INTRODUCTION

1.1 Meaning and Definition of Finance

Finance is the lifeblood of business concern, because it is interlinked with all activities
performed by the business concern. In a human body, if blood circulation is not proper, body
function will stop. Similarly, if the finance not being properly arranged, the business system
will stop. Arrangement of the required finance to each department of business concern is highly
a complex one and it needs careful decision. Quantum of finance may be depending upon the
nature and situation of the business concern.

 According to Khan and Jain, “Finance is the art and science of managing money”.
 According to Oxford dictionary, the word ‘finance’ connotes ‘management of money’.
 Webster’s Ninth New Collegiate Dictionary defines finance as “the Science on study of
the management of funds’ and the management of fund as the system that includes the
circulation of money, the granting of credit, the making of investments, and the provision of
banking facilities.

Financial Analysis

A financial statement in an organization conveys the financial information in absolute

terms which may not readily understood by everyone. Analysis and interpretation of financial
statement refers to a systematic and constant effort to determine the significance and meaning of
the financial statement to enable forecasting profitability, solvency and prospects of future
earnings. It is designated to be the last of the four major steps of accounting which involves
presentation of information that aids business managers and Large number of external practice
such as investors creditors security analysis government.

Analysis of financial statement refers to the art of applying various tools to know the
behavior of accounting information. It is the process of evaluation the relationship between

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component parts of a financial statement to obtain a better understanding of a firm’s position
and performance.

“Financial statement analysis is largely a study of relationship among various financial

factors in a business as disclosed by a single set of statements and a study of the trends of these
factors as shown in series of statement. According to Kennedy and Muller, “Analysis and
interpretation of financial statements are an attempt to determine the significance and meaning
of the financial statement data so the forecast many be and of the profitability of a sound
divided policy.”

According to Myers, financial statement analysis is largely a study of relationship among

various financial factors in a business as disclosed by a single set of statements and a study of
the trends of these factors as shown in a series of statements.”

Importance of Financial Analysis

 To avoid wrong decision making

 To analyzed and interpret the quantitative data
 Decision based on analysis and interpretation
 Easy to understand knowledge and experience of financial statement when they are
analyzed and interpret.
 To verify the correctness and accuracy of the decisions
 Any decision taken on the basis of institution may provide to be wrong.

Objectives of Financial Analysis

 T o highlight the present and future earnings capacity and profitability of the concern.
 To show, the efficiency of the concern as a whole and department wise.
 To determine the solvency of the firm both short term and long term.
 To facilitate inter firm and intra firm comparisons.
 To help in the preparation of the budgets.
 To help in assessing the long term liquidity position of fund.

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Users of Financial Statements

The financial statements are used by different categories of people for different purposes. The
various users of financial statements are classified and detailed as follows:

 Internal Users
The internal users of financial statements are individuals who have direct bearing with the
organization. They may include
 Managers and Owners
For the smooth operation of the organization, the managers and owners need the financial
reports essential to make business decisions. So as to provide a more comprehensive view of the
financial position of an organization, financial analysis is performed with the information
supplied in the financial statements. The financial statement is used to formulate contractual
terms between the company and other organizations.
A variable of the financial statement like the current debt to equity ratio is important in
deciding the amount of long term capital that would be required to be raised. The financial
statements of other companies can also provide investment solutions to different companies.
Sometimes it becomes difficult to decide the right field in which financial resources may be
channelized. In such situations the financial statements of other companies provide the
appropriate guideline.
 Employees
The financial reports or the financial statements are of immense use to the employees of the
company for making collective bargaining agreements. Such statements are used for discussing
matters of promotion, rankings and salary hike.
 External Users
The external users comprise of:
 Institutional Investors
The external users of financial statements are basically the investors who use the financial
statements to assess the financial strength of a company. This would help them to make logical
investment decisions.

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 Financial Institutions
The users of financial statements are also the different financial institutions like banks and
other lending institutions who decide whether to help the company with working capital or to
issue debt security to it.
 Government
The financial statements of different companies are also used by the government to analyze
whether the tax paid by them is accurate and is in line with their financial strength.
 Vendors
The vendors who extend credit to a business require financial statements to assess the
creditworthiness of the business.

Types of Financial Statement Analysis

 External Analysis

Such a type analysis constitutes investors, creditors, credit agencies and government
agencies as compared to internal analysis, external analysis, is not done in detail and hence
it serves limited purpose.

 Internal Analysis

It is done by those parties in the business who have access to books of accounts; such
practices can be designed as accountant or financial analyst. Internal analysis is not done
details when compared to external analysis.

 Horizontal Analysis

When financial analysis is done for number of years, it is known as horizontal analysis.
Such analysis set a trend where in the figures of various years is compared with one
standard year known as base year. Based on the trend prevailing it is possible to make
decisions and form a rational judgment about the progress of the business

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  Vertical analysis

When analysis is made for data covering one year period it is known a vertical analysis. This is
also can known as static analysis as it measures the state of affairs of the business as on given
period of time.

Limitations of financial Analysis

 The financial statements based on historical costs

 It used by unskilled analyst may lead to faulty conclusions.
 The reliability of analysis depends upon the accuracy of the figures used in the financial
statements.
 The results derived from analysis may be differently interpreted by different users.
 The analysis of one year statements will have limited use.
 Analysis of these statements will not serve as conclusive evidence of the performance of
the business.

Analysis of the Financial Statements

According to Myers, “Financial statement analysis is largely a study of relationship

among various financial factors business has disclosed by a single set of statements and their
study of trends of these factors has shown in the series of statements.”

 Analysis

Generally information presented in financial statements relates to individual accounts or group

balances of many accounts. This leads to lack of homogeneity and uniformity.

 Comparison

After division of facts into various components and sub components the second step involved is
the comparison of figures. This step involves measuring the magnitude of figures and knowing
the extent of relationship between them.

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 Interpretation

The process of drawing conclusions about the financial conditions of a business is known as
interpretation of financial statements.

Procedure of Financial Statements Analysis

 To study all data presented in financial statements for the clear understanding.
 Collect additional information if need be for proper interpretation
 Divide and sub divide the components according to their resemblances
 Interpret the data and draw conclusions there from.
 Prepare report incorporating the conclusion drawn.

Methods of Financial Analysis

For analyzing the financial data and interpretation them in a systematic manner, a number of
techniques or tools are available. These are as follows:

 Ratio analysis
 Comparative financial statements.
 Common size statement analysis.
 Funds flow analysis
 Cash flow analysis
 Trend analysis

Meaning of Cash Flow Statement Analysis

In financial accounting, a cash flow statement, also known as statement of cash flows is
a financial statement that shows how changes in balance sheet accounts and income affect cash
and cash equivalents, and breaks the analysis down to operating, investing, and financing
activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash
out of the business. The statement captures both the current operating results and the
accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is
useful in determining the short-term viability of a company, particularly its ability to pay bills.

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International Accounting Standard 7 (IAS 7) is the International Accounting Standard that deals
with cash flow statements. People and groups interested in cash flow statements include:

 Accounting personnel, who need to know whether the organization will be able to cover
payroll and other immediate expenses
 Potential lenders or creditors, who want a clear picture of a company's ability to repay
 Potential investors, who need to judge whether the company is financially sound
 Potential employees or contractors, who need to know whether the company will be able
to afford compensation
 Shareholders of the business.

Purpose of Cash Flow Statement Analysis

The cash flow statement was previously known as the flow of funds statement. The cash
flow statement reflects a firm's liquidity.

The balance sheet is a snapshot of a firm's financial resources and obligations at a single
point in time, and the income statement summarizes a firm's financial transactions over an
interval of time. These two financial statements reflect the accrual basis accounting used by
firms to match revenues with the expenses associated with generating those revenues. The cash
flow statement includes only inflows and outflows of cash and cash equivalents; it excludes
transactions that do not directly affect cash receipts and payments. These noncash transactions
include depreciation or write-offs on bad debts or credit losses to name a few. The cash flow
statement is a cash basis report on three types of financial activities: operating activities,
investing activities, and financing activities. Non cash activities are usually reported in
footnotes.

The cash flow statement is intended to provide information on a firm's liquidity and
solvency and its ability to change cash flows in future circumstances

 provide additional information for evaluating changes in assets, liabilities and equity
 improve the comparability of different firms' operating performance by eliminating the
effects of different accounting methods

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  indicate the amount, timing and probability of future cash flows

The cash flow statement has been adopted as a standard financial statement because it
eliminates allocations, which might be derived from different accounting methods, such as
various timeframes for depreciating fixed assets.

Importance of Cash Flow Statement

The management is concerned in maintaining significant cash balance to meet its current
obligations when they become due. Cash flow statement has the same utility as funds flow
statement and at the same time it may highlight upon these financial facts, which are generally
concealed by the funds flow statement. The importance of cash flow statements are given under:

 A cash flow statement provides detailed information regarding the changes in the cash
position for making short term financial plans for the concern.
 The cash flow statement helps the management to evaluate the firm’s ability to meet its
obligations.
 The projected cash flows statement prepared month wise may enable the financial
manager to plan the acquisition and use of cash, show that the minimum financial costs and
sound financial position may be achieved.
 The cash flows statements are also useful to the external analysts particularly investing
bankers, financial institutions etc to review the financial position of the borrowers and their
ability to repay the same.
 The statements are very helpful for making appraisal of various capital investment
projects to determine their viability and profitability.

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1.2Significance of the Study

The cash plays an important role in the business firm’s economic life therefore the major
responsibilities of financial management of the business is to maintain inadequate balance sheet,
in other words the availability of adequate cash in the business is one of the prerequisites for
successful operation. A business firm needs cash to make payments purchase of goods or raw
materials to make day to day expenses, and to pay salaries, wages, interest and dividends etc. If
the inflows of the cash are sufficient to meet the outflows of cash, the firm cannot meet its
current obligations. Hence there is a for cash analysis. For analysis of cash, a separate statement
to be prepared known as cash flow statement.

1.3 Scope of the Study

The scope of the study is limited to collect in the financial data published in the annual
report of company with reference to the objectives stated above and any analysis of the data
with a view to suggest favorable solution to the various problems related to financial
performance.

The project “cash flow statement analysis of “Kotak Mahindra Bank Limited” provides
information with regard to the cash inflows and outflows gives a comprehensive review of the
financial performance of Kotak Mahindra Bank Limited.

The magnitude and scope of a project is generally defined by its objectives, constraints
and methodology that has adopted to analysis the information. However, the scope of the
present project is at macro level i.e., the overall performance of the Kotak Mahindra Bank
Limited.

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1.4 Objectives of the Study

The chief purpose of the present study is to measure the cash flows in the organization.
However, the detailed set of objectives follows

 To know the flow of cash in the organization Kotak Mahindra Group. (Formerly Kotak
Mahindra Bank Limited.).
 To access the efficiency with sources and uses of cash were made by the bank from the
years 2008-2009 to 2012-2013
 To identify the liquidity position of Kotak Mahindra Bank Limited.
 To suggest various ways to improve the financial performance of the bank.

1.5 Methodology of the Study

For the present research report data is collected from primary source of information and
secondary source of information.

Sources of data: The data can be collected from two sources namely

 Primary data
 Secondary data

Primary data

It is also called as first handed information the data is collected through the observation in the
organization and interviews with officials. By asking questions with the accountants and other
personnel in the financial department apart from these some information collected through the
seminars, which were held by Kotak Mahindra Bank Limited

Secondary data

These secondary data is collected from financial journals, annual reports of the Kotak Mahindra
group website and other publications of Kotak Mahindra bank.

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1.6 Limitations of the Study

 Limited span of time is a major limitation for this project.

 The result does not reflect the day-to-day transactions.
 Confidential Information related to financial statements is not disclosed by bank officials.

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 THEORETICAL FRAME WORK

Meaning of Cash Flow Statement

Cash flow is made up of two words i.e. Cash and Flow, whereas Cash means cash balance
in hand including cash at bank balance, and Flow means changes (which may be + or – increase
or decrease) in the cash movements of the business.

Cash Flow Statement deals with only such items, which are connected with cash i.e., items
relating to inflow and outflow of cash. In other words, it is prepared to study the changes in cash,
or to show impact of various transactions on the cash. In short, it is a statement, which is
prepared to show the flow of cash in the business during a particular period. It thus, tells about
the changes in cash position of a business. The changes may be related either with the cash
receipts or cash payments or disbursements of cash. Thus, Cash Flow Statement is a summary of
cash receipts and payments whereby reconciling the opening cash balance with the closing cash
including bank balances in done. It also explains the reasons for the changes in the cash position
of the business on account of the Decrease in the cash position is termed as outflow of cash and
increase is termed in flow. Cash flow statement also tells about various sources in cash such as
cash from operations, sale of current and fixed Assets, issue of shares/debentures, also termed as
inflow of cash whereas loss from operations, purchase of current and fixed assets, redemption of
preference shares/debentures and other long term loans etc are also termed as outflow of cash.

Important Definitions as Per Accounting Standard-3 (revised)

 Cash comprises cash on hand and demand deposits with banks.

 Cash Equivalents are short-term, highly liquid investments that are readily convertible into
the known amount of cash and which are subject to an insignificant risk of change in value. An
investment normally qualifies as cash equivalent only when it has a short maturity of, say, three
months or less from the date of acquisition Examples of cash equivalents are : (a) treasury
bills,(b) commercial paper, (c) money market funds and (d) Investments in preference shares
and redeemable within three months can also be taken as cash equivalents if there is no risk of
the failure of the company.

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 Cash Flows are inflows and outflows of cash and cash equivalents. AS-3 requires a Cash
Flow Statement to be prepared and presented in a manner that it shows cash flows from
business transactions during a period classifying them into :

a. Operating Activities;

b. Investing Activities ; and

c. Financing Activities

a. Operating Activities: Operating activities are the principal revenue-producing activities of

the enterprise and other activities that are not investing or financing activities.

b. Investing Activities: Investing activities are the acquisition and disposal of long-term
assets and other investments not included in cash equivalents.

c. Financing Activities: Financing activities are the activities that result in change in the size
and composition of the owners’ capital (including preference) share capital in the case of a
company) and borrowing of the enterprise.

