INTRODUCTION

The problems
Purpose of study
Research methodology
Scope of the study
Data sources
Limitations

INTRODUCTION
The project undertaken is on WORKING CAPITAL MANAGEMENT IN
HDFC BANK.
It describes about how the company manages its working capital and the various
steps that are required in the management of working capital.
Cash is the lifeline of a company. If this lifeline deteriorates, so does the
company's ability to fund operations, reinvest and meet capital requirements and
payments. Understanding a company's cash flow health is essential to making
investment decisions. A good way to judge a company's cash flow prospects is
to

look

at

its

working

capital

management

(WCM).

Working capital refers to the cash a business requires for day-to-day operations
or, more specifically, for financing the conversion of raw materials into finished
goods, which the company sells for payment. Among the most important items
of working capital are levels of inventory, accounts receivable, and accounts
payable. Analysts look at these items for signs of a company's efficiency and
financial

strength.

The working capital is an important yardstick to measure the companys

operational and financial efficiency. Any company should have a right amount
of cash and lines of credit for its business needs at all times.
This project describes how the management of working capital takes place at
HDFC BANK.

The Problems
In the management of working capital, the firm is faced with two key problems:
1. First, given the level of sales and the relevant cost considerations, what are the
optimal amounts of cash, accounts receivable and inventories that a firm should
choose to maintain?
2. Second, given these optimal amounts, what is the most economical way to
finance these working capital investments? To produce the best possible
results, firms should keep no unproductive assets and should finance with the
cheapest available sources of funds. Why? In general, it is quite advantageous
for the firm to invest in short term assets and to finance short-term liabilities.

PURPOSE OF STUDY
The objectives of this project were mainly to study the inventory, cash and
receivable at HDFC BANK., but there are some more and they are The main purpose of our study is to render a better understanding of
the concept Working Capital Management.
To understand the planning and management of working capital at HDFC
BANK.
To measure the financial soundness of the company by analyzing various
ratios.
To suggest ways for better management and control of working capital at
the concern.

RESEARCH METHODOLOGY

This project requires a detailed understanding of the concept

Working Capital Management. Therefore, firstly we need to have a
clear idea of what is working capital, how it is managed in HDFC
BANK, what are the different ways in which the financing of working
capital is done in the company.

The management of working capital involves managing inventories,

accounts receivable and payable and cash. Therefore one also needs to
have a sound knowledge about cash management, inventory
management and receivables management.
Then comes the financing of working capital requirement, i.e. how the
working capital is financed, what are the various sources through
which it is done.
And, in the end, suggestions and recommendations on ways for better
management and control of working capital are provided.

SCOPE OF THE STUDY

This project is vital to me in a significant way. It does have some
importance for the company too. These are as follows
This project will be a learning device for the finance student.
Through this project I would study the various methods of the working
capital management.
The project will be a learning of planning and financing working capital.
The project would also be an effective tool for credit policies of the
companies.
This will show different methods of holding inventory and dealing with
cash and receivables.
This will show the liquidity position of the company and also how do
they maintain a particular liquidity position.

DATA SOURCES
The following sources have been sought for the preparation report:
Primary sources such as business magazines, current annual reports,
book on Financial Management by various authors and internet
websites the imp amongst them being : www.HDFC BANK
schems.com, www.HDFC BANK.com, www.studyfinance.com .
Secondary sources like previous years annual reports, CMA Data,
reports on working capital for research, analysis and comparison of
the data gathered.
While doing this project, the data relating to working capital, cash
management, receivables management, inventory management and
short term financing was required.
This data was gathered through the companys websites, its corporate
intranet, HDFC BANKs annual reports and CMA Data of the last
three years.
A detailed study on the actual working processes of the company is
also done through direct interaction with the employees and by timely
studying the happenings at the company.
Also, various text books on financial management like Khan & Jain,
Prasanna Chandra and I.M.Pandey were consulted to equip ourselves
with the topic.

LIMITATIONS OF THE STUDY

We cannot do comparisons with other companies unless and until we

have the data of other companies on the same subject.
Only the printed data about the company will be available and not the
backend details.
Future plans of the company will not be disclosed to the trainees.
Lastly, due to shortage of time it is not possible to cover all the factors
and details regarding the subject of study.
The latest financial data could not be reported as the companys websites
have not been updated.

INDUSTRY PROFILE

INDUSTRY PROFILE

The Indian broking industry is one of the oldest trading industries that have
been around even before the establishment of the BSE in 1875. Despite passing
through number of changes in the post liberalization period, the industry has
found its way onwards sustainable growth. With the purpose of gaining a
deeper understanding about the role of the Indian stock broking industry in the
countrys economy, we present in this section some of the industry insights
gleaned from analysis of data received through primary research.
For the broking industry, we started with an initial database of over 1,800
broking firms that were contacted, from which 464 responses were received.
The list was further short listed based on the number of terminals and the top
210 were selected for profiling. 394 responses, that provided more than 85% of
the information sought have been included for this analysis presented here as
insights. All the data for the study was collected through responses received
directly from the broking firms. The insights have been arrived at through an
analysis on various parameters, pertinent to the equity broking industry, such as
region, terminal, market, branches, sub brokers, products and growth areas.
Some key characteristics of the sample 394 firms are:

On the basis of geographical concentration, the West region has the

maximum representation of 52%. Around 24% firms are located in the
North, 13% in the South and 10% in the East

10

3% firms started broking operations before 1950, 65% between 19501995 and 32% post 1995.

On the basis of terminals, 40% are located at Mumbai, 12% in Delhi, 8%

in Ahmedabad, 7% in Kolkata, 4% in Chennai and 29% are from other
cities

From this study, we find that almost 36% firms trade in cash and
derivatives and 27% are into cash markets alone. Around 20% trade in
cash, derivatives and commodities

In the cash market, around 34% firms trade at NSE, 14% at BSE and 52%
trade at both exchanges. In the derivative segment, 48% trade at NSE, 7%
at BSE and 45% at both, whereas in the debt market, 31% trade at NSE,
26% at BSE and 43% at both exchanges

Majority of branches are located in the North, i.e. around 40%. West has
31%, 24% are located in South and 5% in East

In terms of sub-brokers, around 55% are located in the South, 29% in

West, 11% in North and 4% in East

Trading, IPOs and Mutual Funds are the top three products offered with
90% firms offering trading, 67% IPOs and 53% firms offering mutual
fund transactions

In terms of various areas of growth, 84% firms have expressed interest in

expanding their institutional clients, 66% firms intend to increase FII
clients and 43% are interested in setting up JV in India and abroad

In terms of IT penetration, 62% firms have provided their website and

around 94% firms have email facility

11

A BRIEF HISTORY
India Infoline was originally incorporated on October 18, 1995 as
Probity Research and Services Private Limited at Mumbai under the Companies
Act, 1956 with Registration No. 11 93797. India Infoline commenced
operations as an independent provider of information, analysis and research
covering Indian businesses, financial markets and economy, to institutional
customers. India Infoline became a public limited company on April 28, 2000
and the name of the Company was changed to Probity Research and Services
Limited. The name of the Company was changed to India Infoline.com Limited
on May 23, 2000 and later to India Infoline Limited on March 23, 2001.
In 1999, India Infoline.com identified the potential of the Internet to
cater to a mass retail segment and transformed our business model from
providing information services to institutional customers to retail customers.
Hence India Infoline launched Internet portal, www.HDFC BANK.com in May
1999 and started providing news and market information, independent research,
interviews with business leaders and other specialized features.
In May 2000, the name of India Infoline was changed to India
Infoline.com Limited to reflect the transformation of our business. Over a
period of time, India Infoline.com has emerged as one of the leading business
and financial information services provider in India.

12

In the year 2000, India Infoline leveraged its position as a provider of

financial information and analysis by diversifying into transactional services,
primarily for online trading in shares and securities and online as well as offline
distribution of personal financial products, like mutual funds and RBI Bonds.
These activities were carried on by our wholly owned subsidiaries.
India Infoline broking services was launched under the brand name of
5paisa.com through our subsidiary, India Infoline Securities Private Limited and
www.5paisa.com, the e-broking portal, was launched for online trading in July
2000. It combined competitive brokerage rates and research, supported by
Internet technology besides investment advice from an experienced team of
research analysts, India Infoline also offer real time stock quotes, market news
and price charts with multiple tools for technical analysis.
Facilities
India Infolines main offices are located in approximately 4,000 square
feet of office space located in Mumbai, India. India Infoline Branches
collectively occupy an additional 10,000 square feet of office space located
throughout India, As on March 31, 2005, India Infoline has 73 branches across
36 locations in India.
Terminals
Almost 52% of the terminals in the sample are based in the Western
region of India, followed by 25% in the North, 13% in the South and 10% in
the East. Mumbai has got the maximum representation from the West, Chennai
from the South, New Delhi from the North and Kolkata from the East.
13

Branches & Sub-Brokers

The maximum concentration of branches is in the North, with as many as
40% of all branches located there, followed by the Western region, with 31%
branches. Around 24% branches are located in the South and East constitutes
for 5% of the total branches of the total sample.
In case of sub-brokers, almost 55% of them are based in the South. West
and North follow, with 30% and 11% sub-brokers respectively, whereas East
has around 4% of total sub-brokers.

