CHAPTER 1 INTRODUCTION TO WORKING CAPITAL Every business needs funds for two purposes- for its establishment and

to carry out its day to day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture etc. Investments in these assets represent that part of firms capital which is blocked on a permanent or fixed basis and is called fixed capital. Working capital is the life blood and nerve center of a business. Just like circulation of blood is essential to maintain the smooth running of a business. No business can run successfully without an adequate amount of working capital. Working capital refers to that part of firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors, and inventories. In other words working capital is the amount of funds necessary to cover the cost of operating the enterprise. Thus Working Capital means the funds (i.e.; capital) available and used for day to day operations of an enterprise. It contains broadly of that portion of assets of a business which are used in or are related to its current operations. The net working capital of business is its current assets less current liabilities. Current Assets Include Stock of raw material , Work in progress, Finished goods, Trade debtors, Pre payments, Cash balances. Current Liabilities Include Trade creditors, Accruals, Taxation payable, Dividends payable, Short term loans. CHARACTERISTICS OF WORKING CAPITAL The characteristics of working capital distinguishing it from fixed capital are as follows: 1 SHORT TERM NEEDS: Working capital is used to acquire current assets which get converted into cash in a short period. In this respect it differs from fixed capital which represents funds locked in long term assets. The duration of the working capital depends on the length of production process, the time that elapses in the sale and waiting period of the cash receipt.

2 CIRCULAR MOVEMENT: Working capital is constantly converted into cash which again turns into working capital. This process of conversion goes on continuously. The cash is used to purchase current assets and when the goods are produced and sold out; those current assets are transformed into cash. Thus it moves in a circular way. That is why working capital is also described as circulating capital. 3 AN ELEMENT Of PERMANENCY: Though the working capital is a short term capital, it is required always and forever. As stated before, working capital is necessary to continue the productive activity of the enterprise, hence as long as production continues the organization will be in constant need of working capital. Due to the above reason it is better known as regular working capital. 4 AN ELEMENT Of FLUCTUATION: Though the requirement of working capital is felt permanently, its requirement fluctuates more widely than that of fixed capital. The requirement of working capital varies directly with the level of production. It varies with the variation of the purchase and sale policy; price level and the level of demand also. The portion of working capital changes with production, sale, price etc. is called variable working capital. 5 LIQUIDITY: Working capital is more liquid than fixed capital. If need arises, working capital can be converted into cash within a short period and without much loss. A company in need of cash can get it through the conversion of its working capital by insisting on quick recovery of its bills receivable and by expediting sales of its product. It is due to this trait of working capital that the companies with the larger amount of it feel more secure. 6 LESS RISKY: Funds invested in fixed assets get locked up for a long period of time and cannot be recovered easily. There is also a danger of fixed assets like machinery getting obsolete due to technological innovations. Hence investment in fixed assets is comparatively more risky. As against this, investment in current assets is less risky as it is a short term investment. Working capital involves financial or economic risk to a much less extent because the variations of product prices are less severe generally. Moreover, working capital gets converted into cash again; therefore, it is free from the risk arising out of technological changes.

7 SPECIAL ACCOUNTING SYSTEM NOT NEEDED: Since fixed capital is invested in long term assets, it becomes necessary to adopt various systems of estimating depreciation. On the other hand working capital is invested in short term assets which last only for one year. Hence it is not necessary to adopt special accounting system for them. TYPES OF WORKING CAPITAL Working capital has been classified and distinguished in a number of ways. Some of the important classifications are as follows: QUANTITATIVE BASIS: 1 GROSS WORKING CAPITAL: Gross working capital is equal to the current assets only. Items of current assets are like stock of raw material, work in progress, finished goods, spares and consumable stores, sundry debtors, bills receivable, cash and bank balance, prepaid expenses, accrued incomes, advance payments, short term investments etc. It is the value of the non-fixed assets of an enterprise and includes the above. Gross working capital indicates the quantum of working capital available to meet the current liabilities. Gross working capital = Current assets 2 NET WORKING CAPITAL Net working capital is the excess of current assets over current liabilities. This concept of working capital is widely accepted. This approach however, does not reflect the exact position of the working capital due to the fact that, valuation of inventories include written offs, debtors include profit etc. TIME BASIS: This classification is based on the time factor and it is more useful than the classification made on quantitative basis.

1 PERMANENT WORKING CAPITAL: This represents the quantum of current assets required on a continuing basis for an entire year. It is the minimum aggregate of cash, inventory and debtors maintained to carry on business operations smoothly at any time during an accounting period. Permanent working capital is locked in the business as long as it continues to exist. Permanent working capital is of two types: INITIAL WORKING CAPITAL This is the amount of current assets required at the inception of an organization. In the initial stages, when the revenues are not regular, it may be difficult for the company to obtain credit from the banks and at the same time it may be required to grant credit to the customers. In such a case adequate working capital is required to activate the circulation of capital and keep it moving till the collection from the debtors and other cash receipts exceed the payment. REGULAR WORKING CAPITAL This is the amount of working capital required for the continuous operations of the enterprise. It refers to the excess of current assets over current liabilities. Any organization needs to maintain a minimum stock of raw material, finished goods and cash to ensure smooth working and to meet its immediate obligations. Permanent working has following features: 1 It is different from fixed assets which are sunk in the business operations and retain their form for a long period. 2 Permanent working capital keeps on changing from one current asset to other current asset. 3 The value presented by permanent working capital never leaves the business operations. That is why the financial managers resort to long term borrowings like, debentures to meet their companies permanent working capital requirements. 4 The size of the permanent working capital will increase as long as the business keeps on growing and expanding.
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2 TEMPORARY OR VARIABLE WORKING CAPITAL Temporary working capital is also known as variable working capital or circulating working capital. It is influenced by the seasonal fluctuations of the business concerned. Variable working capital is of two types: SEASONAL WORKING CAPITAL This is the amount of working capital required at stated intervals to meet the changing seasonal requirements. When the season approaches the business requires more funds to meet the seasonal pressure of demand. For example; a textile dealer would require large amount of working capital a few months before Diwali. SPECIAL WORKING CAPITAL Special working capital is the amount of working capital required to meet the unforeseen eventualities that may arise during the course of operations. Any organization must have additional funds to meet the contingencies. For example; sudden increase in demand, strikes, fire, floods, drastic rise in taxes etc. MEASUREMENT BASIS: The working capital on measurement basis is of two types: POSITIVE WORKING CAPITAL When the current assets are more than the current liabilities such a situation is known as positive working capital. Example- if the current assets are 500000 and the current liabilities are 200000, then the working capital is 300000 (positive). NEGATIVE WORKING CAPITAL If the current liabilities are more than the current assets it is known as negative working capital. Example- if the current liabilities are 500000 and the current assets are 200000, then working capital is 300000 (negative). ZERO WORKING CAPITAL

When the current assets are equal to current liabilities it is known as zero working capital. Example- if the current assets are 500000 and the current liabilities are 500000, then working capital is zero. SOURCES OF WORKING CAPITAL: The company can choose to finance its current assets by: Long Term Sources Short Term Sources LONG TERM SOURCES: Long term sources of permanent working capital include equity and preference shares, retained earnings, debentures and other long term debts from public deposits and financial institutions. The long term working capital needs should meet through long term needs of financing. Financing through long term needs provides stability, reduces risk or payment, and increases liquidity of the business concern. Various types of long term sources of working capital are summarized below. 1 Issue of Shares: It is the primary or most important sources of regular or permanent working capital. Issuing shares does not create a burden on the income of the concern nor the, concern is obliged to refund. Thus it is preferable to arrange the permanent working capital through issue of shares. 2 Retained Earnings: A firm can meet its working capital requirement by reinvesting the profits earned by it. These are the cheapest and regular sources of raising permanent working capital. 3 Reserves: Like retained earnings, the use of reserves for financing the working capital requirement is also a costless source of finance. Various funds of the company like depreciation fund, provision for tax and other provisions kept with the company can be used as temporary working capital. 4 Issue Of Debentures: It creates a fixed charge of the fixed earnings of the company. The company is obliged to pay interest. Management should make wise choice in procuring funds by issue of debentures.

5 Long Term Debt: Company can raise fund from accepting public deposits, debts from financial institutions like banks, corporations etc., the cost is higher than other financial tools. Other sources sale of idle fixed assets, securities received from employees and customers are examples of other sources of finance. 6 Public Deposits: Under this the concern borrows some money from the public without the issue of shares. In the past it was for a period of six months to one year, but now days it is for a period of five to seven years. The non-banking concerns cannot borrow by way of public deposits more than 25% of paid up capital and free reserves. SHORT TERM SOURCES OR TEMPORARY WORKING CAPITAL: Temporary working capital is required to meet the day to day business expenditures. The variable working capital would finance from short term sources of funds. It has benefits of, low cost and establishes close relationships with banker. Some sources of temporary working capital are given below: 1 Indigenous Bankers: Indigenous bankers are those people who privately lend money. Before the emergence of banks the indigenous were the only sources of finance. They used to charge very high rate of interest. 2 Trade Credit: Usually the manufacturing concerns, wholesalers and retailers avail this type of credit. Such credit is extended by suppliers of goods or raw materials. This facility is given for a short period which may extend for a few the suppliers if payment is made by the customer before the expiry of the credit period. 3 Installment Credit: Under this the possession of goods is taken immediately, but the payment is made in installments. Generally interest charged on the unpaid price is adjusted in the price. 4 Advances: Advance from customers is also considered as a principle source of short term working capital finance. The company should meet its working capital needs through both long term and short term funds. It will be appropriate to meet at least 2/3 of the permanent working capital equipment s from the long term sources, whereas the variable working capital should be financed from short term sources.
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The working capital financing mix should be designed in such a way that the overall cost of working capital is the lowest, and the funds are available on time and for the period they are really required. 5 Accounts receivable credit: Under accounts receivable credit the commercial banks provide finance by discounting the bills or invoices of its customers. 6 Deferred Incomes: These refer to the payment received for the goods which have not yet been sent to the customer. The deferred incomes are just like advances wherein the payment is received before the supply of goods. 7 Commercial Paper: It represents unsecured promissory notes issued by firms to raise short term funds. It is an important money market instrument in advanced countries like USA. It is a cheaper source of financing short term needs. The maturity period of commercial paper, in India, mostly ranges from 91 to 180 days. 8 Commercial Banks: They are the most important source of short term capital. The major portion of working capital loans are provided by commercial banks. They provide a wide variety of loans tailored to meet the specific requirements of a concern. WORKING CAPITAL AND THE BANKING SECTOR The growth of the banking sector can be related to the rapid industrialization in the country. All industries require funds also termed as working capital to carry out their day to day operations. Banks play a vital role in providing working capital to the businesses thus promoting development of the industrial and corporate sector. Today there are a number of banks operating in India that provide working capital loans to the organizations. These banks provide working capital loans to the organizations on the terms and conditions favorable for the bank itself and the organization, thus assisting in the development of the country at large. Almost al the main banks including HDFC Bank, HSBC Bank, ICICI Bank, Standard Chartered Bank, State Bank of India provide working capital loan. ASSESSMENT OF WORKING CAPITAL

