ON

“WORKING CAPITAL MANAGEMENT IN ICICI BANK

Meerut”

SUBMITTED IN THE PARTIAL FULFILMENT OF THE REQUIREMENTS

FOR THE AWARD OF THE DEGREE OF

“MASTER OF BUSINESS ADMINISTRATION”

From
Dr. A.P.J. Abdul Kalam Technical University , Lucknow

(2017-2019)

Submitted to: Submitted By:

Prof. Shweta Batra Amal Gautam
HOD Management Deptt. MBA: 3rd sem
ROLL NO: 1712970008

Forte Institute of Technology,

Green Park Mawana Road, Meerut.

1
 Declaration

I Amal Gautam student of MBA IIIrd Semester of FIT, Meerut hereby declare that the

summer training project report on “WORKING CAPITAL MANAGEMENT IN ICICI

BANK” is an original and authenticated work done by me. I further declare that it has not

been submitted elsewhere by any other person in any of the University for the Award of any

degree or diploma.

Date: Amal Gautam

Place:

2
 Acknowledgement

Achievement is finding out what you would be then doing, what you have to do. The higher

the summit, the harder is the climb. The goal was fixed and we began with a determined

resolved and put in ceaseless sustained hard work. Greater challenge, greater was our effort to

overcome it.

This project work, which is my first step in the field of professionalization, has been

successfully accomplished only because of my timely support of well-wishers. I would like to

pay my sincere regards and thanks to those, who directed me at every step in my project

work.

I would like to thank Mr. Gopal Purohit, General Manager (Accounts) for giving me a

chance to work with this organization and for extending words of encouragement and

wisdom.

My sincere thanks are also due to Mr. Nitin Rana (Asst. Professor) FIT, Meerut for their

significant help extended for the successful completion of the project. I highly thankful for

the help I got from them in providing me and lot of information regarding the functioning of

this organization.

I would also like to thank the faculty members and the staff members of ICICI Bank. For

their kind support and help during the project.

3
 PREFACE

This project is based on the study of working capital management in ICICI Bank. An insight

view of the project will encompass – what it is all about, what it aims to achieve, what is its

purpose and scope, the various methods used for collecting data and their sources, including

literature survey done, further specifying the limitations of our study and in the last, drawing

inferences from the learning so far.

The working capital management refers to the management of working capital, or precisely

to the management of current assets. A firm‘s working capital consists of its investments in

current assets, which includes short-term assets—cash and bank balance, inventories,

receivable and marketable securities.

This project tries to evaluate how the management of working capital is done in ICICI Bank

through inventory ratios, working capital ratios, trends, computation of cash, inventory and

working capital, and short term financing.

4
 Contents

 Introduction 6

 scope of study 32

 objective 33

 Research Methodology 34

 working capital management ICIC Bank 36

 Data Analysis 92

 Limitations of the study 97

 Recommendation & Suggestions for future research 98

 conclusion 99

 Bibliography 100

 Appendix 100-110

5
 INTRODUCTION:

The project undertaken is on ―WORKING CAPITAL MANAGEMENT IN ICICI BANK‖.

It describes about how the company manages its working capital and the various steps that

are required in the management of working capital.

Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's ability to

fund operations, reinvest and meet capital requirements and payments. Understanding a

company's cash flow health is essential to making investment decisions. A good way to judge

a company's cash flow prospects is to look at its working capital management (WCM).

Working capital refers to the cash a business requires for day-to-day operations or, more

specifically, for financing the conversion of raw materials into finished goods, which the

company sells for payment. Among the most important items of working capital are levels of

inventory, accounts receivable, and accounts payable. Analysts look at these items for signs

of a company's efficiency and financial strength.

The working capital is an important yardstick to measure the company‘s operational and

financial efficiency. Any company should have a right amount of cash and lines of credit for

its business needs at all times.

This project describes how the management of working capital takes place at ICICI.

6
 COMPANY PROFILE

ICICI Bank is India's second-largest bank with total assets of about Rs. 1 trillion and a

network of about 540 branches and offices and over 1,000 ATMs. ICICI Bank 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 and affiliates in the areas

of investment banking, life and non-life insurance, venture capital, asset management and

information technology. ICICI Bank's equity shares are listed in India on stock exchanges at

Chennai, Delhi, Meerut and Vadodara, the Stock Exchange, Mumbai and the National Stock

Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the

New York Stock Exchange (NYSE).

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial

institution, and was its wholly owned subsidiary. ICICI's shareholding in ICICI Bank was

reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering

in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of

Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by

ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at

the initiative of the World Bank, the Government of India and representatives of Indian

industry. The principal objective was to create a development financial institution for

providing medium-term and long-term project financing to Indian businesses. In the 1990s,

ICICI transformed its business from a development financial institution offering only project

finance to a diversified financial services group offering a wide variety of products and

services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In

7
1999, ICICI become the first Indian company and the first bank or financial institution from

non-Japan Asia to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the context of the

emerging competitive scenario in the Indian banking industry, and the move towards

universal banking, the managements of ICICI and ICICI Bank formed the view that the

merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities,

and would create the optimal legal structure for the ICICI group's universal banking strategy.

The merger would enhance value for ICICI shareholders through the merged entity's access

to low-cost deposits, greater opportunities for earning fee-based income and the ability to

participate in the payments system and provide transaction-banking services. The merger

would enhance value for ICICI Bank shareholders through a large capital base and scale of

operations, seamless access to ICICI's strong corporate relationships built up over five

decades, entry into new business segments, higher market share in various business segments,

particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries.

In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of

ICICI and two of its wholly owned retail finances subsidiaries, ICICI Personal Financial

Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was

approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of

Gujarat at Ahmadabad in March 2002, and by the High Court of Judicature at Mumbai and

the Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's

financing and banking operations, both wholesale and retail, have been integrated in a single

entity.

8
BOARD MEMBERS:

MR. N. VAGHUL, CHAIRMAN

MR. UDAY M. CHITALE

MR. P.C. GHOSH

DR. SATISH C. JHA

MR. L. N. MITTAL

MR. ANUPAM PURI

MR. VINOD RAI

MR. SOMESH R. SATHE

MR. P.M. SINHA

MR. R. SESHASAYEE

MR. M.K. SHARMA

PROF. MARTI G. SUBRAHMANYAM

MR. K.V. KAMATH, MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER

MS. LALITA D. GUPTE, JOINT MANAGING DIRECTOR

MS. KALPANA MORPARIA, EXECUTIVE DIRECTOR

MR. S. MUKHERJI, EXECUTIVE DIRECTOR

MS. CHANDA KOCHHAR, EXECUTIVE DIRECTOR

DR. NACHIKET MOR, EXECUTIVE DIRECTOR

9
HISTORY OF COMPANY

1994

The Bank was incorporated on 5th January at Baroda. ICICI Bank was promoted by ICICI

and erstwhile SCICI Ltd. and received the Certificate for Commencement of Business on

24th February. It does banking business of all kinds. It was founded as an institution to

provide quality-banking services using state-of-the-art technology.

1996

The deposit products and other services of the bank were branded with names such as `Maxi

cash' for services accounts, `Money Plus' for Current Account, `Quantum' for fixed deposit

account, `Power Pay' for payroll accounts treasure chest for locker facilities and `Trice' for

automated teller machine facility.

The Bank had, in compliance with a directive issued by RBI, deposited in aggregate Rs 88.16

crores with small Industrial Development Bank of India and National Bank for Agricultural

& Rural Development.

The `B' category branches were authorized to handle full range of foreign exchange

transaction of customers and five other branches were placed in `C' category to handle limited

foreign exchange transactions.

Seven branches of the bank with substantial foreign exchange business were linked to the

society for worldwide Interbank Telecommunication (SWIFT) network which enables them

to transmit Letter of Credit and fund transfer messages promptly world wide.

10
700 No. Of equity shares subscribed for by signatories to the Memorandum of Association.

1500, 00,000 No. Of equity shares allotted to ICICI Ltd.

1997

The bank introduced electronic funds transfer facility. The bank has a full-fledged vigilance

and inspection department.

The Bank offered 150, 00,000 No. Of equity shares of Rs 10 each at a prem., of Rs 25 per

share to ICICI.

The Bank offered for sale 412, 50,200 No. Of equity shares of Rs 10 each at a price of Rs 35

per share.

Sicom Ltd. has entered into an agreement with ICICI Bank and Dresdner Bank for providing

a counter guarantee against letters of credits (LCs) opened by its clients.

The merger of SCICI with ICICI effective from April 1, the bank has become a wholly

owned subsidiary of ICICI.

ICICI Banking Corporation, a fully-owned subsidiary of Industrial Credit & Investment Corp

of India Ltd, has finalized an offer for sale of 4 crores equity shares of Rs.10 each at a

premium of Rs.30 per share, according to merchant banking sources.

1998

11
ICICI Bank, which introduced Internet banking in India, is set to launch various technology-

based new services in the near future. Some of the new services include setting up of call

centers and the introduction of fund transfers between own accounts in its branches.

ICICI Banking Corporation Ltd, the first bank in the country to go in for Internet banking, is

now all set to provide its account-holders with the facility of transferring funds across their

accounts on the Net.

1999

ICICI Bank has signed an agreement to use the NCR switch mark technology for online-

networking all its ATMs, the officials said they network would come into place in September.

ICICI Bank recently restructured its organizational structure by setting up strategic business

units for retail banking, corporate banking and forex and treasury operations, as independent

profit centers.

ICICI is all set to launch a 60-second television commercial on August 15, 1999.

12
2015

ICICI Bank became the first Indian bank to list on the New York Stock Exchange with its

$175-million American depository shares issue generating a demand book 13 times its size at

$2.2 billion.

The Bank proposes to bring credit cards to the "large, underserved population" in rural and

semi-urban areas.

Sky Cell Communications Ltd, one of the two cellular service providers in Chennai, has

launched `Sky Banking', for which the company has tied up with ICICI Bank and HDFC

Bank.

The ICICI has announced the launch of mobile banking services for its customers, using the

wireless application protocol (WAP) technology.

Ford India has tied up with ICICI Bank to introduce a scheme, enabling non-resident Indians

(NRIs) to purchase a Ford Ikon car for their friends and relatives in India.

ICICI Bank has set up an ATM facility at an Indian Oil Corporation petro diesel outlet at

Chennai.

ICICI Bank has tied up with Chennai Telephones to provide Internet bill payment facility to

its customers.

13
CEO’s DESK

During the year, ICICI Venture has successfully laid the foundation to emerge as one of

the most successful private equity players in India. Through a series of strategic measure,

the company has been modeled on the lines of international private equity players and is

on a sound platform to gain a dominant presence in VC and PE business in the current

year.

The company focused on realizing value in each of its portfolio companies in a manner

that maximized gains for all stakeholders. This was achieved through consolidation

within the portfolio, proactive exits, additional funding support and improved corporate

governance. The Company also internally reorganized itself to create two separate teams -

one to manage past funds and the other to build sector expertise and identify attractive

investment opportunities in private equity. Special emphasis was put on managing

investor expectations in terms of timely reporting, transparency, audit etc.