Objectives of Cash Flow Statement

 To Help the Management in Making Future Financial Policies

Cash Flow statement is very helpful to the management. The management can make its future
financial policies and is in a position to know about surplus or deficit of cash. Accordingly,
management can think of investing surplus funds, if any, in either short term or long term
investments. Thus, cash is the center of all financial decisions.

 Helpful in Declaring Dividends etc

Cash Flow Statement is very helpful in declaring dividends etc. This statement can supply
information regarding to understand the liquidity. It must be paid within 42 days.

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 Cash Flow Statement is Different than Cash Budget

Cash budget is prepared with the help of inflow and outflow of cash. If there is any variation,
the same can be corrected.

 Helpful in Devising the Cash Requirement

Cash flow statement is helpful in devising the cash requirement for repayment of liabilities and
replacement of fixed assets.

 Helpful in Finding Reasons for the Difference

Cash Flow Statement is also helpful in finding reasons for the difference between profits/losses
earned during the period and the availability of cash whether cash is in surplus or deficit.

 As per Accounting Standard -3, Cash Flow Statement

Cash Flow Statement is prepared with a view to highlight the cash generated from recurring
activities or cash loss if any where as net profit is calculated after making adjustments on
account of non cash items in the profit and loss account.

 Helpful in Predicting Sickness of the Business

Cash flow is helpful in predicting sickness of the business with the help of different ratios.

Uses of Cash Flow Statement

 Short-Term Planning

The Cash Flow Statement gives information regarding sources and application of cash and cash
equivalents for a specific period so that it becomes easier to plan investments, operating and
financing needs of an enterprise.

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 The Cash Flow helps understand Liquidity and Solvency

Solvency is the ability of the business to meet its current liabilities. Quarterly or monthly Cash
Flow Statements help ascertain liquidity in a better way. Financial institutions, like banks prefer
the Cash Flow Statement to analyze liquidity.

 Efficient Cash Management

The Cash Flow Statement provides information relating to surplus or deficit of cash. An
enterprise, therefore, can decide about the short-term investments of the surplus and can arrange
the short-term credit in case of deficit.

 Comparative Study

A comparison of the Cash Flows for the previous year with the budgeted figures of the same
year will indicate as to what extent the cash resources of the business were generated and
applied according to the plan. It is, therefore, useful for the management to prepare cash
budgets.

 Reasons for Cash Position

The Cash Flow Statement explains the reasons for lower and higher cash balances with the
enterprise. Sometimes, a lower cash balance is found in spite of higher profits or a higher cash
balance is found in spite of lower profits. Reasons for such situations can be analyzed with the
help of the Cash Flow Statement. Sometimes in spite of high profits gone? Answers to such
questions can be found from the Cash Flow Statement.

 Test for the Management Decisions

It is a general rule that fixed assets are purchased from the funds raised from long-term sources,
and the best way to repay the long-term debt is out of profits. The Cash Flow Statement shows
clearly whether the cash inflows from operations have been used for the purchase of fixed assets
or whether these assets have been purchased from cash inflows from long-term debts. Similarly,
it also explains whether the debentures have been redeemed out of profits or not. Thus, the Cash
Flow Statement fan be used to test the credibility of the management decisions.

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Limitations of Cash Flow Statement

Though the Cash Flow Statement is a very useful tool of financial analysis, it has its limitations
which must be kept in mind at the time of its use. These limitations are :

 Non-cash Transaction are ignored

The Cash Flow Statement shows only inflows and outflows of cash. It does not show non-cash
transactions like the purchase of buildings by the issue of shares or debentures to the vendors or
issue of bonus shares.

 Not a substitute for an Income Statement

An income statement shows both cash and non-cash items. The income statement shows the net
income of the firm whereas the Cash Flow Statement shows only the net cash inflows or
outflows which do not represent the net profits or losses of the enterprise.

 Historical in Nature

It rearranges the existing information available in the income statement and the balance sheet. It
will become more useful if it is accompanied by the projected Cash Flow Statement.

 Ignorance

It ignores basic accounting concept, i.e., accrual concept.

Sources of Cash
The following are the sources of cash:
 The profitable operations of the firm
 Decrease in assets(except cash)
 Increase in liabilities (including debentures or bonds) and
 Sale proceeds from an ordinary or preference shares issue.

Uses of Cash
The following are the uses of cash:
 The loss from operations
 Increase in assets (except cash)

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  Decrease in liabilities (including redemption of debentures or bonds)
 Redemption of redeemable preference shares and
 Cash dividends.

Change in Current Assets

Increase in current assets (that is end of the year balance exceeding the beginning balance)
reduce cash flow from operations while decrease in current assets (that is beginning balance
exceeds end of the year balance) increases cash flow.

Change in Current Liabilities

Increase in current liabilities increases cash flow from operation while decrease in current
liabilities reduces it.
In simple:
An increase in liability - Cash inflow
A decrease in liability - Out flow of cash
An increase in an asset - Out flow of cash
A decrease in an asset - Cash inflow

Classification of Cash Flows

As discussed earlier, the Cash, Flow Statement shows the cash inflows (sources) and
cash outflows (uses or applications) of cash and cash equivalents during an accounting period.
Hence, it is essential to know about the various items of sources (or inflows of cash) and uses
(outflows of cash) of cash. As per the Accounting Standard-3 (AS-3) the changes resulting in
inflows and outflows cash and cash equivalents arise on account of three types of activities, i.e.,
operating, investing and financing as discussed below:

 Operating Activities

Operating Activities are the principal revenue producing activities of the enterprise and other
activities that are not related to investing or financing activities. The examples are :
(a) Cash receipts from the sale of goods and rendering of services.

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(b) Cash receipts from royalties, fees, commission and other revenue.
(c) Cash payments to suppliers of goods and services.
(d) Cash payments to and on behalf of employees for wages, etc.
(e) Cash receipts and payments of an insurance enterprise for premiums and claims,
annuities and other policy benefits.
(f) Cash payments or refunds of income taxes unless they can be specifically identified with
financing and investing activities.
(g) Cash receipts and payments relating to future contracts, forward contracts, option
contracts, and swap contracts, when the contracts are held for dealing or trading
purposes.

The principal revenue producing activity of an enterprise is the main activity (business)
carried on by it to earn profits. Examples of a financial enterprise; giving loans and dealing in
securities is the principal revenue producing activity. Similarly, for an insurance company
accepting premium and payments of claims is the principal revenue producing activity.

The net effect of the operating activities on the flow of cash is reported as cash flow from
or cash used in Operating Activities in the Cash Flow Statement.

 Investing Activities

Investing activities are the acquisition and disposal of the long-term assets and other
investments, not included in cash equivalents, These activities include transactions involving
purchase and sale of the long-term productive assets like machinery, land and buildings, etc.,
which are not held for resale. The cash flow from investing activities are:

(a) Cash payments to acquire fixed assets (including intangibles) and also payments for
capitalized research and development costs and self constructed fixed assets.

(b) Cash receipts from the disposal of fixed assets (including intangibles).

(c) Cash payments to purchase (acquire) shares, warrants, or debt instruments of other
enterprises and interests in joint ventures (other than payments for those instruments
considered to be cash equivalents and those held for trading or dealing purposes).

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(d) Cash receipts from sale (disposal) of shares, warrants, or debt instruments of other
enterprises and interest in joint ventures (other than receipts from those instruments
considered to be cash equivalents and those held for dealing or trading purposes).

(e) Cash receipts from sale (disposal) of shares, warrants, or debt instruments of other
enterprises and interest in joint ventures (other than receipts from those instruments
considered to be cash equivalents and those held for dealing or trading purposes).

(f) Cash receipts from repayments of advances and loans made to third parties (other than
advances and loans of financial enterprises).

(g) Cash receipts relating to future contracts, forward contracts, option contracts and swap
contracts except when the contracts are held for trading purposes, or the receipts are
classified as financing activities.

(h) Cash payments relating to future contracts, forward contracts, option contracts and swap
contracts except when the contracts are held for trading purposes, or the payments are
classified as financing activities.

 Financing Activities

Financing activities are the activities which result in changes in the size and composition of the
owner’s capital (including preference share capital in the case of a company) and borrowings of
the enterprise from other sources. The cash flow from financing activities are :
(a) Cash proceeds from the issue of shares or other similar instruments.
(b) Cash proceeds from the issue of debentures, loan notes, bonds and other short term
borrowings.
(c) Buy-back of equity shares.
(d) Cash repayments of the amounts borrowed including redemption of debentures.
(e) Payments of dividends both equity and preference dividends.
(f) Payments for interest on debentures and loans.

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Classification of Business Activities as per Accounting Standard -3, showing the inflow and
Outflow of Cash

Operating Activities

Cash Inflow Cash Outflow

(i) Cash Sales (i) Cash Purchases

(ii) Cash received from debtors (ii) Payment to Creditors

(iii) Cash received from Commission and Fees (iii)Cash Operating Expenses

(iv) Royalty (iv) Payment of Wages

(v) Income Tax

In the case of Financial Companies In the case of Financial Companies

(v) Cash received for interest and dividends (vi) Cash paid for interest

(vi) Sale of securities (vii) Purchase of Securities

Investing Activities

Cash Inflow Cash Outflow

(i) Sales of fixed Assets (i) Purchase of Fixed Assets

(ii) Sale of Investments (ii) Purchase of Investments
(iii) Interest Received
(iv) Dividends Received

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 Financing Activities

Cash Inflow Cash Outflow

(i) Issue of Shares in Cash (i) Payment of Loans

(ii) Issue of Debentures in Cash (ii) Redemption of Preference Shares
(iii) Proceeds from Long-term Borrowings (iii)Buy-back of Equity Shares
(iv) Payment of Dividend
(v) Payment of Interest
(vi) Repayment of Finance/Lease Liability

Preparation of Cash Flow Statement

The cash flow statement is not a substitute for income statement but is a statement which
explains the reasons for changes in cash and cash equivalents derived from financial statements
at two points of time. While cash comprises cash at hand demand deposits with banks, cash
equivalents are short-term highly liquid investments. Cash flow statement is also known as
secondary statement.
Accounting standard -3 insists that the cash flow statement should report cash flows during
the period classified by operating, investing and financing activities. The total cash floes form
these three activities will be the net increase of decrease in cash and cash equivalents during the
period. If the net increase is added to the opening or decrease balance of cash and cash
equivalents should be obtained.

Methods of Calculating Cash Flows

There are two methods of reporting cash flows from operating activities
 Direct Method
 Indirect Method

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Direct Method
Under the direct method, cash receipts (inflows) from operating revenues and cash
payments (outflows) for operating expenses are calculated to arrive at cash flows from operating
activities. The difference between the cash payments is the net cash flows provided by(or used
in) operating activities. The following are the examples of cash receipts and cash payments
(called cash flows) resulting from operating activities.
 Cash receipts from the sale of goods and the rendering of services.
 Cash receipts from royalties, fees, commissions and other revenues.
 Cash payments to supplier for goods and services.
 Cash receipts to and on behalf of employees.
 Cash receipts and cash payment of an insurance for premiums and claims, annuities
and other policy benefits.
 Cash payments of refund of income taxes unless they can be specifically identified
with financing and investing activities and
 Cash receipts and payments relating to future contracts, forward contracts, option
contracts and swap contracts when the contracts are held for dealing or trading purposes.
 The formation about major classes of gross cash payments may be obtained either:
 From accounting records of the enterprise
 By adjusting sales, cost of sales (interest and similar income and interest expense and
similar charges for a financial enterprise) and other items in the statement of profit and loss
for,
 Charges during the period in investments and operating receivables and payables,
 Other non- cash items , and
 Other items for which the cash effects are investing or financing cash flows.

Format of Cash Flows Statement (Direct Method)

Accounting standard -3 (revised) has not provided any specific format for preparing a cash
flows statement. However, an idea of the suggested format can be inferred from the illustration
appearing in the appendices to the accounting period. The net cash flow statement should report
cash flows during the period classified by operating, investing and financing activities. A widely
used format of cash flow statement is given below

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FORMAT SHOWING STATEMENT OF CASH FLOWS (DIRECT METHOD)
Particulars amount Amount

1.cash flows from operating activities:

Cash received from customers xxx
Cash paid to suppliers xxx
Cash paid to employees xxx
Cash paid for expenses xxx
Cash generated from operations xxx
Cash paid for Income taxes xxx
____________
Net cash from operating activities (i) xxx

2.cash flows from investing activities:

Purchase of fixed and investments xxx
Sale of fixed assets and investments xxx
Cash from interest and dividends on investment xxx
received _____________
xxx xxx
Net cash flows from (used for) investing activities (ii)

3.cash flows from financing activities: xxx

Cash from issue of shares xxx
Cash from issue of debentures xxx
Cash from loans raised xxx
Redemption of debentures xxx
Repayment of loans xxx
Payment of loans xxx
Payment of dividend ____________
xxx
Net cash from (used for) financing activities(iii) xxx

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 Net increase (decrease) in cash xxx
Cash at the beginning of the period _____________
xxx
Cash at the end of the period

Indirect Method
Under this indirect method, the net cash flow from operating activities is determined by adjusting
net profit or loss for the effect of:
Non – cash items such as depreciation, provisions, deferred taxes and unrealized foreign
exchange gains and losses and
Changes during the period in inventories and operating receivables and payables
All other items for which the cash effects are investing or financing cash flows
The direct method is also called reconciliation method as it involves reconciliation of net
profit or loss as given in the profit and loss account and the net cash flow from operating
activities as shown in the cash flow statement . In other words, net profit or loss is adjusted for
non – cash and non – operating items which may have been debited of credited to profit and loss
account as follows:

24
 FORMAT SHOWING STATEMENT OF CASH FLOWS (INDIRECT METHOD)
particulars Amount Amount

1.cash flows from operating activities:

Net profit before tax xxx
Adjusted for:
Depreciation xxx
Interest income xxx
Dividend income xxx
Interest expense xxx
Provision for tax xxx
Loss of sale of fixed assets xxx
Gain on sale of fixed assets xxx
Other non – cash items xxx
Operating profit before working capital changes xxx
Add: Increase in current liabilities xxx
Decrease of current assets xxx
(other than cash) xxx
Less: Decrease in current liabilities xxx
Increase in current assts xxx
(other than cash) xxx
____________
Net cash from operating activities (i) xxx