14

Financial Markets
The financial markets have been classified as cash market, derivatives
market, debt market and commodities market. Cash market, also known as spot
market, is the most sought after amongst investors. Majority of the sample
broking firms are dealing in the cash market, followed by derivative and
commodities. 27% firms are dealing only in the cash market, whereas 35% are
into cash and derivatives. Almost 20% firms trade in cash, derivatives and
commodities market. Firms that are into cash, derivatives and debt are 7%. On
the other hand, firms into cash and commodities are 3%, cash & debt market
and commodities alone are 2%. 4% firms trade in all the markets.

15

In the cash market, around 34% firms trade at NSE, 14% at BSE and
52% trade at both exchanges. In the equity derivative market, 48% of the
sampled broking houses are members of NSE and 7% trade at BSE, while 45%
of the sample operate in both stock exchanges. Around 43% of the broking
houses operating in the debt market, trade at both exchanges with 31% and
26% firms uniquely at NSE and BSE respectively.

16

Products
The survey also revealed that in the past couple of years, apart from
trading, the firms have started offering various investment related value added
services. The sustained growth of the economy in the past couple of years has
resulted in broking firms offering many diversified services related to IPOs,
mutual funds, company research etc. However, the core trading activity is still
the predominant form of business, forming 90% of the firms in the sample.
67% firms are engaged in offering IPO related services. The broking industry
seems to have capitalized on the growth of the mutual fund industry, which was
pegged at 40% in 2006. More than 50% of the sample broking houses deal in
mutual fund investment services. The average growth in assets under
management in the last two years is almost 48%. Company research is another
lucrative area where the broking firms offer their services; more than 33% of
the firms are engaged in providing company research services. Additionally, a
host of other value added services such as fundamental and technical analysis,
investment banking, arbitrage etc are offered by the firms at different levels.

17

Of the total sample of broking houses providing trading services, 52% are
based in the West, followed by 25% from North, 13% from South and 10%
from the East. Around 50% of the firms offering IPO related services are based
in the West as compared to 27% in North, 13% in South and 10% in East. In
providing mutual funds services, the Western region was dominant amounting
to 49% followed by 27% from North; The South and the East are almost at par
with 13% and 11% respectively.

18

Future Plans
68% of the firms from the sample have envisaged strategies for future
growth. With the middle class Indian investor as well as foreign investor
willing to invest in the stock market, majority of the firms preferred expansion
of institutional and the Foreign Institutional Investor clients in their areas of
growth. Around 84% have shown interest in expanding their institutional client
base. Nearly 51% of such firms are located in the West, 25% in North, 15% are
from South and 9% from East. Since the past couple of years, India, along with
Korea and Taiwan, has been one of the preferred destinations for the FIIs. With
corporate restructuring, rising market capitalization and sectoral friendly
policies helping the FIIs, more than two thirds of the firms are interested in
increasing their FII client base. Amongst these firms, west again has maximum
representation of 53%, followed by North with 22%. South has 15% firms and
East makes up for 9%.

19

COMPANY PROFILE

20

Banking in India
Banking in India originated in the last decades of the 18th century. The oldest bank in
existence in India is the State Bank of India, a government-owned bank that traces its origins
back to June 1806 and that is the largest commercial bank in the country. Central banking is
the responsibility of the Reserve Bank of India, which in 1935 formally took over these
responsibilities from the then Imperial Bank of India, relegating it to commercial banking
functions. After India's independence in 1947, the Reserve Bank was nationalized and given
broader powers. In 1969 the government nationalized the 14 largest commercial banks; the
government nationalized the six next largest in 1980.
Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is
with the Government of India holding a stake), 31 private banks (these do not have
government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign
banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According
to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of
total assets of the banking industry, with the private and foreign banks holding 18.2% and
6.5% respectively
Early history
Banking in India originated in the last decades of the 18th century. The first banks were The
General Bank of India which started in 1786, and the Bank of Hindustan, both of which are
now defunct. The oldest bank in existence in India is the State Bank of India, which
originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank
of Bengal. This was one of the three presidency banks, the other two being the Bank of
Bombay and the Bank of Madras, all three of which were established under charters from the
British East India Company. For many years the Presidency banks acted as quasi-central
banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of
India, which, upon India's independence, became the State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a
consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and

21

still functioning today, is the oldest Joint Stock bank in India. It was not the first though. That
honor belongs to the Bank of Upper India, which was established in 1863, and which
survived until 1913, when it failed, with some of its assets and liabilities being transferred to
the Alliance Bank of Simla.
When the American Civil War stopped the supply of cotton to Lancashire from the
Confederate States, promoters opened banks to finance trading in Indian cotton. With large
exposure to speculative ventures, most of the banks opened in India during that period failed.
The depositors lost money and lost interest in keeping deposits with banks. Subsequently,
banking in India remained the exclusive domain of Europeans for next several decades until
the beginning of the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The
Comptoired'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay
in 1862; branches in Madras and Pondichery, then a French colony, followed. HSBC
established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly
due to the trade of the British Empire, and so became a banking center.

The Bank of Bengal, which later became the State Bank of India.
The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in
1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in
Lahore in 1895, which has survived to the present and is now one of the largest banks in
India.
Around the turn of the 20th Century, the Indian economy was passing through a relative
period of stability. Around five decades had elapsed since the Indian Mutiny, and the social,

22

industrial and other infrastructure had improved. Indians had established small banks, most of
which served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange banks
and a number of Indian joint stock banks. All these banks operated in different segments of
the economy. The exchange banks, mostly owned by Europeans, concentrated on financing
foreign trade. Indian joint stock banks were generally undercapitalized and lacked the
experience and maturity to compete with the presidency and exchange banks. This
segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the
times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into
separate and cumbersome compartments."
The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi
movement. The Swadeshi movement inspired local businessmen and political figures to
found banks of and for the Indian community. A number of banks established then have
survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of
Baroda, Canara Bank and Central Bank of India.
The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina
Kannada and Udupi district which were unified earlier and known by the name South
Canara ( South Kanara ) district. Four nationalised banks started in this district and also a
leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle
of Indian Banking".

23

24

COMPANY PROFILE
PROFILE OF THE BANK
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The
bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its
registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled
Commercial Bank in January 1995..

OVERVIEW OF THE INDUSTRY

HDFC is India's premier housing finance company and enjoys an impeccable track
record in India as well as in international markets. Since its inception in 1977, the
Corporation has maintained a consistent and healthy growth in its operations to remain the
market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling
units. HDFC has developed significant expertise in retail mortgage loans to different market
segments and also has a large corporate client base for its housing related credit facilities.
With its experience in the financial markets, a strong market reputation, large shareholder
base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the
Indian environment.
As on 31st December, 2009 the authorized share capital of the Bank is Rs. 550 crore. The
paid-up capital as on said date is Rs. 455,23,65,640/- (45,52,36,564 equity shares of Rs. 10/each). The HDFC Group holds 23.87 % of the Bank's equity and about 16.94 % of the equity
is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS)
Issue). 27.46 % of the equity is held by Foreign Institutional Investors (FIIs) and the Bank
has about 4,58,683 shareholders.

25

The shares are listed on the Bombay Stock Exchange Limited and The National Stock
Exchange of India Limited. The Bank's American Depository Shares (ADS) are listed on the
New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global
Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange under ISIN No
US40415F2002.
Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Capoor
was Deputy Governor of the RBI

MANAGEMENT
The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years,
and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.
The Bank's Board of Directors is composed of eminent individuals with a wealth of
experience in public policy, administration, industry and commercial banking. Senior
executives representing HDFC are also on the Board.
Senior banking professionals with substantial experience in India and abroad head various
businesses and functions and report to the Managing Director. Given the professional
expertise of the management team and the overall focus on recruiting and retaining the best
talent in the industry, the bank believes that its people are a significant competitive strength.

