Working capital

Finance is a blood of business. Financial Management helps in achieving group goals. It

reduces the cost and optimum utilization of funds and maximum efforts.

Financial management also referred to as corporate finance and managerial finance. It

involves planning, allocation of resources and control. There are three broad areas of financial
decision they are capital budgeting, capital structure and working capital management and
dividend decisions.

Working capital is one of the most important requirements of any business concern.
Working capital can be compared with the blood of human beings, as human cannot survive
without blood, in the same way no business concern can survive without capital.

1. In managing fixed assets, time is an important factor discounting and compounding

aspects of time play an important role in capital budgeting and a minor part in the
management of current assets.
2. The large holdings of current assets, especially cash, may strengthen the firm’s liquidity
position, but is bound to reduce profitability of the firm as ideal car yield nothing.
3. The level of fixed assets as well as current assets depends upon the expected sales, but it
is only current assets that add fluctuation in the short run to a business.

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MEANING OF WORKING CAPITAL
Every business needs funds for two purposes for its establishment and to carry out its day
to day operations. To carry out day-to-day operations such as for purchase of raw materials,
payment of wages and other day-to-day expenses, funds are required. These funds are known as
working capital.
In other words working capital refers to the funds invested in current assets.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT

Because of its close relationship with day to day operations of business, a study of

working capital and its management is of major importance to internal, as well as external

analysis. It is being increasingly realized that inadequacy or mismanagement of working capital

in leading cause of business failures.

Neglect of management of working capital may result in technical insolvency and even

liquidation of a business unit.

With receivables and inventories tending to grow and with increasing demand for bank

credit in the wake of strict regulations of credit in India by the central bank, mangers need to

develop a long term prospective for managing working capital. Inefficient working capital

management may cause either inadequate or excessive working capital which is dangerous.

A firm may have to face the following adverse consequences from inadequate working

capital:

 Growth may be stunned. It may become difficult for the firm to undertake profitable

projects due to non availability of funds.

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 Implementation of operating plans may become difficult and consequently the firms

profit goals may not be achieved.

 Operating inefficiencies may creep in due to difficulties in meeting even day to day

commitments.

 Fixed assets may not be efficiently utilized due to lack working funds, thus lowering the

rate of return on investments in the process.

 Attractive credit opportunities may have to be lost due to paucity of working capital.

COMPONENTS OF WORKING CAPITAL

From the accounting point of view, working capital is the difference between current
assets and current liabilities.
CURRENT ASSETS
Cash is required to pay salaries, office expenses and to pay creditors for purchases stock
of raw materials in adequate quantities to ensure uninterrupted production.
Stock of finished goods in sufficient quantities to meet the demand from customers.
Debtors that is people to whom we sell goods on credit basis for increased sales.
Prepaid expenses that is the expenses paid in advance such as insurance, rent, salaries and so on
Bills Receivables these are the bills of exchange received for the money lent or to be received
for a short period.

CURRENT LIABILITIES
Creditors, that is the people from whom we purchase on credit basis
Accruals that is , those expenses in respect of which, the liability has arisen. In other words the
expenses have fallen due and hence to incurred, such as interest, salaries, taxes and so on.
Bills payable these are the bills of exchange against which money is to be paid within a short
period.

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NEED FOR WORKING CAPITAL

The basic objective of financial management is to maximize the shareholders wealth.

This is possible only when the company earns sufficient profits. The amount of such profits
largely depends upon the magnitude of sales. However do not into cash instantaneously. These
are always a time gap between the sale of goods and their actual realization in cash. Working
capital is required in order to sustain the sales activities in this adequate working capital is not
available for this period.

The company will not be in a position to purchase raw materials, pay wags and other
expenses required for manufacturing the goods. Therefore sufficient amount of working capital
is to be maintained at any point of time.

ADEQUACY OF WORKING CAPITAL

A firm must have adequate working capital i.e., as much as needed by the firm. It should
neither be excessive nor inadequate. Both the situation are harmful to the concern. Excessive
working capital means the firm has idle funds, which earn no profits for the firm inadequate
working capital ultimately results in production interruptions and lowering down of the
profitability.

4
 It will be interesting to understand the relationship between working capital, risk and
return in manufacturing concern. It is generally accepted that higher levels of working capital
because the risk and have the potential of increasing the profitability also.

CONCEPTS OF WORKING CAPITAL

There are two concepts of Working Capital

1. Gross Working Capital
2. Net Working Capital

1. Gross Working Capital

In the broad sense, the term working capital refer to the gross working capital and
represents the amount of funds invested in current assets. Thus the gross working capital is the
capital invested in the total current assets of the enterprise. Current assets are these assets, which
in the ordinary course of the business can be converted into cash with in a short period of
normally one accounting year.

Examples of the current assets are cash in hand, bank balance, bills receivable, sundry
debtors, short term loans and advance, stocks, temporary investments, prepaid expenses, accrued
incomes.

NET WORKING CAPITGAL

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 In a narrow sense, the term working capital refers to the net working capital. Net
working capital is the difference between current assets and current liabilities the net working
capital can be positive or negative. Current liabilities are those liabilities, which have taken due
and hence to be incurred in short period normally one accounting year.

Examples of current liabilities are Bills payable, sundry creditors or accounts payable,
accrued or outstanding expenses, short term loans and advances, dividends payable bank
overdraft, provisions.

Net Working Capital = Current Assets – Current Liabilities

DETERMINING WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS
The nature of business has an important bearing on its working capital needs. Some
ventures like retail stores, construction companies etc., require an abundance of working capital.
In order cases, such as power generations and supply, the current assets play a minor and
secondary role.

2. SIZE OF BUSINESS
A large firm operation on a large scale and thus requires more working capital as
compared to a smaller firm in the same line of business.