These efforts have been applauded both by domestic and international investors.

Reckoned, as a pioneer for Venture Capital in India, the opportunity and timing today is

right for ICICI Venture to affirm its presence in Private Equity as well. The company has

now launched 'India Advantage Fund'

The Fund's investment philosophy is to pursue transactions with established companies

that are leaders in their own right and where there is a clear proposition for value creation.

The Fund will provide expansion capital, acquisition finance and funding for buy-out of

restructured assets/spin-off. The Fund also intends to selectively pursue opportunities

arising out of Privatization initiative of the Government.

14
PRODUCT PORTFOLIO

CORPORATE BANKING RETAIL BANKING

CORPORATE SOLUTIONS HOME LOANS

GOVERNMENT SOLUTIONS CAR & TWO WHEELER LOANS

CAPITAL MARKET SERVICES CONSUMER/PERSONAL LOANS

AGRICULTURE FINANCE SAVING & TERM DEPOSIT

STRUCTURED FINANCE SALARY ACCOUNT

PROJECT FINANCE ROAMING CURRENT ACCOUNTS

INFRASTRUCTURE FINANCE INVESTMENT PRODUCTS

TERM LOANS PRIVATE BANKING

WORKING CAPITAL FINANCE NRI SERVICES

CASH MANAGEMENT SERVICES DEMAT SERVICES

TRADE FINANCE SERVICES CREDIT & DEBIT CARDS

INTERNATIONAL BANKING SMART CARDS

TREASURY SERVICES BILL PAYMENT SERVICES

CORPORATE INTERNET BANKING E-CHEQUES

CORPORATE ADVISORY BRANCHES

15
CUSTODIAL SERVICES ATMS

PROFESSIONAL CLEARING INTERNET BANKING

MEMBERSHIP SERVICES PHONE BANKING

YOUNGSTAR ACCOUNT

16
PROMOTION

What's on offer

Hello ICICI brings you a host of services at your fingertips 365 days a year. A user friendly

automated service menu offers you convenient access to your account coupled with security

as, all your transactions are protected by a TPIN - The Personal password to your account.

But if you do need any assistance our officers will be glad to help you.

What‘s more... this facility comes to you totally free of charge! Some of the services offered

are listed below

 Savings account:

o Balance Enquiry  Statement of account

o Cheque status enquiry  Stop Payment

o Cheque book request

o Dial-a- draft/pay order

o ATM lost card reporting

o Request for a new ATM PIN

 Fixed Deposits:

o Opening a Fixed Deposit

o Checking Fixed Deposit details

o Request for TDS statement

 Credit Cards:

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 o Balance and account related inquiries  Statement of account

o Dial a draft/pay order

o Lost/Replacement card

o ATM pin re-issue

o Payment instructions (maybe through a letter to the Call Centre)

 Others:

o Standing Instructions

o Complaints and suggestions

o Inquire about any ICICI retail product

18
RISK MANAGEMENT

Risk is an integral part of the banking business and ICICI Bank aims at the delivery of

superior shareholder value by achieving an appropriate trade-off between risk and returns.

ICICI Bank is exposed to various risks, including credit risk, market risk and operational risk.

Our risk management strategy is based on a clear understanding of various risks, disciplined

risk-assessment and measurement procedures and continuous monitoring. The policies and

procedures established for this purpose are continuously benchmarked with international best

practices. A comprehensive range of quantitative and modeling tools developed by a

dedicated risk analytics team supports the risk management function at ICICI Bank.

The Risk, Compliance & Audit Group (RCAG) is responsible for assessment,

management and mitigation of risk in ICICI Bank. This group, forming a part of the

Corporate Centre, is completely independent of all business operations and accountable to the

Risk and Audit Committees of the Board of Directors. RCAG is organised into six sub-

groups: Credit Risk Management Group, Market Risk Group, Credit Policies Group, Internet

Audit Group, Retail Risk Group and Risk Analytics Group.

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CREDIT RISK

Credit risk is the risk that a borrower is unable to meet its financial obligations to the lender.

ICICI Bank measures, monitors and managers credit risk for each borrower and also at the

portfolio level. ICICI Bank has a standardized credit approval process, which includes a well-

established procedure of comprehensive credit appraisal and rating. ICICI Bank has

developed internal credit rating methodologies for rating obligors as well as for rating. ICICI

Bank has developed internal credit rating methodologies for rating obligors as well as for

product / facilities. The rating factors in quantitative and qualitative issues and credit

enhancement features specific to the transaction. The rating serves as a key input in the

sanction as well as post-sanction credit processes. Credit rating, a as concept, has been well

internalized within the Bank. The rating for every borrower is reviewed as least annually and

for higher risks credits and large exposures at shorter intervals. Sector knowledge has been

institutionalized across ICICI Bank through the availability of sector-specific information on

the Intranet. Industry knowledge is constantly updated through field visits, interactions with

clients, regulatory bodies and industry experts. In respect of the retail credit business, ICICI

Bank has a system of centralized approval of all products and policies and monitoring of the

retail portfolio. We continuously refine our retail credit parameters based on portfolio

analytics.

20
MARKET RISK

Market risk is the risk of loss resulting from changes in interest rates, foreign currency

exchange rates, equity prices and commodity prices. ICICI Bank‘s exposure to market risk a

function of its trading and asset and liability management activities and its role as a financial

intermediary in customer-related transactions. The objective of market risk management is to

minimize the impact of losses due to market risks on earning and equity capital.

Market risk policies include Asset-Liability Management (ALM) policies and policies

for the trading portfolio. The Asset-Liability Management Committee (ALCO) of Board of

Directors approves ALM policies. ALCO‘s role encompasses stipulating liquidity and

interest-rate risk limits, monitoring risk levels by adherence to set limits, articulating the

organization‘s interest rate view and determining business strategy in the light of the current

and expected business environment. These sets of policies and processes are articulated in

ALM policy. A separate set of policies for the trading portfolio address issues related to

investments in various trading products and are approved by the Committee of Directors

(COD) of the Board. RCAG exercises independent control over the process of market-risk

management and recommends changes in processes and methodologies for measuring market

risk.

21
Management of Case

ICICI was founded in the mid-1950s at the behest of the World Bank, the Indian government

and various ‗captains of industry‘ in India. Its purpose back then was to provide medium and

long-term development finance for Indian business.

In the mid-1990s its business strategy shifted to take advantage of the opening up of the

Indian economy. The idea? To create a diversified financial-services supplier offering a range

of products, instead of concentrating purely on project finance. ICICI Bank was, therefore,

established in 1994 to provide retail banking facilities across India.

The idea was well timed and proved wildly successful. Today, it is the second largest bank in

India with assets of almost $40bn and can boast a network of more than 570 branches and a

steadily growing international business, with branches in the UK, Russia and Canada.

First steps

ICICI Bank‘s knowledge management (KM) strategy was established in 2000. Back then, the

company was very much smaller than it is now – just 1,200 staff compared to the 30,000 that

work for ICICI Bank today.

However, the programme was started at a time when the company‘s growth was starting to go

into overdrive. Initially, the organisation developed a broad technology-linked infrastructure,

including a corporate intranet, ICICI Universe, intended to provide a platform where, for

instance, employees could check the human resources (HR) system for vacation entitlements,

book days off or view their personal pension details.

22
By putting these simple, but necessary activities on the intranet, it encouraged employees to

get familiar with using web-based applications, to overcome any fear of technology as well as

providing them with a good reason for using the portal on a regular basis.

What began more as an idea and less as a project, was simply the belief that staff should have

a space on the intranet where they could participate in collaborative activities, such as

contribute or find documents, engage in discussions and post or answer queries. That idea, in

essence, first converted the bank to KM.

Initially, the organisation was motivated to act due to the upheaval caused by the tail-end of

the dot-com boom, which was depriving the bank of many good staff as they left in

significant numbers to join dot-com start-ups – taking their knowledge and know-how with

them. We therefore developed WiseGuy, ICICI‘s KM intranet portal – easily accessible from

the main staff portal – to provide a way of capturing and disseminating the knowledge of

departing staff.

To develop WiseGuy, a team was put together encompassing KM, HR, technology and

research with a brief to ‗just do it‘. Indeed they did and a beta version was ready within just

three months.

Before the year was out, faced with the prospect of a reverse merger of ICICI Bank with its

parent ICICI, which went through in 2002, the KM team had to restructure to meet the needs

of the new corporate entity. Some issues articulated at the time included:

1. How to connect this vast new pool of employees with each other;

2. How to share business-related information about clients, deals and ideas;

23
 3. How to manage staff through the change process via communication, messages,

channels and so on;

4. How to overcome the problems caused by staff turnover;

5. How to ensure that every person in the company is adequately equipped with the

skills and training required for their jobs and for lifelong learning and development.

The deeper question was, quite simply, how do we create a hunger among staff to acquire and

share knowledge? That is to say, how do we create the culture? The aim was to ensure that

employees stayed permanently aware of the external competitive challenges of the business,

and to persuade them to remain constantly open to new thoughts, ideas and ways of working.

Satisfied users

In our view, employee satisfaction drives usage and we wanted to use this as the delivery

vehicle to support three major information-handling behaviours: sharing, collaboration and

self-help. In essence, the workplace is no longer just a physical location. It has become a

blend of physical and virtual spaces in which work is undertaken.

The KM programme is now deeply embedded in the bank, but not as a result of any directive

from top management. Employees work with the KM programme because they see its

benefits and realise the value it brings to them on a day-to-day basis. This is what makes it

vibrant and engaging.

It is significant that a small project originally designed for about 1,200 employees in few

locations has been flexible and scalable enough to cater for more than 30,000 employees in

more than 600 locations, most of whom are customer-facing staff.

24
Everything they need should be at their fingertips, whether getting an answer to a problem,

checking a policy or accessing standard templates and formats such as letters, agreements or

guidelines.

The importance of scalability cannot be underestimated. In 2005, usage increased more than

six times compared to the year before and the portal marked a record one-million logins in

November 2004 after the site was redesigned. The number of staff using the KM portal

doubled in the same period.

On average today, about 6,000 users visit the site daily, of which 95 per cent come from

ICICI Bank‘s retail branches. And more than 40 business divisions actively participate in the

KM effort to contribute and publish content. Today, there are more than 14,000 individual

items, about 1,000 daily searches for information and more than 16,000 interactive postings.

The WiseGuy KM portal also encompasses a variety of sections including: document

management; news inside and outside the organisation; digital resources such as trade and

news journals, research reports, maps, directories, currency and time calculators; information

on the various business groups and group companies, complete employee information; and,

interactive sections such as discussion forums, query boards, book reviews, online quizzes,

the rewards and recognition scheme, and so on.

Wise Wednesdays

Early on, we realised that several senior people were reluctant to type and post submissions to

the portal. So we invited them to share their tacit knowledge in an informal manner and the

WiseGuy Knowledge Leader Series (KLS) was born.

