project mba.doc bhushan
Post on 21-Feb-2015
165 Views
Preview:
TRANSCRIPT
CHAPTER -1
INTRODUCTION
1
1.1 OBJECTIVE OF THE PROJECT
As per mandatory requirement of Pune University, I have undertaken this
project as a part fulfillment of Master of Business Administration curriculum
within 2 months training at ‘VISHWAS CO-OPERATIVE BANK’.
Each management student learns a lot during his 2 years of MBA programme,
but the perfection in his learning can’t be even imagined until & unless there is a
practical training. The (summer) project provides required practical training to
student.
2
1.2 SELECTION OF THE TOPIC FOR STUDY
Topic selection is one of the most or one of the important aspects of out project. As it
decides the course of action, to be followed. The topic selected should be such that it helps in
understanding the Banking concepts clearly, as was given the topic by the company itself.
The topic given by my project guide was “WORKING CAPITAL FINANCING BY
BANK”. This covers all the things related to the Working Capital Finance provided by the
banks.
The topic was to collect the financial information from the bank so as to find out the
working capital calculation process of the bank.
3
1.3 OBJECTIVE OF THE STUDY
While going through any advertisement for recruitment it is realized that any
organization call for candidates with the main condition of work experience. It is clear-cut
mentioned in such advertisement that preference would be given to candidates with
experience. This point out that practical exposure is extremely important. So, right the
University of Pune has taken right step by making it mandatory for the students to do the
project work in an organization. This would help the student to get practical knowledge along
with the theoretical knowledge. The objectives of the summer training are as follows:
To collect the financial information from the bank so as to find out the
working capital calculation process of the bank.
To be able to apply the theoretical knowledge obtained at the institute in
practical manner in the actual business environment.
To get the knowledge about organization problems, perceptions and
challenges.
To interact with the managers of the company and gain knowledge through
their real life experience.
4
1.4 RESEARCH METHODOLOGY
The data collected for the project was in the form of written as well as verbal
information information regarding the Working Capital Financing by Bank.
1) Primary Data:-
The information about the bank is gathered from the discussion with the
employees/staff and from the web site of the bank.
2) Secondary Data:-
The secondary data collected-
Balance as on the date of 31st march of the 3 year 2005-06, 06-07, 07-08.
The profit & loss accounts for the year ending on
The details about organizational structure
The sources of secondary data were-
The financial statements i.e. balance sheets and profit & loss accounts were
Obtained from accounts department.
Loan department supplied the loan procedures and details.
The information regarding organization structure and services provided by the
Bank was given Branch Manager.
5
1.5 SCOPE OF THE STUDY
The project relates to the financing of working capital by banks. An attempt has been
made to analyze the procedures which the banks follow finance to industrial units to fulfill
their working capital requirements, by utilizing the information provided by the loans section
of the bank.
The project extends to the study of the criteria on the basis of which banks provide
finance, the methods of computation of the permissible bank finance.
A major part of working capital loans is provided by the commercial banks. Industries
depend upon the banks as a primary source of working capital finance.
Over the past several years, banks have become the most reliable source of institutional
credit. Banks provide short-term finance to industries in the form of working capital. Hence,
working capital financing by banks is a subject worth studying.
6
1.6 LIMITATION OF THE STUDY
Generally banks do not allow the outsiders to have any study or research work in banks.
Therefore, get the projects work in bank itself was very difficult.
Due to confidentiality some important information, which are important for the project,
could not be collected.
Some of the information-lacked accuracy sues to which approximately values were used
for the analysis. Hence, the results also reveal approximate values.
The loan sanctioning procedure is chalked out by top management and as per the norms
and rules issued by Reserve Bank of India. Therefore the project is not decision by itself but
an aid to the management regarding the procedural aspect and loopholes of loan sanction.
The project is based on theoretical guidelines and as per situations prevalent at the time
of practical training. Hence, it may not apply to different situations.
The time span for the project was very short which was of 9 weeks, which itself acts as a
major constraint. Moreover, studying the guidelines and applied it practically within such
short time span was a task of great pressure.
7
1.7 RATIONALE OF THE STUDY
The summer training at “Vishwas Co-operative Bank” was undertaken with a view to
study certain fundamentals as well as commercial and operational aspects of the bank. While
the usefulness of this summer training hardly needs to be emphasized, “Vishwas Co-operative
Bank” also stands to benefit in many ways.
Various data and operational work carried out by me can help “Vishwas co-operative
Bank” in fulfilling their immediate informational and other needs, thus saving on valuable
executive time and efforts.
The basic job finance manager is to arrange for funds and apply them in the most
effective manner. While deciding upon the sources of funds it is necessary to corporate
finance is a bank loans.
The study has helps me;-
To know the various procedural aspects of granting corporate loans.
To know the various documents required for granting the corporate loans.
Utility to bank.
The bank could understand;-
The various procedural changes need to make while granting the loans.
The various steps needed to be taken to reduce NPAs.
8
CHAPTER- 2
PROFILEOF THE
ORGANIZATION
9
2.1 Introduction to Bank
Vishwas Co-op Bank began in a small way, has now grown up to one of the leading and
respectable banks not only in Nashik but also in Maharashtra. Area of Operation of the bank
is Nashik, Thane, Dhule, Aurangabad, Jalgaon, Ahmad Nagar, Mumbai and Pune. At present
the bank has five branches and Head Office. Looking at the performance and achievements of
the Bank, RBI has granted the special permission to Vishwas Co-op Bank for opening a
branch in Mumbai.
Since the establishment, the bank is making a steady progress and continuously
maintaining “A” audit classification. Vishwas Co-op Bank is the first bank to provide 16
hours Customer service i.e. Morning 8 A.M. to Mid night 11 O’clock. The Management
Information System designed by bank has been made applicable to all the urban Co-op Banks
in Maharashtra. The loan application forms designed by the bank are reckoned as a model
loan application form and have been followed by many urban co-op banks in Maharashtra. On
6th February 2003, Vishwas Co-op Bank has been awarded the “Jagtik Marathi Chamber of
Commerce and Industries” for its best performance in the co-operative banking sector at the
national level, in the presence of Hon. Chief Minister of Maharashtra Shri. Sushilkumarji
Shinde, Hon. Speaker of Loksabha Shri. Manohar Joshi, Hon. Governer of RBI Dr. Bimal
Jalan and Executive Director of RBI Hon. Dr. Narendra Jadhav. Three of the six
recommendations given by the Hon. Chairman of Vishwas Co-op Bank for smooth working
of the Urban Co-op Banks are accepted by the honorable governor. The good work done by
the bank is also appreciated by “Sahakar Bharati”, Mumbai by presenting an award of the
“Best Bank” for the year 2000-2001.
The financial position at the end of March 2006, is as follows:
10
Total no of shareholders increased to 7335 from 7106 in 2005 with growth of 3.22%.
The Share Capital increased to 361.60 Lacs from 353.83 Lacs with an increase of 7.77 Lacs.
