J&K Bank

Project report
ON
WORKING CAPITAL MANAGEMENT
AT
SUBMITTED AS A PART OF COURSE BBA

CURRICULUM
SUBMITTED TO :- SUBMITTED BY:

ADIL KHAN
BBA 5TH SEM
UNIV.ROLL NO
GIAN JYOTI INSTITUTE OF MANAGEMENT

AND TECHNOLOGY
ACKNOWLEDGEMENT
Firstly, I would like to thank God who has given me wisdom enough to
complete my project report on A Study of Working Capital Financing. I
express my deep sense of gratitude, indebtness and regards to our Director
who has given me an opportunity to do this project.
I am charged with sentiments to express my gratitude and thanks again to my
internal project guide Mr., for his superb guidance and constant inspiration
without which it would not have been possible to complete this work. I
would also like to thank our faculty member for their support.
I would like to express my sincere gratitude towards the whole team of J&K
BANK, for the valuable guidance and support received from them. I would
like to thank all the members of the bank for the cooperation & support. I
would also like to acknowledge my thanks to Mr. for providing me the
practical knowledge about the topic of my project and giving me the
guidelines during my summer internship.
I would like to give special thanks to Mr. who has provided me the
opportunity to join the Bank of J&K. I would like to wish a great success
and growth in coming years for this bank.
I also acknowledge my indebtness to my family members, friends and

classmates for their constant persuasion, encouragement and their feedback
regarding my project.
ADIL KHAN
BBA
DECLARATION
I, ADIL KHAN, student of BBA studying in GIAN JYOTI INSTITUE OF MANAGEMENT AND
TECHNOLOGY solemnly declare that the project titled “ A Study of Working Capital Financing
“was carried out by me in partial fulfillment of the BBA program under University of PTU.
This project was under taken as part of academic curriculum as per university rules and
norms and by no commercial interest or motive. It is my original work and not submitted
elsewhere for any other purpose earlier.
DATE:
PLACE: (ADIL KHAN)
INDEX
Chapter No. Contents Page No.
1 INTRODUCTION ABOUT THE STUDY 1
1.1 Object of the project 2
1.2 Selection of the Topic for study 3
1.3 Objective of the project 4
1.4 Research methodology 5
1.5 Scope of the study 6
1.6 Limitation of study 7
1.7 Rational of the study 8
2 PROFILE OF THE ORGANISATION 9

2.1 History of Bank 10
2.2 History of J&K BANK 11
2.3 Product / services offered by bank 17
3 ANALYSIS AND INTERPRETATION OF DATA 19

3.1 Topic under study 20
3.2 Key analysis and findings 42,56,70
3.3 Data presentations(findings) 48,61,75
3.4 Swot Analysis 81
4 CONCLUSIONS OF THE STUDY 82
5 SUGGESTIONS & RECOMMENDATIONS 84
6 APPENDICES 86
6.1 Glossary 87
6.2 Bibliography 88
CHAPTER – 1
INTRODUCTION ABOUT THE STUDY
Object of the project

Object of the project
Selection of the topic for study
Selection of the topic for study
Objectives of the study
Objectives of the study
Research methodology
Research methodology
Scope of the study
Scope of the study
Limitations of the study
Limitations of the study
Rationale of the study
Rationale of the study
Importance & Relevance of the Study.

Importance & Relevance of the Study.
1.1 OBJECT OF THE PROJECT
Scope of the study
Scope of the study
PepsiCo Mission Study
PepsiCo Mission Study
Limitation of the study
Limitation of the study
In Bachelor in Business Administration theoretical knowledge is not
sufficient. Practical knowledge got by the project is very useful in our future.
BBA has to play quite responsible role as a manager, so that practical
knowledge is must for management student.
During the project we come across different real life problems. This practical
knowledge helps us in future to overcome such problems in the corporate
world.
The objective of the project work is as follows:
1. To enable the BBA student to test their theoretical knowledge in

practical.
2. To provide training to student by the bank, this is very useful in their

future.
3. Preparation of project report is mandatory for every BBA student, that

is why the primary objective of any project is to fulfill the requirement
of the syllabus with the grasping the knowledge.
1.2 SELECTION OF THE TOPIC

Topic selection is one of the important aspects of my project. As it decides
the course of action to be followed. The topic given by my project guide was
“study of working capital financing by “J&K BANK”.
Any Nationalized Bank, co-operative banks, private sector bank etc.

provides working capital finance services to the organizations or companies.
The working capital is required for each and every industry and unit for their
day to day operation. Banks helps to meet their financial need by financing
them, so that they can run their business unit smoothly without any scarcity
of working capital.
In our economy banks are the golden source which can help us to fulfilling
our demand by providing us financial service i.e. loan for a certain period of
time then we have to repay the sum in installments with interest or as per the
rule held by the bank.
Analyzing, how bank finance working capital to business unit is important

topic for the management students who may have an opportunity to work in
banks.
Under this study, I analysis the financial position of the companies or

organisation to whom bank was going to finance. This analysis was very
essential for the sanctioning of the required fund to the business unit.
1.3 OBJECTIVES OF THE STUDY

1. To have a comprehensive understanding of the organization.
2. To know its product profile as well as organizational structure.
3. To study why a business unit required working capital
4. To study how a business unit can approach to a Bank for sanctioning
of required working capital.
5. What are the documents required with the proposal while approaching
for sanctioning of working capital?
6. Which are the key Ratios used by the Bank for determining the
financial position of the company?
7. Which are the risk factors taken into consideration while sanctioning
the proposal?
8. To study the various norms and guidelines issued by RBI and Nayak
Committee recommendation in relation with working capital finance.
9. What are the risk factors taken into consideration while sanctioning the
proposal?
10. To understand overall process of sanctioning of working capital
fund to a business unit by the bank.
1.4 RESEARCH METHOLOGY
Research refers to the systemic method consisting of enunciating the problem, a

hypothesis, collecting the facts, analyzing the facts and reaching the certain conclusion
either in form of solution towards the concerned problem or for some theoretical
formulation.
It is important and essential to adopt pre-decided method of study. The data available
for the project was in the form of written as well as verbal information regarding the
working capital finance by the bank.
In order to collect the information following methods are adopted:-
1. Primary Data: - This is the original source of the information where

researcher himself collects all the information directly form the different
people through discussion or by observation.
Primary data was collected through discussion.
 Discussion with the credit manager Mr.VP SINGH regarding the

current rules and regulation of the bank.
 Collection of information related to working capital from other

executive Mr. of advances department of the Bank.
2. Secondary Data: - It is the data which is already present in the secondary

form like newspaper, journals, news letters which are derived by any other person
or institute. It was already exists and it is in processed form. The researcher has
only to decide that how it will be handled to appraise the project.
Secondary data was provided by the Bank.
 Training manual of the J&K BANK.
 Annual report of the company.
 Banking norms Bulletin issued by the RBI to Bank.
1.5 SCOPE OF THE STUDY
The scope of the project was related to working capital finance. In this study, I
analyze the working capital finance by J&K BANK of three different companies
and also study the working capital assessment process. As part of the study I
analysis the balance sheet of these companies.
The aim of the study was to know, how an organization approach to bank for
finance and what are the aspect a bank has to determine while accepting the
proposal. To know the financial key ratios on the basis of which bank come to
know the risk factors and financial position of the company.
Analysis of the data and interpretation of information has been done with help of
table and graph. The validity of the study of this project limited for two months
1.5 LIMITATION OF THE STUDY
 Generally banks do not allow the outsider to have any study or research
work in bank. Therefore getting a project work in bank itself was very
difficult.
 The time span of the project was very short 8 weeks, which itself act as
a major constraints. Moreover studying the guidelines and applies it
practically within short time span was a task of great pressure.
 Due to confidentiality some of the information which are important for
the project, could not be collected. There was restriction in disclosing
such information or data.
 Some of the staff members were non co-operative.
 Some of the information was lacked accuracy due to which
approximately values were used for analysis. Hence the result also
reveals approximate values.
 Maximum secondary data is used.
 Fundamental analysis involves lots of tools, but only selected tools
were studied.
 The study was limited only to working capital finance by bank
1.7 RATIONALE OF THE STUDY
The summer training at “J&K 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 “J&K BANK” also stands to benefit in many ways.
Various data and operational work carried out by me can help “J&K BANK” in
fulfilling their immediate informational and other needs, thus saving the valuable
executive time and efforts.
Utility to Researcher:-
 To know the various procedural aspects of granting loan for working capital to
business organization.
 To interact with the manager of the company and gain knowledge through
their experiences.
 To gain the knowledge about the operational and departmental work of bank.
 To know the various document required for sanctioning the loans to business
organization.
 To know the guidelines issued by the RBI to Bank.
 To gain the knowledge about the various types loan given by bank.
Utility to Bank:-
 Study help the organization rectify the errors in lending process.
 Various data and operational work carried out by me can help bank to
fulfilling their immediate informational and other needs, thus saving valuable
executive time and efforts.
CHAPTER - 2
PROFILE OF THE ORGANISATION
Introduction
Introduction to
to Bank
Bank
Background
Backgroundand
andHistory
Historyof
ofJ&K
J&K
BANK
BANK
Product/Services
Product/Services off
offered
ered by
by
the
the Bank
Bank
PROFILE OF THE BANK
J&K Bank functions as a universal bank in Jammu & Kashmir and as a

specialized bank in the rest of the country. It is also the only private sector
bank designated as RBI’s agent for banking business, and carries out the
banking business of the Central Government, besides collecting central taxes
CBDT
J&K Bank follows a two-legged business model whereby it seeks to increase

lending in its home state which results in higher margins despite modest
volumes, and at the same time, seeks to capture niche lending opportunities
on a pan-India basis to build volumes and improve margins.
J&K Bank operates on the principle of 'socially empowering banking' and

seeks to deliver innovative financial solutions for household, small and
medium enterprises.
The Bank, incorporated in 1938, and is listed on the NSE and the BSE. It has
a track record of uninterrupted profits and dividends for four decades. The
J&K Bank is rated P1+, indicating the highest degree of safety by Standard
& Poor and CRISIL.
2.1 History of the Bank
The Jammu and Kashmir Bank was founded on October 1, 1938 under
letters patent issued by MAHARAJA OF JAMMU & KASHMIR, HARI
SINGH. The Maharaja invited eminent Kashmiri investors to become
founding directors and shareholders of the bank, the most notable of which
were Abdul Aziz Mantoo, Pesten Gee and the Bhaghat Family, all of whom
acquired major shareholdings.
The Bank commenced business on July 4, 1939 and was considered the first
of its nature and composition as a State owned bank in the country. The
Bank was established as a semi-State Bank with participation in capital by
State and the public under the control of State Government. In 1971, the
Bank acquired the status of a scheduled bank and was declared as an A-Class
bank by the Reserve Bank of India in 1976.
The bank had to face serious problems at the time of independence when out
of its total of ten branches two branches of Muzaffarabad, Rawalakot and
MIRPUR fell to the other side of the line of control (now Pakistan-
administered Kashmir) along with cash and other assets. Following the
extension of Central laws to the state of Jammu & Kashmir, the bank was
defined as a government company as per the provisions of Indian companies
act 1956. Mushtaq Ahmed is the new Chairman & CEO of Jammu &
Kashmir Bank.
Vision
“To catalyze economic transformation and capitalize on growth.”
The Banks vision is to engender and catalyze economic transformation of