2.cash flows from investing activities: xxx

Purchase of fixed assets and investments xxx
Cash flows from sale of fixed assets and investments xxx
Cash from interest and dividends on investments ___________

Net cash from(used for) investing activities(ii) xxx

25
3. cash flows from financing activities: xxx
Cash from issue of shares xxx
Cash from issue of debentures xxx
Cash from loan raised xxx
Redemption of shares xxx
Redemption of debentures xxx
Payment of interest xxx
Payment of dividend _____________

Net cash from (used for) financing activities (iii) xxx

Net increase (decrease) in cash xxx
Cash at the beginning of the period xxx
_____________
Cash at the end of the period xxx

26
Treatment of Special Items

Accounting standard -3 (revised) has also provided for the treatment of some typical cash flow
items is discussed below

 Extraordinary Items
Inflow or outflow of cash is classified according to the nature of activities that may be
operating, investing, or financing activities. Cash flow due to extraordinary items should
be shown separately in the cash flow statement to enable users to understand its nature
and effect on the cash flow statement.
 Interest and Dividends
If cash flow arises due to interest paid or interest and dividend received, then that should
be classified as operating activities in case of "financial enterprises". In case of "other
than financial organizations", the interest paid should be classified as financing activity,
and the interest and dividends received should be classified as investing activity.
Note: Dividend paid should be classified as financing activity in both the above cases.
 Taxes on Income
Taxes on income should be separately disclosed and should be classified under operating
activities in most of the cases except where we can easily identify the taxes according to
nature of income but if total amount of tax is given, then it should be classified as
operating activities.
Note: Dividend distribution tax will be classified as financing activities.
 Cash Flows from Acquisition and Disposal of Subsidiaries and other Business Units
Cash flow arises due to acquisition or disposal of subsidiary should be shown separately
and classified as investing activities. This transaction should be easily identifiable in cash
flow statement to enable users to understand the effect of it. The case flow of disposal is
not deducted from cash flow of acquisition.
The aggregate cash flows arising from acquisitions and from disposals of
subsidiaries or other business units should be separately and classified as investing
activities. An enterprise should be separately and classified as investing activities. An
enterprise should disclose, in aggregate in respect of both acquisition and disposal of
subsidiaries or other business units during the period each of the following. The total

27
 purchase or disposal consideration and the portion of the purchase or disposal
consideration discharged by means of cash and cash equivalents.
 Foreign Currency
Items appearing in a cash flow statement should be shown in local currency value,
applying actual foreign currency rate of the particular day on which cash flow statement
is going to be prepared. Effect on value of cash and cash equivalents as reflected in the
cash flow statement due to change in rate of foreign currency should be shown separately
as a reconciliation of changes.
Due to change in foreign currency rate, unrealized gains and losses are not cash
flows. However, effect on cash and cash equivalents held or due in foreign currency are
reported in cash flow statement in order to reconcile the cash and cash equivalents at the
beginning and at the end of the period.
 Non-Cash Transactions
Some investing and financing activities do not have any direct impact on cash flows. For
example, conversion of debt to equity, acquisition of an enterprise by means of issuance
of share, etc.
Those transactions should be excluded from cash flow statements, in which there
are no use of cash or cash equivalents. There are other financial statements in which those
investing and financing activities appear separately.

28
 Distinction between Funds Flow Statement and Cash Flow Statement

Funds Flow Statement Cash Flow Statement

1. It is based on accrued basis of accounting. 1. It is based on cash basis of accounting.
2. Funds flow statement is concerned with 2. Cash flow statement is concerned only
changes with changes in working capital with the changes in cash position.
position between two balance sheets.
3. Funds flow statement is based on a wider 3. Cash flow statement is based on the
concept of funds i.e., working capital. narrow concept of funds i.e., cash only with
the changes in cash position.
4. A schedule of working capital changes is 4. No such schedule is prepared in case of
prepared in case of funds flow statement. cash flow statement.
5. It shows the changes of net cash only but 5. It shows the changes of the opening cash
also of other current assets like debtors, stock balance into the closing cash balance.
etc.
6. The statement does not start with any 6. The statement start with the opening cash
opening balance of any account and does not and bank balances and ends with the closing
even and with any closing balance of any cash and cash balance in most of the cases.
account.
7. It shows the changes in the current
7. It does not show the changes in the
liabilities like sundry creditors, bills payable
current liabilities of the enterprise.
etc.
8. In this case, profit from operation or the
8. In this case, the main source of cash inflow
net profit is considered as principle sources of
is considered to be the sales and not the net
fund.
profit of the business.

9. Funds flow statement is useful for long –

9. Cash flow statement as a tool of financial
term financial analysis.
analysis is more useful to the cash planning.

29
 Difference between Cash Book and Cash Flow Statement
Cash Book Cash Flow Statement

1. Cash book is the book of primary entry for 1. Cash flow statement is a statement
cash transactions. showing the sources and utilization of cash.
2. In cash book, all cash receipts and cash 2. In cash flow statement, all inflows and
payments are recorded. outflows of cash are exhibited.
3. Process of recording in the cash book is 3. It is generally prepared at the end of the
the most essential activity under financial financial year.
accounting system. 4. Preparation of cash flow statement is the
4. Process of recording in the cash book is most important activity under management
the most essential activity under the financial accounting system.
accounting system. 5. The objective behind preparation of cash
5. Primary objective behind the preparation flow statement is to provide necessary
of cash book is the recording of all cash information as regards to sources and
transactions and to find out the balance of cash. utilization of cash.
6. Cash book exhibits lesser information as 6. Cash flow statement exhibits more
regards to movement of cash than cash flow detailed information regarding the movement
statement. of cash than the cash book.
7. Net cash flows from different activities of 7. Net Cash flows from different activities
the enterprise, like operating, investing and of an enterprise are separately exhibited in the
financing activities, are not separately cash flow statement prepared as per AS-3, as
exhibited in the cash book. issued by Institute of Chartered Accounts of
India.
8. While preparing the cash book, cash 8. While preparing the cash flow statement,
refers to cash in hand and cash at bank cash includes cash in hand, cash at bank
(demand deposits) only. (demand deposits) and short – term
investments.

30
 INDUSTRY PROFILE

INTRODUCTION TO BANKING INDUSTRY

According to the Reserve Bank of India (RBI), the banking sector in India is sound,
adequately capitalized and well-regulated. Indian financial and economic conditions are much
better than in many other countries of the world. Credit, market and liquidity risk studies show
that Indian banks are generally resilient and have withstood the global downturn well.

With a sense of optimism slowly creeping in, the banking industry expects that 2015 will
bring better growth prospects. This optimism stems from factors such as the Government
working hard to revitalise the industrial growth in the country and the RBI initiating a number of
measures that would go a long way in helping the banks to restructure. The recent
announcements of RBI, it is felt, are a clear pointer to the future of the restructured domestic
banking industry.

HISTORY OF BANKING

Origin of the word

The name bank derives from the Italian word banco "desk/bench", used during the Renaissance
by Jewish Florentine bankers, who used to make their transactions above a desk covered by a
green tablecloth. However, there are traces of banking activity even in ancient times, which
indicates that the word 'bank' might not necessarily come from the word 'banco'.

In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders
would set up their stalls in the middle of enclosed courtyards called macella on a long bench
called a bancu, from which the words banco and bank are derived. As a moneychanger, the
merchant at the bancu did not so much invest money as merely convert the foreign currency into
the only legal tender in Rome—that of the Imperial Mint.

The earliest evidence of money-changing activity is depicted on a silver drachm coin from
ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c.350–325 BC, presented
in the British Museum in London. The coin shows a banker's table (trapeza) laden with coins, a
31
pun on the name of the city. In fact, even today in Modern Greek the word Trapeza means both a
table and a bank.

Banking in India in the modern sense originated in the last decades of the 18th century.
The among the first banks were Bank of Hindustan, which established in 1770 and liquidated in
1829-32; and General Bank of India, established 1786 but failed in 1791.

The largest bank, and the oldest still in existence, is the State Bank of India. It originated
as the Bank of Calcutta in June 1806. In 1809, it was renamed as the Bank of Bengal. This was
one of the three banks funded by a presidency government, the other two were the Bank of
Bombay and the Bank of Madras. The three banks were merged in 1921 to form the Imperial
Bank of India, which upon India's independence, became the State Bank of India in 1955. For
many years the presidency banks had acted as quasi-central banks, as did their successors, until
the Reserve Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.

In 1960, the State Banks of India was given control of eight state-associated banks under
the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks.
In 1969 the Indian government Nationalized 14 major private banks. In 1980, 6 more private
banks were nationalized. These Nationalized banks are the majority of lenders in the Indian
economy. They dominate the banking sector because of their large size and widespread
networks.

The Indian banking sector is broadly classified into scheduled banks and non-scheduled
banks. The scheduled banks are those which are included under the 2nd Schedule of the Reserve
Bank of India Act, 1934. The scheduled banks are further classified into: Nationalized banks;
State Bank of India and its associates; Regional Rural Banks (RRBs); foreign banks; and other
Indian private sector banks. The term commercial banks refers to both scheduled and non-
scheduled commercial banks which are regulated under the Banking Regulation Act, 1949.

Generally banking in India was fairly mature in terms of supply, product range and reach-
even though reach in rural India and to the poor still remains a challenge. The government has
developed initiatives to address this through the State Bank of India expanding its branch

32
network and through the National Bank for Agriculture and Rural Development with things like
microfinance.

Ancient India

The Vedas (2000-1400 BCE) are earliest Indian texts to mention the concept of usury.
The word kusidin is translated as usurer. The Sutras (700-100 BCE) and the Jatakas (600-400
BCE) also mention usury. Also, during this period, texts began to condemn usury. Vasishtha
forbade Brahmin and Kshatriya varnas from participating in usury. By 2nd century CE, usury
seems to have become more acceptable. The Manusmriti considers usury an acceptable means of
acquiring wealth or leading a livelihood. It also considers money lending above a certain rate,
different ceiling rates for different caste, a grave sin.

The Jatakas also mention the existence of loan deeds. These were called rnapatra or
rnapanna. The Dharmashastras also supported the use of loan deeds. Kautilya has also mentioned
the usage of loan deeds. Loans deeds were also called rnalekhaya.

Later during the Mauryan period (321-185 BCE), an instrument called adesha was in use,
which was an order on a banker directing him to pay the sum on the note to a third person, which
corresponds to the definition of a modern bill of exchange. The considerable use of these
instruments have been recorded. In large towns, merchants also gave letters of credit to one
another.

Medieval era

The use of loan deeds continued into the Mughal era and were called dastawez. Two
types of loans deeds have been recorded. The dastawez-e-indultalab was payable on demand and
dastawez-e-miadi was payable after a stipulated time. The use of payment orders by royal
treasuries, called barattes, have been also recorded. There are also records of Indian bankers
using issuing bills of exchange on foreign countries. The evolution of hundis, a type of credit
instrument, also occurred during this period and they continue to be in use today.

33
Colonial era

During the period of British rule merchants established the Union Bank of Calcutta in
1869, first as a private joint stock association, then partnership. Its proprietors were the owners
of the earlier Commercial Bank and the Calcutta Bank, who by mutual consent created Union
Bank to replace these two banks. In 1840 it established an agency at Singapore, and closed the
one at Mirzapore that it had opened in the previous year. Also in 1840 the Bank revealed that it
had been the subject of a fraud by the bank's accountant. Union Bank was incorporated in 1845
but failed in 1848, having been insolvent for some time and having used new money from
depositors to pay its dividends.

The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint
Stock bank in India, it was not the first though. That honour belongs to the Bank of Upper India,
which was established in 1863, and which survived until 1913, when it failed, with some of its
assets and liabilities being transferred to the Alliance Bank of Simla.

Foreign banks too started to appear, particularly in Calcutta, in the 1860s. The Comptoir
d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862;
branches in Madras and Pondicherry, then a French possession, followed. Hongkong and
shanghai banking corporation of established itself in Bengal in 1869. Calcutta was the most
active trading port in India, mainly due to the trade of the British Empire, and so became a
banking centre.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in
1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in
Lahore in 1894, which has survived to the present and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative
period of stability. Around five decades had elapsed since the Indian rebellion, and the social,
industrial and other infrastructure had improved. Indians had established small banks, most of
which served particular ethnic and religious communities.

34
 The presidency banks dominated banking in India but there were also some exchange
banks and a number of Indian joint stock banks. All these banks operated in different segments
of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing
foreign trade. Indian joint stock banks were generally under capitalised and lacked the
experience and maturity to compete with the presidency and exchange banks. This segmentation
let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like
some old fashioned sailing ship, divided by solid wooden bulkheads into separate and
cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures
to found banks of and for the Indian community. A number of banks established then have
survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda,
Canara Bank and Central Bank of India.

The fervour of Swadeshi movement lead to establishing of many private banks in

Dakshina Kannada and Udupi district which were unified earlier and known by the name South
Canara ( South Kanara ) district. Four Nationalized banks started in this district and also a
leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of
Indian Banking".

During the First World War (1914–1918) through the end of the Second World War
(1939–1945), and two years thereafter until the independence of India were challenging for
Indian banking. The years of the First World War were turbulent, and it took its toll with banks
simply collapsing despite the Indian economy gaining indirect boost due to war-related economic
activities. At least 94 banks in India failed between 1913 and 1918.

Post-Independence

The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal,
paralysing banking activities for months. India's independence marked the end of a regime of the
Laissez-faire for the Indian banking. The Government of India initiated measures to play an
active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the

35
government in 1948 envisaged a mixed economy. This resulted into greater involvement of the
state in different segments of the economy including banking and finance. The major steps to
regulate banking included:

 The Reserve Bank of India, India's central banking authority, was established in April
1935, but was Nationalized on 1 January 1949 under the terms of the Reserve Bank of India
(Transfer to Public Ownership) Act, 1948 (RBI, 2005b).
 In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of
India (RBI) "to regulate, control, and inspect the banks in India".
 The Banking Regulation Act also provided that no new bank or branch of an existing
bank could be opened without a license from the Reserve Bank of India, and no two banks
could have common directors.