Reserves and other funds increased from 139.87 Lacs to 159.46 Lacs. Banks deposit growth is
4.45 % from 5608.73 Lacs to 5858.36 Lacs. Advances increased to 3664.33 Lacs from
3643.70 Lacs. The NPA %ge is 2.54 %. The bank has declared dividend to the shareholders
and also recorded net profit of 42.05 Lacs from 20.40 Lacs with 21.65 Lacs of increase. The
bank organises training camps and tours for the staff every year. The bank believes in spiritual
training and encourages the staff for “Vipassana Courses” for which 12 days paid leave is
sanctioned. The only bank in the district to have its own training centre named “Vishwas
Dnyan Prabodhini and Research Institute, Nashik” with a capacity of around 100 members
alongwith library with more than 3500 books related to banking, management and computer
field.
11
2.2 History of Organization -
Whenever one thinks about a bank, which is for the people, by the people, it is none
other than Vishwas Co-op bank. In todays highly competitive and market driven economy, the
common man's basic need is nothing but “Financial Need”. A Common man always finds it
difficult to get loans of small amount. Taking into consideration, the problems faced by
common man, Hon. Chairman Shri. Vishwas Thakur at the age of 27 alongwith his associate
members founded the Vishwas Co-op Bank. The proposal for the formation of a bank was
prepared under the guidelines of District Deputy Register Hon. Shri. Manohar Tribhuvan and
Taluka Deputy Register Hon Shri Vijay Suryanwanshi.
On 8th of October 1996, Co-operative department of Maharashtra State issued the
necessary license. On 25th March 1997, Vishwas Co-op Bank came into existence. Vishwas
Co-op Bank, which began in small humble way, has now grown up to one of the leading
banks in Nashik and even in Maharashtra. Vishwas Co-op banks style of work is Dynamic.
The approach of the bank in every aspect is very positive and innovative. Introduction and
implementation of “Management Information System” and business development plan are the
significant features of the bank, which has been appreciated by the Co-op department.
Vishwas Co-op Bank has already started working on the interactive website where the
customer can download Current, Savings and FD froms. He will also get the information on
his account details through website. The customer will have only read only access. The staff
will communicate each other through mail, which will make the communication more easier
and faster. Vishwas Co-op Bank is also planning to go for Core Banking Solutions in near
future, which will make Banking operations more customer friendly. Customer will avail the
facility of anytime anywhere banking. The entire banking operation will become centralised.
The Customer will withdraw as well as deposit the money from any branch. The staff will be
in position to give better customer service due to this automation process.
12
2.3 Other Information Related to Organization
Branches of Banks
Savarkar Nagar Branch
Vishwas Vishwas Park,
Savarkar Nagar,
Gangapur Road,
Nashik,
Maharashtra,India.
Pin Code:422013
TeleFax: 91-253-2305600/01
Mumbai Naka Branch
Vishwajyoti, Govind Nagar,
Behind Hotel Prakash,
Mumbai Naka,
Nashik,Maharashtra, India.
Pin Code: 422009.
TeleFax: 91-253-2305612
Ravivar karanja Branch
15, Ratna Manohar Sankul,
Near Ahilyadevi Holkar Bridge,
Ravivar Karanja, Nashik
Maharashtra, India.
Pin Code: 422001
TeleFax : 91-253-2305610
HPT College Road Branch
Plot No. 25, Swapna Vaibhav Colony,
Canada Corner,
College Road,
Nasik, Maharashtra, India.
PinCode : 422005.
TeleFax: 91-253-2305613
Nasik - Pune Road Branch
Sayara Apartment,
Ashok Chowk,
Pakhal Road Corner,
Nasik, Maharashtra, India.
Pin Code: 422011.
13
TeleFax: 91-253-2305614
Major Achievements of Banks
Reserve Bank of India granted permission to set up Vishwas Co-op Bank Ltd.’ in 1996-
97. The bank’s operations began on March 25, 1997. Mr. Ratnakar Kulkarni, the then
Commissioner and registrar of Co-operatives, Maharashtra and Marathi author Shivaji
Sawant who wrote Mrutyunjay, inaugurated the branch located at Vishwavishwas Park,
Savarkar Nagar, Gangapur road, Nasik 422013.
Ravivar Karanja Branch opened on May 21, 2000.
Mumbai Naka Branch was inaugurated on June 17, 2001.
HPT College Road Branch was inaugurated on January 20, 2003.
Nasik Poona Road Branch was inaugurated on July 20, 2003.
The bank has the distinction of providing computer assisted banking services from the
day one, in all five branches. The bank felicitates five veterans from various walks of life
every year through Sanskriti Vaibhav, a leading cultural organisation in the city since
1999. Pune based Snake park’s director Neelamkumar Khaire, Criminal lawyer Ujjwal
Nikam, Playwright Netaji Bhoir, Educationist Shamin Maulavi, Senior journalist
Neelkanth Khadilkar, Social activist Vidya Phadake, Sports expert Ashok Dudhane and
Industrialist B G Shirke have been felicitated with a momento and five thousand rupees
each.
Vishwas Co-op Bank Ltd. has bagged five prizes in the competition among cooperative
banks in the state organised by The Vita Merchants Cooperative Bank, Vita, Sangali
district and Yuvak Mudra.
The staff members of the Vishwas Co-op Bank have bagged General Championship and
prizes in various events in the cooperatives sports competition organised by Nasik
district deputy registrar of co-operatives during January 26 – 28, 2001 in the city.
14
The bank has been consistently awarded ‘A’ category in the statutory audit since its
inception so far
Some Documents requirements for different account:-
For Savings Account:
Documents required as under
a) Two passport size photographs.
b) Address proof
c) PAN Card photocopy
d) Introducer's Signature
For Current Account:
Documents required as under
a) Two passport size photographs.
b) Proprietorship / Shop Act photocopy
c) PAN Card photocopy
d) Proprietorship stamp/Partnership stamps
e) Introducer's signature
Fixed Deposit Schemes :
Period Rate of InterestRate of Interest for Senior Citizens / Co-op
Institutes
15 to 180 days 7.25 % 7.75 %
181 Days to 1 Year 10.00 % 10.50 %
12 Months 1 Day to 24
Months10.00 % 10.50 %
24 Months 1 Day to 60 8.00 % 8.50 %
15
Months
60 Months 1 Day onwards 7.25 % 7.75 %
LakshaDhish Deposit Schemes: (To earn Rs. 1,00,000)
Period Deposit RateDeposit Rate for Senior Citizens, Co-op &
Educational Institutes
Interest
Rate
Amount
InvestedInterest Rate Amount Invested
1 Years 7.75 % 92610/-8.25% 92160/-
2 Years 8.25 % 84930/-8.75% 84520/-
3 Years 8.50 % 77700/-9.00% 76567/-
4 Years 8.00 % 72840/-8.50% 71430/-
5 Years 7.50 % 68970/-8.00% 67300/-
Recurring Deposit Schemes: (Amount earned after investing Rs 100 per month.)