3. MANUFACTURING AND OPERATION CYCLE

The term manufacturing cycle refers to the time span between procuring raw materials up
to the stage of production of finished goods. Operating cycle refers to the time that elapses
between purchase of materials and final cash received by the sale of goods. The longer the
operating cycle, larger will be the working capital requirements because the funds are tied up
during the manufacturing process.

4. BUSINESS CYCLES

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 Business cycles refers to economic phases like boon, recession, depression, recovery etc.,
these market conditions change the demand for products and services in all the industries. In
boon times, there is un using in business activity the need for working capital also grows,
particularly the temporary working capital. Similarly during depression, when there is fall in
activity level, the need for working capital also declines.

5. SEASONAL VARIATIONS
For seasonal industries like woolen garments, ice cream etc., having seasonal fluctuations
in demand, the working capital requirements also change with changes in demand. In such
industries, during active season, there is necessary to provide additional working capital to meet
additional inventories and book debts as well as higher costs for increased production. Similarly,
during slack season, the demand for products falls and volume of business. Accordingly low
amount of working capital is needed.

6. GROWTH AND EXPANSION

Growth and expansion plans of business call for larger call for larger amount of working
capital. Infant, the need for increased working capital fund does not follow the growth in
business but proceed it in other words, working capital requirements are assessed in advance of
implementation of growth and expansion of business operations.

7. CHANGES IN PRICE LEVEL

Working capital requirements are affected by price level changes, when price increases
long.
8. CREDIT POLICY
Business makes purchases and sales an cash basis credit term generated to its customers
and the same extended to the film by the suppliers will affect the working capital requirements of
a firm. More of credit sales result in more receivable which means more working capital is
required. On the other hand, if suppliers of goods liberal credit terms, the need of working
capital is less.

9. DIVIDEND POLICY

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 If a company pays higher dividends, it consumes cash resources which affect working
capital to that extent. But if the firm does not pay dividend, and retains profits, the working
capital of the firm increases. Therefore, in planning working capital requirements, dividend pay-
out ratio is a very important factor.

10. DEPRECIATION POLICY

It is commonly said that depreciation, the profit and therefore the tax liability is reduced,
resulting in higher cash profits. Higher depreciation also reduces the amount of distributable
profit and therefore lower dividend payouts. Is brief, higher change of depreciation on fixed
assets make case position of the company more comfortable. The management has to prepare its
depreciation.
WORKING CAPITAL CYCLE

In a manufacturing concern, the working capital cycle starts with the purchase of raw
material and ends with the realization of cash from the sale of finished products. This cycle and
stores, its conversion into stocks of finished goods through work in progress with progressive
increment of labour and service costs, conversion of finished stock into sales, debtors and
receivables and ultimately realization of cash and this cycle continues again from the cash to
purchase of raw materials and soon.

DEBTORS
(RECEIVABLES)

FINISHED
CASH GOODS

RAW WORK – IN –
MATERIALS PROGRESS

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 The speed with which the working capital completes one cycle determines the
requirements of working capital longer than period of the cycle larger is the requirement of
working capital.

RESEARCH METHODOLOGY

Research means it is an academic activity and as such the term should be used in
technical sense. Research methodology implies a systematic attempt by the researcher to obtain
knowledge about the subject under study. This in fact is a systematic way to show the problem
and it is important components of the study without which a research may not be able obtain the
facts and figures from employee.

OBJECTIVES OF THE STUDY

The main purpose of the study is to project into the various aspects of financial
management of WARANGAL DISTRICT CO-OPERATIVE CENTRAL BANK LTD. The
study focuses on the following objectives:

 To study the existing system of working capital management in WARANGAL

DISTRICT CO-OPERATIVE CENTRAL BANK LTD.
 To know the liquidity position of the WARANGAL DISTRICT CO-OPERATIVE
CENTRAL BANK LTD.
 To know how the working capital is being financed.

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 To know the various norms to be followed by WARANGAL DISTRICT CO-
OPERATIVE CENTRAL BANK LTD for inventories, accounts receivable, investment
debtors.
 To find out the ability of the bank to meet its current obligations.
 To know the profitability position using with ratios.
 Suggesting a better way to improve working capital management.

SCOPE OF THE STUDY

 The study mainly focuses on WARANGAL DISTRICT CO-OPERATIVE CENTRAL

BANK LTD.
 The study focuses on ratios to find profitability position of the WARANGAL DISTRICT
CO-OPERATIVE CENTRAL BANK LTD.
 The study is confined to evaluation of the last five years annual reports only.
 The study mainly focuses on working capital management.
 The information obtained from the primary and secondary sources were limited to
WARANGAL DISTRICT CO-OPERATIVE CENTRAL BANK LTD.

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 LIMITATIONS OF THE STUDY

The amount used in the reports is taken from the annual reports, published at the end of
the respective years.
 The result does not reflect the day to day transaction.
 The study was confined to a period of 5 years.
 As most of the data is from secondary sources, so the results are not accurate.
 This analysis was confine to District Co-Operative Central Bank Ltd only.

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COLLECTION OF DATA
Methodology is a systematic procedure of collecting information in order to analyze and verify a
phenomenon. The collection of data through two principles sources
 Primary Data
 Secondary Data

Primary Data
It is the information collected directly without any reference. In the study, it was mainly
interaction with concerned officer and staffs members and some of the information was gathered
by personal observation.