Working capital occupies a peculiar position in the capital structure of a company. The decision as to the adequacy of working capital is a complicated and yet a very important decision. It is constantly required to buy raw materials for payment of wages and other day to day expenses. Without adequate working capital, manufacturing operations will be crippled. For trading enterprises, the capacity to stock a variety of goods for sale depends upon its working capital. It is a base on which all the activities of business enterprise depend. It has been observed that number of business units have failed due to lack of working capital. The inadequate working capital has the following adverse consequences: 1 It stagnates the growth. It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds. 2 It becomes difficult to implement operating plans and achieve the firms profit target. 3 Operating inefficiencies creep in when it becomes difficult even to meet day to day commitments. 4 Fixed assets are not efficiently utilized for the lack of working capital funds. Thus the firms profitability would deteriorate. 5 Shortage of working capital funds renders the firm unable to avail attractive credit opportunities etc. 6 The firm loses its reputation when it is not in a position to honor its short term obligations. As a result, the firm faces tight credit terms. The excessive working capital is equally profitable. The extra working capital is not utilized in business operations and earns no profit for the firm. It results in unnecessary accumulation of inventories, leading to inventory mishandling, waste, theft etc.
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The abundance of working capital would lead to waste and inefficiency. TECHNIQUES REQUIREMENT: 1 PERCENT OF SALES APPROACH This is a simple and traditional method of estimating working capital requirements. According to this method, on the basis of past experience between sales and working capital requirements, a ratio can be determined for estimating the working capital requirements in future. 2 OPERATING CYCLE APPROACH According to this approach, the requirements of working capital depend upon the operating cycle of the business. This is a more dynamic method. It refers to the working capital in a dynamic way. Working capital is decided on the basis of length of operating cycle. It is calculated by dividing operating expenditure by the number of operating cycles. The operating cycle begins with the acquisition of raw materials and ends with the collection of receivables. It may be broadly classified into the following four stages. Raw material and stores storage stage Work in progress stage Finished goods inventory stage Receivables collection stage The duration of the operating cycle for the purpose of estimating working capital requirements is equivalent to the sum of the durations of each of these stages less the credit period allowed by the suppliers of the firm. Symbolically the duration of the working capital cycle can be put as follows: O=R+W+F+DC Where, O = duration of operating cycle, R = raw materials, W = work in progress period,
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FOR

ASSESSMENT

OF

WORKING

CAPITAL

F = finished stock storage period, D = debtors collection period, C = creditors payment period. After computing the period of one operating cycle, cycles that can be computed during the year can be computed by dividing 365 days with the number of operating days in a cycle. The total expenditure in the year when divided with the number of operating cycles in a year will give the average amount of the working capital requirement. 3 CASH FORECASTING METHOD: This method involves forecasting of cash receipts and disbursements during a further period of time. Cash forecast will include all possible sources from which cash will be received and the channels in which the payments are to be so that a consolidated cash position is determined. This method is similar to the preparation of a cash budget. 4 REGRESSION ANALYSES: This method of forecasting working capital requirements is based upon the statistical technique of estimating or predicting the unknown value of the dependent variable from the known value of an independent variable. It is the measure of average relationship between two or more variables. 5 PROJECTED BALANCE SHEET METHOD: Under this method projected balance sheet for future date is prepared by forecasting of assets and liabilities by following any of the methods stated above. The excess of estimated total current assets over estimated current liabilities, as shown in the projected balance sheet, is computed to indicate the estimated amount of working capital required. CALCULATION OF WORKING CAPITAL: Working capital is a metric that represents a companys liquidity at any given time. This calculation is a part of operating capital and takes into account several current assets and current liabilities such as accounts receivables, accounts payable,
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inventory and cash. It is commonly used as a short term calculation to measure the worth of the company and can help a business maintain a healthy level of operations for a particular period. Following are the steps to calculate working capital: Step1. Determine the amount of cash on hand. This information can be acquired by reviewing current bank statements, or using data from the most recently closed general journal accounts. Step2. Determine the accounts receivable total. Accounts receivable is a current asset that is also considered to be a liquid asset. This can be added to the cash balance determined in step 1. Step3. Determine the total inventory. Inventory is another current asset used to calculate working capital; this information can be found in the balance sheet and income statement and can be added to the amount in step 2. Step4. Determine the accounts payable account. Accounts payable is a current liability and will be deducted from the total amount calculated in step 3. Step5. Determine the accrued liabilities amount. This information can be found in the income statement, and will need to be subtracted from the total amount calculated in step 4. APPROACHES TO ESTIMATION OF WORKING CAPITAL: There are two types of approaches which are followed in the estimation of working capital requirements. 1 Total Approach: Under this approach of estimation of working capital requirements, all costs including depreciation and profit margin are included. Thus, production overhead inclusive of depreciation is considered for calculation of the cost of work in progress. In the same manner, cost of goods produced includes depreciation. Further, the computation of funds invested in debtors is done on the basis of selling price including profit margin. 2 Cash Cost Approach: Under this approach, the working capital is estimated on the basis of only cash costs incurred. Thus, depreciation being non cash is excluded
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while calculating the cost of work in progress, cost of goods produced and cost of goods sold. In the same manner, debtors are computed on the basis of cash cost of sales excluding profit margin.

FUND AND NON FUND BASED WORKING CAPITAL: The exchange of goods and services across national boundaries brings greater problems to both buyer and seller than does domestic business. These problems arise from the diversity of customs, standards, currencies, local regulations, languages and legal systems that are spread across the world. To an extent, the globalization of the past half century has reduced the barriers and anomalies, but the greater majority persists. This project aims at introducing traders, bankers, buyers and sellers of all types to one of the most widely employed mechanisms for reducing the financial risks of trade, the Documentary Letter of Credit and Bank Guarantee. The difference between fund based and non-fund based credit assistance lies mainly in the cash outflow. While the former involves all immediate cash outflow, the latter may or may not involve cash outflow from a banker. In other words, a fund based credit facility to a borrower would result in depletion of actual liquidity of a banker immediately whereas grant of non-fund based credit facilities to a borrower may or may not affect the bankers liquidity. This is of course, not to suggest that there is more risk in fund based lending than non-fund based lending, on the contrary the experience of bankers, in general is that the risk exposure in non-fund based facility is more than in fund based facility. FUND BASED FACILITY: Fund based functions of the banks make deployment of the funds either by granting advances or by making advances or but making investments for meeting gaps in funds requirements of their customers/ borrowers. Fund based functions of a bank may be classified into two parts: 1 Grant of Loans and Advances. 2 Make Investments in Shares/ Debentures/ Bonds.
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NON FUND BASED FACILITY: There are two types of non-fund based facilities, Letter of Credit and Bank Guarantee. These are called non fund based facilities because at the time of opening of letter of credit or bank guarantee, no amount as such becomes payable immediately. But these facilities do involve some financial commitment on the part of the bank in as much as the bank is required to pay the amount of the bill, in the event of the applicant refusing or being unable to honor the bill on presentation, at the material time. The bank however, is within its rights to proceed legally against the applicant on the basis of the letter of request executed by the applicant, at the time of the issuance of the letter of credit, on a duly stamped paper. Similarly no amount becomes payable by the bank at the time of execution of the B/G, but as per the undertaking given by the bank, under the B/G issued, the bank will have to make the payment of the amount, covered under the B/G by the beneficiary concerned. The bank may make the required payment by debit to the applicants account, even if sufficient balance is not available there in. The amount so overdrawn may have to be deposited by the applicant, in the due course, failing which the bank may prefer to file a civil suit against the applicant to cover the amount. These facilities also involve financial risks. The amount and the terms and conditions of the L/C and B/G, are also determined by the banks, on the basis of all the precautions taken, as is done at the time of granting fund based facilities. Under this the borrower gets the right to withdraw the amount immediately after the sanction of the limit. Accordingly, the limits for L/C and B/G were also being stipulated well within the MPBF (Maximum Permissible Bank Finance), but now the limits of the L/C and B/G are sanctioned separately and are independent of the ABF (Assessed Bank Finance) RBI NORMS: Prudential exposure norms as per extant guidelines of Reserve Bank of India provides that the maximum exposure of a bank for all its fund based and non-fund based credit facilities, investments, underwritings, investments in shares, bonds,
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commercial papers and any other commitment should not exceed 25% of its net worth to an individual borrower and 50% of its net worth to a group. It may however be rioted that while calculating exposure, the non-fund based facilities are to be taken at 50% of the sanctioned limit. PRINCIPLES OF WORKING CAPITAL MANAGEMENT: 1 PRINCIPLE OF RISK VARIATION: Better known as current asset policy, risk here refers to the inability of the firm to meet its obligations as and when they become due for payment. Larger investment in current assets with less dependence on short term borrowings increases liquidity and increases profitability. In other words there is a definite inverse relationship between the degree of risk and profitability. A conservative management prefers to minimize risk by maintaining a higher level of current assets or working capital while a liberal management assumes greater risk by reducing working capital. However, the goal of the management should be to establish a suitable trade-off between profitability and risk. 2 PRINCIPLE OF COST OF CAITAL: The various sources of raising working capital finance have different cost of capital and the degree of risk involved. Generally higher the risk lower is the cost and lower the risk higher is the cost. A sound working capital management should always try to achieve a proper balance between these two. i.e. risk and cost, because most of it would be covered for the risk.