Period Depositor Senior Citizens, Co-op & Educational Institutes
Interest Rate Amount earned Interest Rate Amount earned
1 Years 10.00 % 1266/-10.50 % 1270/-
2 Years 10.00 % 2664/-10.50 % 2679/-
3 Years 8.00 % 4079/-8.50 % 4109/-
4 Years 8.00 % 5666/-8.50% 5726/-
5 Years 7.25 % 7240/-7.75 % 7337/-
16
2.4 Organization Chart
17
CHAPTER 3
ANALYSIS AND
INTERPRETATION OF DATA
18
3.1 INTRODUCTION TO WORKING CAPITAL
The working capital management refers to management of the working capital, or to be
more precise, the management of current assets .A firm 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),and marketable securities. Working capital
management refers to the management of the level of all these individual currents assets. The
need for working capital management arises from two considerations. First, existence of
working capital is imperative in any firm. The fixed assets which usually require a large chunk
of total funds, can be used at an optimum level only if supported by sufficient working capital,
and second, the working capital involves investment of funds of the firm. If the working capital
level is not properly maintained and managed, then it may result in unnecessary blocking of
scarce resources of the firm. The insufficient working capital, on the other hand, put different
hindrances in smooth working of the firm. Therefore, the working capital management needs
attention of all the financial managers.
The working capital management includes the management of the level of individual
currents assets as well as the management of total working capital. However, each individual
current assets has unique characteristics which the financial manager must consider in deciding
how much money should be invested in each of these current assets i.e., cash and bank balance,
marketable securities, receivables and inventories has been taken up in subsequent chapters.
However, the general principles of working capital management have been taken up in this
chapter.
Nature and Type of Working Capital:
The term of working capital refers to current assets which may be defined as (i) those
are convertible into cash or equivalents fixed assets as well as the current assets, both requires
19
investment of funds. So, the management of working capital and of fixed assets, apparently
seem to involve same types of considerations but it is not so. The management of working
capital involves different concepts and methodology than the techniques used in fixed assets
management. The reason for this difference is obvious. The very basis of fixed assets decision
process and the working capital decision process are different. The fixed assets involve long
period perspective and therefore, the concept of time value of money is applied in order to
discount the future cash flows; whereas in working capital the time horizon is limited, in
general to one year only and the time value of money concept is not considered. The fixed
assets affect the long term profitability of the firm while the current assets affect the short
liquidity position.
i) Gross Working Capital : The gross working capital refers to the firm’s investment in all
the current assets taken together. The total of investments in all the individual current assets is
the gross working capital. This concept implies the total of all current assets of a business firm.
A current asset is that which can be converted into cash within an according year or an
operating cycle. The current assets include cash and bank balance, debtors, bills receivables,
inventories, expenses prepaid and short-term investments.
ii) Net Working Capital : This concept of working capital is the difference between current
assets and current liabilities. While current assets have been defined above, current liabilities
can be explained as those liabilities which are expected to mature for payment within an
accounting year and include creditors, bills payable, outstanding expenses, bank overdraft and
short-term loans.
The net working capital may either be positive or negative. If the total current assets are
more than total current liabilities, then the difference is known as positive net working capital,
otherwise the difference is known as negative net working capital.
Both concepts of working capital (gross working capital & net working capital) have their
own relevance and a financial manager should give due attention to both of these. The cash
inflows and outflows for any firm are seldom synchronized and so, some working capital is
20
necessary. The cash outflows occurring from the existence of current liabilities are more easily
and correctly predictable but the cash flows from current assets are difficult to be accurately
predicted. The more predictable, these cash flows are, the less the net working capital required
by the firm. The firm with more and more uncertain cash inflows must maintain higher level of
current assets adequate to cover the current liabilities.
The working capital can also be divided into categories: i) fixed working capital and ii)
fluctuating working capital.
Every business requires some minimum amount of working capital inspite of the level of
operations, throughout the year. This amount represents the fixed amount of working capital.
In many business firms, the levels of operations fluctuate from time to time depending
upon the demand pattern. In case, the demand periods, the need for working capital also capital
also increases and during low demand periods, the for working capital also comes down. This
aspect of working capital can be shown in a better way with the help of following diagram.
The fixed amount of working capital also go on increasing as the time passed because of
the growth of the firm. This can be shown in the following diagram.
FACTORS DETERMINING WORKING CAPITAL REQUIREMENT:
The working capital needs of a firm are determined and influenced by various factors. A
wide variety of considerations may affect the quantum of working capital required and these
considerations may vary from time to time. The working capital needed at one point of time
may not be good enough for some other situation. The determination of working capital
requirement is a continuous process and must be undertaken on a regular bas9s in the light of
the changing situations. Following are some of the factors which are relevant in determining the
working capital needs of the firm
1. Basis Nature of Business: In some business organizations, the sales are mostly on cash basis
and the operating cycle is also very short. In these concerns, the working capital requirement
21
is comparatively less. Mostly service giving companies come in this category. In such cases,
the working capital requirement is more.
2. Production policy : Working capital requirements also fluctuate according to the production
policy. Some products have a seasonal demand but in order to eliminate the fluctuations in
working capital, the manufacturer plans the production in a steady flow throughout the year.
This policy will even out the fluctuations in working capital.
3. Market conditions : Due to competition in the market, the demands for working capital
fluctuate. In a competitive environment, a business firm has to give liberal credit to
customers. Similarly, it will have to maintain a large inventory of finished goods to service
the customers promptly. In this situation, larger amount of working capital will be required.
On other hand, when a firm is in seller’s market, it can manage with a smaller amount of
working capital because sales can be made on cash basis and there will be no need to maintain
large inventory of finished goods because customers can be serviced with delay.
4. Seasonal fluctuations : A firm which is producing products with seasonal demands,
requires more working capital during peak seasons while the demand for working capital will
go down during slack seasons.
5. Growth and expension activities : The working capital needs of the firm increase as it
grows in terms of sales or fixed assets. A growing firm may need to invest funds in fixed
assets in order to sustain its growth production and sales. This will in turn increase
investments in current assets which will result in increase in working capital needs.
6. Operating efficiency : The operating efficiency of the firm relates to the optimum utilization
of resources at minimum cost. The firm will be effectively contributing to its working capital
if it is efficient in controlling operating costs. The working capital is better utilized and cash
cycle is reduced which capital needs.
7. Credit policy: The working capital requirements of a firm depend to a great extent on the
credit policy followed by a firm for its debtors. A liberal credit policy followed by a firm will
result in huge funds blocked in debtors which will enhance the need for working capital. The
situation will be further deteriorated if the collection procedure is also slack. If a liberal credit
policy is followed without inquiring into the credit worthiness of customers there can be a
problem of recovery in future which will further push up the working capital requirements.
