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Assessment of working capital of J&K Bank

Hilal Ahmad Malla


Beehive college of advance studies

DECLARATION

I hereby declare that this project titled Assessment of Working Capital of JK bank "
is submitted as a requirement for the partial fulfillment of BBA Degree fromBeehive
college of Advance Studies selaquidehradun (U.K)

The empirical finding in the project are based on the data collected by myself while
preparing this project.

I hereby declare that this project work is not submitted to any other institution for the
award of any degree.

Hilal Ahmad Malla


BBA-5thSem

ACKNOWLEDGEMENT

Building project is endlessly fascinating for anyone because what begins as just a few
thoughts end up as a physical, tangible thing that gets sent out (hopefully) to the far
flung corner of the world. Of course, the trip from thought to the thing is a long and lots
of people get their fingers in a project before it is ready to sail.

It is a matter of great pleasure for me to submit a Project Report. First of all, I would
like to thank the supreme power, the almighty ALLAH who is really responsible for
satisfactory completion of my task. After that my parents who have always inspired and
encouraged me.I am sincerely thankful to J&K BANK Ltd. for giving me the
opportunity to work as summer trainee in their esteemed organization
especially to Mr. GhMohiud Din(Deputy Cluster Head,Kupwara) my project guide
for Hisable guidance, continuous support and cooperation throughout my project,
without whom the present work would not have been possible.

Hilal

PREFACE

Research word in management is extremely important as it gives a close and depth view
of real life business issue. For the student pursuing any professional course like
business studies who is trying to perform outstanding it is paramount importance that
apart from theoretical knowledge one must also gain practical knowledge.

The main objective of project report is familiarization with the necessary theoretical
inputs and to gain sufficient practical exposure to establish a distant linkage between
conceptual knowledge acquired at the college and practicing those concepts.

The project report is concerned with Assessment of Working Capital of JK bank


during my tenure of project I studied the various development tools and deeply analyzed
the functions.

My objective is to collect the information regarding satisfaction of JK bank among the


customers and study of trends all around the world.

Hilal Ahmad Malla

CONTENTS
Declaration
Acknowledgement
Preface
Chapter-1

INTRODUCTION TO THE TOPIC


INDUSTRY PROFILE
COMPANY PROFILE

REVIEW OF LITERATURE
Chapter-2

RESERCH METHODOLOGY
RESEARCH DESIGN
DATA COLLECTION

LIMITATIONS OF THE STUDY


Chapter-3

DATA ANALYSIS
TYPES OF WORKING CAPITAL
AVERANGE LENDING RATES OF WORKING CAPITAL LOAN
BETWEEN JK BANK & SBI

EARNING UPDATES
Chapter-4

FINDINGS
Chapter-5

CONCLUSION
Chapter-6

CHAPTER _1
INTRODUCTION

WHAT IS WORKING CAPITAL?


For any activity whether trading or industrial, two types of assets are requiredFixed assets and current assets.
Fixed assets i.e. land, building, plant and machinery etc. constitute the
infrastructure for industrial activity. These assets remain more or less
permanently in the business and are not meant for sale. Hence, the funds utilized
for acquiring these assets remain permanently locked up and are known as Fixed
(or sunk) capital. These long term funds come from the owners
contributions/banks /directors /relatives and friends / general public.
Current assets i.e. stock in trade, receivables, debtors etc, are the means of
production activity. They go through the production cycle and are meant for
eventual sale. Production cycle refers to the period in which raw materials are
processed into finished goods.
Funds required for financing the production cycle and other current assets are
called working capital. Its main sources are bank borrowing and sundry
creditors.
Working capital cycle represents the time span within which, the cash utilized or
procuring raw materials, payment of wages and incurring overheads is
reconverted into cash through sales realization.

CONCEPT OF WORKING CAPITAL


There are two concepts of working capital viz. quantitative and qualitative.
Some people also define the two concepts as gross concept and net concept.
According to quantitative concept, the amount of working capital refers to total
of current assets. Current assets are considered to be gross working capital in
this concept.
The qualitative concept gives an idea regarding source of financing capital.
According to qualitative concept the amount of working capital refers to excess
of current assets over current liabilities.L.J. Guttmann defined working capital as
the portion of a firms current assets which are financed from longterm funds.
The excess of current assets over current liabilities is termed as Net working
capital. In this concept Net working capital represents the amount of current
assets which would remain if all current liabilities were paid. Both the concepts of
working capital have their own points of importance. If the objectives is to
measure the size and extent to which current assets are being used, Gross
concept is useful; whereas in evaluating the liquidity position of an undertaking
Net concept becomes pertinent and preferable.
It is necessary to understand the meaning of current assets and current liabilities
for learning the meaning of working capital, which is already explained earlier in
the project report.
Circulating capital working capital is also known as circulating capital or
current capital. The use of the term circulating capital instead of working
capital indicates that its flow is circular in nature.