BOARD OF DIRECTORS
Mr. Jagdish Capoor, Chairman
Mr. Keki Mistry
Mrs. Renu Karnad
Mr. Arvind Pande
Mr. Ashim Samanta
Mr. Chander Mohan Vasudev
Mr. Gautam Divan
Dr. Pandit Palande
Mr. Aditya Puri, Managing Director
Mr. Harish Engineer, Executive Director
Mr. Paresh Sukthankar, Executive Director

26

Mr. Vineet Jain (upto 27.12.2008)

REGISTERED OFFICE
HDFC Bank House,
Senapati Bapat Marg,
Lower Parel,
Website: www.hdfcbank.com
HDFC Bank offers a wide range of commercial and transactional banking services and
treasury products to wholesale and retail customers. The bank has three key business
segments
Wholesale Banking Services
The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian
corporate to small & mid-sized corporates and agri-based businesses. For these customers,
the Bank provides a wide range of commercial and transactional banking services, including
working capital finance, trade services, transactional services, cash management, etc. The
bank is also a leading provider of structured solutions, which combine cash management
services with vendor and distributor finance for facilitating superior supply chain
management for its corporate customers. Based on its superior product delivery / service
levels and strong customer orientation, the Bank has made significant inroads into the
banking consortia of a number of leading Indian corporates including multinationals,
companies from the domestic business houses and prime public sector companies. It is
recognised as a leading provider of cash management and transactional banking solutions to
corporate customers, mutual funds, stock exchange members and banks.

Retail Banking Services

The objective of the Retail Bank is to provide its target market customers a full range of
financial products and banking services, giving the customer a one-stop window for all
his/her banking requirements. The products are backed by world-class service and delivered
to customers through the growing branch network, as well as through alternative delivery
channels like ATMs, Phone Banking, NetBanking and Mobile Banking.
27

The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and
the Investment Advisory Services programs have been designed keeping in mind needs of
customers who seek distinct financial solutions, information and advice on various
investment avenues. The Bank also has a wide array of retail loan products including Auto
Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. It is
also a leading provider of Depository Participant (DP) services for retail customers, providing
customers the facility to hold their investments in electronic form.
HDFC Bank was the first bank in India to launch an International Debit Card in association
with VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank
launched its credit card business in late 2001. By March 2009, the bank had a total card base
(debit and credit cards) of over 13 million. The Bank is also one of the leading players in the
merchant acquiring business with over 70,000 Point-of-sale (POS) terminals for debit /
credit cards acceptance at merchant establishments. The Bank is well positioned as a leader in
various net based B2C opportunities including a wide range of internet banking services for
Fixed Deposits, Loans, Bill Payments, etc.

Treasury
Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the
liberalisation of the financial markets in India, corporates need more sophisticated risk
management information, advice and product structures. These and fine pricing on various
treasury products are provided through the bank's Treasury team. To comply with statutory
reserve requirements, the bank is required to hold 25% of its deposits in government
securities. The Treasury business is responsible for managing the returns and market risk on
this investment portfolio

Awards and Achievements - Banking Services

It is extremely gratifying that our efforts towards providing customer convenience have been
appreciated both nationally and internationally.

28

HDFC Bank began operations in 1995 with a simple mission: to be a "World-class Indian
Bank". We realised that only a single-minded focus on product quality and service excellence
would help us get there. Today, we are proud to say that we are well on our way towards that
goal.
It is extremely gratifying that our efforts towards providing customer convenience have been
appreciated both nationally and internationally.
2013

IBA Innovation Awards

Most Innovative use of
Technology

Dun & Bradstreet Polaris Financial Technology Banking Award 2013

- Best Private Sector Bank
Technology Adoption
- Best Private Sector Bank
Retail
- Overall Best Private
Sector Bank

Institutional Investor
- Best Bank in Asia
- Mr. Aditya Puri - Best
CEO

Forbes Asia
Fab 50 Companies List
for the 7th year

29

Sunday Standard Best Banker Awards

- Best Private Sector
Bank: Large
- Safest Bank: Large
- Mr. Aditya Puri: Top
Achiever

UTI Mutual Fund CNBC TV 18 Financial Advisory Awards 2012

Best Performing Bank Private

Asia Money 2013

2012
ICAI Awards 2011

Excellence in Financial Reporting

2011
Outlook Money Best
Bank Award 2011

- Best Bank - Runner Up

Best Commercial
Vehicle Financier

- Driving Positive Change

Businessworld Best
Bank award

- Best Bank

BCI Continuity &

Resilience Award

- Most Effective Recovery of the Year

Financial Express
Best Bank Survey
2010-11

- Best in Strength and Soundness

- 2nd Best in the Private Sector

30

CNBC TV18's Best

Bank & Financial
Institution Awards

- Best Bank
- Mr. Aditya Puri, Outstanding Finance Professional

Dun & Bradstreet

Best Private Sector Bank - SME Financing
Banking Awards 2011
ISACA 2011 award
for IT Governance

Best practices in IT Governance and IT Security

IBA Productivity
Excellence Awards
2011

New Channel Adopter (Private Sector)

DSCI (Data Security

Council of India)
Excellence Awards
2011

Security in Bank

Euromoney Awards
for Excellence 2011

Best Bank in India

Corporate Governance:
The bank was among the first four companies, which subjected itself to a Corporate
Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating
Information Services of India Limited (CRISIL).
The rating provides an independent assessment of an entity's current performance and an
expectation on its "balanced value creation and corporate governance practices" in future.
The bank has been assigned a 'CRISIL GVC Level 1' rating, which indicates that the bank's
capability with respect to wealth creation for all its stakeholders while adopting sound
corporate governance practices is the highest.
We are aware that all these awards are mere milestones in the continuing, never-ending
journey of providing excellent service to our customers. We are confident, however, that with
your feedback and support, we will be able to maintain and improve our services.

Technology:
HDFC Bank operates in a highly automated environment in terms of information technology
and communication systems. All the bank's branches have online connectivity, which enables

31

the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also
provided to retail customers through the branch network and Automated Teller Machines
(ATMs).
The Bank has made substantial efforts and investments in acquiring the best technology
available internationally, to build the infrastructure for a world class bank. The Bank's
business is supported by scalable and robust systems which ensure that our clients always get
the finest services we offer. The Bank has prioritized its engagement in technology and the
internet as one of its key goals and has already made significant progress in web-enabling its
core businesses. In each of its businesses, the Bank has succeeded in leveraging its market
position, expertise and technology to create a competitive advantage and build market share.

Mission and Business Strategy:

Our mission is to be "a World Class Indian Bank", benchmarking ourselves against
international standards and best practices in terms of product offerings, technology, service
levels, risk management and audit & compliance. The objective is to build sound customer
franchises across distinct businesses so as to be a preferred provider of banking services for
target retail and wholesale customer segments, and to achieve a healthy growth in
profitability, consistent with the Bank's risk appetite. We are committed to do this while
ensuring the highest levels of ethical standards, professional integrity, corporate governance
and regulatory compliance.
ur business strategy emphasizes the following:
Increase our market share in Indias expanding banking and financial services industry
by following a disciplined growth strategy focusing on quality and not on quantity and
delivering high quality customer service.
Leverage our technology platform and open scaleable systems to deliver more products
to more customers and to control operating costs.
Maintain our current high standards for asset quality through disciplined credit risk
management.
Develop innovative products and services that attract our targeted customers and address
inefficiencies in the Indian financial sector.

32

Continue to develop products and services that reduce our cost of funds.
Focus on high earnings growth with low volatility.

HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of
1,725 branches spread in 771 cities across India. All branches are linked on an online realtime basis. Customers in over 500 locations are also serviced through Telephone Banking.
The Bank's expansion plans take into account the need to have a presence in all major
industrial and commercial centres where its corporate customers are located as well as the
need to build a strong retail customer base for both deposits and loan products. Being a
clearing/settlement bank to various leading stock exchanges, the Bank has branches in the
centres where the NSE/BSE have a strong and active member base.
The Bank also has 3,898 networked ATMs across these cities. Moreover, HDFC Bank's ATM
network can be accessed by all domestic and international Visa/MasterCard, Visa
Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.

AIMS:
Continuous effort to improving the services.
Evaluating individual skill trough training and motivations.
Total involvement through participants management activities.
Creating healthy and safe environment.
Social development.

Credit Rating
The Bank has its deposit programs rated by two rating agencies - Credit Analysis & Research
Limited (CARE) and Fitch Ratings India Private Limited. The Bank's Fixed Deposit
programmed has been rated 'CARE AAA (FD)' [Triple A] by CARE, which represents
instruments considered to be "of the best quality, carrying negligible investment risk." CARE
has also rated the bank's Certificate of Deposit (CD) programmed "PR 1+" which represents
"superior capacity for repayment of short term promissory obligations". Fitch Ratings India
Pvt. Ltd. (100% subsidiary of Fitch Inc.) has assigned the "AAA (ind)" rating to the Bank's
deposit programmed, with the outlook on the rating as "stable". This rating indicates "highest
credit quality" where "protection factors are very high".