3 PRINCIPLE OF EQUITY POSITION: This principle is concerned with planning the total investment in current assets. According to this principle the amount of working capital invested in each component should be adequately justified by a firms equity position. Every rupee invested in working capital should contribute to the net worth of the firm.

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1 Current assets as a % of total assets. 2 Current assets as a % of total sales. While deciding about the composition of current assets, the financial manager may consider the relevant industrial averages. 4 PRINCIPLE OF MATURITY OF PAYMENT: This principle is concerned with planning the sources of finance for working capital. According to this principle, a firm should make effort to relate maturities of payment to its flow of internally generated funds. Maturity pattern of various current obligations is an important factor in risk assumptions and risk assessments. Generally, shorter the maturity schedule of current liabilities in relation to the expected cash inflows, the greater the inability to meet its obligations in time.

WORKING CAPITAL PRODUCTS: 1 OVERDRAFT AGAINST PROPERTY (ODAP): It is just like loan, but in overdraft the rates of interest are increased and this is paid on the amount withdrawn on lump sum. The minimum amount for ODAP is 10 lakhs and the maximum is 100 lakhs. The business vintage should be 3 years. i.e., the prompter should be in the same business from 3 years. Minimum annual turnover should be 40 lakhs and maximum be 500 lakhs. The promoters money in business be more than 1.5 times the facility money requested. Positive net profit is required. 2 OVERDRAFTS AGAINST FIXED DEPOSIT (ODFD): The minimum amount for ODFD is 10 lakhs and the maximum is no cap. The clause of business vintage is not applicable here. Minimum annual turnover should be 50 lakhs and maximum be 500 lakhs. Positive net profit is required. Overdraft limits are 90% of the fixed deposit value. 3 MERCHANT OVERDRAFTS (MEOD):

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The merchants can undergo the facility of withdrawal in order to carry their day to day work. The minimum amount for MEOD is 5 lakhs and the maximum is 30 lakhs. Business vintage is minimum 3 years at the same location and the business should also be the same. The annual turnover should be 50 lakhs minimum and a maximum of 500 lakhs. The promoters money in business should be more than 1.5 times the facility amount requested. The banking vintage should be a minimum of 12 months of credit facility and minimum 6 months current account with the bank. The net profit needs to be positive. If the amount exceeds 30 lakhs it would fall under working capital facility. 4 CHEQUES PROTECT: Under this the event of insufficient funds in salary account, will be swept in from the linked flexi cash account to honor the debit. Such sweeps are treated as withdrawals under facility. The minimum amount is 5 lakhs and the maximum amount is 20 lakhs for Mumbai, Pune, Delhi, Chandigarh, Kolkata, Chennai, Hyderabad, and 13 lakhs for other cities. Business vintage is 3 years in same location and 5 years in same business. There should be a minimum turnover of 100 lakhs and a maximum of 500 lakhs. Promoters money in business should be more than 1.5 times the facility amount requested. Bank vintage is 12 months current account with HDFC bank and no working capital facilities, post availing of facility MDFC to be sole banker in 15 days. Positive net profit from the last two years is required. 4 CREDIT GUARATEE TRUST FOR MICRO AND SMALL ENTERPRISES (CGTMSE): The minimum amount for CGTMSE is 5 lakhs and a maximum of 100 lakhs. The business vintage is 5 years. Annual turnover of the business be a minimum of 50 lakhs and a maximum of 500 lakhs. Promoters money in business be more than one time the facility amount requested. For banking vintage if it is new to bank it can be accepted. Net profit should be positive for last 3 years. Additional thing is that the main promoter has to own residence and business premises in the same city. SECURITY REQUIRED IN BANK FINANCE:
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Banks usually do not provide working capital finance without obtaining adequate security. The following are the most important modes of security required by a bank: 1 HYPOTHECATION: It is a security of movable property such as stock etc., the borrower does not give the possession of the property it is merely a charge against property. In case of failure the banker may file a case to realize his dues by the sale of the property hypothecated. 2 PLEDGES: Under this the borrower is required to transfer the physical possession of the property to the bank as security. In case of default the banker can sell the property by giving due notice. 3 MORTGAGES: Under this the full legal title is transferred to the leader. The bank can obtain decree from the court to sell the immovable property.

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LITERATURE REVIEW 1 Jordon(2007) in his study Benchmarking For Working Capital Strategies found that many companies seek to differentiate themselves and achieve success primarily through new technologies or unique product or service offerings. Companies that apply best practices go beyond this by gaining competitive advantage through stronger and more efficient internal business processes. The role of cash management can vary greatly from one company to the next, making an apples to-apples benchmark comparison on how corporations collect, disburse and invest cash an arduous way. Good to excellent businesses who frequently tend to optimize their companies cash management function by incorporating best practices to reduce external financing cost, lower bank charges, minimize risk and manage short and long term liquidity. These companies approach working capital management with a goal to lower costs and free up resources for investment and growth. 2 Sanjeev Ashisht(2008) in his study working capital found that the number one reason why people look at the balance sheet is to find out a companys working capital or current position. It reveals more about the financial condition of a business than almost any other calculation. It tells you what would be left if a company raises all of its short term sources and uses them to pay off its short term liabilities. The more working capital the less financial stain a company possesses. By studying a companys position, u can clearly see if it has the resources necessary to expand internally or if it will have to turn to a bank and take on debt. 3 Dr. Anupama Jain(2008) in her study impact of working capital management on the profitability of the firms found that many organizations that are profitable on paper are forced to cease trading due to an inability to meet short-term debts when they fall due. For an organization to remain in business it is very important that an organization successfully manages its working capital. Sometimes an organization ignores this area in the business. This paper will explain the facts surrounding working capital, and using live examples will consider the level of working capital required by businesses operating in different industries. This paper covers problems faced by small organizations before reviewing some of the ways in which an organization can improve its management of working capital. An
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organization working capital is used to pay short-term obligations that include accounts payable and buying inventory. The study shows that there is a negative significant relationship between cash conversion cycle & firm profitability and positive relationship between Current Ratio & profitability of firms. This reveals that reducing cash conversion period and increasing the current ratio results into profitability increase. Thus, in purpose to create shareholder value, firm manager should concern on shorten of cash conversion cycle till accomplish optimal level.

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CHAPTER 2 OVERVIEW OF THE INDUSTRY: Banks have brought in state-of-the-art technology and aggressively marketed their products. The public sector banks are facing a stiff competition from the new private sector banks. Bankers earlier used to follow the 4-6-4 method i.e. borrow at 4%, lend at 6% and go home at 4 but the new wave ushered in a modern outlook of working. The Indian market is growing at an astonishing rate, with assets expected to reach US$ 1 trillion by 2011. An expanding economy, middle class, and technological innovations are all contributing to this growth. The countrys middle class accounts for over 320 million people. In correlation with the growth of the economy, rising income levels, increased standard of living and affordability of banking products are promising factors for continued expansion. Indian banking industry is in the middle of an IT revolution focusing on expansion on retail and rural banking. Players are becoming customer centric in their approach which has resulted in innovative method of offering new banking products and services. Banking in India has a long and elaborate history of more than 200 years. The beginning of this industry can be traced back to 1786, when the countrys first Bank of Bengal was established. But the industry changed rapidly and drastically, after the nationalization of banks in 1969. As a result the public sector banks began to experience numerous positive changes and enormous growth. Then came the much talked about liberalization an economic reform, which allowed banks to explore new business opportunities and not just remain constrained to generating revenues from mere borrowing and lending. This provided the Indian banking scenario a remarkable facelift that only continues to get better with time. However, even today despite the foray of foreign banks in the country, nationalized banks continue to be biggest lenders in the country. The growth in the Indian banking industry has been more qualitative than quantitative and it is expected to remain the same in coming years. Based on the projections made in the India Vision 2020prepared by the planning commission and the 10th plan, the report forecasts that the pace of expansion in the balance sheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by end march 2010 are estimated at Rs 409,000 cr. That will comprise about
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65% of GDP at current market prices as compared to 67% in 2002-2003. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be large additions to the capital base and reserves on the liability side. In todays dynamic world banks are inevitable for the development of the country. Banks play a pivotal role in enhancing each and every sector. They have helped bring a draw of development on the worlds horizon and developing country like India is no exception. Banks fulfills the role of a financial intermediary. This means that it acts as a vehicle for moving finance from those who have surplus money to those who have deficit. In everyday branch terms the banks channel funds from depositors whose accounts are in credit to borrowers who are in debit. Without the intermediary of the banks both their depositors and the borrowers would have to contact each other directly. This can and does happen of course. This is what has led to the very foundation of the financial institutions like banks. Before few decades their existed some influential people who used to lend money. But a high rate of interest was charged from them. This high rate of interest made borrowing of money difficult for majority of people, this arose a need for a financial intermediate. The banks have developed their roles to such an extent that a direct contact between the depositors and borrowers in now known as disintermediation. Banking industry has always revolved around the traditional function of taking deposits, money transfer and making advances. Those three are closely related to each other, the objective being to lend money, which is the profitable activity of the three. Taking deposits generates funds for lending and money transfer services which are necessary for the attention of deposits. The bank have introduced progressively more sophisticated versions of these services and have diversified introduction in numerable areas of activity not directly relating to this traditional approach. HISTORY:

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The English traders that came to India in the 17th century could not make much use of the indigenous bankers, owing to the ignorance of their language as well as the inexperience indigenous people of the European trade. Therefore the English agency, houses in Calcutta and Mumbai (then Bombay) began to conduct the banking business besides their commercial business, based on unlimited liability. The Europeans with aptitude of commercial pursuit, who resigned from civil and military, organized these agency houses. A type of business organization recognizable for managing agency took form in a period from 1834 1847. The primary concern of these agency houses was trade, but they branched out into banking as a sideline to facilitate the operations of their main business. The English agency houses that began to serve as bankers to East India Company had no capital of their own and depended on deposits for their funds. They financed movement of crops, issued paper money and established joint stock banks. Earliest of these was Hindustan Bank, established by one of the agency houses in Calcutta in 1770. Banking in India originated in the last decades of the 18th century. The first bank in India though conservative, was established in 1786 in Calcutta by the name of Bank of Bengal. Indian banking system, over the years has gone through various phases. For ease of study and understanding it can be broken into four phases: 1 Early historical and formative era 2 Pre independence era 3 Post independence regulated era 4 Post independence deregulated era GROWTH: The worlds second largest populated country, India is the apple of the eye for the world now. The world economies are seeing it as their potential market. This has been going on since some time now, ever since 1991 reforms of liberalization, globalization and privatization. Indian markets in urban areas have grown appreciably and are on verge of saturation, so corporates have started tapping rural markets, since more than 60% of Indias population lives in rural areas.