Secondary Data
The secondary data was collected from already published sources such as pamphlets
annual reports, internal records and internet sites.
The data include:
 Collection of required data from annual reports of WARANGAL DISTRICT CO-
OPERATIVE CENTRAL BANK LTD
 Reference books of financial management

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 PROFILE OF THE WDCCB LTD

INTRODUCTION

The District Co-Operative Central Bank Ltd., Warangal No.20976 is deemed to

have been registered as a Co-operative Society under the area of Andhra

Pradesh Co-operatives Act of 1964. The Warangal District Co-operative Bank

Ltd., has come into existence on 04-08-1917. The area of operation of the

bank is confined to entire Warangal District comprising 51 Revenue Mandals out

of which 21 Mandal Head quarters are covered with the Bank’s Branches. The

Bank is having 23 branches including Central Office Branch covering 136 PACS

financed by the Warangal District Co-operative Bank.

OBJECTIVES

Its Objectives shall be:

Primarily to finance the Primary Agricultural Credit Societies (PACS) registered

or deemed to have been registered under the AP Co-operative Society Act 7 of

1964 and secondarily to finance all other Co-operative Societies in the District

to service members of erstwhile PADBs including disbursement of second and

subsequent installments of loans directly to such members, and recovery of

such loans of members till they are cleared and arrange for issue of fresh long-

term loans through PACS.

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To finance individual, firms, companies and corporations etc., by admitting

them as ‘B’ class members for purposes approved by higher financing agencies

from time to time either individually or jointly with other financing institutions.

To raise funds by way of deposits, loans, cash credits, overdraft and advances

form Apex Bank, Government and other financing agencies.

To open Regional Offices, branches or Sub-Offices with the prior permission of

the Registrar both for banking purposes and issue and recovery of ST, MT and

LT loans to guarantee the loans and advances to be made to the member

societies by other agency.

To advise develop, assist and coordinate and supervise and inspect the

functioning of the PACS and also to assist and supervise the functioning of other

affiliated and indebted societies.

To buy, sell (or) deal with securities, debentures (or) bonds (or) scrip (or) other

forms (or) securities on its behalf of members (or) other Co-operative

institutions.

To maintain a library of Co-operative and banking literature. To Act on agent of

government (or) Apex Bank (or) any institution in financing loans for

agricultural and rural development and allied activities and to accept and

administer any fund for such purposes.

To carry on the general business of banking nor repugnant of the provisions of

the AP Co-operative societies Act 7 of 1964 and the rules framed there under or

14
the Banking Regulations Act, 1949 as applicable to Co-operative societies and

rules made there under.

All such other things and acts as are necessary, conducive and incidental to

attainment of the foregoing and generally to promote the cause of cooperation

in the district.

BOARD OF MANAGEMENT OF THE BANK

The management of the bank shall vest in a Board consisting of such members

and with such composition of members as prescribed in the A.P.C.S Act and

Rules. At present the Board is consists of 19 members.

POWER OF THE BOARD

The entire administration of the Bank shall cast in the Board. Amongst other

the powers of the Board shall be:

To admit ‘A’ class members and allot shares.

To raise funds in the form of deposits, loans etc., for the objectives of the bank.

To grant loans and advances to members and determine policy for issue of

loans to normal members and also issue guidelines of loaning policy of PACS

also.

To sanction or approve investment of the funds of the Bank except in

subscribing of additional shares in higher financing agencies.

To authorize the officials of the bank to operate on the bank accounts jointly.

15
To scrutinize and put up the annual budget to the general body.

To prescribe or regulate from time to time the strength of office and field

establishment and their salaries and allowances, and other service conditions of

employees subject to such guidelines as issued by the RCS.

To convene special meeting of Board of General Body of affiliated societies, vest

power in the Board to requisition the meeting of the Managing committee or

General body of affiliated societies.

To arrange to maintain such accounts ands register as are prescribed under the

Act and the rules and as suggested by Register Apex Bank, NABARD.

To take legal action against members of societies in case of failure of the

managing committee of societies to take legal action.

To institute, conduct defend, compound, compromise or abandon legal

proceedings by or against the Bank.

To sanction loans to employees as per loaning policy to be determined and with

prior approval of Registrar.

To purchase vehicles for the sake of the bank as per special by-laws governing

their purchase and maintenance of such vehicles as approved by Registrar.

To transact all other business incidental to the administration of the bank.

ACCOUNTS AND RECORDS

16
Accounts to By-law 55-A of APCS Act:

‘The Chief Executive Officer of every bank by whatever name and designation

he is called, or the president of the bank shall be bound to keep, maintain or

cause to maintain such accounts and books relating to that bank in such

manner as may be prescribed. He shall be responsible for correct and up-to-

date maintenance of such accounts and books for producing or causing

production of the seen when called for in communication to audit, inquiry or

inspection”.

The Warangal District Co-operation Bank Ltd., maintains books of accounts and

records inform prescribed by the registrar and RBI with addition as Board of

Directors find it necessary.

The registrar may prescribe such other statements as from time to time. The

statement shall be made as on 30th June of every year and copy of each shall be

sent to the registrar with in 30 days after close of the Co-operative year ending

30th June.

DEPOSITS

Deposits may be received at any time with in the limits determined under the

APCS, Act rules on such rate of interest on deposits are subject to rules and

regulations fixed by Board of Directors and also to directives issued by Reserve

Bank of India on behalf from time to time.

17
THE VARIOUS DEPOSITS RECEIVED BY THE BANK

Dhana Lama Deposits

Fixed deposits

Current deposits

Savings deposits

Sway am Uradhi deposits (day deposits)

Thrift deposits

Recurring deposits

Security deposits

LOAN AND ADVANCES

The loans and advances may be granted to members on security subject to the

direction issued by Reserve Bank of India from time to time and securities

approved by Board of Directors, the security such as:

Personal security and/surety/ securities of other members/members; collateral

security of movable and immovable property, gold or silver ornaments or

consumer durable; Industrial mercantile, Agricultural and other marketable

commodities or machinery under pledge, hypothecation or charge of the

society; any other tangible.