33

Corporate Governance Ratin

The bank was one of the first four companies, which subjected itself to a Corporate
Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating
Information Services of India Limited (CRISIL). The rating provides an independent
assessment of an entity's current performance and an expectation on its "balanced value
creation and corporate governance practices" in future. The bank was assigned a 'CRISIL
GVC Level 1' rating in January 2007 which indicates that the bank's capability with respect to
wealth creation for all its stakeholders while adopting sound corporate governance practices
is the highest.

Forex Buy and Sell

Travel Card

Travelers Cheques

34

Western Union

RBI Guide Lines

(Updated as per Master Circular dated 01.07.2012)
* this is only a brief extract and for details kindly refer to above Master Circular and
Amendments, if any, thereto in RBI website www.rbi.org.in
Authorized Dealer Category-II Money Changers can undertake

Purchase from Residents / Non- Residents

Sales to Residents for Private Travel and Business Travel.

AD-Category II can undertake specified Non- Trade Current A/C

Transactions in addition to the above.
For limits and conditions kindly refer to the table under "Forex Limits"
Bringing in and taking out of Foreign Exchange

Foreign Exchange can be brought into India without limit;

Declaration in form CDF necessary if the Amount > USD 10,000 (FC notes + TCs)
and / or FC notes exceed USD 5000;

Taking out Foreign Exchange other than that obtained from AD/AMC prohibited;

Non- residents can take out Foreign Exchange up to the amount originally brought in;
Purchases of Foreign Currency from Public /Foreign Nationals:

Purchase from Residents / Non Residents/foreign nationals FC Notes/ Coins/ TC's

subject to submission of CDF (wherever applicable) to be taken;

Facility to avail INR against International Credit Cards by foreign tourists

35

Encashment Certificate to be issued in all cases of Encashments;

No limit for encashment is prescribed, if declared on the Currency Declaration Form

(CDF) on arrival to the customs authorities.

No declaration in CDF is required for Foreign Currency with aggregate value upto US
5000 or equivalent;

No declaration in CDF is required for FC + TC with aggregate value upto US 10000

or equivalent;

For purchase of foreign currency notes and/ or Travellers' Cheques from customers
for any amount less than Rs. 50,000/-, or its equivalent, copies of identification documents
not required. However, details of the identification document to be furnished by the
customer/ to be kept on record by the AMC;

For purchase of foreign currency notes and/ or Travellers' Cheques from customers
for any amount equal to or in excess of Rs.50,000/-, or its equivalent, documents, as
mentioned at (F-Part-II) annexed to the A.P. (DIR Series) Circular No.17 {A.P.(FL/RL
Series) Circular No.4} dated November 27, 2009, should be verified and copies retained.

Permissible limit for cash payments against encashment:

a) Foreign Nationals up to -- US $ 3000

b) Residents up to -- US $ 1000

All other cases of encashments, payment to be made by way of Account Payee

Cheque or demand draft only.

Payment to be made only by Cheque / DD, if purchases are from other FFMC/AD's;
Sale of foreign exchange Private Visits / Business Visits:

Sale against application, identification documents and declaration regarding Foreign

Exchange availed during the financial year;

Private visit- up to USD 10,000 per financial year.

.Business visit-up to USD 25,000 per trip for Business / Conference / Training etc.

TC issue subject to conditions of TC issuing company;

Traveler to sign on the TC in the presence of Authorized official of AMC;

Payment in excess of Rs.50, 000 to be received by Cheque / DD;

Foreign Currency Notes up to USD 3000 and balance in TC's/Travel cards;

Exemptions - Travelers visiting

36

Libya & Iraq up to US $ 5000

Islamic Republic of Iran, Russian Federation and commonwealth of Independence

States Entire exchange to be released in FC notes;
6. Sales against Reconversion of Indian Currency
Non-residents are allowed to reconvert unspent INR at the time of their departure

subject to production of a valid Encashment Certificate;

Non-residents are allowed to reconvert INR up to Rs.10,000 without a valid

Encashment Certificate, for bonafide reasons, if departure is scheduled to take place within
the following seven days.
Facility for reconversion of Indian Rupees to the extent of Rs. 50,000/- to foreign

tourists (not NRIs) against ATM Receipts, are allowed subject to submission of the
following documents:
o

Valid Passport and VISA

Ticket confirmed for departure within 7 days.

Original ATM slip (to be verified with the original debit/ credit card).

WORKING CAPITAL MANAGEMENT

CONCEPTUAL FRAMEWORK

37

Introduction
Significance of working capital management
Liquidity Vs. profitability: Risk Return trade off
Classification of working capital
Types of working capital needs
Factors determining working capital requirements
Working capital cycle
Sources of working capital
Working capital position
Inventory management
Cash management
Receivables management
Managing payables (Creditors)
Financing current assets
Working capital & short-term financing
Financing Current Assets

38

Introduction to working capital

Working Capital is the Life-Blood and Controlling Nerve Center of a
business
The working capital management precisely refers to management of current assets.
A firms working capital consists of its investment in current assets, which include
short-term assets such as:
Cash and bank balance,
Inventories,
Receivables (including debtors and bills),
Marketable securities.
Working capital is commonly defined as the difference between current assets
and current liabilities.
Working Capital = Current Assets-Current Liabilities
There are two major concepts of working capital:
Gross working capital
Net working capital
Gross working capital
It refers to firm's investment in current assets. Current assets are the assets,
which can be converted into cash with in a financial year. The gross working
capital points to the need of arranging funds to finance current assets.
Net working capital:
It refers to the difference between current assets and current liabilities. Net
working capital can be positive or negative. A positive net working capital will arise
when current assets exceed current liabilities. And vice-versa for negative net
working capital. Net working capital is a qualitative concept. It indicates the
liquidity position of the firm and suggests the extent to which working capital
needs may be financed by permanent sources of funds. Net working capital also

39

covers the question of judicious mix of long-term and short-term funds for
financing current assets.

Significance of Working Capital Management

PAYMENT
TO
SUPPLIERS
EASY LOAN
FROM
BANKS

SIGNIFICAN
--CE OF
WORKING
CAPITAL

INCREASE
EFFECIENY

DIVIDEND
DISTRIBUTION

INCREASE
DEBT
CAPACITY

INCREASE
IN FIX
ASSETS

The management of working capital is important for several reasons:

For one thing, the current assets of a typical manufacturing firm account for half
of its total assets. For a distribution company, they account for even more.
Working capital requires continuous day to day supervision. Working capital has
the effect on company's risk, return and share prices,
There is an inevitable relationship between sales growth and the level of current
assets. The target sales level can be achieved only if supported by adequate
working capital Inefficient working capital management may lead to insolvency
of the firm if it is not in a position to meet its liabilities and commitments.

40

Liquidity Vs Profitability: Risk - Return trade of

Another important aspect of a working capital policy is to maintain and provide
sufficient liquidity to the firm. Like the most corporate financial decisions, the
decision on how much working capital be maintained involves a trade off- having a
large net working capital may reduce the liquidity risk faced by a firm, but it can
have a negative effect on the cash flows. Therefore, the net effect on the value of
the firm should be used to determine the optimal amount of working capital.
Sound working capital involves two fundamental decisions for the firm. They are the
determination of:
The optimal level of investments in current assets.
The appropriate mix of short-term and long-term financing used to support
this investment in current assets, a firm should decide whether or not it
should use short-term financing. If short-term financing has to be used, the
firm must determine its portion in total financing. Short-term financing may
be preferred over long-term financing for two reasons:
The cost advantage
Flexibility

41

But short-term financing is more risky than long-term financing. Following table will
summarize our discussion of short-term versus long-term financing

Maintaining a policy of short term financing for short term or temporary assets
needs (Box 1) and long- term financing for long term or permanent assets needs
(Box 3) would comprise a set of moderate risk profitability strategies. But what one
gains by following alternative strategies (like by box 2 or box 4) needs to weighed
against what you give up.

