Professional Documents
Culture Documents
Submitted in partial fulfilment of the requirement for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
To the Cochin University of science and Technology
CERTIFICATE
This is to certify that the A Report on Organisation Study at Kerala State
Financial Enterprises Ltd, Head Office, Thrissur is a bonafide record of
research work done by Mr. Jith E. G. in partial fulfilment of the requirement for
the award of Master of Business Administration of Cochin University of
Science and Technology. It is also ensure that this report has not framed the
basis for the award of any degree, diploma or such other titles or this report has
not been previously submitted for the award of any Degree, Diploma, Associate
ship, Fellowship or to any other university.
Director
Faculty Guide
DECLARATION
I, Mr. JITH E. G. student of School of Management Studies, hereby declare that
this project
DATE:
PLACE:
JITH E. G.
ACKNOWLEDGMENT
First, I must thank God for giving me the strength to complete this study.
I have taken efforts in this study; however, it would not have been possible
without the kind support and help of many individuals and organisations. I
would like to extend my sincere thanks to all of them.
I am highly indebted to Prof. Dr. M. Bhasi for the guidance, constant
supervision and for providing necessary information regarding the study and
also for the support and patience in completing the study.
I would like to express my gratitude towards my parents & staff of KSFE Ltd
for their kind cooperation and encouragement which helped me in completing
the study, especially to Mr.Pankajakshan sir. I would like to express my special
gratitude and thanks to industry persons for giving me such attention and time.
My thanks and appreciations also go to my colleagues in developing the project
and people who have willingly helped me with their abilities.
CONTENTS
CHAPTER
NO.
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2
3
4
4.1
4.2
4.3
4.4
4.5
5
5.1
5.2
5.3
5.4
5.5
5.6
5.7
6
7
TITLE
INTRODUCTION
Introduction to the study
Significance of the study
Scope of the study
Statement of the problem
Objectives of the study
Methodology used
Method of data collection
Period of the study
Organisation of the report
INDUSTRY PROFILE
COMPANY PROFILE
Theoretical framework
Credit risk management
Factors affecting credit risk
Components of credit risk
Principles for the assessment of management
of credit risk
Credit analysis
Problem analysis and interpretation
Current ratio of ksfe ltd
Interest to expense ratio
Loan to deposit ratio
Debt to equity ratio
Interest coverage ratio
Return on investment
Return on total assets
Findings
Suggestions/ conclusion
Bibliography
PAGE NO
6
7
8
11
12
12
13
13
15
15
16
23
48
49
51
51
52
55
58
59
60
62
63
65
66
68
70
72
75
CHAPTER 1
INTRODUCTION
1.1 INTRODUCTION
Economic development which requires abundant capital investment in
different sectors of the economy depends up on the domestic savings. The
banking and non-banking institutions play a vital role in mobilizing and
canalizing the savings from the surplus sectors in the economy to the deficit
areas.
The Kerala State Financial Enterprises Limited, popularly known as KSFE, is a
Miscellaneous Non-Banking Financial Company. KSFE is fully owned by the
Government of Kerala and is one of the most profit-making public sector
undertakings of the state. It was created by the Government of Kerala with the
objective of providing an alternative to the private chit promoters in order to
bring in social control over the chit fund business, so as to save the public from
the clutches of unsecured private chit fund operators. KSFE has been registering
impressive profits every year, without fail since its inception. An important
point is that all the funds mobilised by KSFE through its various deposit
schemes and chitty are advanced wholly to the public in Kerala itself; whereas
other financial institutions and banks channel their deposits collected in Kerala
for advances outside the state.
In todays global economy, credit risk management is emerging as an essential
component of business and industry success. In the past this complex factor has
often been overlooked and misunderstood and many firms have paid the price
for not having credit risk management as a priority item in their business policy.
Credit risk management is a powerful intermediate level training tool to
understand credit risk and teach what the company can do to bring credit risk
under control.
10
11
the researcher should keep in mind two types of data collection such as primary
and secondary.
Both primary data and secondary data are used for the study. Primary data has
been collected through suggestion, opinions and discussions with the officials of
the organizations. The study was carried out in the accounts departments of the
organizations. The data for the purpose of the study is mainly based on the
Secondary sources of data i.e., audited financial statements of the company. The
KSFE Ltd, Head office at Thrissur has been taken as the centre of data
collection.