Jammu and Kashmir and capitalize from the growth induced financial
prosperity thus engineered. The Bank aspires to make Jammu and Kashmir
the most prosperous state in the country, by helping create a new financial
architecture for the J&K economy, at the center of which will be the J&K
Bank.
Mission
The Banks mission lays down a two-fold path: To provide the people of J&K
international quality financial service and solutions and to be a super-
specialist bank in the rest of the country. The two together will make the
bank most profitable Bank in the country.
Network
The Bank's Corporate Headquarter is situated in Srinagar. The Bank has a

network of 689 business units (branches) and 613 ATMs across the country
as on May 15, 2013. During the year 2012-13, the bank has opened 70 new
units thereby increasing its network to 689 while 105 ATMs were
commissioned, taking their number to 613.
Awards and recognitions

2011
Business Today - KPMG Study

 The Bank was ranked one of the best banks in the Best Bank Study
2011 done by Business Today and global Consulting firm KPMG (BT-
KPMG).
 Ranked the Bank No. 1 on the basis of NPA coverage ratio which
stood best in the industry as at the end of March 2011.
 The Bank was ranked 15th in large banks category in the country
based on the last year's growth, quality of assets, productivity and
efficiency parameters, leaving state bank of India, federal bank,
HSBC Bank, Standard Chartered bank and other major banks far
behind.
FE India's best banks Award
The Bank won the prestigious Financial Express Best Banks Award in the
Old Private Sector Banks Category for Scaling up its business and
strengthening the balance sheet for the year ended March 2011. The Award is
the recognition of the Bank's innovative approach towards the business, both
within and outside J&K.
Dun & Bradstreet Banking Awards
J&K Bank was awarded the Best Bank in the prestigious 'Dun & Bradstreet
(D&B) - Polaris software Banking Awards 2011 in the category for "Rural
Reach - Private Sector".
2012
Business Today - KPMG Study
 The bank was ranked one of the best banks in the Best Bank Study
2012 done by Business Today and KPMG. The Study ranked the
Bank No. 1 on the basis of NPA coverage ratio and the bank was
also ranked No. 1 in terms of Cost to income ratio which stood best
in the industry at the end of the March 2012.
 The Bank was ranked 4th in Mid sized banks category in the
country based on the previous year's growth, quality of assets,
quality of earnings, productivity and efficiency and capital adequacy
parameters.
Sunday Standard FINWIZ-2012 Best Bankers Award
The Bank was awarded ‘Best Banker in Financial Inclusion and Customer
Friendliness’ and declared runner up for ‘Best Banker in Priority Sector
Growth and Agricultural Credit’.
IPE HRM Congress Awards
The Bank has been conferred with the prestigious HR Leadership Award at
IPE HRM Congress Awards organized under the aegis of APHC Asia Pacific
HRM Congress 2012. The criteria adopted to choose the awardees included
internal (within the organization) perception, external perception (based on
credibility, achievement and value contribution to the business), track record
of performance and achievements, values, integrity and work life balance.
CNBC TV18 India Best Bank and Financial Institution Awards.
The Bank was awarded as the “Best Bank” in the “Old Private Sector Bank”
category at the CNBC TV18 India Best Bank and Financial Institution
Awards for FY12. The distinction of being the “Best Bank” in the “Old
Private Sector Bank” category has been accorded to J&K Bank by a panel of
distinguished jurors consisting of Mr. Jagdish Caper , former Deputy
Governor Reserve Bank of India, former Chairman of HDFC Bank and
former Chairman of BSE, Mr. A. K. Purwar, Chairman of IndiaVenture
Advisors Pvt. Ltd & former Chairman of State Bank of India, Mr. H. N.
Sinor, CEO, Association of Mutual Funds of India, former CEO, Indian
Banks Association and former Managing Director of ICICI and Mr. M. V.
Nair, former Chairman, Union Bank of India.
India Human Capital Awards 2012
For its leadership role in the human resource management practices, J&K
Bank was conferred with HR Leadership Award in the second India Human
Capital Awards 2012. The award is the recognition of Bank’s strategic and
iconic position as a role model for professionalism and management
excellence in the banking industry.
2013
FE India’s Best Banks Award-2012-13
The Bank was ranked as No. 1 in ‘Best Old Private Sector Bank’ category in
the survey conducted across the banking industry. In terms of ‘Profitability’,
the Bank stands 3rd in the overall banking industry while as 1ST in the
category of ‘Old private sector banks’.
The Award is the recognition of the Bank's strong fundamentals and dynamic
growth model.
Europe Business Assembly Awards, London
The Bank bagged the prestigious ‘Best Enterprise’ award from Europe
Business Assembly (EBA) in London. The Socrates Committee of EBA also
awarded the Chairman and CEO - Mr. Mushtaq Ahmad with ‘Manager of the
Year’ medal and a special statue.
J&K Bank Corporate Headquarters, Srinagar

Behind Chinar Trees
PRODUCT /SERVICES & ADD ON SERVICES
Personal loan: - To meet any personal expenses for purposes such as Medical Expenses, Expenses on
Travel / Tour, Income Tax liability.
Consumer Loan:-For purchase of consumer durables include computers.
Housing Loan: - To provide housing finance to Public in general for the following purposes
for construction of new house / flat, for outright purchase of house / flat (New or old). For repairs /
renovation of the existing house / flat, Home Conversion Loan. Land Purchase Loan etc.
Education Loan: - For study in India and for study abroad.

Professional and self-Employed:-
To purchase equipment/ repairs/renovation to existing equipment, purchase of tools, working capital

requirements, and acquiring/repairing business premises.
Kishan Credit:-
Cultivation, of crops Meeting the short-term credit needs of farmers for crop production and allied
activities etc. maintenance of farm equipments etc.
We have an ATM network operated VISA Debit Card across the country.
CHAPTER – 3
Analysis and Interpretation of Information / Data
Topic
Topicunder
understudy
study
Key
Keyanalysis
analysis&&findings
findings
Data
Datapresentation(findings)
presentation(findings)
Swot
SwotAnalysis
Analysis
TOPIC UNDER STUDY

WORKING CAPITAL FINANCING
3.1.1 Meaning of working capital:

Working capital may be regarded as lifeblood of a business. Its effective
provision can do much to ensure the success of a business, while its inefficient
management can lead not only to loss of profits but also to the ultimate downfall of
what otherwise considered as a promising concern. A study of working capital is of
major importance to internal and external analysis because of its close relationship with
the current day- to- day operations of a business.
So that working capital is required for and every type of the business unit i.e.
manufacturing or trading. Working capital requirement can be fulfill by the bank or
other financial institution. But it is not necessary that all the required working capital is
financed by the Bank. A part of the required working capital is contributed by the owner
of the business unit. Bank has followed certain rules and regulation prescribed by the
RBI while sanctioning working capital to the borrower.
At the beginning of a business venture cash is provided by owners and lenders. A part
of this cash is invested in tools, machinery, equipment, building and other form of fixed
assets which are not to be sold throughout the year during the normal course of
business. The remaining cash is used as working capital to meet the current
requirements of a business enterprise such as the purchase of services, raw materials, or
merchandise.
When a firm’s products or finished goods are sold, it has, what is known as cash or
receivables. When receivables are collected, more cash is available for planning of
services and purchase of raw materials or merchandise. This flow of cash into
production and so on illustrates the circular flow of working capital.
The term circulating capital is frequently used to denote those assets which are changed
with relative rapidity from one form another. It has been admirably summed up by
Brown and Howard, who compare it with a river which is always there but whose water
level is constantly changing.
3.1.2 TYPES OF WORKING CAPITAL:-
The various types of working capital is as follows:-
Types of Working Capital
Net working capital
Gross working capital Cash Working Capital
Permanent working capital
Variable working capital Negative Working Capital
Balance Sheet working capital
Net Working Capital:

The net working capital is the difference between current assets and
current liabilities. The concept of net working capital enables a firm to
determine how much amount is left for operational requirements.
Gross working capital:
Gross working capital is the amount of funds invested in the various
components of current assets. This concept has the following advantages:
(a)Gross working capital provides the correct amount of
working capital at the right time.
(b) It enables a firm to realize the greatest return on its
investment
(c)It helps in the fixation of various areas of financial
responsibility.
Permanent working capital:

Permanent working capital is the minimum amount of current assets
which is needed to conduct a business even during the dullest season of the
year. This amount varies from year to year depending upon growth of the
company and the stages of the business cycle in which it operates.
Temporary or variable working capital:
It represents the additional assets which are required at different times
during the operating year, additional inventory, extra cash etc. Seasonal
working capital is the additional amount of current assets particularly cash,
receivables and inventory which are required during the more active
business seasons of the year.
Balance Sheet working Capital:
The Balance Sheet working capital is one which is calculated from the
items appearing in the balance sheet .Net working capital which is
represented by the excess of current assets over current liabilities; are
example of the balance sheet working capital.
Cash working capital:
Cash working capital is one which is calculated from the items
appearing in the profit and loss account. It shows the real flow of money or
value at a particular time and is considered to be the most realistic approach
in working capital management. It is on the basis of operation cycle concept.
3.1.3 FACTORS DETERMINING WORKING CAPITAL IN AN

ORGNISATION
Industrial concerns generally require a large amount of working capital, although it varies from
business to business because of lack of uniformity characterizing
Nature ofeach field of enterprise. The need for
Industry
working capital varies with changes in the volume of business.
Demand of Industry
The following factors determine the amount of requirements

Cash working
capital: Manufacturing Time
Volume of Sale
Terms of Purchase & Sales
Inventory Turnover
Current Assets
Production Cycle
Credit Control
Inflation
Seasonal Fluctuation
Cash Reserves
Liquidity and Profitability
Factors Affecting Operational Efficiency

Working Capital
Size of the Firm
Business Cycle
Nature of Industry:
The composition of an asset is a function of the size of a business and the

industry to which it belongs. Small companies have smaller proportions of cash,
receivables and inventory than large corporations. Needs for working capital are thus
determine by the nature of an enterprise.
Demand of Industry:
Creditors are interested in the security of loans. They want their obligations to be
sufficiently covered. They want the amount of security in assets which are greater than
the liability.
Cash Requirements:
Cash is one of the current assets which is essential for successful operations of
the production cycle. Cash should be adequate and properly utilized. It would be
wasteful to hold excessive cash. A minimum level of cash is always required to keen the
operations going. Adequate cash is also required to maintain good credit relations.
Manufacturing Time:
The level of working capital depends upon the time required to manufacture
goods. If the time is longer, the size of working capital is great. Moreover, the amount
of working capital depends upon inventory turnover and the unit cost of the goods that
are sold. The greater this cost, the bigger is the amount of working capital.
Volume of Sales:
This is the most important factor affecting the size and components of working
capital. The volume of sales and the size of working capital are directly related to each
cast of operations, in inventories and in receivables.
Term of Purchases and Sales:
If the credit terms of purchases are more favorable and those of sales less liberal,
less cash will be invested in inventory. A firm gets more time for payment to creditors
or suppliers. A firm which enjoys greater credit with banks needs less working capital.
Inventory Turnover:
If the inventory turnover is high, the working capital requirements will be low.
With a better inventory control, a firm is able to reduce its working capital
requirements.
Value of Current Assets:
A decrease in the real value of current assets as compare to their book value
reduces the size of the working capital. If the real value of current assets increases,
there is an increase in working capital.
Receivable Turnover:
It is necessary to have an effective control of receivables. A prompt collection of

receivables and good facilities selling payables result into low working capital
requirements.
Production Cycle:
The time taken to convert raw material into finished products is referred to as the
production cycle or operating cycle. The longer the production cycle, the greater is the
requirement of working capital. Utmost care should be taken to shorter the period of the
production cycle in order to minimize working capital requirements.
Credit Control:
Credit control includes such factors as the volume of credit sales, the term of credit
sales, the collection policy etc. with a sound credit control policy; it is possible for a
firm to improve its cash inflow.
Inflation:
As a result of inflation, size of the working capital is increased in order to make it
easier for a firm to achieve a better cash flow. This factor may be compensated by the
rise in the selling price during inflation.
Cash Reserve:
It would be necessary for a firm to maintain some cash reserves to enable it to

meet contingent disbursements. This would provide a buffer against abrupt shortages in
cash inflow.
Size of the Firm:

A firm size either in terms of its assets or sales affects its need for working
capital. Bigger firms with many sources of funds may need less working capital as
compare to their total sales.
Business Cycle:
Business expands during period of prosperity and declines during the period of
depression. More working capital is required during the period of prosperity and less
during the period of depression.
Adequacy of Working Capital

Working capital should be adequate for the following reasons:
i. It protects a business from the adverse effects of shrinkage in the values of

current assets.
ii. It is possible to pay all the current obligations promptly and to take advantage of
cash discounts.
iii. It ensures to a greater extent the maintenance of a company‘s credit standing and
provides for such emergencies as strikes, floods, fires etc.
iv. It permits the carrying of inventories at a level that would enable a business to
serve satisfactorily the need of its customers.
v. It enables a company to extend favorable credit terms to customers.
vi. It enables a company to operate its business more efficiently because there is no
delay in obtaining materials etc. because of credit difficulties.
vii. It enables a business to withstand period of depression smoothly.
viii. Current funds may be invested in non-current assets
.
Dangers of Excessive or inadequate Working Capital
a) When working capital is inadequate, a company faces the following

problems:
i. It is not possible for it to utilize production facilities for the want of working
capital.
ii. A company may not able to take advantage of cash discount facilities.
iii. The credit worthiness of the company is likely to be jeopardized because of lack
of liquidity.
iv. A company may not be able to take advantage of profitable business
opportunities.
v. The modernization of equipment and even routine repairs and maintenance
facilities may be difficult to administer.
vi. A company may not be able to pay dividends because of the non availability of
the funds.
vii. A company may have to borrow funds at exorbitant rates of interest.
b) When working capital is Excessive, a company faces the following

problems:
i. A company may be tempted to overtrade and lose heavily.

ii. A company may keep very big inventories and tie up its funds unnecessarily.
iii. There may be an imbalance between liquidity and profitability.
iv. A company may enjoy high liquidity and at the same time suffer from low
profitability.
v. A company may invest heavily in its fixed equipment which may not be justified
by actual sales or production. This may provide a fertile ground for later over-
capitalization.
3.1.4 Working Capital Management
Working Capital management is integral part of overall manangement.Working capital management is
nothing but a relationship between a firm's short-term assets and its short-term liabilities. The goal of
working capital management is to ensure that a firm is able to continue its operations and that it has
sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The
management of working capital involves managing inventories, accounts receivable and payable and
cash. When current assets are less than current liabilities, an entity has a working capital deficiency
also called a working capital deficit.
3.1.5 Working Capital Cycle
At the beginning of a business venture, cash is provided by owners and lenders. A part
of this cash is invested in tools, machinery, furniture, equipment, building and other
form of fixed assets which are not to be sold throughout the year during the normal
course of business. The remaining cash is used as working capital to meet the current
requirements of a business enterprise such as purchase of services, raw materials or
merchandise. When a firm’s products or finished goods are sold, its is known as cash or
receivables. When receivables are collected, more cash is available for planning of
services and the purchase of raw materials and so on. This is called working capital
cycle.
In other words, Working capital cycle is a loop which starts at the cash ,
marketable securities account, goes through the current accruals accounts as directed
labour and materials are purchased and used to produce inventory, which is in turn sold
and generates accounts receivable, which are finally collected for replenish cash. The
major point to notice about this cycle is that the turnover (or velocity) of resources
through this loop is very high relative to the other inflows of the cash account.
To see why this cycle is very important to the firm’s survival because cash
account is the major flow of working capital cycle. As long as the firm has cash or
marketable securities on hand, it can pay bills and thus survive. We can show the
inflows and outflows of working capital through this figure.
Accrued Direct Labor
and Material
Used in
Production used in
Accrued Fixed
Work in progress Operating Expenses
Process
Used to Purchase
Used
to purchase
Cash and Marketable
Securities
Fixed
Finished Goods
Assets
Via sales Generates Collection process External Return
Finance to Capital
Account
Receivable Suppliers
Of Capital
Figure: RESOURCE FLOWS FOR A MANUFACTURING FIRM

Hence it is clear that the working capital cycle is the lifeblood of the firm.
3.1.6 WORKING CAPITAL FINACING

Banks are the main institutional source of working capital finance in India. Short
term funds are used to finance working capital. The main sources of working capital
finance, namely, trade credit, bank credit, bank advances, factoring and commercial
papers. After trade credit, bank credit is most important source of financing working
capital requirements.
A bank considers a firm’s sales and production plans and desirable level of current
assets in determining its working capital requirements. The amount approved by the
bank for firm’s working capital is called credit limit. Credit limit is the maximum funds
which a firm can obtain from banking system. In practice, bank does not lend 100 per
cent of the credit limit; they deduct margin money. Margin money requirement is
based on the principal of conservatism and is meant to ensure security, if the margin
requirement is 30 percent bank will lend only up to 70 percent of the value of the
current assets. This implies that the security of bank’s lending should be maintained
even if the assts value falls by 30 percent.
FORMS OF BANK FINANCE

A firm can draw funds form its bank within the maximum credit limit sanctioned. Working capital
finance is provided by banks in these ways:
(a)Cash Credit (b) Loans(c)Purchase/Discount Bills(d)Letter Of Credit and (e)Working Capital Term
Loan.
Cash Credit/Overdrafts:-
Under cash credit /overdraft form 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/drawing are possible to the extent of his requirements periodically. Similarly
repayments can be made whenever desired during the period. The interest determined on the basis of
running balance/amount actually utilized by the borrower and not on sanctioned limit. This form of
bank financing of working capital is highly attractive to the borrowers because, firstly, it is flexible.
Borrowed funds are payable 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.
Loans:-
Under this arrangement, the entire amount of borrowing is credited to the current account of
the borrower of released in cash. The borrower has to pay interest on the total amount. The loans are
repayable on demand or in periodic installment. They can also be renewed from time to time. As a
form of financing, loans imply a financial discipline on parts of the borrowers. Form a modest
beginning in the early nineties, at least 80 percent of MPBF/credit limit must now be in the form of
loans in India.
Bills Purchase /Discounted: -
With the introduction of 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 modus operandi of bill finance as a source of working capital financing is that bills arise out of a
trade sale-purchase transaction on credit. The seller of goods draws the bill on the purchaser of goods,
payable on demand or after a usance period not exceeding 90 days. On acceptance of the bill by the
purchaser, the seller offers it to the bank for discount / purchase. On discounting the bill, the bank
releases the fund to the seller. The bill is presented by the bank to the purchase /acceptor of the bill on
due date for payment. The bills can also be rediscounted with the other banks/RBI.
Term Loans for Working Capital:-
A borrower may some time required temporary accommodation in excess of sanctioned credit
limit to meet unforeseen contingencies .Bank provide such accommodation through a demand loan
account or a separate non operable cash credit account .The borrower is required to pay higher rate of
interest above the normal rate of interest on such additional credit.
Letter of Credit:-
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 and banks
assume only the risk, the credit being provided by the supplier himself.
The purchaser of the goods on credit obtains a letters of credit from a bank. The bank undertakes the
responsibility to make payment to supplier in case the buyer fails to meet his obligations. Thus, the
modus operandi of letter of credit is that the supplier sells good on credit /extends credit (finance) to
the purchase, the bank give a guarantee and bears risk only in case of default by the purchaser.
3.1.7 SECURITY REQUIRED IN BANK FINANCE

After bank is satisfied about the request of the borrower and justified on the basis of the
documents. The questions of accepting tangible security both in the form of primary as well as
collateral as a cover to their finance need to be considered. The possibility of creating a charge
by way of pledge/hypothecation/mortgage is also to be considered for tenure loans and
working capital credit facility wise separately. Banks generally do not provide working capital
finance without adequate security .The following mode of security which a bank may require.
The bank provides credit on the basis of following modes of security:
Hypothecation:-
It is also called primary security. Under this mode of security, the bank provides 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. borrower). Although bank does not have physical possession of the goods, it has legal right to sell
the goods to realize the outstanding loan.
Collateral Security (Mortgage): -
It is a transfer of a legal 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 transfer is called ‘mortgage
deed’. 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.
Lien: -
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. Bank usually enjoy general lien because general lien can be applied till all dues of the
claimant are paid. While particular lien means a right to retain goods until a claim pertaining to these
goods is fully paid.
Pledge: -
It is different from hypothecation in that in the former, the goods which are offer as security are
transferred to the physical possession of the lender. An essential prerequisite of pledge is that the
goods are in the custody of the bank. Bank is called the ‘Pawnee’ (pledgee) while who offers the
security is called a ‘pawnor’ (pledge).the lodging of the goods by the pledge to the pledgee is a kind of
bailment. Therefore, pledge creates some liabilities for the bank. It must take reasonable care of goods
pledged with it.
3.1.8 REGULATION OF BANK FINACE

Banks have been following certain norms in granting working capital finance to companies. the norms
have been greatly influenced by the recommendation of various committee appointed by the Reserve
Bank of India from time to time.
The norms of working capital finance followed by banks since mid -70’s were mainly based on
recommendation of the Tandon Committee. The Chore Committee made further recommendation to
strengthen the procedures and norms for working capital financing by Banks.
(A) The Chore Committee Recommendation

In April 1979, The RBI constituted a working group to review the system of cash credit under
chairmanship of Mr. K.B. Chore. The main aim was to review the cash credit system and suggest
modification or alternative type of credit facilities to promote greater credit discipline and relate credit
limit to production.
The major recommendation having bearing on bank credit to firms of the group are as follows:
i. Reduced Dependencies on Bank Credit:-Borrower should contribute more funds to finance

their working capital requirements and reduced dependencies on bank credit. Therefore the
group recommended firms to be placed in the second method of lending as explained by
Tandon Committee. Incase of borrower unable to comply with this requirement immediately,
he would be granted excess borrowing in form of working capital term loan(WCTL).WCTL
should be repaid in semi-annual installments for a period not exceeding five year and higher
rate of interest will be charged in comparison to cash credit system.
ii. Credit Limit Separated into ‘Peak Level’ and ‘Normal Peak Level’ Limits:- Bank should
appraise and fix separate limits for the ‘peak level’ and ‘normal non-peak level’. Credit
requirement for all borrower excess of Rs 10 lakh. Within the sanction limit of these two
periods the borrower should indicate in advance his need for funds lending a quarter.
iii. Existing Lending System to Continue: - Existing lending system of three types of lending;
cash credit, loans and bills should continue.
iv. Information System:-The discipline relating to the submission of quarterly statements to be

obtained from the borrowers under existing system should be strictly adhered in respect of all
borrowers having working capital limits of Rs 50 lakh and over from the banking system.
(B) The Tandon Committee Recommendation