Nationalization in the 1960s

Despite the provisions, control and regulations of the Reserve Bank of India, banks in
India except the State Bank of India (SBI), continued to be owned and operated by private
persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer, and a
debate had ensued about the nationalization of the banking industry. Indira Gandhi, the then
Prime Minister of India, expressed the intention of the Government of India in the annual
conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank
Nationalization." The meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an
ordinance ('Banking Companies (Acquisition and Transfer of Undertakings Ordinance, 1969')
and Nationalized the 14 largest commercial banks with effect from the midnight of 19 July 1969.
These banks contained 85 percent of bank deposits in the country. Jayaprakash Narayan, a
national leader of India, described the step as a "masterstroke of political sagacity." Within two
weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition
and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.

36
 A second dose of nationalization of 6 more commercial banks followed in 1980. The
stated reason for the nationalization was to give the government more control of credit delivery.
With the second dose of nationalization, the Government of India controlled around 91percent of
the banking business of India. Later on, in the year 1993, the government merged New Bank of
India with Punjab National Bank. It was the only merger between Nationalized banks and
resulted in the reduction of the number of Nationalized banks from 20 to 19. After this, until the
1990s, the Nationalized banks grew at a pace of around 4 percent, closer to the average growth
rate of the Indian economy.

Liberalization in the 1990s

In the early 1990s, the then government embarked on a policy of liberalization, licensing
a small number of private banks. These came to be known as New Generation tech-savvy banks,
and included Global Trust Bank (the first of such new generation banks to be set up), which later
amalgamated with Oriental Bank of Commerce, United Trust of India Bank (since renamed Axis
Bank), Industrial Credit and Investment Corporation of India Bank and Housing Development
Finance Corporation Bank. This move, along with the rapid growth in the economy of India,
revitalised the banking sector in India, which has seen rapid growth with strong contribution
from all the three sectors of banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation in the
norms for foreign direct investment, where all foreign investors in banks may be given voting
rights which could exceed the present cap of 10 percent at present. It has gone up to 74 percent
with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time,
were used to the 4–6–4 method (borrow at 4 percent; lend at 6 percent; go home at 4) of
functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for
traditional banks. All this led to the retail boom in India. People demanded more from their
banks and received more.

37
Current period

All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934
are Scheduled Banks. These banks comprise Scheduled Commercial Banks and Scheduled Co-
operative Banks. Scheduled Commercial Banks in India are categorised into five different groups
according to their ownership and/or nature of operation. These bank groups are:

 State Bank of India and its Associates

 Nationalized Banks
 Private Sector Banks
 Foreign Banks
 Regional Rural Banks

In the bank group-wise classification, Industrial Development Bank of India is included in

Nationalized Banks. Scheduled Co-operative Banks consist of Scheduled State Co-operative
Banks and Scheduled Urban Cooperative Banks.

By 2010, banking in India was generally fairly mature in terms of supply, product range and
reach-even though reach in rural India still remains a challenge for the private sector and foreign
banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have
clean, strong and transparent balance sheets relative to other banks in comparable economies in
its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the
government.

With the growth in the Indian economy expected to be strong for quite some time-especially
in its services sector-the demand for banking services, especially retail banking, mortgages and
investment services are expected to be strong. One may also expect Mergers and acquisitions,
takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in
Kotak Mahindra Bank (a private sector bank) to 10 percent. This is the first time an investor has
been allowed to hold more than 5 percent in a private sector bank since the Reserve Bank of

38
India announced norms in 2005 that any stake exceeding 5 percent in the private sector banks
would need to be vetted by them.

In recent years critics have charged that the non-government owned banks are too aggressive
in their loan recovery efforts in connection with housing, vehicle and personal loans. There are
press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.

By 2013 the Indian Banking Industry employed 1,175,149 employees and had a total of
109,811 branches in India and 171 branches abroad and manages an aggregate deposit of
67504.54 billion (US$1.1 trillion or €1.0 trillion) and bank credit of 52604.59 billion
(US$840 billion or €780 billion). The net profit of the banks operating in India was 1027.51
billion (US$16 billion or €15 billion) against a turnover of 9148.59 billion (US$150 billion or
€140 billion) for the financial year 2012-13.

Market Size

The Indian banking sector is fragmented, with 46 commercial banks jostling for business
with dozens of foreign banks as well as rural and co-operative lenders. State banks control 80
percent of the market, leaving relatively small shares for private rivals.

At the end of February, 13.7 crore accounts had been opened under Pradhana mantri Jan
Dhan Yojna (PMJDY) and 12.2 crore RuPay debit cards were issued. These new accounts have
mobilized deposits of Rs 12,694 crore (US$ 2.01 billion).

Standard & Poor’s estimates that credit growth in India’s banking sector would improve
to 12-13 percent in Financial year 2016 from less than 10 percent in the second half of Current
year 2014.

39
Investments/Developments

There have been many investments and developments in the Indian banking sector in the past
few months.

 The United Economic Forum (UEF), an organisation that works to improve

socioeconomic status of the minority community in India has signed a Memorandum of
Understanding (MoU) with Indian Overseas Bank (IOB) for financing entrepreneurs from
backward communities to set up businesses in Tamil Nadu
 The Reserve Bank of India has allowed third-party white label Automated Teller
Machines (ATM) to accept international cards, including international prepaid cards, and said
white label Automated Teller Machines can now tie up with any commercial bank for cash
supply.
 With the objective of increasing investment opportunities for Indian Alternative
Investment Funds (AIFs), the Reserve Bank of India has allowed these funds to invest overseas.
 In a major boost for the infrastructure sector, as well as for banks financing long gestation
projects, the Reserve Bank of India has extended its flexible refinancing and repayment option
for long-term infrastructure projects to existing ones where the total exposure of lenders is more
than Rs 500 crore (US$ 78.98 million). Syndicate Bank is planning to open 300-500 branches in
the next financial year.
 Reserve Bank of India governor Mr Raghuram Rajan and European Central Bank
President Mr Mario Draghi have signed an Memorandum of Understanding on cooperation in
central banking. “The memorandum of understanding provides a framework for regular
exchange of information, policy dialogue and technical cooperation between the two
institutions. Technical cooperation may take the form of joint seminars and workshops in areas
of mutual interest in the field of central banking,” Reserve Bank of India said on its website.
 Ratnakar Bank limited has announced that it would be the anchor investor in Trifecta
Capital’s Venture Debt Fund, the first Alternative Investment Fund (AIF) of its kind in India
with a commitment of Rs 50 crore (US$ 7.89 million). This move provides Reserve Bank of
India the opportunity to support the emerging venture debt market in India.
 The Reserve Bank of India has allowed banks to become insurance brokers, permitting
them to sell policies of different insurance firms subject to certain conditions.

40
 Bandhan Financial Services Pvt. Ltd has raised Rs 1,600 crore (US$ 252.69 million) from
two international institutional investors to help convert its microfinance business into a full
service bank. Bandhan was one of the two entities to get a banking licence in April 2014 along
with infrastructure finance company.
 Yes Bank Ltd has signed an Memorandum of Understanding with the United states
government’s development finance institution Overseas Private Investment Corporation (OPIC)
to explore US$ 220 million of financing to lend to Micro, Small and Medium Enterprises
(MSMEs) in India.
 Reliance Industries Limited (RIL) has said that it has applied for a Payments Bank
licence, where the company will be the promoter and State Bank of India will be its joint
venture partner with an equity investment of up to 30 per cent.
 The Reserve Bank of India has allowed bonds issued by multilateral financial institutions
like World Bank Group, the Asian Development Bank and the African Development Bank in
India as eligible securities for interbank borrowing. The move will further develop the corporate
bonds market, Reserve Bank of India said in a notification.
 The Competition Commission of India (CCI) has cleared the merger of ING Vyshya
Bank with Kotak Mahindra Bank, which would create the country's fourth largest private sector
lender. The proposed Rs 15,000 crore (US$ 2.36 billion) deal is not likely to have any
appreciable adverse effect on competition in India, as per the competition "The share of both
entities in various relevant markets is insignificant," the Competition Commission of India said.
 Tata Consultancy Services Ltd (TCS), India’s largest software services exporter, has
announced that it has expanded its presence in Singapore with the opening of a new 1,000-seat
TCS Singapore Banking and Financial Services (BFS) centre. The new centre replaces a 500-
seat centre opened in 2011 and will offer a broader range of services to global banks in the
Asia-Pacific region, with a major focus on digital offerings.

41
Government Initiatives

There have been a lot of developments in the Indian banking sector.

 The Government has announced a capital infusion of Rs 6,990 crore (US$ 1.1 billion) in
nine state run banks, including State Bank of India (SBI) and Punjab National Bank (PNB), but
based on new efficiency parameters such as return on assets and return on equity. In a
statement, the finance ministry said, “This year, the Government of India has adopted new
criteria in which the banks which are more efficient would only be rewarded with extra capital
for their equity so that they can further strengthen their position."
 The Union cabinet has approved the establishment of the US$ 100 billion New
Development Bank (NDB) envisaged by the five-member BRICS group as well as the BRICS
“Contingent Reserve Arrangement” (CRA).
 The Reserve Bank of India has decided to allow nominated banks to import gold,
including coins, on a consignment basis, extending its clarification issued in November 2014,
which had eased certain categories of gold imports.
 To help Micro, Small and Medium Enterprises (MSME), Reserve Bank of India has
permitted setting up of an exchange-based trading platform to facilitate financing of bills raised
by such small entities to corporate and other buyers, including government departments and
Public Sector Unit’s.

Road Ahead

The Indian economy is now on the threshold of a major transformation, with expectations
of policy initiatives being implemented. Positive business sentiments, improved consumer
confidence and more controlled inflation should help boost the economic growth. Higher
spending on infrastructure, speedy implementation of projects and continuation of reforms will
provide further impetus to growth. All this translates into a strong growth for the banking sector
too, as rapidly growing business turn to banks for their credit needs, thus helping them grow.

Also, with the advancements in technology, mobile and internet banking services have
come to the fore. Banks in India are focusing more and more to provide better services to their

42
clients and have also started upgrading their technology infrastructure, which can help improve
customer experience as well as give banks a competitive edge.

Many banks, including Housing Development Finance Corporation, Industrial Credit and
Investment Corporation of India and Axis bank are exploring the option to launch contact-less
credit and debit cards in the market soon. The cards, which use Near Field Communication
(NFC) mechanism, will allow customers to transact without having to insert or swipe.

Exchange Rate Used: INR 1 = US$ 0.0157 as on April 28, 2015

Traditional banking activities

Banks act as payment agents by conducting checking or current accounts for customers,
paying cheques drawn by customers on the bank, and collecting cheques deposited to customers
current accounts. Banks also enable customer payments via other payment methods such as
Telegraphic Transfer, and Automated Teller Machine.

Banks borrow money by accepting funds deposited on current accounts, by accepting

term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by
making advances to customers on current accounts, by making installment loans, and by
investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered
indispensable by most businesses, individuals and governments. Non-banks that provide
payment services such as remittance companies are not normally considered an adequate
substitute for having a bank account.

Banks borrow most funds from households and non-financial businesses, and lend most
funds to households and non-financial businesses, but non-bank lenders provide a significant and
in many cases adequate substitute for bank loans, and money market funds, cash management
trusts and other non-bank financial institutions in many cases provide an adequate substitute to
banks for lending savings to.

43
Economic functions

 Issue of money, In the form of banknotes and current accounts subject to cheque or
payment at the customer's order. These claims on banks can act as money because they are
negotiable and/or repayable on demand, and hence valued at par. They are effectively
transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee
may bank or cash.
 Netting and settlement of payments – Banks act as both collection and paying agents
for customers, participating in interbank clearing and settlement systems to collect, present, be
presented with, and pay payment instruments. This enables banks to economise on reserves held
for settlement of payments, since inward and outward payments offset each other. It also
enables the offsetting of payment flows between geographical areas, reducing the cost of
settlement between them.
 Credit intermediation – Banks borrow and lend back-to-back on their own account as
middle men.
 Credit quality improvement – Banks lend money to ordinary commercial and personal
borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes
from diversification of the bank's assets and capital which provides a buffer to absorb losses
without defaulting on its obligations. However, banknotes and deposits are generally unsecured;
if the bank gets into difficulty and pledges assets as security, to rise the funding it needs to
continue to operate, this puts the note holders and depositors in an economically subordinated
position.
 Maturity transformation – Banks borrow more on demand debt and short term debt, but
provide more long term loans. In other words, they borrow short and lend long. With a stronger
credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting
deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of
banknotes), maintaining reserves of cash, investing in marketable securities that can be readily
converted to cash if needed, and raising replacement funding as needed from various sources
(e.g. wholesale cash markets and securities markets).

44
Law of banking

Banking law is based on a contractual analysis of the relationship between the bank (defined
above) and the customer—defined as any entity for which the bank agrees to conduct an account.

The law implies rights and obligations into this relationship as follows

 The bank account balance is the financial position between the bank and the customer:
when the account is in credit, the bank owes the balance to the customer; when the account is
overdrawn, the customer owes the balance to the bank.
 The bank agrees to pay the customer's cheques up to the amount standing to the credit of
the customer's account, plus any agreed overdraft limit.
 The bank may not pay from the customer's account without a mandate from the customer,
e.g. a cheque drawn by the customer.
 The bank agrees to promptly collect the cheques deposited to the customer's account as
the customer's agent, and to credit the proceeds to the customer's account.
 The bank has a right to combine the customer's accounts, since each account is just an
aspect of the same credit relationship.
 The bank has a lien on cheques deposited to the customer's account, to the extent that the
customer is indebted to the bank.
 The bank must not disclose details of transactions through the customer's account—
unless the customer consents, there is a public duty to disclose, the bank's interests require it, or
the law demands it.
 The bank must not close a customer's account without reasonable notice, since cheques
are outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the customer
and the bank. The statutes and regulations in force within a particular jurisdiction may also
modify the above terms and/or create new rights, obligations or limitations relevant to the bank-
customer relationship.

Some types of financial institution, such as building societies and credit unions, may be partly or
wholly exempt from bank licence requirements, and therefore regulated under separate rules.