22
The need for working capital is also affected by the credit policy followed by the firm’s
creditors. If the creditors are ready to supply materials and goods on liberal credit, working
capital requirements are substantially reduced. On the other hand, if purchases are mainly for
cash, working capital needs go up. While planning the working capital, due attention should
be given towards the credit policies followed by the firm and its creditors.
8. Sales growth : As the sales grow, the working capital needs also go up. Actually it is very
difficult to establish an exact proportion of increase in current assets, as a results of increase
in sales. Advance planning of working capital becomes essential because current assets will
have to be employed even before growth in sales takes place. Once sales start increasing, they
must be sustained. For this a firm will have to expand its production facilities which will
require more investments in fixed assets. This will in turn result in more requirements of
current assets which will increase working capital needs.
9. Dividend policy : a company has to pay dividends in cash as per company act 1956. if a
liberal policy is followed for payment of dividends, more working capital will be required.
The needs for working capital will be substantially reduced if dividend policy is conservative.
23
Forms of Bank Finance
BANK CREDIT
Bank credit is the primary institutional source of working capital finance in India. In fact, it
represents the most important source for financing of current assets.
FORMS OF CREDIT
1. OVERDRAFT
Under cash credit/overdraft form/ arrangement of bank finance, the bank specifies a
predetermined borrowing/credit limit. The borrower can draw/ borrow up to the stipulated
credit/overdraft limit. Within the specified limit, any numbers of drawls /drawings are
possible to the extent of his requirement periodically. Similarly, repayment can be made
whenever desired during the period. The interest is determined on the basis of the running
balance/amount actually utilized by the borrower and not on the sanctioned limit.
However, a minimum(commitment) chare may be payable on the unutilized balance
irrespective of the level of borrowing for availing of the facility. This form of bank
financing of working capital is highly attractive to the borrowers because, firstly, it is
flexible in that although borrowed funds are repayable on demand, banks usually do not
recall cash advances/roll them over and, secondly, the borrower has the freedom to draw
the amount in advance as and when required while the interest liability is only on the
amount actually outstanding. However, cash credit/overdraft is inconvenient to the
hampers credit planning. It was the most popular method of bank financing of working
capital in India till the early nineties. With the emergence of new banking since the mid-
nineties, cash credit cannot at present exceed 20% of the maximum permissible bank
finance (MPBF) / credit limit to any borrower.
24
2. LOANS
Under this arrangement, the entire amount of borrowing is credited to the current
account of the borrower or released in cash. The borrower has to pay interest on the total
amount. The loans are payable on demand or in periodic installments. They can also be
renewed from time to time. As a form of financing, loans imply a financial discipline on
the part of the borrowers. Form a modest beginning in the early nineties, at least 80% of
MPBF/CREDIT limit must now be in the form of loans in India.
3. BILLS PURCHASED/DISCOUNTED
This arrangement is of relatively recent origin in India. With the introduction of
the new bill market scheme in 1970 by the reserve bank of India(RBI), bank credit is
being made available through discounting of usance bills by banks. The RBI envisaged
the progressive use of bills as an instrument of credit as against the prevailing practice of
using the widely-prevalent cash credit arrangement for financing working capital. The
cash credit arrangement gave rise to unhealthy practices. As the availability of bank credit
was unrelated to production needs, borrowers enjoyed facilities in excess their legitimate
needs. Moreover, it led to double financing. This was possible because credit was done,
for example, by buying goods on credit from suppliers and raising cash credit by
hypothecating the same goods. The bill financing is intended to link credit with the sale
and purchase of goods and, thus, eliminate the scope for misuse or diversion of credit to
other purposes.
4. TERM LOANS FOR WORKING CAPITAL:
Under this arrangement, banks advance loans for 3-7 years repayable in yearly or
half-yearly installments.
5. LETTER OF CREDIT:
25
While the other forms of bank credit are direct forms of financing in which banks
provide funds as well as bear risk, letter of credit is an indirect form of working capital
financing an banks assume only the risk, the credit being provided by the supplier himself.
The purchaser of goods on credit obtains a letter of credit from a bank. The bank
undertakes the responsibility to make payment to the supplier in case the buyer fails to
meet his obligations. Thus, the modus operandi of letter of credit is that the supplier sells
goods on credit/ extends credit (finance) to the purchaser, the bank gives a guarantee and
bears risk only in case of default by the purchaser.
SECURITIES REQUIRED IN BANK FINANCE :
Banks do not provide working capital finance without obtaining adequate
security. The following securities are the most important modes of security required by
bank-
1. HYPOTHECATION:
Under this mode of security, the banks provide credit to borrowers against the
security of movable property, usually inventory of goods. The goods hypothecated,
however, continue to be in the possession of the owner of these goods (i.e., the borrower).
The rights of the lending bank (hypothecate) depend upon the terms of the contract
between the borrower and lender. Although the bank does not have physical possession of
the goods, it has the legal right to sell the goods to realize the outstanding loan.
Hypothecation facility is normally not available to new borrower.
2. PLEDGE:
Pledge, as a mode of security, is different from hypothecation in that in the
former, unlike in the goods which are offered as security are transferred to the physical
possession of the lender. An essential prerequisite of pledge therefore is that the goods are
in the custody of the bank. The borrower, who offers the security, is called a ‘pawnor’
(pledgor), while the bank is called ‘pawnee’ (pledgee). The lodging of the goods by the
pledgor to the pledge is a kind of bailment. Therefore, pledge creates some liabilities for
26
the bank. It must take reasonable care of goods pledged with it. The term ‘reasonable care’
means car, which a prudent person would take to protect his property. He would be
responsible for any loss or damage if he uses the pledged goods for his own purposes. In
case of non-payment of the loans, the bank enjoys the right to sell the goods.
3. LEIN:
The term lien refers to the right of a party to retain goods belonging to another
party until a debt due to him is paid. Lien can be of two types - I) particular lien , &
II) general lien. Particular lien is right to retain goods until a claim pertaining to these
goods is fully paid. On the other hand, general lien can be applied till all dues of the
claimant are paid. Banks usually enjoy general lien.
4. MORTAGE:
It is the transfer of a legal/ equitable interest in specific immovable property for
securing the payment of debt. The person who parts with the interest in the property is
called ‘mortgagor’ and the bank in whose favour the transfer takes place is the
‘mortgagee’. The instrument of transfer is called the ‘mortgage deed’. Mortgage is, thus,
conveyance of interest in the mortgaged property. The mortgage interest in the property is
terminated as soon as the debt is paid. Mortgages are taken as an additional security for
working capital credit by banks.
27
ASSESSMENT OF WORKING CAPITAL
A) SIMPLIFIED TURNOVER METHOD
Under this method for working capital purposes for borrowers requiring fund-
based limits upto Rs.5 crore SSI borrowers and Rs.2 crore in case of other
borrowers, may be assessed at minimum of 25% of the projected annual
turnover of which 115th should be provided by the borrower (i.e. minimum
margin of 5% of the annual turnover to be provided by the borrower) and the
balance 4/5th (i.e. 20% of the annual turnover) can be extended by way working
capital finance.