The recommendation of The Tandon Committee based on following Notions:-
i. Operating Plan: - The borrower should indicate the likely demand for credit. For this purpose,
he should draw operating plans for ensuring year and supply them to banker. This procedure
will facilitate credit planning at the bank’s level. It will also help the banker in evaluating the
borrower credit needs in a realistic manner and in the periodic follow up during the ensuring
year.
ii. Production Based Financing:-The bank should finance only genuine need of the borrower.
The borrower should maintain reasonable of inventory and receivable; he should hold just
enough to carry on his target production.
iii. Partial Bank Finance:-The working capital need of the borrower cannot be entirely financed by
the banker. The banker will finance only reasonable part of it; for the remaining the borrower
should depend upon his won funds, generated internally and externally.
Major Recommendation of the Tandon Committee:-
i. Inventory and Receivable Norms:-The committee point out that the borrower should be
allowed to hold only a reasonable level of current assets, particularly inventory and receivable.
The normal inventory, based on production plan, lead time of supplier, economics and ordering
level should be financed by the banker. Similarly the banker should finance those receivable
which are in tune with the practices of the borrower’s firm and industry.
ii. Lending Norms:-An other important recommendation of the committee related the approach
to be followed by the commercial banks in lending credit to borrowers. Committee felt that the
main function of a banker as a lender was to supplement the borrower’s resources to carry an
acceptable level of current assets. This implied (a) level of current assets must be reasonable
and based on norms. (b) A part of the fund requirements for carrying current assets must be
financed from long term funds comprising owned funds and terms borrowing including other
non current liabilities.
Maximum Permissible Bank Finance (MPBF)

The Tandon Committee suggested the following methods of determining the permissible level of
Bank borrowing:-
i. First Method: - In first method, the borrower will contribute 25 percent of the working capital
gap; the remaining 75 percent can be financed from bank borrowing. This method will give
you minimum current ratio of 1:1.
ii. Second Method:-In second method, the borrower will contribute 25 percent of the total
current assets. The remaining of the working capital gap (i.e. the working capital gap can be
borrower’s contribution) can be bridged from the bank borrowings. This method will give a
current ratio of 1.3:1.
iii. Third Method:-In third Method, borrower will contribute 100 per cent of core assets, as
defined and 25 per cent of balance of current assets. The remaining of the working capital gap
can be met from the borrowings .this method will further strengthen the current ratio. First two
methods immediately accepted for implementation by the RBI.
Example: Method of determining MPBF Amount (Rs)
Particulars Method Method
I II
a) Current Assets 100 100
b) Current Liabilities 20 20
[Excluding bank borrowing]
c) WCG (CA – CL) 80 80
d) Borrower’s Contribution 20 (25 % c) 25 (25 % a)
e) Permissible bank finance 60 55

[c – d]
(C) Nayak Committee Recommendations

How to calculate Maximum Permissible Bank Finance (MPBF) as per Nayak Committee
Recommendations
i. Example –
A. Projected gross sales including excise Rs. 4000/-
B. 25% of A is Gross working capital requirement Rs. 1000/-
C. 5% of A to be brought in as margin Rs. 200/-
D. MPBF ( B-C) Rs. 800/-
ii. If in the referred to above, level of sundry creditor is Rs. 200/- then how we should monitor
the account?
In such situation the question would be whether should we still finance the unit to the
extent of Rs. 800/- . The answer is no. We will have to fix the drawing power as under:
Cashes credit limit is Rs. 800/-. Prescribed margin 20% e.g. Based on stocks and
receivables statement wherein value of stocks and receivables is say Rs. 800 and wherein
credit purchase are to the tune of Rs. 200/- then Drawing Power (D.P.) will be as under
A. Stocks and receivables Rs. 800/-

B. Less credit purchases Rs. 200/-
C. A – B = fully paid stock Rs. 600/-
Therefore, 80% of C, will be the drawing power Rs. 480/-
Account should not be allowed to be overdrawn beyond Rs. 480/- as outstanding balance
should not be more than drawing power in any case.
iii. If actual available margin is more than 5% of gross, then we should fix up the limit in the
manner as stated below.
Example –
A. Gross sales (including excise) Rs. 4000/-
B. 25% of A Gross working capital Rs. 1000/-
C. 5% of A stipulated margin Rs. 200/-
D. Actual available margin (TCA – TCL) Rs. 250/-
E. MPBF (B – C) or (B-D) whichever is less Rs. 750/-
It means that borrower should not be allowed to withdraw actual available margin where it is
excess of stipulated margin. As a result MPBF is to be reduced. (Please refer to example
quoted above).
Example –
Balance Sheet
Liabilities Amt (Rs.) Assets Amt (Rs.)
Capital 200 Fixed Assets 400
Reserve 100
Term Loan 300

Current Liabilities (C.L.), Current Assets (C.A.)
Banking Borrowing 600 Inventory 800
Other C .L. 200 Receivable 200
Total 1400 1400
NWC (Margin) = TCA – TCL = 1000 - 800 = 200
Now we will do assessment of MPBF by using these Methods of Lending:
(A) MPBF as per Projected Working Capital Method (Conventional Method) :

Amt (Rs.)
a) TCA 1000
b) Other C/L sundry 200
c) a - b working capital gap 800
d) 25% of C min.
Stipulated NWC 200
e) Actual NWC 200
f) MPBF c – d or c – e 600
Whichever is less?
(B) MPBF as per Turnover Method ( Nayak Committee Recommendation):
For SSI Borrowers availing fund based facilities up to Rs. 5 Crores.
For other category of Borrowers availing fund based facilities up to Rs. 2 Crores.
Amt (Rs.)
a) Gross Sales
Including excise creditors etc. 4000
b) 25% of a 1000
c) Stipulated NWC (5% of a) 200
d) Actual NWC 200
e) MPBF b-c or b-d
Whichever is less 800
The difference in PBF in the above referred example (example A and example B) is due to the fact that
OCL is not taken care of by Nayak Committee. Hence, RBI has stipulated that working capital is to be
sanctioned as per example A above and the account is to be monitored as per Drawing Power Method.
(C) Cash Budget System:
For Seasonal industries such as sugar tea, etc; software industry, Sick units
Constructions/Contractors/Developers. Separate Peak and Non Peak level credit limits shall be
given consideration while working at the specific request of the borrower.
3.1.9 WORKING CAPITAL ASSESSMENT METHODS
As directed by RBI each bank may have its own method of assessment of working capital. In order to
ensure that the credit dispensation system becomes truly need-based, we have proposed alternative
working capital technique to be adopted, termed as PROJECTED WORKING CAPITAL GAP
(PWCG) METHOD.
The salient feature of revised WC assessment is as under:-
1. Turnover method (NAYAK Committee Recommendations) will be continued to be

followed for SSI accounts with fund based credit limits up to Rs. 5.00 Crores. Turnover
method will also be applicable for other manufacturing concerns availing fund based
WC facilities up to Rs. 2.00 Crores.
2. For other categories of borrowers, turnover method will be followed for fund based WC
facilities up to Rs. 2.00 Crores. It is to be noted that though the LIMIT will be decided
by Turnover Method, the Drawing Power will depends on the actual position of stocks
receivables etc. and the margin stipulated. The distinction between limit sanctioned and
D.P. has to be clearly explained to the concerned borrowers. For this purpose timely
receipt of stock /book debts statement from the borrowers should be ensured.
3. In respect of borrowers having fund based credit facilities of Rs. 50.00 lakes and above
Monitoring will be done through Quarterly Monitoring Report (QMR) and Half –
Yearly Monitoring Report (HMR) These statement /report will replace the present
QIS statement. The formats of these reports and operational guidelines for their
submission will be given separately. It may please be noted that these statement are
important from the point checking/confirming the position of estimates vis-à-vis
actual as on given date. Though submission of these reports is compulsory, delayed
submission/non submission will not attract any penalty/penal interest.
4. In respect of proposals for trading business with required bank finance up to Rs.10.00
lakes. Balance sheet will be obtained in structured format This has been suggested in
view of non-availability/delay in receipt of Annual Finance statement from the category
of borrowers though in most cases they come under recently introduced Turnover
Taxation by Government of India.
3.1.10 Benchmark Ratios for Credit Proposals

Following benchmark ratio shall be observed for credit proposal where WC is assessed on projected
working capital method. For all borrower accounts including take over accounts.
Current Ratio:-
The current ratio is the ratio of total current assets to total current liabilities. Current assets are
those assets which can be converted into cash within a short period of time, normally not exceeding
one year. The current liabilities are those which are short term maturing obligations to be met within a
year. It indicates the rupees of current assets available for each rupee of current obligation. The higher
the current ratio, the larger is the amount of rupees available per rupee of current liability, the more is
firm ability to meet current obligations and the greater is the safety of funds of short term creditors.
Current Ratio = Current Assets/Current Liabilities
The generally acceptable current ratio is 2:1.The minimum acceptable current ratio is 1:1.
Debt-Service Coverage Ratio (DSCR):-
DSCR is considered a more comprehensive and use to compute debt service capacity of a
business firm. It provide the value in terms of the number of times the total debt service obligations
consisting of interest and repayment of principal in installments are covered by total operating fund
available after the payment of taxes. If DSCR is very unsatisfactory like less than one it means the
firm will not have enough cash to service installment and is likely to commit default. The proposal is
not financially viable and term loan should not be sanctioned by the financial services company.
DSCR = EAT + Interest + Depreciation +Other Non Cash Expenditures / Installment
DSCR Minimum - 1.5: 1 for Term Loan
The higher the ratio, the better it is. In general lending financial institution considers 2:1 as
satisfactory ratio.
Total Indebtedness Ratio (Total Outside Liability /Tangible Net Worth):-
It is a ratio which shows the relationship between the total outside liability and tangible net
worth. Decreasing the ratio is positive indication about the financial position of company .The
acceptable TOL/TNW is 4:1 for normal credit facilities and 5:1 for export credit facilities.
Relaxation in the above benchmark ratios may be considerable by the sanctioning authority in
deserving Cases after recording justification for the same and shall be reported to next higher
authority.
3.1.11 RATE OF INTREST:-

For charging of appropriate rate of interest Branches/Regional Offices are requested to refer to
the Central Office circulars in vogue at the time of the advance.
REAL CASE STUDIES
CASE STUDY -1
WORKING
WORKINGCAPITAL
CAPITALFINANCING
FINANCING
TO
TO
M/S
M/SC&M
C&M(P)
(P)LTD.
LTD.
JAMMU
JAMMU
3.2.1 KEY ANALYSIS AND FINDINGS
Summary of proposal Note:
Note for (Sanctioning Authority) : Asstt Gen Manager, Delhi Region, Delhi
Name of the Account : M/s. C&M (P) ltd.
Branch : Delhi
IRAC Status : Standard Asset
Business activity : Printing of Laminated Paper
Category : Priority - SSI
Request For : Credit facilities as under:
(Rs in lacs)
Nature of facility Existing Proposed Increase
Cash Credit Limit 17.00 30.00 13.00
Total 17.00 30.00 13.00