42

CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified as follows:
On the basis of time
On the basis of concept

Types of Working Capital Needs

43

Another important aspect of working capital management is to analyze the

total working capital needs of the firm in order to find out the permanent and
temporary working capital. Working capital is required because of existence
of operating cycle. The lengthier the operating cycle, greater would be the
need for working capital. The operating cycle is a continuous process and
therefore, the working capital is needed constantly and regularly. However,
the magnitude and quantum of working capital required will not be same all
the times, rather it will fluctuate.
The need for current assets tends to shift over time. Some of these changes
reflect permanent changes in the firm as is the case when the inventory and
receivables increases as the firm grows and the sales become higher and
higher. Other changes are seasonal, as is the case with increased inventory
required for a particular festival season. Still others are random reflecting the
uncertainty associated with growth in sales due to firm's specific or general
economic factors.
The working capital needs can be bifurcated as:
Permanent working capital
Temporary working capital

44

 Permanent working capital

There is always a minimum level of working capital, which is continuously
required by a firm in order to maintain its activities. Every firm must have a
minimum of cash, stock and other current assets, this minimum level of
current assets, which must be maintained by any firm all the times, is known
as permanent working capital for that firm. This amount of working capital is
constantly and regularly required in the same way as fixed assets are
required. So, it may also be called fixed working capital.
Temporary working capital
Any amount over and above the permanent level of working capital is
temporary, fluctuating or variable working capital. The position of the
required working capital is needed to meet fluctuations in demand
consequent upon changes in production and sales as a result of seasonal
changes.

The permanent level is constant while the temporary working capital is

fluctuating increasing and decreasing in accordance with seasonal demands
as shown in the figure. In the case of an expanding firm, the permanent
working capital line may not be horizontal. This is because the demand for
permanent current assets might be increasing (or decreasing) to support a
rising level of activity. In that case line would be rising.

45

FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS

There are many factors that determine working capital needs of an
enterprise. Some of these factors are explained below:
Nature or Character of Business.
The working capital requirement of a firm is closely related to the
nature of its business. A service firm, like an electricity undertaking
or a transport corporation, which has a short operating cycle and
which sells predominantly on cash basis, has a modest working
capital requirement. Oh the other hand, a manufacturing concern
like a machine tools unit, which has a long operating cycle and
which sells largely on credit, has a very substantial working capital
requirement.
HDFC BANK is a manufacturing concern so this requires them to
keep a
very sizeable amount in working capital.
Size of Business/Scale of Operations.
HDFC BANK has a good position in its segment and they are also
spending their operations in the domestic market as well as in
foreign market. The scale of operations and the size it holds in the
market makes it a must for them to hold their inventory and current
asset at a huge level.
Rate of Growth of Business.
The rate of growth of sales indicates a need for increase in the
working capital requirements of the firm. As the firm is projected to
increase their sales by 69% from what it was in 2014, it is required
to guard them against the increasing requirements of the net current
asset by way of efficient working capital management. The sales
and projected sales level determine the investment in inventories
and receivables.

Price Level Changes.

46

Changes in the price level also affect the working capital

requirements. It was the reduced margins in the price of the raw
materials that had prompted them to go for bulk purchases thus
making on additions to their net current assets. They might have
gone for this large-scale procurement for availing discounts and
anticipating a rise in prices, which would have meant that more funds
are required to maintain the same current assets.

SOURCES OF WORKING CAPITAL

HDFC BANK has the following banks available for the fulfillment of its
working capital requirements in order to carry on its operations smoothly:
Banks:
These include the following banks
o Indian Bank
o Syndicate Bank

NAME OF THE BANK

INDIAN BANK
SYNDICATE BANK
TOTAL

FUND BASED
300
200
500

NON-FUND BASED
250
100
350

WORKING CAPITAL CYCLE

47

The upper portion of the diagram below shows in a simplified form the chain
of events in a manufacturing firm. Each of the boxes in the upper part of the
diagram can be seen as a tank through which funds flow. These tanks, which
are concerned with day-to-day activities, have funds constantly flowing into
and out of them.

RAW
MATERIAL

CASH

DEBTORS &
BILLS
RECEIVABLES

OPERATING CYCLE
WORK IN
PROGRESS

FINISH
GOODS

SALES

The chain starts with the firm buying raw materials on credit.
In due course this stock will be used in production, work will be carried out
on the stock, and it will become part of the firms work-in-progress.
Work will continue on the WIP until it eventually emerges as the finished
product.
As production progresses, labor costs and overheads need have to be
met.
Of course at some stage trade creditors will need to be paid.
When the finished goods are sold on credit, debtors are increased.
They will eventually pay, so that cash will be injected into the firm.
48

Each of the areas- Stock (raw materials, WIP, and finished goods), trade
debtors, cash (positive or negative) and trade creditors can be viewed as
tanks into and from which funds flow.
Working capital is clearly not the only aspect of a business that affects the
amount of cash.
The business will have to make payments to government for taxation.
Fixed assets will be purchased and sold
Lessors of fixed assets will be paid their rent
Shareholders (existing or new) may provide new funds in the form of cash
Some shares may be redeemed for cash
Dividends may be paid
Long-term loan creditors (existing or new) may provide loan finance, loans
will need to be repaid from time-to-time, and
Interest obligations will have to be met by the business
Unlike, movements in the working capital items, most of these non-working
capital cash transactions are not every day events. Some of them are annual
events (e.g. tax payments, lease payments, dividends, interest and, possibly,
fixed asset purchases and sales). Others (e.g. new equity and loan finance
and redemption of old equity and loan finance) would typically be rarer events.

49

INVENTORY MANAGEMENT
Inventories
Inventories constitute the most important part of the current assets of large
majority of companies. On an average the inventories are approximately 60%
of the current assets in public limited companies in India. Because of the large
size of inventories maintained by the firms, a considerable amount of funds is
committed to them. It is therefore, imperative to manage the inventories
efficiently and effectively in order to avoid unnecessary investment.

Nature of Inventories
Inventories are stock of the product of the company is manufacturing for sale
and components make up of the product. The various forms of the inventories
in the manufacturing companies are:
Raw Material: It is the basic input that is converted into the finished
product through the manufacturing process. Raw materials are those
units which have been purchased and stored for future production.
Work-in-progress: Inventories are semi-manufactured products.
They represent product that need more work they become finished
products for sale.
Finished Goods: Inventories are those completely manufactured
products which are ready for sale. Stocks of raw materials and workin-progress facilitate production, while stock of finished goods is
required for smooth marketing operations. Thus, inventories serve as
a link between the production and consumption of goods.

50

Inventory Management Techniques

In managing inventories, the firms objective should be to be in consonance
with the shareholder wealth maximization principle. To achieve this, the firm
should determine the optimum level of inventory. Efficiently controlled
inventories make the firm flexible. Inefficient inventory control results in
unbalanced inventory and inflexibility-the firm may sometimes run out of stock
and sometimes pile up unnecessary stocks.

Economic Order Quantity (EOQ): The major problem to be

resolved is how much the inventory should be added when inventory is
replenished. If the firm is buying raw materials, it has to decide lots in
which it has to purchase on replenishment. If the firm is planning a
production run, the issue is how much production to schedule. These
problems are called order quantity problems, and the task of the firm is
to determine the optimum or economic lot size. Determine an optimum
level involves two types of costs:

Ordering Costs: This term is used in case of raw material and

includes all the cost of acquiring raw material. They include the
costs incurred in the following activities:
Requisition
Purchase Ordering
Transporting
Receiving
Inspecting
Storing
Ordering cost increase with the number of orders placed; thus
the more frequently inventory is acquired, the higher the firms
ordering costs. On the other hand, if the firm maintains large
inventorys level, there will be few orders placed and ordering
costs will be relatively small. Thus, ordering costs decrease with
the increasing size of inventory.

Carrying Costs: Costs are incurred for maintaining a given

level of inventory are called carrying costs. These include the
following activities:
Warehousing Cost
Handling
Administrative cost
Insurance
Deterioration and obsolescence

51

Carrying costs are varying with inventory size. This behavior is

contrary to that of ordering costs which decline with increase in
inventory size. The economic size of inventory would thus
depend on trade-off between carrying costs and ordering cost.

ABC System:

ABC system of inventory keeping is followed in the factories. Various

items are categorized into three different levels in the order of their
importance. For e.g. items such as memory, high capacity processors
and royalty are placed in the A category. Large number of firms has to
maintain several types of inventories. It is not desirable the same
degree of control all the items. The firm should pay maximum attention
to those items whose value is highest. The firm should therefore,
classify inventories to identify which items should receive the most
effort in controlling. The firm should be selective in approach to control
investment in various types of inventories. This analytical approach is
called ABC Analysis. The high-value items are classified as A items
and would be under tightest control. C items represent relatively least
value and would require simple control. B items fall in between the
two categories and require reasonable attention of management.

