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PRATAP UNIVERSITY JAIPUR
CONTENTS
Chapter
Acknowledgement
Declaration
Executive Summary
Research statement
Objective & Methodology
ii.
iii.
ii.
iii.
iv.
Ratio Analysis
ii)
iii)
Budgeting
ACKNOWLEDGEMENT
This project was a great source of learning and value addition for me.
STUDENT DECLARATION
Executive Summary
I did my summer training programmed in J&K Bank. My project was based on the procedure
of ANALYSIS OF WORKING CAPITAL IN INDIAN BANKING. I got the exposure of
banking sector which is a very important sector of the Indian economy. The sector has made
a marked improvement in the liberalization period.
The Jammu and Kashmir Bank Limited was incorporated on 1st October, 1938 and
commenced its business from 4th July, 1939 at in Kashmir (India). The Bank was the first in
the country as a State owned bank. According to the extended Central laws of the state,
Jammu & Kashmir Bank was defined as a government. Company as per the provision of
Indian companies act 1956.In the year 1971, the Bank received the status of scheduled bank.
It was declared as A Class bank by RBI in 1976. Today the bank has more than 500
branches across the country and has recently become a billion Dollar company. The total
business turnover at the end of December 2012 was Rs 79000 Crores, an increase of 21.5%
over the previous fiscal year. The Net Profit of the bank almost doubled during the said
period as it increased from Rs 309 Crores to nearly Rs 600 Crores.
Notably, Mustaq Ahmad, who is known as prudent banker having almost 40 years of
experience at his back, was appointed chairman and chief executive officer of the bank in
October 2010.Soon after assuming the charge; he revisited certain business areas of the bank
and renewed the strategy for achieving solid growth in the fundamentals of the bank.
My project is concerned with Working Capital in Indian banking. Firstly I would like to give
an introduction to working capitalWorking capital is critical for daily management of cash flows to settle bills, wages and other
variable cost. The working capital cycle is the period of time which elapses between the point
at which cash begins to be expended on the production of a product and the collection of cash
from sale of the product to its customers. Working capital requirements can be financed from
both internally generated resources (selling current assets) and externally acquired
alternatives (borrowing and securing current assets). In the Indian context of banking, a major
Research Statement
How management of Working Capital does take place in corporate banking?
Methodology
The study includes descriptive research and based on the secondary data.
Sources of data
Entire information is collected through a secondary source i.e. through a data, which have
been gathered for some other purposes. Some of the sources of secondary data are;
CHAPTER-1
INTRODUCTION TO THE ORGANISATION
Currently, India has 96 scheduled commercial banks (SCBs) 31 private sector banks and 27
are public sector banks and 38 foreign banks. They have a combined network of over 53000
branches and 49000 ATMs. According to a report by ICRA Limited, a rating agency, the
public sector banks hold over 75 percent of total assets of the banking industry with the
private and foreign banks holding 18.2% and 6.5% is just say.
In my opinion the bank should be an organ of public interest and not an instrument for the
government or the shareholders to achieve their own end.
(Maharaja Hari Singh)
According to the extended central laws of the state, Jammu and Kashmir Bank was defined as
a government company as per the provision of Indian companies act 1956. In the year 1971,
the bank received the status of scheduled bank. It was declared as A class bank by RBI in
1976.
Today the bank has more than 500 branches across the country and has recently become a
billion dollar company.
Mission Statement:
Our mission is two- fold: 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 makes the most profitable bank in the country.
Vision Statement:
To catalyze economic transformation and capitalize on growth.