The projected turnover/output may be interpreted as projected “gross sales
“which will include excise duty also.
Since the bank finance is only intended to support need-based requirement of a
borrower, if the available NWC (net long term surplus funds) is more than 5%
of the turnover the former should be reckoned for assessing the extent of bank
finance.
B) MAXIMUM PERMISSIBLE BANK FINANCE SYSTEM (MPBF)
Assessment of working capital limits in respect of borrowers not eligible to
provided fund based working capital limits under ‘simplified turnover method’
is to be done as per MPBF system ‘second method of lending’, except in case
of tea and sugar industry where credit requirement is assessed as per cash
budget system.
28
Under this method, for assessment of borrowers WC needs, the projections
submitted by the borrower in the various forms mentioned that the following
year is relevant. The first step in assessing the quantum of WC finance is to
find out whether the projections given by the borrower are reasonable. Any
optimism or pessimism in accepting projections is neither desirable for the
bank nor for the borrower as it may lead to over-financing or under-financing.
To assess the reasonableness of borrower’s projections, the following factors
should be kept in view;
a) The branches can use with advantage the past data given by the borrower as well as the
data available with it. The comparison has to be made between the past performance and the
future projections. If the future projections are markedly different form the past trend in
relation to projected rate of growth, the reasons for the same have to be ascertained before
accepting the various projections.
b) The projections given by the borrower are normally based on certain assumptions such
as market demand, cost of raw materials, price, availability of inputs and other environmental
factor. The bank has to assess how far these assumptions are realistic and materialize.
c) How limits already sanctioned by the bank have been utilized by the borrower in the
past? Has the conduct of the account been as per terms of sanction or these have been
frequently violated.
d) Critical analysis of sales projections – the most important area to be looked into is sales.
All other aspects are directly related to the projected level of sales. Therefore, determining the
projected level of sales is the first step in assessing the working capital needs of a borrower.
Once the level of sales has been determined in relation to sales. The projected level of sales
depends upon:
29
What is the installed and licensed capacity? Does it have any idle capacity, which can
now be utilized?
Are essential inputs available to take care of projected production figures?
What are the present market conditions and terms of sales? What plans are there to boost
sales?
What is the position of order book/orders in hand?
From what sources increase in NWC will be met?
Is the unit proposing to tap the export potentials/ markets? What are the prospects for
exports?
How the increase in production is going to affect the quality and cost of production?
Is the unit undertaking any expansion, modernization or diversification programme?
A higher than normal sales estimate for the following year can be accepted only after the
bank is satisfied on the basis of the above scrutiny that the projected level of sales can be
achieved and the available past data and future plans give positive indications in this regards.
The bank has also to ensure that borrower is whiling to create the necessary support to
achieve the sales target.
1. The branches, having satisfied itself as to the projected level of sales, can determine
the other data in relation to sales. The following steps can be taken for finalizing other
data:
The relationship between different items constituting cost of production can be studies
in relation to sales and cost of sales. It is to be ensured that the projected increase in
30
respect of any items is not out of proportion to the past relationship. Valuation of
various items should be based on current cost.
After finalizing the above-mentioned projections, the holding period of current assets is
to be determined. The holding period of chargeable current assets can be determined
based on the rule that the projected holding should be preferably lower of norms or past
practice.
The levels of other current assets can also be estimated on the basis the borrower’s past
practice.
The projected level of NWC should at least be 25% of total current assets under
second method of lending.
The bank is to bridge the gap between current assets and current liabilities after ensuring
the borrower’s contribution. Therefore, the quantum of bank finance is very much
dependent upon availability of short-term credit from other sources i.e. other current
liabilities is projected properly.
C) CASH BUDGET SYSTEM
In case of tea and sugar industries of finance may be at the peak during certain months
while the sale proceeds may be realized throughout the year to repay the outstanding in the
account. Therefore, credit limits are fixed on the basis of projected monthly cash budgets to
be received before beginning of the season. Branches should follow the procedure/guidelines
issued form time to time through various circulars for financing tea and sugar industries.
FIXATION OF FUND-BASED AND NON- FUND BASED LIMITS
31
After arriving at the MPBF on the basis of inventory and receivable norms and
appropriate method of lending, the various fund based & non-fund based limits and sub-
limits have to be decided. The fund based limits should not exceed the MPBF.
The bulk of the inventory limits are set up generally in the shape of cash credit, the
receivable limits may be either by way of C/C against hook debts or by way of bills
limit. Within the sanctioned limit, drawing power may be allowed on the basis of
monthly stock statements, depending upon the regularity and reliability and to ensure
there is no double financing.
In addition to the fund-based limits, non-fund based limits like inland &foreign L/C,
guarantees and acceptances are given keeping in view the needs as well as the capacity
of the borrower.
Loan system for delivery of bank credit
In order to bring out an element of discipline in the utilization of bank credit and gain better
control over flow, a “loan system for delivery of bank credit” was introduced by RBI. The
said system has been extended in phased manner to cover larger number of borrowers.
Loan component and cash credit component.
Under this system, after the assessment of MPBF of a borrower, working
capital requirements are bifurcated into ‘loan component’, termed as Working
Capital Demand Loan (WCDL) and ‘cash credit (cc) component’. Normally,
borrowers are expected to avail the ‘loan component’ only after having fully
availed/utilized the prescribed percentage of CC component of MPBF.
However, if a borrower desires to draw the ‘loan component’ first, the same
can be agreed to.
The extant guidelines for annual review of working capital limits are invariably
to be strictly observed even under the system of loan delivery. As regards the
32
guidelines relating to the cut off point of the working capital limits above
which loan delivery system is applicable, the percentages of limits to be
allowed as WCDL and CC component, the repayment of WCDL, the
procedure for renewal/rollover of WCDL, incumbents should follow the
instructions advised through HO circulars form time to time.
The loan system would be applicable to borrower accounts classified as
‘standard’ or ‘substandard’
Adhoc credit limit for meeting temporary requirements should be sanctioned
only after the borrower has fully utilized the “cash credit component” and the
‘loan component’ of the MPBF. In the case of consortium, member banks are
normally expected to share the “cash credit component” and the “loan
component” on a pro rata basis of their individual shares of MPBF.
The bifurcation of the credit limit into ‘loan’ and ‘cash credit’ should be
effected after excluding export credit limits (pre-shipment and post-shipment).
Bills limit for inland sales is to be fully carved out of the loan component. Bills
limit also includes limit for purchase of third party ( outstation) cheques ,
banks drafts.
Suitable clauses are to be incorporated in the loan document to provide for a
right to recall working capital credit facility including the loan component.
Exemption – at present sugar, tea fertilizer and information technology &
software industries are exempted form the purview of loan system for delivery
of bank credit.
