Jammu & Kashmir Bank

PROJECT REPORT
ON
WORKING CAPITAL FINANCING
By
VENUS CHAUHAN
Summer Internship Project

(Batch of 2011)
Working Capital Financing
2
University of Jammu Bhaderwah Campus
June-July 2011
Declaration
I hereby declare that this report on Working Capital Financing has been written and
prepared by me during the academic year 2010-2012. This project was done under the able
guidance and supervision of Mr. Rajesh Sudan and Mr.P.K.Vaid of Jammu & Kashmir bank.
I also declare that this project is the result of my own effort and has not been submitted to
any other institution for the award of any Degree or Diploma.
Place: New Delhi

Venus Chauhan
3
June-July 2011
Acknowledgement
If words are considered to be signs of gratitude then let these words convey the very same.
My sincere gratitude to Jammu & Kashmir Bank for providing me with an opportunity to
work with it and giving me necessary directions on doing this project to the best of my
abilities.
I am highly indebted to Mr. Rajesh Sudan,
Person and company project guide,
who has provided me with the necessary information and also for the support given to me in
the completion of this report and the valuable suggestions and comments on bringing out this
report in the best way possible.
I also thank ,University of Jammu Bhaderwah Campus ,J&K, who has sincerely supported
me with the valuable insights for the completion of this project.
I am grateful to all faculty members of University of Jammu Bhaderwah Campus,J&K and
my friends who have helped me in the successful completion of this project.
4
June-July 2011
CONTENTS
Sr. No.
Topic
Page no.
1.
2.
3.
4.
5.
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June-July 2011
1. JAMMU & KASHMIR BANK

1.1. INTRODUCTION:
The origin of Jammu and Kashmir Bank Limited, more commonly referred to as
J&K Bank, can be traced back to the year 1938, when it was established as the
first state-owned bank in India. The bank was incorporated on 1st October 1938
and on 4th July 1939 it commenced its business in Kashmir (India). It was initially
set up as a semi-state bank, with its capital being contributed by State as well as
the public under the control of State Government.
Jammu and Kashmir Bank had to face serious problems in 1947 i.e. at the time of
independence. With the partition of Pakistan, two out of the total ten branches of
the bank, namely the ones in Muzaffarabad and Mirpur, fell to the other side of
the line of control (now Pak Occupied Kashmir), along with cash and other assets.
At that point of time, in keeping with the extended Central laws of the state, J&K
Bank was categorized as a Government Company, as per the provisions of Indian
Companies Act 1956.
It was in the year 1971 that Jammu and Kashmir Bank was granted the status of
a 'Scheduled Bank'. Five years later, it was declared as "A" Class Bank, by the
Reserve Bank of India (RBI). As the years passed on, the bank started achieving
more and more success. Today, it boasts of more than 500 branches across the
country. It was only recently that Jammu and Kashmir Bank became a billion
dollar company. Governed by the Companies Act and Banking Regulation Act of
India, it is regulated by RBI and SEBI. It finds a listing on the National Stock
Exchange (NSE) and Bombay Stock Exchange (BSE) as well. [1]
Unique Characteristics & Services
J&K Bank carries out banking business of the Central Government
Inspite of a government equity holding of 53 per cent, Jammu & Kashmir

Bank (J&K Bank) is regarded as a private sector bank
J&K Bank is the one and only banker and lender of last resort to the
Government of J&K
6

June-July 2011
Plan and non-plan funds, taxes and non-tax revenues are routed through
the J&K Bank
J&K Bank claims the distinction of being the only private sector bank that
has been designated as agent of RBI for banking
The services of J&K Bank are utilized for the purposes of disbursing the
salaries of Government officials
J&K Bank collects taxes pertaining to Central Board of Direct Taxes, in

Jammu & Kashmir
1.2. PRODUCTS & SERVICES

Support Services
Anywhere Banking
Internet Banking
SMS Banking
ATM Services
Debit Cards
Credit Cards
Merchant Acquiring
Depository Services
Demat Account
Other Services
Third Party Services
Mutual Funds
Insurance Services - Life & Non Life
Remittance Services
Cash Management Services

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June-July 2011
Real Time Gross Settlement (RTGS)
National Electronic Fund Transfer (NEFT)
1.3. PROFILE
1.
2.
3.
4.
5.
6.
Incorporated in 1938 as a limited liability company.

Government by RBI & SEBI.
Listed on National Stock Exchange (NSE) & Bombay Stock Exchange (BSE)
53% owned by government of Jammu & Kashmir.
Rated P1+ by standard & poor CRISIL connoting highest degree of safety.
Four decades of uninterrupted profitability & dividends.[1]
1.4. BRAND IDENTITY
Figure: 1. J & K Bank Logo
The new identity for J&K bank is a visual representation of the Banks philosophy
and business strategy. The three colored squares represent the regions of
Jammu, Kashmir and Ladakh. The counter-form created by the interaction of the
squares is a falcon with outstretched wings a symbol of power and
8
June-July 2011
empowerment. The synergy between the three regions propels the bank towards
new horizons. Green signifies growth and renewal, blue conveys stability and
unity, and red represents energy and power. All these attributes are integrated
and assimilated in the white counter-form.
1.5. CUSTOMER SERVICE

The Bank continued its emphasis on maintaining high standards of service to its
customers. In this direction, the bank introduced various hi-tech & customer
friendly products during the year, providing value added service to achieve
customer satisfaction. Customer complaints received are dealt promptly &
expeditiously. The bank is a member of the banking codes & standards board of
India & has adopted code of banks commitment to customers, a voluntary
code providing protection & Right to Know to the customers. The bank has
established a 24 X 7 help desk to address customer queries & the desk id slated
to be converted into a full fledged call centre in 2007-08. The bank is also keenly
pursuing for ISO 9000 certification for its customer service.
The bank has revamped its delivery channels & added Business Development &
Promotion centers (BDPCs) with an aim to get closer to & provide hassle-free
service to the customers. Marketing managers & business promotion officers
have been placed in all the zones for execution of the marketing initiatives.
1.6. UNIQUE CHARACTERISTICS

1. Private sector Bank despite government holding 53 percent of equity.
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June-July 2011

2.
3.
4.
5.
6.
7.
8.
Sole banker and lender of last resort to the Government of J&K.

Plan and non-plan funds, taxes and non-tax revenues routed through the bank.
Only private sector bank designated as agent of RBI for Banking.
Carries out banking business of the Central Government.
Collects taxes pertaining to Central Board of Direct Taxes in J&K.
Salaries of Government officials disbursed by the Bank.
The bank is now a 10 billion dollar company.[9]
1.7. ORGANISATIONAL STRUCTURE

Board of Directors
Chairman & Chief Executive
Executive Director
(Business Operations)
President (CPO/CHI)
Human Resources: Personal Training, Recruitment, Terminal Benefits
Financial Services: Sales and Distribution, Insurance, Depository services,

President (CCO)
Advances and Assets Planning: Corporate Credit, Retail Credit, Micro Credit and
Priority Sector, assets monitoring and information
President (CLO)
Deposits and Liabilities: Retail deposits, corporate deposits
Executive Director
Corporate (CTO/CS)
Functions
President
Information and Technology System: Information technology, Hardware,
Software, Connectivity, Database, e-payments & settlements, Data
Mining, MIS
President (CRO)
Law
and Regulatory,
Disciplinary, Financial Inclusion
President
(CFO)
10
Supervision
& control, Financial Risk
June-July 2011
President Business Support
Chief Treasury Consultant
1.8. BOARD OF DIRECTORS

1.
2.
3.
4.
5.
6.
Haseeb A Drabu (Chairman & Executive Officer)

M S Verma
B B Vyas (IAS)
G P Gupta
B L Dogra
Umar Khurshid Tramboo
1.9. CSR ASPECT OF BANK
The Corporate Social Responsibility (CSR) of the J&K Bank seeks to

recognize obligations towards society and aims to integrate the CSR ideals
into its mission for optimizing both business and social performance.
It stresses on promoting work life balance, give attention to social and

environmental concerns and host of factors that facilitate business pursuits and
accomplishment of economic goals.
The Bank besides playing its role in economic development of the State and
country contributes significantly towards the social cause. Be it victims of
natural calamity, like fire, flood, snowstorm or tsunami and disabled or
patients with serious ailment who lack reliable means of survival, the bank has
been all through supporting them.
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June-July 2011
Heritage preservation is an important responsibility of every conscious

individual, institution or agency. The thrust areas to assist in this respect for
the bank will be preservation of historical / religious monuments, development
of tourist sites, national properties, museums, libraries, protection of
environment/ ecology etc.

The Bank has been playing a vital role in the promotion of tourism and it is in
this backdrop that the Bank has been shouldering the responsibility of
registering yatris for the Shree Amarnath ji yatra though its extensive network
of branches spread across the country.
In addition to this, accidental insurance cover facility of Bajaj Allianz General

Insurance Co. Ltd. to the pilgrims at a nominal premium is made available to
yatris.
Apart from above activities the Bank has been constructing/developing the
public parks, bus stands, drinking water posts, laboratories, conveniences, rain
shelters.
In addition to this, the Bank organizes relief camps, service camps, night
shelters, health resorts, health clinics, disaster calamity management centres
etc.[1]
1.10. SPECIALISED FINANCES
Help Tourism (For Kashmir valley only)

All Purpose Agri Term loan
Fruit Advances Scheme (Apple)
Zafran Finance
Roshni Financing Scheme
Craft Development Finance
Dastkar Finance
Giri Finance Scheme
Khatamband Craftsmen Finance
Commercial Premises Finance
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June-July 2011
1.11. POLICY INITIATIVES / OBJECTIVES FOR FY

2009-10
Credit policies are essentially aimed at supporting the business strategies,
achieving target earnings with satisfaction of customer needs and maintaining a
sound credit portfolio.
Main Objectives:
Create a framework to ensure smooth and timely flow of credit to the Banks
customers, ensure a prudent credit growth- both qualitative and quantitative
and to augment interest & non-interest income within the statutory framework
prescribed by RBI.
Adhere to the leading norms prescribed by the Bank, RBI & Govt. from time
to time.
Ensure consistency in and standardization of credit practices.
Ensure balanced sectoral & diversified growth of credit so as to have a proper
risk spectrum within prudential exposure norms.

Concentrate on growth of SME credit & lending to other priority sector
categories, particularly in J&K state through innovative loan products for
realization of social commitments and ensuring dispersal of risk as well as
improvement in yield.
With a view to establishing an efficient credit system, following policy decisions

have been taken by the bank:
Establishment of Corporate Finance Branches

Establishment of SSI Finance branches
Formation of matching Credit Delivery Channels
Large Corporate Branches
Exclusive BDPCs at district Levels
Formation of Credit Communities[1]
1.12. THRUST AREAS OF BANK

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June-July 2011
Retail Segment:
a) Agriculture & Horticulture
b) Trade & small business
c) Medium, small and micro enterprises under Mfg. & services sector
d) Housing, consumer and consumption loans
e) Education loans
Export credit:
Industries:
a) Cement
b) Automobiles
c) IT
d) Iron & steel
e) Infrastructure[1]
2. PROJECT FINANCING
Banks & financial institutions play an important role in the development of a

country. They provide not only financial assistance to viable projects but also
assist the entrepreneurs during all phases of a project, viz., identification,
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June-July 2011
selection, appraisal, implementation & follow-up. All the phases are inter-related
& the experience gained during appraisal of projects & supervision helps the
financial institution & banks to guide the entrepreneurs in identification &
selection of new projects.
Lending is considered the principle activity of a Commercial Bank. Advances

made by the Bank constitute the bulk of its assets and form the backbone of
banks structure. A sizeable portion of the income of the Bank is derived through
lending activities. The strength of a Bank is primarily judged by the quality of its
advances. It is necessary that the Banks lending activities are handled with
utmost prudence.
Advances not only play an important part in earning of the bank but also
promote the economic development. Bank credit plays a pivotal role in industry,
agriculture, trade and exports, poverty alleviation, creating new employment
avenues and removing regional economic imbalance.
2.1. PROJECT IDENTIFICATION

Projects can be divided into following categories:-
i.
ii.
New projects - For setting up of new industrial units

Expansion Projects - For increasing the capacity of existing projects by existing
iii.
iv.
units
Diversified Projects - For manufacturing new products by existing units.
Backward Integration - For manufacturing certain products which are projects
v.
being used as raw material by existing unit.

Forward Integration Projects - For manufacturing certain products which require
vi.
the products of the existing unit as raw material.