THE DIFFERENT TYPES OF LOANS AND ADVANCES TO MEMBERS

Agricultural Loans

Loans on Deposits

Festival Loans

Vehicle Loans

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Gold and jewel Loans

Loans to Owners of Bank

ORGANIZATION DESIGN (CHART) OF THE WDCCB

The major functions and their inter-relationships of important structural aspects

of the WDCCB are given in chart. The chart can be considered as vertical chart

as the line of command flows from top to bottom in a vertical line the chart is as

follows.

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FUNDS AND RETURNS

FUNDS

The Bank will be ordinarily obtaining funds from the following sources:

Share capital

Deposits

Other borrowings from various sources

Entrance fee and miscellaneous receipts

Grants from Government and other agencies

RETURN

The bank shall prepare annual returns in such form as may be prescribed the

registrar and apex bank.

Statement showing receipts and disbursement.

A Profit and loss account

A balance sheet and which were under the Madras Province and the Nizam

Government respectively. All the societies, which were established prior to the

formation of the state, have come under the fold of Andhra Pradesh Co-

operative Societies Act of 1964. In order to implement the provisions of the Act

a separate department is constituted and registrar is made in charge for it.

PRESENT STRUCTURE OF CO-OPERATIVE BANKS IN ANDHRA PRADESH

AS PER 1997

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No. of PACs No. of DCCBS No. of SCOB

6695 22 1

State and District Co-operative Banks are providing rural credit through primary

agricultural credit societies to the 50 laths of people. Among them 75% are

small and marginal farmers. In A.P 50% of rural credit is provided by Co-

operative Banks.

BOARD OF DIRECTORS

Sino. Name of the Designation Representative of

Committee Member Committee Member
1. K.Muralidhar Rao President PACs Vanchanagiri

2. G.Chennal Reddy Vice-President PACs Jangaon

3. G.Raghava Reddy Director PACs Kazipet

4. N.Narismha Reddy Director PACs Nidigonda

5. T.Narsimga Reddy Director PACs Duggondi

6. K.Sridevi Director PACs Kampally

7. Gulam Afzal Director PACs Jangaid

8. P.Laxma Reddy Director PACs Mah’bad

9. P.Anil Reddy Director PACs Vangapahad

10. A.Ramesh Director PACs Gurijala

11. K.Chinna Bhadraiah Director PACs Nachinapally

12. S.Krishna Prasad Director PACs Tadvai

13. P.Krishna Prasad Director PACs Bachannapet

14. Y.Janaki Director PACs Vardhannapet

15. J.Badru Naik Director PACs Shayampet

16. K.Murildhar Reddy Director PACs FSCs Kodakandla

21
 17. J.Mohan Rao Director PACs NGO’s Kodakandla

18. Rajender Yadav Director PACs SBCS Vangapahad

19. J.Saraiah Director PACs SBCs Unikicherla

20. P.Sreenivas Director PACs Potharajpally

21. D.Shankar Director PACs Govindapuram

22. Ganesh Prasad Govt. Nominee PACs Head DCCB, Wgl.

23. V.Giridhar Bank G.M PACs DCCB, Warangal.

SWOT ANALYSIS OF THE BANK

STRENGTHS
 Providing safety, security, liquidity to all our customers
 Enjoying Brand equity, customer loyalty, huge network
 Dealing with transparency and maintaining ethical values
 Committed / experienced / intelligent work force
 Healthy Industrial relations / dedicated work culture
 CBS platform and full networking of branches
 Committed to social obligations yet running on commercial lines
 Doing Govt. business – Looked upon as Government’s Bank / Nizam Bank
 The only Bank having distinction of earning profit since its inception

WEAKNESSES
 Unable to improve market share
 Unable to attract younger generation customers

22
  Unable to improve low cost deposits
 Lack of skills in specialist areas
 Lack of market orientation
OPPORTUNITIES
 Scope for improving profitability by Cross selling
 Implementing total financial inclusion – Maximize use of technology to increase volumes
 Use of alternate channels for reducing cost of transactions, improving customer
satisfaction.
 Moving towards profitable new areas from traditional business
 Door Step Banking services
 Performance Incentives and rewards-HR initiative
THREATS
 Liberal entry of Foreign banks in India after April, 2009.
 Cut throat competition between various commercial / new generation banks and
NBFC’s / NGO’s.
 Various economic, Govt. policies detrimental to Banking industry
DEPOSITS

The deposits of the bank are broadly classified in to two categories based on their
repayment obligation to the depositor. If the deposits are repayable on demand they are called as
Demand Deposits and if they are placed with the Bank for a specific tenure then they are called
Time Deposits or Term Deposits.

DEMAND DEPOSITS

 Savings Bank Account – for personal savings accounts for individuals.

 Current Account – for commercial undertakings, institutions and individuals.
 Current Account plus – Current Account with Cheque Return Protection
 Term Deposits (Time Deposits)

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 A time or term deposit is one which is received by a Bank for a fixed period and
which is withdraw able only after the expiry of the said fixed period. They are classified
as time liability and matured deposits are classified as Demand liability. A time deposit
account can normally be opened for a maximum period of 120 months and a minimum
period of 15 days (For deposits more than Rs. 15 laks – 7 days). While effecting payment
is made to the credit of an account or the receipt is in the name of a Co-operative Society
which is exempted from Stamp duty.