25
Guest speakers included experts on various topics, such as advanced finance, and internal

business heads who were delighted to be invited and were willing to give it a try. KLS

evolved to include even chief the financial officers and CEOs of renowned companies in

India, who have spoken on the topics of leadership and strategy.

Called ‗Wise Wednesdays‘, we have conducted more than 60 KLS in various formats over a

period of three years from 2001 to 2004. It contributed immensely to our WiseGuy brand and

really helped to build the popularity of KM in ICICI Bank and, overall, gave our KM efforts

huge visibility.

In another experiment, we set aside some time once a week for a knowledge café in the

canteen of our Mumbai headquarters. Similarly, we tried a variety of other formats, including

informal ‗brown bag‘ concepts, in which staff would be invited to bring their lunch along to a

presentation on a particular subject by a notable individual, to web conferences and live

webcasts, so that any user in any location could participate. KLS encouraged face-to-face,

live interaction and KM was therefore not seen purely as a portal activity.

Not all of these were successful. For example, our knowledge cafes had to be abandoned

because the noise in the canteen proved too distracting, while some of our speakers for the

brown-bag presentations felt offended that staff were tucking into their lunches while they

were presenting about weighty topics.

Corporate learning

The ability to learn across the group and from team mates is a very powerful tool. We aim to

build a learning environment by encouraging collaboration and push mechanisms, including a

26
webzine e-mail to every employee before 9.30am. The Daily Dose, as it is called, is a

summary of what is new in the outside world and on the portal. It features headlines,

opinions, polls, happenings, customer appreciations, newsletters and other regular updates.

Again, one of the main benefits of the Daily Dose is the high profile it lends to our various

KM initiatives. When we polled staff, almost 97 per cent said that The Daily Dose represents

an important part of their working day. By delivering it direct to their mailbox, it helps the

KM team to capture the ‗mind space‘ of employees as soon as they sit down to work in the

morning.

Other tools we use include Newsroom, a space on the intranet where daily news headlines are

published. Here, staff can look up all the newsletters published by internal business groups,

media releases, as well as tracking what our competitors are up to. Then there are ‗K-

mailers‘, which are short, one-page reviews on any one of 33 topics in six categories; internal

newsletters from various domain specialists; online quizzes; ‗word power‘ articles or

glossaries; training modules; and, a whole library of online research tools.

Query Board, a central, interactive frequently asked questions repository by and for staff, is

where they can post any work-related queries, such as the number of cheques that can be

deposited at any one time, customer credit questions, cheque returns and so on.

Indeed, anything work-related that demands authoritative responses from colleagues and in-

house experts. It serves as the fastest and most reliable source for feedback on queries or

doubts related to workplace rules, policies and procedures, technical know-how and much

more. Remarkably, the average response time to a query ranges from five to 15 minutes, but

never more than one day from the time the query was posted.

27
In addition to Query Board, we also offer a more general discussion forum on the intranet

where staff can talk about finance, business and economy-related topics. Discussions on our

forum revolve around topics highly relevant to the work in the bank, such as the automatic

cheque book re-order system and solutions for detecting fake bank notes.

Managing documents on WiseGuy

The digital assets on WiseGuy represent a vital element of our KM programme. WiseGuy‘s

document-management system offers a managed view into otherwise overwhelming

enterprise content and provides users access to personalised content with team-specific

interfaces to improve collaboration.

Centralised and distributed publishing capabilities mean that users are empowered and can

contribute their own documents, define them, schedule updates and so on. Furthermore, the

portal manager enables business groups to generate their own template-based, database-

driven mini-websites using an extremely flexible front end, point-and-click tool.

The content is classified and organised by use of a simple tree view for easy navigation,

supplemented by a search tool for easy retrieval. Information can be located within two or

three clicks, or less than a minute of searching. Other key features include easy identification

of documents by author, date, posted comments and even queries.

The system helps to preserve the organisation‘s intellectual capital, as it is able to capture

information so that it is not lost even when a person leaves the organisation. To encourage

participation, ‗sticky‘ features on the portal include opinion polls, cartoons, tips, word of the

day and tools available to business teams to conduct surveys and online quizzes.

28
Technology platforms

Much of what is deployed to support our various KM initiatives is custom-developed, but the

tools are supported on a variety of standard hardware and software platforms, particularly

Microsoft Windows, Linux, Microsoft Office, OpenOffice (the open-source alternative to

Microsoft Office), and a host of other off-the-shelf and custom applications.

Implementation was eased by the fact that it was not one single mega project, but a

combination of many experiments and modular launches. This means that we nurtured what

worked and discarded along the way any elements that plainly did not work.

One early project was a ‗Yellow Pages‘-style directory for the entire corporate group. These,

of course, are quite common KM tools, helping put staff in direct contact with one another.

The result, Peoplefinder, is the experts‘ directory that employees use to locate others and

update their own profile with interests, areas of expertise where they can help colleagues and

other relevant information. Creating it was like opening the doors and windows in a dusty

house shut for many months as people who did not even know who was sitting on the same

floor as them suddenly got ‗connected‘ and it continues to be one of the most-used sections.

Many implementations began as line-of-business pilots. ‗At your Service‘ is one such

example in which employees who are also customers of the bank can talk directly with the

product and process teams for personal banking issues. With a back-end plug-in to the call

centre it serves the dual purpose of learning while solving problems. It was so effective that it

was replicated for other teams too.

Compliance, quality and customer service

29
In 2002, the bank launched its quality programme to achieve the relevant certification levels

throughout the organisation. Naturally, KM‘s role was to support the quality team and we did

this by building a KM mini-portal on quality. This quality ‗portlet‘ maintains the background

material, documents on Six Sigma methodology, international quality standards, certifications

and everything else that relates to the organisation‘s endeavours in maintaining quality levels.

Staff can also post and respond to queries and interact with the quality experts.

KM tools and techniques are also deployed so that customer-service teams and those staff

who deal directly with the public can share almost everything related to customer complaints

and service quality issues, from branch and customer satisfaction with cash machines, to

standard templates, letters, tools, to recognising and celebrating customer satisfaction

benchmarks and people who have achieved it. The various activities, contributions and

postings help spread the good practices throughout the bank.

Of course, banks today have to deal with growing regulatory demands, including circulars

and notices from the regulatory authorities that must be followed to the letter. We therefore

created E-Circulars to inform and educate staff on regulatory and compliance matters. It is

used by designated senior managers who have a duty to inform employees on guidelines

issued by various regulatory authorities as they affect the bank‘s policies, products and

processes. It is not all one-way. Recipients can also be tested with four or five key questions

to ensure that they broadly understand the content.

Beyond the surface to the soul

This is a phrase from a very useful book on the topic. It states that KM is not just a set of

techniques or practices. If that were so, it would not have been difficult for other

30
manufacturers to copy the Toyota Production System, for example, even though the details

have been relayed in books and Toyota even gives tours of its manufacturing facilities – it is

no secret. The difference is in its philosophy and perspective about such things as people,

processes, quality, continuous improvement and other factors that represents not just the

surface – what you can see – but the inner soul.

This has become increasingly relevant with the realisation that few jobs are well structured or

well defined. Instead, knowledge work is defined at the point of need by the issues, problems

or opportunities that arise. Researchers and authors Pfeffer and Sutton asked why it was that

with so much education and research, management consulting, books and articles, that the

little change that does occur often happens with such great difficulty. They concluded it was

because knowledge of what needs to be done frequently fails to result in action or behaviour

consistent with that knowledge.

This is what they called the ‗knowing-doing gap‘. Their study analysed how some

organisations are consistently able to turn knowledge into action while others fail. Their

findings suggest that it is management practices that either create or reduce the knowing-

doing gap. In our work, the KM team used their insights as a guiding philosophy.

31
SCOPE OF THE STUDY

This project is vital to me in a significant way. It does have some importance for the

company too. These are as follows –

This project will be a learning device for the finance student.

Through this project I would study the various methods of the working capital

management.

The project will be a learning of planning and financing working capital.

The project would also be an effective tool for credit policies of the companies.

This will show diffferent methods of holding inventory and dealing with cash and

receivables.

This will show the liquidity position of the company and also how do they maintain a

particular liquidity position.

32
 OBJECTIVE OF THE STUDY

The objectives of this project were mainly to study the inventory, cash and receivable at

ICICI Bank., but there are some more and they are -

The main purpose of our study is to render a better understanding of

the concept ―Working Capital Management‖.

To understand the planning and management of working capital at ICICI Bank.

To measure the financial soundness of the company by analyzing various ratios.

To suggest ways for better management and control of working capital at the concern

33
 RESEARCH METHODOLOGY

Tools & Techniques used

This project requires a detailed understanding of the concept – ―Working Capital

Management‖. Therefore, firstly we need to have a clear ICICI of what is working

capital, how it is managed in ICICI Bank, what are the different ways in which the

financing of working capital is done in the bank.

The management of working capital involves managing inventories, accounts

receivable and payable and cash. Therefore one also needs to have a sound knowledge

about cash management, inventory management and receivables management.

Then comes the financing of working capital requirement, i.e. how the working

capital is financed, what are the various sources through which it is done.

And, in the end, suggestions and recommendations on ways for better management

and control of working capital are provided.

34
DATA SOURCES:

The following sources have been sought for the prep of this report:

Secondary sources like previous years annual reports, reports on working capital for

research, analysis and comparison of the data gathered.

While doing this project, the data relating to working capital, cash management,

receivables management, inventory management and short term financing was

required.

This data was gathered through the company‘s websites, its corporate intranet,

ICICI‘s annual reports of the last five years.

A detailed study on the actual working processes of the company is also done through

direct interaction with the employees and by timely studying the happenings at the

company.

35
 Introduction to working capital

“Working Capital is the Life-Blood and Controlling Nerve Center of a business”

The working capital management precisely refers to management of current assets. A

firm’s working capital consists of its investment in current assets, which include short-

term assets such as:

Cash and bank balance,

Inventories,

Receivables (including debtors and bills),

Marketable securities.

Working capital is commonly defined as the difference between current assets and current

liabilities.

WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

There are two major concepts of working capital:

Gross working capital

Net working capital

36
Gross working capital:

It refers to firm's investment in current assets. Current assets are the assets, which can be

converted into cash with in a financial year. The gross working capital points to the need

of arranging funds to finance current assets.

Net working capital:

It refers to the difference between current assets and current liabilities. Net working capital

can be positive or negative. A positive net working capital will arise when current assets

exceed current liabilities. And vice-versa for negative net working capital. Net working

capital is a qualitative concept. It indicates the liquidity position of the firm and suggests

the extent to which working capital needs may be financed by permanent sources of funds.

Net working capital also covers the question of judicious mix of long-term and short-term

funds for financing current assets.

37
Significance of Working Capital Management

The management of working capital is important for several reasons:

For one thing, the current assets of a typical manufacturing firm account for half of its

total assets. For a distribution company, they account for even more.