The study is largely based on the data provided in the published financial
statements of the company. The study is a kind of extensive analysis and review
of the basic financial documents of the company. This study makes extensive
use of secondary data collected in the form of audited reports and other
financial details. This being an analytical study based on published data and so
data collected were analysed through various ratios. Further the information
compiled was updated by detailed discussions with the top financial officials of
the company, to get appraised of the various methodologies and practices
undertaken in order to control the ow of cash of the company.
In this study secondary data were obtained from various sources like
organization records, websites, magazines, books, etc. All the required details
about the origin of KSFE growth and organizational setup werecollected from
the secondary sources.
The analytical tools are used for the analysis of the collected data. Forthe data
analysis and interpretation tables,charts, percentage analysis and ratio analysis
are used.
12
13
CHAPTER 2
INDUSTRY PROFILE
14
deposited at a depository institution that are payable on demand -immediately or within a very short period.)
It is not a part of the payment and settlement system and as such cannot
While making deposits with a NBFC, the following aspects should be borne in
mind:
Public deposits are unsecured.
A proper deposit receipt which should, besides the name of the
depositor/s state the date of deposit, the amount in words and figures, rate
of interest payable and the date of maturity should be insisted. The receipt
shall be duly signed by an officer authorized by the company in that
behalf.
16
years. A measure of the phenomenon can be had from the fact that between
1997-98 and 2002-03, the number of chits registered in the formal sector was
more than 45,000 with a total capital turnover of Rs.360crore.According to a
study by a working group constituted by the State Planning Board, about-two
thirds of these chits were registered in Thiruvananthapuram and Ernakulam
districts with 43 per cent and 23 per cent, respectively Similarly, it was found
that there were 5,996 money-lending institutions in the organized sector in the
State as on March 2004 with the four southern districts of Thiruvananthapuram,
Kollam, Pathanamthitta and Alappuzha accounting for more than half of them.
Against this, there were only 3,376 commercial bank branches in the State. The
population covered per money-lending institution is 5,590 as compared to 9,431
per commercial bank branch. A case study conducted by the working group in
Kannur district revealed that there were 139 money-lending institutions in the
formal sector, of which 45 per cent were registered after 2001. The annual
business turnover of these institutions worked out to Rs.13.57 core. Of these
institutions, around 70 percent had business turnover of less than Rs.5 lakh and
only five per cent had turnover of more thanRs.50 lakh. A survey in
Thiruvananthapuram district showed that around 15 per cent of them
moneylenders accepted deposits at interest rates of between 7 and 12 per cent,
while a majority of them extended loans at rates between 10 and 20 per cent on
security of gold. The major depositors were non-resident Indians and most
of the
borrowers
were
ordinary
workers,
government
employees
and businessmen. And the major defaulters were farmers. A primary survey
among selected unregistered money-lending institutions in Kollam and
Kottayam districts by the Department of Economics and Statistics found that 50
per cent of them operated their business in own buildings, while some others
were operating straight from the cash bag. The securities against which loans
19
were given included gold, cheques, promissory notes and land documents. The
working group is of the view that the money-lending institutions have been
thriving due to the inability of the conventional banking sector to accommodate
more people due to high operating cost. At the same time, bulk lending for
micro credit can help redeem the situation to a large extent. Kerala State
Financial Enterprises (KSFE) is the Government-owned, the dominant chits
player in the State. There were several private chit fund companies providing
financial services. It has a great prospect in nearby future and aiming to be
competitive with other banks in Kerala.
20
CHAPTER 3
DESCRIPTION OF
ORGANISATION
21
22
ORIGIN OF KSFE
Kerala Govt. during 1967 took a policy decision chitties kuris should be
the chitty/ kuris business being what it is, there existed ample scope for
exploitation of the ignorance, in difference and gullibility of the needy people
by unscrupulous promoters, who organized financial institution in the name of
chitti/ kuris fund in order to mobilize fluid resources in their own interest and
appropriate for themselves substantial profit accrued of such organizations.
23
Guarantee commission
Service charges
Dividend
Up to 31/03/08 amount of Rs. 240 crores has been paid on the above head
of account. Therefore, financially and services wise, KSFE contributes
immensely towards the Kerala economy.