Past Performance
o The bank has delivered a strong performance in 2011.
o The bank strategy of consolidation re-engineering, re-pricing and re-organization has
resulted in productive and efficient growth, robust balance sheet top notch assets book
and substantial provision.
o The bank aggregate business crossed yet another psychological mark and stood
Rs70869.57 crores at the end of financial year 2010-2011.
o The bank total business increased by Rs 10575.18 crores from the previous figure of
60294.39 Crores, registering a growth of 17.54%.
o The bank continued its prudent approach in expanding quality credit assets in line
with its policy on credit risk management. Its net advance increased by Rs 3136.41
Crores.
o The Banks performance in the recovery of NPAs during the year continued to be
good.
o Investment portfolio increased by Rs 5,739.52 Crores from 13956.25 and 19695.77 as
on 2011.
o The Bank has earned an income of Rs 26.14 crores from the Insurance business. In
life insurance mobilized a business of Rs 103.02 crores and in non-life segment Rs
59.36 crores was mobilized during the year.
o The gross profit for the financial year 2010-11 stood at Rs 1149.49 crores.
o The highest ever net profit of Rs 615.2 crores.
Area
Branches
Metro
39
Urban
168
Semi-Urban
118
Rural
223
Total
548
The total turnover increased 60294.39 crores to 70869.57 is 10575.18 crores. This growth is
registered of 17.54%.
Deposit Products
o Savings Banks Account
o Current Deposit
o Term Deposit.
o Depositors Pension
Depository services
o Dematerializations
o Stock broking Services through investment
o Depository Participant of NSDL and CDSL.
(Resin Lacks)
Liabilities
Capital
Amount
Assets
Amount
4.00
Fixed Assets
1.00
Unsecured Loans
2.00
Cash in hand
1.25
Sundry Creditors
3.25
Stocks
10.00
C/C Limit
10.00
Sundry Debtors
Total
19.25
Total
7.00
19.25
Sales
: Rs 60 Laces
Purchases
: Rs 59.15 Lacs
Cost of Sales
:Rs 60 Lacs
Gross Profit
: Rs 4 Lacs
Net Profit
: Rs 1.5 Lacs
CA
: Rs 18.25 Lacs
CL
: Rs 13.25 Lacs
NWC = CA-CL
=5.00 Lacs
= 1.37:1
Holding Periods:
Stocks
= stock*365/Cost of Sales
= 65 Days
Debtors
= Debtors*365/Sales
= 43 Days
Creditors
= Creditors*365/Purchases
= 20 Days
A.
Particulars
Traditional Method
Holding
Periods
Amount
65
10
25
2.5
7.5
43
50
3.5
3.5
Margin%
Margin
Amt
MPBF
Stocks
Sundry
Debtors
Working
Expenses
0.25
100
0.25
Nil
6.25
11
Total
17.25
Less Creditors
20
3025
Amount
Sectioned
7075
S.No.
A
Particulars
Holding Period
Amount
Current Assets
Stock
65
10
43
S. Debtors
Others
0.25
Total
17.25
Current Liabilities
S. Creditors
20
3.25
Others
Nil
Nil
Total
3.25
C.
A-B
D.
Stipulated margin
E.
Projected NWC
F.
MPBF
14.00
4.31
4.00
C-(D or E whichever
is higher)
9.69
A.
Particulars
Holding Period
Amount
Current Assets
Stock in Trade
65 Days
10.00
43 Days
7.00
S. Debtors
Others
0.25
Total
17.25
B.
Current Liabilities
S. Creditors
20 days
3.25
Others
Nil
Total
3.25
C.
D.
E.
Projected NWC
F.
MPBF
(A-B)
14.00
25% of WCG
3.50
4.00
C-(D or E whichever
is higher)
10.00
D. Turnover Method
S. No.
A.
Particulars
Amount
Accepted sales
60.00 Lacs
B.
C.
Margin @ 5% of A
3.00 Lacs
D.
Projected NWC
4.00 Lacs
E.