GROSS AND NET WORKING CAPITAL


Gross working capital refers to the funds required for financing the total current
assets. Net working capital refers to the difference between current assets and
current liabilities. Current liabilities include liabilities payable or expected to be
turned over within one year from the date of the balance sheet. Current assets
are those assets which are reasonably expected to be realized in cash or sold,
consumed or turned over during the operating cycle of the business, usually not
exceeding one year.
Desirably, net working capital should be positive i.e. current assets should
exceed current liabilities or Current ratio (current assets / current liabilities)
should be higher than 1:1. This would signify liquidity and availability of
adequate working funds. For a banker, it would connote a cushion of safety for
the funds lent.
Positive net working capital is same as liquid surplus i.e. the difference between
long term sources (liabilities) and long term assets (uses). This means long term
sources should be sufficient to finance not only fixed and non-current assets but
also a part of current assets. In current assets, there is always a hard core i.e. a
certain irreducible minimum level which would have to be maintained more or
less permanently for smooth operations of the production cycle. It is but logical
that this portion of current assets should be financed from long term sources.
It may be seen that working capital required for financing current assets is
generated from three sources, namely bank borrowings long term funds and
other current liabilities. The net working capital is positive and signifies margin
contribution of long term funds to finance current assets. It may also be possible
for a unit to work with negative working capital, where short-term liabilities
including bank borrowings are used to finance part of long term assets. This may
signify diversion of bank funds for other unapproved uses. It may also not be in
the interest of a unit to have very large NWC or liquid surplus which may indicate
a position of idle funds or lower turnover in working capital. The assessment of
working capital will, therefore, involve the following two aspects:

(a)

The level of current assets required to be held by any unit including the
composition of current assets for efficient functioning.

(b)

The mode of financing these assets.

STRUCTURE OF WORKING CAPITAL


The different elements or components of current assets and current liabilities
constitute the structure of working capital which can be illustrated in the shape
of a chart as follows:

WORKING CAPITAL

CURRENT LIABILITIES
CURRENT ASSETS

Structure of Current Liabilities and Current Assets


Current Liabilities
Bank Overdraft
Creditors

Outstanding Expenses
Bills Payable
Short-term Loans
Proposed Dividends
Provision for Taxation, etc.

Current Assets
Cash and Bank Balance
Inventories:
Raw-Materials
Work-in-progress
Finished Goods
Spare Parts
Accounts Receivables
Bills Receivables
Accrued Income
Prepaid Expenses
Short-term Investments

CIRCULATION OF WORKING CAPITAL


At one given time both the current assets and current liabilities exist in the
business. The current assets and current liabilities are flowing round in a
business like an electric current. However, The working capital plays the same
role in the business as the role of heart in human body. Working capital funds are
generated and these funds are circulated in the business. As and when this
circulation stops, the business becomes lifeless. It is because of this reason that
the working capital is known as the circulating capital as it circulates in the
business just like blood in the human body.
The sale of goods may be for cash or credit. In the former case, cash is directly
received while in later case cash is collected from debtors. Funds are also
generated from operation and sale of fixed assets. A portion of profit is used for
payment of interest, tax and dividends while remaining is retained in the
business. This cycle continues throughout the life of the business firm.
Fig. depicting Working Capital Cycle makes it clear that the amount of cash is
obtained mainly from issue of shares, borrowing and operations. Cash funds are
used to purchase fixed assets, raw materials and used to pay to creditors. The
raw materials are processed; wages and overhead expenses are paid which in
result produce finished goods for sale.

CLASSIFICATION OF WORKING CAPITAL

The quantitative concept of Working Capital is known as gross working capital


while that under qualitative concept is known as net working capital.
Working

capital can be classified

in various

ways. The important


classifications are as

given below:

Conceptual
classification
There are

two concept of working

capital viz.,

quantitative and

qualitative. The quantitative concept takes into account as the current assets
while the qualitative concept takes into account the excess of current assets over
current liabilities. Deficit of working capital exists where the amount of current
liabilities exceeds the amount of current assets. The above can be summarized
as follows:

(i)

Gross Working Capital = Total Current Assets

(ii)

(ii) Net Working Capital = Excess of Current Assets over Current


Liabilities

(iii)

(iii) Working Capital Deficit = Excess of Current Liabilities over


Current Assets.