DIFFERENT SCHEMES

 United Housing Finance Scheme for BSUP/IHSDP-BSUP means Basic Service to the
Urban Poor/IHADP Integrated Housing and Slum Development Program.
 United Car Loan Scheme-it provides loan up to Rs.12lac for new and Rs.6lac for old cars.
Short Term Deposit – Deposit for a period less than six months
 Recurring Deposit – Cumulative monthly deposit Scheme
 Recurring Deposit Plus – RD Plus Saral (Personal loan)
 United Nari Samman Yojona-provides loan to working and self-employed women aged
18 years and above.
 Multi Option Deposit – Deposit in units & piece meal maturity possible
 Corporate Liquid Term Deposit – Deposit in units (high value) & piece meal maturity
possible
 Certificate Of Deposits – Transferable – Rs.1Lakh in multiples of Rs.1lakh

Some of the ACCOUNTS are given below:

 SAVINGS BANK ACCOUNTS
 SAVINGS PLUS SCHEME

CURRENT ACCOUNT

24
 Current Account can be opened by Individuals, sole proprietorship/ partnership firms,
private and public limited companies. HUFs/Specified Associations, Societies, Trusts, Clubs,
Executors, Administrators and Liquidators, Govt. Depts., Universities, Banks etc.

 For individuals – Rural: Rs.2500 Non-Rural: Rs.5000

 For Non-Individuals – Rural: Rs.5000 Non-Rural: Rs.10000
 No interest is paid on deposit amount
 No limit for number of cheques No limit for amount of cheques
 Folio charges will be levied @ Rs.60 per page

CURRENT ACCOUNT PLUS

Quarterly Average Minimum Balance is Rs. 1lakh for metro centers, Free ATM cum
debit Card, Internet Banking, 50 Multi-city cheques, Bankers’ Cheques, duplicate statement of
account, Cheque books. Allow Overdraft with Supervisory override Penalty for closing account
before 12 months is Rs.2,500.

RECURRING DEPOSIT
 Minimum monthly cumulative deposit Rs.100/- in additional multiples of Rs.10/-
 Minimum period of deposit 12 months
 Maximum period of deposit 120 months
 Initially depositor has to decide his/her monthly contributed i.e. installment

RECURRING DEPOSIT PLUS

 All individuals above 18 years in sole name or jointly with others

 Minimum period of deposit is 24 months
 Maximum period of deposit is 120 months
 Minimum amount of deposit is Rs.1000/- per month and in multiple of Rs.10/-

25
MULTI OPTION DEPOSIT ACCOUNT

 Minimum deposit is Rs.10,000/- and held in 10 units of each Rs.1000/-

 Additional amount in multiples of Rs.1,000 with a minimum of Rs.5,000/-
 Premature payment of units permitted and the remaining units rank for agreed interest
 Units paid prematurely will attract penal provisions of such premature payment
 Minimum period of deposit are 12 months
 Maximum & 60 months

CORPORATE LIQUID TERM DEPOSIT

 Minimum deposit is Rs.50,000/- and held in 10 units of each Rs.5,000/-

 Additional amount in multiples of Rs.5,000 with a minimum of Rs.25000/-
 Premature payment of units permitted and the remaining units rank for agreed interest
 Units paid prematurely will attract penal provisions of such premature payment
 Minimum period of deposit is 15 days
 Maximum period of deposit is 36 months

TAX SAVER SCHEME

 Minimum period of deposit is 5 years

 Maximum period of deposit is 10 years
 Minimum deposit is Rs.1000/- and maximum deposit is Rs.1.00lakh
 Deposit qualifies for savings Exemption under section 80C of income Tax Act

SHORT TERM DEPOSIT

26
  Minimum amount of deposit is Rs.1000 and in multiples of Rs.10
 Minimum period of deposits
 For deposits up to Rs. 15lakhs – days
 For deposits more than 15lakhs – 7 days
 Maximum period of short term deposits is less than 6 months
 Interest will be paid on maturity

FIXED DEPOSITS

 Minimum amount of deposit is Rs.1000 and in multiple of Rs.100

 Minimum period of deposit is 6 months
 Maximum period of deposit is 120 months
 Interest payable at monthly/quarterly/half yearly/yearly intervals

SPECIAL TERM DEPOSITS

 Minimum amount of deposit is Rs.1000 and in multiples of Rs.100

 Minimum period of deposit is 6 months
 Maximum period of deposit is 120 months
 Interest is reinvested at quarterly intervals and will be paid on maturity of the deposit

MISCELLANEOUS DEPOSITS
PENAL INTEREST ON PREMATURE OF DEPOSITS

 For deposits more than one lakh & up to 1 crore – 1% less

 For deposits more than one crore – 0.5% less
 For deposits less than one lakh – No penalty
 No premature penalty for staff

27
ADVANCES
SCHEME FOR FINANCING AGRICULTURE:

 Medicinal & Aromatic Plants.

 Gram Nivas Scheme.
 Sahayog Nivas Scheme.
 Kisan Credit Card Scheme.
 Agricultural Clinics Scheme.
 Kisan Star Card Scheme.
 General Purpose Credit Card Scheme.

FINANCING SELF HELP GROUPS:

 Indiramma Housing Program.
 Debt Swapping Scheme to Rural SHGs.
 Tractor Finance.
 Scheme For Debt Swapping of Borrowers (for farmers).
 Financing Co-Operatives through PACS/FSCS.
 Mortgage Loans to Agriculturists.
 Relaxation of Security Norms for Crop Loans up to RS.1.00 lakh.
 Scheme for Financing Private Cold Storages for on lending to Farmers.
 Loans against Private Warehouse Receipts – Modifications.
 Simplification of Lending Procedures.
 Per Advances Products (products for Women, Employees.)
MICRO SMALL AND MEDIUM ENTERPRISES

MSME sector is classified into two sectors – Manufacturing Enterprises and Services
Enterprise. Each sector is divided into three categories again: Those are Micro, Small and
Medium Enterprises. The existence SBF products like Retail Trade, Small Business and SWRTO
are continued to be in existence and included in MSME sector.

