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DISSERTATION TITLED
A STUDY ON
WORKING CAPITAL MANAGEMENT AT
AMANATH CO-OPERATIVE BANK LTD

Submitted in Partial fulfillment of the requirements for MBA Degree Course of

Bangalore University

By
NAJAHA.H
(Reg.No: 04ACCM6049)

Under the Guidance of

MR.SREEPATHY RAO

YEAR – 2004-2006

AL-AMEEN INSTITUTE OF MANAGEMENT STUDIES

Affiliated to Bangalore University
(Recognized by AICTE)

BANGALORE-560 02
Chapter No Contents Page
1  Introduction to Banking Industry.
 History of Indian Banking
 Banking since Nationalization
 Current Banking Scenario
 Introduction to Co-Operative
Banks
Introduction to Finance
Objective of Finance
Introduction of Financial Management
Objectives of Financial Management
Introduction to Working Capital
Concept of Working Capital
Need for Working Capital
Operating Cycle and cash Cycle
Factors Influencing Working Capital
Requirement
Impact of Inadequate and Excessive of
Working Capital
Cash Management
Credit Management
Inventory Management
Short-Term Sources of Finance
2 Research Design
Title of the Study
 Statement of the Problem
Objectives of the Project
Methodology of the Study
Sources of the Date
Scope of the Study
Chapter Scheme
3 Profile of Amanath Co-Operative Bank
Origin Of Amanath Co-Operative Bank
Growth and Development
Financial Indicators of the Bank
Achievements of the Bank
Awards
Credit Portfolio
Objectives of the Bank
New products and Services of the Bank
Future plans and Prospects
Schemes offered by the Bank
Office and Branches

4 Data Analysis and Interpretation

5 Summary of Finding

6 Suggestions and Recommendation

 LIST OF GRAPHS

1. GRAPH SHOWING THE WORKING CAPITAL

2. GRAPH SHOWING THE PAID UP CAPITAL

3. GRAPH SHOWING THE RESERVES

4. GRAPH SHOWING THE DEPOSITS

5. GRAPH SHOWING THE ADVANCES

 CHAPTER 1

Introduction to Banking, Financial Management and Working

Capital Management

INTRODUCTION TO BANKING INDUSTRY

History of Indian Banking Industry

India has a system of Indigenous banking from very early times,

though it was not similar to banking of modern times. There is evidence
to show that money lending existed even during the Vedic period. With
the advent of the English traders in the 17 th century and the
establishment of trading centers by the East India Company, indigenous
bankers found their position precarious. Unable to use indigenous
bankers for their trading and banking purpose, the East India
Company Encourage the Establishment of what were know as the
agency houses- trading firms which undertook baking operations of the
benefit of their constituents.

The Government of India did not awaken to the needs for the
banks till 1809, the year in which the bank of Bengal was established.
The Bank of Bombay was first constituted in 1840, with a capital of
Rs.52, 25,000. The Bank of Madras was formed in 1843 with capital of
Rs.30 Lakhs. A new era in the history of public banks in India came in
year860, when the principle of limited liability was first applied to joint
stock banks. The presidency Banks referred to above were
amalgamated with the Imperial Bank of India, which was brought into
existence on 27th January, 1921 by the Imperial Bank of India Act, 1920.
It was allowed to hold Government balances and to manage public debt
and clearing houses till the establishment of the Reserve Bank of India
in 1935. After Independence the Government of India setup the State
Bank of India on July 1955, which took over the business of the
Imperial Bank of India.

Banking since Nationalization

During the congress regime in 1950-60s there was demand for

nationalization of commercial banks. It was felt that nationalization was
the only way to solve the problems of banking in interest and to soften
the intensity of booms and depression. In a country, which had
embarked on economic planning based on a socialist pattern of society.
it is only desirable but also necessary to nationalize some important
banking institution to serve the larger interest of the nation.
Nationalization of banks began with the passing of the reserve bank of
India act of1948, which monitors and controls the entire monetary
system of the country. It was thought desirable to nationalize the bank
to ensure greater co-ordination of monetary, economic and fiscal
policies. The second major attempt at nationalization of banking in
India which came to be know as the state bank of India in 1955. The
third major attempt was made when 14 leading commercial banks, with
deposits exceeding rs.50crores each. Were nationalized on 19th july1969.
Their take-over was intended to serve better the needs of development
of the economy inconformity with nations priorities and objectives. The
primary objective of nationalization of banks was to shift vast financial
resources from the hands of a few large business houses to the true and
rightful claimants. The nationalization process thus heralded the
beginning of social banking, mass banking an innovative banking.

Current Banking Scenario

Liberalization Era since 1990 has shaken up the old and

traditional banking structure as there is a major threat from the foreign
players in this industry. The Indian banking has come a long way from
being a sleepy business institution to highly proactive and dynamic
entity. This transformation has been largely brought about by the large
dose of liberalization and economic reforms that allowed banks to
explore new business opportunity rather than generating revenues from
conventional streams. The Indian banking has finally worked up to the
competitive dynamics of the new Indian market and is addressing the
relevant issues to take on the multifarious challenges of globalization.

The growing internationalization of baking operations has altered

the face of banks from one of mere intermediate to one of provider of
quick, effective and consumer centric services. The banking industry in
India is moving towards international best practices in banking
Supervision for achieving and maintaining stability and also to combat
competition form would be evaluated both by domestic supervising
authorities and by global rating are Capital to Risk weighted Asset
Ration (CRAR), net NPA and Return On Assets reflecting asset quality,
profitability and capacity to withstand financial shocks.

The banking industry is also required to ensure greater

transparency and disclosure in their financial statements for the
information of market players, investors, depositors and rating
agencies.

Information Technology is slated to play a key role in banking

sector as it would not only ensure smooth passage of interrelated
transaction over the electronic medium but will also facilitate complex
financial product innovations such as derivatives. The banking industry
in India will have to get its act together to survive in the new millennium
since it would be subject to intense competition not only from new
domestic players but also from established global outfits especially in
the total convertibility scenario in the not too distant future. The
sustained pace of liberalization would necessitate that the nationalized
banking sheds its flab, get leaner more agile and acquires the much
needed market savvy and customer focus which are the crucial
ingredients of success in the new world.
Co-operative Banks

The Co-operative banks have a history of almost 100 years. The

co-operative banks are an important constituent of the Indian Financial
System, judging by the role assigned to them, the expectation they are
supposed to fulfill, their number, and the number of offices they
operate. The co-operative movement originated in the West, but the
importance that such banks have assumed in India is rarely paralleled
anywhere else in the world. Their role in rural financing continues to be
important even today, and their business in the urban areas also has
increased phenomenally in recent years mainly due to the sharp
increase in the number of primary cooperative banks.