Date of last Review : 05.01.2007
Sanctioning Authority : Chief Manager
Status with reference to : Proposal approved in meeting dated
Present position of the account:

(Rs. in Lacs)
Facility Limit Security MV DP Balance as Overdue if

on any
27.02.2008
CC 17.00 Hypothecation of 49.16 17.00 16.11 ------

Limit Stocks & Receivables
Total 17.00 49.16 17.00 16.11 ------
Security : Hypothecation of stocks/ receivables.
Primary : Rs. 47.86 lacs
Collateral : Rs. 53.00 lacs

Collateral cover : 176.66 %
Credit Rating : MB-3 as on 31.03.2008
Credit Risk Rating : MBR-2 as on 31.03.2007
Rating by Rating agencies (CARE, ICRA) :NA
Rate of interest : BPLR – 0.75
Borrower Profile:
Date of Incorporation/Inception : 16.09.1997

Banking with us since : 1998
Factory address : Industrial Plot at Hisali Road Industrial Area, Basantpur

Saitlee, Tehsil Modi Nagar, Ghaziabad
Constitution Private Ltd. Co.
sr. Names of the Directors/Partners Net worth (Rs. in lacs)

No.
01) Mr. Rajinder 26.32
02) Mrs. Babita 11.90
Names of the guarantors

(Rs. in lacs)
Sr. Names of the Guarantors Net worth
No.
01) Mr. Rajinder 26.32
02) Mrs. Babita 11.90
Position with reference to RBI defaulters List in respect of the Directors/partners/proprietor/guarantors

etc. None of the directors/ guarantors is in RBI defaulter’s list.
Associate/Sister concerns- Having account with our Bank
Names of Concern Limits sanctioned IRAC Status
01) Sri Pvt. Ltd. 30.00 STD
Analysis of proposal:
M/s. C&M Pvt. Ltd., a company engaged in manufacturing of laminated craft paper which is used as
conveyor belts by units engaged in manufacturing of foam mats. Earlier the company was engaged in
manufacturing of poly pet bottles used by distilleries & for storing edible oil, etc. However, due to
change in Haryana Govt. Policy to use glass bottles instead of poly bottles, the company faced
problem in marketing. Thereafter the company diversified & installed new machinery for
manufacturing of laminated craft paper, which is used as conveyor belts by units engaged in
manufacturing of foam mats. The company is also in the process of installing poly cover bags which
are used by foam industries.
The directors of the company are Sh. Rajinder & Mrs Babita belongs to one family member. Mr
Mukesh, brother of Mr Rajinder, is managing the activity.
Presently company is enjoying CC limit Rs. 17.00 lacs with the branch and applied for enhancement
of Rs. 13.00 lacs i.e. Rs. 30.00 lacs.
ACCOUNT OPERATIONAL DETAILS: (Rs. In laces)
Particulars 2005 -06 2006 -07 2007 -08
Up to 31.01.2008
Turnover 69.44 127.27 152.13
Maximum Balance 18.20 19.27 19.11
Minimum Balance 08.72 12.73 11.11
Average Balance 16.38 16.51 16.32
Interest Earned - CC 02.12 02.09 02.00
Comments on conduct of the Account:
Generally the account is operated within sanctioned limit. BODs are allowed on few occasions has
been repaid in time. Submission of the stocks/ receivables statements is regular. Interest servicing is
prompt. None of the cheque issued by the company has ever returned.
A bridged Balance Sheet (Rs in lacs)
31.03.06 31.03.07 31.03.08 31.03.09

LIABILITIES
Audited Audited Est. Proj.
Capital 10.00 10.00 10.00 10.00
Reserves
Profit 02.68 09.82
NET WORTH * 39.61 60.32 67.68 74.82
Term Loans
Unsecured Loans 29.61 50.32 55.00 55.00
Other Term. Liab.
Sundry Creditors 23.08 41.52 12.00 12.50
Bank Borrowings 17.25 16.99 30.00 35.00
Provision for Taxes 00.06 02.00 03.15
Expenses Payable 00.37 00.21 00.25 00.50
Other Current Liabilities
Total Current Liabilities 40.76 58.72 44.25 51.15
Total Liabilities 80.37 119.04 111.93 125.97

31.03.06 31.03.07 31.03.08 31.03.09
ASSETS
Fixed Assets 22.41 32.61 32.61 32.61
Depreciation 05.14 08.23 11.23 14.48
NET BLOCK 17.27 24.38 21.38 18.13
Cash & Bank 00.12 00.68 00.30 03.39
Raw material/Finished Goods 27.60 53.16 55.00 60.00
Receivables:- Domestic 22.14 35.34 32.00 40.00
Adv to Suppliers 00.91
Advance Payment of Taxes 00.06 00.29 02.00 03.15
Prepaid Expenses 00.04 00.05
Other Current Assets 00.37 00.42
TOTAL CURRENT ASSETS 50.87 89.52 89.67 106.96
Security Deposits 01.04 00.88 00.88 00.88
Total Current Assets 01.04 00.88 00.88 00.88
Accumulated Losses 11.19 04.26
Total Intangible Assets 11.19 04.26
TOTAL ASSETS 80.37 119.04 111.93 125.97

3.3.1 DATA REPRESENTATIOIN AND FINDINGS
Key financial indicators

(Rs. in lacs)
Particulars 31.03.06 31.3.07 31.03.08 31.03.09
Audited Audited Estimated Projected
Net Sales 49.55 96.95 150.00 167.04
% Increase/ Decrease + 147.58 + 95.66 + 54.72 + 11.36
Net Profit After Tax 0.32 6.93 6.94 7.14
% to Net Sales 0.65 7.15 4.63 4.27
Cash Accruals 1.01 10.02 9.94 10.39
Tangible Net Worth 28.42 56.06 67.68 74.82
Excluding Revaluation Res.
TOL / TNW Ratio 1.43 1.05 0.65 0.68
Net Working Capital 10.11 30.80 45.42 55.81
Current Ratio 1.25 1.52 2.03 2.09

Comments in brief on key financial Indicators:-
Figure 1.
Net Sales – The net sales are increasing every year and estimated to be at Rs. 150.00 lacs for the
year ended 31.03.2008. The projected sales are Rs. 167.04 lacs for the current year 2008 -09
shown in figure 1.
Net Profit – NP is also increasing with rise in business turnover shows in figure 1. The % of NP to
sales is app. 4.5%, which is satisfactory. However the company has accumulated losses of Rs. 4.26
lacs as on 31.03.2007. The accumulated losses are estimated to be wiped off in current year.
Cash Accruals – The cash accrual position of the company is satisfactory, figure 1.
TNW – The subscribed share capital of the company is Rs. 10.00 lacs. Company has unsecured
loans are from Directors & their relatives and are of permanent nature. The unsecured loans are to
the tune of Rs. 50.32 lacs as on 31.03.2007. Branch has recommended for consideration of
unsecured loans as quasi capital TNW mentioned above is inclusive of unsecured loans considered
as quasi capital.
Figure 2(A) Figure 2(B)
TOL/ TNW Ratio – It is shown in the figure 2(A) that there is improvement in this ratio due to
strengthening of capital base every year and consideration of unsecured loans from directors/
family members as quasi capital.
Current Ratio – we can see Current ratio has improved in figure 2(B) every year and estimated at
2.03 for the year ended 31.03.2008.
Net Working capital
Particulars 31.03.06 31.03.07 31.03.08 31.03.09
Audited Audited Provisional Estimated.
Share Capital 10.00 10.00 10.00 10.00
Other Reserves
P/L Account 02.68 09.82
Unsecured Loans 29.61 50.32 55.00 55.00
Long Term Sources 39.61 60.32 67.68 74.82
Particulars 31.03.06 31.03.07 31.03.08 31.03.09

Net Fixed assets 17.27 24.38 21.38 18.13
Investments
Other non current assets 01.04 00.88 00.88 00.88
Intangible assets 11.19 04.26
Long Term Uses 29.50 29.52 22.26 19.01
NWC 10.11 30.80 45.42 55.81
Comments on adequacy of NWC
The NWC available is more than 25 % of TCA i.e. minimum margin required.
Assessment of Credit Requirements:
Working capital
Fund Based :
Method Applied : 2nd Method of Lending
Comments on holding levels

The company is maintaining raw material, stock in process & finished goods levels at app. 4- 4.5
months sales in the year 2007 -08. In current year, it is estimated at 4.30 months level. The inventory
holding period is reducing every year and at satisfactory level. Company has reduced sundry creditor’s
level by availing bank finance and getting cash discount for their purchases. Debtor realization period
is also improving and it has come down from 4.37 months in year 2006 -07 to 2.56 months in year
2007 -08, which is reasonable/satisfactory. Based on the above assumption, the stock/ inventory
holdings of the company are shown in the next pages
( Rs. in lacs )
Particulars 31.03.06 31.3.07 31.03.08 31.03.09

Net Sales 49.55 96.95 150.00 167.04
Stock 27.60 53.16 55.00 60.00
(06.68 M) (06.58 M) (04.40 M) (04.31 M)
Sundry Debtors 22.14 35.34 32.00 40.00
(05.36 M) (04.37 M) (02.56 M) (02.87 M)
(05.59 M) (04.84 M) (00.96 M) (00.90 M)
Branch has accepted the above estimates/ projections submitted by the company and based on the
accepted levels the MPBF assessment has been made as under:-
Summarized working based on accepted levels
(In lacs)
Sr.No. Particulars 31.03.07Audited 31.03.08 Est. 31.03.09 Proj.
1. Total Current assets 89.52 89.67 106.96
2. Other current Liabilities 41.73 14.25 16.15
3 WC Gap 47.79 75.42 90.81
4. Min. NWC-25% of Current assets 22.38 22.42 26.74
5. Actual NWC Level 30.80 45.42 55.81
6. 3-4 25.41 53.00 64.07
7 MPBF(3-5) 16.99 30.00 35.00
Limit proposed 35.00
The working capital As per Nayak Committee Recommendations:
Turnover in Account of Rs 152.13 laces this year since 01.04.2007. In view of this, Estimated/
Projected Sale of Rs 150.00 lac in 2007-2008 & Rs 167.04 lac in 2008-2009 seems reasonable and
acceptable.
As per Nayak Committee Recommendations, MPBF may be calculated as under:

Accepted Projected Sale : Rs 165.00 lac
MPBF : Rs 33.00 lac
However, the company has requested for Cash Credit Limit of Rs 30.00 lac only. We may, therefore,
sanction a Cash Credit Limit of Rs 30.00 lac to M/S C&M (P) Ltd.
Credit Rating MB-3
Rate of Interest : BPLR – 0.75 (Presently, 12.50% p.a.)