28
 If the original investment in equipment is up to Rs.10.00lakh, it comes under the purview of
Micro (services) Enterprises and if it is above Rs.10.00lakh and up to Rs.2.00crore, it is
considered as Small (services) Enterprise as and more than Rs.2crore and up to Rs.5.00crore and
up to Rs.10.00crore, it is considered as Medium (services) Enterprises.

If the original investment in Plant & Machinery is up to Rs.25.00lakh, it will come under the
purview of Micro (manufacturing) Enterprises and if it is above Rs.25.00lakh and up to
Rs.5.00crore, it is considered as small (manufacturing) Enterprise and more than
Rs.5.00crore and up to Rs.10.00crore; it is considered as Medium (manufacturing) Enterprise.

SPECIAL FEATURES OF MSME SECTOR:

 No margin for loans up to Rs.25, 000/-. 25% margin for loans above Rs.25, 000/-.
 No collateral security up to Rs.5.00 lakh. Up to Rs.50.00 lakh, the collateral security
may be waived with the permission of controller.

Some of the ADVANCES are given below:

 LAGHU UDYAMI CREDIT CARD
 COLLETERAL FREE LOANS
 DOCTORS PLUS
 TOURISM FINANCE
 CAR LOANS TO SMEs
 SME CREDIT PLUS

TYPES OF CUSTOMERS

 Individuals
 Single Account of an Individual
 Joint Accounts of Individuals
 Minors

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 Married Woman
 Insolvent
 Lunatic
 Drunkards
 Pardhanashin woman
 Other than Individuals
 Partnership Firms
 HUF (Hindu Undivided Family)
 Clubs / Associations
 Trusts
 Co-operative Societies
 Joint Stock Companies
 Executors / Administrators
 Liquidators

30
 STATEMENT OF CHANGES IN WORKING CAPITAL FOR
THE YEAR ENDING 2005-2006
(Rs.in Crore)

WORKING CAPITAL
2005 2006
PARTICULARS INCREASE DECREASE
(Rs) (Rs)
(Rs) (Rs)
Current assets

Cash and balance with RBI 1,252.18 1,434.23 182.05

Balance with Bank and money at

255.54 1,343.01 1,087.47
call & short notice

Other assets 47.82 613.61 565.79

Total Current Asset (A) 1,555.54 3,390.85

Current liabilities

100.10
Borrowings 196.52 296.62

1,416.99
Other Liabilities and provisions 455.54 1,872.53

Total Current Liabilities (B) 652.06 2,169.15

Net working capital = (A-B) 903.48 1,221.70

1,835.31 318.2
Increase in working capital 318.22
2

1,835.31
Total 1,221.70 1,221.70 1,835.31

31
Interpretation:
From the above table it can be observed that
1. Cash and balance with RBI was increased by Rs 182.05 crore, because of increase in the
balances current and other accounts.

2. Balance with bank and money at call and short notice was increased by Rs 1,087.47
crore, due to increase in current accounts.

3. There was an increase in other assets by Rs 565.79 crore, due to increase in interest
accrued in early years.

4. The Borrowings were increased by Rs100.10crore because of increase in borrowings

from others.

5. Other liabilities and provisions increased by Rs 1,416.99 crore, due to increase in general
provisions on standard assets.

6. Overall networking capital was increased by Rs318.22crore, due to increase in current

assets.

32
 STATEMENT OF CHANGES IN WORKING CAPITAL FOR
THE YEAR ENDING 2006-2007
(Rs. in Crore)
WORKING CAPITAL
2006 2007
PARTICULARS INCREASE DECREASE
(Rs) (Rs)
(Rs) (Rs)
Current assets

Cash and balance with RBI 1,434.23 2,686.41 1,252.18

Balance with Bank and money

1,343.01 1,598.55 255.54
at call & short notice

Other assets 613.61 661.43 47.82

Total Current Asset (A) 3,390.85 4,946.39

Current liabilities

Borrowings 296.62 399.72

103.1

Other Liabilities and provisions 1,872.53 2,328.07

455.54
Total Current Liabilities (B) 2,169.15 2,727.79

Net working capital = (A-B) 1,221.7 2,218.6

Increase in working capital 996.9

996.9

Total 2,218.6 2,218.6 1,555.54 1,555.54

33
Interpretation:

From the above table it can be observed that

1. Cash and balance with RBI was increased by Rs 1,252.18 crore because of increase in the
balances current and other accounts.

2. Balance with bank and money at call short notice was increased by Rs 255.54 crore, due
to increase in current accounts.

3. There was an increase in other assets by Rs 47.82 crore, due to increase in interest
accrued, tax detected at source.

4. The Borrowings were increased by Rs103.1crore because of increase in borrowings from

others.

5. The liabilities and provisions increased by Rs 455.54 crore, due to decrease in general
provisions on standard assets.

6. Overall networking capital was increased by Rs996.9crore, due to increase in current

assets.

34
 STATEMENT OF CHANGES IN WORKING CAPITAL FOR
THE YEAR ENDING 2007-2008
(Rs. in Crore)

WORKING CAPITAL
2007 2008
PARTICULARS INCREASE DECREASE
(Rs) (Rs)
(Rs) (Rs)
Current Assets

Cash and balance with RBI 2,686.41 5,249.42 2,563.01

Balance with Bank and money

1,598.55 622.73 975.82
at call & short notice

Other assets 661.43 1,443.24 781.81

Total Current Assets (A) 4,946.39 7,315.39

Current liabilities

Borrowings 399.72 1,162.07

762.35

Other Liabilities and provisions 2,328.07 3,516.88

1,188.81
Total Current Liabilities (B) 2,727.79 4,678.95

Net working capital = (A-B) 2,218.60 2,636.44

Increase in working capital 417.84

417.84
Total 2,636.44 2,636.44 3,344.82 3,344.82

35
Interpretation:

From the above table it can be observed that

1. Cash and balance with RBI was increased by Rs 2,563.01 crore because of increase in the
balances in current accounts.

2. Balance with bank and money at call short notice was decreased by Rs 975.82 crore, due
to decrease in money at call and short notice.