While the cooperative banks in rural areas mainly finance

agricultural based activities including farming, cattle, milk, hatchery,
personal finance etc.

Some of the cooperative banks are quite forward looking and have
developed sufficient core competencies to challenge state and private
sector banks. According to National Federation of Urban Cooperative
Banks and Credit Societies Ltd. (NAFCUB) the total deposits and
lending’s of Cooperative Banks in much more than Old Private Sector
Banks and also the New Private Sector Banks. This exponential growth
of Cooperative Banks is attributed mainly to their much better local
reach, personal interaction with customers, and their ability to catch the
nerve of the local clientele. Though registered under the Cooperative
Societies Act of the Respective States (where formed originally) the
banking related activities of the cooperative banks are also regulated by
the Reserve Bank of India. They are governed by the Banking
Regulations Act 1949 and Banking Laws (Cooperative Societies) Act,
1965.

a) Primary Cooperative Credit Society

The Primary Cooperative Credit Society is an association of

borrowers and non-borrowers residing in a particular locality. The
funds of the society are derived from the share capital and deposits of
members and loans from central cooperative banks. The borrowing
powers of the members as well as the society are fixed. The loans are
given to members for the purchase of cattle, fodder, fertilizers,
pesticides, implements, etc.
b) Central Cooperative Banks

These are the federations of primary credit societies in a district and

are of two types – those having a membership of primary societies only
and those having a membership of societies as well as individuals. The
funds of the bank consist of share capital, deposits, loans and overdrafts
from state cooperative and joint stock banks. These banks finance
member societies within the limits of the borrowing capacity of societies.
They also conduct all the business of a joint stock bank.
c) State Cooperative Banks

The state cooperative bank is a federation of central cooperative

bank and acts as a watchdog of the cooperative banking structure in the
state. Its funds are obtained from share capital, deposits, loans and
overdrafts from the Reserve Bank of India. The state cooperative banks
lend money to central cooperative banks and primary societies and not
directly to farmers.

d) Land Development Banks

The land development banks are organized in 3 tiers namely; state,

central and primary level and they meet the long-term credit
requirements of the farmers for developmental purposes. The state
land development bank overseas the primary land development banks
situated in the districts in the state. They are governed both by the
statement government and Reserve Bank of India. Recently, the
supervision of the land development banks has been assumed by
National Bank for Agriculture and Rural Development (NABARD).
The sources of funds for these banks are the debentures subscribed by
both central and state government. These banks do not accept deposits
from the general public.
INTRODUCTION TO FINANCE

Finance is a vast area of facts, principles theories dealing with

various ways of raising and using it by individuals and others. It deals
with how individuals and companies divide their business income
between consumption and how to choose from among the available
investment opportunities and also how they raise money for increased
consumption or investment. It also encompasses the study of financial
markets, institutions and activities of government, with stress on those
aspects relating to financial decisions of individuals and companies. In
fact finance is so indispensable today that it is rightly said that it is the
lifeblood of an enterprise. Without adequate finance, no enterprise can
possibly accomplish its objectives.

Finance is an important component, which cuts across all other

areas of Management and is one of the basic foundations for all kinds of
economic activities. It is regarded as the master key, which provides
access to all other source employed in the manufacturing and
merchandising activities. However it is also true that money begets
more money, only when it is properly managed and this can be achieved
with the help of strategic formulation, planning and decision-making.
Hence efficient management of every business is closely linked with
efficient management of its finances.
Objectives of finance:

The main aim of finance is to arrange as much funds for the business as
required from time to time. The other functions are as follows:

 Acquiring sufficient funds: The aim of finance is to assess the

financial needs of an enterprise and to find out suitable sources
for raising them. The funds could be raised from long term
sources like share capital, debentures, term loan and owners
funds and from short-term sources like short term investment,
loan and advances etc.

 Proper Utilization of Funds: effective utilization of funds is a very

important function and it should be a way that a maximum
benefit is derived from them. The returns from their use should
be more than their cost and it should be ensured that funds do not
remain idle at any point of time.

 Increase Profitability: The planning and control of finance

function aims at increasing profitability of the concern. To
increase profitability, sufficient funds will have to be invested.
Finance function should be so planned that the concern neither
suffers for inadequacy of funds nor surplus of funds than
required. The cost of acquiring funds should be such that it
results in maximum returns.
  Maximizing Concern’s Value: It is stated that concern’s value is
directly linked with its profitability. Besides profits, the type of
sources used for raising funds, the cost of funds, the condition of
money market, the demand of products are some other
consideration which influences a firm’s value.

Introduction to Financial Management:

Financial Management is that managerial activity which is

concerned with planning and controlling of the firm’s financial
resources.

Financial Management is mainly concerned with the proper

management of funds. The finance manager must see that the funds are
procured in a manner that the risk cost and control consideration are
properly balanced in a given situation and there is optimum utilization
of funds.

As a separate activity or a discipline, it is of recent origin. It was

a part of economics till 1890. Only in the beginning of the 20 th Century,
did corporate finance got recognition. It was identified as a separate
function of the business activity. The subject matter of financial
management deals with the managerial activity, which is concerned
with firm’s financial resources that have to be properly allocated to
achieve the best use of funds available.

Objective of Financial Management:

Financial Management is concerned with procurement and use of

funds. Its main aim is to use business funds in such a way that the
earning is maximized i.e. to maximum the owner’s economic welfare.
These objectives can be achieved by:

 Profit Maximization: A business being an economic institution

must earn profits to cover its cost and provide funds for growth.
Thus profit is measure of efficiency of business enterprises and
also serves as a protection against risks, which cannot be ensured.
Price system is the most important mechanizes of a market
economy indicating what goods and servicing the society wants.
Goods and servicing in great demand command higher prices,
which in turns results in high profits. In case of stiff competition,
there may be no demand for less demand in the market and may
result in the fall in prices, which means less or no profits. Hence,
prices are determined by demand and supply conditions, as well
as competitive forces as they guide the allocation of resources for
various productive activities.
The argument, which favors profit maximization, is as follows:

 Profitability helps in measuring the efficiency and economic

prosperity of the business
 Profits are main source for the growth and development of the
business
 Profits maximization is also essential for fulfilling the socials
goals, which in turn, helps in maximizing the socio-economic goals

Profit maximization objectives has, however, been criticized in recent

years. It is agreed this objective assumes perfect competition and in the
face of imperfect common markets, it cannot be a legitimate objective of
the firm.