Working capital requires continuous day to day supervision. Working capital has the

effect on company's risk, return and share prices,

There is an inevitable relationship between sales growth and the level of current assets.

The target sales level can be achieved only if supported by adequate working capital

Inefficient working capital management may lead to insolvency of the firm if it is not in

a position to meet its liabilities and commitments.

38
LIQUIDITY VS PROFITABILITY: RISK - RETURN TRADE OFF

Another important aspect of a working capital policy is to maintain and provide sufficient

liquidity to the firm. Like the most corporate financial decisions, the decision on how much

working capital is maintained involves a trade off- having a large net working capital may

reduce the liquidity risk faced by a firm, but it can have a negative effect on the cash flows.

Therefore, the net effect on the value of the firm should be used to determine the optimal

amount of working capital.

Sound working capital involves two fundamental decisions for the firm. They are the

determination of:

The optimal level of investments in current assets.

The appropriate mix of short-term and long-term financing used to support this

investment in current assets, a firm should decide whether or not it should use short-

term financing. If short-term financing has to be used, the firm must determine its

portion in total financing. Short-term financing may be preferred over long-term

financing for two reasons:

The cost advantage

Flexibility

But short-term financing is more risky than long-term financing. Following table will

summarize our discussion of short-term versus long-term financing.

39
Maintaining a policy of short term financing for short term or temporary assets needs (Box

1) and long- term financing for long term or permanent assets needs (Box 3) would

comprise a set of moderate risk –profitability strategies. But what one gains by following

alternative strategies (like by box 2 or box 4) needs to weighed against what you give up.

40
CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified as follows:

On the basis of time

On the basis of concept

41
TYPES OF WORKING CAPITAL NEEDS

Another important aspect of working capital management is to analyze the total working

capital needs of the firm in order to find out the permanent and temporary working capital.

Working capital is required because of existence of operating cycle. The lengthier the

operating cycle, greater would be the need for working capital. The operating cycle is a

continuous process and therefore, the working capital is needed constantly and regularly.

However, the magnitude and quantum of working capital required will not be same all the

times, rather it will fluctuate.

The need for current assets tends to shift over time. Some of these changes reflect

permanent changes in the firm as is the case when the inventory and receivables increases

as the firm grows and the sales become higher and higher. Other changes are seasonal, as is

the case with increased inventory required for a particular festival season. Still others are

random reflecting the uncertainty associated with growth in sales due to firm's specific or

general economic factors.

The working capital needs can be bifurcated as:

Permanent working capital

Temporary working capital

Permanent working capital:

There is always a minimum level of working capital, which is continuously required by a

firm in order to maintain its activities. Every firm must have a minimum of cash, stock and

other current assets, this minimum level of current assets, which must be maintained by any

42
firm all the times, is known as permanent working capital for that firm. This amount of

working capital is constantly and regularly required in the same way as fixed assets are

required. So, it may also be called fixed working capital.

Temporary working capital:

Any amount over and above the permanent level of working capital is temporary,

fluctuating or variable working capital. The position of the required working capital is

needed to meet fluctuations in demand consequent upon changes in production and sales as

a result of seasonal changes.

The permanent level is constant while the temporary working capital is fluctuating

increasing and decreasing in accordance with seasonal demands as shown in the figure.

In the case of an expanding firm, the permanent working capital line may not be horizontal.

This is because the demand for permanent current assets might be increasing (or decreasing)

to support a rising level of activity. In that case line would be rising.

43
 FINANCING OF WORKING CAPITAL

There are two types of working capital requirements as discussed above. They are:

Permanent or Fixed Working Capital requirements

Temporary or Variable Working Capital requirements

Therefore, to finance either of these two working capital requirements, we have long-term

as well as short-term sources.

44
 FACTORS DETERMINING WORKING CAPITAL

REQUIREMENTS

There are many factors that determine working capital needs of an enterprise. Some of these

factors are explained below:

 Nature or Character of Business.

The working capital requirement of a firm is closely related to the nature of its

business. A service firm, like an electricity undertaking or a transport corporation,

which has a short operating cycle and which sells predominantly on cash basis, has a

modest working capital requirement. On the other hand, a manufacturing concern

like a machine tools unit, which has a long operating cycle and which sells largely

on credit, has a very substantial working capital requirement.

ICICI carry on activities related to computer systems. Though they are primarily an

assembling firm they also have manufacturing facilities in Chennai and Pondicherry.

This requires them to keep a very sizeable amount in working capital.

 Size of Business/Scale of Operations.

ICICI is the leader in its segment in both consumer as well as commercial market

share. They have increased their share in the consumer segment notably in the last

four years. This they have achieved through retail expansion. The scale of operations

and the size it holds in the Indian IT market makes it a must for them to hold their

inventory and current asset at a huge level.

45
  Rate of Growth of Business.

The rate of growth of sales indicates a need for increase in the working capital

requirements of the firm. As the firm is projected to increase their sales by 80%

from what it was in 2006, it is required to guard them against the increasing

requirements of the net current asset by way of efficient working capital

management. The sales and projected sales level determine the investment in

inventories and receivables.

( Rs. In billon)

ICICI Limited 2015 2014 2013

PROJECTED

Gross Sales/Income from 318.0 316.3 300.1

Operations

 Price Level Changes.

Changes in the price level also affect the working capital requirements. It was the

reduced margins in the price of the raw materials that had prompted them to go for

bulk purchases thus making on additions to their net current assets. They might have

gone for this large-scale procurement for availing discounts and anticipating a rise in

prices, which would have meant that more funds are required to maintain the same

current assets.

46
WORKING CAPITAL CYCLE

The upper portion of the diagram above shows in a simplified form the chain of events in a

manufacturing firm. Each of the boxes in the upper part of the diagram can be seen as a tank

through which funds flow. These tanks, which are concerned with day-to-day activities, have

funds constantly flowing into and out of them.

The chain starts with the firm buying raw materials on credit.

In due course this stock will be used in production, work will be carried out on the

stock, and it will become part of the firm‘s work-in-progress.

Work will continue on the WIP until it eventually emerges as the finished product.

As production progresses, labor costs and overheads need have to be met.

Of course at some stage trade creditors will need to be paid.

When the finished goods are sold on credit, debtors are increased.

They will eventually pay, so that cash will be injected into the firm.

Each of the areas- Stock (raw materials, WIP, and finished goods), trade debtors, cash

(positive or negative) and trade creditors – can be viewed as tanks into and from which funds

flow.

47
Working capital is clearly not the only aspect of a business that affects the amount of cash.

The business will have to make payments to government for taxation.

Fixed assets will be purchased and sold

Owner of fixed assets will be paid their rent

Shareholders (existing or new) may provide new funds in the form of cash

Some shares may be redeemed for cash

Dividends may be paid

Long-term loan creditors (existing or new) may provide loan finance, loans will need

to be repaid from time-to-time, and

Interest obligations will have to be met by the business

Unlike, movements in the working capital items, most of these ‗non-working capital‘ cash

transactions are not every day events. Some of them are annual events (e.g. tax payments,

lease payments, dividends, interest and, possibly, fixed asset purchases and sales). Others

(e.g. new equity and loan finance and redemption of old equity and loan finance) would

typically be rarer events.

48
SOURCES OF WORKING CAPITAL

ICICI has the following sources available for the fulfillment of its working capital

requirements in order to carry on its operations smoothly:

Banks:

These include the following banks –

State Bank of India

Canara Bank

HDFC Bank.

Society General

Standard Chartered Bank

State Bank of Patiala

State Bank of Saurashtra

Commercial Papers:

Commercial Papers have become an important tool for financing working

capital requirements of a company.

Commercial Paper is an unsecured promissory note issued by the company to

raise short-term funds. The buyers of the commercial paper include banks,

insurance companies, unit trusts, and companies with surplus funds to invest

for a short period with minimum risk.

ICICI issues Commercial Papers and had 4000 commercial papers in the year

2011.

49
ICICI FINANCIALS:

CONSOLIDATED FINANCIAL PERFORMANCE

Partitulars 2014 2015

Business Income 316.86 318.18

Less:amortisationof 8.98 7.25

premiumongovt. sec

Interest income 307.88 310.93

Interest expense 234.84 227.26

Net intt. Income 73.04 83.67

Non intt.income 88.11 76.03

Fee income 66.27 65.24

Treasury income 8.15 4.43

Lease income 2.17 2.33

Others 11.52 4.03

Operating income 161.15 159.70

Operating expenses 64.29 63.06

Dir.markt. exp. 15.43 5.29

Lease depreciation 1.82 2.10

Operating profit 79.61 89.25

Provisions 29.05 38.08

Profit before tax 50.56 51.17

Less :Tax 8.98 13.59

Profit after tax 41.58 37.58

50
WORKING CAPITAL POSITION :

CURRENT ASSET / TOTAL ASSET

Rs. In billion

PARTICULARS 2013 2014 2015

CURRENT ASSETS 1009.70 1511.13 1233.19

TOTAL ASSETS 1224.79 3997.95 3793.01

CA/TA 82.44 37.79 32.51

The current asset percentage on total asset is the highest over the years. This increasing

percentage of current assets to the total assets at first might indicate a preference for

liquidity in place of profitability, but a look into the nature of the business carried on by

ICICI reveal the reason behind it. How far their preference to current assets has affected the

sales is shown below.

51
NET CURRENT ASSET / SALES

PARTICULARS 2015 2014 2013

NET CURRENT 1233.19 1110.13 1009.70

ASSETS

SALES 23813.6 19988.6 15429.5

WORKING 11.08 10.2 -94.6

CAPITAL %

INCREASE

SALES % 19.14 29.54 -7.38

INCREASE

The sales has increased and the profits risen despite the 11.08% increase in working capital.

But what is noteworthy here is that the firm has managed to maintain the trend of an

increase in net current assets. Whether the change has worked for the company has to be

analysed in the context of the growth in sales as compared to the previous year. There has

been a 19.14% rise in the sales or revenue generated. This would automatically suggest

towards a very efficient working capital management where the assets of the firm which are

short-term in nature have been utilized optimally in connection to their fixed assets. The

firm has gone towards such a dramatic shift in their working capital position might be

because of the tremendous growth witnessed in the domestic IT market.

52
CURRENT ASSET / FIXED ASSET

PARTICULARS 2015 2014 2013

NET CA/NET BLOCK 5.062:1 6.519:1 2.903:1

The ratio of the net current asset to the fixed ones is an indicator as to the liquidity position of

the firm. This ratio has declined for the firm compared to the previous year. There could be

an argument as to whether the increased ratio of working capital to net block is a conservative

policy and whether it would be detrimental to the interest of the company. Or, whether it

would have been proper if the company invested more into the capital expenditure in the

form of plant and machinery or invested in any other form that would have got them an

internal rate of return. What has to be kept in mind before coming to a conclusion as to the

policy of the company is the fact that the firm being primarily into assembling, its investment

in the fixed asset segment need not be high. A look into the capacity utilization of the plant

would reaffirm this point. It would be ICICI for the firm to continue in the same line and not

have excessive investment in the fixed asset as they can easily add onto this part.