Classification on the basis of financial reports


The information of working capital can be collected from Balance Sheet or Profit
and Loss Account; as such the working capital may be classified as follows:

Cash Working Capital This is calculated from the information


contained in profit and loss account. This concept of working capital
has assumed a great significance in recent years as it shows the
adequacy of cash flow in business. It is based on Operating Cycle
Concepts which is explained later.

Balance Sheet Working Capital The data for Balance Sheet


Working Capital is collected from the balance sheet. On this basis the
Working Capital can also be divided in three more types, viz., gross
Working Capital, net Working Capital and Working Capital deficit.

Classification on the Basis of Variability


Gross Working Capital can be divided in two categories viz., (i) permanent or
fixed working capital, and (ii) Temporary, Seasonal or variable working capital.
Such type of classification is very important for hedging decisions.
i.

Temporary Working Capital Temporary Working Capital is also


called as fluctuating or seasonal working capital. This represents
additional investment needed during prosperity and favorable
seasons. It increases with the growth of the business. Temporary
working capital is the additional assets required to meet the
variations in sales above the permanent level.This can be calculated
as follows:

Temporary Working Capital = Total Current Assets permanent Current Assets

ii.

Permanent Working Capital It is a part of total current assets


which is not changed due to variation in sales. There is always a
minimum level of cash, inventories, and accounts receivables which
is always maintained in the business even if sales are reduced to a
minimum. Amount of such investment is called as permanent
working capital. Permanent Working Capital is the amount of
working capital that persists over time regardless of fluctuations in
sales.This is also called as regular working capital.

WORKING CAPITAL MANAGEMENT


The management of current assets, current liabilities and inter-relationship
between them is termed as working capital management. Working capital
management is concerned with problems that arise in attempting to manage the
current assets, the current liabilities and the inter-relationship that exist between
them.In practice, There is usually a distinction made between the investment
decisions concerning current assets and the financing of working capital.
From the above, the following two aspects of working capital management
emerge:
1. To determine the magnitude of current assets or level of working
capital and
2. To determine the mode of financing or hedging decisions

SCOPE OF WORKING CAPITAL MANAGEMENT


The management of working capital helps us to maintain the working capital at a
satisfactory level by managing the current assets and current liabilities. It also
helps to maintain proper balance between profitability, risk and liquidity of the
business significantly. By managing the working capital, current liabilities are
paid in time. If the firm makes payment to it creditors for raw material in time, it
can have the availability of raw material regularly, which doesnt t cause any
obstacles in production process. Adequate working capital increases paying

capacity of the business but the excess working capital causes more inventories,
increases the possibility of delay in realization of debts. On the other hand,
absence of adequate working capital leads to decrease in return on investment.
The goodwill of the firm is also adversely affected due to the inability to pay
current liabilities in time. Hence, the management of working capital helps to
manage all the factors affecting the working capital in the most profitable
manner.

A schematic diagram of the working capital cycle is given below:

CASH

RECIEVABLES

RAW MATERIAL

STOCK-IN-PROGRESS

SALES FINISHED GOODS


CALCULATION OF WORKING CAPITAL
The calculation of working capital requirement during the entire project was done
as per the following three methods:

o OPERATING CYCLE METHOD

o NET WORKING CAPITAL METHOD


o ON THE BASIS OF SALES

Operating Cycle Method


As per the Operating cycle method the working capital requirement is calculated
as under:
Debtor days
Add:- Inventory days
Less:- creditors days
Operating days
Operating cycle =
365
Operating Days

XX
XX
XXX
XX
XX
= XX

Working capital requirement = Sales


O/cycle

=XXX = XX
XX

Net Working Capital Method


As per the Net Working Capital method the working capital requirement is
calculated as under:
Net Working Capital = [Capital + Unsecured Loan + Term Loans F/Assets
Investments Loans & Advances]
Permissible amount is 3 times the net working capital as per above
formula.
Working capital Requirement = [Capital + Unsecured Loan + Term Loans
F/Assets Investments Loans & Advances] x 3

On The Basis Of Sales


Bank can allow a max CC limit of 25% of sales to a manufacturing unit and 15%
of sales to a trading unit.