KSFE AT GLANCE :
TYPE:PUBLIC SECTOR
OWNED BY:GOVT. OF KERALA
FOUNDED: 6THNOV 1969
HEAD OFFICE: THRISSUR
NO. OF BRANCHES: ABOVE 415
CHAIRMAN: P.T.JOSE
MANAGING DIRECTOR: P. RAJENDRAN
INDUSTRY: FINANCE
PAID UP CAPITAL: 20 CRORES COVERED
BUSINES TURNOVER: 15000 CRORES
EMPLOYEES: 5100 ABOVE
25
from 25th august 1975. The Act is to give adequacy and safety to the funds of the
society and give good return to them. It also ensures lesser rate of interest for
their loans and advances.
27
Introducing value additions in chitty schemes - for coping with the fierce
competition in the financial market, for more popularity and widening
our customer base.
Acting as the collection agent for KSEB, KWA, etc., throughout the state.
To construct a multi-storied building in KSFE's own premises in
Kakkanad, Cochin and to house among others a Staff Training
College for itself.
Introduction of new schemes like Education loan, Agriculture overdraft
and cumulative deposit schemes.
Expanding its door collection facility to loan accounts and deposit
schemes suitably, this is expected to create considerable employment
opportunities as part of its social objective.
Introduction of chitties with simultaneous draw and auction which can be
offered as an incentive to regular customers for whom it will be a great
attraction, particularly for those with saving attitude.
Introduction ofDaily/Weekly draw/auction chitties, which is expected to
have a wide scope among traders, will raise the Company's market
share considerably.
Enter the arena of Credit/Debit Card business - immediately after branch
networking the Company plans to launch the 'Debit Card' business.
Starting of Virtual Branch through net worked computer systems for the
benefit of NRIs particularly Malayalees in the Gulf & other countries is
on the anvil. This will obviate the need for "brick and mortar branches"
and will enable customers who have internet access, to transact with the
Company through virtual branches.
28
KSFE is the number one non-banking financial company in Kerala. KSFE bags
PRAVASI BHARATHI (KERALA)SHREYAS AWARD for the year 2010.
KSFE is selected for the award on the basis of overall performance of the
company.
29
Decision making: after verifying the documents the manager takes decision on
the customer whether they have to provide loans or accept deposits.
Deposit completed or loans sanctioned: the final stage of the process money
deposit will be in the account of customers. the annual interest rate in case of
deposits from the public is 7% per annum. Interest for chitty price money
deposits is 8% per annum. Due to the monthly payment of interest, the effective
rate will be higher than this rate. Senior citizen will get 7.25 % for fresh deposit
and 8% for price money deposits. Normally 75% of fixed deposit amount can be
availed as loan. This facility is called fixed deposit loan.
PRODUCT PROFILE
CHITTY THE PILLAR PRODUCT OF KSFE
on the paid up amount. In case bidding is delayed due to draw of lots in the
initial instalments, one can resort to availing of chitty loan, which is a loan that
"bridges" the gap between the need of the subscriber for money and the delay in
the chitty getting prized.
at
25%
reduction,
the
numbers
of
the
such
bidders
will be put to a draw. Thus each subscriber gets an opportunity to receive the pri
ze money onceduring the tenure of the chitty. All the promoters have to
contribute the periodic subscription till the end of the chitty.
New chitty loan:
Though an advance aspect is built into the chitty scheme, it cannot be denied
that subscriber will have to wait for some time to avail the benefit of getting the
ticket prized. NCL is introduced to bridge the gap between the real need of the
subscriber and the uncertain point of time in future, when the ticket gets prized.
31
33
Gold Loan:
Under the Gold Loan Scheme, short term advances granted are up to Rs. 3 lakhs
for a maximum period of six months with the facility to renew up to two years
subject to conditions.
Reliable Customer Loan:
Under this scheme financial assistance up to Rs.5 lakhs (on the security as per
the General norms) is provided to the general public. The amount of loan is to
be repaid within a period of 36 to 48 months, depending on the loan amount, at
reasonable rate of interest.
Trade Finance:
This scheme is to provide financial assistance to small and medium traders,
businessmen, stamp vendors, lottery agents and the like for supplementing their
working capital requirements.