45
The requirements for the issue of a bank licence vary between jurisdictions but typically include:

 Minimum capital
 Minimum capital ratio
 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior
officers
 Approval of the bank's business plan as being sufficiently prudent and plausible.

Banking Structure in India

Banks' activities can be divided into retail banking, dealing directly with individuals and small
businesses; business banking, providing services to mid-market business; corporate banking,
directed at large business entities; private banking, providing wealth management services to
high net worth individuals and families; and investment banking, relating to activities on the
financial markets. Most banks are profit-making, private enterprises. However, some are owned
by government, or are non-profit organizations.

Central banks are normally government-owned and charged with quasi-regulatory

responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They
generally provide liquidity to the banking system and act as the lender of last resort in event of a
crisis.

The banking system in India is significantly different from other countries.

46
 BANKING STRUCTURE IN INDIA

R.B.I

Schedule Non Schedule

Bank Banks

Scheduled Scheduled
Commercial Banks
Co-operative Banks

Public Sector Private Sector Foreign Regional Rural Schedule urban

Banks Banks Banks Cooperative
Banks Banks

Schedule State
Nationalised Old Private Cooperative
Banks sector Banks Banks

SBI and its New Private

Associates Banks sector Banks

47
1. Reserve Bank of India

Reserve Bank of India is the Central Bank of our country. It was established on 1st April
1935 under the Reserve Bank of India Act of 1934. It holds the apex position in the banking
structure. RBI performs various developmental and promotional functions.

It has given wide powers to supervise and control the banking structure. It occupies the
pivotal position in the monetary and banking structure of the country. In many countries central
bank is known by different names.

For example, Federal Reserve Bank of United States of America, Bank of England in
United Kingdom and Reserve Bank of India in India. Central bank is known as a banker’s bank.
They have the authority to formulate and implement monetary and credit policies. It is owned by
the government of a country and has the monopoly power of issuing notes.

2. Commercial Banks

Commercial bank is an institution that accepts deposit, makes business loans and offer
related services to various like accepting deposits and lending loans and advances to general
customers and business man.

These institutions run to make profit. They cater to the financial requirements of
industries and various sectors like agriculture, rural development, etc. it is a profit making
institution owned by government or private of both.

Commercial bank includes public sector, private sector, foreign banks and regional rural
banks

a. Public sector banks

It includes State Bank of India, seven (7) associate banks and nineteen (19) nationalized
banks. Altogether there are 27 public sector banks. The public sector accounts for 90 percent of
total banking business in India and State Bank of India is the largest commercial bank in terms of
volume of all commercial banks.

48
b. Private sector banks

Private sector banks are those whose equity is held by private shareholders. For example,
Industrial Credit and Investment Corporation of India , Housing Development Finance
Corporation etc. Private sector bank plays a major role in the development of Indian banking
industry.

c. Foreign Banks

Foreign banks are those banks, which have their head offices abroad. Hongkong and
shanghai banking corporation, Standard Chartered etc. are the examples of foreign bank in India.

d. Regional Rural Bank (RRB)

These are state sponsored regional rural oriented banks. They provide credit for
agricultural and rural development. The main objective of Regional Rural Banks is to develop
rural economy. Their borrowers include small and marginal farmers, agricultural labourers,
artisans etc. National Board for Agriculture and Research Development holds the apex position
in the agricultural and rural development.

3. Co-operative Bank

Co-operative bank was set up by passing a co-operative act in 1904. They are organised
and managed on the principal of co-operation and mutual help. The main objective of co-
operative bank is to provide rural credit.

The cooperative banks in India play an important role even today in rural co-operative
financing. The enactment of Co-operative Credit Societies Act, 1904, however, gave the real
impetus to the movement. The Cooperative Credit Societies Act, 1904 was amended in 1912,
with a view to broad basing it to enable organization of non-credit societies.

Three tier structures exist in the cooperative banking

 State cooperative bank at the apex level.

49
  Central cooperative banks at the district level.
 Primary cooperative banks and the base or local level.

4. Scheduled and Non-Scheduled banks

A bank is said to be a scheduled bank when it has a paid up capital and reserves as per the
prescription of Reserve Bank of India and included in the second schedule of Reserve Bank of
India Act 1934. Non-scheduled bank are those commercial banks, which are not included in the
second schedule of Reserve Bank of India Act 1934.

5. Development banks and other financial institutions

A development bank is a financial institution, which provides a long term funds to the
industries for development purpose. This organisation includes banks like Industrial
Development Bank of India, Industrial Credit and Investment Corporation of India, etc. State
level institutions like State Financial Corporation’s etc. It also includes investment institutions
like United of India, Life Insurance Corporation, and General Insurance Corporation etc.

Types of retail Banks

 Commercial Banks: The term used for a normal bank to distinguish it from an
investment bank. After the Great Depression, the United States Congress required that banks
only engage in banking activities, whereas investment banks were limited to capital market
activities. Since the two no longer have to be under separate ownership, some use the term
"Commercial Bank" to refer to a bank or a division of a bank that mostly deals with deposits
and loans from corporations or large businesses.
 Community Banks: Locally operated financial institutions that empower employees to
make local decisions to serve their customers and the partners.
 Community Development Banks: Regulated banks that provide financial services and
credit to under-served markets or populations.
 Postal Savings Banks: Savings Banks associated with national postal systems.
 Private Banks: Banks that manage the assets of high net worth individuals.

50
 Offshore Banks: Banks located in jurisdictions with low taxation and regulation. Many
offshore banks are essentially private banks.
 Savings Bank: In Europe, savings banks take their roots in the 19th or sometimes even
18th century. Their original objective was to provide easily accessible savings products to all
strata of the population. In some countries, savings banks were created on public initiative; in
others, socially committed individuals created foundations to put in place the necessary
infrastructure. Nowadays, European savings banks have kept their focus on retail banking:
payments, savings products, credits and insurances for individuals or small and medium-sized
enterprises. Apart from this retail focus, they also differ from commercial banks by their
broadly decentralized distribution network, providing local and regional outreach—and by their
socially responsible approach to business and society.
 Building societies and Lands Banks: Institutions that conduct retail banking.
 Ethical Banks: Banks that prioritize the transparency of all operations and make only
what they consider to be socially-responsible investments.
 Islamic Banks: Banks that transact according to Islamic principles.

Investment banks

 Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for
their own accounts, make markets, and advise corporations on capital market activities such as
mergers and acquisitions.
 Merchant banks were traditionally banks which engaged in trade finance. The modern
definition, however, refers to banks which provide capital to firms in the form of shares rather
than loans. Unlike venture capital firms, they tend not to invest in new companies.

Indian Private Banks

A private bank is a bank whose major stake is owned by private stakeholders and not by
government. Government has a very little role to play when it comes to private sector banking.
Private Banks play a pivotal role for a country's economic development. They are the major
players in today's market. Private banking has invited foreign economies to invest in a
developing country like India. They have smoothen the process of business expansion, especially

51
for multinationals. Private Banks are progressing at a faster rate in India than Government-
owned banks.

Private Banks have been functioning in India ever since the origin of banking system in
India. But private banks were not given importance in the earlier years. The dominance of public
sector banks did not allow the private sector banks to participate in the overall development of
our country. Therefore, private banks were less active and non-participative before liberalization.

The year 1969 was a landmark in the history of commercial banking in India. In July
1969, the government nationalized 14 major commercial banks of the country. In 1980,
government nationalized 6 more commercial banks. But the importance of the private sector
banks remained the same even after nationalization. The Reserve Bank of India decided to
liberalize the banking policies. The liberalization policy gave license to private banks to operate
in a more flexible environment. The private banks before nationalization are called old private
banks and the ones after nationalization are called new private banks.

The post-nationalization period noticed a remarkable change in the economy's banking sector. A
leading bank of the country had the following objectives post-nationalization:

 To break the ownership and control of banks by a few business families.

 To prevent concentration of wealth and economic power.
 To mobilize savings of the masses from every nook and corner of the country.
 To pay greater attention to the credit needs of the priority sectors like agriculture and
small scale industries.

The country also witnessed a remarkable expansion in the banking and financial system. One
of the biggest achievement was reallocation of sectoral credit in favor of agriculture, small scale
industries and exports which formed the core of the priority sector. Certain other sectors of the
economy which also received attention for credit allocation were professionals and self-
employed persons, artisans and weaker sections of the society. Conversely, there was a sharp fall
in the bank credit to large scale industries.

52
 Nationalization of banks was a mixed blessing. After nationalization there was a shift of
emphasis from industry to agriculture. The country witnessed rapid expansion in bank branches,
even in rural areas. Branch expansion program led to mobilization of savings from all parts of
the country.

The banks that started operating post the Banking Sector Reforms in 1991 are called the new
private banks. They introduced economic and financial reforms in the country. The Banking
Regulation Amendment Act of 1993 permitted the entry of new private banks in the Indian
Banking System. However, these banks had to accomplish certain criteria if they wanted to
operate in the economy. The private banks like Bank of Bombay, Bank of Bengal, Bank of
Madras were merged together to form a single bank called Imperial Bank of India.

The private banking in India has grown and developed over years. The cut-throat competition
in the banking sector has compelled private banks to come up with new services. They have to
depend heavily on technology and service. Private Banks not only compete nationally but they
have enough competition across borders. So technological advancement and incomparable
services is what is going to help a bank stand out from other banks.

The primary function of any bank is to accept deposits and lend loans. This function is
common in all banks. Secondary functions of a bank makes it different from the other banks. The
secondary function can include agency functions and utility functions. A bank must provide its
customers a service which no other bank provides. This will strengthen banker-customer
relationship.

In addition the bank will gain customer loyalty. Here is list some of the private banks in
India:

 Bank of Punjab.
 Housing Development Finance Corporation.
 Industrial Credit and Investment Corporation of India.
 Axis Bank
 Indusland Bank
 Kotak Mahindra Bank

53
  Yes Bank
 Global Trust Bank
 Centurion Bank Limited
 Times Bank
 Industrial Development Bank of India Limited

Private Banks in India has a got a great response in terms of service and quality banking.
Globalization has encouraged multinationals and foreign banks to set up their business unit in a
developing country like India. In the private banking is all about delivering sophisticated service
to customers. It is about providing appropriate solutions to customer's financial problems and
providing financial advice to customers. Private banking works for optimum utilization of
financial resources of the country.

Adoption of banking technology

The Information Technology revolution has had a great impact on the Indian banking
system. The use of computers has led to the introduction of online banking in India. The use of
computers in the banking sector in India has increased many fold after the economic
liberalization of 1991 as the country's banking sector has been exposed to the world's market.
Indian banks were finding it difficult to compete with the international banks in terms of
customer service, without the use of information technology.

The Reserve Bank of India set up a number of committees to define and co-ordinate banking
technology. These have included:

 In 1984, The Committee on Mechanization in the Banking Industry (1984)was formed

under the chairmanship of Dr. C Rangarajan, Deputy Governor, Reserve Bank of India. The
major recommendations of this committee were introducing Magnetic Ink Character
Recognition technology in all the banks in the metropolises in India. This provided for the use
of standardized cheque forms and encoders.
 In 1988, the Reserve Bank of India set up the Committee on Computerization in Banks
(1988) headed by Dr. C. Ranga Rajan. It emphasized that settlement operation must be
computerized in the clearing houses of Reserve Bank of India in Bhuvaneshwar, Guwahati,

54
Jaipur, Patna and Thiruvananthapuram. It further stated that there should be National Clearing
of inter-city cheques at Kolkata, Mumbai, Delhi, Chennai and should Magnetic Ink Character
Recognition be made operational. It also focused on computerization of branches and increasing
connectivity among branches through computers. It also suggested modalities for implementing
on-line banking. The committee submitted its reports in 1989 and computerization began from
1993 with the settlement between Indian Bank Association and bank employees' associations.
 In 1994, the Committee on Technology Issues relating to Payment systems, Cheque
Clearing and Securities Settlement in the Banking Industry (1994) was set up under Chairman
W S Saraf. It emphasized Electronic Funds Transfer (EFT) system, with the banknet
communications network as its carrier. It also said that Magnetic Ink Character Recognition
clearing should be set up in all branches of all those banks with more than 100 branches.
 In 1995, the Committee for proposing Legislation on Electronic Funds Transfer and other
Electronic Payments (1995) again emphasized Electronic Fund Transfer system.

Automated Teller Machine growth

The total number of Automated Teller Machines (ATMs) installed in India by various
banks as of end June 2012 was 99,218. The new private sector banks in India have the most
Automated Teller Machines, followed by off-site Automated Teller Machines belonging to State
Bank of India and its subsidiaries and then by Nationalized banks and foreign banks, while on-
site is highest for the Nationalized banks of India.

Cheque Transaction Initiative

In 2008, the Reserve Bank of India introduced a system to allow cheque transaction in
India, the cheque transaction system as it was known was first rolled out in the National Capital
Region and then rolled out nationally.

Expansion of Banking Infrastructure

Physical as well as virtual expansion of banking through Mobile banking, Internet

banking, Tele - banking, Bio-metric and Mobile Automated Teller Machines, is taking place
since last decade and has gained momentum in last few years.

55
 COMPANY PROFILE

Introduction

Kotak Mahindra Bank is the fourth largest Indian private sector bank by market capitalization,
headquartered in Mumbai, Maharashtra. The bank’s registered office (headquarters) is located at
27BKC, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra, India.

Established in 1985, the Kotak Mahindra group has been one of India's most reputed
financial conglomerates. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship
company was given the license to carry on banking business by the Reserve Bank of India (RBI).
This approval created banking history since Kotak Mahindra Finance Ltd. is the first non–
banking finance company in India to convert itself in to a bank as Kotak Mahindra Bank Ltd.
Today, the bank is one of the fastest growing bank and among the most admired financial
institutions in India.

Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The bank offers
personal finance solutions of every kind from savings accounts to credit cards, distribution of
mutual funds to life insurance products. Kotak Mahindra Bank offers transaction banking,
operates lending verticals, manages Initial Public Offerings and provides working capital loans.
Kotak has one of the largest and most respected Wealth Management teams in India, providing
the widest range of solutions to high net worth individuals, entrepreneurs, business families and
employed professionals.