COMPUTER and MICRO PROCESSOR BASED SYSTEMS

YEAR INSTALLED ACTUAL % CAPACITY

CAPACITY PRODUCTION UTILIZATION

2015 1150000 581805 50.59

2014 600000 448121 74.69

2013 525000 295192 56.23

53
DATA GRAPHIC/DISPLAY MONITOR/TERMINALS/HUBS

YEAR INSTALLED ACTUAL % CAPACITY

CAPACITY PRODUCTION UTILIZATION

2015 2500.00 2673.26 106.93

2014 2500.00 2596.17 103.85

2013 3500.00 2979.91 85.14

That the fixed assets of the firm are being put to efficient use and the firm is trying for

optimum capacity utilization is something that can be easily deduced. Whether the current

assets or the working capital of the firm has anything to do with it is for us to see. An

increased production in normal circumstances means better raw material to finished goods

conversion rate, i.e. the firm is taking less of time in the production process and this happens

when the current asset employed in relation with the fixed ones are at optimum. The other

notable feature here is that though the firm has added on to its installed capacity in all three

years, they were still able to increase the capacity utilization. That they have been able to do

it shows that the more current assets, especially inventory used in relation to the fixed assets,

i.e., plant and machinery and their management has only helped in increasing their utilization

to the maximum.

54
CURRENT ASSET & CURRENT LIABILITY

PARTICULARS 2015 2014 2013

CURRENT ASSETS 1233.19 1511.13 1009.70

CURRENT LIABILITES 928.06 863.99 606.27

% CURRENT ASSETS INCREASE -17.3 49.1 23.84

%CURRENT LIABILITES 7.4 42.4 29.57

INCREASE

The 16.12% increase in Net Current assets despite of the fact that there has been an increase

in the Current Assets by 23.84% and increase in Current Liability has been by 29.57% over

that of the previous year has to be attributed to the fact that in 2011, the company showed

such a high increase in CA, that it is still being offset. This is an indication as to the

expanding operations of the firm. ICICI has increased its current assets in order to meet the

increasing sales. The firm‘s level of liquidity being high, we need a check on whether it

affects the return on assets.

55
INVENTORY MANAGEMENT

Inventories

Inventories constitute the most important part of the current assets of large majority of

companies. On an average the inventories are approximately 60% of the current assets in

public limited companies in India. Because of the large size of inventories maintained by the

firms, a considerable amount of funds is committed to them. It is therefore, imperative to

manage the inventories efficiently and effectively in order to avoid unnecessary investment.

Nature of Inventories

Inventories are stock of the product of the company is manufacturing for sale and

components make up of the product. The various forms of the inventories in the

manufacturing companies are:

Raw Material: It is the basic input that is converted into the finished product through

the manufacturing process. Raw materials are those units which have been purchased

and stored for future production.

Work-in-progress: Inventories are semi-manufactured products. They represent

product that need more work they become finished products for sale.

Finished Goods: Inventories are those completely manufactured products which are

ready for sale. Stocks of raw materials and work-in-progress facilitate production,

while stock of finished goods is required for smooth marketing operations. Thus,

inventories serve as a link between the production and consumption of goods.

56
Inventory Management Techniques

In managing inventories, the firm‘s objective should be to be in consonance with the

shareholder wealth maximization principle. To achieve this, the firm should determine the

optimum level of inventory. Efficiently controlled inventories make the firm flexible.

Inefficient inventory control results in unbalanced inventory and inflexibility-the firm may

sometimes run out of stock and sometimes pile up unnecessary stocks.

Economic Order Quantity (EOQ): The major problem to be resolved is how much

the inventory should be added when inventory is replenished. If the firm is buying

raw materials, it has to decide lots in which it has to purchase on replenishment. If

the firm is planning a production run, the issue is how much production to schedule.

These problems are called order quantity problems, and the task of the firm is to

determine the optimum or economic lot size. Determine an optimum level involves

two types of costs:-

 Ordering Costs: This term is used in case of raw material and includes all the

cost of acquiring raw material. They include the costs incurred in the

following activities:

 Requisition

 Purchase Ordering

 Transporting

 Receiving

 Inspecting

 Storing

57
Ordering cost increase with the number of orders placed; thus the more frequently inventory

is acquired, the higher the firm‘s ordering costs. On the other hand, if the firm maintains large

inventory‘s level, there will be few orders placed and ordering costs will be relatively small.

Thus, ordering costs decrease with the increasing size of inventory.

 Carrying Costs: Costs are incurred for maintaining a given level of inventory

are called carrying costs. These include the following activities:

 Warehousing Cost

 Handling

 Administrative cost

 Insurance

 Deterioration and obsolescence

Carrying costs are varying with inventory size. This behavior is contrary to that of ordering

costs which decline with increase in inventory size. The economic size of inventory would

thus depend on trade-off between carrying costs and ordering cost.

58
 Composition 2015 2014

Raw Material 6349 7749

Stores and Spares 3713 2987

Finished Goods 13374 7245

Work-in-progress 595 784

The increasing component of raw materials in inventory is due to the fact that the

company has gone for bulk purchases and has increased consumption due to a fall in

prices and reduced margins for the year. Another reason might be the increasing sales,

which might have induced them to purchase more in anticipation of a further increase

in demand of the product. And the low composition of work-in-progress is

understandable as because of the nature of the business firm is involved in.

To the question as to whether the increasing costs in inventory are justified by the

returns from it the answer could be found in the ICICI retail expansion. ICICI caters

to the need of the two separate segments:

a) Institutions for which they manufacture against orders and,

b) Retail segment of the market.

They are more into retail than earlier and at present more than 650 retail outlets

branded with ICICI sign ages and more are in the pipeline

59
The company in order to meet its raw materials requirements could have gone for

frequent purchases, which would have resulted in lesser cash flows for the firm rather

than the high expenditure involved when procuring in at bulk. The reason why the

firm has gone for these bulk purchases because of the lower margins and the discounts

it availed because of procuring in bulk quantities.

A negative growth in WIP could be because:

a) The time taken to convert raw materials to finished goods is very minimal

b) This is also due to capacity being not utilized at the optimum.

ABC System: ABC system of inventory keeping is followed in the factories.

Various items are categorized into three different levels in the order of their

importance. For e.g. items such as memory, high capacity processors and royalty are

placed in the ‗A‘ category. Large number of firms has to maintain several types of

inventories. It is not desirable the same degree of control all the items. The firm

should pay maximum attention to those items whose value is highest. The firm

should therefore, classify inventories to identify which items should receive the most

effort in controlling. The firm should be selective in approach to control investment

in various types of inventories. This analytical approach is called ―ABC Analysis‖.

The high-value items are classified as ―A items‖ and would be under tightest control.

―C items‖ represent relatively least value and would require simple control. ― B

items‖ fall in between the two categories and require reasonable attention of

management.

JIT: The relevance of JIT in ICICI Info system can be questioned. This is because

they procure materials on the basis of projections made at least two or three months

before. Even at the time of procurement they ensure that they procure much more

60
than what actually is required by the firm that is they hold significant amount of

inventory as safety stock. This is done to counter the threat involved in default and

accidental breakdowns. The levels of safety stock usually vary according to the

usage.

61
CASH MANAGEMENT
SOURCES OF CASH:

Sources of additional working capital include the following:

Existing cash reserves

Profits (when you secure it as cash!)

Payables (credit from suppliers)

New equity or loans from shareholders

Bank overdrafts or lines of credit.

Long-term loans

If you have insufficient working capital and try to increase sales, you can easily over-stretch

the financial resources of the business. This is called overtrading.

Early warning signs include:

Pressure on existing cash

Exceptional cash generating activities e.g. offering high discounts for early cash

payment

Bank overdraft exceeds authorized limit.

Seeking greater overdrafts or lines of credit

Part-paying suppliers or other creditors

Paying bills in cash to secure additional supplies

Management pre-occupation with surviving rather than managing

Frequent short-term emergency requests to the bank (to help pay wages, pending

receipt of a cheque).

62
CASH MANAGEMENT IN ICICI :

The cash management system followed by the ICICI is mainly lock box system.

Cash Management System involves the following steps:

1. The branch offices of the company at various locations hold the collection of cheques

of the customers.

2. Those cheques are either handed over to the CMS agencies or bank of the particular

location take charge of whole collection.

3. These CMS agencies or bank send those cheques to the clearing house to make them

realized. These cheques can be local or outstation.

4. The CMS agencies or bank send information to the central hub of the company

regarding realization/cheque bounced.

5. The central hub passes on the realized funds to the company as per the agreed

agreements.

6. The CMS agencies or concerned bank provides the necessary MIS to the company as

per requirement.

In cash management the collect float taken for the cheques to be realized into cash is

irrelevant and non-interfering because banks such as Standard Chartered, HDFC and Citi

Bank who give credit on the basis of these cheques after charging a very small amount. These

credits are given to immediately and the maximum time taken might be just a day. The

amount they charge is very low and this might cover the threat of the cheque sent in by two

or three customers bouncing. Even otherwise the time taken for the cheques to be processed

is instantaneous. Their Cash Management System is quite efficient.

63
Cash-Current Liability

Particulars 2015 2014 2013

Absolute Liquid Ratio 0.24:1 0.31:1 0.11:1

The absolute liquid ratio is the best for three years and the cash balances as to the current

liability has improved for the firm. Firm has large resources in cash and bank balances. While

large resources in cash and bank balances may seem to affect the revenue the firm could have

earned by investing it elsewhere as maintenance of current assets as cash and in near cash

assets and marketable securities may increase the liquidity position but not the revenue or

profit earning capacity of the firm.

Dividend Policy-Cash

Rs. In crore

Particulars 2015 2014 2013

Dividend Policy% 210 310 400

Shift in Sales 154295 199886 238136

Cash Balance 4463.43 14582.65 14529.29

Cash in Hand 118.33 128.97 128.97

The other notable feature in ICICI statements has been the growing dividend policy of the

firm. The payment of dividend means a cash outflow. Thus cash position is an important

criterion at the time of paying dividends. There is a theory that greater the cash position and

64
ability to pay dividends. The firm has adopted a policy of disbursing the revenue earned as

profits to the shareholders as dividends as could be seen from the increasing % of dividends

declared.

Particulars 2015 2014 2013

PBIDT 14284 15634 14523

Equity Dividend% 400 310 210

This could mean two things for the firm the amount of cash retained in the business for

capital expenditure purposes are minimal or nil. But rather than investing more in plant and

machine which they can at any point in time by adding on a additional line if need they would

like to optimize their utilization in fixed assets at present. This also means that the percentage

of cash in hand maintained by the firm as a source of liquidity could be reduced, i.e. the

amount of idle cash in the business could be made to a level which the firm feels optimum.