Modernization Projects - It can be for any one or more than one of the following
objectsa. Change obsolete machinery
b. Enlargement the product mix/product range to meet
changing requirements of the market
c. Changing the requirement of raw material
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June-July 2011
.
d. Reducing the manufacturing cost or for improving
the quality of the project
vii. Rehabilitation Project - For reviving sick units & making them viable with
Normal/healthy units.
2.2. PROJECT SELECTION & PREPARATION OF

PROJECT REPORTS
If an entrepreneur approaches a bank to assist him in selecting a project, it is
better to have preliminary discussions with regarding various projects which can
be promoted by him. The bank may guide him in selecting a project depending
on his ability, aptitude & financial resources. A preliminary discussion with the
promoter helps the bank in getting necessary information. A Bank may not be
interested in financing certain types of projects at a particular point of time
owing to excessive involvement already committed in that field, difficulties of
marketing faced by existing units, difficulties regarding availability of raw
material, government guidelines, etc . A Bank may not like to have a bad
reputation of rejecting many proposals. It is therefore, important that promoters
have the benefit of preliminary discussions at senior level & are guided by the
expertise available with the bank for selecting a suitable project. If a branch has
a separate officer for processing loan applications, it be should be associated
with the manager during the preliminary discussions.
2.3. PROJECT APPRAISAL

A detailed study is usually done by financial institution and banks while providing
project finance, so as to ensure that the project will generate sufficient returns
on the resources invested in it. The viability of a project depends on technical,
commercial, financial and managerial feasibilities. A detailed viability study is
necessary before agreeing to provide working capital finance, term loan and
other non-fund based facilities.
The past performance and the future viability can be ascertained by examining
the financial statements for the past 2-3 years as well as the estimated /
projected statement for the current and the next year. It is implicit that the
concern will have to submit an acceptable business plan or forecast in the form
of estimated/ projected financial statements to the bank.
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June-July 2011
With the shift from security oriented lending to purpose/need based lending, the
study of the viability of a project has become more vital for lending institution. In
order
to
ensure
that
project
is
viable,
its
viability
should
be
appraised/gauged/examined from different aspects which are:
Technical Appraisal
Commercial Appraisal- Appraisal of demand forecast
Financial Appraisal
Economic Appraisal
Appraisal of Management
Technical Appraisal:
1. Manufacturing process
2. Technical arrangements
3. Size of the plant
4. Product mix
5. Selection of plant & machinery
6. Procurement of plant & machinery
7. Plant layout
8. Location of the project:
a) Land
b) Raw material
c) Market
d) Labour
e) Utilities
f) Effluent disposal
g) Transportation
h) Community infrastructure
i) Development of other industries
Commercial Appraisal:
1. Demand-techniques of forecasting:
a) Import substitution
b) Past trend method
c) End-use method
d) Correlation and regression
e) Export market
2. Supply-depth of competition
3. Pricing policy
4. Lifecycle of the product
5. Brand name for the product
6. Packing and transport
7. Distribution channels
8. Sales promotion
9. Sources of market information
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June-July 2011
Financial Appraisal:
1. Demand-Techniques of forecasting:
a) Import substitution
b) Past trend method
c) End-use method
d) Correlation & regression
e) Export market
2. Supply-depth of competition
3. Pricing policy
4. Lifecycle of the product
5. Brand name for the product
6. Packing and transport
7. Distribution channels
8. Sales promotion
9. Sources of market information
1.
2.
3.
4.
Economic Appraisal:
Ratio for economic appraisal
Economic rate of return
Domestic resources cost
Comparative study of financial rate of return and economic rate of return
Management Appraisal:
1. Qualities of an entrepreneur
a) Honesty & integrity
b) Involvement in the project
c) Financial resources
d) Competence
e) Risk taking
f) Initiative
g) Intelligence
h) Self confidence
i) Frankness
2. Various forms of organization
a) Proprietary concern
b) Partnership firm
c) Corporate sector
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June-July 2011
3. SOURCE OF FUNDS
A project can be financed by any one or more than one of the following sources:-
Issue of ordinary / preference shares :-
Within the issue of shares, choice between ordinary shares & preference shares
is simple. As stated earlier, the ordinary share capital does not involve any fixed
charge on the company. On the other hand, preference shareholders are entitled
to dividend as a predetermined rate. Although dividend on preference share is
payable out of profits, in case of cumulative preference shares, dividend has to
accumulate to be paid in future even if the company incurs loss in a particular
year. As soon as the company earns profit, it has to pay arrears of dividend to
cumulative preference shareholders before declaring any dividend on equity
shares.
Issue of secured debentures:In order to encourage industrial units to meet their financial & public
requirements from the public, all restrictions on interest rates on debentures &
public sector bonds other than tax free bonds have been removed companies
issuing such instruments are free to decide the interest rates depending on the
market forces. In order to guide the investing public, companies are required to
19
June-July 2011
obtain a credit rating before floating these instruments. The terms of the issue
can also provide for buy back arrangements. In spite of the above steps, public
may not be very enthusiastic to subscribe to secured debentures unless some
additional incentives are offered to them.
Issue of convertible debentures & bonds:Issue of convertible debentures (secured) & convertible bonds (unsecured) is
another method of raising loan funds. These debentures/bonds combine the
benefits of equity capital & loan capital. Interest payable on convertible
debentures/bonds till their conversion into equity shares is deducted from the
profit of the company for the purpose of calculating taxable profit.
Term loans:Term loans are provided by banks, state financial corporation (SFCs), State
Industrial development corporation (SIDCs), State Industrial & Investment
corporations (SIICs) & all India financial institutions, viz industrial Development
Banks of India (IDBI), Industrial finance corporation of India (IFCI), Industrial
credit & investment corporation if India (ICICI), Life Insurance Corporation of
India (LIC), General Insurance Corporation of India (GIC) & Unit Trust of India
(UTI).
As per the present practice, small & medium projects having cost upto Rs
5crores are financed singly or jointly by SFCs, SIDCs/SIICs & banks. They can
obtain refinance from SIDBI/IDBI for the term loan provided by them for such
projects. It may be mentioned that small industries Development Bank of India
(SIDBI) was setup on 2 April, 1990which provides refinance for the term loans
given to small scale industries.
Deferred credits:Many times, the machinery suppliers provide the facility of deferred credits. In
such cases, banks may be approached to give guarantee for the payment of
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June-July 2011
deferred installment to the machinery suppliers. Banks should examine the

viability of the project before giving guarantee for such deferred credits.
Leasing Finance:Leasing has become an important method of financing during last decade & it is provided in
our country by exclusive leasing companies in the private sector, finance companies
transecting leasing business, manufacturer-lessons, leasing companies set up by financial
institutions & subsidiaries of commercial banks. Promoters of a project may have a contract
with the leasing company under which an asset is given by the lessor to the lessee for a fixed
period during which the lessee pays periodical rent for the use of the asset.
Unsecured Loans & deposits:Many existing companies prefer to raise public deposits instead of taking term
loans from institutions. However, public deposits cannot be accepted for more
than 3 years at a time.
Non-banking non financial companies can accept public deposits up to 25
percent of net owned funds. In addition, companies can accept unsecured loans
from shareholders or unsecured loans from public guaranteed by directors or
issue unsecured debentures up to 10 percent of net owned funds.
Capital Subsidy or development loans/sales tax loans:Government & development agencies provide subsidy, development loans/sales
tax loans for setting up industries in certain notified backward districts. While
reckoning the above subsidy as a source of finance, the term lending institutions
& banks should ensure that such assistance will be provided by central
governments/State governments /State development agencies well in time
during implementation of the project.
Internal accruals:Whenever
existing
companies
promote
an
expansion
diversification
modernization project, they use their internal accruals to finance it. If internal
accruals are reckoned as a source of project finance, the appraising officer
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June-July 2011
should study future cash flow statements estimates of the company & ensure
that the internal accruals stated by the company will be available to it at the
appropriate time.
4. CREDIT APPRAISAL
Credit appraisal is the basic requirement for determining merits of a proposal

before sanctioning financial assistance. While appraising the proposal, the
branch manager carefully study the applicant, his integrity, nature of activity &
future prospects of the business. With regard to financing credit proposals, the
following aspects are to be carefully analyzed:
Management: - Management behind the project is very important. Management is both a

key to success as also a common reason for the failure of an enterprise. Proper evaluation of
management is highly essential part of appraisal of a project/ business activity.
Nature of industry & its status in the economy & future prospects: - Various aspects of
the particular industry/activity should be judiciously evaluated before selecting a project. The
following points are:
i.
Examination of the market study report
ii.
Demand supply gap
iii.
Type of product
iv.
Future demand
v.
Product differentiation
vi.
Availability of other competitive products
Operations: - Constraints in the availability of infrastructural facilities of raw material &
other input required in day to day operations.
Financial: - Planning & management, past record, net worth, debt equity mix etc.
Credit requirement: - Purpose & repayment programme & probability of fulfilment as
scheduled & other terms.
4.1. STUDY OF THE BORROWER
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June-July 2011
The first & most aspect to be evaluated, while appraising a loan proposal is to
study/know the borrower i.e. his integrity & honesty & whether it is safe to
entrust the Banks money to the applicant or applicants. Even when the Bank
has a proper security, it is the borrower to whom the lending is primarily made &
an honest borrower is our best security. Branch manager should have confidence
in his customer before deciding to make an advance. The following may be noted
in the appraisal of the borrower in order to make an assessment if standing,
respectability & credit worthiness.
1. Character: - Character is the greatest single asset, any individual can have. It is
essentially/primary ingredient under-lying the granting of credit. Men deficit in character
cannot be trusted. The assessment of a persons character is done on the following basis:i.
Extent & nature of his education.
ii.
State of his health, capacity & energy for the hard work.
iii. General reputation among social & business circles acquaintances, associates,
iv.
employers & creditors.

His behaviour & dealing with the bank & other.
2. Capacity: - The branch manager must ascertain the capacity of the borrower i.e. his ability
& experience to run the business in a profitable manner. The earning capacity of the borrower
will depend on efficient managerial ability and is the guiding factor for determining whether
to lend and how much to lend. Other guiding factors include:
i.
The ability and experience to run the business in a profitable manner.
ii.
The earning the capacity of the borrower will depend on efficient managerial
ability and is the guiding factor for determining whether to lend and how
iii.
much to lend.
Past business results and income and expenses of a borrower are extremely
iv.
v.
vi.
important in appraising his capacity.

Technical expertise of borrower.
Is surplus being built up? Paying habits of the borrower.
Whether the borrower is prepared to put in sufficient time and hard work in
vii.
the business?
Are the plans of the borrower on sound and realistic line?
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June-July 2011
3. Capital: - Capital or financial strength of the borrower as measured by the equity or net
worth should be enquired into so as to assess his credit worthiness, ability to pay etc. In case
of new business the sources for required capital contribution must be clearly identifiable.
Character + capacity + capital = Safety in credit limit
Character + capacity + Insufficient capital = Fair credit risk
Character + Insufficient capacity + capital = Fair credit risk
Impaired Character + capacity + capital = Doubtful credit risk
Character + capacity - capital = Limited success
Capacity - Character + capital = High risk
Character - capacity + capital = Inferior credit risk
Capital capacity - Character = Distinctly poor risk
Character - capacity - capital = Fraudulent credit risk
4. Experience: - The borrower should have adequate experience in the line of the business or
should have employed competent personnel for management of the business.
5. Purpose: - It should be ensured that the purpose of the advance is acceptable to the bank
& the borrower has the capacity & ability to conduct his affair in a successful manner and
that he can be trusted for not misusing the facilities and divert the funds available in the
business.
6. Quantum of advance: - The amount of advance needs to be carefully assessed to ensure
that
i.
The amount of advance together with other resources available to the
ii.
borrower is reasonable.
The amount of advance is need based & as per the actual requirements of the
iii.
business.
Adequate cushion is provided to meet the unforeseen contingencies on
account of a possible escalation in the cost.
7. Security: - Where security is available it should be seen that the value is sufficient to
cover the advance & the borrowers title is valid & transferable. Security is obtained as an
insurance against any unforeseen development. It cannot turn a bad loan a good one but it
will make a good loan better.
8. Repayment: - The repayment programme offered by the borrower should be reasonable
& acceptable with definite source of repaying the loan. The repayment programme of an
advance will essentially depend on the earning of the borrower & the type of facility
provided. Three important types of credit facilities are : Temporary facility or bridge loan finance against expected inflows.
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June-July 2011
Provision for working capital for normal trade/business requirements

Term loan for capital expenditures.
The repayment of an advance can be made through three sources:Conversion of assets into cash
Collection of sundry debtors

Sale of merchandise
Sale of investments
Sale of fixed assets
Income, earning or fresh equity contribution

Personal income and/or salary
Profits after tax
Issue of fresh/ additional equity/ share capital/ bringing in additional capital
by proprietor/partner
Borrowing from other sources
Issue of debentures
Loans from financial institutions, private sources.
4.2. PROCESSING OF PROPOSALS:1. Application form: - A customer seeking an advance from the bank is required to submit
an application on the prescribed form together with various supporting statements. The usual
information furnished in the application form relates to applicants personal bio data,
business details of credit facilities required including the purpose & security offered etc. The
branch manager on receiving the application should process the same & have detailed
discussions with the applicants on various aspects of the proposed borrowing arrangement.
2. Sources of credit information:- Various sources of credit information are as under:i.
Financial statements submitted by the borrower.
ii.
Personal discussions with the borrower.
iii.
Personal visits & inspection carried out in the borrowers factory.
iv.
Market sources i.e. the press, other clients of the bank and any source other
the borrower.
3. Personal interview: - A personal interview with the prospective borrower is one of the
most important steps in credit appraisal & this should be done by the experienced Branch
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June-July 2011
Manager. During the course of the interview, the Manager should learn about the past history,
present performance and future plans of the borrower.
4. Market reports: - Information regarding character & integrity of the borrower should be
tactfully gathering from sources close to the borrower i.e. those with whom borrower deals,
his friend, relatives & associates. All such reports, sometimes contradictory to each other,
have to weight independently and a balanced opinion has to be formed about the character
and capacity of the borrower.
5. Study of accounts: - In case of new customers having dealing opinion of his existing
bankers should be obtained.
6. Study of accounts: - Customers, who already have an account currents or cash credit /
overdraft with the branch, the Banks record should be looked into.
i.
Resume of his dealing with the bank will throw light as to the fulfilment of
ii.
commitments by him, business integrity etc.