52

CASH MANAGEMENT
Sources of Cash
Sources of additional working capital include the following:

Existing cash reserves

Profits (when you secure it as cash!)
Payables (credit from suppliers)
New equity or loans from shareholders
Bank overdrafts or lines of credit.
Long-term loans

If you have insufficient working capital and try to increase sales, you can
easily over-stretch the financial resources of the business. This is called
overtrading.
Early warning signs include:
Pressure on existing cash
Exceptional cash generating activities e.g. offering high discounts
for early cash payment
Bank overdraft exceeds authorized limit.
Seeking greater overdrafts or lines of credit
Part-paying suppliers or other creditors
Paying bills in cash to secure additional supplies
Management pre-occupation with surviving rather than managing
Frequent short-term emergency requests to the bank (to help pay
wages, pending receipt of a cheque).

53

CASH MANAGEMENT IN HDFC BANK.

The cash management system followed by the HDFC BANK is mainly
lock box system.
Cash Management System involves the following steps:
1. The branch offices of the company at various locations hold the
collection of cheques of the customers.
2. Those cheques are either handed over to the CMS agencies or bank of
the particular location take charge of whole collection.
3. These CMS agencies or bank send those cheques to the clearing
house to make them realized. These cheques can be local or
outstation.
4. The CMS agencies or bank send information to the central hub of the
company regarding realization/cheque bounced.
5. The central hub passes on the realized funds to the company as per
the agreed agreements.
6. The CMS agencies or concerned bank provides the necessary MIS to
the company as per requirement.
In cash management the collect float taken for the cheques to be realized into
cash is irrelevant and non-interfering because banks such as Standard
Chartered, HDFC and CitiBank who give credit on the basis of these cheques
after charging a very small amount. These credits are given to immediately
and the maximum time taken might be just a day. The amount they charge is
very low and this might cover the threat of the cheque sent in by two or three
customers bouncing. Even otherwise the time taken for the cheques to be
processed is instantaneous. Their Cash Management System is quite
efficient.

54

RECEIVABLES MANAGEMENT
Cash flow can be significantly enhanced if the amounts owing to a business
are collected faster. Every business needs to know.... who owes them
money.... how much is owed.... how long it is owing.... for what it is owed.
Late payments erode profits and can lead to bad debts.
Slow payment has a crippling effect on business; in particular on small
businesses whom can least afford it. If you don't manage debtors, they will
begin to manage your business as you will gradually lose control due to
reduced cash flow and, of course, you could experience an increased
incidence of bad debt.
The following measures will help manage debtors
1.Have the right mental attitude to the control of credit and make sure that
it gets the priority it deserves.
2.Establish clear credit practices as a matter of company policy.
3.Make sure that these practices are clearly understood by staff, suppliers
and customers.
4.Be

professional

when

accepting

new

accounts,

and

especially

largerones.
5.Check out each customer thoroughly before you offer credit. Use credit
agencies, bank references, industry sources etc.
6.Establish credit limits for each customer and stick to them.
7.Continuously review these limits when you suspect tough times are
55

coming or if operating in a volatile sector.

8.Keep very close to your larger customers.
9.Invoice promptly and clearly.
10.Consider charging penalties on overdue accounts.
11.Consider accepting credit /debit cards as a payment option.
12.Monitor your debtor balances and aging schedules, and don't let any
debts get too old.
Debtors due over 90 days (unless within agreed credit terms) should
generally demand immediate attention. Look for the warning signs of a future
bad debt. For example..
1. Longer credit terms taken with approval, particularly for smaller orders.
2. Use of post-dated checks by debtors who normally settle within agreed
terms.
3. Evidence of customers switching to additional suppliers for the same
goods.
4. New customers who are reluctant to give credit references.
5. Receiving part payments from debtors.
Here are few ways in collecting money from debtors

Develop appropriate procedures for handling late payments.

Track and pursue late payers
Get external help if you own efforts fail.
Dont feel guilty asking for money .. its yours and you are entitled to it.
Make that call now. And keep asking until you get some satisfaction.
In difficult circumstances, take what you can now and agree terms for the
remainder, it lessens the problem.

When asking for your money, be hard on the issue but soft on the
person. Dont give the debtor any excuses for not paying.

Make that your objective is to get the money, not to score points or get
even.

56

MANAGING PAYABLES (Creditors)

Creditors are a vital part of effective cash management and should be
managed carefully to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function
can create liquidity problems.
Consider the following

Who authorizes purchasing in your company - is it tightly managed or

spread among a number of (junior) people?

Are purchase quantities geared to demand forecasts?

Do you use order quantities, which take account of stock holding and
purchasing costs?

Do you know the cost to the company of carrying stock?

How many of your suppliers have a return policy?

Are you in a position to pass on cost increases quickly through price

increases to your customers?

If a supplier of goods or services lets you down can you charge back the
cost of the delay?

There is an old adage in business that "if you can buy well then you can
sell well". Management of your creditors and suppliers is just as important
as the management of your debtors. It is important to look after your

57

creditors- slow payment by you may create ill feeling and can signal that
your company is inefficient (or in trouble!).
Remember that a good supplier is someone who will work with you to
enhance the future viability and profitability of your company.

Financing Current Assets

The firm has to decide about the sources of funds, which can be availed to
make investment in current assets.
Long term financing
It includes ordinary share capital, preference share capital, debentures, long
term borrowings from financial institutions and reserves and surplus.
Short term financing
It is for a period less than one year and includes working capital funds from
banks, public deposits, commercial paper etc.
Depending on the mix of short and long term financing, the company
can follow any of the following approaches.
Matching Approach
In this, the firm follows a financial plan, which matches the expected life of
assets with the expected life of source of funds raised to finance assets.
When the firm follows this approach, long term financing will be used to
finance fixed assets and permanent current assets and short term financing
to finance temporary or variable current assets.
Conservative Approach
In this, the firm finances its permanent assets and also a part of temporary
current assets with long term financing. In the periods when the firm has no
need for temporary current assets, the long-term funds can be invested in

58

tradable securities to conserve liquidity. In this the firm has less risk of facing
the problem of shortage of funds.
Aggressive Approach
In this, the firm uses more short term financing than warranted by the
matching plan. Under an aggressive plan, the firm finances a part of its
current assets with short term financing.

ANALYSIS
OF WORKING CAPITAL
&
ITS VARIOUS COMPENTS

59

WORKING CAPITAL POSITION ANALYSIS IN HDFC BANK

Net working Capital ( CURRENT ASSETS CURRENT LIABILITIES)
(Rs.in lacks)
YEAR

31.03.13

31.03.14

31.03.15

180.26
114.33
10.81
6.67

291.14
390.84
34.30
28.08

21.44
-------------333.51
--------------

78.74
-------------823.09
--------------

83.92
--------------1008.67
---------------

336.70
256.33
18.16
59.05
21.13
29.36

315.76
305.99
59.88
64.05
72.00

CURRENT ASSETS
INVENTORIES
SUNDRY DEBTORS
CASH AND BANK
OTHER CURRENT ASSETS
LOANS & ADVANCES
TOTAL CURRENT ASSESTS

653.95
219.79
28.22
21.99

LESS:CURRENT LIABILITIES AND PROVISIONS

Short term borrowing
Sundry creditors
Advanced received
Provisions
Instalments of term loan
Other current liabilities
70.34
-------------TOTAL CURRENT LIABILITIES

94.54
159.49
25.30
21.56
14.66
16.82
--------------

--------------

332.37
----------------

720.71
----------------

888.02

--------------NET WORKING CAPITAL

1.15

102.38

120.65

60

Data Interpretation
If we analysis the three years working capital position of the company, we find out that company
has sufficient working capital to meets its short term liability, it is good indicator for the company
but in 2013, working capital is increased by 101.24 lacs which shows that a sufficient amount
has been blocked in working capital which could be used for some other more beneficial
purpose.

61

INVENTORY ANALYSIS
Inventory means stock of three things :1. Raw materials
2. Semi finished goods.
3. Finished goods.
Position of inventory in HDFC BANK.
(Rs.in lacks)
YEAR
Stores, Spare Parts etc.
Stock In tradeFinished Goods
Raw Materials
Material under process

31.03.13
10.10
37.04
78.74
54.38
--------------180.26
-------------------

31.03.14
.87
26.93
184.53
78.80
---------------291.14
----------------

31.03.15
25.57
41.76
340.08
246.54
--------------653.95
-------------

Analysis through chart

INTERPRETATION
By analyzing the 3 years data, We are looking increasing pattern in inventories. We can see
that inventories are increased from 180.26 lacs to 291 lacs in the year 2013 and in the year
2014 it is increased from 291 lacs to 653 lacs. By seeing this pattern we can say that the
company is managing the inventory according to the sale. Company have a great demand for
the pump in the year 2010 that is biggest reason for increase in inventories. From other point of
view we can say that the liquidity of firm is blocked in inventories but to stock is very good due
to uncertainty of availability of raw material in time.