CHAPTER- 3
CASES OF WORKING CAPITAL OF J&K
Balance Sheet of Jammu and Kashmir Bank ------------------- in Rs. Cr. -------------------
Mar '09
Mar '08
Mar '07
12 mths 12 mths
12 mths
12 mths
12 mths
48.49
48.49
48.49
48.49
48.49
48.49
48.49
48.49
48.49
48.49
0.00
0.00
0.00
28.10
0.00
0.00
0.00
0.00
0.00
0.00
Reserves
3,430.19 2,961.97
2,574.37
2,232.34
1,960.24
Revaluation Reserves
0.00
0.00
0.00
0.00
Net Worth
3,478.68 3,010.46
2,622.86
2,308.93
2,008.73
Deposits
44,675.9437,237.16
33,004.10
28,593.26
25,194.2
Borrowings
1,104.65 1,100.21
996.63
751.79
620.19
Total Debt
45,780.5938,337.37
34,000.73
29,345.05
25,814.4
1,248.88 1,198.97
1,069.67
1,102.02
823.31
Total Liabilities
50,508.1542,546.80
37,693.26
32,756.00
28,646.5
Mar '09
Mar '08
Mar '07
12 mths 12 mths
12 mths
12 mths
12 mths
2,974.96 2,744.73
2,302.95
3,219.97
1,854.77
573.85
2,971.81
1,217.27
1,758.99
Advances
26,193.64 23,057.23
20,930.41
18,882.61
17,079.9
0.00
Assets
1,869.51
Investments
19,695.77 13,956.25
10,736.33
8,757.66
7,392.19
Gross Block
788.10
561.35
517.90
471.32
433.63
Accumulated Depreciation
396.47
358.54
321.61
289.10
256.94
Net Block
391.63
202.81
196.29
182.22
176.69
2.13
1.32
3.13
9.79
6.76
Other Assets
676.17
714.95
552.34
486.47
377.19
Total Assets
50,508.15 42,546.80
37,693.26
32,755.99
28,646.5
Contingent Liabilities
18,189.26 8,291.77
6,578.22
7,959.21
1,844.39
8,790.08
3,502.74
3,933.76
1,996.48
717.58
541.04
470.49
414.36
3,799.74
621.00
AMOUNT(2010)
AMOUNT(2011)
Capital
484,922
484,922
34,301,946
29,619,706
Deposit
446,759,350
372,371,604
Borrowings
11,046,502
11,002,064
12,488,814
11,989,652
TOTAL
505,081,534
425,467,948
29,749,638
27,447,263
5,738,477
18,695,109
Investment
196,957,679
139,562,473
Advances
261,936,350
230,572,250
Fixed Assets
3,937,702
2,041,332
Other assets
6,761,688
7,149,521
505,081,534
425,467,948
255,176,641
114,992,485
ASSETS
TOTAL
Contingent liabilities
AMOUNT AS ON 31ST
MARCH 2009
(000omitted)
AMOUNT AS ON 31ST
MARCH 2010
(000omitted)
Capital
484,922
484,922
280,950
25,743,684
22,323,351
Deposit
330,041,036
285,932,630
Borrowings
9,966,265
7.517,861
10,696,711
11,020,157
376,932,618
327,559,871
23,029,505
32,199,667
27,718,115
12,172,743
Investment
107,363,347
87,576,631
Advances
209,304,113
188,826,118
Fixed Assets
1,994,143
1,920,015
Other Assets
5,523,395
4,864,697
TOTAL
376,932,318
327,559,871
Contingent liabilities
91,409,177
112,644,286
9,490,429
6,285,380
PARTICULARS
Assets
CHAPTER- 4
ANALYSIS OF WORKING CAPITAL
The technique of ratio analysis can be employed for measuring short-term liquidity or
working capital position of a firm. The following ratios can be calculated for these purposes:
1. Current ratio.
2. Quick ratio
3. Gross Profit Ratio
4. Fixed Assets turnover ratio
5. Receivables turnover.
6. Payable turnover ratio.
7. Working capital turnover ratio.
8. Net Profit Ratio
9. Ratio of current liabilities to tangible net worth.
10. Total assets turnover ratio.
2. FUND FLOW ANALYSIS
study the source from which additional funds were derived and the use to which these sources
were put. The funds flow analysis consists of
a. Preparing schedule of changes of working capital
b. Statement of sources and application of funds.