The banks record will reveal the manner in which the borrower has handled
his credit.
7. Financial statements: - Balance sheet & profit & loss account of the borrower for the last
years duly audited should be obtained. This analysis will help answer the following question.
i.
Whether the concern is financial sound & stable?
ii.
Whether its profitability or earning capacity is up to required standard?
iii.
Whether its liquidity position is satisfactory?
iv.
Whether it is well managed?
8. Income tax, wealth tax & sales tax assessment orders: - The branch manager should call
for the originals of income tax, wealth & sales assessments orders. Wherever income tax,
wealth tax & sales tax assessments are not completed, copies of such returns filed should be
obtained. Income tax assessment will give an idea of the borrowers profits & comments, if
any in such orders on the maintenance of accounts will be helpful in knowing the pitfalls of
the borrowers business.
9. Statement of assets & liabilities: - The property statement of a borrower will give an idea
of his worth, liabilities & his income from real estate. A complete list of property, their
location, approximate valuation should be obtained.
10. Personal visits: - The manager either alone or accompanied by other officer should visit
unit or place of business of the borrower. The manager during the visit should try to find out:
26
June-July 2011
i.
Its area where the business is located having all the infrastructure facilities for
ii.
iii.
the unit.
Does the borrower own the real estate or its leased, it is on favourable terms.
Companys policy regarding replacement / up gradation of machinery &
iv.
equipments.
If expansion is undertaken in the future, will adequate space be available for
its within the existing premises.
11. Decision of the manager: - Loan application should be processed with due care. After
collecting all the information & studying it, the manager has to take a final decision. The
decision to lend or not to lend the money will be based on the careful analysis of all the
information obtained about the borrower, the project / activity & credit worthiness etc.
4.3. PROPOSED, RECEIVED & DISPOSED REGISTER:All applicants for grant of loans & advances should be entered in a proposed, received & disposed
register containing the following details.
1
S.No
Date
Name
Catego
Nature
Date of
Amoun
If
Initials
of
ry
&
dispos
t of
decline
of
applica
Amoun
al
facilitie
d, by
manag
nt
t of
whom
er
facilitie
&
reason
require
thereof
Figure 3: Format of Proposed, Received & Disposed Register

All such applicants should be serially numbered. The registration number of the applicants
will also be serial number of proposal. Besides this number the proposal will carry the
identification number of the branch as a prefix. Decisions i.e. sanction or refusal of the
proposal should be recorded in the appropriate columns under the initials of the manager.
Other sanctioning authorities will similarly maintain a proposal receipt & disposal registers.
4.4. REJECTION OF PROPOSAL:In case a request for grant of an advance has to be declined, the
recommending/sanctioning authority should put forth reasons for his approach
while refusing to entertain the proposal. The branch manager / sanctioning
authority should not decline the proposal at their own level but refer such cases
27
June-July 2011
to next higher authority. Only upon hearing from the higher authority the final
decision should conveyed to the party.
28
June-July 2011
5. WORKING CAPITAL
5.1. NATURE OF WORKING CAPITAL

Working capital management is concerned with the problem that arises in
attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. The current assets refer to those assets
which in the ordinary course of business can be converted into cash within one
year without undergoing a diminution in value and without disrupting the
operations of the firm. The major current assets are cash, marketable securities,
accounts receivables and inventory. Current liabilities are those liabilities which
are intended to be paid in the ordinary course of business, within one year, out
of the current assets or earnings of the concern. The basic current liabilities are
accounts payable, bills payable, bank overdraft, and outstanding expenses. The
goal of working capital management is to manage the firms current assets and
liabilities in such a way that a satisfactory level of working capital is maintained.
This is so because if the firm cannot maintain a satisfactory level of working
capital, it is likely to become insolvent and may even be forced into bankruptcy.
The current assets should be large enough to cover its current liabilities in order
to ensure a reasonable margin of safety. Each of the current assets must be
managed efficiently in order to maintain the liquidity of the firm while not
keeping too high a level of any one of them. Each of the short term sources of
financing must be continuously managed to ensure that they are obtained and
used in the best possible way. The interaction between current assets and
current liabilities is, therefore, the main theme of the theory of working capital
management.
5.2. CONCEPTS AND DEFINITION OF WORKING CAPITAL

There are two concepts of working capital: Gross and Net.
The term gross working capital, also referred to as working capital, means the
total current assets. Gross working capital means the current assets which
29
June-July 2011
represent the proportion of investment that circulates from one form to another
in the ordinary conduct of business.
The term net working capital can be defined in two ways:
I.
The most common definition of net working capital (NWC) is the difference between
II.
current assets and current liabilities.

Alternate definition of NWC is that portion of current assets which is financed with
long term funds.
The task of the financial manager in managing working capital efficiently is to

ensure sufficient liquidity in the operations of the enterprise. The liquidity of the
business firm is measured by its ability to satisfy short term obligations as they
become due. The basic measures of a firms overall liquidity are:
I.
The current ratio
II.
The acid-test ratio
III.
The net working capital
They are very useful in inter-firm comparisons of liquidity. Net working capital
(NWC), as a measure of liquidity is not very useful for comparing the
performance of different firms, but it is quite useful for internal control. NWC
helps in comparing the liquidity of the same firm over time. For the purpose of
working capital management, therefore, NWC can be said to measure the
liquidity of the firm. In other words, the goal of working capital management is to
manage the current assets & current liabilities in such a way that an acceptable
level of NWC is maintained.
NWC is commonly defined as the difference between the current assets and
current liabilities. Efficient working capital management requires that firms
should operate with some amount of NWC, the exact amount varying from firm
to firm and depending, among other things, on the nature of industry. The
theoretical justification for the use of NWC to measure liquidity is based on the
premise that the greater the margin by which the current assets cover the short
term obligations, the more is the ability to pay obligations when they become
due for payment. NWC is necessary because the cash flows and inflows do not
30
June-July 2011
coincide. In other words, it is the non synchronous nature of cash flows that
make NWC necessary. In general, the cash outflows resulting from payment of
cash liabilities are relatively predictable. The cash inflows are, however, difficult
to predict. The more predictable the cash inflows are, the less NWC will be
required. A firm, say an electricity generation company, with almost certain and
predictable cash inflows can operate with little or no NWC. But where cash
inflows are uncertain, it will be necessary to maintain current assets at a level
adequate to cover current liabilities, that is, there must be NWC.
NWC can alternatively be defined as that part of current assets which are
financed with long term funds. Since current liabilities represent sources of shortterm funds, as long as current assets exceed the current liabilities, the excess
must be financed with long term funds. Desirably, net working capital should be
positive i.e. current assets should exceed current liabilities or Current Ratio
(current assets divided by current liabilities) should be higher than 1:1. This
would signify liquidity and availability of adequate working funds. For a banker, it
would connote a cushion of safety for the funds lent.
For e.g.
Assuming the balance sheet of ABC ltd Company
Balance sheet at the year ending 31.3.2009(in lacs)
LIABILITIES
ASSETS
Capital
6.00
Fixed assets
5.00
Unsecured loans
1.00
Securities
0.45
Term Loans
2.00
Current liabilities:
Current assets:
--Sundry creditors
2.50
--Stock
3.00
--Bank overdraft
0.75
--Debtors
1.80
--Bills payable
0.50
--Cash/ bank
2.50
Total liabilities
12.75
Total assets
12.75
Net working capital = CA - CL = 7.30 3.75 = 3.55
OR
31

June-July 2011

Net Working Capital
.
= Long term sources Long term uses.
Where,
Long term sources
= Capital + unsecured loans + term loans

=6.00+1.00 + 2.00 =9.00
Long term uses
= Fixed assets+ securities

= 5.00+0.45=5.45
Thus, NWC
= 9.00 - 5.45= 3.55
Though both the formula are applicable for calculating, mostly applicable is :
NWC = Long term sources - Long term uses. It is applicable to avoid complexity
of solution.
Working capital gap (WCG): WCG represents the difference between total current assets
(TCA) and current Liabilities excluding bank borrowing.
Working capital gap = Total current assets (TCA) Total current liabilities (TCL)
(Excluding bank
borrowing)
Projected NWC Vis--vis projected build-up of current assets:
The levels of the current assets as projected by the borrower are on many
occasions not acceptable to the banker. In such cases, the banker slashes down
the levels and arrives at PBF on the basis of such reduced levels. It is a practice
with many banks to assume the levels of availability of NWC to be correct as
projected by the borrower. The higher level of NWC consequently reduces the
PBF and the borrower get less than the projected bank borrowing as shown in
following example:
Liabilities
Previou Projected
s years by the
actual
borrower
(Figures in value)
Accepte
d
By bank
Assets
Previou Projecte
s years d by the
actual
borrower
32
June-July 2011
Accepte
d by
bank
Net worth
50
50
50
Term
loans
130
120
120
20
20
LongTerm
deposits
Total long
term
funds
Other
current
liabilities
185
190
190
35
50
50
190
250
210
225
300
260
Bank
borrowing
Total
current
liabilities
410
490
450
Noncurrent
assets.
Total
current
assets.
Grand
total
110
90
90
300
400
360
410
490
450
Grand
total
Where,
Liabilities:
Actual: Previous years actual
Projected: Projected by the borrower
Accepted: Accepted by Bank
Assets:
Actual: Previous years actual
Projected: Projected by the borrower
Accepted: Accepted by Bank
NWC (actual/projected)
75
100
100
Current ratio
1.33:1
133:1
1.33:1
`The bank has in the above examples reduced the level of current assets but by
keeping the projected NWC has reduced the PBF. The projected current ratio has,
therefore, improved. It, however, needs to be pointed out that the borrower
might have decided to increase the NWC margin, considering that he would have
to maintain the current assets at a higher level. In the case under illustration, he
had decided to bring in additional long term funds in the form of deposits and
33
June-July 2011
has also projected higher level of OCL, in which the level of sundry creditors for
purchases might have been included.
However, if the level of current assets is to be increased only to 360 and not to
400 he may decide to borrow less in the form of deposits and because of the
lower level of sundry creditors for purchases may also come down.
It is therefore, incorrect to insist that the projected NWC should always be the
same even when the banker decides to reduce the level of current assets. On the
other hand, if the increased NWC is solely because of increase in profit, it need
not be changed. What is, therefore, needed is an analysis of the factors which
increase the NWC.
Many bankers plead that the borrower should bring in as much as possible (in
the form of increased NWC) and the bank is there only to supplement the
financial needs. It can, however, be argued on behalf of the borrower that he had
decided to bring in additional funds only for higher build up of current assets
and he should not be compelled to bring in funds whereby the current ratio is
increased to a level much above the stipulated minimum. Had the ratio been
1.38:1 in the previous year also, the banker would have been justified in insisting
on the maintenance of the same ratio for the projected year.
NWC and security margin:
The emphasis of J&K Bank (as per Tandon Committee norms) had been on the
maintenance of overall margin in the form of NWC rather than on security
margin. This was of course necessary because banks were required to shed their
security- oriented approach and attach more importance to production related
credit. However, banks must avoid financing against unpaid stocks. The interrelationship between NWC and security margin has therefore to be clarified. The
NWC represents the amount of funds brought in by the borrower in the form of
own funds and other long term resources, whereas the security margin is the
stipulation made by the banker to ensure that the borrower avails the limit only
after he brings in the margin. The security margin is a practical safety value for
monitoring the operations in the account on a monthly basis. The banker can
avoid financing against unpaid stocks and maintain a secure position regarding
security by calculating the PBF and the drawing power (DP). This has been
shown in the following example:
34
June-July 2011
Liabilities
Unit A
Unit B
Assets
Unit A
Unit B
Net worth
90
90
Fixed assets
80
80
Term
110
110
Other Non C A
20
20
long 200
200
Total Non C A
100
100
130
Inventory(stock)
200
130
170
Receivables(debtors)
150
100
Other C A
50
170
liabilities
Total
term loans
Short
term 200
bank
borrowings
Other
out
C
of
L 100
(5)
above
Sundry
60
90
Chargeable C A
350
230
Total C L
300
300
Total C A
400
400
Grand Total
500
500
Grand Total
500
500
creditors
The current ratios as well as the NWC are the same for Unit A and Unit B.
However, PBF is different, as shown below:
UNIT A
UNIT B
Total Current Assets
400
400
Less: Other current