3. Other assets increased by Rs 781.81 crore, due to increase in interest accrued.

4. The borrowings were increased by Rs762.35 crore because of increase in borrowings

from others.

5. Other liabilities and provisions wasincreased by Rs 1,188.81 crore, due to increase in

general provisions on standard assets.

6. Overall networking capital was increased by Rs417.84 crore, due to increase in current
assets.

36
 STATEMENT OF CHANGES IN WORKING CAPITAL FOR
THE YEAR ENDING 2008-2009
(Rs. in Crore)

WORKING CAPITAL
2008 2009
PARTICULARS INCREASE DECREASE
(Rs) (Rs)
(Rs) (Rs)
Current Assets

Cash and balance with RBI 5,249.42 4,532.27 717.15

Balance with Bank and

622.73 1,877.94 1,255.21
money at call & short notice

Other assets 1,443.24 1,688.53 245.29

Total Current Assets (A) 7,315.39 8,098.74

Current liabilities
Borrowings 1,162.07 456.77
705.3

Other Liabilities and 3,516.88 3,970.29

453.41
Provisions

Total Current Liabilities 4,678.95 4,427.06

(B)

Net working capital = (A-B) 2,636.44 3,671.68

Increase in working capital 1,035.24

1,035.24

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Total 3,671.68 3,671.68 2,205.8 2,205.8

Interpretation:

From the above table it can be observed that

1. Cash and balance with RBI was decreased by Rs717.15 crore because of decrease in the
balances of current accounts.

2. Balance with bank and money at call short notice were increased by Rs 1,255.21 crore,
due to increase in money at call and short notice.

3. Other assets increased by Rs 245.29 crore, due to increase in tax detected at source in
early years.

4. The borrowings were increased by Rs705.3crore, because of increase in borrowings from

others.

5. Other liabilities and provisions were increased by Rs 453.41 crore, due to increase in
general provisions on standard assets.

6. Overall networking capital was increased by Rs1,035.24crore, due to increase in

currentAssests.

38
 STATEMENT OF CHANGES IN WORKING CAPITAL FOR
THE YEAR ENDING 2009-2010
(Rs. in Crore)

WORKING CAPITAL
2009 2010
PARTICULARS INCREASE DECREASE
(Rs) (Rs)
(Rs) (Rs)
Current Assets

Cash and balance with RBI 4,523.27 6,235.02 1,702.75

Balance with Bank and money

1,877.94 1,670.78 207.16
at call & short notice

Other assets 1,688.53 1,584.65 103.88

Total Current Assets (A) 8,098.74 9,490.45

Current liabilities

Borrowings 456.77 915.34

458.57

Other Liabilities and provisions 3,970.29 4,012.63

42.34
Total Current Liabilities (B) 4,427.06 4,927.97

Net working capital = (A-B) 3,671.68 4,562.48

Increase in working capital 890.8

39
 890.8
Total 4,562.48 4,562.48 1,702.75 1,702.75

Interpretation:

From the above table it can be observed that

1. Cash and balance with RBI was increased by Rs1,702.75 crore, because of increase in the
balances in current accounts.

2. There was an decrease in other assets by Rs207.16crore, due to increase in tax detected at
source in early years.

3. The borrowings were increased by Rs458.57crore, because of increase in borrowingsfrom

others.

4. Other liabilities and provisions were increased by Rs 42.34 crore, due to increase in general
provisions on standard assets.

5. Overall networking capital was increased by Rs890.8crore, due to increase in current

assets.

40
LIQUDITY RATIOS:
Liquidity refers to the ability of a concern to meet its current obligations and when they
become due. To measure the liquidity of a firm, the following ratios are calculated.
1. Current ratio

2. Quick ratio

Current ratio:
Current ratio may be defined as relationship between the current assets and the current
liabilities. These ratio is also known as working capital ratio, it measures of general liquidity and
is most widely used to make the analysis of a short term financial position or liquidity of a firm.
It is calculated by dividing the total current assets by the current liabilities.
Standard:
As convention a minimum of 2:1 is referred as rule of thumb.
Formula:
Current Assets
Current Ratio =
Current Liabilities

Calculation of Current Ratio (Rs in Crore)

Year Current assets in Rs. Current liabilities in Rs. Current ratio
2005-06 3,390.85 2,169.15 1.56:1
2006-07 4,946.39 2,727.79 1.81:1
2007-08 7,315.39 4,678.95 1.56:1
2008-09 8,098.74 4,427.06 1.83:1
2009-10 9,490.45 4,927.97 1.93:1
Average 6,648.36 3,786.18 1.76:1

41
Graph showing the current ratio:

Interpretation
From the above table it can be observed that.

1. In the year 2009-10 the current ratio was 1.93:1, so the liquidity position is good in

that year.

2. The remaining year’s current ratio was not up to the standard ratio. Because the

current liabilities are increasing.

3. The average current ratio for the five year is 1.76:1, which is satisfactory.

4. The overall liquidity position of the bank is good.

42
 LIQUID OR QUICK RATIO:

The term liquidity refers to the ability of a firm to pay its short term obligations as and when they

become due .Liquid ratio may be defined as the relationship between liquid assets and current or

liquid liabilities. An asset is said to be liquid if it can be converted into cash with in a short

period with out loss of value.