In new business environment only profits maximization is regarded

as unrealistic, difficult, inappropriate and immoral.

It is also feared that the profits maximization behavior in market

economy may tend to produce goods and services that are wasteful and
unnecessary from the society’s point of view and also may tend to
inequality in income and wealth. Apart from this, profit maximization
fails to serve as an operational criterion for maximizing the owner’s
economic welfare.

It suffers from the following limitations:

  It is vague.
 It ignores the timing of returns.
 It ignores risk.

Wealth maximization:

It is an appropriate objective of an enterprise. In fact, it is

asserted to be the single substitute for a stockholder’s utility. When a
firm maximizes the stockholder’s wealth, the individual stockholder can
utilize this wealth to maximize his individual utility. Thus wealth
maximization means maximizing the net present value. This objective is
consistent with maximizing the owner’s economic welfare.

INTRODUCTION TO WORKING CAPITAL

Concepts of working capital

Working capital management is concerned with decisions relating

to current assets and current liability. The key difference between long
term financial management and short-term financial management is in
terms of timing of cash. While long term financial decisions are for
buying capital equipment or issuing debenture, which involve cash flows
over a period of 5 to 15 years. Short-term financial decision typically
involves cash flows within a year or within the operating cycle to the
firm.
There are two concepts of working capital:

Gross Working Capital: Is the total of all current assets. Which include
cash, short-term securities, Debtors, Bills Receivable and Inventory.

Net Working Capital: Refers to the difference between current

assets and current liabilities. Which include Creditors, Bills payable
and outstanding expenses. Net working capital will arise when current
assets exceed current liability. A negative net working capital will occur
when current liability is in excess of current assets.

Permanent Working Capital: Permanent working capital is the

minimum amount of current assets, which is needed to conduct a
business even during the dullest season of the year. It is the amount
required to produce the goods and services, which are necessary to
satisfy demand at a particular point.

Temporary or Variable Working Capital: It represents the

additional assets, which are required at different times during the
operating year.

Cash Working Capital: It shows the real flow of money or value

at a particular time and is considered to be the most realistic approach
in working capital. The cash working capital indicates the adequacy of
the cash flow, which is an essential pre-requisite of a business.

Negative Working Capital: Negative working capital emerges

when current liabilities exceed current assets.

Need for working capital:

The need for working capital arises to run the day-to-day business
activity. We will hardly find a business firm, which does not require
any amount of working capital. Indeed, firms differ in their
requirement of the working capital. The units needs more of working
capital finance in case it needs:

 To acquire any stock, raw materials, stores and spares.

 To hold finished goods in large quantity due to lesser demand
and.
 To sell finished goods on credit and it takes time for its
realization.

Operating Cycle and Cash Cycle:

Operating cycle is the time duration required to convert sales,

after the conversion of resources into inventories, into cash. Investment
in working capital is influenced by four events in the production and
sales cycle of the firm:
 - Purchase of raw materials
- Payment of raw materials
- Sale of finished goods
- Collection of cash for sales

The firm begins with the purchase of raw materials, which is paid
for after some period, which represents the accounts payable period.
The firm converts the raw materials into finished goods and then sells
the same. The time lag between the purchase of raw materials and the
sale of finished goods is the inventory period. Customers sometimes pay
their bills some time after the sales. The period that elapses between the
date of sales and the date of collection of receivables is the accounts
payable period.

The time that elapses between the purchase of raw materials and
the collection of cash for the sale is referred to as the operating cycle,
whereas the time length between the payment for raw material
purchases and the collection of cash for sales is referred to as the cash
cycle. The operating cycle is the sum of the inventory period and the
accounts receivable period, whereas the cash cycle is equal to the
operating cycle less the accounts payable period.
Factors Influencing Working Capital Requirement:

The working capital needs of the firm are influenced by numerous

factors. The factors change for a firm over time. The important ones
are:
 Nature of Business: The working capital requirement of a firm is
closely related to the nature of its business. A service firm like
Transport Corporation, which has long operating and sells largely
on credit will require substantial working capital requirement.

 Seasonality of operations: Firms, which have marked seasonality

in their operations usually, have highly fluctuating working
capital requirements. A firm manufacturing ceiling fans will
require more of working capital during summer period then
winter period.

 Production Policy: A firm, which faces a seasonal fluctuation in

the sales, may pursue a production policy, which may reduce the
sharp variations in working capital requirement.

 Market Conditions: The degree of competition in the market

place an important bearing on working capital. When
competition is keen, a larger inventory of finished goods is
required to meet customer’s need. Further, generous credit terms
have to be given to customer. In a strong market and weak
competition less amount of working capital is required.

 Conditions of Supply: If the supply is prompt and adequate, the

firm can manage with small inventory. However, if the supply is
unpredictable and scant the firm to ensure continuity production
should carry large inventory on an average.
  Credit Policy: The credit policy of the firm affects the working
capital by influencing the level of Debtors. A high collection
period wills tie-up large funds in book debts. So the firm should
follow a rationalized credit policy.

 Availability of Credit: The working capital requirements of a

firm are also affected by credit terms granted by its creditors.

 Operating efficiency: The operating efficiency of the firm relates

to the optimum utilization of resources at minimum costs. The
working Capital will be low, if the firm controls its operating cost
and utilize its current assets efficiently.

Impact of inadequate and excessive working capital:

When working capital is inadequate, a company faces the following

problems:

 It is not possible for it to utilize production facilities fully for want

of working capital.
 A company may not be able to take advantage of cash discount
facilities.
 A company may not be able to take advantage of profitable
business opportunities.
 A company will not be able to pay its dividend because of the non-
availability of funds.
  The modernization of equipment and even routine repairs and
maintenance facilities may be difficult to administer.
 A company may have to borrow funds at exorbitant rate of
interest.
 Low liquidity would positively threaten solvency of the business.

Too much of working capital is a dangerous as too little of it.

Excessive working capital raises the following problems:

 A company may be tempted to overtrade and lose heavily

 A company may keep very big inventories and tie up its funds
unnecessarily.
 There may be imbalance between liquidity and profitability.