liabilities
100
170
Working Capital Gap
300
230
Less: Minimum Stipulated

NWC (25% of TCA)
100
100
Permissible Bank Finance
200
130
35
June-July 2011
The security margins for the two units would have to be different to ensure that the units do
not avail the bank finance to the full extent of PBF without attaining the current asset level as
envisaged in the projection and acceptable by the banker. This would not happen if the
security margin is uniform for both the units (Generally accepted Security margin is 25% on
stock and 50% on Debtors). The units in that case would be able to draw the sanctioned PBF
at much lower levels of chargeable current assets than in the earlier example, as indicated
here under:
UNIT A
UNIT B
Total Chargeable CA
350
230
Security Margin:
Stock @ 25%
Debtors @ 50%
50
75
32.5
50
Total Margin
125
82.5
Drawing Power
225
147.5
Now we can see that for Unit A, the PBF is 200lacs but the drawing power comes out to be
225lacs. So, the borrower is able to enjoy an enhanced limit in comparison to what has been
sanctioned to him. This should be taken care by the appraising officer that the drawing power
should be within the limits of PBF. So, in the case the security margin is to revised, say
37.5% on stock and 50% on debtors.
In the case of Unit B, the drawing power comes out to be 147.5lacs but the PBF is 200lacs,
so the borrower is not able to enjoy his full limit. This is due to the fact that the amount of
other current asset is quite large, thus rendering the amount of Chargeable current asset to be
comparatively small with regard to Unit A. The appraising officer should accept only that
amount of other CA as would leave sufficient Chargeable assets for security margin.
5.3. CLASSIFICATION OF WORKING CAPITAL
36
June-July 2011
Figure 4: Kinds of Working Capital

Working capital may be classified in two ways:
1. On the basis of concept
2. On the basis of time.
On the basis of concept, working capital is classified as gross working capital and
net working capital. Gross working capital means the current assets which
represent the proportion of investment that circulates from one form to another
in the ordinary conduct of business and net working capital is the difference
between current assets and current liabilities or alternatively the portion of
current assets financed with long-term funds.
On the basis of time, working capital may be classified as:

a) Permanent or fixed working capital.
b) Temporary or variable working capital
a)
Permanent or Fixed working capital: Permanent or Fixed working
capital is the minimum amount which is required to ensure effective utilisation of

fixed facilities and for maintaining the circulation of current assets. There is
always a minimum level of current assets which is continuously required by the
37
June-July 2011
enterprise to carry out its normal business operations. For example, every firm
has to maintain a minimum level of raw materials, work-in-progress, finished
goods and cash balance. The minimum level of current assets is called
permanent or fixed working capital as this part of capital is permanently blocked
in current assets. As the business grows, the requirements of permanent working
capital also increase due to increase in current assets. The permanent working
capital can further be classified as regular working capital and reserve working
capital required to ensure circulation of current assets from cash to inventories,
from inventories to receivables and from receivables to cash and so on. Reserve
working capital is the excess amount over the requirement for regular working
capital which may be provided for contingencies that may arise at unstated
periods such as strikes, rise in prices, depression, etc.
B)
Temporary or Variable working capital: Temporary or Variable
working capital is the amount of working capital which is required to meet the
seasonal demand and some special exigencies. Variable working capital can
further be classified as seasonal working capital and special working capital.
Most of the enterprises have to provide additional working capital to meet the
seasonal and special needs. The capital required to meet the seasonal needs of
the enterprise is called seasonal working capital. Special working capital is that
part of working capital which is required to meet special exigencies such as
launching of extensive marketing campaigns for conducting research, etc.
Temporary working capital differs from permanent working capital in the sense
that it required for short periods and cannot be permanently employed gainfully
in the business.
5.4. PLANNING OF WORKING CAPITAL

The
need
for
working
capital
(gross)
or
current
assets
cannot
be
overemphasized. Given the objective of financial decision making to maximise

38
June-July 2011
the shareholders wealth, it is necessary to generate sufficient profits. The extent

to which profits can be earned will naturally depend, among other things, upon
the magnitude of the sales. A successful sales programme is, in other words,
necessary for earning profits by any business enterprise. However, sales do not
convert into cash instantly; there is invariably a time-lag between the sale of
goods and the receipt of cash. There is, therefore, a need for working capital in
the form of current assets to deal with the problem arising out of the lack of
immediate realisation of cash against goods sold. Therefore, sufficient working
capital is necessary to sustain sales activity. Technically, this is referred to as
operating or cash cycle. The operating cycle can be said to be at the heart of the
need for working capital. The continuing flow from cash to suppliers, to
inventory, to accounts receivable and back into cash is what is called the
operating cycle.
Working capital cycle or the Operating cycle represents the time span within
which the cash utilized for procuring raw materials, payment of wages and
incurring
overheads
is
reconverted
into
cash
through
sales
realization.
Therefore the total time span within which the business activity rotates
is called an operating cycle or production cycle. In a trading concern, there
is a series of activities starting from procurement of goods (saleable goods) and
ending with the realization of sales revenue (at the time of sale itself in case of
cash sales and the time of debtors realizations in cash of credit sales). In case of
manufacturing concern, this series starts from procurement of raw materials and
ending with the sales realization of finished goods (after going through the
different stages of production). The time gap between the happening of first
event and happening of last event. This gap is called the operating cycle.
Thus, the operating cycle of a firm consists of the time required for the
completion of the sequence of some or all of the following:
1.
2.
3.
4.
5.
Procurement of raw materials and services.

Conversion of raw materials into work in progress.
Conversion of work in progress into finished goods.
Sale of finished goods into cash or credit.
Conversion of receivables into cash.
39
June-July 2011
The constituents of operating cycle namely cash, raw materials, stock-inprogress, finished goods and receivables represent a portion of total current
assets. Thus, investment in operating cycle represents a part of working
capital finance.
Operating Cycle Period:-
The length or time duration of the operating cycle of any firm can be
defined as the sum of its inventory conversion period and the receivable
conversion period.
Inventory Conversion Period (ICP):-
It is the time required for the conversion of raw materials into finished
goods sales. In a manufacturing firm the ICP consists of Raw Material
Conversion Period (RMCP); Work in Progress (WPCP), and the Finished
Goods Conversion Period (FGCP).
The RMCP refers to the period for which the raw material is generally kept in
stores before it is issued to the production department.

The WPCP refers to the period for which the raw materials remain in the
production process before it is taken out as a finished unit.

The FGCP refers to the period for which finished units remain in stores before
being sold to the customers.
Receivables Conversion Period(RCP):-
It is the time required to convert the credit sales into cash realization. It
refers to the period between the occurrence of credit sales and collection
of debtors.
The total of ICP and RCP is also known as Total Operating Period (TOCP).
The firm might be getting some credit facilities from the supplier of raw
materials, wage earners etc. This period for which the payments to these
parties are deferred or delayed is known as Deferral Period (DP).
40
June-July 2011
The Net Operating Cycle (NOC) of the firm is arrived at by deducting the DP
from the TOCP. Thus,
NOC = TOCP-DP
= ICP+RCP-DP
5.5. DIAGRAMMATIC REPRESENTATION OF OPERATING

CYCLE
Figure 5: Operating Cycle
41
June-July 2011
Example: The following example very clearly illustrates how the numbers of
days for RMCP, W.I.P, Finished Goods, Debtors are to be calculated for the
purpose of assessment of working capital requirements:
From the following information taken from taken from the books of a
manufacturing concern, compute the operating cycle in days:
Period covered ------------------------------------------------------ 365days
Average period of credit allowed by suppliers ---------------- 16 days
(Rs. In 000)
Average debtors outstanding ------------------------------------- 480
Raw material consumption --------------------------------------- 4400
Total production cost --------------------------------------------- 10000
Total cost of goods sold ------------------------------------------ 10500
Sales for the year -------------------------------------------------- 16000
Value of average stock maintained:
Raw material -------------------------------------------------------- 320
Work-in-progress -------------------------------------------------- 350
Finished goods ------------------------------------------------------ 260
Solution:
RAW MATERIAL = Average Raw material stock X 365

Total Raw material consumption
= 320 X 365
4400
= 27 days
WORK-IN-PROGRESS = Average Work-in-progress X 365
42

June-July 2011
Total cost of production

= 350 X 365
10000
= 13 days
FINISHED GOODS =
Average Finished Goods
Total cost of goods sold
=
X 365
260 X 365
10500
= 9 Days
DEBTORS = Average Receivable

Total Sales
X 365
= 480
X 365
16000
= 11 Days
The credit allowed by creditors = 16 days.
Therefore, TOCP = RMCP + WPCP + FGCP + RCP
= 27 + 13 + 9 +11
= 60 Days
Therefore, NOC = TOCP DP
= 60 16
= 44 Days
Therefore, the firm has a Net Operating Cycle of 44 Days.
5.6. QUANTUM OF WORKING CAPITAL:

The quantum of working capital requirements (gross working capital) depends on
nature of activities of an enterprise. The two main factors taken into
consideration are:
i.
Level of activity or operation.
ii.
Duration or length of the operating cycle.
The level of activity refers to the level of production or sales. An increased sales
turnover would normally require increased working capital for its achievement.
For instance,
43
June-July 2011
If a unit producing 1000 units per month desires to produce 1200 units in the coming
months, then it requires more working funds to attain the increased production target.
On the other hand, if for the same production level of 1000 units per month, the raw
material availability changes from 10 days to 15 days, then more raw material is to be
stored which means requirement of additional working funds.
Another factor which may affect the quantum of working capital required for the
smooth working of the unit is the increase in the cost of the inputs i.e. raw material. In
Indian scenario, even if the unit is operating at the same level i.e. the same capacity
utilization, it would be requiring more working funds to meet its working capital
requirements of all such units have gone up substantially though level of operations
has been the same.
For estimation of gross working capital requirement we must also know the level of
operating expenses required for attaining projected level of sales.
For e.g.
If the sales forecast of a unit for a next year are Rs 8lacs, its operating expenses
are Rs 6lacs, and the estimated length of its operating cycle is 4 months (120
days).What shall be total working capital requirement to achieve the sales
target?
Since each rupee of working capital employed during the year will be turned over
3 times (360 day120 days) the total working capital required by the unit on an
average will be Rs 2lacs (Rs6lacs3).
Any reduction in the length of operating cycle will improve the working capital
turnover ratio. Thus if the same unit is able to reduce the length of operating
cycle from 120 days to say 90 days, its working capital turnover will improve
from 3 times to 4 times per year(36090). Accordingly the gross working capital
requirement will be Rs 1.50lacs (Rs6 lacs4) instead of Rs 2lacs. This means
better utilization of resources of resources on account of better management of
one or more phases of operating cycle.
44
June-July 2011
5.7. IMPORTANCE OF WORKING CAPITAL

The main advantages of maintaining adequate amount of working capital are as
follows:
1. Solvency of the business: Adequate working capital helps in maintaining solvency of the
business by providing uninterrupted flow of production.
2. Goodwill: Sufficient working capital enables a business concern to make prompt
payments and hence helps in creating and maintaining goodwill.
3. Easy loans: A concern having adequate working capital, high solvency to make prompt
payments and hence helps in creating and maintaining goodwill.
45
June-July 2011
4. Cash discounts: Adequate working capital also enables a concern to avail cash discounts
on the purchases and hence it reduces cost.
5. Regular supply of raw materials: Sufficient working capital ensures regular supply of
raw materials and continuous production.
6.Regular payments of salaries, wages and other day to day commitments:- A company
which has ample working capital can make regular payment of salaries, wages and other day
to day commitments which raises the morale of its employees increases their efficiency,
reduces wastage and cost and enhances production and profits.
7. Ability to face crisis:- Adequate WC enables a concern to face business crises in
emergencies such as depression because during such periods, generally, there is much
pressure on working capital.
8. High Morale: Adequate of working capital creates an environment of security, confidence,
and high morale and creates overall efficiency in a business.
6. ASSESSMENT OF WORKING CAPITAL (WITH