The firm feels that they should retain cash and it would be in the interest of the firm as well

as the shareholders. This would automatically mean as decrease in Earning/share (EPS)(Basic

EPS declined from 39.4 in 2008 to 33.8 in 2015). It would prompt more of investors being

interested in the shares of the company, which would boost the purchase of the securities and

increase the market price/share thus being beneficial for the firm.

65
Cash Flows

Cash Flows 2015 2014 2013

Net Cash from Operating activities 6924 2675.57 13706.34

Net Cash from Investing activities -3515 15661.29 -2169.16

Net Cash from Financing activities -3512 -8217.68 -11412.1

The firm has disposed of investments worth around 655 Crores to meet its growing needs.

The other notable feature is decline is the firm‘s inflows from operations primarily due to the

reason that the cash generated from the operations is the lowest in three years. And the firm‘s

growing dividend policy has contributed to the outflows in financing activities.

Cash Flow in Operating Activities

Working Capital Changes

Working Capital Changes 2015 2014 2013

Trade and other receivables -14166 -14510.69 -7106.68

Inventories -5221 -2683.92 -7221.11

Trade Payables and other Liabilities 13026 6419.13 14311.5

The cash from the operation has been subject to considerable change due to the changes that

could be adjusted towards trade receivables and trade payables. The outflows in inventory

66
have become as low as 37% of what it was last year despite an increase in the inventory

consumption by 16.64%. The resulting reduction in the cash outflows might be because of the

inventories being procured more on credit. That the cash from operations has declined has

affected the current liability index of the firm.

Cash Flow in Investing Activities

Investments in Mutual Funds 2015 2014 2013

Investments (year end) 13539 12277.44 28059.88

Purchase of Investment -65992 -53075.99 -59249.81

Disposal/Redemption of Investment 65312 65489.84 52087.36

The investments have reduced from the last year due to the redemption of investments taken

place to meet various needs such as increasing demand in stock or inventory and to ensure

better credit and receivables policy. We can see that the firm has in these three years

increased their cash inflow from the investing activities by way of disposal of investments

when in need. That is the firm has redeemed to realize cash as to meet its expanding

operations, fund the inventory procurement and meet the obligations.

67
The investments in mutual funds are beneficial to the firm in the context that they contain

interest bearing securities which add up as a source of revenue for the firm unlike cash which

remains idle and unproductive when not in use. This reduction of dividend could be attributed

to disposal of investments in mutual funds and subsidiary. This disposal creates a fund, which

can be used by the company as and when the need arises.

68
Cash vs. Marketable Securities

The investment in marketable securities rather than having large cash balances in something

that has been given thought for by the firm. This is because while a firm gets revenue in the

form of interests by investments, it actually has to pays certain amount money to the banks

for maintaining current accounts and fixed deposits usually have a longer maturity period.

That is, the problem with high investments is that the opportunity to earn is lost, thus a firm

has to maintain an optimal cash balance. But the investment in mutual funds or other

marketable securities might create a problem of investment, as they might not be readily

realizable as say liquid cash or the amount deposited in the current account. The investments

in say fixed assets say may earn a fixed rate of interest but they have a maturity period

attached to them.

In ICICI, Standard Chartered is the concentration bank in which all the inflows from the

deposit banks are concentrated and passed on to the disbursement banks for further

disbursement.

69
Liquid Cash Balance

The liquid cash maintained in the business is only that much as is required to satisfy the daily

requirements of the firm and not more. The rest of the cash is invested into mutual funds and

also held in fixed deposits and current accounts.

Instruments Used

The instrument used here are primarily cheques comprising of around 97% of what is used in.

The rest 2-3% comprise of the letters of credit.

Thus working capital is the lifeline for every business. The main advantages of sufficient

working capital are:

 It helps in prompt payment

 Ensures high solvency in the company and good credit standing.

 Regular supply of material and continuous production.

 Ensures regular payment of salaries and wages and day to day commitments.

70
RECEIVABLES MANAGEMENT

Cash flow can be significantly enhanced if the amounts owing to a business are collected

faster. Every business needs to know.... who owes them money.... how much is owed.... how

long it is owing.... for what it is owed.

Late payments erode profits and can lead to bad debts.

Slow payment has a crippling effect on business; in particular on small businesses whom

can least afford it. If you don't manage debtors, they will begin to manage your business as

you will gradually lose control due to reduced cash flow and, of course, you could

experience an increased incidence of bad debt.

The following measures will help manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets the

priority it deserves.

2. Establish clear credit practices as a matter of company policy.

3. Make sure that these practices are clearly understood by staff, suppliers and customers.

4. Be professional when accepting new accounts, and especially larger ones.

5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank

references, industry sources etc.

6. Establish credit limits for each customer and stick to them.

7. Continuously review these limits when you suspect tough times are coming or if

operating in a volatile sector.

8. Keep very close to your larger customers.

9. Invoice promptly and clearly.

71
 10. Consider charging penalties on overdue accounts.

11. Consider accepting credit /debit cards as a payment option.

12. Monitor your debtor balances and aging schedules, and don't let any debts get too old.

Recognize that the longer someone owes you, the greater the chance you will never get

paid. If the average age of your debtors is getting longer, or is already very long, you may

need to look for the following possible defects.

 Poor collection procedures.

 Lax enforcement of credit terms.

 Slow issue of invoices or statements.

 Errors in invoices or statements.

 Customer dissatisfaction.

 Weak credit judgement.

Debtors due over 90 days (unless within agreed credit terms) should generally demand

immediate attention. Look for the warning signs of a future bad debt. For example…..

1. Longer credit terms taken with approval, particularly for smaller orders.

2. Use of post-dated checks by debtors who normally settle within agreed terms.

3. Evidence of customers switching to additional suppliers for the same goods.

4. New customers who are reluctant to give credit references.

5. Receiving part payments from debtors.

72
Profits only come from paid sales.

The act of collecting money is one, which most people dislike for many reasons and

therefore put on the long finger because they convince themselves that there is something

more urgent or important that demand their attention now. There is nothing more important

than getting paid for your product or service. A customer who does not pay is not a

customer.

HERE ARE FEW WAYS IN COLLECTING MONEY FROM DEBTORS: -

 Develop appropriate procedures for handling late payments.

 Track and pursue late payers

 Get external help if you own efforts fail.

 Don‘t feel guilty asking for money .. its yours and you are entitled to it.

 Make that call now. And keep asking until you get some satisfaction.

 In difficult circumstances, take what you can now and agree terms for the remainder, it

lessens the problem.

 When asking for your money, be hard on the issue – but soft on the person. Don‘t give

the debtor any excuses for not paying.

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

73
RECEIVABLES MANAGEMENT IN ICICI :

PARTICULARS 2015 2014 2013

DEBTORS TURNOVER RATIO 5.21 5.80 5.53

AVERAGE COLLECTION PERIOD 70 63 66

A better turnover ratio implies for the firm, more efficiency in converting the accounts

receivable to cash. A firm with very high turnover ratio can take the freedom of holding very

little balances in cash, as their debtors are easily realizable. In case of ICICI, the collection

period for the firm is 70 days.

PARTICULARS 2015 2014 2013

PROVISION FOR DOUBTFUL DEBTS(CASH FLOW) 3 49.85 25

DEBTS DOUBTFUL(EXCEEDING 6 MONTHS) 47 134.09 69.8

The debts doubtful have doubled but their percentage on the debts has almost become half.

This implies a sales and collection policy that get along with the receivables management of

the firm.

74
COLLECTION POLICIES:

It refers to the collection procedures such as letters, phone calls and other follow up

mechanism to recover the amount due from the customers. It is obvious that costs are

incurred towards the collection efforts, but bad debts as well as average collection period

would decrease. Further, a strict collection policy of the firm is expensive for the firm

because of the high cost is required to be incurred by the firm and it may also result in loss of

goodwill. But at the same time it minimizes the loss on account of bad debts. Therefore, a

firm has to strike a balance between the cost and benefits associated with collection policies.

The steps usually followed in collection efforts are:

Sending repeated letters and reminders to the customers

Personal visits

Using agencies involved in collection process

Making telephonic reminders

Initiating legal actions

Real Time Gross Settlement (RTGS)

Real Time Gross Settlement as such is a concept new in nature and though the firm uses the

system with all the members of the consortium, it is still in its primal stage and will take time

before all of the clients of the firm are willing to accept it. The firm has made a proposal to

the consortium of the banks during appraisal for faster implementation of internet based

banking facility by all the banks and adoption of RTGS payment system through net.

The debtor‘s turnover ratio is completely dependent upon the credit policy followed by the

firm. The credit policy followed by the firm should be such that the threat of bad debts and

the default rate involved should be terminated.

75
PARTICULARS 2015 2014 2013

CREDITORS TURNOVER RATIO 16.44 15.68 21.29

PAYMENT PERIOD 22 23 17

That the creditors turnover ratio has declined and payment period has increased indicate that

the company has got a leeway in making the payment to the creditors by way of increased

time.

With creditors they are having pre-agreements and have undertaken arrangements with them,

which they believe to be the best in the business and these are fixed.

(NOTE: Acceptances are not included in the computation of creditor‘s turnover)

76
MANAGING PAYABLES (Creditors)

Creditors are a vital part of effective cash management and should be managed carefully

to enhance the cash position.

Purchasing initiates cash outflows and an over-zealous purchasing function can create

liquidity problems.

Consider the following: -

 Who authorizes purchasing in your company - is it tightly managed or spread among a

number of (junior) people?

 Are purchase quantities geared to demand forecasts?

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

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

 Do you have alternative sources of supply? If not, get quotes from major suppliers and

shop around for the best discounts, credit terms as it reduces dependence on a single

supplier.

 How many of your suppliers have a return policy?

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

customers?

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

delay?

 Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-

in-time basis?

77
There is an old adage in business that "if you can buy well then you can sell well".

Management of your creditors and suppliers is just as important as the management of your

debtors. It is important to look after your creditors- slow payment by you may create ill

feeling and can signal that your company is inefficient (or in trouble!).

Remember that a good supplier is someone who will work with you to enhance the future

viability and profitability of your company.

78
 Financing Current Assets

The firm has to decide about the sources of funds, which can be availed to make investment

in current assets.

Long term financing:

It includes ordinary share capital, preference share capital,debentures, long term borrowings

from financial institutions and reserves and surplus.

Short term financing:

It is for a period less than one year and includes working capital funds from banks, public

deposits, commercial paper etc.

Spontaneous financing:

It refers to automatic sources of short-term funds arising in normal course of business.

There is no explicit cost associated with it. For example, Trade Credit and Outstanding

Expenses etc.

Depending on the mix of short and long term financing, the company can follow any of

the following approaches.

79
Matching Approach

In this, the firm follows a financial plan, which matches the expected life of assets with the

expected life of source of funds raised to finance assets. When the firm follows this

approach, long term financing will be used to finance fixed assets and permanent current

assets and short term financing to finance temporary or variable current assets.