Cash Management

Cash is the most important current asset for the operation of the
business. Cash is the basic input need to keep the business running on a
continuous basis, it is also the ultimate output expected to be realized by
selling the service or product manufactured by the firm. The firm
should keep sufficient cash, neither more, nor less. Cash is most
significant because it is used to pay the firms obligations. However,
cash is unproductive. Unlike fixed assets or inventories, it does not
produce goods for sale. Cash management is concerned with the
managing of

 Cash flows into and out of firm

  Cash flows within the firm
 Cash balances held by the firm at a point of time by financing
deficit or investing surplus cash
The firms need to hold cash may be attributed to the following three
motives:

 The transaction motive

 The precautionary motive
 The speculative motive

The management of cash is also important because it is difficult to

predict cash flows accurately, particular the inflows, and that there is
no perfect coincidence between the inflows and outflows of cash. In
order to resolve the uncertainty about cash flow prediction and lack of
difference between the receipts and payments, the firm should develop
strategies for cash management, such as

 Cash planning: Cash inflows and outflows should be planned to

project cash surplus or deficit for each planning period.
 Managing the cash flows: The flow of cash should be properly
managed. The inflows of cash should be accelerated while the
outflows of cash should be decelerated.
 Optimum cash level: The firm should decide about the
appropriate level of cash balances. The cost of excess cash and
danger of cash deficiency should be matched to determine the
optimum level of cash balances.
  Investing surplus cash: The surplus cash balances should be
properly invested to earn profits. The firm should decide about
the division of such cash balances between bank deposits,
marketable securities and inter corporate lending.

A firm should hold optimum balances of cash, and invest any

temporary excess amount in short terms (marketable) securities. In
choosing these securities, the firm must keep in mind safety, maturity
and marketability of its investment.

Credit Management

An efficient control of stocks and liquid resources in conjunction

with the credit facility is an essential part of management control. In
digesting facts and reaching a credit decision, many finance officers
more or less explicitly keep in mind the four C’s of credit – Capital,
Capacity, Character and Condition when firms sells goods or services
on deferred payment basis, it is said that the firm has granted trade
credit to customers.

Business firms often sell on credit to facilitate sales and pressure of

competition and the forces of customer persuades. The credit period
extended by business firm usually ranges to 15 to 60 days. The major
terms of payment are:

 Cash terms
 Open account
  Consignment
 Draft and Letter of Credit

The important dimensions of a firms credit policy are:

 Credit Standard
 Credit Period
 Cash discount and
 Collection efforts

All the above dimensions help to increase sales and attract more
customers.

Inventory Management

Inventories generally represent a very significant proportion of

total assets. Hence the importance of inventory management cannot be
overemphasized. There are 3 types of inventories: raw materials, work-
in-process and finished goods. Raw materials are materials are
materials and components that are inputs in making the final product.
Work-in-process, also called stock-in-process, refers to goods in the
intermediate stages of production. Finished goods consist of final
products that are ready for sale. While manufacturing firms generally
hold all three types of inventories, distribution firms hold mostly
finished goods.
There are three general motives / need for holding inventories:

 Transaction motive, which emphasizes the need to maintain

inventories to facilitate smooth production and sales operation
 Precautionary motive, which necessitates holding of inventories to
guard against the risk of unpredictable changes in demand and
supply forces and other factors.
 Speculative motive, which influences the decision to increase or
reduce inventory levels to take advantage of price fluctuations.

Objectives of Inventory Management:

The objective of inventory management should be to avoid excessive

and inadequate levels of inventories and to maintain sufficient inventory
for the smooth production and sales operations. Efforts should be made
to place an order at the right time with the right source to acquire the
right quantity at the right price and quality. The effective inventory
management should:
  Ensure a continuous supply of materials to facilitate
uninterrupted production
 Maintain sufficient stock of raw materials in periods of short
supply and anticipated price change
 Maintain sufficient finished goods inventory for smooth sales
operation and efficient customer service
 Minimize the carrying cost and time, and
 Control investment in inventories and keep it at an optimum level

Inventory Management Techniques:

To manage inventories effectively and efficiently the various technique

of which are as follows:

 ABC analysis of Inventories

 Economic order quantity

ABC analysis of inventories: under this system a value item analysis

is prepared where there are many items in the inventory. It attempts to
relate how the inventory value is concentrated among the individual
items. Under this system all the items are grouped into 3 categories i.e.
A, B, C.

Items included in “A” category may be kept under strict control by

the top management. Items included in the “B” category may be kept
under moderate control by the middle management and item included
in the “C” category may be managed with little control at the lower
level.

The above analysis will help the management to concentrate its

efforts for managing those items of inventory which have high
importance, management can take full care to ensure the availability of
these items at the minimum possible cost.

Economic order quantity: generally, if an order is given for the

purchase of large quantity, the cost incurred in procuring these goods is
low, but at the same time carrying cost incurred in procuring these
goods is low, but at the same time carrying cost of the bulk order is
high. Therefore it is necessary to strike a balance between the ordering
cost keeping in view the total requirement of the material. The quantity
of the order where the annual total costs for both ordering and carrying
inventories are minimum is called as Economic order quantity. In
order words, the optimum size of the purchase order is called EOQ.

It decides keeping in view the following points:

 Consumption of the material during the given period

 Cost of placing an order
 Cost of carrying the inventories
Short-term sources of finance

The two most significant short-term sources of finance for

working capital are:

Trade credit and Bank borrowing. Trade credit refers to the

credit that a customer gets from supplier of goods in the normal course
of business. In practice, the buying firms have not to pay cash
immediately for the purchase made. Banks are the main institutional
sources of working capital finance in India. After trade credit, bank
credit is the most important source of financing working requirement of
firms in India. Working capital finance by banks represents the most
important source for financing current assets.

Forms of bank finance:

A firm can draw funds from a bank within the maximum credit limit
sanctioned. The forms of withdrawal banks provides for working
capital finance are:

 Cash credits/ over draft

 Loans
 Purchase / discount of bills
 In addition to these forms of direct finance, banks help their
customers in obtaining credit from other sources through letter of credit
arrangement.
Security:

 Banks generally do not provide working capital finance without

adequate security. The following are the modes of security the
banks seek either in the forms of:

- Hypothecation
- Pledge
- Mortgage
- Lien
Margin amount:
Banks do not provide 100% finance. They insist that the
customer should bring a portion of the required finance from other
sources. This portion is known as the margin amount.