Standards
As a convention, a quick ratio of 1:1 is considered as satisfactory.
Formula:

Liquid Assets
Liquid Ratio =
Current Liabilities

Calculation of Liquid ratio (Rs. in crore)

Year Liquid assets in Rs. Current liabilities in RS. Liquid ratio

2005-06 1,434.23 2,169.15 0.66:1
2006-07 2,686.41 2,727.79 0.98:1
2007-08 5,249.42 4,678.95 1.12:1
2008-09 4,532.27 4,427.06 1.02:1
2009-10 4,707.02 4,927.97 0.95:1
Average 3,721.87 3,786.18 0.98:1

43
 LIQUID OR QUICK RATIO:

Interpretation
From the above table it can be observed that.
1. In the year 2007-08 the liquid ratio was 1.12:1, so the liquidity position is good in that
year.

2. The remaining year’s liquids ratio’s were decreasing, due to increasing current liabilities.

3. The average liquid ratio for the five year is 0.98:1.

4. The average liquid ratio of the bank is below the standard ratio.

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DEBT-EQUITY RATIO:

The debt equity ratio is calculated to measure the extent to which debt financing has used in
a business; the ratio indicates the proportionate claims of owner and outsiders against the firm’s
asset. Debt usually refers to long term debts and equity includes equity share preference share
and reserves and surplus.

Formula:

Debt
Debt equity ratio =
Equity

Years Debt Equity Ratio (%)

2005-2006 29,546.39 1,828.80 16.15

2006-2007 37,566.38 2,415.29 15.55

2007-2008 48,132.79 2,661.27 18.08

2008-2009 54,992.67 2,608.81 21.07

2009-2010 69,095.66 3,451.29 20.02

AVERAGE 47,864.78 2,593.09 18.45

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INTERPRETATION:

1. If we observe the above debt equity ratio table, it is realized that the debt-equity ratio
was fluctuating during the period of study.
2. The average debt equity ratio is 18.45% during the period of study.

3. If we compare the average debt equity ratio with the standard ratio, the company is
maintaining high debt equity ratio. Higher ratio indicates that the bank has been maintaining
risky financial policies.

46
 FIXED ASSETS TO NET WORTH RATIO:

This ratio establishes the relationship between fixed assets and the net worth of the
company. The net worth is nothing but “shareholders fund”.
This ratio indicated the extent to which shareholders funds are sunk into fixed
assets. If the ratio is less than 1% it implies that owners funds are more than total fixed assets
and the shareholders provides a part of working capital. When the ratio is more than 1% it
implies that owners fund are not sufficient to finance the fixed assets and the firm has to depend
upon the outsiders to finance the fixed assets.

Formula:

FIXED ASSETS
FIXED ASSETS TO NETWORTH RATIO =
NET WORTH

(Rs in crore)

Years Fixed Assets Net Worth Ratio (%)

2005-2006 204.36 1,828.80 0.11
2006-2007 592.08 2,415.29 0.24
2007-2008 622.38 2,661.27 0.23
2008-2009 623.35 3,077.76 0.20
2009-2010 650.42 3,902.93 0.16
AVERAGE 538.518 2,777.21 0.19

47
INTERPRETATION:

1. If we observe above fixed assets to net worth ratio table it has increased from 2005-
2010(i.e., 0.11% to .16%).

2. The average fixed assets to net worth ratio is 0.19% during the period of study

3. If we compare the average fixed assets to net worth ratio with standard ratio the bank is
maintaining healthy fixed assets to net worth ratio as the share holder’s funds are sufficient
to finance the fixed assets.

48
 EQUITY RATIO:

This ratio establishes the relationship between shareholders fund to the total assets
of the company. This ratio is also known “proprietary ratio” or “shareholders total equity ratio”
or “Net worth to total assets ratio”.

Higher the ratio or the share of the shareholders in the total capital of the company better is
the long-term solvency position of the firm.

Formula:

SHARE HOLDERS FUND

EQUITY RATIO =
TOTAL ASSETS

(Rs in crore)

Years Shareholders found Total assets Ratio

2005-2006 1,828.80 33,247.73 0.05

2006-2007 2,415.29 42,309.75 0.05

2007-2008 2,661.27 54,310.95 0.04

2008-2009 2,608.81 62,040.72 0.04

2009-2010 3,451.29 77,011.22 0.04

AVERAGE 2,593.092 53,784.07 0.04

49
 INTERPRE
TATION:

1. If we observe
the above equity
ratio table it has
decreased from
2006-2010(i.e.,
0.05 times to
0.04 Times).
2. The average equity ratio is 0.04 Times during the period of study

3. The long-term solvency position of the company is not satisfactory during the period of
study.

50
 CONCLUSIONS

1. During the period of study the borrowings are fluctuating.

2. During the study period the cash balance with RBI are mostly increasing.

3. Balance with bank and money at call and short notice were also fluctuating during the

study period.

4. Provisions and other liabilities were increasing during the study period.

5. The non-performing assets of the bank are fluctuating.

6. The overall working capital has been increased.

7. According to current ratio, the liquidity position of the bank is satisfactory.

8. The liquid ratio of the bank is below the standard ratio.

51
 SUGGESTIONS

1. The bank has to increase the cash balances to improve the liquidity position.

2. The bank is advised to maintain proper funds towards reserves and surplus.

3. Bank authorities should motivate the staff for achieving higher recovery of loans.

4. The bank has to maintain adequate cash balance to avoid misuse of cash.

5. The bank has to encourage the customers, to improve the savings.

6. The bank is advised to maintain adequate working capital.

52
 BIBLIOGRAPHY

FINANCIAL MANAGEMENT : I.M.PANDEY

WORKING CAPITAL MANAGEMENT

AND CONTROL : S.N. MAHESHWARI

AN INTRODUCTION TO ACCOUNTANCY : R.K. SHARMA, SHASHIK,

GUPTHA

WEBSITES
www.google.com

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