The bank has over 323 branches and a customer account base of over 2.7 million. Spread
all over India, not just in the metros but in Tier II cities and rural India as well, it is redefining
the reach and power of banking. Presently it is engaged in commercial banking, stock broking,
mutual funds, life insurance and investment banking. It caters to the financial needs of
individuals and corporates. The bank has an international presence through its subsidiaries with
offices in London, New York, Dubai, Mauritius, San Francisco and Singapore that specialize in
providing services to overseas investors seeking to invest into India.

56
Corporate Identity

The symbol of the infinite Ka reflects our global Indian personality. The Ka is uniquely Indian
while its curve forms the infinity sign, which is universal. One of the basic tenets of economists
is that man's needs are unlimited. The infinite Ka symbolises that we have infinite number of
ways to meet those needs.

Our Vision

To be the most trusted Global Indian Financial Services brand and the most preferred financial
services employer with focus on creating value.

The Global Indian Financial Services Brand

 Our customers will enjoy the benefits of dealing with a global Indian brand that best
understands their needs and delivers customized pragmatic solutions across multiple platforms.
 We will be a world class Indian financial services group. Our technology and best
practices will be bench-marked along international lines while our understanding of customers
will be uniquely Indian.
 We will be more than a repository of our customers' savings. We, the group, will be
single window to every financial service in a customer's.

Senior Management-2014-15

Mr. Uday S. Kotak

Executive Vice Chairman and Managing Director

Mr. Uday Kotak, is the Executive Vice-Chairman and Managing Director of the Bank, and its
principal founder and promoter. Mr. Kotak is an alumnus of Jamnalal Bajaj Institute of
Management Studies.

In 1985, when he was still in his early twenties, Mr Kotak thought of setting up a bank
when private Indian banks were not even seen in the game. First Kotak Capital Management

57
Finance Ltd (which later became Kotak Mahindra Finance Ltd), and then with Kotak Mahindra
Finance Ltd, Kotak became the first non-banking finance company in India's corporate history to
be converted into a bank. Over the years, Kotak Mahindra Group grew into several areas like
stock broking and investment banking to car finance, life insurance and mutual funds.

Among the many awards to Mr Kotak's credit are the CNBC TV18 Innovator of the Year
Award in 2006 and the Ernst & Young Entrepreneur of the Year Award in 2003. He was featured
as one of the Global Leaders for Tomorrow at the World Economic Forum's annual meet at
Davos in 1996. He was also featured among the Top Financial Leaders for the 21st Century by
Euro money magazine. He was named as CNBC TV18 India Business Leader of the Year 2008
and as the most valued Chief Executive Officer by business world in 2010.

Mr. C Jayaram

Joint Managing Director

Mr. C. Jayaram, is a Joint Managing Director of the Bank and is currently in charge of
the Wealth Management Business of the Kotak Group. An alumnus of IIM Kolkata, he has been
with the Kotak Group since 1990 and member of the Kotak board in October 1999. He also
oversees the international subsidiaries and the alternate asset management business of the group.
He is the Director of the Financial Planning Standards Board, India. He has varied experience of
over 25 years in many areas of finance and business, has built numerous businesses for the
Group and was Chief Executive Officer of Kotak Securities Limited. An avid player and
follower of tennis, he also has a keen interest in psychology.

Mr. Dipak Gupta

Joint Managing Director

An electronics engineer and an alumnus of IIM Ahmedabad, Mr. Gupta has been with the Kotak
Group since 1992 and joined the board in October 1999.

He heads commercial banking, retail asset businesses and looks after group HR function. Early
on, he headed the finance function and was instrumental in the joint venture between Kotak

58
Mahindra and Ford Credit International. He was the first Chief Executive Officer of the resulting
entity, Kotak Mahindra Primus Ltd.

Products and Services

 The bank offers complete financial solutions for infinite needs of all individual and non–
individual customers depending on the customer's need – delivered through a state of the art
technology platform. Investment products like Mutual Funds, Life Insurance, retailing of gold
coins and bars etc are also offered. The bank follows a mix of both open and closed architecture
for distribution of the investment products. All this is backed by strong, in–house research on
Mutual Funds.
 The bank’s savings account goes beyond the traditional role of savings, and allows us to
put aside a lot more than just money. The worry–free feature of Savings Account provides a
range of services from funds transfer, bill payments, 2–way sweep through our Active Money
feature and much more. We can place standing instructions for investment options that can be
booked through Internet or through Phone banking services. The Savings Account thus provides
for attractive returns earned through a comprehensive suite products and services that offer
investment options, all delivered seamlessly to the customer by well integrated technology
platforms.
 Apart from Phone banking and Internet banking, the Bank offers convenient banking
facility through Mobile banking, SMS services, Net card, Home banking and Bill Pay facility
among others.
 The Depository services offered by the Bank allows the customers to hold equity shares,
government securities, bonds and other securities in electronic or Demat forms.
 The Salary to Wealth offering provides comprehensive administrative solutions for
Corporates with features such as easy and automated web based salary upload process thereby
eliminating the paper work involved in the process, a dedicated relationship manager to service
the corporate account, customized promotions and tie – ups and many such unique features. The
whole gamut of investment products and investment advisory services is available to the salary
account holders as well.
 For the business community, the bank offer comprehensive business solutions that
include the Current Account, Trade Services, Cash Management Service and Credit Facilities.

59
The bank’s wholesale banking products offer business banking solutions for long–term
investments and working capital needs, advice on mergers and acquisitions and equipment
financing. To meet special needs of the rural market, the bank has dedicated business offerings
for agricultural financing and infrastructure. Its Agriculture Finance division delivers
customised products for capital financing and equipment financing needs of our rural
customers.
 For financial liquidity the bank offers loans that meet personal requirements with quick
approval and flexible payment options. To complete the personal financial offerings space, the
bank now offers Kotak Credit Card which is a hassle–free, transparent product that also happens
to be the first vertical credit card in the industry.
 Kotak Mahindra Bank addresses the entire spectrum of financial needs of Non–Resident
Indians. The bank has tie–up with the Overseas Indian Facilitation Centre (OIFC) as a strategic
partner, which gives them a platform to share their comprehensive range of banking and
investment products and services for Non Resident Indians (NRIs) and Persons of Indian Origin
(PIOs). Their Online Account Opening facility and Live Chat service helps to get in touch at the
comfort of homes and at the convenience. These offerings are specifically designed to suit the
overseas Indian's personal financial needs and give the global Indians a near to home feel.

Journey of Kotak Mahindra Bank:

In a study by Brand Finance Banking 500, published in February 2014 by the Banker magazine
(from The Financial Times Stable), Kotak Mahindra Bank was ranked 245th among the world’s
top 500 banks with brand valuation of around half a billion dollars ($481 million) and brand
rating of AA+. Kotak Mahindra Bank limited is also ranked among the top 5 Best Ranked
Companies for Corporate Governance in Industrial Relations Global Ranking.

Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a
steady and confident journey leading to growth and success. The milestones of the group growth
story are listed below year wise.

2010-2014 : Ahmedabad Derivatives and Commodities Exchange, a Kotak anchored enterprise,

became operational as a national commodity exchange.

60
2009: Kotak Mahindra Bank Ltd. opened a representative office in Dubai. Entered in
Ahmedabad Commodity Exchange as anchor investor.

2008: Launched a Pension Fund under the New Pension System.

2006: Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and
Kotak Securities.

2005: Kotak Group realigned joint venture in Ford Credit; their stake in Kotak Mahindra Prime
was bought out (formerly known as Kotak Mahindra Primus Ltd) and Kotak group’s stake in
Ford credit Kotak Mahindra was sold.Launched a real estate fund.

2004: Launched India Growth Fund, a private equity fund.

2003: Kotak Mahindra Finance Ltd. converted into a commercial bank - the first Indian company
to do so.

2001: Matrix sold to Friday Corporation.Launched Insurance Services.Kotak Securities Ltd. was
incorporated.

2000: Kotak Mahindra tied up with Old Mutual plc. for the Life Insurance business .Kotak
Securities launched its on-line broking site. Commencement of private equity activity through
setting up of Kotak Mahindra Venture Capital Fund.

1998: Entered the mutual fund market with the launch of Kotak Mahindra Asset Management
Company.

1996: The Auto Finance Business is hived off into a separate company - Kotak Mahindra Prime
Limited (formerly known as Kotak Mahindra Primus Limited). Kotak Mahindra takes a
significant stake in Ford Credit Kotak. Mahindra Limited, for financing Ford vehicles. The
launch of Matrix Information Services Limited marks the Group's entry into information
distribution.

61
1995: Brokerage and Distribution businesses incorporated into a separate company - Securities.
Investment banking division incorporated into a separate company - Kotak Mahindra Capital
Company.

1992: Entered the Funds Syndication sector.

1991: The Investment Banking Division was started. Took over FICOM, one of India's largest
financial retail marketing networks.

1990: The Auto Finance division was started.

1987: Kotak Mahindra Finance Ltd entered the Lease and Hire Purchase marke.t

1986: Kotak Mahindra Finance Ltd started the activity of Bill Discounting.

Other Businesses of Kotak Mahindra Group

Multiple Businesses.One Brand.

Kotak Mahindra is one of India's leading banking and financial services groups, offering a wide
range of financial services that encompass every sphere of life.

Kotak Mahindra Bank Limited

Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The bank offers personal
finance solutions of every kind from savings accounts to credit cards, distribution of mutual funds
to life insurance products. Kotak Mahindra Bank offers transaction banking, operates lending
verticals, manages Intial Public Offerings and provides working capital loans. Kotak has one of
the largest and most respected Wealth Management teams in India, providing the widest range of
solutions to high net worth individuals, entrepreneurs, business families and employed
professionals.

62
Kotak Mahindra Old Mutual Life Insurance Ltd

Kotak Mahindra Old Mutual Life Insurance Ltd is a 74:26 joint venture between Kotak
Mahindra Bank Limited, its affiliates and Old Mutual funds. A Company that combines its
international strengths and local advantages to offer its customers a wide range of innovative life
insurance products, helping them take important financial decisions at every stage in life and stay
financially independent. The company covers over 3 million lives and is one of the fastest
growing insurance companies in India.

Kotak Securities Limited

Kotak Securities is one of the largest broking houses in India with a wide geographical reach.
Kotak Securities operations include stock broking and distribution of various financial products
including private and secondary placement of debt, equity and mutual funds.

Kotak Securities operate in five main areas of business:

 Stock Broking (retail and institutional)

 Depository Services
 Portfolio Management Services
 Distribution of Mutual Funds
 Distribution of Kotak Mahindra Old Mutual Life Insurance Ltd products

Kotak Mahindra Capital Company

Kotak Investment Banking is a full-service investment bank in India offering a wide suite of
capital market and advisory solutions to leading domestic and multinational corporations, banks,
financial institutions and government companies.

Our services encompass Equity & Debt Capital Markets, Mergers and acquisitions
Advisory, Private Equity Advisory, Restructuring and Recapitalization services, Structured
Finance services and Infrastructure Advisory & Fund Mobilization.

63
Kotak Mahindra Prime Limited

Kotak Mahindra Prime Limited is among India's largest dedicated passenger vehicle finance
companies. Kotak Mahindra Prime Limited offers loans for the entire range of passenger cars,
multi-utility vehicles and pre-owned cars. Also on offer are inventory funding and infrastructure
funding to car dealers with strategic arrangements via various car manufacturers in India as their
preferred financier.

Kotak International Business

Kotak International Business specializes in providing a range of services to overseas customers

seeking to invest in India. For institutions and high net worth individuals outside India, Kotak
International Business offers asset management through a range of offshore funds with specific
advisory and discretionary investment management services.

Kotak Mahindra Asset Management Company Limited

Kotak Mahindra Asset Management Company offers a complete bouquet of asset management
products and services that are designed to suit the diverse risk return profiles of each and every
type of investor. Kotak Mahindra Asset Management Company and Kotak Mahindra Bank are
the sponsors of Kotak Mahindra Pension Fund Ltd, which has been appointed as one of six fund
managers to manage pension funds under the New Pension Scheme.

Kotak Private Equity Group

Kotak Private Equity Group helps nurture emerging businesses and mid-size enterprises to
evolve into tomorrow's industry leaders. With a proven track record of helping build companies,
Kotak Private Equity Group also offers expertise with a combination of equity capital, strategic
support and value added services. What differentiates Kotak Private Equity Group is not merely
funding companies, but also having a close involvement in their growth as board members,
advisors, strategists and fund-raisers.

64
Kotak Realty Fund

Kotak Realty Fund deals with equity investments covering sectors such as hotels, Information
Technology parks, residential townships, shopping centres, industrial real estate, health care,
retail, education and property management. The investment focus here is on development
projects and enterprise level investments, both in real estate intensive businesses.

Awards

At Kotak Mahindra Group take a client-centric view and constantly innovate to provide you
with the best of services and infrastructure. We have regularly received accolades that stand
testimony success in this endeavour. Some of our recent achievements are:

 Won ‘Gold Award for Best Innovation – World’s first socially powered bank account’
and ‘Gold Award for Best App developed – World’s first banking application using Twitter’
awards at the Indian Digital Media Awards 2014 for Kotak Jifi
 Recognised as Highest Fundraising Company in Corporate Challenge category in
Standard Chartered Mumbai Marathon 2014
 Kotak Mahindra Bank was ranked 292nd among India's most trusted brands according to
the Brand Trust Report 2012, a study conducted by Trust Research Advisory. In the Brand Trust
Report 2013, Kotak Mahindra Bank was ranked 861st among India's most trusted brands and
subsequently, according to the Brand Trust Report 2014, Kotak Mahindra Bank was ranked
114th among India's most trusted brands.
 Adjudged Best Bank among Emerging Banks at Outlook Money Awards 2013

Milestones

 1986 – Kotak Mahindra Finance Ltd started the activity of Bill Discounting.
 1987 – Kotak Mahindra Finance Ltd entered the Lease and Hire Purchase market.
 2003 – Kotak Mahindra Finance Ltd. converted into a commercial bank – the first Indian
company to do so.
 2009 – Kotak Mahindra Bank Ltd. opened a representative office in Dubai. Entered
Ahmedabad Commodity Exchange as anchor investor.