33
PROCEDURE FOR OBTAINING WORKING CAPITAL FINANCE
Regarding loan proposal
We refer to the captioned loan proposal recommended by you for sanctioning/renewing
advance facility the loan requested by the applicant. We are pleased to inform you that, the
board of directors in the meeting held on ________________. Have considered the
proposal for sanction / renewal and the detailed of same as under:-
Mr. / Mrs.-----------
Limit requested-
Type
Limit sanctioned / renewed
Margin
Margin
Repayment holiday
Repayment in monthly installment
Rate of interest with monthly rests+ penal interest @ % to be charged on the overdue
amount on monthly basis.
Installment Rs-------per month
1st installment due
Security:-
34
Prime: ---------------------------------
Collateral: ------------------------------
Valuation amount Rs.------------------
JUSTIFICATION FOR WORKING CAPITAL LIMIT
A) I) Actual sales for the year ended 31st mar. xxxxx
II) Projected sales for the year ended 31st mar. xxxxx
III) Accepted projected sales for 31st mar. xxxxx
20% of I or II Rs.
B) Own funds
I) Capital + reserve (net worth) Rs. xxxxx
II) Unsecured loan from family members Rs. xxxxx
Total xxxxx
Three times to total Own funds:- --------------
C) 1) Current Assets:
i)cash/bank balance xxxxx
ii)Stock xxxxx
iii)Book Debts xxxxx
iv)Advance paid to supplier’s xxxxx
v)Other current assets xxxxx
Total xxxxx
2) Current Liability:
i)Creditors xxxxx
ii)Advance received form customer xxxxx
iii) Other current liability xxxxx
Total xxxxx
35
Working Capital Gap:- Current assets - current liability
(1 - 2) Rs. xxxxx
Maximum Permissible Bank Finance -Least of A, B & C
3.2 Recommendation’s of various committees on working capital
finance
Tandon Committee Recommendations on working capital finance from
the bank:-
A study group, popularly known as tandon committee, was appointed by Reserve
Bank Of India in July 1974, under the chairmanship of shri. P.L.Tandon,to suggest
guidelines for national allocation and optimum use of bank credit. Tandon committee also
highlighted the weaknesses in the existing system of working capital finance, as pointed out
by the committee. The Tondon Committee suggested that the borrower should be allowed
to hold reasonable level of current assets. Particularly in the case of inventories, the Tondon
committee suggested that the level of inventory should be as per the requirement only and in
any case excessive investments in the inventories should be avoided. The banker should
finance only those receivables which are in tune with the practices of the borrower’s
company and industry. In order to avoid excessive investments in inventories, there is a
need for having some uniform norms. The Tondon Committee in its final report has
suggested norms for 15 industries. Industries like heavy engineering and sugar were
omitted.
The recommendations of the Tandon Committee are based on the following notions
1. Operating plan:
The borrower should indicate the likely demand for credit. For this purpose, he
should draw operating plans for the ensuing year and supply them to the banker. This
procedure will facilitate credit planning at the bnks level. It will also help the bankers in
36
evaluating the borrower’s credit needs in a realistic manner and in the periodic follow-up
during the ensuing year.
2. Production-based financing:
The banker should finance only the genuine production needs of the borrower. The
borrower should maintain reasonable levels of inventory and receivable; he should hold just
enough to carry on his target production. Efficient management of resources should
therefore, be ensured to eliminate slow moving and flabby inventories.
3. Partial bank financing:
The working capital needs of the borrower cannot be entirely financed by the
banker. The banker will finance only a reasonable part of it; for the remaining the borrower
should depend upon his own funds, generated internally and externally.
Following are the major recommendations:
1. Inventory and receivable norms
The borrower should be allowed to hold only a reasonable level of current
assets, particularly inventory and receivables;
The banker should finance only those receivables which are in tune with the
practices of the borrower’s firm and industry;
The committee suggested norms for 15 industries excluding heavy engineering
and highly seasonal industries, like sugar. The norms were applied to all
industrial borrowers, including small-scale industries, with aggregate limits
from the banking system in excess of Rs.10 lakhs;
Norms are prescribed separately for 49 different industries. The norms
appropriate to each unit should be applied.
37
2. Lending norms
It recommended that the banker be required to finance only a part of the
working capital gap; the other part was to be financed by the borrower from the long-
term sources. Working capital gap is defined as current assets minus current liabilities
other than the bank borrowing.
Current assets will be taken at estimated value, or as per the tendon committee
norms, whichever is lower. Current assets will consist of inventory and receivables,
referred as chargeable current assets and other current assets.
3. Maximum Permissible Bank Finance (MPBF):
Committee suggested the following three methods of determining the
permissible level of bank borrowings:
First method : In the first method of lending, the borrower will contribute
25% of the working capital gap; the remaining 75% can be financed from bank
borrowings. This can be represented as --- MPBF = 75% of W.C.G.
W.C.G. = C.A- C.L.
Second method : The borrower will contribute 25% of the total current assets.
The remaining of the working capital gap can be bridged from the bank
borrowings. This can be represented as ---- MPBF = 75% of current assets.
Third method : The borrower will contribute 100% of core assets and 25% of
the balance of the working current assets. The remaining of the working capital
gap can be met from the bank borrowing. This can be represented as ---- 75%
(current assets- core current assets) - current liabilities.
The Reserve Bank of India has implemented only the first two methods. The
recommendations apply to all borrowers having limits in excess of Rs.20 lakhs from the
banking system. At the time when this system of lending was introduced, in some cases
the net working capital was negative while in others it was equal it was equal to 25% of
working capital gap. The committee allowed this deficiency to be financed, in addition to
38
the permissible bank finance by banks. It was however, to be regularized over a period of
time depending upon the funds generating capacity and ability of the borrower. This kind
of credit facility was called working capital term loan.
Methods of determining MPBF as under the Three Methods of Lending.
Particulars Method I Method II Method III
Core Assets 20 20 20
Other Current Assets 80 80 80
Total Current Assets 100 100 100
Less. Current liabilities 20 20 20
Working Capital Gap 80 80 80
Less: Borrower’s Contribution 20 25 40
MPBF 60 55 40
Calculation of borrower’s Contribution
1st method: 25% of working capital gap
80*25% = 20
2nd method: 25% of total current assets
100*25% = 25
3rd method: 100% of core current assets
39
20+ (80*25%) = 20+20 =40
4. Style of Credit:
In view of the deficiencies of the cash credit system of lending, the committee
recommended the bifurcation of total credit limit into fixed and fluctuating parts.
The fixed component was to be treated as a demand loan for the year representing
the minimum level of borrowings, which the borrower expected to use throughout the year.
The fluctuating component was to be taken care of by a demand cash credit, which could be
partly used by way of bills.
The committee also suggested the interest differentials. As an incentive to switch
over to the new style of credit, it recommended that interest rate on the loan component be
charged lower than the cash credit account. The RBI stipulated the differential at 1%.
5. Information system:
The committee advocated for the greater flow of information both for operational
purposes and for the purpose of supervision and follow-up.
Borrowers with credit limits of more than Rs.1 crore were required to supply the
quarterly information. From the periodical data supplied, the bank should ascertain whether
the actual result was in conformity with the expected result of there was a variance calling
for remedial action. A “+ or -10%” variance was considered normal. The variance beyond
this limit needed to be investigated.