It is an effective management tool to study the changes in financial position (working capital)
business enterprise between beginning and ending of the financial dates.
expression of business plans and polices to be pursued in the future period time. Working
capital budget as a part of the total budge ting process of a business is prepared estimating
future long term and short term working capital needs and sources to finance them, and then
comparing the budgeted figures with actual performance for calculating the variances, if any,
so that corrective actions may be taken in future. He objective working capital budget is to
ensure availability of funds as and needed, and to ensure effective utilization of these
resources. The successful implementation of working capital budget involves the preparing of
separate budget for each element of working capital, such as, cash, inventories and
receivables etc.
Calculation of Ratios
1. Current Ratio: - Current ratio is calculated by current assets upon current liabilities.
It measures short term paying ability of the firm.
Year
2009
2010
2011
Current Assets
37371.65
42343.9
50116.52
Current Liabilities
36623.6
41347.8
49259.3
Current Ratio
1.02
1.02
1.01
Significance: - An ideal current ratio is 2:1. This ratio is used for short term paying ability of
the firm. Approximate of 1 of current ratio the creditors will be able to get their payment in
full.
2. Quick Ratio: - This ratio is also known as liquid ratio. It measures short term paying
ability by measuring short term liquidity.
Year
2009
2010
2011
Liquid assets
37371.65
42343.9
50116.52
Current liabilities
36623.6
41347.8
49259.3
Liquid Ratio
1.024
1.02
1.01
.
Significance: - This ratio is able to payment for its creditors. This ideal figure is 1.
3. Gross profit ratio: - Gross profit ratio indicates the efficiency of the production or
operation of trading. It expresses relation between gross profit and net sales.
G.P. Ratio= Gross profit/net sales* 100
Year
2009
2010
2011
Gross profit
774.45
958.21
1149.49
Net Sales
53934.51
60294.39
70869.57
G.P.R.
14.3%
15.8%
16.2%
Significance:- This ratio indicates the degree to which the selling price of goods per
unit may decline without resulting in losses from operations to the firm. If there is
continuous increment in gross profit ratio then it means the selling price of goods is
increasing day by day.
4. Net Profit Ratio: - Net profit ratio indicates efficiency of P&L A/C of the firm. It
intends relation between net profit and net sales.
Net Profit Ratio= N.P. /Net sales*100
Year
2009
2010
2011
Net Profit
409.84
512.38
615.2
Net sales
53934.51
60294.39
70869.57
N.P.R
7.5%
8.4%
8.6%
\\Significance: - Net profit ratio indicates net margin on sales. This margin is
continuously increasing year to year.
5. Fixed assets Turnover Ratio: - It indicates the investment in fixed assets has been
judicious or not. It calculated by the following formula;
FATOR = Net sales /Net fixed assets
Net fixed assets = Fixed assets depreciation
Year
2009
2010
2011
Net sales
53934.51
60294.39
70869.57
1,994,1.43
3,937,7.02
1,920,0.15
FATOR
2.7 Times
1.53 Times
3.69 Times
2009
2010
2011
Net Sales
53934.51
60294.39
70869.57
Working capital
37371.65
42343.9
50116.52
WCTOR
1.44 Times
1.42 Times
1.41 Times
7. Total assets turnover ratio: - Total assets turnover ratio intends to the total assets to
total turnover. It indicates to efficiency of total assets and total turnover. This ratio is
very important for estimate the position of the firm. This ratio is calculated by the
following formula;
2009
2010
2011
Total assets
376,932,318
327,559,871
425,467,948
Turnover
53934.51
60294.39
70869.57
TATOR
69%
54%
60%
Significance;-
The above parameters are used for critical analysis of financial position. With the evaluation
of each component, the financial position from different angles is tried to be presented in well
and systematic manner. By critical analysis with the help of different tools, it becomes clear
how the financial manager handles the finance matters in profitable manner in the critical
challenging atmosphere, there commendation are made which would suggest the organization
in formulation of a healthy and strong position financially with proper management system. I
sincerely hope, through the evaluation of various percentage, ratios and comparative analysis,
the organization would be able to conquer its in efficiencies and makes the desired changes.