Security:
Primary Security
Description Nature of charge Total Value Our Share

Stock & Book Debts Hypothecation 49.16 49.16
Total 49.16 49.16
Collateral Security
( Rupees in lacs )
Description Nature Market Value* Quantum of MV net of
of Ist charge if Ist charge
Charge any
Industrial building Equitable 30.26 (Land) ------ 53.00
constructed on free hold Mortgage 22.74 (Building)
industrial plot Hisali 53.00
Road Industrial Area, =====
Basantpur Saitlee, Tehsil
Modi Nagar, Ghaziabad
(U.P.),
Total Value of Security net of Ist charge 53.00

* Valuation Report did. 23.11.2007 of Approved Value
Delegation : The Facilities recommended fall within delegated power of Sanctioning Authority.
Recommendation
In view of the aforesaid, we recommend for enhancement of Cash Credit Limit to M/S (P) Ltd. as
under:
FACILITY I : Cash Credit Limit

Limit : Rs 30.00 lac (Rupees Thirty lac only)
Purpose : Working Capital
Security : Hypothecation of Stocks & Receivables (O/S up to 90 Days for DP
Purpose)
Margin : 25 % in Bank’s favour
Rate of Interest : As per Credit Rating, presently BPLR – 0.75, i.e., 12.50% per annum,
with monthly rests.
Collateral Security : Equitable Mortgage of Valued at
Industrial building constructed on free hold industrial plot Hisali
Road Industrial Area, Basantpur Saitlee, Tehsil Modi Nagar, Ghaziabad
(U.P.),
Personal Guarantee : Personal Guarantee of both the directors
i) Mr Rajinder
ii) Mrs Babita
WORKING
WORKINGCAPITAL
CAPITALFINANCING
FINANCING
TO TO
CASE STUDY -2
M/S
M/SSINGHNIA
SINGHNIA&&SONS
SONSEXPORT
EXPORT(P)
(P)LTD.
LTD.
NEW
NEWDELHI
DELHI
Summary of proposal Note:
1. Note for (Sanctioning Authority) : Assistant General Manager, Delhi Region
2. Name of the Account : M/s Singhania & Sons Exports

3. Branch/Region/Circle : Delhi
4. IRAC Status : Standard
5. Business activity : Wholesaler in cotton fabrics
6. Category : Non Priority
7. Request For : Credit facilities as under:
Rs. in lakhs
Nature of facility Existing Proposed Increase/decrease
Cash Credit-General 25.00 60.00 35.00
8. Group/Exposure limit status-Proposed Rs. in lakhs
Exposure on Fund Non Fund Total Prudential Limit
Applicant company/borrower 60.00 -- 60.00 Within limit
Total to group 60.00 --
9. Date of last sanction/ : New proposal
10. Sanctioning Authority : Chief Manager, Delhi Region
11. Present position of the account: The firm is enjoying CC limit of Rs.25 lacs since 25.10.05. The
firm has been sanctioned STLs on a couple of occasions. The existing STL is repayable by.The
account was reviewed in Oct, 2006. The operations in the account are satisfactory. The firm has been
sanctioned concession ROI of BPLR-1% by Circle Office.
Security
12. Primary : Hypothetic. Of stock and debtors
13. Collateral : Equitable mortgage of house property situated at
14. Collateral cover% :193% for the proposed limit
15. Credit Rating :The firm has been sanctioned concessional ROI at
BPLR-1% by Circle Office, Delhi.
16. Credit Risk Rating : MBR-2, Low risk as on 31.03.07 (date)

17. Rating by rating agencies : CARE, ICRA
18. Rate of interest : The firm has been sanctioned concessional ROI at BPLR-1% p.a. as
per sanction of Circle Office. The firm has requested for continuance of the prevailing concessional
ROI of BPLR-1%.
1. Borrower Profile
1.1. Date of Incorporation/Inception : 2004
1.2. Banking with us since : 2004
1.3. Registered Office : Delhi
1.4. Godown address : Delhi
1.5. Constitution : Proprietor concern
(Rs. in lakhs)
Sr. No. Names of the Directors/Partners Net worth(as on 31.03.07) *
1. Mrs. Rita Singhania 12.01
1.6. Names of the guarantors Rs. in lakhs
Sr. No. Names of the Guarantors Net worth(as on 31.03.07) *
1. Mrs. Shakshi jain 12.01
2. Mrs. Priya Sharma 6.80
1.7. Position with reference to RBI defaulters List in respect of the

borrower/Directors/partners/proprietors/guarantors etc.-
None of the above names appears in the RBI Defaulters’ list

1.8. Change in Management if any from date of last review/Sanction. -NIL
1.9 Background in Brief:
M/s Singhania & Sons Exports, a proprietorship firm of Mrs. Rita Singhania is engaged in trading of
cotton fabrics to buying houses of NCR (Delhi and its surroundings), who deal in export of garments
and home furnishing. The proprietor has a good experience of sales man ship and has efficient
communicating skills.
The concept of such a wholesaling was conceived by her with the support from her husband Mr. who
is also engaged in business through the proprietary trading firm in the name of Trading Co.
Buyers of the firm are mainly exporters who constantly visit, to place orders for mill made cotton
fabrics of different qualities. The firm supplies fabrics/ cloth on wholesale basis to the following
buyers:-
The majority of buyers are from Delhi. The firm offers credit up to 90 days on its sale to its buyers
who issue purchase orders.
1.10 Operations in the account are satisfactory. The branch earns interest income of Rs.3 lacs per year
from this account.
Financial Analysis
Balance sheet Spread-
LIABILITIES 31.03.05 31.03.06 31.03.07 31.03.08
Audited Audited Provisional Projected
Capital 1.66 5.47 12.02 20.88
Unsecured Loans 6.00 6.00 20.00 20.00

Net worth 7.66 11.47 32.02 40.88
Car Loan-ICICI 5.71 4.05
Loan–Term Deposits 9.00 9.00
Bank Borrowings 3.85 22.13 23.64 60.00
Advances from customers 0.50
Other provisions 0.16 0.21 0.38 0.37
Total Current Liabilities 20.42 34.58 61.79 75.58
28.08 46.05 108.52 129.51
ASSETS 31.03.05 31.03.06 31.03.07 31.03.08
Fixed Assets 0.06
Depreciation 0.01
Net Block -- 0.05 9.09 6.63
Securities with clients 13.88 13.88
Long Term Uses 0.05 22.97 20.51

Cash & Bank 1.52 0.09 0.35 0.63
Term deposits with bank 2.00 10.00 10.00
Stock 3.28 12.16 8.50 26.79
Receivables: 23.28 31.75 66.70 71.58
- Domestic
Total Current Assets 28.08 46.00 85.55 109.00
Total Assets 28.08 46.05 108.52 129.51

The Key financial indicators (Rs. in lacs)
Particulars 31.03.05 31.03.06 31.03.07 31.3.08
Net Sales (% Increase / Decrease) 59.62 132.57 175.35 301.10
Gross profit 2.82 7.68 12.12 19.13
% to net sales 4.72% 5.79% 6.91% 6.35%
Net Profit After Tax 1.03 1.83 2.94 4.36
% to Net Sales 1.72% 1.38% 1.68% 1.45%
Cash Accruals 1.03 1.84 3.06 5.97

Tangible Net Worth(including 7.66 11.47 32.02 40.88
unsecured loans)
TOL / TNW Ratio 2.67 3.17 2.39 2.17
Net Working Capital 7.66 11.42 23.76 33.42
Current Ratio 1.38 1.33 1.38 1.44
Current Asset turnover ratio & 2.11 times 2.88 times 2.04 times 2.76 times
Sales/CA
Creditors turnover ratio 3.62 times 10.82 times 4.08 times 19.22 times
Purchases/creditors
Comments in brief on key financial Indicators
Net Sales: Figure 3.
The firm has achieved sales of Rs.175.35 lacs during the year ended 31st March 2007. The firm
expects to achieve the projected sales level of Rs. 301.10 Lacs during the current year after getting the
financial support from the bank as the firm is in a position to get enough orders from the exporters.
Figure 4.
Profitability:
The gross profit of the firm has been increasing during the last 3 years and has reached at 6.91% of the
net sales and figure 4 showing . The firm has established its business with the various buying houses
by timely dispatches without little competition. However, it has projected a bit lower gross profit
@6.35% for the current year keeping in view expected competition. Net profit is projected at
approximately 1.7 % and it is set to be kept on lower side due to competition and increase in cost due
to interest burden after enhancement in CC limit. The absolute profit is projected to increase from
Rs.2.94 as on 31.03.07 to Rs.4.36 as on 31.03.08.
Cash Accruals – The cash accrual position of the company is satisfactory figure 4.
Capital and TNW: The capital of the firm has been increasing every year through ploghback of the
net profits and induction of fresh capital. Figure 4 showing the increasing trend in capital. The firm has
got additional funds in the form of unsecured loans which are surpluses available with the sister
concern, M/s trading Co. to the extent of Rs.20 lacs. Hence unsecured loans have been treated as part
of tangible net worth as the same is projected not to be withdrawn during the current year.
TOL/ TNW Ratio: Figure 5.
In figure 5 , The TOL/ TNW ratio is well within the benchmark ratio of 4:1. While calculating the ratio
we have treated the unsecured loan as quasi liability because it has been taken from close relatives and
are to be retained in business.
Net Working Capital / Current Ratio:
Net working capital is showing increasing trend. The current ratio as on 31.3.2007 is 1.38 and it is
projected to improve to 1.44 as on 31.3.2008 due to induction of fresh capital and keeping of higher
level of stocks. Current ratio is satisfactory and more than the desired level of 1.25:1. we can see in the
figure 5 .
Short Term Loan:
The firm has been sanctioned a short term loan of Rs.9 lacs against CDR for Rs.10 lacs for three years.
It is projected to continue which can be done by CC instead of loan.
Gross Block:
Gross block of firm includes telephone and vehicle. Depreciation is projected to be provided on
written down value method on these assets.
Net Working Capital

LIABILITIES 31.03.05 31.03.06 31.03.07 31.03.08
Capital 1.66 5.47 12.02 20.88
Unsecured Loans 6.00 6.00 20.00 20.00
Net worth 7.66 11.47 32.02 40.88
Car Loan-ICICI 5.71 4.05
Loan –Term Deposits 9.00 9.00
ASSETS 31.03.05 31.03.06 31.03.07 31.03.08
Fixed Assets 0.06
Depreciation 0.01
Net Block -- 0.05 9.09 6.63
Securities with clients 13.88 13.88
Long Term Uses 0.05 22.97 20.51
NWC 7.66 11.42 23.76 33.42
(Comments should also cover wide variations if any and the reasons for the same.)
We have accepted the sales projections of Rs.301.10 lacs for the current year and minimum NWC
required is 5% of sales i.e.Rs.15.05 lacs. The available NWC as on 31.03.07 is Rs. 23.76 lacs. Hence
adequate NWC is available. For calculation of the DP, 25% of the current assets of Rs.109 lacs as on
31.03.08, the desired minimum NWC would be Rs.27.25 lacs while projected NWC is at the level of
Rs.33.42 lacs.
Assessment of credit Requirements: Working capital
Fund Based : Enhancement of CC limit from Rs.25 lacs to Rs.60 lacs
Method Applied : Projected turnover method.
20% of the projected turnover of Rs.301.10 lacs comes to Rs.60.22 lacs while the requested CC limit
is Rs.60 lacs. Branch to confirm that the average level of sales per month comes to Rs.25 lacs so that
the released facility commensurate with the projected sales.
Comments on holding levels: Branch has not submitted copy of the visit report/ stock statement. We
may advise the branch to keep on record visit report on record incorporating the average period of
stock, debtors and the creditors. However, the annual financial statements reflect the following trends:
Debtors & Stock In Trade:
Total current assets holding level is around 4 months. The debtors are allowed for 80-90 days. Stock in
trade is kept low at present. However, to increase its sales, the firm would have to maintain higher
level of stock to meet to the demand of the various clients and as such has projected for about 35 days
of the purchases. We may accept the reasonable levels of projections of the firm.
Creditor’s payment period: As on the outstanding creditors reflect 3 months of the purchases. With
increase in CC limit, the firm has projected creditors payment period to around 20 days. The firm has
explained that it would like to have cash purchases to a large extent to get the same on cheaper rates.
Summarized working based on accepted levels (Rs. In lacs)
Sr. Particulars 31.03.06 31.03.07 31.3.08

No.
Audited Provisional Projected

3 WC Gap 33.55 47.40 93.42
5. Actual NWC Level 11.42 23.76 33.42
6. 3-4 22.05 26.01 66.17
7 MPBF(3-5) 22.13 23.64 60.00
Limit proposed 60.00
Security
Primary Security
Description Nature of charge Total Value Our Share
Stock of cloth/fabrics and Hypothecation As per stock Full

debtors less trade creditors statement
Collateral Security
Description Nature of Market Quantum

charge Value* of Ist
charge if
any
House property Equitable Rs.116.16 Full

lacs.
mortgage
Total Value of Security net of Ist charge-----------------Rs.116.16 lacs
Total Credit facilities---------------------------------------------Rs.60 lacs
Collateral Coverage %-----------------------------------------193.60%
Delegation: Assistant General Manager, Delhi Region.

