales. +he o3ner has %anaged to "ring in 74I of the 3orking
capital re(uire%ents fro% his long ter% sources.
Hence: the "anker has "een a"le to finance a fair proportion of the total 3orking capital re(uired.
Esbee iron and steel:
Sales 's. 1 Crore
&orking capital 's. 4.45 crore
1%ount financed 's. 4.4, crore
Inentory holding 04 days
Cre&it to +*sto%ers
04 days
Credit fro% suppliers 14 days
Interpretation:
!ro% the a"oe data 3e find that the fir% has "een financed
only to the e*tent of 64I "y the "ank. @1ccording to the generally
accepted nor%s: the "ank can finance up to <5I of the 3orking
capital re(uire%ents.A +he fir%s inentory holding is 04 days:
3hich is satisfactory fro% the fir%9s point of ie3. Secondly: it
allo3s 04 days credit to its custo%er 3ithout discounts 3hile it has
to %ake pay%ents to its suppliers 3ithin 14 days. But the fir%9s
re(uire%ent of 3orking capital is ery less. +he o3ner has
%anaged to "ring in 74I of the 3orking capital re(uire%ents fro%
his long ter% sources.
Hence: the "anker has "een a"le to finance a fair proportion of the total 3orking capital re(uired.
CHAPTER .
SUMMARY OF FINDINGS
1. +he adance to corporate "y Bank is negligi"le: "ut confine itself to lending to proprietorship and
partnership fir%s.
,. +he Bank doesn9t hae a pro-actie %ethod of assessing and appraising the 3orking capital needs of
fir%s: either in %anufacturing or trading category.
0. +he policies of sanction: dis"urse%ent: control and recoeries of loans and adances to the fir%s are in
accordance 3ith the Bank and Board of -irectors.
6. +he %a*i%u% a%ount of loan and adances sanctioned "y the Bank to the fir%s are not deter%ined "y
any specific rule: "ut ary fro% "orro3er to "orro3er: on an adhoc "asis.
5. +he %argin re(uire%ent stipulated on 3orking capital and ter% loan are generally in the range of 64-
54I.
7. +he alue of the collateral security o"tained for loans is generally ,44I of the a%ount of the loan.
<. +he syste% of inspecting stocks after "eing financed: is only physical and conentional and lacks
financial interpretation at each isit: si%ilarly inspection of %achinery of the "orro3ing units lacks an
ele%ent of %anagerial audit.
=. 1part fro% receiing stock state%ent and "ook de"ts state%ent each %onth: the Bank doesn9t hae any
other %anage%ent infor%ation for control of adances.
>. +he lead-ti%e "et3een application and sanctioning of loan aries fro% one to t3o 3eeks.
14. +he ti%e lag "et3een the sanction and dis"urse%ent of the sanctioned loans depends on the "orro3ers
re(uire%ents after e*ecutions of the security docu%ents in faor of the "ank.
CHAPTER .I
RECOMMENDATION AND SUGGESTION
1. In order to e*pand its credit "usiness: the Bank %ay enter into corporate financing. 1s a first step: the
Bank should identify lo3 risk: high olu%e "orro3ing co%panies to finance the% at least under
syndication along 3ith Co%%ercial Banks: 3ho hae "etter e*perience and resources. 1n e*a%ple
1pe* Cooperatie Bank /i%ited entering as a consortiu% to finance $angalore Che%icals and
!ertilizers /i%ited @$C!/A. @+he e*a%ple should "e taken only to indicate the concept of industrial
lending "y a Cooperatie Bank. +he fact that $C!/ later "eca%e sick and 1pe* Bank suffered: as
result should not reduce the concept contained in the e*a%pleA.
,. +he Bank should introduce a %ethod of assessing 3orking capital li%its on esti%ated cash flo3 "asis:
to supple%ent the e*isting %ethod of inentory and receia"les carry %ethod.
0. +he %a*i%u% per%issi"le "orro3ing %ust "e deter%ined not only "y a "ench%ark of %argin: such as:
,5I or also: "ut on the "asis of the actual long ter% surplus aaila"le as %argin contri"ution to3ards
3orking capital.
6. +he "ank should perceie the pri%ary security for 3orking capital %ore as the financial ia"ility of the
fir% then as the salea"le alue of inentories. In order to do so: an analysis of Break )en point and
$argin of Safety should "e %ade along 3ith conentional calculation of dra3ing po3er "ased on
%arket alue of stock and receia"les offered. +his %eans that the Bank should recognize the
i%portance of financing an actiity rather than lending against aaila"le security.
5. +he Bank should introduce Infor%ation Syste%s to superise age of receia"le and credit policy of the
"orro3ing fir%s. Si%ilarly: periodical inspection of the shop floor of the "orro3ing fir%s %ust
include study of inentory (ueuing of stocks or idling of %achinery. 'esult there fro%: a constant
check %ust "e kept on eidence of capacity i%"alances.
7. In addition to periodic state%ents of the stock and receia"les: the Bank should o"tain fro% the
"orro3ing fir%s the position of unpaid stock: oer aged receia"les: sales ta* dues: other statutory
dues and arrears of 3ages. +his is %ost critical since arrears of statutory dues 3ill su"ordinate the
Bank9s hypothecation charge: in the eent of recoery proceedings against "y the goern%ent.