SPECIAL REFERENCE WITH J&K BANK)
The assessment of correct amount of working capital is extremely important
for any financing institution.
Any overestimation of the requirement resulting in blockage of scare funds in idle

assets is both, a drain on profitability as also a reflection on performance of the
management of the financing institution.
At the same time any paucity of funds due to an underestimation may cripple the unit
and deprive it of many profitable opportunities. Scarcity of funds will also adversely
affect the liquidity of the unit and in turn its reputation, due to its inability to meet its
commitments in time.
Operating with thin working capital is like walking on a tight rope and any
unforeseen blockage of funds may instantaneously imperil the very existence of
the unit. It is, therefore, of prime importance that the assessment of working
capital is judiciously and meticulously done. The exercise becomes all the more
important for bankers because a major portion of their working funds is tied in
financing of working capital needs of their constituents. Proper and prudent
calculation of working capital needs of the prospective borrowers contribution of
46
June-July 2011
his adequate share in the shape of margin. The exercise of assessing working
capital requirement centers around ascertaining the operating cycle of the unit
and then converting this period into monetary values based on the cost of
components involved.
In J&K bank for instance, the share of term loans has touched around 60% and
the bank now proposes to cap this limit at 65% of credit portfolio, the said rise
has been due to the advent of loans for housing, consummation loans,
educational loans, capacity expansion of industries etc. Nevertheless, working
capital component remains to be very significant for any bank in its overall credit
portfolio. The exercise of assessing working capital requirement centers around
ascertaining the operating cycle of the unit and then converting this period into
monetary values based on the cost of components involved.
6.1. VARIOUS METHODS FOR APPRAISING WORKING

CAPITAL LIMITS:
Currently banks are following the under mentioned methods for appraising
working capital limits for various classes of borrowers:
1. Turnover Method:
Assessment of working capital (fund based) finance based on projected turnover/sales
of the unit will be applicable in case of following category of borrowers subject to
fulfilment of conditions described herein.
Category of
Borrower
Max. amount of WC
Conditions to be
Fulfilled
under turnover method
Micro and Small

Enterprise in the
manufacturing
Sector.
Required
Working
Capital
Margin is available as per first

Rs 5.00 crores
method of lending.
It shall be fully established
with the support of relevant
documentary
evidence
that
reflect sales as shown in the

latest financial statements are
47
June-July 2011
based on actual figures.

A reasonable growth in sales
by amount ranging between
15% and 25% over the actual
sales of current year may be
Micro
Enterprise
and
Small
accepted.
In the event of working capital margin
providing
being available for amount less than
services
the required margin contribution as per

First Method of lending, MPBF
worked out on the basis of turnover
method shall be sanctioned after
prescribing condition to the effect that
the borrower has sufficient resources
to induct the deficit in working capital
margin.
In
the
absence
to
this
arrangement MPBF shall be worked

out the basis of First Method of
lending.
2. Second Method of Lending:

In cases, other than those specified above, assessment of working capital will be made
in the basis of Second Method of Lending.
3. Cash Budget System:
This system shall be followed in following cases:
a) For assessing WC requirements for seasonal industries like tea, coffee, sugar and
for construction activity and service sector.
b) For assessing WC finance above Rs 2crore for borrowers engaged in information
technology (I.T) and software industry.
c) Any other borrower who is desirous of shifting monthly cash budget system will
be encouraged.
d) In case of construction companies, the fund based limits (not exceeding the peak
level deficit projected in the cash flow statement) and the non-fund based limits
sanctioned to a borrower, put together, should also not exceed ten times the net
48
June-July 2011
owned funds of the company. Considering the especial features of such companies,
it is preferable to follow the cash budget system for assessment of the working capital
requirements.
6.2. WHICH METHOD OF LENDING IS BETTER?

After estimating the reasonable level of current assets based on norms/past
trends, required for operation of a unit, sources of financing the same are
decided. The total current assets will be financed partly by creditors for
purchases & other current liabilities (excluding bank borrowing).
The remaining current assets called the working capital gap should be financed
partly from net working capital (i.e. from owned funds & long term borrowings)
and partly by bank borrowings.
In the context of above approach, maximum permissible level of bank borrowing
can be assessed as per the two suggested methods of lending:
Method 1: Borrower is required to contribute a maximum of 25% of the working
capital gap from long term (i.e. owned fund + term borrowings) and the balance
75% of the working capital gap will be the maximum bank finance. The first
method will give a minimum current ratio of 1:1.
Method 2: Borrower is required to contribute a minimum of 25% of total current

assets from term sources and the maximum permissible bank finance will be
equal to W.C. Gap less by this minimum contribution. In the method total current
liabilities inclusive of bank borrowings will not exceed 75% of current assets. The
minimum current ratio under the 2nd method will be 1.33:1.
Minimum NWC at 25% of WCG under Method 1 st and 25% of total current assets
under method 2nd ensures the basic financial discipline that the borrower must
observe if the WC finance is required from the bank. The availability of stipulated
NWC accompanied by satisfactory current ratio assures the bank about the short
term financial solvency of the borrower.
49
June-July 2011
Illustration for calculation of Maximum Permissible Bank Finance (MPBF):

Current liabilities
Amount
Current assets
Amount
(Excluding Bank Borrowing)

Creditors for purchases
100
Raw material
200
Other current liabilities
40
Stock-in-process
20
Finished Goods
80
Receivables
50
Other current assets
10
Total
140
Total
360
Maximum permissible bank finance (MPBF):First Method
Second Method of lending
1. Total current assets

360
2. Less: Current liabilities
140
Other than bank borrowing
3. WCG
220
4. Minimum stipulated
NWC- 25% of WCG
55
1. Total current asset

360
2. Less: Current liabilities
140
Other than bank borrowing
3. WCG
220
4. Minimum stipulated
NWC-25% of TCA
90
5. M.P.B.F.
5. M.P.B.F.
Current ratio
165
1.18:1
Current ratio
130
1.33:1
Method second ensures higher contribution of borrower by way of NWC.
6.3. ASSESSMENT OF WORKING CAPITAL (FUND BASED)

50
June-July 2011
Format 1
Particulars
Holding periods
Amount
(days/week/month)
(lacs of Rs.)
Current Assets
(-)Raw Material
(-) Work in Process
(-) Finished Goods
(-) S. Debtors/Receivables
(-) Others(specify)
Total (A)
Current Liabilities
S. creditors on purchase
Others if any
Total (B)
Working Capital Gap (A-B)
Stipulated NWC@-----% of C
or
Projected NWC (w.e.h)
M.P.B.F (C-D)
Format 2:
Under Mortgage loan Scheme
Last year sales
: Rs --------------------
Add: 25% of last year sales
: Rs --------------------
Total (A)
: Rs --------------------
Projected Sales (B)
: Rs -------------------51

June-July 2011
Accepted sales (A) or (B) (w.e.h)
: Rs --------------------
20% of Accepted sales (C)
: Rs --------------------
Value of the Property
: Rs --------------------
Forced Realizable value of the property

(85%) of the value (D)
: Rs --------------------
75% of the value (D)
: Rs --------------------
Permissible Bank Finance
: Rs --------------------
(C) or (D) whichever is less

Recommendation of the Branch
: Rs ---------------------
6.4. MEASUREMENT OF WORKING CAPITAL

In order to calculate the working capital needs, what is required is the holding
period of various types of inventories, the credit collection period and the credit
payment period. The calculation of working capital is based on the assumptions
that the production or sales is carried on evenly throughout the year and all
costs accrue similarly.
For calculation of TOCP and NOC, various conversion periods may be calculated
as follows:
RMCP = Average Raw Material Stock
X 365
Total Raw Material Consumption

WPCP = Average Work-in-Process
X 365
Total Cost of production

FGCP = Average Finished Goods
X 365
52

June-July 2011
Total cost of goods sold

RCP = Average Receivable X 365
Total Credit Sales
DP = Average Creditors X 365
6.5. TANDON COMMITTEE:

A study group under the chairmanship of Sh. P.L. Tandon was constituted in 1974
by the Reserve Bank of India to frame the guidelines for the effective regulation
of the bank credit and other related aspects. The basic terms of reference of the
Tandon Committee were as:
53
June-July 2011
a) To suggest guidelines for commercial banks to follow-up and supervise credit from
the point of view of ensuring proper end-use of funds and keeping a watch on the
safety of the advances.
b) To make recommendations for obtaining periodical forecast from borrowers of
production plans and credit needs.
c) To make suggestions for prescribing inventory norms for different industries.
d) To suggest criteria regarding satisfactory capital structure and sound financial basis in
relation to borrowings.
e) To make recommendations as to whether the existing pattern of financing working
capital requirements by cash credits/ overdraft systems etc. requires to be modified.
On the basis of findings, the Tandon Committee noted various shortcomings of the
then prevailing cash credit system such as:
a) The cash credit system which allows the withdrawal of any amount up to a given
limit hinders credit planning.
b) The security based approach to lending has led to diversion of funds to purchase
of fixed assets, and
c) The working capital finance should be made available only for a short period as it
has otherwise, led to accumulation of inventories with the industry.
Recommendations Regarding the Bank Practices:
1. Inventory and Receivables Norms: The norms for reasonable level of inventory are
needed to avoid the undesirable holding and financing of Current Assets. The norms
should also be specified to bring uniformity in the banks approach in assessing the
working capital requirements. The Tandon Committee, in his final report, suggested
norms for raw material, work in progress, finished goods, receivables and bills purchased
for different industries.
This norms now has been dispened by RBI, now RBI give the authority to the Bank
to take decisions regarding Inventory norms.
2.
Lending Norms or Maximum Permissible Bank Finance (MPBF): The Tandon
Committee introduced the concept of MPBF and suggested that bank should attempt to
supplement the borrowers resources in financing the Current Assets should be financed by
the trade credits and other Current Liabilities. The remaining part of the current assets, which
is termed by the owners funds and long term borrowings and partly by the short term bank
credit. The Tandon Committee has suggested three alternative methods for working out the
MPBF. These methods are as follows:
54
June-July 2011
In the First Method, the borrower will contribute 25% of the working capital
gap; the remaining 75% can be financed from the Bank borrowings. This method
will give a minimum Current ratio of 1:1.
In the second method, borrower will contribute 25% of the Total Current Assets.
The remaining of the working capital gap can be bridged from the Bank
borrowings. This method will give a Current Ratio of 1.3:1
In the Third Method, borrower will contribute 100% of core assets, and 25% of
the balance of the current assets. The remaining of the working capital gap can be
met from the borrowings. This method will further strengthen the current ratio.
3. Style of Credit: The Tandon Committee also suggested the form of Bank financing. The
total MPBF should be bifurcated into the fixed portion and the fluctuating portion.
The fixed portion refers to loan components and represents the minimum
level
of borrowing throughout the year.
The fluctuating component refers to demand cash credit component which
would take care of the fluctuating needs and required to be reviewed
periodically. The demand cash credit component should be charged a
slightly higher interest rate than the loan component.

Apart from the loan and cash credit, a part of the total financing
requirement should also be provided by the way of bills limit to finance
the sellers receivables.
4.
Information and Reporting System: Another suggestion of the Tandon Committee
was that there should be a regular flow of information to the borrower to the bank. The
Committee advocated comprehensive information and reporting system which seeks to
a) Introduce the borrower to plan his credit needs and carefully maintaining a greater
discipline in its use,
b) Promote a free flow of information between the borrower and the banker so that the
latter can monitor the credit situation better, and
c) To ensure recommended a quarterly budgeting cum a reporting system.
To sum-up, the Tandon Committee was in fact, the first concerted effort on the
part of RBI to regulate the Bank credit.
55
June-July 2011
6.6. CHORE COMMITTEE:

The Reserve Bank of India constituted another working group under the
chairmanship of Sh. K.B. Chore in April 1979, with the terms of reference to
review the cash credit system to promote greater credit discipline and to make
the cash credit system more amenable to rational management of funds by
commercial banks.
Recommendations of Chore Committee:
System of Credit: The advantages of the existing system of extending credit by a

combination of three types of lending i.e. cash credit, loan and bill should be
retained.
Bifurcation of credit limit: Bifurcation of cash credit limit into a demand loan
portion and a fluctuating cash credit component has not found acceptance either
on the part of the banks or the borrowers.

Reduction in over-dependence on bank finance: The need for reducing the
over-dependence of the medium and large borrowers on the bank finance for their
production/trading purposes is recognized. The net surplus cash generation of an
established industrial unit should be utilized partly at least for reducing borrowing
for working capital purposes.