J&K Bank mostly allows 20% of sales as CC limit to manufacturing units.

So, 20% of sales = 20/100 * Sales


=RsXXX
So the as per bank policy allowable amount as CC is RsXXX.

STEPS IN WORKING CAPITAL ASSESSMENT


The working capital finance by banks is meant to assist the borrower in meeting
a portion of requirement of funds needed for day to day operations. Hence, it is
obvious that working capital finance should be made only after ascertaining the
genuine needs of the borrower. The following considerations may be kept in this
regard.

1) Financial Statements (Balance Sheet & profit & loss A/c Should
be obtained for the last 3 years as well as estimates for current
year and projections for next year.
2) The sales figure is the focal point for consideration since the
requirement of working capital will depend on the level of sales the
borrower expects to achieve, in the next year.To make a realistic
assessment of sales projected for the next year; the trend in sales
during previous years, the potential for growth, the production
capacity, demand for product, expertise of entrepreneur in locating
markets, export potential, type of product, quality of product etc. will
have to be taken into account. But, ultimately it is the judgment of
the credit appraiser which is vital for making a reasonable estimate
of sales.
3) Once the projected figure is assessed, the next step is to find out the
requirement of W.C. that is to ascertain as to what should be the
optimum level of holding current assets so that the projected sales
are achieved.The levels of holding of inventory (Raw material, semi
Finished Goods and Finished Foods) and receivables will depend on
the period of holding inventory and receivables. Hence thorough
appraisal will have to be made to find out as to what should be the
reasonable period of holding of inventory and receivables.Once the
period of holdings is scientifically ascertained, the investment in CA.
(i.e. W.C) can be calculated on the basis of the following:
a) R.M holding calculated on the basis of so many months of R.M consumed.
b) SFG holding calculated on the basis of so many months of cost of sales,

c) F.G holding calculated on the basis of so many months of cost of sales,


d) Receivables holding- calculated on the basis of so many months of sales.
4) Once the total requirement of C.A. is assessed, the next step is to
explore the alternate sources available, other than bank finance,
In fact, the sources of financing C.A. are three:
i.
ii.
iii.

Sources like sundry creditors, advance payments from customers etc.


Bank finance, and
NWC, which is the contribution from long term sources.

In principle bank finance can be calculated as follows.


Total Current assets

Less:- Sources like S.cr


And adv.payment
Difference (Working capital gap)

Of the gap, Bank Finance will be 75% to 80% depending upon margin
requirements which will have to come from long term sources (in the form of
NWC).
POINTS TO NOTE
1. Sales and period of holding of inventory and receivables are the areas
where slight misjudgment will result in unrealistic assessment. Hence,
these two are the most important areas requiring closer analysis and
scrutiny.
2. The MPBF reflects the maximum limit up to which the bank can finance but
is not an entitlement to borrow. If the NWC available is more than the
stipulated margin, the limit of bank finance will be corresponding reduced.

DETAILED INFORMATION ABOUT ONE OF THE TYPE OF


FINANCE AVAILABLE UNDER WORKING CAPITAL LOAN
PROVIDED BY JK BANK LTD

Nature of Facility

Purpose

Eligibility

Quantum of finance

Margin on Bank
Guarantee
Security

Facility to be extended by way of:


i) Running Account in the form of Secured
Overdraft / Cash Credit Facility
ii) Cheque Purchase Facility
iii) Bank Guarantee Facility
To facilitate the contractors for meeting working
capital requirements for executing contracts/works
allotted by Government Departments /
Undertakings, Autonomous Bodies, Defense
Departments, etc.
Construction Contractors approved by / registered
with the Government / Defense agencies that are
established / experienced in the business for a
minimum period of 1 year and must have
successfully executed and completed 2 to 3
contracts.
Maximum Limit under this product shall be 2.00
Crore. For limits exceeding 2.00 Crore,
assessment shall be carried out as per the norms /
guidelines laid down in the Bank's credit policy.
25% cash margin
Assignment of Receivables and hypothecation of
raw materials and consumable stores.