Flexi Trade Loan:
This scheme envisages financial assistance up to Rs. 10 lakhs with overdraft
facility to traders, businessmen subject to conditions.
Western Union Money Transfers Services:
This is a venture entered into by the Company with M/s Paul Merchants, leaders
in the business of money transfer, for providing additional financial services to
the public. With the network of over 269 branches of KSFE, Malayalees who
have their earning members spread out the world can receive money almost at
their door steps within seconds.
34
Mangalya Loan:
The scheme provides permanent KSFE employees with loan/advance for
meeting marriage expenses of self or their children.
Corporate Agencies:
As per the memorandum of association of the company, insurance business is
also included among the main objects to be pursued by the company.
Accordingly, as part of business diversification Company had entered into tie up
agreements with two leading public sector Companies i.e. Life Insurance
Corporation of India and National Insurance Company Ltd. for doing Life
Insurance and General Insurance business by acting as Corporate Agents of
these two companies.
ORGANISATION STRUCTURE
35
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ORGANISATION CHART
36
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DEPARTMENT PROFILE
37
38
This department is headed by AGM (Legal) who is responsible for all day to
day legal matters.
vii.Internal Audit Department :This department is headed by the DGM (IA&V) assisted by seventeen audit
teams to exercise internal check and control. All the above Department Heads
report directly to the Managing Director.
B) The different departments of the Regional Office:
The activities of the Regional Managers are grouped functionally as well as
scheme wise. They are mainly responsible for the proper and also healthy
functioning of the Branches and
to be in charge of the overall growth and development of the Branches under
theirjurisdiction.The Regional Managers report directly to the General Manager
Business and the GeneralManager Finance for the respective functions and to
the Managing Director relating to the other functions. The functional
departments of the Regional Office are Business, Accounts, and default; which
corresponds to respective departments with focus on operational aspects
The different departments at Units level
At the base level the Units are graded into three categories viz.
(i) Major Branches having a chitty sala of Rs.70 lakhs and above.
(ii) Medium Branches having a chitty sala of Rs.40 lakhs and above and
(iii) Small Branches having a chitty sala of below Rs.40 lakhs.
A Unit Head viz. the Manager, heads each Unit and its activities are grouped
under
Assistant
Manager(s)/ Deputy
Manager(s). The
Unit Heads
report directly to the Regional Manager and to the Departmental Heads in the
Head Office on matters pertaining to the departments concerned. In exceptional
39
circumstances the Unit Heads can report directly to the General Manager
(Business)/ General Manager (Finance) and Managing Director.
The different departments in the unit are as follows:
1)Collection Department
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Important functions of general administration department are,
To initiate action for the starting of chitties in the Branch and to arrange
the release of Advertisements.
To assist the Manager in canvassing subscribers as and when necessary.
To take steps for the payment of prize money to the prized subscriber on
the due date, if the subscriber has furnished adequate security for the
payment of future subscriptions and to intimate the fact to the prized
subscribers.
To verify the genuineness/ liability of the subscribers/ sureties.
To be responsible for the entire personnel administration of the Branch
for the proper maintenance of Attendance Register, Casual Leave
Register and other leave
42
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SWOTANALYSIS
Strength
Better customer relation.
Good products and services.
Reasonable repayment period.
Better customer satisfaction.
Government owned Company.
Variety of services other than chitties.
Variety of chitty schemes and several other facilities associated with
chitties.
Works similar to banks.
Branches throughout Kerala.
Skilled employees selected through public examinations
A relatively younger work force.
Transparency in operations.
Updated website gives information about new developments in all
branches.
Tie up with insurance and western union money helps to attract
morecustomers.
It uses effective advertising campaigns.
45
Weakness
Lack of marketing activities.
Lack of computer knowledge of workers.
It has the limitations of NBFCs.
Still main business area is on chitties and not yet able to grow in
other services.
Lack of fieldwork in marketing.
Opportunities
Improve marketing activities.
Introduce a disaster recovery system.
Expansion of small-scale industries in the state.
Rising middle class.
Rise in income.
Saving thirst increases.
Ensuring more participation of NRI families in the schemes of KSFE.
Developing rural areas provide an opportunity to increase customer base.
