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