Recommendations:
Nature of facility : Cash Credit limit:
Limit : Rs.60lacs (Rs.sixty lacs, Enhancement from Rs.25 lacs)
Margin : 25%
Rate of Interest : BPLR - 1.00 % p.a. subject to confirmation from Circle

office Interest to be charged at monthly rests. ROI is subject
to change in BPLR from time to time as per our C.O. /RBI
guidelines
Primary Security : Hyp. Of stocks; Book Debts-age up to 90 days)
Collateral Security : House property

Personal guarantee : By the owners of the property viz,
CASE STUDY - 3
WORKING
WORKINGCAPITAL
CAPITALFINANCING
FINANCING
TO
TO
M/S
M/SPHARMACEUTICALS
PHARMACEUTICALS(P)
(P)LTD.
LTD.
NEW
NEWDELHI
DELHI
Summary of Proposal Note:-
1. Note for (Sanctioning Authority) : Asstt. Gen Manager, R.O.Delhi
2. Name of the Account : M/s. Pharmaceuticals Pvt. Ltd.
3. Branch/Region/Circle : Delhi
4. IRAC Status : Standard
5. Business activity : Manufacturing of Pharmaceutical products
6. Category : Priority - SSI
7. Request For : Credit facilities as under:-
(Rs. in lakhs)
Nature of facility Existing Proposed Increase/decrease
Cash Credit 24.00 24.00 NIL
8. Date of last sanction/ : 29.06.2006
9. Sanctioning Authority : Asstt. Gen Manager, Delhi

10. Present position of the account:
(Rs. in Lakhs)
Facility Limit Security MV DP Balance as on
CC 24.00 Hyp. Stocks/receivable 196.00 24.00 13.20
TL 140.00 Hyp. Of machinery 350.00 115.00 113.20
BG 10.00 Counter Guarantee 2.50 10.00 6.01
11. Security:
1. Primary : Rs. 538.00 lacs

2. Collateral : Rs. 546.00 lacs
12. Collateral cover% : 313 %
13. Credit Risk Rating : MBR -2 Low Risks
14. Rating by rating agencies : CARE, ICRA
15. Rate of interest : BPLR + 1.00 % p.a.
Profile of Borrower:
Date of Incorporation/Inception : 01.05.1992
Banking with us since : Feb 2005
Registered Office : Bahadurgarh, Haryana
Factory address : Distt. Solan (H P)
Constitution : Pvt. Ltd. Company
(Rs. in lakhs)
Sr. No. Names of the Directors/Partners Net worth(as on31.03.07) *
1 Yogesh 110.00
2 JK 279.00
3 Sanjay 30.00
4 Umesh 240.00
5 RB 30.00
Names of the guarantors

Rs. in lakhs
Sr. No. Names of the Guarantors Net worth(as on--------) *
All the directors mentioned above
Borrower Company as well as the directors is not in RBI defaulter’s list.
Background in Brief.
M/s. Pharmaceuticals Pvt. Ltd., a Pvt. Limited company engaged in the manufacturing of
pharmaceuticals products i.e. tablets, injections, capsules etc. Company registered with ROC in the
year 1992.The manufacturing unit has been set at (H P) in Aug 2006 to take advantage of benefits
extended by the state in excise duty, CST, etc. Company has been sanctioned facilities in June 2005 –
Cc Rs. 24.00 lacs, TL Rs. 140.00 lacs & BG Rs. 10.00 lacs. The repayment in the term loan account is
reported to be regular and operations in the account are satisfactory.
Company has equitably mortgaged following properties for the existing facilities:-
1. Factory land & building at Bahadurgarh valued Rs. 92 lacs

2. Residential Property at Rohini, Delhi valued at Rs. 40.00 lacs in the name director.
3. Residential Property at Vishwas Nagar, Delhi valued at Rs. 22.69 lacs in the
Due to resignation of two directors Sh. Ved Prakash & Sh. Kumar has requested for release of
residential property in his name Sh. V P. The factory has been shifted to (HP) and there is no
activity at Bahadurgarh factory and company intend to sell it for meeting financial requirements in
connection with resignation of the two directors. The total valuation of these two properties is Rs.
92 lacs.
As per branch note, title deeds of the industrial plot at (HP) have been taken even tough not stipulated
in the sanction note. At that time it was only a plot with valuation of Rs. 24.00 lacs. The company has
since constructed factory building and due to appreciation in the value of land, the present market
value is reported at Rs. 350.00 lacs. No valuation report has been submitted. We may allow release of
only residential property in the name of Sh.V P after getting search report & valuation report of the
factory land & building at (HP). The valuation of the property at should not be less than Rs. 300.00
lacs. Thus the total value of collateral security shall be Rs. 422.69 lacs as against Rs. 253.61 lacs as at
the time of earlier sanction.
ACCOUNT OPERATIONAL DETAILS:
2007-08 (up to 31.07.07)
Maximum Balance 30.43
Minimum Balance 12.21
Turnover 114.16
There are regular operations in the account. Generally account is operated within sanctioned limit.
Extra overdraft has been allowed to company on few occasions which has been repaid in time.
Abridged Balance Sheet:-

(Rs in lacs)
31.03.06 31.03.07 31.03.08 31.03.06 31.03.07 31.03.08

LIABILITIES ASSETS
Audited Prov. Estimate Audited Provi. Estimate
Capital 49.98 74.98 74.98 Fixed Assets 229.50 312.66 275.16
Reserves 6.51 53.88 133.47 Depreciation
NET WORTH 56.49 128.86 208.45 NET BLOCK 229.50 312.66 275.16
*
Term Loans 104.79 108.64 78.14 Cash & Bank 10.40 14.45 9.87
Unsecured 102.18 164.66 164.66 Raw Material 42.04 144.81 150.00

Loans
Other Term. W.I.P.

Liability
TOTAL TERM Finished

LIABILITIES
206.97 273.30 242.80 Goods
Sundry Receivables:
Creditors
23.43 246.55 131.50 - Domestic 35.02 294.76 240.00
Bank 11.61 29.92 29.55 - Export

Borrowings
Other Current Other Current

Liabilities Assets
36.41 123.12 100.71 17.95 35.07 37.98
TOTAL TOTAL
CURRENT CURRENT
LIABILITIES 71.45 399.59 261.76 105.41 489.09 437.85
ASSETS
Investments
TOTAL NCA
TOTAL
INTANGIBLE
ASSETS
TOTAL TOTAL
LIABILITIES ASSETS
334.91 801.75 713.01 334.91 801.75 713.01
Key Financial Indicators:-
Parameter Audited Audited Provisional Estimated
31.03.05 31.03.06 31.03.07 31.03.08
Net sales 137.73 223.07 569.79 800.00
%age increase/decrease over last 50.11 61.96 155.01 40.20

year
Net profit after tax 2.35 3.63 47.78 79.58
%age to net sales 1.71 1.63 8.39 9.95
Cash accruals 6.74 7.24 95.56 117.08
Current Ratio 2.79 1.81 1.45 2.17
Net worth (exclusive of long 52.86 33.96 89.50 176.09

term unsecured loans)
TOL/TNW(excl.revaluation resv) 2.43 3.66 2.12 1.16
Comments on Key Financial Indicators:-
Figure 6.
Sales: Sales of the company are increasing every year. As against the estimated sales of Rs. 800.00
lacs, company has already achieved sales Rs. 201.42 lacs up to June 2007 figure 6.
Figure 7.
Profitability: There is considerable increase in the profitability in year 2006-07 due to advantages
available at (H P).Cash Accruals – The cash accrual position of the company is satisfactory. it is
increasing constantly year after year which is showing a positive and satisfactory condition of the firm.
Figure 8.
TNW: - The tangible net worth has improved due to share application money Rs. 25.00 lacs and
additions in P&L surplus in the year 2006-07, figure 8.
Current ratio – In figure 8,The current ratio of the company is estimated to remain at 1.22 as on
31.03.07, however it is estimated to improve in the current year due to increase in P& L surplus.
Term Loan – The term loan availed for purchase on machinery in the year 2005-06 is being repaid
regularly. There are no over dues in the account.
Unsecured loans – The unsecured loans from directors and their family members are to tune of Rs.
164.66 lacs, which shall remain in the business during the currency of our finance.
Net Working capital:
Particulars 31.03.06 31.03.07 31.03.08
Audited Provisional Estimated
Share Capital 49.98 74.98 74.98
General Reserves
Other Reserves
P/L Account 6.51 53.88 133.47
Debentures
Term Loans 104.79 108.64 78.14
Term Deposits 102.18 164.66 164.66
Other Term Liabilities
Long Term Sources 263.46 402.16 451.25
Net Fixed assets 229.50 312.66 275.16
Investments
Other non current assets
Intangible assets
Long Term Uses 229.50 312.66 275.16
NWC level of the company as per Nayak committee recommendation is above 5 % of

turnover. However as per traditional method the estimated NWC for the current year i.e.
as on 31.03.08 shall be above the minimum required due to increase in P&L reserves.
Assessment of credit Requirements: - Working capital
Method Applied : Turnover Method
Accepted sales for the current year Rs. 800.00 lacs

20 % of accepted sales Rs. 200.00 lacs
Minimum margin required 5 % Rs. 40.00 lacs
NWC available Rs. 89.50 lacs
Limit continued Rs. 24.00 lacs
Comments on holding levels: there is no major change in the inventory holding of the company and the
present limit Rs. 24.00 lacs sanctioned to be continued on existing terms & conditions.
Summarized working based on accepted levels