CONTRATOR FINANCE

Industry profile
OVERVIEW OF THE INDUSTRY AS A WHOLE
Banking in India
The economic reforms undertaken in the last 15 years have brought about a considerable improvement
in the health of banks and financial institutions in India. The banking sector is a very important sector
of the Indian economy. The sector has made marked improvements in the liberalization period. There
has been extraordinary progress in the financial health of thecommercial banks with respect to capital
adequacy, profitability assets quality and risk management. Deregulation has opened new doors for
banks to increase revenues by entering into to investment banking, insurance, credit cards, depository
services, mortgage, securitization etc. Currently, banking in India is generally fairly mature in terms of
supply, product range and reach even through reach in rural India still remains a challenge for the
private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheet relative to other banks in comparable
economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure
from the government. The stated policy of the bank of Indian Rupee is to manage volatility but
without any fixed exchange rate and this has mostly been true. With the growth in the Indian economy
expected to be strong for quite some time especially in its services sector the demand for banking
services are expected to be strong. In March 2006, the Reserve Bank of India allowed Warburg Pincus
to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an
investor has been allowed to hold more than 5% in a private sector bank since the RBI announced
norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by
them.
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 Downloaded from
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ShameemAhamad
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. Liberalization and globalization have created a
more challenging environment in banking sector as well as the other segments of the financial sector
such as mutual funds, non-banking finance companies, post offices, capital market, venture capitalist
etc. Now the challenge faced by the sector would be gaining profitability, reinforcing technology,
maintaining global standards, corporate governance, risk management and the most important of all,
to establish customer intimacy.

COMPANY PROFILE

Company Profile

HISTORY
Traditional money lenders till 1920-30 performed entire banking in the state of
Jammu and Kashmir at exorbitant interest rates. At the same time some banks
functional but at a very limited scale, such as Punjab national bank, grind lays
bank and imperial bank of India.The role of these banks was reduced to the
acceptance of the deposits, as they could not grant loans and advances to the
people of the state owing to the statutory limitations. Under this scenario banks
could not ameliorate the financial and the social position of people of the state.
To overcome this critical situation then the maharaja of this state convinced an
idea of setting up of a state bank in the state. After prolonged exercises and
deliberations of the assignment for establishment of Jammu and Kashmir Bank
Ltdwas given to the late sir Sorabji N.Pochkkanwala, then managing director of
the central bank of India. Mr. S N Pochkkhanwala formulated a scheme on
24:09:1930, suggesting establishment of a semi state bank with participation in
capital by state and public under the control of state government. Thus the bank
was formally incorporated on 1st of October 1938 and commenced business from
4th July 1939 at its registered office, residency road Srinagar Kashmir.
In its formative years, the bank had to encounter several serious problems,
particularly around the time of independence, when out of it total 10 branches,
two branches of Muzafarabad and Mirpure fell to the other side of the line of
control (now Pakistan administrated Kashmir) along with cash and other assets in
1947.However state government came to its rescue with the assistance

6.00

Lakh to meet the claim. The bank steadfastly overcome its difficulties and kept
growing. Following the extensions of central laws to the state of Jammu &
Kashmir, the bank was defined as a government company as per the provisions
of the Indian companies Act 1956. The bank had its first full time chairman in

1971, following the social control measure in banks. The year in 1971 was the
turning point for the bank on conferment of scheduled bank status and witnessed
remarkable progress in all the vital fields of operations. Reserve Bank of India
declared the bank as A class bank in 1976.

INTRODUCTION TO J&K 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 RBIs agent for banking business, and carries out the banking business of the
Central Government, besides collecting central taxes for 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.
J&K Bank is the only Bank in the country with majority ownership vested with a
state government.

PRELUDE
The Jammu & Kashmir Bank is today one of the fastest growing banks in India
with a network of more than 750 branches/offices spread across the country
offering world class banking products/services to its customers. The dip in the

profits is in line with overall industry trend which witnessed diminishing yields in
the securities portfolio held by banks and consequential booking of losses

Type

Private

Traded as

NSE: J&KBANK, BSE: 532209 @ 1800 (approx.)

Industry

Banking, Financial services

Founded

October 1, 1938

Headquarters

Srinagar, Jammu and Kashmir, India

Key people

Mushtaq Ahmad (Chairman & CEO)

Products

Credit cards, Consumer banking, Corporate banking,


finance and insurance, Mortgage, loan, private banking

Revenue

7157.26 crore (2014-15)

Net income

1182.47 crore (2014-15)

Total assets

78619.73 crore as on March 31, 2015

Earnings Per Share


(EPS)

243.92 as on March 31, 2015

Employees
Website

> 10300 as on 31st Mar 2015


www.jkbank.net

VISION
To catalyses economic transformation and capitalize on growth.

Our 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
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
make us the most profitable Bank in the country.