Conservative Approach

In this, the firm finances its permanent assets and also a part of temporary current assets with

long term financing. In the periods when the firm has no need for temporary current assets,

the long-term funds can be invested in tradable securities to conserve liquidity. In this the

firm has less risk of facing the problem of shortage of funds.

Aggressive Approach

In this, the firm uses more short term financing than warranted by the matching plan. Under

an aggressive plan, the firm finances a part of its current assets with short term financing.

Relatively more use of short term financing makes the firm more risky.

80
Current asset to fixed asset ratio:

The financial manager should determine the optimum level of current assets so that the

wealth of shareholders is maximized. A firm needs fixed and current assets to support a

particular level of output.

The level of current assets can be measured by relating current assets. Dividing current

assets by fixed assets gives CA/FA ratio. Assuming a constant level of fixed assets, a higher

CA/FA ratio indicates a conservative current assets policy and a lower CA/FA ratio means

an aggressive current assets policy assuming other factors to be constant. A conservative

policy i.e. higher CA/FA ratio implies greater liquidity and lower risk; while an aggressive

policy i.e. lower CA/FA ratio indicates higher risk and poor liquidity. The current assets

policy of the most firms may fall between these two extreme policies. The alternative

current assets policies may be shown with the help of the following figure.

In this figure the most conservative policy is indicated by alternative A, where as CA/FA

ratio is greatest at every level of output. Alternative C is the most aggressive policy, as

81
CA/FA ratio is lowest at all levels of output. Alternative B lies between the conservative and

aggressive policies and is an average policy.

82
WORKING CAPITAL & SHORT-TERM FINANCING

CONSORTIUM BASED FINANCING

Current Working Capital Limits

NAME OF THE BANK FUND BASED NON-FUND BASED

STATE BANK OF INDIA 3600 46000

ICICI BANK 1282 19000

HDFC BANK 1200 10000

STANDARD CHARTERED BANK 1200 19000

STATE BANK OF SAURASHTRA 715 7500

STATE BANK OF PATIALA 1300 7700

CANARA BANK 1203 6000

SOCIETE GENERALE 1000 4000

HSBC BANK 1000 18300

TOTAL 12500 137500

In order to finance the working capital needs of the firm in the form of Working Capital

Demand Loan, there is a consortium of nine banks. The consortium if banks provide a fund

based limit of 125 Crores which comprises of cash credit and working capital demand loans

and non-fund based limits which has bank guarantee and letter of credit subject to a limit of

1375 Crores. The Lead Bank in this consortium of banks is State Bank of India and the

second lead bank is ICICI. It is SBI, which fixes the limit on the basis of consortium. They,

in consultation of the company decide the allocation of limit to various member banks. The

allocation cannot be higher than the limits fixed by it. SBI is the biggest contributor in the

consortium for both fund and non-fund based limits with about

83
31.30 in funds and 34.02 in non-fund limits. The ratio of both limits for the year 2009 is

0.23:0.77

It is on the basis of the accounts receivable that the banks come to an agreement with regards

to the limits imposed. Though it is the fund based limits that finance the working capital

requirements, the non-fund based limits are important for the management of the working

capital as there might be clients who are not willing to sell on open credit and might be

demanding letters of credit before any advances.

RENEWAL OF LIMITS

LIMITS 2015 2014 2013

FUND BASED 11500 11500 11500

NON FUND BASED 48500 38500 28500

TOTAL 60000 50000 40000

All banks sanction the limits for a period of one year. Thereafter it is to be renewed every

year. SBI appraises the limit on the basis of consortium. The individual banks appraise for

their own individual limit. The non fund based limits of the firm in consortium financing has

been subjected to change for the past two years as per the requirements of the firm and the

consent of the lead bank to its proposal. It was around 385 Crores in 2014 and had been risen

to around 485 Crores in 2015.

A proposal has been made by the firm to further appraise the limits by 100 Crores to 585

Crores in view of the growing operations of the firm with full interchangeability between

letter of credit and bank guarantee limits for operational flexibility. Allocation of the fund

based and non based limits among the banks based on operational convenience rather than

84
allocating the fund based and non fund based on the same ratio is also among the proposals

made by the firm.

The company needs to provide the following information to bank for appraisals:

 Credit Monitoring Appraisal

 Write Up on company

 Share holding pattern

 List of the directors

CONSORTIUM MEETING :

All the members of the consortium are required to meet to discuss various issues relating to

the working facilities. As per RBI guidelines, the lead bank, i.e., SBI should ensure that one

consortium meeting is held every quarter send this meeting has to be arranged by ICICI.

85
DOCUMENTATION and JOINT DOCUMENTATION:

There are various documents that need to be signed at the time of renewal or inducting any

bank to the consortium. The various documents are as follows:

 Loan agreement

 Hypothecation agreement for movable machinery

 Hypothecation agreement for movables and book debts

 Counter Indemnity

The above are the standard agreements asked for by the banks. The common seal has to be

witnessed by the company secretary and one of the directors of the company.

As of 2007, no additions or deletions were made to the consortium of the banks. But over the

years the number of banks in the consortium has been reduced. Indian Banks and State Bank

of Hyderabad are the two banks which were earlier a part of the consortium.

Joint Documentation is executed between the company and the consortium of banks for the

working capital facilities extended by the consortium to the company. The joint

documentation is valid for three years. The documents comprising joint documentation are:

 Working Capital consortium agreement

 Joint deed of documentation

 Inter se agreement between bankers

 Letter of authority to lead bank by other consortium banks

 Letter of authority to second lead bank by other consortium banks

 Undertaking to create charge on the assets of the company.

86
ALLOCATION OF LIMIT BY LEAD BANK

SBI appraises the limit on behalf of the consortium. It in consultation with the company

decided the allocation of the limit to various member banks. The allocation of any member

bank cannot be higher than the limit sanctioned by it. The drawing power for it fund based

limits out of the consortium are determined on the basis of the stock statement submitted by

the company. ICICI is required to submit the stock statement to all member banks in

consortium for every month.

87
FINANCIAL FOLLOW UP REPORTS ( FFRI & FFRII):

Every quarterly and half quarterly interval, the firm submits Financial Follow up Reports I

and II. FFR I is an extract of the balance sheet. In this report, the company is required to

submit the details of sales, current assets and current liabilities for the quarter and the

estimates for the current year. FFR II – the company is required to prepare P&L, B/S and

Cash Flow in a different format. The information is to be provided for the last year (actual),

current year half yearly results (actual) and the estimates for the next year.

88
SHORT TERM FINANCING

Other than the investment in current assets, the firm also has to be concerned with short-term

to long-term debt as this plays a very important role in determining the amount of risk

undertaken by the firm. That is , the firm not only has to be concerned about current assets

but also the sources through which they are financed. A firm before financing in either of the

two has to take into consideration various aspects. While short term might seem the ICICI

way to finance your assets than the long term due to shorter maturity period and also less of

costs are involved, there is an inherent risk in short term financing due to fluctuating interest

rates and due to the reason that the firm might be unable to reay the amount in a shorter span

of time.

SECURED LOANS 2015 2014

SHORT TERM 3849 4991.28

LONG TERM 0 530.07

TOTAL 3849 5521.35

%SHORT TERM 100 90.4

Under secured loan cash credit, along with non fund based facilities, foreign currency term

loan from banks are secured by way of hypothecation of stock-in-trade, book debts as first

charge and by way of second charge on all the immovable and movable assets of the parent

company. Term loan in Indian rupees from a bank is subject to a prior charge in favor of

company‘s bankers on book debts and stock in trade for working capital facilities.

89
UNSECURED LOANS 2015 2014

SHORT TERM 15104 2593.39

LONG TERM 11 17

TOTAL 15115 2610.39

% SHORT TERM 99.93 99.348

Here ICICI has a major portion of their financing done through short term financing than

long term financing. The preference of short term financing to long term as such is not the

part of any policy employed by the firm but it was due to the reason that the interest rates in

short term were more investor friendly and the cost involved in them were also low. At

present, we can see that the firm is moving more towards long term financing as the interest

terms in the long term has reduced compared to the short term.

YEAR- END COMMERCIAL PAPERS

PARTICULARS 2015 2014

COMMERCIAL PAPERS 4000 2500

The credit rating by ICRA continued at ‗A1+‘indicating highest safety to company‘s

commercial paper program of Rs. 75 Crores. It acts as an effective tool in reducing the interst

cost and is used for financing inventories and other receivables. As and when the firm issues

commercial papers, it sends a letter to the leader of the consortium, i.e., SBI to reduce from

the fund based limits the amount it has issued in the form of the commercial papers. Suppose

the firm issues 30 Crores as commercial papers and the fund based limits are say 115 Crores.

Then firm sends a letter to SBI to reduce the existing fund based limits from 115 to 85

Crores.

90
In terms of desirability, the commercial papers are cheaper and advantageous to the firm

compared to the consortium financing. The main advantage being the interest rate which is

lower than the bank rates existing under consortium financing. But the firm depends on both

and for working capital financing, it is dependent on the banks for funds sich as working

capital demand loans and cash credits. There is no point in the firm not making use of the

fund based limits in the consortium banking as their commercial papers are restricted to 75

Crores.

MERITS OF COMMERCIAL PAPERS:

 It is an alternative source of raising short-term finance, and proves to be handy during

periods of tight bank credit.

 It is a cheaper source of finance in comparison to the bank credit.

DEMERITS OF COMMERCIAL PAPERS:

 It is an impersonal method of financing.

 It is always available to the financially sound and highest rated companies.

 The amount of lonable funds available in the commercial paper market is limited to

the amount of excess liquidity of the various purchasers of commercial paper.

91
 Analysis Of Data

Gross Business Income:

The gross business income for the year 2014 was rs. 316.86 billion and for the year

2015 is 318.18 billion.

The gross business income is increased by 0.05 percent.

92
 Profit before Tax:

PBT grew by 1% from, Rs. 50.56 billion in the previous year to Rs. 51.17 billion in

the current year. The Compounded Annual Growth Rate (CAGR) for the preceding

five years is 38%.

93
Profit after Tax:

Profit after tax down by 10%, from Rs. 41.58 billion in the previous year to Rs. 37.58

crores. The Compounded Annual Growth Rate (CAGR) for the preceding five years is

36%. Profits for the current year are after a provision for Rs. 106 crores for current tax

expense, Rs. 3 crores for deferred tax expense and Rs. 4 crores for Fringe Benefit

Tax.

94
Earnings Per Share:
Basic EPS grew from Rs. 16.7 in the previous year to Rs. 39.39 in the last(11)year but

decrease in current year. Diluted EPS grew from Rs. 16.5 in the previous year to Rs.

39.15 in the last(12) but decrease in current year.

95
Dividend:

The Company distributed dividends rs. 8.50 billon in2012 and in 2013 r. 8.5 billon

and in 2014 rs.11.0billon and in 2015 rs 11.0 billon.

96
 LIMITATIONS OF THE STUDY:

We cannot do comparisons with other companies unless and until we have the

data of other companies on the same subject.