In crores
Sr. Particulars 31.03.06 31.03.07 31.3.08
No.
Audited Provisional Estimated
3 WC Gap 45.57 119.42 205.64
5. Actual NWC Level 33.96 89.50 176.09
6. 3-4 19.22 - 2.85 96.18
7 MPBF(3-5) 11.61 29.92 29.55
Credit Rating & Rate of Interest: The rate of interest is charged as per the credit rating, which is
BPLR + 0.50 % p.a.The fresh credit rating to be done immediately.
Securities
Primary Security:-
The primary security for the working capital limit is stocks of raw material/ SIP/Finished goods and
receivables.
Collateral Security:-
Company has equitably mortgaged following properties for the existing facilities:-
Factory land & building at Bahadurgarh valued Rs. 92 lacs
Residential Property at Rohini, Delhi valued at Rs. 4.00 lacs in the name of director.
Residential Property at Vishwas Nagar, Delhi valued at Rs. 122.69 lacs in the name of director
Due to resignation of two directors Sh. Ved Prakash & Sh. Kumar has requested for release of
residential property in his name Sh. V P the factory has been shifted to (HP) and there is no activity at
Bahadurgarh factory and company intend to sell it for meeting financial requirements in connection
with resignation of the two directors. The total valuation of these two properties is Rs. 92 lacs.
As per branch note, title a deed of the industrial plot at (HP) has been taken even tough not stipulated
in the sanction note. At that time it was only a plot with valuation of Rs. 24.00 lacs. The company has
since constructed factory building and due to appreciation in the value of land; the present market
value is reported at Rs. 350.00 lacs. No valuation report has been submitted. We may allow release of
only residential property in the name of Sh. V P, after getting search report & valuation report of the
factory land & building at (HP). The valuation of the property at should not be less than Rs. 300.00
lacs. Thus the total value of collateral security shall be Rs. 422.69 lacs as against Rs. 253.61 lacs as at
the time of earlier sanction.
Recommendation:-
Branch Manager has recommended for continuation of the following facilities:-
Cash Credit Limit : Rs. 24.00 lacs

Security : Hypothecation of stocks/ receivables
Margin : 25 %
Rate of Interest : As per credit rating
Bank Guarantee Limit : 10.00 lacs
Purpose : EMD
Margin : 25 % cash margin
Commission : As per CO guidelines
Term Loan : Rs. 140.00 lacs sanctioned for construction of factory building &
purchase of machinery, present outstanding Rs. 113.20 lacs to continue
on existing terms & conditions.
Decision of the sanctioning authority: - Asstt. Gen Manager, RO, Delhi
Other Terms and Conditions: -
1. Legal cum search opinion of the panel advocate be held on record and all the original
documents mentioned in the Legal cum search be held on record before release of the
facilities. It should be ensured that the property is free from encumbrances and mortgagable
to the bank.
2. The property to be mortgaged and stocks hypothecated should be insured comprehensively
for full value with bank clause and insurance policies are kept on record.
3. The processing fee and documentation charges as per bank’s guidelines be recovered.
4. Property tax receipts with up to date tax paid, be obtained and kept on record.
5. The CA should certify that unsecured loans of Rs.20 lacs have been invested with the firm
and undertaking to this effect be given by the firm that same will not be withdrawn during
the currency of the facility.
6. Stock statement be submitted every month in the prescribed format within 10 days of the
succeeding month. Penal interest @1% will be charged for delayed/ non submission of the
said statements. Branch to conduct the visit to the business place and confirm that the
projections of stock and debtors are in tune with the present level of the stocks and debtors
as mentioned in the latest stock statements.
7. The branch officials will visit the place of business periodically and the firm will bear the
inspection charges as per bank’s guidelines.
8. An undertaking from the guarantor be obtained stating that no consideration is
proposed/received from the borrower/borrowing entity for offering personal guarantee to the
credit facilities.
9. An undertaking be obtained from the borrower/borrowing entity stating that they have no
objection for disclosure of the names of the proprietor/ guarantor of the borrowing entity to
RBI/CIBIL as per requirements.
10. An undertaking from the firm to the effect that the unsecured loans as mentioned in the
financial data will not be withdrawn during the currency of the credit facility is obtained.
11. Bank’s name plate indicating that property is mortgaged and other fixed and current assets
are hypothecated to BOM, be prominently displayed in the building.
12. The account will be reviewed within one year and the company will submit the desired
financial data along with the projections for the next year at the earliest.
13. The branch should obtain audited financial statement as of 31.03.07 at the earliest and
ensure there are no major variations from the provisional figures.
14. Branch to rectify all the irregularities of the inspection report pertaining to the borrower.
15. Security verification shall be carried out on half yearly basis by external CA firm to be
appointed by the bank. The charges for the same shall be borne by the borrower.
16. Documents executed be got verified from the Law department, Circle Office, Delhi.
17. End use certificate as per format in C.O. Circular No.AX1/CRMON/Cir. No.4/06-07 dated
12.05.06 be obtained from the borrower and reported us through monthly reporting.
18. Unconditional acceptance of the above terms and conditions duly signed by the company
and the guarantor is obtained.
19. Penal interest maximum @2% will be charged for non compliance of any of the terms
mentioned above.
3.4 SWOT ANALYSIS
It was a great opportunity for me to do summer training project at J&K BANK and learn the
banking operation as well as lending procedure .After doing the project I can make out Swot
analysis about the Bank. During the summer training project I come to know many things about
the J&K BANK .Swot analysis about the bank can be made as follows:-
Strength:-
 It has a brand image
 Different kinds of product /services offered by the bank.
 Online banking, credit and ATM facility
 Bank follow strict rule of RBI while accepting the proposal i.e. lending to only prime
borrowers
 Kishan credit scheme to capture the rural area
Weakness:-
 Lack of communication with existing customers

 Lack of promotional activities
Opportunities:-
 Opportunity to expand more number of branches in other sides of India

 Opportunity to introduce new product in insurance and Term Deposit Scheme
Threat:-
 Non Banking Institutions i.e. ICICI, LIC etc.
 Bank also has threat from counter party risk.
 Fear of sub-prime crisis in India
 Increasing of cash reserve ratio(CRR)
CHAPTER – 4
CONCLUSION
CONCLUSIONOF
OFTHE
THE
STUDY
STUDY
CONCLUSION
On the basis of the case study and lending process of bank I conclude that,
the critical assessment of loan proposal at the time of sanctioning loan to the
customers can minimise the credit risk. It can also be helpful to the recovery
department. It is mandatory to follow the norms prescribed by the RBI in
loan sanctioning process. The bank is following the lending norms and
sanctioning only 75 % of the required working capital gap.
On the basis of the key financial indicators bank can find out the financial
position of the organization which will be helpful in terms of taking the loan
sanction decision. Ratios like, current assets, total indebtness ratio, net profit
ratio and net worth of the company shows the actual financial position of the
company. Bank use these tools while analysing its financial statements. The
necessary document should be studied in a prescribed format and sufficient
security should be held by the bank. The bank holds a sufficient amount of
security while sanctioning the proposal. It shows the less counter party risk.
The banking operation depends on the customer base. Hence it is necessary
to maintain a healthy relationship with the existing and new customers.
Bank should remain in constant touch with the customer. It will be helpful in
quick recovery process.
CHAPTER – 5
Suggestions
Suggestions
&&
Recommendations
Recommendations
Suggestions& Recommendations
Through the study I found the various recommendation and suggestion for
the Bank.
 The financial condition of the customer should be analyses through key

financial ratios and the proposal should be sanctioned in case of full
filling the criteria of bank.
 Minimization of risk should be considered by holding security.
 Maintaining good relationship with new customers as well as existing

customers.
 Need to be in constant touch and visit to the customer and acquiring

timely information from the customer, so that appropriate decision can
be taken immediately like granting additional loan facilities.
 Provide the regular supply of the fund as per their requirement within
bank prescribed standard and legal boundaries.
 Inviting the customers in function or any kind of celebration of the

bank to maintain good and healthy relationship.
CHAPTER - 6
APPENDICES
APPENDICES
6.1 GLOSSARY
RBI Reserve Bank of India
MPBF Maximum Permissible Bank Finance
NWC Net Working Capital
TOL Total outside Liabilities
TNW Tangible Net worth
ROI Return on Investment
DSCR Debt-Service Coverage Ratio

6.2 BIBLOGRAPHY
 Research Mythology – C. K. Kothari

 Financial Management - M. Y. Khan & P. K. JAIN
 Financial Management – I. M. PANDEY
 J&K BANK’S Training Manual
 www.jammu & kashmirbank.com
 www.rbi.org.in
THANKS !!!

J&K Bank

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Project report

SUBMITTED AS A PART OF COURSE BBA

SUBMITTED TO :- SUBMITTED BY:

GIAN JYOTI INSTITUTE OF MANAGEMENT

I also acknowledge my indebtness to my family members, friends and

PLACE: (ADIL KHAN)

2 PROFILE OF THE ORGANISATION 9

3 ANALYSIS AND INTERPRETATION OF DATA 19

4 CONCLUSIONS OF THE STUDY 82

5 SUGGESTIONS & RECOMMENDATIONS 84

Object of the project

Importance & Relevance of the Study.

The objective of the project work is as follows:

1. To enable the BBA student to test their theoretical knowledge in

2. To provide training to student by the bank, this is very useful in their

3. Preparation of project report is mandatory for every BBA student, that

1.2 SELECTION OF THE TOPIC

Any Nationalized Bank, co-operative banks, private sector bank etc.

Analyzing, how bank finance working capital to business unit is important

Under this study, I analysis the financial position of the companies or

1.3 OBJECTIVES OF THE STUDY

1.4 RESEARCH METHOLOGY

Research refers to the systemic method consisting of enunciating the problem, a

In order to collect the information following methods are adopted:-

1. Primary Data: - This is the original source of the information where

Primary data was collected through discussion.

 Discussion with the credit manager Mr.VP SINGH regarding the

 Collection of information related to working capital from other

2. Secondary Data: - It is the data which is already present in the secondary

 Training manual of the J&K BANK.

 Annual report of the company.

 Banking norms Bulletin issued by the RBI to Bank.

1.5 SCOPE OF THE STUDY

1.5 LIMITATION OF THE STUDY

1.7 RATIONALE OF THE STUDY

 Study help the organization rectify the errors in lending process.

PROFILE OF THE ORGANISATION

J&K Bank functions as a universal bank in Jammu & Kashmir and as a

J&K Bank follows a two-legged business model whereby it seeks to increase

J&K Bank operates on the principle of 'socially empowering banking' and

The Banks vision is to engender and catalyze economic transformation of

The Bank's Corporate Headquarter is situated in Srinagar. The Bank has a

Awards and recognitions

Business Today - KPMG Study

FE India's best banks Award

Dun & Bradstreet Banking Awards

Sunday Standard FINWIZ-2012 Best Bankers Award

IPE HRM Congress Awards

CNBC TV18 India Best Bank and Financial Institution Awards.

India Human Capital Awards 2012

Europe Business Assembly Awards, London

J&K Bank Corporate Headquarters, Srinagar

PRODUCT /SERVICES & ADD ON SERVICES

Consumer Loan:-For purchase of consumer durables include computers.

Education Loan: - For study in India and for study abroad.

To purchase equipment/ repairs/renovation to existing equipment, purchase of tools, working capital

Analysis and Interpretation of Information / Data

TOPIC UNDER STUDY

3.1.1 Meaning of working capital:

3.1.2 TYPES OF WORKING CAPITAL:-

The various types of working capital is as follows:-

Types of Working Capital

Net working capital