2. Financial statements have been prepared for different accounting periods, generally one
year, during the life of a concern. The costs and incomes are apportioned to different periods
with a view to determine profits etc. The allocation of expenses and income depends upon the
personal judgment of the accountant. The existence of contingent assets and liabilities also
make the statements imprecise. So the financial statements are at the most interim reports
rather than the final picture of the firm.
3. The financial statements are expressed in monetary value, so they appear to give final and
accurate position. The value of fixed assets in the balance sheet neither represent the value for
which fixed assets can be sold nor the amount which will be required to replace these assets.
The balance sheet is prepared on the presumption of a going concern. The concern is
expected to continue in future. So, the fixed assets are shown at cost less accumulated
depreciation. Moreover, there are certain assets in the balance sheet which will realize
nothing at the time of liquidation but they are shown in the balance sheets.
4. The financial statements are prepared on the basis of historical costs or original costs. The
value of assets decreases with the passage of time current price changes are not taken into
account. The statements are not prepared with the keeping in view the economic conditions.
The balance sheet loses the significance of being an index of current economic realities.
Similarly, the profitability shown by the income statements may be representing the earning
capacity of the concern.
5. There are certain factors which have a bearing on the financial position and operating
result of the business but they do not become a part of these statements because they cannot
be measured in monetary terms. The basic limitation of the traditional financial statements
comprising the balance sheet, profit & loss A/c is that they do not give all the information
regarding the financial operation of the firm. Nevertheless, they provide some extremely
useful information to the extent the balance sheet mirrors the financial position on a particular
data in lines of the structure of the basis of assets, liabilities etc. and the profit & loss A/c
shows the result of operation during a certain period in terms revenue obtained and cost
incurred during the year.
CONCLUSION
Working capital may be regarded as the life blood of business. 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. Every business needs funds for two purposes.
* Long term funds are required to create production facilities through purchase of fixed
assets such as plants, machineries, lands, buildings & etc
* Short term funds are required for the purchase of raw materials, payment of wages, and
other day-to-day expenses. . It is otherwise known as revolving or circulating capital
It is nothing but the difference between current assets and current liabilities. i.e. Working
Capital = Current Asset Current Liability.
Businesses use capital for construction, renovation, furniture, software, equipment, or
machinery. It is also commonly used to purchase inventory, or to make payroll. Capital is
also used often by businesses to put a down payment down on a piece of commercial real
estate. Working capital is essential for any business to succeed. It is becoming increasingly
important to have access to more working capital when we need it.
Importance of Adequate Working Capital
A business firm must maintain an adequate level of working capital in order to run its
business smoothly. It is worthy to note that both excessive and inadequate working capital
positions are harmful. Working capital is just like the heart of business. If it becomes weak,
the business can hardly prosper and survive. No business can run successfully without an
adequate amount of working capital.
Danger of inadequate working capital
When working capital is inadequate, a firm faces the following problems.
Fixed Assets cannot efficiently and effectively be utilized on account of lack of sufficient
working capital. Low liquidity position may lead to liquidation of firm. When a firm is
unable to meets its debts at maturity, there is an unsound position. Credit worthiness of the
firm may be damaged because of lack of liquidity. Thus it will lose its reputation. There by, a
firm may not be able to get credit facilities. It may not be able to take advantages of cash
discount.
It is helpful for us, as a business owner, to think of working capital in terms of five
components:
1. Cash and equivalents. This most liquid form of working capital requires constant
supervision. A good cash budgeting and forecasting system provides answers to key
questions such as:
Is the cash level adequate to meet current expenses as they come due?
What is the timing relationship between cash inflow and outflow?
When will peak cash needs occur?
When and how much bank borrowing will be needed to meet any cash shortfalls?
When will repayment be expected and will the cash flow cover it?
2. Accounts receivable. Many businesses extend credit to their customers. If you do, is the
amount of accounts receivable reasonable relative to sales? How rapidly are receivables being
collected? Which customers are slow to pay and what should be done about them?
5. Accrued expenses and taxes payable. These are obligations of your company at any given
time and represent a future outflow of cash.