Regulation of bank finance:

Banks were following certain norms in granting working capital
finance to companies. These norms were greatly influenced by the
recommendations of various committees appointed by the Reserve Bank
of India. The norms of working capital finance are mainly based on the
recommendations of the Tendon Committee. The Core committee also
made further recommendations to strengthen the procedures and
norms of working Capital finance by banks. However, these norms are
now regarded as guidelines. Banks have discretion to deviate from the
norms, taking into account the past holding levels and other factors
 CHAPTER 2 – RESEARCH DESIGN

The title of the study:

The title for the dissertation is “A study of the methods adopted

by Amanath Co-operative Bank Ltd, in the appraisal of working capital
management”

Statement of the problem:

A prevalent feeling in small-scale sector is that bank finance is not

available adequately and in good time. On the other hand, the financing
banker alleges that the borrowing firm overtrades and therefore over
borrows.

A major reason for borrowing a firm not being able to add value
to itself through debt capital is stated to be method adopted by the
lending banker in credit appraisal. Until recently, the credit appraisal
methods were administered through Tandon Committee and Core
Committee recommendations. After the Reserve Bank of India
withdrew its control over the lending bankers in this regard, each
lending bank is permitted to adopt its own method of credit appraisal
for industry. Such freedom has created a problem for the banker
standardizing a typical method for appraising a firm’s working capital.
Objectives of the project:

 The main objective of the project are:

 To study the pattern of working capital requirements of its clients
 To assess the financial appraisal policy employed by the banks to
finance working capital requirement of its clients
 To offer recommendations that would help the banks to evolve
their lending methods that will match the industry needs.

Methodology of the study:

The primary data is based on the discussions conducted with the

officials of the bank. The secondary data provided by them, the RBI
circulars, magazines, data from the Internet were thoroughly studied
and interpretations made thereof.

Sources of data:
 The study is based on collection of Primary as well as Secondary
data. Primary data are those, which are collected afresh and for the
first time, and thus happen to be original in character.

There is several method of primary data collection:

 Through questionnaire
 Interview method
 Through Schedules etc.

Secondary data are those which have already been collected by

someone else and which have already been passed through statistical
process.

 Previous Bank Records

 Through Magazines
 Company Brochures
 Records and Files etc.
 CHAPTER III
PROFILE OF AMANATH COOPERATIVE BANK
LIMITED

PROFILE OF THE BANK

Amanath Cooperative Bank Limited

Origin

Dr. Mumtaz Ahmed Khan and Janab K Rahman Khan

established Amanath Cooperative Bank on the 13 th January 1977. It
was indeed a very humble beginning with a capital of Rs. 3 Lakhs and a
membership of 3000 the main aim of the bank was to mobilize its
resources from the weaker section of the society and to plough it back to
improve their socio-economic conditions, trade and business. Today it
has come a long way to become the largest Urban Cooperative Bank in
the state of Karnataka.

Growth
 Today the bank has 36000 members and more than 1.6 lakh
customers. It has a total of 15 branches in the state with staff strength
of 450 employees. The bank posted a net profit of Rs. 7.13 crores, which
is the highest, recorded by any cooperative bank in the state. This
extraordinary growth of the bank earned it a scheduled status effective
from 29th July 2004. As of today Amanath Cooperative Bank is the only
Scheduled Cooperative Bank in the state of Karnataka. The inclusion
of the bank in second schedule to RBI Act 1934 has infused more
strength to the bank and since then the pace of growth has been
excellent.

Achievements of the Bank

The first Urban Cooperative Bank in South India to be permitted by

RBI to open non-resident external and non-resident ordinary accounts.

 The first Urban Cooperative bank to achieve the scheduled status

 The first Urban Cooperative bank to be admitted as a direct member
of the Bangalore Banker’s Clearing House
 The first Urban Cooperative bank in Karnataka to computerize all it
operations and introduce Wide Area Network (WAN)

Achievements of the Bank

The first Urban Cooperative Bank in South India to be permitted by

RBI to open non-resident external and non-resident ordinary accounts.
 The first Urban Cooperative Bank to achieve the scheduled status
 The first Urban Cooperative Bank to be admitted as a direct
member of the Bangalore Banker’s Clearing House
 The first Urban Cooperative Bank in Karnataka to computerize all it
operations and introduce Wide Area Network (WAN)
 The first Urban Cooperative bank in Karnataka to establish its own
staff training college
 The first Urban Cooperative bank in Karnataka to install ATM
facility for its customers
 The first Urban Cooperative bank in Karnataka to introduce MICR
cheques and to install V-SAT

Awards

The bank was awarded with the shield of “Best urban cooperative
bank”; By the Karnataka state urban cooperative banks federation on
conferment of scheduled bank status. National federation of urban
cooperative banks, New Delhi and also Karnataka state urban
cooperative bank federation awarded shield of merit to the bank.

Credit Portfolio

The banks credit portfolio is well diverse. The bank is committed

to a healthy credit culture that recognizes the need to insure high
quality processing timely disbursement and easy repayment. The bank
has adopted customer friendly for assessing credit requirements and
has issued guidelines for various types of advances granted by it.
Objectives of the bank:

 The microcosm of its object is “Mass Banking” right from its

inception
 The major thrust of the bank has been inculcating the banking
habits of saving amongst middle and lower class section of the society
 Sustained growth, services and profitability to sustain future
development
 Establishing the bank’s presence in all districts of Karnataka
 Establishing its presence in all major cities of the country

To serve the society and act as a catalyst to achieve a balanced socio-

economic growth that it is commensurate with the national growth
pattern.

New Product and services offered by bank:

 Loan linked deposit schemes

 Cumulative fixed deposit
 Gifts cheques
 Credit cards
 Foreign exchange
 Internet banking
 Networking of ATM’s
 Anywhere banking
FUTURE PLANS AND PROSPECTS

 ATMs installations of ATMs for better customer services at all its

branches
 Introduction of more value added services such as home banking
telebanking services, networking services and E-banking
 Expansion of credit for medium scale industries
 Foreign exchange business
 Opening of “Ladies branches” in minorities concentrated residential
areas
 Innovation schemes for financing priority sectors / weaker section
 Opening of currency chest and small coin deposit

SCHEMES OFFERED BY THE BANK:

DEPOSITS
 ATM facilities for round the clock banking service to the customers
 Attractive rates of interest
 Payment of interest on term deposit at the choice of the depositors
i.e. monthly, quarterly, etc.
 Facility for immediate withdrawal before maturity in case of needs
 On the spot loan facility on the term deposits of the bankat a margin
of 15% of deposits
 Facility for accepting NRE / NRO deposits
 Lucrative schemes suited to the clientele like Rozana bachat
recurring deposits, term deposits, cash certificates etc.
 Nomination facility for deposit accounts

LOANS AND ADVANCES

Business loans To Traders workshops, hotels and other business

venture
Industrial To start small / medium scale industries
loans
Vehicle loans 75% loan against the cost of vehicles (Two wheelers
and Four wheelers)
Personal loans For petty trade, education, housing, and marriage
Housing loans For construction / acquisition / repairs and
renovations of properties
Consumer For acquiring consumer durable products
loans
Professional To Doctors, Engineers, and Chartered Accountants
loans for setting up their offices
Educational To Graduates, Post Graduates and other Professional
loans courses
Other Loans Against tangible securities, gold ornaments, NSC, LIC
policies etc.
Bank Head Office Year of Total Branches
Establishment
Rajkot Negarik Rajkot 1953 24
Sahakari Bank
Ltd.
Abhyudaya Mumbai 1964 35
Coop Bank Ltd.
Nutan Nagarik Ahmedabad 1971 13
Sahakari Bank
Ltd.
Amanath Coop Bangalore 1977 10
Bank Ltd.
Janaseva Pune 1987 12
Sahakari Bank
Ltd.