The main thrust of the Tondon committee was that the banker should be treated as
a partner in the business with whom information was to be shared freely and frankly.
Deviations from norms:
Deviations are allowed for agreed short periods in certain cases such as failure of
machinery, power cuts, strikes, transport delays, bottlenecks, non-availability of shipping
space etc.
40
Slip back:
A unit whose current ratio is better than the minimum required, should not be
allowed not be to slip back of worsen it. Slip back is allowed provided that borrower’s
contribution does not go below a minimum of 25%.
The Tondon committee has also suggested norms for determining borrowing limits.
As per the norms, the banker is required to finance only a part of working capital gap and the
remaining amount should be financed through long-term sources. The following three
methods are suggested by the committee:
The committee recommended that the first method should be used mainly as stop gap
and the borrower’s ultimately should move to the third method. The borrowers who are
already in the second stage should not be allowed to enter into first stage. They should be
encouraged to enter into the third stage. The committee has also suggested a change in the
style of bank lending. The total credit limit should be divided into fixed part and fluctuating
part. The fixed part will be taken care of by demand cash credit. The interest rate on the loan
component should be lower than credit system.
41
Chore Committee Recommendations:
A working group under the chairmanship of Mr. K.B. Chore was formed in April
1979 by the Reserve Bank of India. The main terms of reference for this group wee to review
the cash-credit system and suggest modifications and if required, suggest alternate credit
system. The important recommendations made by this committee are as follows;
i) Reduced dependence on bank credit
As far as possible, the borrower should try to reduce the dependence on bank credit.
Therefore, the second method suggested by Tondon committee is recommended. If
necessasary, the borrower should be granted a working capital term loan which should be
repaid in semi-annual installments of 5 years with a higher rate of interest than the cash credit.
ii) Credit limit to be separated
For every borrower, limits should be fixed according to ‘peak level’ and normal non-peak
level. This limit is to be fixed for all the borrowers borrowing in excess of Rs.10 lakhs and
will be according to peak and non-peak periods. It will be the duty of the borrower to indicate
his needs well in advance. If actual borrowing exceeds this limit by more than 10%
appropriate action will be taken against the borrower. Ad-hocs or temporary credit limits
should be discouraged by the banks.
iii) Existing lending system to continue
The banks should continue the existing system of three types of lending viz. cash credit,
loans and bills. However, loans and bills should gradually replace cash credit system. The
division of cash credit account into fixed and fluctuating components as per suggestions of
Tondon committee should be discounted. Advances against book-debts should be converted
42
to bills wherever possible and at least 50% of the cash credit limit utilized for financing of
raw material inventory should be changed to bills system.
iv)Information system
The discipline relating to the submission of quarterly statements to be obtained from the
borrowers under the existing system should be strictly adhered to in respect of all borrowers
having capital limits of Rs.50 lakhs and over from the banking system.
43
NPA treatment for WCF
Definition of NPA
An asset, including a leased asset, becomes non-performing when it ceases to generate
income for the bank. A ‘non performing asset’ (NPA) was defined as a credit facility in
respect of which the interest and/ or installment of principal has remained ‘past due’ for a
specified period of time. The specified period was reduced in phased manner as under
Year ending march 31 Specified period
1993 Four quarters
1994 Three quarters
1995 onwards Two quarters
NPA borrower wise of facility –wise
The criteria for classifying an account into performing and non-performing assets are
based on the record of the recovery of interest/installment and conduct of the running account.
Further, all the facilities granted to a borrower will have to be treated as NPA and not
particular facility or part there of which has become NPA.
44
Net worth of borrower/guarantor/value of security
Availability of security of net worth borrower/guarantor should not be taken into
account for the purpose the treating an advance as NPA or otherwise, as income recognition is
based on record of K.
FORMAT OF CALCULATING OF N.P.A.
PARTICULAR AMT
0000
Gross advances 0000
Gross N.P.A. 0000
Gross N.P.A. as percentage of net advances 0000
Deductions
Balance in interest suspense A/C 0000
DCGC/ECGS claims received & held pending adjustment 0000
Partly payment received & kept in suspense A/C 0000
Net Advances ( 1 - 4) 0000
Net N.P.A. 0000
Net N.P.A. as percentage of net advances 0000
45
3.3 Calculation of working capital of Vishwas co-operative bank (Last 3 years)
particular 31/03/2006 31/03/2007 31/03/2008Total of balance-sheet
Cash & stamp 16810225 15908066 19191286Bank balance 8719250 18879432 28464250Investment 247783942 230412045 272457047
Loans & Advances 366432918 399710086 486720941Overdue & Bills for collection 3726073 5206515 8188089
Assets 17225363 19230482 24852845Other assets 10590622 11088624 16655193
Branch adjustment 20457 - 105337 Total 671308850 700435250 856634988Deductions
Contra entries
46
Loan recovery scheme 2311126 4638237 7067042Bills for collection 1414947 568278 1121047
Total 3726073 5206515 8188089
Working capital of bank 667582777 695228735 848446899
From this analysis, we can see that Working Capital of bank is increasing year by year. This is good for bank because the more the working capital the more will be the investment by the bank and the more is the opportunity to make profits.
.
N.P.A. of last few years
By Trend Analysis
Moving Average Method
06 2.86 + 2.54 = 2.70
Year N.P.A.2005 2.862006 2.542007 2.402008 1.51
47
2
07 2.54 + 2.40 = 2.47 2
08 2.40 + 1.51 = 1.96 2
The above analysis shows that NPA is decreasing in year by year. This is very good feature for bank because bank can have more faith in its customers and also depend on the current scrutiny procedure.
Vishwas Co.op Bank ltd. Nashik
Balance Sheet As on 31/03/08
LIABILITIES RS. RS. ASSETS RS. RS.