Increase in owners contribution: In order to ensure that the borrowers do
enhance their contribution to working capital and to improve their current ratio, it
is necessary to place them under the second method of lending recommended by
the Tandon Committee which would give a minimum current ratio of 1.33:1.
Separation of normal non-peak level and peak level requirements: While
assessing the credit requirements, the bank should appraise and fix separate limits
for the normal peak level as also for the peak level credit requirements.
Penal Interest: The borrower should be asked to give his quarterly requirements
of funds before the commencement of the quarter on the basis of his budget.
Reduction of norms: Request for relaxation of inventory norm and for adhoc
increases in limits should be subjected banks to close security and agreed to only
in exceptional circumstances.
56
June-July 2011
Bill system: As one of the reasons for the slow growth of the bill system is the
stamp duty on nuance bills and difficulty in obtaining the required denominations
of stamps, these questions may have to be taken with the state government.
6.7. NAYAK COMMITTEE:
A Committee under the chairmanship of Sh. P.R. Nayak, Deputy Governor,

Reserve Bank of India was constituted to examine the adequacy of institutional
credit to small scale industry (SSI) sector and other related aspects. Considering
the contribution of SSI sector to overall industrial production, exports and
employment and also recognizing the need to give a fillip to this sector, Banks
were advised by RBI in 1938 to ensure adequate and timely credit to this sector.
Salient features of the package:
a) The banks should set up the credit flow to meet the legitimate requirements of the SSI
sector. For this purpose, the banks should prepare an annual budget in respect of
working capital requirements of all SSI before the commencement of the year.
b) It is desirable that a single financing agency meets both the requirements of the
working capital and term credit for small scale units. The Single Window Scheme
(SWS) of SIDBI enables the same agency- State Financial Corporation (SFC) or
commercial bank as the case may be, to provide term loans and working capital
requirements up to Rs. 10Lacs. The banks are advised to adopt this approach.
c) It has been decided by the RBI that for requirements of SSI units having aggregate
fund based working capital credit limit upto Rs. 100lacs. from the banking system,
the norms for inventory and receivables and the first method of lending will not apply.
Instead such units may be provided working capital limits computed on the basis of a
maximum of 20% of their projected annual turnover for new as well as existing units.
Subsequently, in February 1993, this system of computing Maximum Permissible
Bank Finance (MPBF) on the basis of an annual projected turnover was extended to
All Borrowers enjoying fund based working capital limits of less than Rs. 100lacs
from banking system.
57
June-July 2011
d) These units would be required to bring in 5% of their annual projected turnover as

margin money. In other words, 25% of the output value should be computed as
working capital requirement for which at least four-fifth should be provided by the
bank one-fifth representing the borrowers contribution towards margin for the
working capital.
58
June-July 2011
Objectives of the Study

And
Research
Methodology
3.1 Objective of the Study are:

1) To understand the meaning of working capital and various prudential
guidelines for financing given by Reserve bank of India.
2) To study about the working capital financing techniques followed by J&k
bank.
3) To study about scoring system parameters followed by J&K bank for
working capital financing of the client.
4) To find out reason behind the J&k bank failure in working capital financing
3.2 Research Methodology:
59
June-July 2011
The Methodology is Exploratory in nature as the study is to gain new insights in

Management in working capital financing. The data used is secondary in nature as my study
is observational and data is collected through Annual Reports, manual of J&K Bank,
Circulars, past studies conducted in purview of the working capital financing.
Sources of Data:
Secondary Data is collected through the annual reports and various past studies
conducted
in the purview of working capital.

Various books of Credit Management and risk Management, J&K Bank Manual on Loans
and Advances, Journals, Circulars, Case Studies are consulted in-depth to analyze the
Management of working capital financing.
Data Presentation:
Data is presented through:
Charts
Tables
Graphs
Data analysis:
Ratio analysis
Trends
Scope and significance of the study:

Scope of my study is quite narrow and limited to Jammu & Kashmir only. But, it will
definitely be helpful for further descriptive studies.
3.3 Limitations:
Secondary data may not give true picture of concern.
More details could not be elicited due to tight schedule of the officials.
Area of study was some part of Jammu region. Findings may not hold true
for large cross section of Population.
The constraint of time also prevented an in-depth study of the subject.

60

June-July 2011
The Study is not comprehensive due to the external environment i.e. Curfews, Strike
in Jammu Province for more than 25 days during my training.
61
June-July 2011
62
June-July 2011
CHART SHOW RELATIONSHIP BETWEEN CURRENT ASSETS

AND CURRENT LIABILITIES FOR ABC INDUSTRIES
*(REFER TO APPENDIX FOR CASE I)
YEAR
200405
CHART4(a)
200630.09.06
07
200708
63

June-July 2011

Current Assets
Current Liabilities
.
119.34
67.27
85.21
100.44
79.16
44.38
52.87
61.48
TABLE4(a)
INTERPRETATION
In 2004-05 year, current assets were 119.34 lacs as compared to 30.09.06 it was
67.27 lacs due to fall in sales. But in case of year 2006-07 it was shown
increasing trend up to projected year 2007-08.simultaneously current liabilities
shown a decreasing trend from year 2004-05 to projected year 2007-08. In order
to conclude the, current assets and current liabilities management of the
concern was good.
CHART SHOWING RELATIONSHIP BETWEEN COST OF

SALES TO INVENTORY (TAKEN 365 IN DAYS)
CHART4(b)
64
June-July 2011

YEARS
INVENTORTY TURNOVER
RATIO
(IN DAYS)
.
2005-06
2006-07
2007-08
2008-09
191
354
98
98
TABLE4(b)
INTERPRETATION
In 2004-05 year, inventory turnover ratio of the concern was 191 days as
compared to 30.09.06 it was 354 days due to Sluggish in sales. But in case of
year 2006-07 it was shown decreasing trend up to projected year 2007-08. In
order to conclude the, efficiency of concern was good due to easily convertibility
stocks into sales.
CHART SHOWING RELATIONSHIP BETWEEN CURRENT

ASSETS TO CURRENT LIABILITIES
65
June-July 2011
YEARS
2005-06
CURRENT
RATIO
CHART4(c)
2006-07
1.51
1.52
2007-08
2008-09
1.61
1.63
TABLE4(c)
INTERPRETATION
The current ratio has improved from 2004-05 to 2005-06 year from 1.51 to 1.52
respectively and now in 2006-07 is at 1:61 which is above our acceptable
benchmark of 1.33:1.The projected current ratio
i.e. 1.63:1 shown by firm is
quite acceptable.
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June-July 2011
CHART SHOWING RELATIONSHIP BETWEEN CREDIT

SALES TO DEBTORS (TAKEN 365DAYS)
YEAR
DEBTORS
TURNOVER RATIO
CHART4(d)
2005-06
2006-07
2007-08
2008-09
113
22
76
76
TABLE4(d)
INTERPRETATION
67
June-July 2011
In year 2004-05, concern debtor turnover ratio was 113 days, but in case of year
30.09.05and 2005-06 it was 22 and 76 days respectively. The debtors level too
has witnessed a resultant trend, which goes up on delivery/billing and comes
down on receipt of payment from the Department. On whole debtor turnover
ratio was quite significant.
CHART SHOWING INCREASE IN SALE GROWTH FROM

LAST FEW YEARS
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June-July 2011
Years
Sales Growth
CHART4(e)
2005-06
2006-07
2007-08
2008-09
136.26
33.39
170.00
187.00
TABLE4(e)
INTERPRETATION
During the first complete year of operation itself, the firm has achieved a sale of
Rs. 136.26 lacs during 2004-05, which is quite significant. During the first half of
the current year, branch has recorded a sale of Rs. 33.90 lacs and bagged an
order for Rs. 117.28 lacs through M/s ABC Enterprises with which the projected
sale of Rs. 170.00 lacs seems achievable.
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June-July 2011
CHART SHOWING INCREASE IN NETWORTH OF CONCERN

M/S.ABC OVER THE LAST FEW YEARS.
Year
Net worth
CHART4(f)
2004-05
30.09.05
2005-06
2006-07
3.24
4.23
7.20
12.66
TABLE4(f)
INTERPRETATION
The Net worth of the firm stood at Rs. 3.24 lacs as on 31.03.2005 and Rs. 4.23
lacs as on 30.09.2005. The activity is also being financed by unsecured loans
from associate concerns amounting to Rs. 44.46 lacs as on 31.03.2005. With the
ploughing back of the profits the tangible net worth has also increased.
CASE-II
70
June-July 2011
CHART SHOWING RELATIONSHIP BETWEEN CURRENT

ASSETS TO CURRENT LIABILITIES
*(REFER TO APPENDIX FOR CASE II)
YEARS
CHART4(g)
2005-06
2006-07
2007-08
2008-09
1.28
1.53
1.31
1.42
CURRENT
RATIO
TABLE4(g)
INTERPRETATION
The current ratio has improved from 2005-06 to 2006-07 year from 1.28 to 1.53
respectively and now in 2007-08 is at 1:31 which is below the J&K bank
acceptable benchmark of 1.33:1.The projected current ratio i.e. 1.42:1 shown by
firm is quite acceptable. The liquidity is comfortable with Current ratio well above
the benchmark as per projection made by firm in the 2008-09 year.
71
June-July 2011
CHART SHOWING INCREASE IN SALE GROWTH FROM

LAST FEW YEARS
Year
CHART4(h)
2005-06
2006-07
2007-08
2008-09
147.10
96.20
150.00
165.00
Sales Growth
TABLE4(h)
INTERPRETATION
The sales stood at Rs.96.20lacs on 31.03.2007 as per audited Balance Sheet and
are projected at 150 lacs for FY2007-08 which reflects growth of 56% and it
seems to be unrealistic keeping in view the past history of the account and more
72
June-July 2011

over in the scheme
under MORTGAGE LOAN SCHEME FOR TRADE & SERVICE
SECTOR the acceptable sales projections should be not more than 20%turnover.
CHART SHOWING RELATIONSHIP BETWEEN COST OF

SALES TO INVENTORY (TAKEN 365 IN DAYS)

Years
Inventory
turnover
ratio
CHART4(i)
2005-06
2006-07
2007-08
2008-09
11
35
35
TABLE4(i)
Interpretation
In 2005-06 year, inventory turnover ratio of the concern was 1 days as compared
to 2006-07 it was 11 days due to Sluggishness in sales. But in case of year 200708 it was shown decreasing trend up to projected year 2007-08. In order to
73
June-July 2011
conclude the, efficiency of concern was good due to easily convertibility stocks
into sales.
CHART SHOWING RELATIONSHIP BETWEEN PURCHASES

AND AVERAGE CREDITORS
Year
CREDITORS
TURNOVER
RATIO
CHART4 (j)
2005-06
2006-07
2007-08
2008-09
25
23
TABLE4(j)
INTERPRETATION
74
June-July 2011
In 2005-06 year, Creditors turnover ratio of the concern was 25 days as

compared to 2006-07 it was 23 days. But in case of year 2007-08 it was shown
decreasing trend in year 2007-08, as it was to 7 days. In order to conclude the,
efficiency of concern was good.
CHART SHOWING INCREASE IN NETWORTH OF CONCERN

M/S.ABC OVER THE LAST FEW YEARS
Year
CHART4(K)
2005-06
2006-07
2007-08
2008-09
3.14
3.76
5.12
6.43
NETWORTH
TABLE4(k)
INTERPRETATION
75
June-July 2011
The Net worth of the firm stood at Rs. 3.14 lacs as on 2005-06 and Rs. 3.76 lacs
as on 2006-07. With the ploughing back of the profits the tangible net worth has
also increasedfrom5.12 to 6.43 from the year 2007-08and 2008-09 respectively.
CHART SHOWING GROSSPROFIT AND NET PROFIT OF

FIRM OVER THE LAST FEW YEARS.
CHART4(L)
2005-06
2006-07
2007-08
2008-09
Gross profit
0.92%
1.49%
1.65%
1.58%
NET PROFIT
2.32%
3.04%
4.00%
4.00%
Year
76
June-July 2011
TABLE4(L)
77
June-July 2011
FINDINGS
A detailed study is usually done by J&K bank while providing working
capital finance to a unit, so as to ensure that the project will generate for
assessing working capital requirements of their borrowers.
sufficient returns on the resources invested in it. A detailed viability study
is necessary before agreeing to provide working capital finance.
The past and As per the extent RBI Guidelines J&k bank have been given
freedom to adopt future viability can be ascertained by examining the
financial statements for the past 2-3 years as well as the estimated /
projected statement for the current and next year. It is implicit that the
concern will have to submit an acceptable business plan or forecast in the
form of estimated/ projected financial statements to the bank.
In case of Micro and Small enterprise in the manufacturing sector, Micro
and Small Enterprises providing or rendering services and Export trade
advances, as per RBI guidelines J&k bank have to mandatory apply the
turnover method for assessing working capital limits up to 5 crores for
SSI borrowers.
In case of first method of maximum permissible bank finance, Borrower
is required to contribute a minimum of 25% of the working capital gap
and rest 75% financed by bank. The benchmark of current ratio should be
1:1
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June-July 2011
In case second method of maximum permissible bank finance, Borrower

is required to contribute a minimum of 25% of total current assets from
long term sources and bench mark of current ratio should be 1.33:1.
Parameters used for assessing working capital requirements, such as current ratio,
inventory turnover ratio, debtors turnover ratio, creditors turnover ratio, sales
turnover, total outside liabilities to tangible net worth.
Few reason behind for J&K bank failure in case of working capital financing account
turning into non performing assets.
Slow inventory turnover/piling up of inventory
Diversion of funds(for promoting allied concerns)
Reductions in credit summations-due to opening of account with
another bank
Non submission /delayed submission of stocks/receivables statement
and quarterly/annual operating data.