Only the printed data about the company will be available and not the back–

end details.

Future plans of the company will not be disclosed to the trainees.

Lastly, due to shortage of time it is not possible to cover all the factors and

details regarding the subject of study.

The latest financial data could not be reported as the company‘s websites have not been

updated.

97
SUGGESTIONS AND RECOMMENDATIONS

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

So, things should go with a proper understanding for managing cash, receivables and

inventory.

ICICI is managing its working capital in a good manner, but still there is some scope for

improvement in its management. This can help the company in raising its profit level by

making less investment in accounts receivables and stocks etc. This will ultimately

improve the efficiency of its operations. Following are few recommendations given to the

company in achieving its desired objectives:

The business runs successfully with adequate amount of the working capital but the

company should see to it that the cash should not be tied up in excessive amount of

working capital.

Though the present collection system is near perfect, the company as due to the

increasing sales should adopt more effective measures so as to counter the threat of

bad debts.

The over purchasing function should be avoided as it could lead to liquidity problems.

The investment of cash in marketable securities should be increased, as it is very

profitable for the company.

Holding of excessive and insufficient stock must be avoided as it creates a burden on

the cash resources of a business and results in lost sales, delays for customers, etc

respectively.

98
CONCLUSION

The working capital position of the company is sound and the various sources through

which it is funded are optimal.

The company has used its dividend policy, purchasing, financing and investment

decisions to good effect can be seen from the inferences made earlier in the project.

The debts doubtful have been doubled over the years but their percentage on the debts

has almost become half. This implies a sales and collection policy that get along with

the receivables management of the firm.

The returns have been affected by a marked growth in working capital and though a

29.75% in 2015 return on investment is good, but it got reduced as compared to

39.01% return in 2014.

The various ratios calculated are an indicator as to the fact that the profitability of the

firm and sales are on a rise and also the deletion of the inefficiencies in the working

capital management.

The firm has not compromised on profitability despite the high liquidity is

commendable.

ICICI has reached a position where the default costs are as low as negligible and

where they can readily factor their accounts receivables for availing finance is

noteworthy.

99
 BIBLIOGRAPHY
Websites:

 www.managementstudying.com
 www.wikipedia.com
 www.ask.com
 www.encyclopedia.com

Books:

 Kothari C.R,Research Methodology, Methods and Techniques, New Age

International (P) Ltd,New Delhi, Revised Second Edition-2004
 G.C Beri, Research Methodology
 C.B.Mamoria and S.V.Ganker,Personnel Management
 Fisher Schonfeldts Shaw, Human Resource Management
 Milkovich Boudreau,Personnel Human Resource Management
 Devid B. Balkin, Robert L.Cardy, Managing Human Resource

Jouranls:

 The Indian Journal of Human Resource Management

 The Indian Journal of Human Development
 International journal of Human Resource Development

Magazines:

 India Today
 Buisness Today

Newspapers:

 Times of India
 The Economics Times

100
 APPENDICES

FINANCIAL STATEMENTS FOR ICICI BANK.

Last 3 year Balance Sheet:

Although debt as a percent of total capital increased at ICICI Bank. Over the last fiscal year

to 21.53%, it is still in-line with the IT Services industry's norm. Additionally, even though

there are not enough liquid assets to satisfy current obligations, Operating Profits are more

than adequate to service the debt. Accounts Receivable are among the industry's worst with

28.44 days worth of sales outstanding. This implies that revenues are not being collected in

an efficient manner. Last, inventories seem to be well managed as the Inventory Processing

Period is typical for the industry, at 21.29 days.

Currency inAs of: Jun 30 Jun 30 Jun 30

bilion of Indian Rupees 2013 2014 2015

Restated Reclassified

Assets

Cash and Equivalents 2,51.7 2,14.92 1,97.65

Short-Term Investments 1,57.36 3,13.77 2,93.99

TOTAL CASH AND SHORT TERM

4,08.63 5,28.69 4,91.64
INVESTMENTS

101
Accounts Receivable 610.31 769.14 105.200

Other Receivables 40.05 46.81 59.34

TOTAL RECEIVABLES 650.36 815.95 1111.34

Inventory 349.39 469.61 791.88

Prepaid Expenses 16.30 14.60 28.78

Other Current Assets 5.64 8.68 8.48

TOTAL CURRENT ASSETS 1430.32 1837.53 2432.12

Gross Property Plant and Equipment 140.47 173.19 243.10

Accumulated Depreciation -74.49 -85.24 -96.65

NET PROPERTY PLANT AND

65.98 87.95 14.645
EQUIPMENT

Goodwill -- 0.2 0.8

Long-Term Investments -- -- --

Deferred Tax Assets, Long Term -- -- --

102
Other Intangibles 9.53 3.24 3.09

Other Long-Term Assets 5.1 7.18 1.60

TOTAL ASSETS 1506.34 1935.92 2583.34

LIABILITIES & EQUITY

Accounts Payable 410.09 596.48 829.85

Accrued Expenses 10.10 14.04 20.98

Short-Term Borrowings 30.79 78.49 118.24

Current Portion of Long-Term

49.96 0.4 89.25
Debt/Capital Lease

Current Income Taxes Payable 80.9 77.4 252.8

Other Current Liabilities, Total 337.73 468.79 521.66

Unearned Revenue, Current 96.58 55.79 77.52

TOTAL CURRENT LIABILITIES 943.34 1221.37 1682.78

103
Long-Term Debt 7.2 6.01 28.40

Deferred Tax Liability Non-Current 7.35 10.76 12.48

Other Non-Current Liabilities 3.8 1.0 --

TOTAL LIABILITIES 951.79 1238.24 1723.66

Common Stock 33.44 33.75 33.83

Additional Paid in Capital 88.37 104.45 108.79

Retained Earnings 429.73 556.52 714.14

Comprehensive Income and Other 3.01 2.96 2.92

TOTAL COMMON EQUITY 554.55 697.68 859.68

TOTAL EQUITY 554.55 697.68 859.68

TOTAL LIABILITIES AND EQUITY 1506.34 1935.92 2583.34

104
 FINANCIAL STATEMENTS FOR ICICI BANK.

Last 3 year Cash Flow Statement:

In 2012, cash reserves at ICICI Bank fell by 172.7c. However, as a percent of revenues, this

change was similar to the IT Services industry median. By looking at the Cash Flow

Statement, analysts can easily see the sources and use of cash generated throughout the year.

Currency in As of: Jun 30 Jun 30 Jun

2013 2014 2015

crore of Indian Rupees
Restated Reclassified

NET INCOME 2,277.0 2,803.6 3,159.5

Depreciation & Amortization 152.4 124.3 144.0

Amortization of Goodwill and Intangible

-- -- 4.1
Assets

DEPRECIATION & AMORTIZATION,

152.4 124.3 148.1
TOTAL

(Gain) Loss from Sale of Asset -1.6 0.5 0.6

(Gain) Loss on Sale of Investment -84.9 -61.5 -55.2

105
Asset Writedown & Restructuring Costs 0.5 -- --

Other Operating Activities 31.2 79.6 271.8

Provision & Write-off of Bad Debts 14.4 7.2 9.2

Change in Accounts Receivable -1,993.4 -1,724.7 -3,158.8

Change in Inventories -689.7 -1,202.2 -3,222.7

Change in Accounts Payable 1,561.6 2,759.5 3,112.2

CASH FROM OPERATIONS 1,267.5 2,786.3 264.7

Capital Expenditure -267.8 -424.3 -674.5

Sale of Property, Plant, and Equipment 10.7 80.3 1.6

Investments in Marketable & Equity

841.4 -1,453.6 289.0
Securities

CASH FROM INVESTING 622.4 -1,683.3 -231.9

Short-Term Debt Issued 169.5 -- --

Long-Term Debt Issued 231.3 200.5 1,837.2

106
TOTAL DEBT ISSUED 400.8 200.5 1,837.2

Short Term Debt Repaid -- -172.3 -74.7

Long Term Debt Repaid -302.7 -- -250.0

TOTAL DEBT REPAID -302.7 -172.3 -324.7

Issuance of Common Stock 215.2 163.9 44.2

Common Dividends Paid -1,047.4 -1,526.6 -1,546.1

TOTAL DIVIDEND PAID -1,047.4 -1,526.6 -1,546.1

Other Financing Activities -95.4 -132.0 -216.1

CASH FROM FINANCING -829.5 -1,466.5 -205.5

NET CHANGE IN CASH 1,060.4 -363.5 -172.7

107
FINANCIAL STATEMENTS FOR ICICI BANK.

Last 3 year Income Statement:

Year over year, ICICI Bank has seen revenues remain relatively flat (113.7c to 116.9c),

though the company was able to grow net income from 2.8c to 3.2c. A reduction in the

percentage of sales devoted to cost of goods sold from 93.21% to 92.53% was a key

component in the bottom line growth in the face of flat revenues.

Currency in As of: Jun 30 Jun 30 Jun 30

2013 2014 2015

crore of Indian Rupees
Restated Reclassified

Revenues 77,478.9 113,683.1 116,853.0

Other Revenues -35.7 61.6 63.8

TOTAL REVENUES 77,443.2 113,744.7 116,916.8

Cost of Goods Sold 71,496.1 105,964.4 108,121.4

GROSS PROFIT 5,947.1 7,780.3 8,795.4

Selling General & Admin Expenses, Total 3,305.9 3,764.3 4,527.1

Depreciation & Amortization, Total 152.4 124.3 148.1

108
Other Operating Expenses -84.0 84.8 91.2

OTHER OPERATING EXPENSES,

3,374.3 3,973.4 4,766.4
TOTAL

OPERATING INCOME 2,572.8 3,806.9 4,029.0

Interest Expense -77.6 -132.6 -214.6

223.8

Interest and Investment Income 146.1 208.0

NET INTEREST EXPENSE 68.5 75.4 9.2

Currency Exchange Gains (Loss) 145.0 -144.4 189.6

Other Non-Operating Income (Expenses) -- -- --

EBT, EXCLUDING UNUSUAL ITEMS 2,786.3 3,737.9 4,227.8

Gain (Loss) on Sale of Investments 85.0 61.5 55.2

Gain (Loss) on Sale of Assets 1.6 -0.5 -0.6

109
Other Unusual Items, Total 87.2 4.0 4.7

Insurance Settlements 3.7 4.0 4.7

Other Unusual Items 84.0 -- --

EBT, INCLUDING UNUSUAL ITEMS 2,960.1 3,802.9 4,287.1

Income Tax Expense 683.1 999.3 1,127.6

Earnings from Continuing Operations 2,277.0 2,803.6 3,159.5

NET INCOME 2,277.0 2,803.6 3,159.5

NET INCOME TO
COMMON
2,277.0 2,803.6 3,159.5
INCLUDING EXTRA ITEMS

NET INCOME TO
COMMON
2,277.0 2,803.6 3,159.5
EXCLUDING EXTRA ITEMS

110