65
Banking information

The Bank publishes the standalone and consolidated results on a quarterly basis. The standalone
results is subjected to "Limited Review" by the auditors of the Bank. The same are also reviewed
by the Audit Committee before submission to the Board. Along with the quarterly results, an
earnings update is also prepared and posted on the website of the Bank. Every quarter, the
Executive Vice-Chairman and Managing Director and the Executive Director(s) participate on a
call with the analysts / shareholders, the transcripts of which are posted on the website of the
Bank. The Bank also has dedicated personnel to respond to queries from investors.

Financial Calendar

For each calendar quarter, the financial results are reviewed and taken on record by the Board
during the last week of the month subsequent to the quarter ending. The audited annual accounts
as at 31st March are approved by the Board, after a review thereof by the Audit Committee. The
Annual General Meeting to consider such annual accounts is held in the second quarter of the
financial year.

Stock Exchanges on which listed:

Sr.No Name & Address of Stock Exchange Market Scrip Code

The Bombay Stock Exchange Limited

Phiroze Jeejeebhoy Towers
1 500247
Dalal Street, Fort,
Mumbai 400 023

National Stock Exchange of India Limited

Exchange Plaza, 5th Floor,
2 KOTAKBANK
Bandra-Kurla Complex,
Bandra, Mumbai 400 051

66
 Luxembourg Stock Exchange BP 165, L-2011
3
Luxembourg

Trading of shares to be in compulsorily dematerialized form

The equity shares of the Bank have been activated for dematerialisation with the National
Securities Depository Limited and with the Central Depository Services (India) Limited wide
ISIN INE237A01028.

Share Transfer System

Applications for transfers, transmission and transposition are received by the Bank at its
Registered Office or at the office(s) of its Registrars & Share Transfer Agents. As the shares of
the Bank are in dematerialized form, the transfers are duly processed by National Securities
Depository Limited or Central Depository Services Limited in electronic form through the
respective depository participants. Shares which are in physical form are processed by the
Registrars & Share Transfer Agents, Karvy Computershare Private Limited, on a regular basis
and the certificates dispatched directly to the investors.

Investor Help desk

Share transfers, dividend payments and all other investor related activities are attended to and
processed at the office of our Registrars and Share Transfer Agents. For Lodgment of Transfer
Deeds and any other documents or for any grievances/complaints, kindly contact Karvy
Computershare Private Limited, contact details of which are provided elsewhere in the Report.

For the convenience of the investors, transfers and complaints from the investors are
accepted at the Registered Office between 9:30 a.m. to 5:30 p.m. from Monday to Friday except
on bank holidays

67
Community Investment and Development

Kotak Mahindra views Corporate Social Responsibility as an investment in society and in its
own future. Kotak uses the power of its human and financial capital to help in transforming
communities into vibrant, desirable places for people to live. The group leverages its core
competencies in three areas

 Sustainability

An integral part of all Kotak Mahindra Group activities is to be consistently responsible to

shareholders, clients, employees, society and the environment.
 EconomicDevelopment

By helping people achieve their financial goals, Kotak strengthens the fabric of communities
and helps them overcome unemployment and poverty to help them shape their future.
 DoingMyBit

A growing number of employees are committed to civic leadership and responsibility with the
support and encouragement of the Kotak Group. A number of employees have been involved
in strengthening communities through voluntary work, payroll giving and management inputs.

Corporate Social Responsibilities Initiatives

Kotak Mahindra Bank Limited believes that financial institutions play a pivotal role in catalyzing
sustainable economic growth that can deliver equitable development for all. Translating this
belief into actions, the Bank continually strives to intertwine Environmental, Social and
Governance aspects with all facets of business operations and stakeholder dealings.

In order to adhere to the highest levels of governance practices, the Bank has set a
Business Responsibility agenda. It reflects Kotak Mahindra Bank’s philosophy to create
enduring value for all stakeholders in a responsible manner which also contributes to
environmental sustainability. Further, the Bank has also adopted a strong Corporate Social
Responsibilty policy, charting out its plan to invest in our society and its own future. Kotak uses
the power of its human and financial capital to enable transformation of communities into
vibrant, desirable places for habitation.

68
Our Vision
To positively contribute towards economic, environmental and social well-being of communities
through Corporate Social Responsibility agenda.
Our Mission

 Create a lasting value for communities by:

 Promoting and supporting education and other interventions for the under privileged
 Encouraging employee volunteering
 Supporting Non-Governmental Organizations and other institutions with financial and
other resources to collectively deliver community initiatives

Corporate Social Responsibility Focus Areas

 Promoting Education - Primary Focus Area

 Enhancing vocational skills and livelihood projects
 Promoting preventive healthcare and sanitation
 Reducing inequalities faced by socially and economically backward groups
 Environmental Sustainability

Corporate Social Responsibility Activities

 Supporting Education in Rural Schools

In Financial Year 2013-14, the Bank initiated community engagement initiatives in few villages
to infrastructure for education. Three villages in Niphad Tehsil of Nasik District were identified
this initiative. The three villages - Dixi, Shivare, Kothure-are primarily agrarian based villages
with more than 80% of population relying on agriculture and allied activities for their
livelihoods. Nearly 40% of their population belongs to economically and socially weaker
sections of society, such as small & marginal farmers and agriculture labourers. Primary schools
in all three villages lack basic infrastructure, like benches for students. As part of Republic Day
celebrations, the Bank provided benches and built compound walls for schools. 425 students
were also provided with a school kit comprising notebooks and stationary items.

69
  Employee Volunteering

The Bank and its subsidiaries encourage employees to volunteer, on company time, Corporate
Social Responsibility work. The Bank sponsors employees across its group companies to
participate in Habitat for Humanity’s ‘Volunteer Build’ home making initiative in rural and tribal
regions. Employees work with prospective homeowners, assisting them with bricklaying and
painting work.

 Running for a Cause

Kotak Mahindra Bank and its subsidiaries are aligned with the philosophy of a collaborative
Corporate Social Responsibility Approach. As an organisation, Kotak encourages employee
participation and involvement in its Corporate Social Responsibility initiatives. Kotak’s
participation at the marathon has led to a growing community of runners in the organization,
some with no athletic background, who train and run the marathon not only to improve their
fitness level, but also raise pledges for a cause with as much enthusiasm.

The Bank encourages and supports employees to participate at three Marathons -

Standard Chartered Mumbai Marathon, Airtel Delhi Half Marathon and Pinkathon, supporting
various causes close to their heart.

Employee Initiatives

 Kotak Mahindra Group Payroll Giving Programme

Through the programme, employees of the Bank and its subsidiaries support The Akanksha
Foundation, Cancer Patients Aid Association (CPAA), National Association for the Blind
(NAB), Dignity Foundation, Make-A-Wish Foundation of India and SOPAN (Society of Parents
of Children with Autistic Disorders).

70
  Blood Donation

On the occasion of Kotak Mahindra Group day (November 21), a week-long blood donation
camp for employees is organised across the country, in association with Red Cross, King Edward
Memorial (KEM) Hospital and other government blood banks.

 You Can Serve

The Bank has collaborated with Dhanwantari Medical Trust (DMT) for a newspaper collection
drive. Employees donate old newspaper and magazines, and its proceeds are used to help and
support cancer-affected children and their families.

 Giving Collection Drive

The Bank conducts the ‘giving collection drive’ with the NGO, Goonj. As part of the drive,
employees donate clothes, books, toys and other utility items for the underprivileged.

 NGO Exhibitions

During festivals like Diwali and Christmas, the Bank invites NGOs to set up stalls at its offices
to sell products made by underprivileged and also offers a platform to NGOs to raise funds.

Banking Initiatives

 Green Initiatives

Kotak Mahindra Bank is cognizant of its role as a key financial institution to promote
environmental sustainability. It has a two-pronged approach towards environmental
sustainability – promoting adoption of environmentally sustainable technologies and processes
through its lending and investment decisions, and reducing the Bank’s own carbon footprint.

The Bank encourages customers to choose the option of e-statements for their credit
cards. This eliminates wastage of paper resources and helps customers to store and retrieve
statements electronically at their convenience. As token of appreciation for every customer who

71
opts for an e-credit card statement, the Bank plants a sapling in partnership with Grow-
Trees.com.

The Bank strictly adheres to Reserve Bank of India mandate on negative screening list for
investments and checks for all relevant clearances on environment as part of project appraisal
process before making lending decisions. Kotak Mahindra Bank Limited has also established a
Social Environmental Management System Plan (SEMSP) to evaluate the social and
environmental risks of eligible borrowers for IFC Line of Credit. SEMSP guides the credit risk
assessment team to evaluate the social and environmental risks as part of overall credit risk
assessment.

The Bank has limited material environmental impacts and hence focuses primarily on
building energy efficiency, data centre efficiency and resource (paper) optimisation as part of its
internal green agenda. Since data centres are one of largest energy consumers, the Bank has
optimised the Data Centres facility into a single facility in 2009 to leverage system efficiencies
and exercise better control on their energy performance. Initiatives such as high and medium
density server rooms, server virtualisation, server consolidation, cold aisle containment,
managing optimal levels of inlet temperature, etc. have yielded good results to reduce the energy
intensity of Data Centre and contribute towards environmental sustainability.

The Bank focuses on improving its office building efficiency to consume fewer resources
and save more energy. The two corporate offices of the Bank - Kotak Infiniti, Malad (East) and
27BKC, which together have the maximum employee footprint, have incorporated green
building features at the design stage itself. The Kotak Infiniti office has occupancy and day-light
sensors, energy efficient chillers and Compact Fluorescent Lamp lighting solutions to reduce
energy demand. Further, the Bank has made con Compact Fluorescent Lamp efforts to switch to
energy efficient Light Emitting Diode lighting through phase-wise replacement of Compact
Fluorescent Lamp lighting. Being a green building, the 27BKC office is pre-certified for LEED
(Leadership in Energy and Environmental Design) Silver rating and is expected to get the final
certification soon.

72
 The fresh water intake is reduced at both office premises by recycling wastewater and
reusing this treated water for toilet flushing and gardening. This is supplemented by efforts to
harvest rainwater through rainwater collection tanks at both offices, and ground water recharge at
BKC office. Furthermore, kitchen waste generated at these office premises is donated to a trust
which composts it to use as manure.

 Financial Inclusion

Formal banking system is yet to completely penetrate the largely unbanked rural areas of India.
Kotak Mahindra Bank Limited shares the vision of Reserve Bank of India (RBI) - India’s Central
Bank, for Financial Inclusion (FI) and actively participates in the national FI agenda. The Bank
reaches out to some of the disadvantaged, vulnerable and marginalised sections of society
through this agenda and empowers them with financial solutions like basic savings accounts,
Electronic Benefit Transfers (EBT), Direct Benefit Transfers (DBT) etc. KMBL has also
successfully implemented its three year Financial Inclusion Plan (FIP) introduced in 2010, and
has rolled out its new three year Financial Inclusion Plan in 2013 with renewed vigour.

The Bank committed to the national Financial Inclusion agenda and continually seeks to
explore opportunities to bring formal banking system a step closer to rural populace. Kotak
Mahindra Bank Limited’s committed and concerted efforts with Amul Dairy and National
Payment Corporation of India (NPCI) have resulted in the launch of Kotak Samridhi – a first-of-
its-kind financial inclusion programme for milk producing farmers to be launched on National
Payments Corporation of India’s RuPay platform. Through this initiative, farmers of registered
milk unions in Hooghly & Bardhaman districts of West Bengal receive payments against supply
of milk through the Bank using Card Products / accounts.

Kotak Mahindra Bank Limited views rural India as an opportunity, and not only as a
means to fulfil its agriculture and priority sector lending obligations. The Bank has increased its
presence by adding four agriculture specialised branches and 137 branches in tier 2 to 6 towns.
This will help the Bank get closer to its customers and provide better services. The Bank has a
strong presence in tractor financing. The bank’s agriculture portfolio, besides tractor finance,
includes agri processing units, traders in grain and pulses, exporters, warehouses and cold

73
storage. The agri-business solutions are designed to capture the complete agriculture value chain
(end-to-end) and provide multiple financial options of superior value. The Bank has also
successfully been able to leverage its in-depth understanding of the customer’s business practices
and seasonal variations in creating customised banking products to meet customer needs.

 Health, Safety and Welfare at Workplace

The Bank focuses on the health, safety and welfare of employees and contract staff at the
workplace. The induction programme for all employees includes sessions on physical security,
general fire safety and building evacuation. Each floor/department at corporate offices at Kotak
Infiniti, Malad (East) and 27BKC, Bandra Kurla Complex (BKC) in Mumbai has floor marshals
assigned who are trained to handle emergency situations in the building. The branch workforce is
trained by the administration personnel who regularly visit branch offices. Training is also
provided to security personnel on various security threats and risks, handling emergency
situations including topics such as assisting disabled people in such situations.

74
 DATA ANLYSIS AND INTERPRETATION

Table V.I

CASH FLOW STATEMENT FOR THE YEAR ENDED 26th MARCH 2011

(rupees in crores)

Particulars 2010-2011 2011-2012

A. Cash flow from operating activities:

Net profit before tax 3676.59 3222.70

Adjustments for:
Depreciation 90.00 69.56
Interest earned 25706.93 31092.55
Other earned 7477.65 8117.76
Interest expended (17595.57) (22725.93)
Operating expenses (5859.83) (10795.14)
Provisions 4386.86 1931.10
Reserves 50503.48 48419.73

Operating cash flows before working capital 71389.11 59332.33

changes

Adjustments for:
Increase / decrease in sundry debtors (30026.98) 21549.00
Increase / decrease in advances 20775.05 16625.34
Increase / decrease in borrowings 6140.51 (5904.07)
Increase / decrease in other liabilities 2869.42 3257.34
Increase / decrease in contingent liabilities (4156.15) 4486.28
Increase / decrease in bills for collection 6474.95 36678.71
Cash generated from operations 1025643.15 136021.21

75
 Taxes paid (3.23) (1.86)
Net cash from operating activities (a) 64724.22 136023.07

B. Cash flow from investing activities:

Investments (120892.80) (13023.07)
Net cash used in investing activities (b) (120892.80) (13023.07)

C. Cash flows from financing activities:

Share capital 1114.89 1113.29
Repayment of secured loans (1892.69) (1028.77)
Unsecured loans 2041.62 16595.52
Net cash from financing activities (C) 39094.10 16680.04

Net Increase/Decrease in cash and cash 30000 33361.08

equivalents (a+b+c)

Cash and balances with Reserve Bank of India 27514.29 17536.33

Balances with banks and money at call and short 1135.40 12430.23
notice

76
INTERPRETATION

From the above table it is observed that

 The net profit before tax is slightly increased in the year 2010 as 3676.59 from 3222.70 in
the year 2011.
 The operating profit decreases from 136023.07 in the year 2010 to 64724.22 in the year
2011.
 The cash flows from investing activities decreases in the year 2010 as 120892.80 from
13023.07 in the year 2011.
 The cash flows from financing activities are increases from 16680.04 in the year 2010 to
39094.10 in the year 2011.
 Finally there is a net decrease in cash and cash equivalents from 33361.08 in the year
2010 to 30000 in the year 2011.