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Therefore, consumption trends followed by the rural Indians are considered to be the drivers of future growth of companies. And this trend of tapping rural markets is visible all sectors now, be it FMCG, IT, BANKING EDUCATION etc. For example today India is in better state than China because our GDP is less dependent on exports as compared to them, where maximum revenues come from exporting to the European and US markets. Thus tapping the rural industry is most important us to be a self-sustaining economy. India has been considerably shielded from the global recession. Firstly, we are not very dependent on the exports of our GDP and have a strong customer base in India. Secondly we are a saving prone economy, unlike western economies which are consumption prone. Thirdly, when banks across the world are falling like a pyramid of playing cards, we are safe, steady and strong, with our banks which have acted like a strong backbone of our economy during present turmoil. And just like the FMCG sector there is tremendous growth potential in the banking sector because firstly, the rural markets have the habit of saving and spending only when needed, secondly, due to their small credit requirements for cottage industry, agriculture, marriages etc. According to the researches carried out by the Reserve Bank of India (RBI) on all India basis, 59% of the adult population in the country has bank accounts and 41% dont. In rural areas the coverage of the banks is 39% against 60% in urban areas. There is only one bank for population of 13,000. Tapping the rural markets by banks becomes all the more important, not only for the banking sector but all other industrial sectors as well. If there is growth in the banking sector, it benefits the other sectors as well. By this it is meant that in this sector the trickledown theory of economic growth or top down approach works, if we the banks at the apex in India Inc. Reasons being as banks promote savings in the economy, they speed up the capital formation and then become the source of finance for trade and credit for the industry. Then they provide credit to enable entrepreneurs in their ventures.

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MAJOR PLAYERS: 1 ICICI: ICICI BANK IS Indias second largest bank with total assets of Rs 4062.34 billion (US$ 1 billion) at March 31, 2011 and profit after tax Rs 51.51 billion (US$ 1155 million), for the year ended 31st March 2011. The bank has a network of 2533 branches and 6401 ATMs in India and has a presence in 19 countries including India. ICICI offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The bank currently has subsidiaries in United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar, Dubai International finance center and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Indonesia, Malaysia. The UK subsidiary has established branches in Belgium and Germany. ICICI Banks shares are listed in India on Bombay stock exchange and the National stock exchange of India ltd. and its American depository receipts (ADRS) are listed on the New York Stock Exchange (NYSE). 2 STATE BANK OF INDIA: The bank is actively involved since 1973 in non-profit activity called community services banking. All our branches and administrative offices throughout the country sponsor and participate in large number of welfare activities and social causes. Their business is more than banking because they touch the lives of people anywhere in many ways. 3 CANARA BANK: It was founded as Canara Bank Hindu Permanent Fund in 1906, by late sh. Ammembal Subba Rao Pai, a philanthropist, this small seed blossomed into a

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limited company as Canara Bank ltd. in 1910 and became Canara Bank in 1969 after nationalization. A good bank is not only the financial heart of the community, but also one with an obligation of helping I every possible manner to improve the economic conditions of the common people. A. Subba Rao Pai. Founding principles: Remove Spread Inculcate but Assist Work with sense of also education the as superstition among habit the all to of social the service and and sub-serve thrift heart the first and as ignorance. principle. saving. well. needy. dedication.

Transform the financial institution not only as the financial heart of the company

Develop concern for fellow human beings and sensitivity to the surroundings with a view to make changes and remove hardships and sufferings. Widely known for customer centricity, the bank has gone through various stages of its growth and trajectory over hundred years of its existence. Growth of Canara Bank was phenomenal, especially after its nationalization in the year 1969, attaining the status of a national level player in terms of geographical reach and clientele segments. Eighties was characterized by business diversification by the bank. In June 2006, the bank completed a century of operation in the Indian banking industry. The eventful journey of the bank has been characterized by several memorable milestones. Today, Canara Bank occupies a premier position in the community of Indian banks. With an unbroken record of profits since its inception, Canara Bank has several firsts to its credit. 4 PUNJAB NATIONAL BANK: With over 60 million satisfied customers and more than 5100 offices including 5 overseas branches, PNB has continued to maintain its leadership position among the nationalized banks. The bank enjoys strong fundamentals, large franchise value and a good brand image. Besides being ranked as one of Indias top service brands, PNB has remained fully committed to its guiding principles of sound and prudent
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banking. Apart from offering banking products, the bank has also entered credit card, debit card, bullion business, life and non-life insurance, gold coins and asset management business etc., PNB has earned many awards and accolades during the year in appreciation of excellence in services, Corporate social responsibility practices, transparent governance structure, best use of technology and good human resource management. Since its humble beginning in 1895 with a distinction of being the first Swadeshi bank to have been started with Indian capital, PNB has achieved significant growth in business which at the end of March 2011, amounted to Rs 555005cr. PNB is ranked as the second largest bank in the country after SBI in terms of branch network, business and many other parameters. During the financial year 2010-2011 with 39.16% share of CASA to domestic deposits, the bank achieved a net profit of Rs 4433cr. Bank has a strong capital base with capital adequacy ratio of 12.42% as on March 2011 as per base I II tier I and tier II capital ratio at 8.44% and 3.98% respectively. As on March 2011, the bank has a net and a gross NPA ratio of Rs 1.79% and 0.85% respectively. 5 BANK OF BARODA: It has been a long and eventful journey of almost a century across 26 countries. Starting in 1908 from a small building in Baroda to its new hi-rise and hi-tech Baroda Corporate sector in Mumbai is a saga of vision, enterprise, financial prudence and corporate governance. It is a story scripted in corporate wisdom and social pride. It is a story crafted in private capital princely patronage and state ownership. It is a story of ordinary bankers and their extraordinary contribution in the ascent of Bank of Baroda to the formidable heights of corporate glory. It is a story that needs to be shared with all those millions of people who in ample measure have contributed to the making of an institution. 6 STANDARD CHARTERED The Chartered Bank opened its first overseas branch in India, at Kolkata, on 12 April 1858. Eight years later the Kolkata agent described the Bank's credit locally as splendid and its business as flourishing, particularly the substantial turnover in
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rice bills with the leading Arab firms. When The Chartered Bank first established itself in India, Kolkata was the most important commercial city, and was the center of the jute and indigo trades. With the growth of the cotton trade and the opening of the Suez Canal in 1869, Bombay took over from Kolkata as India's main trade center. Today the Bank's branches and sub-branches in India are directed and administered from Mumbai (Bombay) with Kolkata remaining an important trading and banking center. 7 BANK OF INDIA: Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from Mumbai. The Bank was under private ownership and control till July 1969 when it was nationalized along with 13 other banks.

Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid growth over the years and blossomed into a mighty institution with a strong national presence and sizable international operations. In business volume, the Bank occupies a premier position among the nationalized banks.

The Bank has 3101 branches in India spread over all states/ union territories including 141 specialized branches. These branches are controlled through 48 Zonal offices. There are 29 branches/ offices (including three representative offices)abroad. The Bank came out with its maiden public issue in 1997 and follow on Qualified Institutions Placement in February 2008. . Total number of shareholders as on 30/09/2009 is 215790.

While firmly adhering to a policy of prudence and caution, the Bank has been in the forefront of introducing various innovative services and systems. Business has been conducted with the successful blend of traditional values and ethics and the most modern infrastructure. The Bank has been the first among the nationalized banks to establish a fully computerized branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. The Bank is also a Founder Member of SWIFT in
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India. It pioneered the introduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio.

The Bank's association with the capital market goes back to 1921 when it entered into an agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is an association that has blossomed into a joint venture with BSE, called the BOI Shareholding Ltd. to extend depository services to the stock broking community. Bank of India was the first Indian Bank to open a branch outside the country, at London, in 1946, and also the first to open a branch in Europe, Paris in 1974. The Bank has sizable presence abroad, with a network of 29 branches (including five representative offices) at key banking and financial centers viz. London, New york, Paris, Tokyo, Hong-Kong and Singapore. The international business accounts for around 17.82% of Bank's total business. HDFC BANK: HDFC bank was incorporated in August 1994, currently has an nationwide network of 2000 branches and 5796 ATMs in 996 Indian towns and cities. The Housing Development Finance Corporation (HDFC) was amongst the first to receive an in principle approval from the Reserve Bank of India to set up a bank in the private sector as a part of the Reserve Bank of Indias liberalization of banking industry in 1994. The bank was incorporated in August 1994 in the name of HDFC Bank ltd, with its registered office in Mumbai, India. HDFC Bank commenced operations as a scheduled commercial bank in January 1995. HDFC is Indias premier housing finance company and enjoys an impeccable track record in India. 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 over a million dwelling units. HDFC has gained significant expertise in retail mortgages 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, strong market reputation, large shareholder base and unique customer franchise, HDFC was ideally positioned to promote the bank in the Indian market.

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MARKET SHARE: The fact that the top 8 banks account for barely 54 per cent of the market share suggests that several smaller players occupy the remaining 46 per cent. It is here that the foreign players see the 'opportunity'. Although the smaller players together account for a reasonable share, most of them are under -capitalized, on a standalone basis. The need to cater to the burgeoning credit demand also calls for additional capital requirement, for which their foreign counterparts can come to the rescue of the smaller Indian banks. Also, since the new foreign players will not be allowed to expand freely, the ones taking the subsidiary route for expansion will not be subjected to rural branch norms (25 per cent of branches to be set up in rural areas) as well as priority sector lending requirement (35 per cent). They can thus concentrate their focus on the lucrative urban markets. The market share of top 8 banks are listed below. SBI 22.7% ICICI 7.3% CANARA BANK 5.5% PUNJAB NATIONAL BANK 5.5% BANK OF INDIA 5.3% BANK OF BARODA 4.1% HDFC BANK 2.1% STANDARD CHARTERED 1.9% The fact that the top 8 banks account for barely 54 per cent of the market share suggests that several smaller players occupy the remaining 46 per cent. It is here that the foreign players see the 'opportunity'. Although the smaller players together account for a reasonable share, most of them are undercapitalized, on a standalone basis.