Source: Swagat Indian Airlines Magazine

Board of Directors

President
Mr. Ziaulla Sheriff
Directors
Mr. Mohamed Azam Jan
Mr. Syed Sadaqath Peeran
Mr. Sadath Ali Khan
Mrs. Jameela Khaleel
Mr. Hyder Ali Jeeva Bhai, F.C.A.
Mr. S. Shabbeer Pasha, F.C.A.
Mr. Syed Matheen Aga
Mr. Zahedulla Meccai
Mr. C.R. Sageer Ahmed
Mrs. Mahalakha Mustafa

General Manager (Acting)

Mr. Mohamed Haneef

Office and Branches

Regd. & Corporate Office

Amanath House, No. 43, Hospital Road, Shivajinagar, Bangalore-
560001
Tel: 2863910 / 12-15
Branches Address Phone Nos.
Bangalore
Branches
Main Branch Millia Buildings, N.R. Road, 2236962-83
Bangalore-2
Shivajinagar 43, Hospital Road, Shivajinagar, 2863388-89
Bangalore-1
Siddaiah Road H. Siddaiah Road, Bangalore-27 2237452
Tannery Road B.S.A. Road, Bangalore-5 5464714
Gangenahalli Ganganagar, Bangalore-32 3334757
B.V.K. Iyenagar B.V.K. Iyenagar Road, Bangalore- 2878404
Road 53
Brigade Road 5th Avenue, Brigade Road, 5598591-92
Bangalore-1
R.V. Road Basavangudi, Bangalore-4 6563157
J.J. Nagar J.J. Nagar, Bangalore-26 6742708
Ilyas Nagar 38, Ring Road, Gangadhara Nagar, 6667412
J.P. Nagar Post, Bangalore-78
Austin Town 45/46, OSS Towers, Bazar Street, 5560677
Austin Town, Bangalore-47
Outstation
Branches
Belgaum 1025, Fort Road, Raviwarpet, 466024
 Belgaum
Mysore Sharada Nirmal Complex, No. 168, 434905
K.T. Street, Mysore-570001
Mangalore West Coast Commercial Complex, 446581-4
Nellikai Road, Hamilton Circle,
Near SBI, Mangalore-1
Gulbarga Janatha Bazar, Super Market 43787
Road,
Gulbarga – 585101
CHAPTER IV
 DATA ANALYSIS AND INTERPRETATION

SCHEDULE FOR WORKING CAPITAL FOR THE PERIOD OF 2004-05

Current Assets 2003-04 2004-05
Cash` 33,31,91,294.66 28,12,46,706.99

Bank balance 22,5562,503.35 12,56,54,101.24

Interest receivable 72,44,44,554.77 82,41,84,990.69

Advances 955837251.85 949697894.79

Bills receivable 1,30,23,980.44 1,73,57,905.07

Value of printed books forms, 58,52,514.61 58,02,135.97

stationary
Value postal and stamp 53,195.90.00 49,118.40

Festival advance 13,90,884.00 10,37,422.90

Amount due against DD canceled 71,273.00 1,02,373.00

Interest receivable 2,24,00,928.00 1,99,19,034.00

Advance to suppliers and 6694936.00 6694936.00

services

Total Current Asset 2288623316.00 2481972577.00

Current liabilities 2004-2005 2005-2006

Interest payable 1,94,72,081.25 1,62,66,846.78

Bills payable 3,83,52,157.09 5,8393,137.82

Sundry creditors 54,53,910.27 1,62,56,810.80

Outstanding salaries 66.607.89 3,225.96

 Bonus\exgratia 4,08,573.79 4,08,573.79

Saving bank deposit 846687829.5 1007261581.02

Current deposit 298659470.07 301222869.08

Total current liabilities 1209100630.00 1399813044.00

1. Current ratio or working capital ratio

It is the ratio which measures banks short-term solvency

i.e., its ability to meett short-term obligations as a measure of short term
current financial liquidity, it indication the rupees of the current assets
available for each rupee of current liability/obligations.
 Current ratio is calculated by dividing current asset by current
liabilities.

Current asset
Current Ratio=
Current liabilities

Table showing the current ratio of Two years

Particulars 2003-2004 2004-2005

Current assets 2288623316.oo 2481972577.00

Current liabilities 1209100630.00 1399813044.00

Current ratio 1.89:1 1.77:1

Interpretation

The above table shows that working capital ratio or current ratio
is decreased from1.89: 1to1.77: 1in the year 2004-2005.This shows that
bank short term solving is not improving from year to years

2. Current assets turnover ratio

This ratio is employed to evaluate the efficiency with which the bank
manage and utilizes its assets effectively. It may be defined as a test of
relationship between total income and current assets.
 C.A T urn over Ratio=current assets
Total Income

Table showing that the current assets turn over ratio of

Two years

Particulars 2003-2004 2004-2005

Total income 422151684.71 375471763.63

Current assets 2288623316.00ss 2481972577.00

Current assets Turn 5.42:1 6.61:1

Over Ratio

Interpretation:

The above table reveals the current assets turn over ratio has
Considerately increased from 5.42:1 to 6.61:1 in the last years.