Threats
Tough Competition.
Policies of Reserve Bank.
46
CHAPTER 4
THEORETICAL
FRAMEWORK
47
52
53
54
The first step of credit analysis is obtaining credit information on which tobase
the evaluation of a customer. The sources of information broadlyspeaking are
internal and external.
Internal:Usually, firms require-their customers to fill various forms and
documents giving details about financial operation. They are also required to
furnish trade references with whom the firms can have contacts to judge the
suitability of the customer for credit. This type of information is obtained from
internal source of credit information. Another internal source of credit
information is derived from the records of the firms contemplating an extension
of credit. It is likely that a particular customer/applicant must have enjoyed
credit facility in the past. In that case, the firm would have information on the
behavior of the applicant in terms of the historical payment pattern. This type of
information may not be adequate and may therefore have to be supplemented by
information from other sources.
External:The availability of information from external sources to assess the
credit worthiness of customer depends upon the development of institutional
facilities and industry practices.
Financial statements
One external sources of credit information is the published financial statements
that are the balance sheet and the profit and loss account. The financial
statements contain very useful information. They throw light on an applicants
financial viability, liquidity, protability and debt capacity, although the
financial statements do not directly reveal the past payment record of the
applicant, they are very helpful in assessing the overall financial position of a
firm which significantly determines its credit standing.
Analysis of credit information
55
Once the credit information has been collected from different sources, it should
be analysed to determine the credit worthiness of the applicant. Although there
are no established procedures to analyse the information, the firm should devise
one to suit its needs. The analysis should cover two aspects.
a. Qualitative
b. Quantitative
Credit risk is most simply defined as the potential that a firm borrower or
counterparty will fail to meet its obligations in accordance with agreed terms.
The goal of credit risk management is to maximize a firms risk adjusted rate of
return by maintaining credit risk exposure within acceptable parameters. The
firm needs to manage the credit risk inherent in the entire portfolio as well as
the risk in individual credits or transactions. The effective management of credit
risk is a critical component of a comprehensive approach to risk management
and essential to the long-term success of any organization.
56
CHAPTER 5
PROBLEM ANALYSIS
AND INTERPRETATION
57
Current Ratio=
CurrentA ssets
CurrentLiabilities
Table 5.1
YEAR
2007 2008
2008 2009
2009 2010
2010 2011
2011 2012
Source: Annual Report
(Rs. In lakhs)
CURRENT
CURRENT
ASSETS
LIABILITIES
RATIO
396059.62
502510.58
691911.56
828365.10
1003873.86
197921.23
263979.01
379473.32
497915.45
980357.45
2.00
1.90
1.82
1.66
1.02
58
Figure 5.1
CURRENT RATIO
2.5
2
1.5
1
0.5
0
2008
2009
2010
2011
2012
59
Interest ratio indicates that percentage of income generated against the expense
incurred during a period of time.
Interest to Expense Ratio =
interest Received
Expense
*100
Table 5.2
(Rs. In lakhs)
INTEREST
YEAR
2007 2008
2008 2009
2009 2010
2010 2011
2011 - 2012
Source: Annual report
RECEIVED
EXPENSES
RATIO
19850.72
23887.68
32038.67
36452.42
41338.05
33332.85
40152.19
55715.55
66452.06
79522.49
59.55
59.49
57.50
54.85
51.98
Figure 5.2
56
54
52
50
48
2008
2009
2010
2011
60
2012
From the above table and graph it is clear that the ratio is decreasing. As this
ratio shows a decreasing trend it signifies that the performance of the company
is not satisfactory. There should be more control over the expenditure for
achieving cost benefit.
Table 5.3
YEAR
2007 2008
2008 2009
2009 2010
2010 2011
2011 - 2012
Source: Annual report
(Rs. In lakhs)
LOANS
DEPOSITS
RATIO
305174.70
395969.01
539226.35
676347.71
817526.07
186779.63
225135.84
295573.79
311936.78
369564.41
1.63
1.76
1.82
2.16
2.21
Figure5 .3
61
1
0.5
0
2008
2009
2010
2011
2012
Ratio from the above calculations shows how effectively the funds are utilized.
In the year 2012 it shows effective utilisation of funds (216) and lowest in the
year 2009(163).