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The need to cater to the burgeoning credit demand also calls for additional capital requirement, for which their foreign counterparts can come to the rescue of the smaller Indian banks. Also, since the new foreign players will not be allowed to expand freely, the ones taking the subsidiary route for expansion will not be subjected to rural branch norms (25 per cent of branches to be set up in rural areas) as well as priority sector lending requirement (35 per cent). They can thus concentrate their focus on the lucrative urban markets. While opening up the sector to more competition and consolidation, it is pertinent to safeguard the smaller domestic banks from getting cannibalized by their stronger foreign counterparts. With regulators like RBI and SEBI keeping a close watch we can hope that they do not fall prey to the vested interests of the foreign players.

PROFILE OF THE ORGANIZATION: HDFC bank was incorporated in August 1994, currently has an nationwide network of 2000 branches and 5796 ATMs in 996 Indian towns and cities. The Housing Development Finance Corporation (HDFC) was amongst the first to receive an in principle approval from the Reserve Bank of India to set up a bank in the private sector as a part of the Reserve Bank of Indias liberalization of banking industry in 1994. The bank was incorporated in August 1994 in the name of HDFC Bank ltd, with its registered office in Mumbai, India. HDFC Bank commenced operations as a scheduled commercial bank in January 1995. HDFC is Indias premier housing finance company and enjoys an impeccable track record in India. 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 over a million dwelling units. HDFC has gained significant expertise in retail mortgages 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, strong market reputation, large shareholder base and unique customer franchise, HDFC was ideally positioned to promote the bank in the Indian market.
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HDFC Banks mission is to be a world class Indian bank. The objective is to build strong customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the banks first appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. The banks business philosophy is based on four core values- operational excellence, customer focus, product leadership and people. The bank as its deposit programs rated by two credit rating agencies Credit Analysis and Research Limited (CARE) and Fitch Ratings India Private Limited. The banks banks fixed deposit programme has been rated CARE AAA (FD) which means instruments rated to be of the best quality carrying negligible investment risk. Fitch ratings India Pvt ltd. has assigned the AAA ratings to the banks deposit programme, which means highest credit quality where protection factors are very high. The bank operates in an automated environment in terms of information technology and communication systems. All the banks branches have online connectivity, which enables 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 banks 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 business. 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. Mr. C.M.Vasudev has been appointed the chairman of the bank with effect from July 6, subject to the approval from reserve bank of India and the shareholders. Mr.
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Vasudev has been a director of the bank since October 2006. A retired IAS officer, he has an illustrious carrier in the civil services and held several key positions in India and overseas, including finance secretary, Government of India, Executive Director, World Bank and Government nominee on the board of many companies in the financial sector. The Managing Director, Mr. Aditya Puri. Has been a professional banker for over 25 years, and before joining HDFC in 1994 was heading CITI banks operations in Malaysia. 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. The banks 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 in the board. COMPOSITION OF THE BOARD: The Composition of the Board of Directors of the Bank is governed by the Companies Act, 1956, the Banking Regulation Act, 1949 and the listing requirements of the Indian Stock Exchanges where the securities issued by the Bank are listed. The Board has the strength of ten (10) Directors as on March 31, 2011. All Directors other than Mr. Aditya Puri, Mr. Harish Engineer and Mr. Paresh Sukthankar are non-executive directors. The Bank has six independent directors and four non-independent directors. The Board consists of eminent persons with considerable professional expertise and experience in banking, finance, agriculture, small scale industries and other related fields. None of the Directors on the Board is a member of more than ten (10) Committees and Chairman of more than five (5) Committees across all the companies in which he/she is a Director. All the Directors have made necessary disclosures regarding Committee positions occupied by them in other companies.
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COMPANYS HISTORY: The housing development finance corporation (HDFC) was the first to receive an in principle approval from the Reserve Bank of India to set up a bank in the private sector as part of the RBIs liberalization industry in 1994. The bank was incorporated in August 1994 in the name of HDFC Bank ltd with its registered office in Mumbai, India. HDFC bank commenced operations as a scheduled bank in 1995 with a simple mission: to be a world class Indian bank. They realized that only a single minded focus on product quality and service excellence would help them get there. RECENT ACHIEVEMENTS AND MILESTONES: As in the past years, awards and recognition have been conferred both nationally and internationally, for the excellence in customer service. Some of them are listed as under: 1 For the fifth consecutive year, bank has bagged the Business Todays Best Bank Award. 2 Outlook Money and NDTV Profits Best Bank private sector category. 3 Dun & Bradstreet American Express Corporate Best Bank Award 2010. There were 26 categories in all. 4 The Financial Express Ernst & Young Best Bank Award in the private sector category HDFC Bank shared the top list with another bank. 5 The Asia Pacific HRM Congress in Mumbai HDFC Bank bagged as many as ten awards including Organization with innovative HR Practices 6 Business Today Survey conducted by the monitor group innovation study HDFC Bank is one of the Indias most innovative 28 companies across ten major business sectors. 7 IDC FIIA Awards 2011 Excellence in customer experience. 8 Teachers Achievement Awards 2010 MR. Aditya Puri. 9 Forbes Asia Fab 50 companies, 5th year in a row.
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10 The Banker Magazine Worlds top 1000 Banks. 11 The Asset Triple A Awards Best Cash Management Bank in India. 12 Avaya Global Connect 2010 Customer Responsiveness Award Banking and Financial Services Category. 13 ACI Excellence Awards 2010 Highly Commended Asia Pacific HDFC Bank. 14 Celents 2010 Banking Innovation Award Model Bank Award. 15 Global Finance Award Best Trade Finance Provider in India for 2010 HDFC BANK Ltd. MILESTONES: AUGUST 30, 1994 Company incorporated The bank received in principle RBIs approval to start a commercial bank. January 5, 1995 Received banking licenses and entered into strategic alliance with National Westminster Bank Group. January 16, 1995 First branch inaugurated (Ramon House, Church gate). May 19, 1995 Got listed in the Bombay stock exchange. November 8, 1995 Got listed in the National stock exchange. 1996-1997 Declared maiden dividends of 8% on equity shares for year ended March 31, 1997. Over 19,000 new accounts opened and over 2,500 new accounts per month. Many more are there in the pipe line. PRODUCT RANGE: HDFC Bank offers a bunch of products and services to meet the needs of the people. The company cares for both, individuals as well as corporates and small and medium enterprises. For individuals the company has a range of accounts, investments, pension scheme and various card facilities to assist customers. The customers can choose the different financial schemes available. For organizations the company has a host of customized solutions that range from funded services, non-funded services, value added services, mutual funds etc.

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These affordable plans apart from providing long term value to the employees help in enhancing goodwill of the company. Various products offered by banks are discussed as under: 1 PERSONAL LOAN: A person has so many dreams, he requires money to fulfill them. It can be anything from a vacation to the childs marriage. Bank offers loans easily with minor documentation. 2 HOME LOAN: HDFC Bank brings home loans to door step. With over 30 years of experience, a dedicated team of experts and a complete package to meet all housing finance needs, HDFC Home Loans, help people realize dream. 3 VEHICLES LOAN: Nowadays the life is so fast, time value is becoming more important. So, to reach at the destination of any business related occasion or for a boy to reach college etc., there is a requirement for vehicle. But every person does not have a capacity to purchase them, so banks offer various kinds of vehicle loans to acquire vehicles at easy installments. 4 GOLD LOAN: With HDFC Banks Gold Loan Plus, a person can get loan against gold jewelry and ornaments. The procedure is simple, documentation is minimal and approval is quick. A person can get 70% loan on the value of ornaments. There is also availability of the overdraft on the gold jewelry. 5 EDUCATION LOAN: The importance of education cannot be ruled out. Every child wants to get into the best institute. Keeping this I view the bank offers education loan so that the payment of fees is not a hindrance in the childs future. A person can get loan up to 10 lakhs if he wants to study in India and 20 lakhs if he wants to study abroad. The loan is available for a period of 7 years including moratorium period. Loans are disbursed directly to the institution. Exclusive Telegraphic Transfer facility is available for courses abroad. Loans are available for shorter duration /job oriented courses also. 6 LOAN AGAINST SECURITY: With HDFC Banks loan against Securities, person can get an overdraft against securities like Equity Shares, Mutual Fund Units, Gold Exchange Traded Fund, NABARD, NSC, KVP, UTI bonds, Gold Deposit Certificate, while still retaining ownership. And the best part is that he can continue to enjoy all shareholders benefits such as rights, dividends and bonuses.
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7 LOAN AGAINST PROPERTY: HDFC Bank brings loan against property (LAP). Person can now take a loan against residential or commercial property to expand his business, plan a dream weeding, and fund his childs education and much more. He can depend on bank to meet all his business requirements, even to purchase a new shop or office for business. Loans are also granted to purchase commercial property. Other products offered by the bank are: 1 Accounts and Deposits: Saving account Salary account Fixed deposit Recurring deposit Demat account Safe deposit account Safe deposit lockers 2 Cards: Credit cards Debit cards Pre paid cards 3 Investments and Insurance 4 Forex services 5 Payment services 6 Access your bank: ATM E-mail statement Branch network Mobile banking One view PERFORMANCE OF THE COMPANY:

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1 DIVIDEND: 2011 The board of directors recommended an enhanced dividend of Rs 16.50 per share for the year ended March 31, 2011, as against Rs 12.0 in the year 2010. This would be subject to approval by the shareholders at the next annual general meeting. It was Rs 10.00 in the year 2009. That is to say that the board of directors recommended an enhanced dividend of 100% for the year ended March 31, 2009 as compared 6to 85% in the year 2008. 2 CAPITAL ADEQUACIES: The banks total Capital Adequacy Ratio (CAR) as at March 31, 2011 stood at 16.2% as against 17.4% as at March 31,2010 and against the regulatory minimum of 9.0%. Tier 1 CAR was 12.2% as of March 31, 2011. During the year 74.8 lac shares were allotted by the bank on the exercise of options granted earlier under various employee stock option plans. As a result, equity share capital increased by Rs 7.5cr and reserves (share premium) by Rs 820.7cr. 3 NETWORKS: As of March 31, 2011 the banks distribution network was at 1986 branches and 5471 ATMs in 996 countries as against 1725 branches as against 4232 ATMs in 779 cities as of March 31,2010. The banks total customer base was 21.9 millions as of March 31, 2011. 4 ASSET QUALITIES: Asset quality continued to remain healthy with gross non-performing assets as on March 31, 2011 at 1.1% of gross advances as against 1.4% at the end of the previous year. The ratio of the net non-performing assets to net advances at the end of the year March 31, 2011 was 0.2% down from 0.3% as at March 31, 2010. The banks provisioning policies for specific loan loss provisions remained higher than regulatory requirements. The NPA regulatory ratio based on specific provisions was at 82.5% as on March 31, 2011 while on March 31, 2010 was 74.8%. Total restructured loans (including applications received and under process for restructuring) were at 0.4% of gross advances of which 0.1% were restructured loans classified as NPAs as on March 31, 2011.
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5 SUBDIVISION OF THE BANKS EQUITY SHARES: The board of directors considered and approved the subdivision or split of one equity share of the bank having a nominal value of Rs 10 into five equity shares of Rs 2 each. The record date for the same shall be determined subsequently. The sub division of shares will be subject to approval of the shareholders and any other statutory and regulatory approvals as applicable. FINANCIAL STATUS OF THE ORGANISATION: The Board of Directors of HDFC Bank Limited approved the annual audited (Indian GAAP) accounts for the year ended March 31, 2011, at their meeting held in Mumbai on Monday, April 18, 2011. FINANCIAL RESULTS: 1 Profit & Loss Account (Quarter ended March 31, 2011) The banks total income for the quarter ended March 31, 2011 was Rs 6724.3cr. Net revenues (net interest income plus other income) at Rs 4095.2cr for the quarter ended March 31, 2011 increased by 24.0% over Rs 3302.1cr for the corresponding quarter ended March 31, 2010. Net interest income (interest earned less interest expended) for the quarter ending March 31, 2011 was Rs 2839.5cr as against Rs 2351.4cr for the quarter ended March 31, 2010. This was driven by loan growth of 27.1% and a core interest margin for the quarter of 4.2%. Other income for the quarter ended March 31, 2011 was Rs 1255.8cr up by 32.1% over that in the corresponding quarter ended March 31, 2010. The main contributor to the other income was commission and fees of Rs 1000.6cr up by 23.2% over Rs 812.5cr in the corresponding quarter ended March 31, 2010. The other major contributors were foreign exchange and derivatives revenue of Rs 245.4cr as against a loss of Rs 47.3cr in the quarter ended March 31, 2010. Operating expenses for the quarter were Rs 1998.4cr, an increase of 24.3% over Rs 1607.8cr during the corresponding quarter of the previous year. The cost-to-income ratio for the quarter was stable at 48.8% as against 48.7% for the corresponding quarter ended March 31, 2010. Provisions and contingencies were Rs 431.3cr (including specific loan loss and floating provisions of Rs 330.1cr), for the quarter
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ended March 31, 2011 as against Rs 439.9cr (including specific loan loss and floating provisions of Rs 322.8cr), for t5he corresponding year ended March 31, 2010. After providing Rs 550.8cr for taxation, the bank earned a net profit of Rs 1114.7cr an increase of 33.2% over the quarter ended March 31, 2010. PROFIT & LOSS ACCOUNT YEAR ENDED MARCH 31, 2011 For the year ended March 31, 2011 the bank earned total income of Rs 24,263.4cr. Net revenues for the year ended March 31, 2011 were Rs 14878.3cr, up by 20.3% over Rs 12369.5cr for the year ended March 31, 2010. The banks net profit for the year ended March 31, 2011 was Rs 3926.4cr up by 33.2% over the year ended March 31, 2010. Consolidated net profit for the bank increased by 32.9% to Rs 3992.5cr for the year ended March 31, 2011. BALANCE SHEET AS OF MARCH 31, 2011 The banks total balance sheet size increased by 24.7% from Rs 222549cr as of March 31, 2010 to Rs 2777353cr as of March 31, 2011. Total net advances as of March 31, 2011 were Rs 159983cr an increase of 27.1% over March 31, 2010. Saving account deposit grew 27.2% over the previous year to reach Rs 63,448cr, while current account deposit at Rs 46,460cr registered a growth of 25.8% over the same period. Adjusting current account deposits for one-offs at year end the core CASA ratio was at 51% of total deposit as at March 31, 2011. PROFIT & LOSS ACCOUNT YEAR ENDED MARCH 31, 2010 For the year ended March 31, 2010 the bank earned total income of Rs 19,980.5cr. Net revenues (net interest income plus other income) for the year ended March 31, 2010 were Rs 12,194.2cr up by 13.8% over Rs 10,711.8cr for the year ended March 31, 2009. The banks net profit for the year ended March 31, 2009. The banks net profit for the year ended March 31, 2010 was Rs 2948.7cr, up by 31.3% over the year ended March 31, 2009. Consolidated net profit of the bank increased by 33.6% to Rs 3003.7cr for the year ended March 31, 2010. BALANCE SHEET AS OF MARCH 31, 2010 The banks total balance sheet increased by 21.4% from Rs 183271cr as of March 31, 2009 to Rs 222459cr as of March 31, 2010. Total gross advances as of March
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31, 2010 were Rs 127262cr, an increase of 27.0% over March 31, 2009. Total deposits were at Rs 167404cr an increase of 17.2% over March 31, 2009. Savings account deposits grew 42.9% over the previous year to reach Rs 49877cr, while current account deposits at Rs 37227cr registered a growth of 30.9% over the same period. As a result, the core CASA ratio was at 50% of total deposits as at March 31, 2010 as compared to 45% as of March 31, 2009. PROFIT AND LOSS ACCOUNT YEAR ENDED MARCH 31. 2009 For the year ended March 31, 2009 the bank earned total income of Rs 19622.9cr as against Rs 12398.2cr in the previous year. Net revenues (net interest income plus other income) for the year ended March 31, 2009 were Rs 10711.8cr up 42.6% over Rs 7511.0cr for the year ended March 31, 2008. Net profit for the year ended March 31, 2009 was Rs 2244.9cr. up by 41.2% over the corresponding year ended march 31, 2008. BALANCE SHEET AS OF MARCH 31, 2009 The banks total balance sheet size increased by 37.6% from Rs 133177cr as of March 31, 2008 to Rs 183271cr as of March 31, 2009. Total deposits were Rs 142812cr am increase of 41.7% as from March 31, 2008. With savings account deposits of Rs 34915cr and current account deposit of Rs 28445cr the CASA mix was at around 44.4% of total deposits as at March 31, 2009. Gross advances as at March 31, 2009 were 100239cr an increase of 48.3% over March 31, 2008. The banks total customers assets (including advances, corporate debentures, investment in securitized papers etc.,) were Rs 100436cr as of March 31, 2009. Retail loans at Rs 61154cr were up 55.5% over March 31, 2008 and now from 61% of gross advances. FUTURE PROSPECTS AND PLANS: HDFC Bank after the merger with Centurion Bank of Punjab, has chalked out a plan to relocate about 25 30 branches in rural Punjab to tap the unbanked areas. The bank aims to strengthen its distribution network by focusing on agriculture, commodity and retail business.

41

Sharing details about the future plans with FE Govind Pandey, regional head north HDFC said, We have acquired over 100 branches of Centurion Bank of Punjab and Haryana through merger. But in order to reach out to the interiors we are relocating branches in rural Punjab. We are also mapping the mandis in different districts as potential sites. Surveys are on for finalizing the new sites and relocation phase will start in another 3 months. The integration of systems of both the banks has already started and it is likely to be complete within a month or so. The bank has achieved its target of opening new branches for this year with the inauguration of new branch in Chandigarh. This takes the count to 29 branches in Chandigarh, Panchkula and Mohali region. The bank now has about 1300 branches in Punjab with over 50% branches in semi-urban and rural areas. Anticipating a further rise in the repo rate by RBI in the last week of July, HDFC Bank is also helping us fight inflation. Since the Reserve Bank of India is expected to increase the repo rate the interest rates will also go up. This correction does slow down the growth of the banks but they are confident of achieving their growth target of over 50% by the end of this fiscal year. HDFC Bank is one of Indias premier banks providing a wide range of financial products and services to its over 11 million customers across India. For the year ended March 31, 2008, HDFC Bank reported a net profit of Rs 1590.2cr up 39.3% over the corresponding year ended March 31, 2007. As of March 31, 2008 total deposits were Rs 100769cr up 47.5% over the corresponding year ended March 31, 2007.

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MARKETING INITIATIVES TAKEN BY THE BANK: HDFC bank is possibly the only bank in India, and one of the very few in Asia, to have embarked on a data led marketing analytics campaigns initiative, using marketing automation technology provided by Unica. Unica has been recognized by Gartner as the leading player in this field. Through this tool, we have been able to intelligently use the 4-5 terabytes of customer data available in its warehouse. We have set up a team to conduct marketing campaigns in a scientific manner using customer data, usage patterns, preferences, life cycle etc., the bank also conducts event based marketing activities, which remain important in the bigger scheme of things. However the marketing analytics initiative enables us to measure the efficacy of the campaigns, testing every campaign every step of the way, experimenting with creative, message, media etc.,. There are learnings that can immediately be absorbed and incorporated in the next campaigns, and these campaigns in a way provide us with information about customer choices and preferences that can be used for mass media communication, making them more effective media vehicles used for sending messages to reach target audience. HDFC bank has been predominantly using direct mailers, SMS for communicating with the customers, as they are the most cost effective routes for addressing our core target audiences with maximum degree of customization possible. POSITIONING STRATEGY: Positioning is the act of designing the companys offering and image to occupy a distinctive place in the target markets mind. Positioning starts with a product. But positioning is not what you do to a product. Positioning is what you do to the mind of the prospect. That is you position the product in the mind of the prospect. A companys differentiating and positioning strategy must change as the product, market change over time. Once the company has developed a clear positioning strategy, it must communicate that positioning effectively. HDFC bank has positioning strategy of Continuing a Tradition of Trust. It is accurate positioning strategy because it signifies a trust with its clients. In it there is a special relationship manager dedicated towards customer service and satisfaction
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and give them guidance about various schemes which helps them to get right scheme which suits their needs. In this way it continues to maintain a trust with its clients.