Defective appraisal due to lack of proper training and supervision.
Stress on quantity rather than quality.
79
June-July 2011
Recommendations
Sanction of credit limits for working capital requirements should not alone sufficient. Close
supervision and follow up are necessary not only to keep control on the borrower but also for
safeguarding banks interest.
Borrowers should be discouraged from approaching banks frequently for ad hoc limit or
temporary limits in excess of sanctioned limits. The period of lending limits should be
reduced from 90 to 60 days or 45 days. To prevent account turn into Npas.
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June-July 2011
J&K bank should provide to customer open cash credit rather than simplified cash credit.
J&K bank should require to quantifying risk, while making working capital lending to
priority sector, i.e management risk , business risk, financial risk.
J&K bank should provide adequate training to credit appraisal officers, so as to prevent
defective appraisal.
J&K bank should have credit risk management department for proper risk assessment, rating
and review.
81
June-July 2011
The J&K Bank has its own advances and recovery department that can
ensure easy and safe lending.
J&K bank has its own credit risk rating model for loan pricing. It is Rated
"P1+" by Standard and Poor- CRISIL connoting highest degree of safety.
The J&K bank has been increased his credit portfolio of working capital
loan from 60%to 65% as compared to previous year (2006-07 to 2007-08).
Also the profitability of the company has been increased and recently it
became 10 Billion worth company.
82
June-July 2011
The reduction in NPAs is also improving the overall image and rating of the
bank that are reflected by increase in assets and lending of the bank. It is
also resulting in improved asset liability of the firm.
83
June-July 2011
CASE (I)
RE: CASH CREDIT PROPOSAL OF M/S ABC INDUSTRIES

BO: XYZ, Jammu
The instant proposal has been received from B/o Gangyal wherein the branch has
recommended a Cash Credit facility of Rs. 27.00 lacs in favour of M/S Sri Sai Industries,
Gangyal.
84
June-July 2011
Name & Address of the
M/S ABC Industries, XYZ, jammu.
Constitution
Sole Proprietor
Name of the proprietor
Sh. ***
Party
R/O XYZ, Jammu.

(ENM Rs. 145.40 lacs).
Year of establishment
Nature of activity
2003-04
Manufacturing unit of leather shoes,

Ammunition shoes etc.
Sister Concerns / family

Concerns.
M/S J.R. Industries

M/S Partap Shoes
M/S R.L. Industries
M/S Sri Sai Enterprises
Brief profile of sister
M/s J.R. Industries is availing of a Cash
Credit facility of
Concerns.
Rs. 15.00 lacs, which stand renewed by this
office on
85
June-July 2011
.
02.03.2006.
The
branch
is
having
current
accounts of other three sister / family concerns,

the
conduct
of
which
is
reported
to
be
satisfactory
Financial Position of the concern:
BALANCE SHEET SPREAD

LIABILITIES
(Rs. In lacs)
2004-05
(Actual)
Net Worth
30.09.05
2005-06
2006-07
(Actual) (Estimated) (Projected)
3.24
4.23
7.20
12.66
44.46
27.82
33.00
33.00
2.26
0.00
0.00
0.00
71.03
39.86
22.87
31.48
Bank Borrowings
6.83
0.00
30.00
30.00
Others
1.30
4.52
0.00
0.00
79.16
44.38
52.87
61.48
129.12
76.43
93.07
107.14
9.30
8.58
7.86
6.70
4.17
0.96
0.87
8.31
Stock-in-trade
66.93
59.43
42.50
46.75
Sundry Debtors
42.31
4.17
35.42
38.96
Unsecured Loans
Car Loan
Current Liabilities
S. Creditors
Total CL
TOTAL LIABILITIES
ASSETS
Fixed Assets
Current Assets
Cash & Bank Balance
86
June-July 2011
Advances to Suppliers
0.91
2.54
1.40
1.40
Others
5.02
0.17
5.02
5.02
119.34
67.27
85.21
100.44
0.48
0.58
0.00
0.00
129.12
76.43
93.07
107.14
2004-05
30.09.05
2005-06
2006-07
Sales
136.26
33.39
170.00
187.00
Purchases
172.37
17.76
109.78
151.08
Cost of sales
128.15
30.21
158.10
173.91
Gross Profit
8.11
3.18
11.90
13.09
Net Profit
4.44
1.19
4.96
6.47
Cash Accruals
5.78
1.91
6.40
7.64
136.26
33.39
170.00
187.00
25%
37%
Total CA
Non Current Assets

TOTAL ASSETS
BUSINESS RESULTS
FINANCIAL
INDICATORS
Sales
Sales Growth
Profit/Sales
3.26%
3.56%
2.92%
3.46%
Debtors Period (in days)
113
22
76
76
Stocking Period (in days)
191
354
98
98
150
404
76
76
119.34
67.27
85.21
100.44
Current Liabilities
79.16
44.38
52.87
61.48
N.W.C.
40.18
22.89
32.34
38.96
1.51
1.52
1.61
1.63
Creditors Period (in

days)
Current Assets
Current Ratio
87
June-July 2011
CASE (II):
RE:
FRESH CASH CREDIT LIMIT OF M/S ABC
UNDER MORTGAGE LOAN SCHEME FOR TRADE & SERVICE SECTOR
BO: NEHRU MARKET
Dated: Sep. 27, 07
1. Account Profile:
Name of the party
M/S ABC
Address
XYZ, Jammu
Constitution
Partnership concern.
88
June-July 2011
Year Established
2007
Nature of activity
Commission Agents of Karyana &
Foods items.
Details of Partners
S.N
Names and complete locatable
o.
addresses
i)
Smt. ***
R/o XYZ , Jammu
ii)
Mr. ***
R/o XYZ , Jammu
iii)
Mr. ***
R/oXYZ , Jammu
Net-worth(Rs.)
Age
Experienc
e
38.70 lacs as 57
per
C/R
3 years
dt years
11.09.07
11.26 lacs as 33
per
C/R
3 years
dt years
11.09.07
11.50 lacs as 31
per
C/R
3 years
dt years
11.09.07
89
June-July 2011
3. Financial Position:
BALANCE SHEET
Amt.in
SPREAD
lacs
LIABILITIES
2005-06
2006-07
2007-08
2008-09
Projecte
Actual
Actual
Projected
Capital
3.14
3.76
5.12
6.43
Total
3.14
3.76
5.12
6.43
9.68
5.99
2.98
3.05
10.00
10.00
12.98
13.05
Networth
Current Liabilities
S. Creditors
Bank Borrowings
Deffered Tax liablity
Others
0.06
0.10
Total CL
9.74
6.09
0.98
0.64
Term Liabilities
Term Loan
90
June-July 2011
Total
0.98
0.64
0.00
0.00
TOTAL LIABILITIES
13.86
10.49
18.10
19.48
1.40
1.20
1.08
0.97
Cash & Bank Balance
0.03
0.26
0.14
0.35
Stocks
0.36
2.85
14.00
15.00
Receivables/S. Debtors
11.78
5.86
2.88
3.16
VAT
0.06
0.02
Others
0.23
0.30
Total CA
12.46
9.29
17.02
18.51
TOTAL ASSETS
13.86
10.49
18.10
19.48
ASSETS
Fixed Assets
Current Assets
BUSINESS RESULTS
20082005-06
2006-07
2007-08
09
Sales
147.10
96.20
150.00
165.00
Purchases/Expenses
144.03
95.75
155.18
159.40
Cost of Sales
143.68
93.28
144.00
158.40
Gross Profit
3.42
2.92
6.00
6.60
Net Profit
1.35
1.43
2.47
2.61
Cash Accruals
FINANCIAL
INDICATORS
20082005-06
2006-07
2007-08
09
Sales
147.10
96.20
150.00
165.00
Sales Growth
xxx
-35%
56%
10%
N.Profit/Sales
0.92%
1.49%
1.65%
1.58%
91

June-July 2011

G.Profit/Sales
.
2.32%
3.04%
4.00%
4.00%
11
35
35
29
22
days)
25
23
N.W.C.
2.72
3.20
4.04
5.46
Tangible Net-worth
3.14
3.76
5.12
6.43
Employed
42.99%
38.03%
48.24%
40.59%
Current Ratio
1.28
1.53
1.31
1.42
Inventory
Levels
(in
days)
Debtors
Period
(in
days)
Creditors
Return
Period
on
(in
Capital
92
June-July 2011
THE JAMMU AND KASHMIR BANK LTD.

ZONAL OFFICE
JAMMU CENTRAL
APPRAISAL NOTE DATED July 11, 2008

Name of the Applicant Borrower
M/s Basantar Bottlers,Sabma
General Information on the proposal

28.06.2008
Date of receipt of the
proposal
Nature of proposal
Existing Banking
Take over of term loan & Cash Credit facility from SBI Samba
and enhancement in existing cash credit facility
Sole
Arrangement
Proposed Banking
Sole
Arrangement
Activity
Manufacturing of IMF Liquour
Sector
Manufacturing
Priority classification
Priority sector
Particulars
existing
facilities
of
the
credit
enjoyed
by
the Applicant Borrower

from other Bank/FI
Type
of
Limit
Bank/FI
Securities
State Bank
Primary :
(Amou
Facili
nt in
ty
Lacs of
Rs.)
CC
95.00
of India
Hypothecation of stocks receivables and

other chargeable assets of the company.
93
June-July 2011
.
Collateral:
1.Regsitered mortgage of lease hold rights
of
landed
property
consisting
of
industrial unit located at SIDCO, Samba

2.Registered
mortgage
of
the
land
measuring 2 kanals falling under Khasra

No. 15, Khewat No.1 min situated at Mandi
Puswalian Samba.
3. Registered mortgage
of plot of land
measuring 2 Kanals 5 Marlas falling Khasra

No. 17 Khewat No. 24 Khata No.337
situated at Ramnagar Opposite panchavti
Caf National Highway Samba.
4. Registered mortgage of plot of land
measuring
11.50
Marlas
falling
under
Khasra No. 151 min, Khewat No. 40 min,

Khata 153 situated at Chak Manga Rakwal
Samba
TL
60.00
State Bank
of India
Requested credit
facilities
Amount in Lacs of Rs.

Type of facility
Limit
Margin
Securities
(%)
C/C takeover
150.00
From SBI Samba

cum enhancement
TL takeover
From SBI Samba
25.00 Or
balance
outstand
25 stock
Primary :
25 BD
Hypothecation of all
kinds of raw material,
stock in process,
finished goods,
consumables, packing
material and book
debts.
Hypothecation of
plant and machinery
installed/ to be
installed in the unit
94
June-July 2011
.
ing which
ever
less.
is
along with Misc. fixed

assets valuing
Rs.37.67 lacs as per
the provisional Balance
Sheet dated
31.03.2008.
Collateral:
Registered mortgage
of lease hold rights of
04 kanals of SIDCO
land allotted to the
unit at Phase 1st,
Industrial
Growth
Center,
SIDCO,
Samba, Jammu along
with factory sheds/
buildings/
Godowns/
Offices/
Quarters
for essential staff
constructed/ to be
constructed
thereupon. The value
of
this asset has
been
assessed
at
the valuation report
dated 21.06.2008 of
M/s
Anuj
&
associates.
Registered/Equitable
mortgage of the land
measuring 2 kanals
falling under Khasra
No. 15, Khewat No.1
min situated at Mandi
Puswalian Samba
standing in the name
of Mr. Nishchant
Singh (Guarantor in
this case). The value
of the asset has been
assessed at Rs.7.40
lacs as per the
valuation report dated
21.06.2008 of M/s
95
June-July 2011
.
Anuj & Associates
approved valuer of the
Bank.
Registered mortgage
of
plot
of
land
measuring 2 Kanals 5
Marlas falling Khasra
No. 17 Khewat No. 24
Khata No.337 situated
at Ramnagar Opposite
panchavti
Caf
National
Highway
Samba standing in the
name
of
Mr.
Nishchant Singh. The
value of the assets
has been assessed at
the valuation report
of
M/s
Anuj
&
Associates
dated
21.06.2008.
Registered mortgage
of
plot
of
land
measuring
11.50
Marlas falling under
Khasra No. 151 min,
Khewat No. 40 min,
Khata 153 situated at
Chak Manga Rakwal
Samba
along
with
house
constructed
thereupon standing in
the name of Mr.
Nishchant Singh. The
value of the asset has
been put at Rs.33.33
lacs
as
per
the
valuation report of
M/s
Anuj
&
Associates
dated
21.06.2008.
Third party guarantee
of two persons.
96
June-July 2011
Particulars of prop
Name and address of proprietor/partners/directors
Net worth
in lacs of
Rs. as on
13.06.2008
Name
Mrs.
Sambyal
Address
Monika R/o Lane No.