62

SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important component of working capital and fall under
current assets. Debtors will arise only when credit sales are made.
Position of HDFC BANK.
(Rs.in lacks)
YEAR

31.03.13

Sundry Debtors

114.33
------------114.33
---------------

31.03.14
390.84
------------390.84
----------------

31.03.15
219.79
-------219.79
----------

Analysis through chart

INTERPRETATION
In the table and figure we see that there is rise in the debtors in the year 2013 and decrease in
the year 2014. A simple logic is that debtors increase only when sales increase and decrease if
sales decrease. In the year 2013, sales is increased by 72.30% and decreased by 19.24% in
the year 2014.
We can say that it is a good sign as well as negative also. Company policy of debtors is very
good but a risk of bad debts is always present in high debtors. when sales is increasing with a
great speed the profit also increases. If company decreases the Debtors they can use the
money in many investment plans.

63

CASH AND BANK BALANCE ANALYSIS

Cash is called the most liquid asset an vital current assets, it is an important component of
working capital. In a narrow sense, cash includes notes, bank draft, cheque etc while in a
broader sense it includes near cash assets such as marketable securities and time deposits
with bank.
Position of Cash and Bank Balance in HDFC BANK
(Rs.in lacks)
YEAR
Cash Balance in hand
Bank BalanceWith Scheduled Banks

31.03.13

31.03.14

1.45

27.30

9.36
------------10.81
-------------

7.00
------------34.30
-------------

31.03.15
2.90
26.13
-----------29.02
------------

Analysis through chart

INTERPRETATION
If we analyze the above table and chart we find that it follows a uneven pattern. In the year
2012 it had maintained a low amount of cash and bank balance. But in the year 2013, cash and
the bank balances has increased from 10.81 lacs to 34.30 lacs which is not a good sign for the
company because it shows that company is not using its cash for beneficial activities. Although,
in the year 2014, cash has reduced from 34.30 lacs to 29.02 lacs but this is very good sign for
company because they are not holding the cash in hand but using the cash for better projects,
but still it is not conducive. From the other point of view, company will not face the problem of
liquidity as company is maintaining the cash balance.

64

LOANS AND ADVANCES ANALYSIS

Loans and Advances here refers to any to amount given to different parties, company,
employees for a specific period of time and in return they will be liable to make timely
repayment of that amount in addition to interest on that loan.
Position of Other Loans & Advances in HDFC BANK
(Rs.in lacks)
YEAR
Advances to suppliers
Advances
Deposits

31.03.13

31.03.14

31.03.15

10.91
10.53
6.67
--------------28.13
--------------

39.69
39.05
28.08
--------------106.82
----------------

44.62
39.30
21.99
-----------105.91
-----------

Analysis through chart:

INTERPRETATION
If we analyze the table and the chart we can see that it follows an increasing trend which is a
good sign for the company. We can see that from the year 2012 to 2013 it increased more than
triple. We can see that the increase of 275% and 6.08% in 12-13 and 13-14 respectively from
previous year.
The increasing pattern shows that company is giving advances for the expansion of plants and
machinery which is good sign for better production of pumps and other goods. Although
companys cash is blocked but this is good that company is doing modernization of plants In
time to compete with other competitors in market.

65

CURRENT LIABILITIES ANALYSIS

Current liabilities are any liabilities that are incurred by the firm on a short term basis or current
liabilities that has to be paid by the firm with in one year.
Position of Other Current Liabilities in HDFC BANK
(Rs.in lacks)
YEAR
Current Liabilities
Sundry Creditors
Bank Loan
315.76
Advance Received
Provisions for taxes
Other Liabilities

31.03.13

31.03.14

31.03.15

159.49
94.54

256.33
336.70

305.99

25.30
21.56
16.82
-----------------

18.16
59.05
29.36
-----------------

59.88
64.05
70.34

332.37
-----------------

720.71
-----------------

888.02

---------------------------------

INTERPRETATION
If we analyze the above table then we can see that it follow an uneven trend. The important
component of current liabilities is sundry creditors and other liabilities. In 12-13 it decreased
from 359.41 lacs to 256.33 lacs and in 13-14 it increased from 256.33 lacs to 305.99 lacs. This
is liability for company so this should be less. when company have minimum liabilities it creates
a better goodwill in market. High current liabilities indicate that company is using credit facilities
by creditors.

SUNDRY CREDITORS ANALYSIS

Creditors or an account payable is an important component of working capital and fall under
current liability. Creditors will arise only when credit purchases are made.
Position of Sundry Creditors in HDFC BANK
(Rs.in lacks)
YEAR
Sundry Creditors

31.03.13

31.03.14

31.03.15

159.49
-------------

256.33
-------------

305.99

159.49

256.33

305.99

---------

66

---------------

----------------

----------

Analysis through chart

INTERPRETATION
In the table and figure we see that there is continuous rise in the creditors in the company
in the successive years. A simple logic is that creditors increase only when purchases increase
and if purchase increases on credit it is not good sign for growth. This is liability for company so
this should be less. when company have minimum liabilities it creates a better goodwill in
market. High current liabilities indicate that company is using credit facilities by creditors.

BANK LOANS AND ADVANCES ANALYSIS

Position of Bank Loans & Advances in Birla Corporation Limited
(Rs.in
lacks)
YEAR
31.03.15
Bank Loan
Advances from the customers

31.03.13

31.03.14

94.54
25.30
---------------

336.70
18.16
---------------

315.76
59.88
-----------67

122.84
--------------

354.86
----------------

375.64
-----------

Analysis through chart

INTERPRETATION
If we analyze the table and the chart we can see that it follows an increasing trend which is not
a good sign for the company. We can see that from the year 2012 to 2013 it increased more
than double. The increasing pattern shows that company is taking loan for the expansion of
plants and machinerecy which is not a good sign because company depends on the external
source. On the other hand, company has reduced the bank loan in 2014 and increase in
advances received from the customer, this is good sign for company.

PROVISIONS ANALYSIS
Position of Other Provisions in HDFC BANK
(Rs.in lacks)
YEAR

31.03.13

31.03.14

Provision for Taxes

21.56
--------------21.56
---------------

59.05
--------------59.05
----------------

31.03.15
64.05
------------64.05
------------

68

Analysis through chart:

INTERPRETATION
From the above table we can see that provision shows an increasing trend and the huge
amount is being kept in these provisions. Though the profits of the company are increased
income tax is also increased which is good that company is creating goodwill in market by
paying income tax in time. Although company is paying more income tax but also they are
earning more. Other provisions are also for the benefit of employees and public. This is good
sign for Company growth.

69

Position of WORKING CAPITAL RATIO in HDFC BANK

FORMULA

70

INVENTORY + RECIVEABLE - PAYABLE

WORKING CAPITAL RATIO= ------------------------------------------------------------(AS % OF SALES)
SALES

YEAR

31.03.13

WORKING CAPITAL RATIO

18

31.03.14

31.03.15

32

53

Analysis through chart

INTERPRETATION
This ratio indicates whether the investments in current assets or net current assets ( i.e.,
working capital ) have been properly utilized. In order words it shows the relationship between
sales and working capital. Higher the ratio lower is the investment in working capital and higher
is the profitability. But too high ratio indicates over trading.
This ratio is an important indicator about the working capital position. Now if we analyze the
three years data, we find that it follows an increasing trend which means that its investment in
working capital is lower and the company is utilizing more of its profit. But we find that ratio is
increasing at a very fast rate which is not a good sign for the company and the company is
required to look into these matters closely.

Position of CURRENT RATIO in HDFC BANK

FORMULA
TOTAL CURRENT ASSETS
CURRENT RATIO= -------------------------------------------71

TOTAL CURRENT LIABILITIES

YEAR

31.03.13

CURRENT RATIO

31.03.14

1.00

1.15

31.03.15
1.15

Analysis through chart

INTERPRETATION
This ratio reflects the financial stability of the enterprise. The standard of the normal ratio is 2:1
but in most of companies standard is taken according to Tandon Committee which is taken as
1.33:1.
Now if we analyze the three years data it can be predicted that it holds a stable position all
through out period but it is seen that it holds a low position than the standard one and the
company is required to improve its position.