44

CHAPTER 3 OBJECTIVES OF THE STUDY: The project is being carried out with the objective of highlighting the benefits of working capital to various p\organizations, and how working capital helps in expansion of existing business and various investment opportunities available with surplus working capital. Also to find out various opportunities available to the bank for expansion, hence the above project is being carried out with the objective of finding out the importance of various organizations. The objective of this dissertation is as follows: 1 To examine the features of various types of working capital loan schemes. 2 To examine the appraisal procedure followed by the bank for advancement of working capital loan with the help of live cases

RESEARCH METHODOLOGY: PRIMARY DATA: Data has been collected through interviewing the people of the organization who need working capital for their daily work. SECONDARY DATA: Secondary data has been collected through internal as well as external sources. I took inputs from various websites, newspapers etc. SAMPLE SIZE: All the working capital loan products of the bank have been considered for the purpose of this study.

45

CHAPTER 4 This chapter includes the annalysis of various working capital products offered by the bank and a detailed annalysis of the appraisal procedure. WORKING CAPITAL PRODUCTS: 1 OVERDRAFT AGAINST PROPERTY (ODAP): It is just like loan, but in overdraft the rates of interest are increased and this is paid on the amount withdrawn on lump sum. The minimum amount for ODAP is 10 lakhs and the maximum is 100 lakhs. The business vintage should be 3 years. i.e., the prompter should be in the same business from 3 years. Minimum annual turnover should be 40 lakhs and maximum be 500 lakhs. The promoters money in business be more than 1.5 times the facility money requested. Positive net profit is required. 2 OVERDRAFTS AGAINST FIXED DEPOSIT (ODFD): The minimum amount for ODFD is 10 lakhs and the maximum is no cap. The clause of business vintage is not applicable here. Minimum annual turnover should be 50 lakhs and maximum be 500 lakhs. Positive net profit is required. Overdraft limits are 90% of the fixed deposit value. 3 MERCHANT OVERDRAFTS (MEOD): The merchants can undergo the facility of withdrawal in order to carry their day to day work. The minimum amount for MEOD is 5 lakhs and the maximum is 30 lakhs. Business vintage is minimum 3 years at the same location and the business should also be the same. The annual turnover should be 50 lakhs minimum and a maximum of 500 lakhs. The promoters money in business should be more than 1.5 times the facility amount requested. The banking vintage should be a minimum of 12 months of credit facility and minimum 6 months current account with the bank. The net profit needs to be positive. If the amount exceeds 30 lakhs it would fall under working capital facility. 4 CHEQUES PROTECT:

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Under this the event of insufficient funds in salary account, will be swept in from the linked flexi cash account to honor the debit. Such sweeps are treated as withdrawals under facility. The minimum amount is 5 lakhs and the maximum amount is 20 lakhs for Mumbai, Pune, Delhi, Chandigarh, Kolkata, Chennai, Hyderabad, and 13 lakhs for other cities. Business vintage is 3 years in same location and 5 years in same business. There should be a minimum turnover of 100 lakhs and a maximum of 500 lakhs. Promoters money in business should be more than 1.5 times the facility amount requested. Bank vintage is 12 months current account with HDFC bank and no working capital facilities, post availing of facility MDFC to be sole banker in 15 days. Positive net profit from the last two years is required. 4 CREDIT GUARATEE TRUST FOR MICRO AND SMALL ENTERPRISES (CGTMSE): The minimum amount for CGTMSE is 5 lakhs and a maximum of 100 lakhs. The business vintage is 5 years. Annual turnover of the business be a minimum of 50 lakhs and a maximum of 500 lakhs. Promoters money in business be more than one time the facility amount requested. For banking vintage if it is new to bank it can be accepted. Net profit should be positive for last 3 years. Additional thing is that the main promoter has to own residence and business premises in the same city.

Appraisal Procedure

PRESENTATION OF THE CASE: M/S Bimal

Name of the company

Chand Segment Distributor Facilities Proposed 20 lakhs Months (financial year) 12 P&L Sheet (All figures Mar 31, 11 in Rs. lakhs)

12 % sales Mar 31, 10 % sales

12 Mar 31, 09
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Sales Other Income Total Income Total Expenses PBDIT Interest Depreciation PBT Tax PAT Cash Profits

151.0 0.1 151.1 142.8 8.3 5.6 0.0 2.7 0.3 2.4 2.4 Yes

0.63 94.5% 5.5% 3.7% 0.0% 1.8% 0.2% 1.6%

239.5 0.7 240.2 230.3 9.9 6.6 0.6 2.8 0.3 2.5 3.0 Yes 5.8 0.0 5.8 18.6 0.0 32.1 50.6 5.5 0.3 62.310

269.5 0.3 269.8 95.9% 259.9 4.1% 10.0 2.7% 6.7 0.2% 0.7 1.2% 2.6 0.1% 0.3 1.0% 2.3 3.0 Yes 3.7 0.0 3.7 10.3 0.0 48.6 58.9 7.6 0.6 70.790

Liabilities Equity Share Capital 8.4 Reserves (excluding 0.0 revaluation reserves) Tangible Net worth 8.4 Short Term Debt 20.0 Long Term Debt 0.0 Unsecured loans from 29.6 promoters Total Debt 49.5 Current Liabilities (CL) 2.3 Provisions 8.6 Total Liabilities 68.800 Assets Net Fixed Assets Investments Loans & Advances Sundry Debtors Inventories Cash & Bank balances Other Current Assets Total Current Assets Total Assets

3.1 0.0 0.1 16.0 39.5 1.0 9.2 65.7 68.800

3.1 0.0 0.7 17.5 37.0 2.4 1.7 59.2 62.310 0

3.7 0.0 0.5 24.5 38.6 1.5 2.0 67.1 70.790 0

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Debt Repayment during 0

the year Current fund based WC (part of CL) Financial Ratios Gross Margin

5.5% (PBDIT/TI) Net Margin (PAT / TI) 1.6% Cash Profit Margin 1.6% (Cash Profits/TI) ROCE 14.3% Current Ratio 2.96 Interest Coverage 1.48 DSCR 1.42 Debt / Equity Ratio 5.87 TOL / Tangible Net 7.16 worth TOL/ (Tangible NW+ 0.81 Loans from promo.) Current Assets / Sales 44% Total Assets / Sales 46% Debtor Days 39 Inventory Days cost of 101 sales Creditors days as cost of 6 sales Working Capital Gap 55 Promoters contribution 35 of WC Gap Promoters contribution 64% of WC Gap (%) Investment in group 0 companies Investment in group 0% cos./NW Tangible net worth / 42% Facility value (TNW + USL from 190%

4.1% 1.0% 1.3% 17.6% 2.46 1.51 1.46 8.67 9.67 0.64 25% 26% 27 59 9 53 34 65% 0 0% 29% 189%

3.7% 0.9% 1.1% 16.0% 3.75 1.49 1.46 15.99 18.24 0.35 25% 26% 33 54 11 58 48 82% 0 0% 18% 261%
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Prom.) / Facility value Raw Material Costs /

138.4 Traded Goods purchases RM Costs / Sales 92% Employee costs 3.39 Employee Costs / Sales 2.2% Sales & Advertising/Marketing Expenses Marketing Expenses / Sales Remuneration directors/partners Remuneration to partners/ Sales Promoters contribution of CA (%) Latest Financials Years in Business Family in business Competitive advantage Dependence on Government policies Nature of Products / Services Promoter reputation / Integrity Promoter involvement in business Audit Qualification Dependence on customers - Max. Share of any customer in applicant's sales Impact of technology 5-10% to 0

222.7 93% 6.2 2.6% 0.0

252.66 94% 5.67 2.1% 0

0.0% 0 0.0% 53% Provisional 30 1st generation Sustainable Low Growth Good High No qualification

0.0% 0.0 0.0% 58%

0.0% 0 0.0% 72%

Medium
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change PMB/Facility Amount Banking Behavior Trends Churn Overdrawings / TOD Repayment Track Cheque Returns

3.0

>= 75% No overdrawings Prompt Inward Cheque bounces For GOOD, Max 3 I/w

>= 75%

>= 75%

Overall Account Conduct

Good

Cheque bounces / Quarter AND EMIs regular AND Max TOD = 10 Days / 6 months AND churn adequate March 31, 2009 18.24 3.75 2.30 269.5 54 52

Financial Trends TOL / TNW Current Ratio Net Profits Sales Growth Inventory Days TNW + Un Sec Loans from Promoter Gross Inv. In P & M (in

Avg. Prev. 2 yrs. 13.95 3.10 2.39 254.52 56 45

March 31, March 31, 2011 7.16 2.96 2.38 151.0 101 38 2010 9.67 2.46 2.47 239.5 59 38 Gross Inv. In

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Lacs) Prom. contribution to WC / Current Assets 53%

Equipments (in Lacs) 58% 72%

Score Internal Grading Final Grading

64 5(5-)