3. Current Liabilities Turn over Ratio

This ratio shows how management of the bank employee and

liabilities this ratios evaluate the efficiency of the bank.
 Current liability
CLTR = Total income

Table showing current liabilities turnover ratio for 2 years

Particulars 2003-04 2004-05

Current liabilities 1209100630.00 1399813044.00

Total income 4221511684.71 375471763.63

Current liabilities 0.28: 1 3.72:1

Turnover ratio

Interpretation

The above table shows that current liabilities turnover ratio is

increased from 0.28:1 to 3.72:1

4. Total liabilities Turnover Ratio

This ratio helps to manages to generate all financial resources

committed to total liabilities. It is calculated from the following formula

Total liabilities turnover =Total liabilities

 Total income

Table showing the total liability turnover ratio for 2 years

Particulars 2003-2004 2004-2005

Total liability 4870581869.79 4797515113.10

Total income 4221511684.71 375471763.63

Total liability turnover 11.53:1 12.78:1

ratio

Interpretation:

The above table showing the T.L.T.R increased from 11.53:1 to

12.78:1 during the year 2004-2005

5. Total asset Turnover Ratio

This ratio shows the banks ability in generating sales & all financial
resources to total asset.
 Total asset turnover ratio calculated by from the following
formula.

Total asset turnover ratio=total income

Total assets

Table showing the asset turnover ratio for 2 years

Particulars 2004 2005

Total income 422151684.71 375471763.63

Total asset 4898471512.96 4825404756.27

Total asset turnover 0.08:1 0.077:1

ratio

Interpretation

From the above it is clear the total assets turnover ratio is decreased
from 0.08:1to 0.077:1 during the year 2004-2005

Table showing Ratio for 2 years

SL.No Particulars 2004 2005

 1 Networking capital 1.89:1 1.77:1
ratio

2 Current Asset 5.42:1 6.61:1

turnover ratio

3 Current liability 0.28: 1 3.72:1

turnover ratio

4 Total liability 11.53:1 12.78:1

turnover ratio

5 Total asset 0.08:1 0.077:1

turnover ratio

TREND ANALYSIS

6. Trend analysis of Reserves and Surplus to working capital

For 2004=Reserves and Surplus*100

Working capital
 =433840501*100=12.40
3497861070

For 2005=Reserves and Surplus*100

Working capital

Table showing CRR &Reserves &Surplus to working capital

Item 2004 2005

Reserves 433840501.00 435097958.31

Working capital 4158593288.00 3981452951.00s

% Reserves and 10.43% 10.92%

surplus to W.C

Interpretation;
From the above calculation it is clear that the percentage of reserves
&surplus increasing from 10.43% to 10.92% during last year

7. Trend analysis of Current Asset to working capital

For 2004=Current Asset*100

Working capital

= 3561614398*100 =55%
4158593288
For 2005=Current Asset*100
Working capital

=3433014044*100 =62%
3981452951

Table showing Percentage of Current Asset to working

capital

Item 2004 2005

Current Asset 2288623316.00 24819725577.00

Working capital 4158593288.00 3981452951.00

% Current asset to 55% 62%

W.C

Interpretation

From the above calculation reveals that current asset of the bank
slightly increased from 55% to 62% during the last year.

8. Trend analysis of Current liabilities to Working capital

For 2004=Current liabilities*100

Working capital

=1209100630*100=29%
 4158593288

For 2005=Current liabilities*100

Working capital

=1399813044*100 =35%
3981452951

Table showing Percentage of Current liabilities to working capital

Item 2004 2005

Current liabilities 1209100630.00 1399813044.00

Working capital 4158593288.00 3981452951.00

% Current liabilities 29% 35%

to W.C

Interpretation;
The above calculation shows the current liabilities are increased
from 29% to 35% during the last year

9. Trend analysis of Bills payable to Working capital

For 2004= Bills payable *100

Working capital

= 38305318 *100=0.92%
4158593288
 For2005= Bills payable *100
Working capital

= 58393137 *100 =1.47%

3981452951

Table showing Percentage of Bills payable to working capital

Items 2004 2005

Bills payable 38352157.09 58393137.82

Working capital 4158593288.00 3981452951.00

% Bills payable to 0.92% 1.47%

W.C

Interpretation

Bills payable of the bank is increasing from 0.92% to 1.47%

comparing to working capital during last year

10. Trend analysis of Interest payable to working capital

For 2004= Interest payable *100

Working capital

= 19472081 *100 =0.47%

4158593288
 For2005= Bills payable *100
Working capital

= 16266846*100 =0.40%
3981452951

Table showing Percentage of Interest payable to working

capital
Items 2004 2005

Bills payable 19472081.00 16266846.00

Working capital 4158593288.00 3981452951.00

% Interest payable to 0.47% 0.40%

W.C

Interpretation

Interest payable to the bank is decreased during the last year from
o.47% to 0.40%

11. Trend analysis of creditors to working capital

For 2004= creditors *100

Working capital

= 543910 *100 =0.13%

 4158593288

For2005= Sundry creditors *100

Working capital

= 16256810 *100 =0.40%

3981452951

Table showing Percentage of Creditors to working capital

Items 2004 2005

Sundry creditors 5453910.00 16256810.00

Working capital 4158593288.00 3981452951.00

% Creditors to W.C 0.13% 0.40%

Interpretation

Above calculation shows that the sundry creditors is increased from

0.13% to0.40% during last year

12. Trend analysis of Bills receivable to working capital

For 2004= Bills receivable*100

Working capital

= 13023980 *100 =3.13%

4158593288
For2005= Bills receivable *100
Working capital

= 17357905 *100 =0.43%

3981452951

Table showing Percentage of Bills receivable to working capital

Items 2004 2005

Bills receivable 130203980.00 17357905.00

Working capital 4158593288.00 3981452951.00

% Bills receivable to 3.13% 0.43%

W.C

Interpretation

Bills receivable for the bank is decreased compared to working

capital during the year 2004-2005

13. Trend analysis of advance to working capital

For 2004= Advance *100

Working capital

= 955837251.85 *100 =22.99%

 4158593288

For2005= Advance *100

Working capital

= 949697894.79 *100 =23.85%

3981452951

Table showing Percentage of Advances to working capital

Items 2004 2005

Advances 955837251.85 949697894.79

Working capital 4158593288.00 3981452951.00

% Advances to W.C 22.99% 23.85%

Interpretation

Above calculation shows that the advances increases from 22.99% to

23.85% during last year

14. Trend analysis of Interest receivable to working capital

For 2004= Interest receivable*100

Working capital

= 724444554.77*100 =17.42%
4158593288
 For2005= Interest receivable*100
Working capital

= 824184990.69*100 20.70%=
3981452951

Table showing Percentage of Interest receivable to working

capital
Items 2004 2005

Interest received 724444554.77 824184990.69

Working capital 4158593288.00 3981452951.00

% Interest receivable 17.42% 20.70%

to W.C

Interpretation
Interest receivable when compared from working capital is
`increased from 20.42% to 20.70% during the last year