Position of QUICK RATIO in HDFC BANK

FORMULA
TOTAL CURRENT ASSETS - INVENTORIES
72

QUICK RATIO= ----------------------------------------------------------------TOTAL CURRENT LIABILITIES

YEAR
QUICK RATIO

31.03.13
0.46

31.03.14
0.74

31.03.15
0.40

Analysis through chart

INTERPRETATION
It is the ratio between quick liquid assets and quick liabilities. The normal value for such ratio is
taken to be 1:1. It is used as an assessment tool for testing the liquidity position of the firm. It
indicates the relationship between strictly liquid assets whose realizable value is almost certain
on one hand and strictly liquid liabilities on the other hand. Liquid assets comprise all current
assets minus stock.
By analyzing the three years data it can be said that its position was weak in the year 2012 but
it improved significantly in the next year and again it is declined during the 2014. It is to be said
that it does not meet with the standard but in the year 2013 it was very close to the standard
and it can be said that its liquidity position is not good & stable.

Position of CURRENT ASSETS TO FIXED ASSETS RATIO in HDFC BANK

FORMULA
CURRENT ASSETS
CA TO FA RATIO = ----------------------------FIXED ASSETS

73

YEAR
CATO FA RATIO

31.03.13

31.03.14

1.65

2.93

31.03.15
3.21

Analysis through chart

INTERPRETATION
Assuming a constant level of fixed assets, a higher CA/FA ratio indicates a conservative current
assets policy and a lower CA/FA ratio means an aggressive current assets policy assuming
other factors to be constant. A conservative policy i.e. higher CA/FA ratio implies greater
liquidity and lower risk; while an aggressive policy i.e. lower CA/FA ratio indicates higher risk
and poor liquidity.
Now if we analyze the three year data we find the CA TO FA Ration in increasing pattern, so
we can say that company is following the conservative policy to finance its short term capital
requirement.

Position of INVENTORY TURNOVER RATIO in HDFC BANK

FORMULA
AVERAGE STOCK
STOCK TURN OVER RATIO ( IN DAYS )= --------------------------------------- * 365
74

COST OF GOODS SOLD

YEAR
INVENTORY TURNOVER RATIO
( in Days)

31.03.13
104

31.03.14
79

31.03.15
227

Analysis through chart

INTERPRETATION
This ratio tells the story by which stock is converted into sales. A high stock turnover ratio
reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned
over or sold during the year. If a firm maintains a minimum stock level in order to maximize
sales by quick rotation of inventory and the holding cost of inventory will be minimum. A low
stock turn over ratio reveals undesirable accumulation of obsolete stock.
By analyzing the three year data it seen that it follows an uneven trend. We see that it is
reduced to 79 from the 104 days in 2013 and in 2014 it is increased by 148 days, Which is not a
good indicator for the company. Company should have to reduce the inventory conversion
period in order to reduce the cost.

Position of RECEIVABLE RATIO in HDFC BANK

FORMULA
DEBTORS
RECEIVABLE RATIO = ---------------- * 365
SALES

75

YEAR
RECEIVABLE RATIO (IN DAYS)

31.03.13
54

31.03.14
70

31.03.15
104

Analysis through chart

INTERPRETATION
Generally a low debtors turnover ratio implies that it considered congenial for the business as it
implies better cash flow. The ratio indicates the time at which the debts are collected on an
average during the year. Needless to say that a high Debtors Turnover Ratio implies a shorter
collection period which indicates prompt payment made by the customer.
Now if we analyze the three year data we can say that it holds a good position while receiving
its money from its debtors. The ratios are in an decreasing ternd, which implies that recovery
position is not good company and Company have to reduce the receivable period.

Position of PAYABLE RATIO in HDFC BANK

FORMULA
CREDITORS
PAYABLE RATIO= ----------------------------- * 365
COST OF SALES

76

YEAR
PAYABLE RATIO (IN DAYS)

31.03.13
92

31.03.14

31.03.15

69

135

Analysis through chart

INTERPRETATION
Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers
throughout the year. Generally a low creditors turnover ratio implies favorable since the firm
enjoys lengthy credit period
Now if we analyze the three years data we find that in the year 2013 the ratio
was very high which means that its position of creditors that year was not good, but in the 2014
it is seen that it has followed a decreasing trend which is very good sign for the company. So we
can say it enjoys a very good credit facility from the from the suppliers.

Position of Operating Cycle in HDFC BANK

Formula = Inventory Conversion Period + Receivable Conversion Period Deferral
Period
Calculation of Operating Cycle at HDFC BANK:-

( All Figures in Days)

77

Particulars
ICP
RCP
Gross Operating
Cycle
DP
Net OP

2012-13
104
54
158

2013-14
79
70
149

2014-10
227
104
431

92
66

69
80

135
296

Analysis through chart

Interpretation
When a company has lower d/e ratio, it means that company is utilizing its own funds and
reserves rather than taking loans from outsiders. Company have a uneven trend in d/e ratio. In
the year 2012 it was 1.02 but in the year 2014 it is declined to .55 so we can say that now
company is using more its fund as compare to previous year, but still the ratio is high. Company
have to reduce the ratio.

MAJOR FINDINGS
Statement Showing Difference from Previous Year
(amt. in lacks)

Particulars

13-14

14-15

78

Working Capital

102
by 5000%

Sales

1323
by 72%

Current Assets
Sundry Debtors

823
by 146%

Inventories
Cash & Bank
Bank Loan and
Advances
Current Liabilities

391
by 243%

220
by 44%

291
by 62%

654
by 125%

34
by 209%

-29
by 15%

107
by 269%

106
by .93
721
by 117%

Sundry Creditors

256
by 42%

306
by 19.53%

Bank Loan and

Advances

355
by 196%

376
by 6%

Provisions &
Deposits

80.16
by121.31%

136
by70%

Other Liabilities

29.36
by 74.55%

70.34
by 139.5%

121
by
19%
-1069
by
19.10%
1009
by
23%

888
by
23%

1. Working Capital is increased by 19% only in 2013-14 as compare to 5000% increase in

2012-13 and if we analysis the working capital with sales, the sales is decreased by 19%
in 2013-14, thats why working capital is increased by 19% only.
2. Current assets and Current liabilities are increased by 23% in 2013-14 as compare to
previous year but current assets are increased by 146% in 2012-13 as compare to 117%
increase in current liabilities, so we can say that working capital is increased because of
increase in current assets.
79

1. Inventory is increased by 125% in 2013-14 as compare to 2012-13, so we

can say that current assets are increased due to the increase in the
inventory.
2. Cash and the bank balances are decreased by 15% which shows company
might face the liquidity problem.
3. Debtors are decreased by 44% in 2013-14 whereas creditors are increased
by 19.37% in 2013-14, which shows that company enjoys the good payable
period and goodwill among the creditors.
4. Bank loan and Advances are increased by 6% only as compare to 196%
increase in 2012-13, which shows that company using more of its debt to
fund the short term requirements.
3. Operating cycle of the company is increasing which shows the poor receivable collection
policy

CONCLUDING ANAYSIS

80

 The working capital position of the company is sound and the various sources
through which it is funded are optimal.
The company has used its purchasing, financing and investment decisions to
good effect can be seen from the inferences made earlier in the project.
The debts doubtful have been doubled over the years but their percentage on the
debts has almost become half. This implies a sales and collection policy that get
along with the receivables management of the firm.
The various ratios calculated are an indicator as to the fact that the profitability
of the firm and sales are on a rise and also the deletion of the inefficiencies in the
working capital management.
The firm has not compromised on profitability despite the high liquidity is
commendable.
HDFC BANK. has reached a position where the default costs are as low as
negligible and where they can readily factor their accounts receivables for
availing finance is noteworthy.

SUGGESTIONS AND RECOMMENDATIONS

81

The management of working capital plays a vital role in running of a successful

business. So, things should go with a proper understanding for managing cash,
receivables and inventory.
HDFC BANK. is managing its working capital in a good manner, but still there is some
scope for improvement in its management. This can help the company in raising its
profit level by making less investment in accounts receivables and stocks etc. This will
ultimately improve the efficiency of its operations. Following are few recommendations
given to the company in achieving its desired objectives:
The business runs successfully with adequate amount of the working capital but
the company should see to it that the cash should not be tied up in excessive
amount of working capital.
Though the present collection system is near perfect, the company as due to the
increasing sales should adopt more effective measures so as to counter the threat
of bad debts.
The over purchasing function should be avoided as it could lead to liquidity
problems.
The investment of cash in marketable securities should be increased, as it is very
profitable for the company.
Holding of excessive and insufficient stock must be avoided as it creates a burden
on the cash resources of a business and results in lost sales, delays for customers,
etc respectively.

BIBLIOGRAPHY
82

Following sources have been sought for the preparation of this report:
Corporate Intranet
Financial Statements (Annual Reports)
CMA Data
Direct interaction with the employees of the company
Internet ---o www.hdfc bank schems.co.in
o www.scribd.com
o www.indianpumpsindustry.com
Textbooks on financial management I.M.Pandey
Khan and Jain

83