FINDINGS
Ratio analysis can be used by financial executives to check upon the efficiency with which
working capital is being used in the enterprise. The following are the important ratios to
measure the efficiency of working capital. The following, easily calculated, ratios are
important measures of working capital utilization.
Ratio
Formulae
Result
Interpretation
Average Stock *
= x days
365/
Cost of Goods
Sold
= x days
Sales
(in days)
Payables
Creditors * 365/
= x days
Ratio
(in days)
Purchases)
Current
Total Current
Ratio
Assets/
Total Current
Liabilities
Assets -
Inventory)/
Total Current
Liabilities
Working
(Inventory +
As %
Capital
Receivables -
Sales
Ratio
Payables)/
Sales
SUMMARY
Cash flows in a cycle into, around and out of a business. It is the business's life blood and
every manager's primary task is to help keep it flowing and to use the cash flow to generate
profits. If a business is operating profitably, then it should, in theory, generate cash surpluses.
If it doesn't generate surpluses, the business will eventually run out of cash and expire. The
faster a business expands, the more cash it will need for working capital and investment. The
cheapest and best sources of cash exist as working capital right within business. Good
management of working capital will generate cash will help improve profits and reduce risks.
Bear in mind that the cost of providing credit to customers and holding stocks can represent a
substantial proportion of a firm's total profits.
There are two elements in the business cycle that absorb cash - Inventory (stocks and workin-progress) and Receivables (debtors owing you money). The main sources of cash are
Payables (your creditors) and Equity and Loans.
Each component of working capital (namely inventory, receivables and payables) has two
dimensions ........TIME ......... and MONEY. When it comes to managing working capital TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies
due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory
levels relative to sales), the business will generate more cash or it will need to borrow less
money to fund working capital. As a consequence, you could reduce the cost of bank interest
or you'll have additional free money available to support additional sales growth or
investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer
credit or an increased credit limit, you effectively create free finance to help fund future sales.
CONCLUSION
Any change in the working capital will have an effect on a business's cash flows. A positive
change in working capital indicates that the business has paid out cash, for example in
purchasing or converting inventory, paying creditors etc. Hence, an increase in working
capital will have a negative effect on the business's cash holding. However, a negative change
in working capital indicates lower funds to pay off short term liabilities (current liabilities),
Therefore we can say that working capital plays a very important role in Corporate Banking.
o Without working capital any business cannot run.
The bank aggregate business crossed yet another psychological mark and stood
Rs70869.57 crores at the end of financial year 2010-2011.
o The bank total business increased by Rs 10575.18 crores from the previous figure of
60294.39 Crores, registering a growth of 17.54%.
o The bank continued its prudent approach in expanding quality credit assets in line
with its policy on credit risk management. Its net advance increased by Rs 3136.41
Crores.
o The Banks performance in the recovery of NPAs during the year continued to be
good.
o Investment portfolio increased by Rs 5,739.52 Crores from 13956.25 and 19695.77 as
on 2011.
o The Bank has earned an income of Rs 26.14 crores from the Insurance business. In
life insurance mobilized a business of Rs 103.02 crores and in non-life segment Rs
59.36 crores was mobilized during the year.
o The gross profit for the financial year 2010-11 stood at Rs 1149.49 crores.
o The highest ever net profit of Rs 615.2 crores.
SUGGESTION
After a lot of research of working capital, I am able to say that there should be more liquid
surplus for smooth running of any business. But under the corporate banking this is more
prominent requirement. Because in banking, working capital is more exchangeable as
compare other organization. When we provide term loan to our customer as per RBI
guidelines. Loan can be short term or long term. Profitability of the bank is also affect by
working capital.
Generally, all things are affected by working capital under in a house.
The J&K Bank is the only private sector bank in the country assigned with the responsibility
of convening State Level Bankers Committee meetings. The bank continued to discharge its
lead bank responsibility in 12 out of 22 districts of J&K State satisfactory.
www.jkbank.net
www.jkbank.com
www.rbi.org.in
Circulars of J&K Bank