Share Capital Cash In Hand
Share Capital Cash In Hand 1,67,71,586
Reserve & Other Funds Stamp In Hand
Bad & Doubtful Debts Res. 16,64,036 Franking Stamp In Hand 24,17,080Std. Assets Reserve 16,51,010 Stamp On Hand 2,620Building Fund 58,59,155 Total Stamp In Hand 24,19,700Reserve Funds 88,76,812Tent. Bad & doubtful Res. 26,94,848 Bank BalanceCharity Fund 3,000 MSC.Bank Nsk.A/c 6,889Dividend Equi. Fund 21,000 S.B.I. 88,25,816General Fund 2,06,000 MSC Bank Mumbai 8,52,459Inv.Dep. Res. 15,089 Ndcc Bank Model Col.Br. 3,16,918
48
Total Res. & Other Funds 2,09,90,950 HDFC Bank Pune A/C 2,48,850
Central Bank Of India 5,148
Deposits HDFC Bank SGL A/C 6,27,234Current Account 4,81,95,061 NDCC Bank Agra Rd. Br. 9,27,234Saving Account 13,95,02,581 HDFC Bank Nashik A/C 87,06,522Reccuring Account 1,14,83,392 I.D.B.I. Bank 79,37,243Fix Account 24,72,67,019 Punjab National Bank A/C 10,000Re-investment Account 22,70,49,993 Total Bank Balances 2,84,64,250Locker Security Deposit 29,10,000
Matured Dep. Not paid 3,48,74,789 InvestmentOverdraft Ag. Fdr 21,933 Non SLR Inv. 62,47,500Cash Credit (stock-hyp) 6,938 NMC 7.5% Bonds 3,40,000Total Deposits 71,13,11,707 Reserve Fund Inv. 5,00,000
MSC Bank Reserve Fund Inv. 75,00,000
Loan recovery Scheme Co-op Bank shares 13,62,050Loan recovery Scheme 3 Building Fund Inv. 5,00,000Outward Bills For Collection (contra)
MSC Bank Inv. 52,50,000
O.B.C. 11,21,047 NDCC Bank Inv. 1,40,00,000
Overdue Int. Reserve S.B.I. Inv. 50,00,000NPA Int. Reserve 70,67,042 MSFC 10.25% Bond Inv. 10,00,000Interest Payable Govt. Securities 12,25,99,392
Interest Payable 25,51,929 IDBI Bank Inv. 6,50,00,005
Int. In Cash For Quarterly FD 5,32,592 Sarswat Bank Inv. 75,00,000Total Int. Payable 30,84,521 Shamrao Vitthal Bank Inv. 50,00,000
ICICI Preduntial Bonds 30,44,100
Other Payable & Provisions IOB Bonds Inv. 30,16,500
Audit Fee Payable 4,44,084 6.75% APSFC Bonds 45,97,500T.D.S. Payable 21,736 Thane Janata Bank For Inv. 70,00,000Pay order 6,11,89,746 Cosmos Bank For Inv. 50,00,000Provisions for Expenses 1,20,710 Yes Bank Inv. 70,00,000Sundry Crs. 22,80,966 ICICI Fix Maturity Plan 10,00,000Bonus Payable 9,32,352 Total Inv. 27,24,57,047
Div. Payable 8,32,866
Div. Payable 2005/06 9,69,144 Loans & Advances
Div. 2006-07 2,88,038 Gala/Shade Purchase
Staff Welfare Fund 1,41,244 Staff Loan (Term Loan) 90,00,561Education Fund Payable 30,000 O/D Ag.FDR 9,69,55,272
Bank Guarantee A.E.O. Obligations
2,90,000 Vehical Hypothication 1,43,01,768
Closing Allowance Payable 3,21,276
Housing Loan (New) 3,32,04,714
Total Other Payable & Prov. 6,78,62,163 Housing Loan (old) 3,79,76,569
Personal Loan 1,43,50,294
Profit Swapnapurti Loan 12,24,403
Profit & Loss 35,62,273 Cash Credit (Stock-Hyp) 2,41,82,577
Balance Of Profit 3,733 Term Loan 21,69,77,295
Total Profit 35,66,006 Self Help Group 3,39,328Vishwadeep Yojana 38,68,750
Stock Hypo (Term Loan) 17,22,694
Cash Credit 1,53,65,750
49
B/R 14,60,230
Total Loans And Advances 48,67,20,941
Overdue(NPA) Int. Receivable (Contra)NPA Int. Receivable 70,67,042
Outward Bills Receivable
O.B.R. 11,21,047
Fixed Assets
Vehicle Account 12,67,226
Fur. Fixture & Dead Stock 1,24,05,182
Library 86,402
L&B 1,10,94,034
Total Fixed Assets 2,48,52,845
Other Assets
Sundry Drs. 18,87,093
Outward Clearing 11,99,450
Tangible Assets 1,15,721
Prepaid Exp. 3,61,773
Stock Of P&S 4,62,616
Int. Receivable On Inv. 44,01,595
Tds Receivable 2,88,904
Int. Recei On Govt. Securi. 18,45,137
Staff Advance 24,600
Premium On Inv. 57,54,648
A.E.O. Obligations Bank Guarantee
2,90,000
Gold/ Silver Ornaments 23,653
Total Other assets 1,66,55,193
Branch Adjustment
Head Office 71,165
ITZ Cash Cards
ITZ Cash Cards 34,172
TOTAL OF LIABILITIES 85,66,34,990 TOTAL OF ASSETS 85,66,34,990
50
For understanding the procedure of lending working capital of the bank let us assume the following cases.
CASE 1
Balance sheet of ABC Ltd
Liabilities Rs. Assets Rs.Equity Capital 1000000 Goodwill(At cost) 5000006% Pref. Capital 500000 Plant & Machinery 600000General Reserve 100000 Land & Building 700000Profit & Loss A/C 400000 Furniture 100000Provision for Taxation 176000 Inventories 600000Bills payable 124000 Bills Receivable 30000Bank overdraft 20000 Debtors 150000Creditors 80000 Bank 200000
12% Debentures 500000Investments(Short-term) 20000
2900000 2900000
51
Working Capital Gap
Particular Method 1 Method 2
W/C Gap 6,00,000 6,00,000
Less
Borrower Contribution 1,50,000 2,50,000
(25% of W/C Gap ) (25% of Current Assets)
MPBF 4,50,000 3,50,000
Particular RsCurrent Assets Inventories 6,00,000 B/R 30,000 Drs. 1,50,000 Bank 2,00,000 Inv. (Short Term) 20,000 Total Current Assets A 10,00,000Current Liabilities B/P 1,24,000 Bank Overdraft 20,000 Crs. 80,000 Provision for Taxation 1,76000 Total of Current Liabilities B 4,00,000
W/C Gap (A - B ) C 6,00,000
52
So, From the MPBF method we can say that Bank will go with 2nd method because in this case borrowers contribution is more and chances of bank getting into loss if considered about the NPA in effect.
CASE-2
Balance sheet of XYZ Ltd.
Liabilities Rs. Assets Rs.Share Capital(Rs.10 each) 1000000 Land & Building 500000Profit & Loss A/C 200000 Plant & Machinery 300000Creditors 250000 Stock 150000Bills Payable 150000 Debtors 150000
Bills Receivable 125000Cash & Bank 175000Furniture 200000
1600000 1600000
53
Working Capital Gap
Method 1 Method 2
W/C Gap 2,00,000 2,00,000
Less
Borrower Contribution 50,000 1,50,000
(25% of W/C Gap ) (25% of Current Assets)
1,50,000 50,000
So, From the MPBF method we can say that Bank will go with 2nd method because in this case borrowers contribution is more and chances of bank getting into loss if considered about the NPA in effect.
Particular RsCurrent Assets Stock 15,0000 B/R 12,5000 Drs. 15,0000 Cash 17,5000 Total Current Assets A 6,00,000Current Liabilities B/P 15,0000 Crs. 25,0000
Total of Current Liabilities B 4,00,000
54
top related