52

ANALYSIS OF THE CASE: 1 PROFILE: PROMOTERS BACKGROUND AND MANAGEMENT DETAILS: M/s Bimal chand Enterprises is a Proprietorship Firm under namely Mr. Rajesh Jain & is trading in FMCG Products since 2009. The firm deals in reputed brands like Dabur India Ltd, Fena (P) Ltd, Godrej Consumer Product Ltd, Panasonic Battery (I) Co. Ltd (Novino) etc. M/s Bimal Chand is a sister concern business in this firm. The proprietor of the firm has experience of over 20 years in the same line of business. Hence, the firm may be new but the management is pretty experienced. Mr. Rajesh Jain is a graduate having 20 years of experience in the same line of business. He manages day to day working of Bimal Chand. The firm is having an annual turnover of Rs. 146.00 Lacs for 2009-10 and expected sale turnover of Rs. 200.00 Lacs in FY 2010-11. The firm is availing a CC Limit of Rs. 15.00 Lacs and from Oriental Bank of Commerce. BUSINESS PROFILE, PRODUCY AND SERVICE DETAILS: The firm is under the name of Bimal Chand Enterprises at Shop No. 24, New Partap Market, Ropar-140001 (Punjab). The firm is distributor & stockiest of FMCG brands like Dabur India Ltd, Panasonic Batteries, Godrej Consumer Products, Fena P Ltd, Dera Darshan & other reputed brands also. Procures raw material from Chandigarh, Panchkula, Ropar & Delhi. The sale is in local 7 surrounding markets. The sale in the first year was Rs 50 lakhs & rose to Rs 146 lakhs in 2010-11. The firm is showing growth in sales & margins. The expected turnover for 2011-12 is Rs 200 lakhs. Bimal Chand Enterprises is one of the leading trader in FMCG Products from last 2 years. The Promoter Mr. Rajesh Jain is Graduate having 20 years of experience in the above said line of business.
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FINANCIAL ANALYSIS: The sale of the firm has increased by 186.8% amounting to Rs. 146.00 lakhs in 2010-11 which is a good sign and will be a prime factor to be looked into while funding the working capital. Gross Margins of the firm are 2.1% in FY 2009-10 and it has decreased to 0.2% in FY 2010-11. The raw material costs are same 96% in FY 2009-10 and FY 2010-11. The net margin of the firm are 2.1% in FY 2009-10 and it has decreased to 0.2% in FY 2010-11. The cash margin of the firm are 2.1% in FY 2009-10 and it has decreased to 0.2% in FY 2010-11. Inventory holding days was 119 days for FY 2009-10 and it has decreased to 51 days in FY 2010-11. The debtors level were 30 days in days in FY 2009-10 and it has decreased to 20 days in FY 2010-11. The current assets/sales have been decreasing from 45% in 2009-10 to 30% in 2010-11. The liquidity position of the firm is satisfactory with the current ratio is 2.36:1 in 2009-10 and it has increased to 2.63:1 in 2010-11. The interest coverage ratio was 1081.00:1 in 2009-10 and it has decreased to 4.83 in 2009-10. The loan & advances of the firm are 0.1 in FY 2009-10 and it has decreased 0.2 in FY 2010-11. The promoters money in business is the money of the owner in the business. It is preferred to have it on a higher side so that the business is carried on with interest. In this case the promoters money in business is lakhs which is satisfactory. CHURNING CAPTURED: Churning Utilization
54

Months

HDFC Bank CA / Bank OBC WC Name

Other Total Banks Bank Bank Name Name

Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Total Total Churn of last 6 months Avg. Churn of last 6 months

6.55 5.02 8.77 4.85 4.57 29.76

3.70 5.74 6.84 4.07 5.10 5.93 31.38 0.00

3.70 12.29 11.86 12.84 9.95 10.50 0.00 0.00 Average Minimum utilization Maximum utilization

90% 100% 100% 99% 100% 100%

10.19 98% 90%

61.14

10.19

100%

The above table denotes the churning which means that how much of the money is being transferred in the bank account from where the loan has been acquired. Usually it should be 75% of the amount taken, this denotes that the person has good account conduct and is a truthful customer. But in case the churning is less than 75% then the bank needs to work out the reason for it. Most commonly there are two reasons for it: 1 Either the business is not in a profitable position

2 The bank is having a current account with some other bank also, this state is not permissible according to the norms of the RBI, the customer is breaching the code of conduct of the bank.
RECOMMENDATION:

55

Considering the satisfactory Financial, satisfactory conduct with existing banker and vintage of promoter's in line of business case is recommended for CC limit of Rs 30 Lacs by takeover of existing CC limit of Rs 15.0 Lacs from Oriental Bank of Commerce as per terms and conditions stipulated in CAM.

CHAPTER 5 SUMMARY, FINDINGS AND CONCLUSION The financial system in India has witnessed considerably less turmoil and volatility than that in advanced economies. Given this scenario, domestic corporates are more

56

likely to turn to local sources of funding. Cyclical slowdown is unlikely to impact segments of the economy such as agriculture where a structural shift is under way. The rural economy has been the greater focus of government policy in recent years, and significant opportunities lie for banks here where the penetration of credit and financial products is still relatively low. Banks have been advised to give preference to the village industries, tiny industries and other small scale units in that order, while meeting the credit requirements of the small scale sector. For this purpose the banks should draw up annual credit budget for the SSI sector on a bottom up basis. The central and state governments appear to be driving an ambitious programme in the infrastructure sectors. The eleventh five year plan (2007-2012) envisages an investment of USD 500 billion, with approximately U80 billion envisaged for 200809 alone. This presents a major opportunity for banks and financial institutions to finance these investments. Although growth in retail credit has moderated in the last year, the low penetration levels of retail credit (estimated at less than 12% of GDP), the shift in demographics towards a higher proportion of younger working population, the changing attitudes towards borrowings, higher income levels amongst the growing middle class, and the large pent up demand for housing, cars etc., all augur well for the long term, sustainable growth of retail landing in the Indian market. Despite the prospect of a slowdown in the global economy, commodity price pressures, particularly those in food and mineral oils, show very little sign of abating. As the base-effect wears off, headline inflation is likely to ramp up to well over 7%. So, inflation concerns are likely to influence monetary policy stance going forward going forward and the prospect of an economic slowdown need not entail immediate monetary easing. Thus, the operating environment of banks in 20082009 could be a combination of a slower credit growth and some upward bias in interest rates. As said before the government is focusing largely towards agriculture which is lagging behind as compared to other industries and moreover 70% Indian population is dependent on it and now with coming of new technology, this provides for major opportunities to banks to finance these investments as till now private banks are not playing a major part in the agriculture industry.
57

CONCLUSIONS: 1 Almost all the banks offer similar features and facilities with their loans, therefore for existing customers of any bank to shift to another bank; this is very rarely a reason. 2 The level of service in terms of delivering whatever is promised, fast response in case of problem, is the most important benefit that the customers seek, from the banks they have loans with. 3 Rate of interest and pay-back period is very important criterion for the customer while taking loan. We can also conclude from our analysis that network reach in terms of branches is directly proportional to the market share in case of private banks. 4 In case of a new customer, if a bank approaches it first for loans, then there is a good chance for the bank of getting many future businesses and cross sales from the deal. 5 Aggressive marketing is the key to increasing the market share in this area, since the market has a lot of potential both in terms of untapped market. To sum up working capital should be considered as a integral part of overall corporate management. We need to know when to look for working capital funds, how to use them, how to measure, plan and control them. To achieve the above mentioned objectives of working capital management, the financial manager has to perform the following functions: 1 Estimate the working capital requirements. 2 Finance the working capital needs. 3 Analyze and control the working capital. RECOMMENDATIONS 1 Contract sales executives (CSE) should be trained to explain the product features and its value added services to make customers product selection convenient.

58

2 Contract sales executives should recommend right product to the right customer so as to ensure a high degree of satisfaction among the customer. 3 The bank needs to make people aware about their products and the basic benefits they can derive out of it. And also the differential features of its loans as compared to other banks. 70% of the people do not even know about the features, benefits, concept of their loan. 4 The bank should also target small business units for whom maintenance of the ABQ is not a problem as this segment is not much penetrated. 5 Though the bank offers free doorstep banking once a day, this fact is also not known to many customers or they still do not trust this service. 6 Quality of service has been rated highly important by all demo figural factors as a reason for banking with particular bank, HDFC needs to improve the services provided to its existing customers before attracting more in the future and use word of mouth as a promotional tool to increase the sales potential of it loans.

APPENDICES: FINANCIAL ANALYSIS: P&L Sheet (All figures in Rs. lacs) Total Income PBDIT Interest Mar 31, 11 146.0 0.3 0.1 Mar 31, 10 50.9 1.1 0.0 Mar 31, 09 0.0 0.0 0.0
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Depreciation PBT Tax PAT Cash Profits Liabilities Tangible Networth Short Term Debt Long Term Debt Unsecured loans from promoters Total Debt Current Liabilities & Provisions Total Liabilities Assets Net Fixed Assets Investments Loans & Advances Sundry Debtors Inventories Other Current Assets Total Current Assets Total Assets Financial Ratios Gross Margin (PBDIT/TI) Net Margin (PAT / TI) Current Ratio Interest Coverage DSCR Debt / Equity Ratio Leverage (TOL / Tangible Networth) TOL (excl Unsec loans) / Tangible NW Current Assets / Sales Debtor Days Inventory Days cost of sales Creditors days as cost of sales

0.0 0.2 0.0 0.2 0.2 13.0 12.2 0.0 1.2 13.4 17.7 44.1 0.0 0.0 0.2 7.9 20.4 15.5 44.1 44.1 0.2% 0.2% 2.63 4.83 4.83 1.03 2.39 2.10 30% 20 51 11

0.0 1.1 0.0 1.1 1.1 13.1 2.5 0.0 0.0 2.5 7.1 22.7 0.0 0.0 0.1 4.2 16.3 2.1 22.7 22.7 2.1% 2.1% 2.36 1081.00 1074.00 0.19 0.73 0.73 45% 30 119 52

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0% 0.0% 0.00 0.00 0.00 0.00 0.00 0.00 0% 0 0 0

ASSESSMENT OF LIMITS: Method Turnover Method

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Proposed FB WC Limits Applicability Prev / curr. FY Sales in prev./curr. FY Sales proj. for curr./next FY Maximum WC requirement Minimum prom. cont. to WC WC eligibility WC already availed WC which can be extended

30 Yes 2010-11 146.00 200.00 50.00 10.00 40.00 15.00 25.00

BIBLIOGRAPHY: REFERENCE TO A BOOK: 1 CA Praveen Kumar (2011), Financial Management, Institute of Charted Accountants of India. 2 R.K Sharma (2010), Management Accounting and Business Finance, Kalyani Publishers. REFERENCE TO WEB PAGE: 1 http://www.hdfcbank.com/personal/default.htm Date: 22/16/2011 Date: 23/06/2011 Date: 26/06/2011 2 http://www.moneycontrol.com Date: 28/06/2011 Time: 11.30am Time: 12.30pm Time: 11.35am Time: 02.05pm

3 http://www.standardchartered.co.in/personal/home/en/indek.html Date: 30/06/2011 Time: 11.45am

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4 http://www.bankofindia.com/history.aspx Date: 30/06/2011 Time: 11.45am

5 http://www.icicibank.com/aboutus/about-us.html Date: 30/06/2011 Time: 11.45am

6 http://statebankofindia.com/user.html Date: 30/06/2011 Time 12.10pm

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