15. Trend analysis of Total liability to working capital

For 2004= Total liability *100

Working capital

= 4870581869.79*100 =117.12%
4158593288
For2005= Total liability *100
Working capital

= 4797515113.10*100 =120.50%
3981452951

Table showing Percentage of Total liability to working capital

Items 2004 2005

Total liability 4870581869.00 4797515113.00

Working capital 4158593288.00 3981452951.00

%Total liability to 117.12% 120.50%

W.C

Interpretation

The above calculation reveals that Total liability increased from

117.12% to 120.50% compound to last year

16. Trend analysis of Current liabilities to working capital

For 2004= Current liabilities*100

Working capital

= 1209100630*100 =29%
41588593288
 For2005= Current liabilities*100
Working capital

= 1399813044*100 =35%
3981452951

Table showing Percentage of Current liabilities to working

capital

Items 2004 2005

Current liabilities 1209100630.00 1399813044.00

Working capital 4158593288.00 3981452951.00

% Current liability to 29% 35%

W.C

Interpretation

The above table shows that the amount of current liabilities

increased from 29% to 35% during last year

18.Trend analysis of Current asset to working capital

For 2004= Current asset*100

Working capital

= 2288623316*100=55%
4158593288
 For2005= Current asset*100
Total asset

= 2481972577 *100 =62%

3981452951

Table showing of Percentage Current asset to working capital

Items 2004 2005

Current assets 2288623316.00 2481972577.00

Total asset 4158593288.00 3981452951.00

% Current asset to 55% 62%

W.C

Interpretation

From the above it is clear that the current assets increasing

compared to last year in 2004-2005

19.Trend analysis of Total asset to working capital

For 2004= Total asset*100

Working capital

= 4898471512*100= 117.79%
4158593288

For2005=Total asset*100
 Working capital

= 4825404756.27*100 =121.19%
3981452951

Table showing Percentage of Total asset to working capital

Items 2004 2005

Total asset 4898471512.96 482404756.27

Working capital 4158593288.00 3981452951.00

% Total asset to W.C 117.79% 121.19%

Interpretation

From the above table shows that total asset increasing compared to last
year
 WORKING CAPITAL

60000

50561.35
50000

41585.93
39814.54
40000

30000

20000

10000

0
2003 2004 2005
 PAID UP CAPITAL

530
526.37
525
522.39
520

515

510

505

500 498.52

495

490

485

480
2003 2004 2005
 RESREVES

4380 4376.86

4370

4360

4350.98

4350

4338.42
4340 %

4330

4320

4310
2003 2004 2005
 DEPOSITS

45000 43965.84

40000

35390.97
35000 33213.37

30000

25000 %

20000

15000

10000

5000

0
2003 2004 2005
 ADVANCES

29707.79
30000

25000
22291.4
21511.45

20000

15000

10000

5000

0
2003 2004 2005
 CHAPTER V

SUMMARY OF FINDINGS

1. The advance to corporate by Bank is negligible, but confine it to

lending to proprietorship and partnership firms.
2. The Bank doesn’t have a pro-active method of assessing and
appraising the working capital needs of firms, either in
manufacturing or trading category.
3. The policies of sanction, disbursement, control and recoveries of
loans and advances to the firms are in accordance with the Bank and
Board of Directors.
4. The maximum amount of loan and advances sanctioned by the Bank
to the firms are not determined by any specific rule, but vary from
borrower to borrower, on an adhoc basis.
5. The margin requirement stipulated on working capital and term
loan are generally in the range of 40-50%.
6. The value of the collateral security obtained for loans is generally
200% of the amount of the loan.
7. The system of inspecting stocks after being financed, is only physical
and conventional and lacks financial interpretation at each visit,
similarly inspection of machinery of the borrowing units lacks an
element of managerial audit.
8. Apart from receiving stock statement and book debts statement each
month, the Bank doesn’t have any other management information
for control of advances.
9. The lead-time between application and sanctioning of loan varies
from one to two weeks.
10.The time lag between the sanction and disbursement of the
sanctioned loans depends on the borrowers requirements after
executions of the security documents in favor of the bank.
11.Only members of the bank can applay for loan.
12.Bank calculating working capital on the basis of difference between
total liability and contra asset.
13.The bank does not have any marketing strategy to market loan.
14.The banking is not taking care of other banking function like
customer credit rating, money transaction.
15.The bank is borrowing money only from NABRDS.
 CHAPTER VI
RECOMMENDATION AND SUGGESTION

1. In order to expand its credit business, the Bank may enter into
corporate financing. As a first step, the Bank should identify low
risk, high volume borrowing companies to finance them at least
under syndication along with Commercial Banks, who have better
experience and resources. An example Apex Cooperative Bank
Limited entering as a consortium to finance Mangalore Chemicals
and Fertilizers Limited (MCFL). (The example should be taken only
to indicate the concept of industrial lending by a Cooperative Bank.
The fact that MCFL later became sick and Apex Bank suffered, as
result should not reduce the concept contained in the example).

2. The Bank should introduce a method of assessing working capital

limits on estimated cash flow basis, to supplement the existing
method of inventory and receivables carry method.

3. The maximum permissible borrowing must be determined not only

by a benchmark of margin, such as, 25% or also, but on the basis of
the actual long-term surplus available as margin contribution
towards working capital.

4. The bank should perceive the primary security for working capital
more as the financial viability of the firm then as the saleable value
of inventories. In order to do so, an analysis of Break Even point and
 Margin of Safety should be made along with conventional calculation
of drawing power based on market value of stock and receivables
offered. This means that the Bank should recognize the importance
of financing an activity rather than lending against available
security.

5. The Bank should introduce Information Systems to supervise age of

receivable and credit policy of the borrowing firms. Similarly,
periodical inspection of the shop floor of the borrowing firms must
include study of inventory queuing of stocks or idling of machinery.
Result there from; a constant check must be kept on evidence of
capacity imbalances.

6. In addition to periodic statements of the stock and receivables, the

Bank should obtain from the borrowing firms the position of unpaid
stock, over aged receivables, sales tax dues, other statutory dues and
arrears of wages. This is most critical since arrears of statutory dues
will subordinate the Bank’s hypothecation charge, in the event of
recovery proceedings against by the government.

7. If bank is providing an opportunity to lending money to organization

and non-members, it is beneficial to both sides.

8. The bank should develop awareness among the public about the
types of loan available to the bank through proper marketing
channel.