Kailash, Jammu.
W/o Sh. N. S.
Sambyal
Status +
17,
Greater
sole
145.00
At present W.No. 13 Border

Road Samba.
Detail of Guarantors ( proposed)

Name
Residential Address
(Amount in Lacs of Rs.)

Relationsh Age Net worth
ip
Mr. Nishchant Singh S/o
W.No 13 .Samba
Lt. Sh. Bhag Singh
Mr. Pardeep Singh

S/o Sh. Sukhdev Singh
Chak manga Rakwal Samba
Father in
law
Family
friend
66
years
49
years
103.00
176.00
97
June-July 2011
Borrower Information
Address
Head/
of
Regd.
Phase-1 Near DC
Address
Office IGC Samba
office
of
Administrative
Office IGC
Office
Samba
Address of
Phase-1 Near DC
major units
Office IGC Samba
Date
Phase-1 Near DC
Constitution
Sole Prop.
of
2004
Date of reconstitution
of
04.03.2006
Medium
07/04/09552/P
IEC Code
n.
commencement
SSI regn
MT/SSI dated
NO.
of business
No. Prov
22.03.2006
constitution/
incorporation
Date
Dealing with Branch: At present party is dealing with SBI Samba for the transaction of this
unit only and for their other businesses they are dealing solely with the branch. Family of the
barrower has a long relation ship with the Branch as almost all members of the family have
deposit accounts with the branch. The family is dealing with our branch from the last 30 years.
They are already availing cash credit facilities for their two business concerns from the branch
and also opened the current account of their Bar & Restaurant with the branch. Moreover they
also give the branch good Life-Insurance business.
Other related information
Whether name of the Applicant Borrower, its
directors is appearing in the caution /defaulter
list of RBI / CIBIL/ECGC.
Whether any of the directors of the Applicant
Borrower company is a director or specified
near relation of a director of a banking company
Whether any of the directors of the Applicant
Borrower company is a near specified relation of
any Banks senior officer of the rank of scale iv
and above.
No
No
No
Banks exposure to the group concerns/ associate concerns including the facilities availed
by the proprietor/ partners/ directors in their individual capacity and conduct of accounts:
98
June-July 2011
A cash credit facility of Rs.8.00 lacs is sanctioned to one of their family concern M/s
Roval Arms and Ammunition since1998.
A cash credit facility of Rs.25.00 lacs is sanctioned to their other family concern M/s
Chinar Wine Traders.
(Both the above are Sole Proprietary concerns of Mr. Nischint Singh Sambyal, Father in law of
the proprietor and one of the guarantors in the present case.)

Key financial indicators of group companies/ sister concerns:
Balance Sheet Spread of M/s Roval Arms & Ammunition.
Liabilities
Audited
Audited
31.03.2004
31.03.2005
31.03.2006
31.03.2007
6.00
6.58
7.27
8.16
6.00
6.58
7.27
8.16
Working Capital limit
2.96
3.93
4.60
4.09
Sundry Creditors
3.96
3.57
2.48
2.68
Other Current Liabilities
0.00
0.00
0.00
0.00
6.92
7.50
7.08
6.77
12.92
14.08
14.35
14.93
0.23
0.21
0.18
0.16
Stocks
12.11
12.75
13.68
14.45
Debtors
0.53
0.85
0.32
0.00
Cash & Bank Balance
0.05
0.27
0.17
0.32
12.69
13.87
14.17
14.77
12.92
14.08
14.35
14.93
6.00
6.58
7.27
8.16
38.14
39.42
37.14
38.16
3.72
4.09
3.85
4.00
LTS
Capital
Audited
Audited
Current Liabilities
Total
Assets
Furniture fix
Current Assets
Total
Net Worth
Sales
Gross Profit
99
June-July 2011
Net Profit
1.29
1.33
1.43
1.72
NWC
5.77
6.37
7.09
8.00
Current Ratio
1.83
1.85
2.00
2.18
Balance Sheet spread of M/s Chinar Wine Traders.

Liabilities
LTS
Audited
Provisional
31.03.07
30.09.07
4.01
5.94
4.01
5.94
0.00
0.00
24.95
24.90
0.44
0.18
25.39
25.08
29.40
31.02
0.21
0.21
Stocks
12.97
14.78
Debtors
12.87
14.26
0.59
0.39
26.43
29.43
2.76
1.38
29.40
31.02
4.01
5.94
84.35
123.83
Gross Profit
1.14
1.66
Current Ratio
1.04
1.17
Capital
Current Liabilities
Working Capital limit
Sundry Creditors
Other Current Liabilities
Total
Assets
Furniture fix
Current Assets
Cash & Bank Balance
MISC. Expenditure
Total
Net Worth
Sales
100
June-July 2011
SECURITIES PROPOSED FOR THE FACILITY

PRIMARY
Type of security
Ownership, location and
Value of security
address
Hypothecation of all
kinds of raw material,
stock
in
process,
finished
goods,
consumables,
packing
material and book debts.
Hypothecation of plant
As on 31-03-2008
M/S Basanter bottlers
Rs.39.76 lacs
Phase-1 Near DC Office IGC

Samba
and machinery installed/

to be installed in the unit
along with Misc. fixed
assets.
M/S Basanter bottlers

Phase-1 Near DC Office IGC
Samba
Rs.37.67 lacs
COLLATERAL
Mortgage of
Registered mortgage of lease
Valuing Rs.102.78 lacs as per the
property
hold rights of 04 kanals of
valuation
SIDCO land allotted to the unit
21.06.2008
at Phase 1st, Industrial Growth
associates..
report
of
M/s
dated
Anuj
&
Center, SIDCO, Samba, Jammu

along
with
buildings/
Quarters
factory
Godowns/
for
sheds/
Offices/
essential
staff
constructed/ to be constructed
thereupon.
Registered mortgage of the land
measuring 2 kanals falling under
valuation report dated
Khasra No. 15, Khewat No.1 min
21.06.2008 of M/s Anuj &
situated at Mandi Puswalian
Associates approved valuer of
101
June-July 2011

Samba standing in the name of
.
the Bank
Mr. Nishchant Singh (Guarantor

in this case)
Registered mortgage of plot of
land measuring 2 Kanals 5 Marlas
valuation report of M/s Anuj &
falling Khasra No. 17 Khewat No.
Associates dated 21.06.2008.
24 Khata No.337 situated at

Ramnagar Opposite panchavti
Caf National Highway Samba
standing in the name of Mr.
Nishchant Singh.
Registered mortgage of plot of
land measuring 11.50 Marlas
valuation report of M/s Anuj &
falling under Khasra No. 151 min,
Associates dated 21.06.2008
Khewat No. 40 min, Khata 153

situated at Chak Manga Rakwal
Samba along with house
constructed thereupon standing
in the name of Mr. Nishchant
Singh.
Third Party
guarantee
1. Mr. Nishchant Singh S/o Lt.

Sh. Bhag Singh
2.Mr. Pardeep Singh

S/o Sh. Sukhdev Singh
ENW: Rs.103.00 Lacs
ENW:Rs.176.00 Lacs
102
June-July 2011
Details of site inspection

The unit is already functioning
ASSESSMENT OF WORKING CAPITAL:
Accepted levels of sales for calculating the working Capital Limit of the firm has been done for
the projected year 2008-09, The Accepted Sales have been taken at Rs.140.00 Lacs &
Purchases at Rs. 139.38 Lacs and stock holding ,debtor and creditor period as proposed by
branch are accepted.
MPBF Method:
(In lacs of Rs.)
Particulars
Holding Period
Current Assets
Stocks
S. Debtors/Receivable
Amount
100
46.46
38
17.50
Others (Cash & Bank balance)

Total (a)
63.96
Current Liabilities
S. Creditors
40
Others
18.50
0.00
18.50
Total (b)
45.46
Working Capital Gap (a) (b)

Stipulated NWC @ 25% of WCG
11.36
Projected NWC what ever is
17.61
higher
27.85
MPBF
Say Rs.28.00 lacs

Permissible MPBF:
Branch recommendations:
Our Recommendations:
Rs.28.00 lacs
Rs.28.75 lacs
Rs.28.00 lacs
103
June-July 2011
104
June-July 2011
Books:
Jindal, K.K, Risk Management in Banks, Noida

Bansal, J.P, Credit Management, Noida
J&K Bank Manual for Loans and Advances.
Journals and Circulars:

J&K Bank Circulars and Journals published by J&K
Bank headquarters, Srinagar.
Websites:
www.iba.org.in
www.rbi.org.in
www.jkbank.net
http://www.thehindubusinessline.com/2002/12/02/stories/2002120200681
200.htm
http://economictimes.indiatimes.com/currentquote
http://www.medscape.com/.Financialglossary
http://www.zawya.com/cm/profile.cfm/cid388632
http://www.cfo.com/money/2004/sep/02guest.htm
http://www.advisor.investopedia.com/land/7ingredients.aspx?ad=2649
http://www.emeraldinsight.com/coinfo/blabout.htm
105

June-July 2011
http://portal.acm.org/authors-page.cfm?
http://www.cfo.com/index.cfm/i-emailauthor/11448380c-298430/9395427
600.htm
http://www.hinduonnet.com/2004/08/11/stories/2004081103881400.htm
300.htm
600.htm
http://www.thehindubusinesline.com/iw/003/07/27/stories/2003072700081
400..htm
http://www.hindu.com/biz/2003/09/08/stories/2003090800060200.htm
http://www.outlookmoney.com/scripts/IIH021C1.asp?
sectionid=1&categoryid=18&articleid=1563
400.htm
200.htm
000.htm
600.htm
600.htm
106

June-July 2011
107
June-July 2011

Jammu & Kashmir Bank

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PROJECT REPORT

WORKING CAPITAL FINANCING

Summer Internship Project

Working Capital Financing

Working Capital Financing

Place: New Delhi

Working Capital Financing

Person and company project guide,

Working Capital Financing

Working Capital Financing

1. JAMMU & KASHMIR BANK

Unique Characteristics & Services

J&K Bank carries out banking business of the Central Government

Inspite of a government equity holding of 53 per cent, Jammu & Kashmir

University of Jammu Bhaderwah Campus

Working Capital Financing

J&K Bank collects taxes pertaining to Central Board of Direct Taxes, in

1.2. PRODUCTS & SERVICES

Third Party Services

Insurance Services - Life & Non Life

Cash Management Services

Working Capital Financing

Real Time Gross Settlement (RTGS)

National Electronic Fund Transfer (NEFT)

Incorporated in 1938 as a limited liability company.

1.4. BRAND IDENTITY

Figure: 1. J & K Bank Logo

Working Capital Financing

1.5. CUSTOMER SERVICE

1.6. UNIQUE CHARACTERISTICS

Working Capital Financing

Sole banker and lender of last resort to the Government of J&K.

1.7. ORGANISATIONAL STRUCTURE

Financial Services: Sales and Distribution, Insurance, Depository services,

Working Capital Financing

President Business Support

Chief Treasury Consultant

1.8. BOARD OF DIRECTORS

Haseeb A Drabu (Chairman & Executive Officer)

1.9. CSR ASPECT OF BANK

The Corporate Social Responsibility (CSR) of the J&K Bank seeks to

It stresses on promoting work life balance, give attention to social and

University of Jammu Bhaderwah Campus

Working Capital Financing

Heritage preservation is an important responsibility of every conscious

environment/ ecology etc.

In addition to this, accidental insurance cover facility of Bajaj Allianz General

1.10. SPECIALISED FINANCES

Help Tourism (For Kashmir valley only)

Working Capital Financing

1.11. POLICY INITIATIVES / OBJECTIVES FOR FY

risk spectrum within prudential exposure norms.

With a view to establishing an efficient credit system, following policy decisions

Establishment of Corporate Finance Branches

1.12. THRUST AREAS OF BANK

Working Capital Financing

Banks & financial institutions play an important role in the development of a

Working Capital Financing

Lending is considered the principle activity of a Commercial Bank. Advances

2.1. PROJECT IDENTIFICATION

New projects - For setting up of new industrial units

being used as raw material by existing unit.