5.4 DEBT TO EQUITY RATIO
Debt to Equity ratio is the most important ratio to test the solvency of a firm.
This ratio indicates the relative proportion of debt and equity in financing the
assets of a firm. The ratio brings out the extent to which the firm is dependent
on outsiders for its existence and indicates the proportion of the owners stake in
the business. A high ratio means that claims of creditors are greater than
owners funds. Excessive liabilities tend to cause insolvency. This is the most
unfavourable situation for a banker, as he may gain the position of just one
among the many creditors of the company.
It is calculated as follows:
62
debt
Equity
Table 5.4
(Rs. In lakhs)
YEAR
2007 2008
2008 2009
2009 2010
2010 2011
2011 2012
Source: Annual report
DEBT
EQUITY
RATIO
187597.49
225950.36
297290.90
313560.21
369774.61
11429.48
13443.32
16786.67
19112.85
25920.19
16.41
16.81
17.71
16.40
14.26
Figure 5.4
20
18
16
14
12
10
8
6
4
2
0
2008
2009
2010
2011
2012
Interpretation:
The graph shows relative proportion of debt and equity in financing the assets
of a firm. From the year 2009 to 2012 it shows a more or less stable ratio.
63
YEAR
2007 2008
2008 2009
2009 2010
2010 2011
2011 - 2012
Source: Annual report
(Rs. In lakhs)
EBIT
INTEREST
RATIO
1507.45
3126.14
3679.35
5222.08
5207.25
13797.64
17595.82
23827.20
24502.97
28667.92
0.11
0.18
0.15
0.21
0.18
Figure 5.5
64
0.1
0.05
0
2008
2009
2010
2011
2012
Higher the ratio stronger is the ability of company to pay interest. Low ratio
may be indicating excessive use of debt. Here the ratios are below 1 and it
indicates that the company is not generating sufficient revenue to satisfy interest
expenses.
It is calculated to know the profit earned on its investments. ROI measures the
overall profitability of the firm and it establishes the relationship between profit
or return and investment. It is computed as follows:
65
Return on Investment =
Net profit
Capital employed
* 100
Table 5.6
(Rs.in lakhs)
CAPITAL
YEAR
2007 2008
2008 2009
2009 2010
2010 2011
2011 - 2012
Source: Annual report
NET PROFIT
EMPLOYED
RATIO
543.85
1247.82
3811.32
2794.17
7275.32
11429.48
13443.32
16786.20
19112.85
25920.19
4.75
9.28
22.70
14.62
28.06
Figure 5.6
RETURN ON INVESTMENT
30
25
20
RETURN ON INVESTMENT
15
10
5
0
2008
2009
2010
2011
2012
In the year 2012 company had the highest return on investment ratio (28.06) and
lowest in the year 2008 (4.75).
EBIT
TOTAL ASSETS
Table 5.7
YEAR
2007 2008
2008 2009
2009 2010
2010 2011
2011 2012
Source: Annual report
(Rs.in lakhs)
EBIT
TOTAL ASSETS
RATIO
1507.45
3126.14
3979.23
5222.08
5207.25
396948.21
503372.69
693550.31
830588.51
1006277.65
0.38
0.62
0.57
0.62
0.51
Figure 5.7
67
0.4
0.3
0.2
0.1
0
2008
2009
2010
2011
2012
From the above table it is clear that the company had the highest return on
assets ratio in the year 2009 and 2011 and the lowest in the year 2008. The
company is witnessing a gradual decrease in return on total asset ratio in each
year.
68
CHAPTER 6
LIMITATIONS OF THE STUDY
AND CONCLUSION
69
CONCLUSION
The analysis of credit risk management of the Kerala State Financial Enterprises
from the financial year 2007 to 2012 reveals that the organisation is achieving
sustainable performance to a certain limit. But the datas of the year 2012 are not
satisfactory. It is the only successful Government owned Non-Banking financial
institution in Kerala. KSFE ensures equitable distribution of wealth and reduces
the impact of interest in the economy like inflation and instability in the
economy. KSFE is a helping hand to the State Government as it helps to raise
lot of fund to the Government Treasury. The success of the firm greatly depends
on the efficient management of assets and liabilities.
BIBLIOGRAPHY
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