77
 Table V.II

CASH FLOW STATEMENT FOR THE YEAR ENDED 26th MARCH 2012

(rupees in crores)

Particulars 2011-2012 2012-2011

A. Cash flow from operating activities:

Net profit before tax 4811.12 3676.59
Adjustments for:

Depreciation 98.27 90.00

Interest earned 25974.05 25706.93
Other earned 6647.89 7477.65
Interest expended (16957.15) (17595.57)
Operating expenses (6617.25) (5859.83)
Provisions 2286.84 4386.86
Reserves 53938.82 50503.48

Operating cash flows before working capital 70182.59 71389.11

changes

Adjustments for:
Increase / decrease in sundry debtors (40984.92) 30026.98
Increase / decrease in advances (29329.31) 20775.05
Increase / decrease in borrowings 11723.95 (6140.51)
Increase / decrease in other liabilities 3032.36 (2869.42)
Increase / decrease in contingent liabilities 12291.30 (4156.15)
Increase / decrease in bills for collection 8530.03 (6474.95)
Cash generated from operations 35446 1025643.15
Taxes paid (4.37) (3.23)
Net cash from operating activities (a) 35441.63 1025646.38

78
B. Cash flow from investing activities:
Investments (134685.96) (120892.80)
Net cash used in investing activities (b) (134685.96) (120892.80)

C. Cash flows from financing activities:

Share capital 1151.82 1114.89
Repayment of secured loans (2112.58) (1892.69)
Unsecured loans 32564.33 2041.62
Net cash from financing activities (C) 21600.50 28736.18

Net Increase/Decrease in cash and cash 53204.07 30000

equivalents (a+b+c)

Cash and balances with Reserve Bank of India 20906.97 27514.29

Balances with banks and money at call and short 13183.11 1135.40
notice

79
INTERPRETATION

From the above table it is observed that

 The net profit before tax is slightly increased in the year 2010 as 4811.12 from 3676.59 in
the year 2011.
 The operating profit decreases from 102564.38 in the year 2011 to 35441.63 in the year
2012.
 The cash flows from investing activities increases in the year 2011 as 134685.96 from
120892.80 in the year 2012.
 The cash flows from financing activities are decreases from 28736.18 in the year 2011 to
21600.5 in the year 2012.
 Finally there is a net increase in cash and cash equivalents from 53207.07 in the year
2011 to 30000 in the year 2012.

80
 TableV.III

CASH FLOW STATEMENT FOR THE YEAR ENDED 26th MARCH 2013

(rupees in crores)

Particulars 2012-2013 2010-2011

A. Cash flow from operating activities:

Net profit before tax 7028.66 4811.12

Adjustments for:
Depreciation 116.76 98.27
Interest earned 33545.65 25974.05
Other earned 7502.76 6647.89
Interest expended (22808.58) (16957.15)
Operating expenses (70850.44) (6617.25)
Provisions 1583.05 2286.84
Reserves 59250.09 53938.82

Operating cash flows before working capital 15365.03 70182.59

changes

Adjustments for:
Increase / decrease in sundry debtors (55132.04) 40984.92
Increase / decrease in advances (39079.23) 29329.31
Increase / decrease in borrowings 16595.52 (11723.95)
Increase / decrease in other liabilities 2553.67 (3032.36)
Increase / decrease in contingent liabilities 17319.52 (12291.30)
Increase / decrease in bills for collection 7575.06 8530.03
Cash generated from operations 124116.31 167379.29
Taxes paid (7.22) (4.37)
Net cash from operating activities (a) 244371.13 167383.66

81
B. Cash flow from investing activities:
Investments (159560.04) (134685.96)
Net cash used in investing activities (b) (159560.04) (134685.96)

C. Cash flows from financing activities:

Share capital 1152.77 1151.82
Repayment of secured loans (2052.01) (2112.58)
Unsecured loans 3018.98 32564.33
Net cash from financing activities (C) 22119.74 21600.50

Net Increase/Decrease in cash and cash 20924.73 53204.07

equivalents (a+b+c)

Cash and balances with Reserve Bank of India 20461.29 20906.97

Balances with banks and money at call and short 15768.02 13183.11
notice

82
INTERPRETATION

From the above table it is observed that

 The net profit before tax is slightly increased in the year 2012 as 7028.66 from 4811.12 in
the year 2013
 The operating profit increases from 167383.66 in the year 2012 to 244371.13 in the year
2013.
 The cash flows from investing activities increases in the year 2012 as 159560.04 from
134685.96 in the year 2013.
 The cash flows from financing activities are increases from 21600.50 in the year 2012 to
22119.74 in the year 2013.
 Finally there is a net decrease in cash and cash equivalents from 53204.07 in the year
2012 to 20924.73 in the year 2013.

83
 Table V.IV

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2014

(rupees in crores)

particulars 2013-2014 2014-2015

A. Cash flow from operating activities:

Net profit before tax 9203.15 7028.66

Adjustments for:
Depreciation 132.53 16.76
Interest earned 40075.60 33545.65
Other earned 8345.70 7502.76
Interest expended (26209.18) (22808.58)
Operating expenses (90212.88) (70850.44)
Provisions 1802.54 1583.05
Reserves 65547.84 59250.09

Operating cash flows before working capital 89885.3 78365.03

changes

Adjustments for:
Increase / decrease in sundry debtors (71439.39) 35132.04
Increase / decrease in advances (48468.98) 39079.23
Increase / decrease in borrowings 20410.62 (16595.52)
Increase / decrease in other liabilities 2789.81 (2553.67)
Increase / decrease in contingent liabilities 42117.47 (17319.52)
Increase / decrease in bills for collection 12394.53 (7575.06)
Cash generated from operations 146260.57 124116.36
Taxes paid (7.29) (7.22)
Net cash from operating activities (a) 36522.07 124123.53

84
B. Cash flow from investing activities:
Investments (171393.60) (159560.04)
Net cash used in investing activities (b) (1741393.60) (159560.04)

C. Cash flows from financing activities:

Share capital 1153.64 1152.77
Repayment of secured loans (12305.25) (2052.01)
Unsecured loans 12892.89 3018.98
Net cash from financing activities (C) 2741.28 2119.74

Net Increase/Decrease in cash and cash 27867.2 20924.73

equivalents (a+b+c)

Cash and balances with Reserve Bank of India 19052.73 20461.29

Balances with banks and money at call and short 22364.79 15768.02
notice

85
INTERPRETATION

From the above table it is observed that

 The net profit before tax is slightly increased in the year 2014 as 9203.15 from 7028.66 in
the year 2013
 The operating profit decreases from 124123.53 in the year 2013 to 36522.07 in the year
2014.
 The cash flows from investing activities increases in the year 2012 as 1741393.60 from
159560.04 in the year 2013.
 The cash flows from financing activities are increases from 2119.74 in the year 2013 to
2741.28 in the year 2014.
 Finally there is a net increase in cash and cash equivalents from 20924.73 in the year
2013 to 27867.2 in the year 2014.

86
 Table V.V

CASH FLOW STATEMENT FOR THE YEAR ENDED 26th MARCH 2015

(rupees in crores)

Particulars 2013-2014 2012-2013

A. Cash flow from operating activities:

Net profit before tax 10166.83 9203.15
Adjustments for:
Depreciation 165.18 132.53
Interest earned 44178.15 40075.60
Other earned 10427.87 8345.70
Interest expended (27702.59) (26209.18)
Operating expenses (10303.86) (90212.88)
Provisions 2626.41 1802.54
Reserves 72051.71 65547.84

Operating cash flows before working capital 1016097 89855.3

changes

Adjustments for:
Increase / decrease in sundry debtors (71439.39) 71967.71
Increase / decrease in advances 48468.98 53027.63
Increase / decrease in borrowings 20410.62 (12895.58)
Increase / decrease in other liabilities 2789.81 (333.82)
Increase / decrease in contingent liabilities (42117.47) 46903.54
Increase / decrease in bills for collection 13543.91 (12394.53)
Cash generated from operations 971971.02 146260.57

Taxes paid (8.69) (7.29)

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 Net cash from operating activities (a) 971979.71 146267.86

B. Cash flow from investing activities:

Investments (177021.82) (171393.60)
Net cash used in investing activities (b) (177021.82) (171393.60)

C. Cash flows from financing activities:

Share capital 1455.04 153.64
Repayment of secured loans (31154.68) (12305.25)
Unsecured loans 23452.10 12892.89
Net cash from financing activities (C) 6247.54 2741.28

Net increase /Decrease in cash and cash 56548.38 (27867.2)

equivalents (a+b+c)

Cash and balances with Reserve Bank of India 21821.83 19052.73

Balances with banks and money at call and short 19707.77 21364.79
notice

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INTERPRETATION

From the above table it is observed that

 The net profit before tax is slightly increased in the year 2014 as 10166.83 from 9203.15
in the year 2013.
 The operating profit also increases from 146267.86 in the year 2013 to 971979.71 in the
year 2014.
 The cash flows from investing activities increases in the year 2014 as 177021.82 from
171393.60 in the year 2013.
 The cash flows from financing activities are increases from 2741.28 in the year 2014 to
6247.54 in the year 2015.
 Finally there is a net increase in cash and cash equivalents from 27867.2 in the year 2014
to 56548.38 in the year 2015.

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 FINDINGS AND SUGGESTIONS

FINDINGS

 The depreciation is increasing from year to year which may leads to decrease in cash
flows and this finally impacts on net income and shares holders equity.
 It may conclude from the analysis, the net cash flows from investing activities are
increased year by year due to investments in other areas affects on net cash and cash
equivalents.
 It may be conclude that the cash flows from financing activities to the bank highly comes
from unsecured loans which may effects bank performance in a negative way by increase
in bad debts and non performing assets.
 It also conclude that the current liabilities are increasing from year by year which may
also effects the cash flows of concern in a negative way which can decreases the short
term solvency of the firm.
 The study reveals that investing, operating and financing activities shows the positive
result where the firm maintaining most of liquidity cash to run day to day activities.

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 SUGGESTIONS
 In order to reduce the outside borrowings in the company has to acquire the capital from
equity sources by keeping in view the debt equity proportion as normal.
 The liquidity of the company should be improved by maintaining the optimum current
assets and liquid assets according to standard norms.
 To improve the financial health of the company and maximizing the time between the
sources mobilization and utilization the management must introduce the new cost saving
techniques.
 By examining the statements it is observed that there is slightly improvements in profits it
can be increased by recollect the advances and payment for bills of collection in time.
 By observing the statements it is suggested that if company tries to reduce some
investment on long term investing activities which gives a chance to meet day to day
expenses effectively.
 From the cash flow statements it is suggested that the quantum of the sales generated
should be improved impressively in order to attain higher return on investment.

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 BIBLIOGRAPHY

REFERENCE BOOKS

FINANCIAL ACCOUNTING BHATTACHARYA

FINANCIAL ACCOUNTING ASHOKM BANERJEE

FINANCIAL MANAGEMENT BRIGHAM AND EHRDHART

FINANCIAL MANAGEMENT IM PANDEY

MANAGEMENT ACCOUNTING M.N.ARORA

MANAGEMENT ACCOUNTING M Y KHAN & P K JAIN

JOURNALS

INDIAN JOURNAL OF FINANCE

INDIAN FINANCE

IIMB MANAGEMENT REVIEW

WEBSITES

www.kotakmahindra.com

www.mycreativecommerce.blogspot.in

www.finance-assignment.com

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 GLOSSARY

The cash flow statement should be prepared on a monthly basis during the first year, on a
quarterly basis for the second year, and annually for the third year. The following 17 items are
listed in the order they need to appear on cash flow statement:

 Cash refers to cash on hand in the business.

 Cash sales are income from sales paid for by cash.
 Receivables is income from the collection of money owed to the business resulting from
sales.
 Other income is income from investments, interest on loans that have been extended,
and the liquidation of any assets.
 Total income is the sum of total cash, cash sales, receivables and other income.
 Material/merchandise is the raw material used in the manufacture of a product (for
manufacturing operations only), the cash outlay for merchandise inventory (for merchandisers
such as wholesalers and retailers), or the supplies used in the performance of a service.
 Direct labor is the labor required to manufacture a product (for manufacturing operations
only) or to perform a service.
 Overhead is all fixed and variable expenses required for the operations of the business.
 Marketing/sales is all salaries, commissions and other direct costs associated with the
marketing and sales departments.
 R&D is labor expenses required to support the research and development operations of
the business.
 G&A is labor expenses required to support the general and administrative functions of
the business.
 Taxes are all taxes, except payroll, paid to the appropriate government institutions.
 Capital represents the capital requirements to obtain any equipment needed to generate
income.
 Loan payments are the total of all payments made to reduce any long-term debts.

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 Total expenses are the sum of material, direct labor, overhead expenses, marketing,
sales, R&D, G&A, taxes, capital and loan payments.
 Cash flow is the difference between total income and total expenses. This amount is
carried over to the next period as beginning cash.
 Cumulative cash flow is the difference between current cash flow and cash flow from
the previous period.
 Fund means working capital
 Flow means changes occurred in between two different time periods.
 Fund from operation income generated from operations
 Funds lost in operations loss incurred in the operations
 Bad debt when the amount due from a debtor is irrecoverable, it is called bad debt.

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