STABILITY
The J&K Bank is rated P1+, indicating the highest degree of safety by Standard &
Poor and CRISIL.

BANK'S NEW IDENTITY

Green signifies Growth and Renewal


Blue conveys Stability and Unity.
Red Represent Energy and Power
The new identity for J&K Bank is a visual representation of the Bank's philosophy
and business strategy. The three colored squares represent the regions of
Jammu, Kashmir and Ladakh. The counter-form created by the interaction of the
squares is a falcon with outstretched wings - a symbol of power and
empowerment. The synergy between the three regions propels the bank towards
new horizons.Green signifies growth and renewal, blue conveys stability and
unity, and red represents energy and power. All these attributes are integrated
and assimilated in the white counter-form.

OBJECTIVES OF J&K BANK


1) To increase the visibility in the market and enhance the market share in
the banking and financial services.
2) High quality of customer service.
3) To integrate technology and business so as to deliver more products to
more customers and to control operating costs.
4) To maintain high for standards asset quality through disciplined credit risk
management.
5) To develop innovative products and services that meets the needs and
wants of targeted customers and address inefficiencies in the Indian
financial sector.
6) To continue to develop products and services that reduces our cost of
funds.
7) To focus on high earnings growth low volatility

SECURITY PROVIDED BY J&K BANK

The forms of security either by way of primary security or collateral security is


given here under:1. Hypothecation:
Under hypothecation, the borrower is provided with working capital
finance by the bank against the security of movable property to the bank,
generally inventories. The borrower does not transfer the property to the
bank, it remains in the possession of the borrower, and however, the title
of the property is transferred in the name of bank or lending institutions.
Thus hypothecation is a charge against property for an amount of debt
where neither ownership nor possession is passed to the creditor. Banks
generally grant under hypothecation only to first class customers with
highest integrity. Banks do not usually grant hypothecation facility to new
customers.
2. Pledge:
Under this agreement, the borrower is required to transfer the physical
possession of the property offered as security to bank to obtain credit. The
bank has the right of lien and can retain possession of the goods pledged
unless payment of the principle, interest and any other expenses is
obtained from the borrower. In case of default, the bank may either
a)Sue the borrower for the amount due or
b) Sue for the sale of goods pledged.
3. Mortgage:
Mortgage is the transfer of the legal or equitable interest in a specific
immovable property for security against the debt. In case of mortgage, the
possession of the property may remain with the borrower, however, the
lender get the full legal title. The transferor of interest (borrower) is called
mortgagor, the transferee is called the mortgagee and the instrument of
the transfer is called the mortgage deed.

4. Banking Facilities:
Financing is the act of providing funds for business activities, making purchases
or investing. Financial institutions and banks are in the business of financing as
they provide capital to business, consumers and investors to help them achieve

their respective goals. There are two ways of providing funds i.e. financing to the
borrowers used by banks or financial institutions as given.

BANK FINANCE

NON FUND BASED


FUND BASED
A. FUND BASED FINANCING
The fund based financing provided by banks involve immediate outlay of funds,
which must be provided by before hands. This facility includes term loans
facilities, cash credit limit, overdraft etc.

1. Term loans
A term loan is usually a single loan for a stated period of time or a series of loans
on specified dates. They are used for specific purposes such as acquiring
machinery, renovating a building, refinancing debt, entering into new business
and so on and so forth. Term loans are of maturity of 1 year and above and are
repaid on an amortized basis. Term loans are mostly given to the borrowers who
propose to set up a unit (project) for example a manufacturing unit, or it may be
to set up a power plant or constructions of complexes, buildings, roads etc.

The maturity of term loans called tenor of the loan comprises of following below
mentioned components: They are:i. Construction period
Time taken for completion of construction activity by the unit holder.
ii. Moratorium period
Holiday period given to repay the term loan.
iii. Repayment period
Period in which the term loan is repaid.

2. Cash Credit
Cash credit facility is the most popular method of bank finance to the borrowers
adopted by the lenders. Under cash credit facility, the borrower is allowed to
withdraw funds from the bank up to the sanctioned credit limit. He is not required
to borrow the entire credit sanctioned once, rather he can withdraw periodically
to the extent of his requirements and repay by depositing surplus funds in his
cash credit account.

3. Overdraft
Under the overdraft facility, the borrower is allowed to withdraw funds in excess
of balance in his current account up to a certain specified limit during a
stipulated period. Overdrawn amount is repaid on demand. Over draft generally
continue for a long period by annual renewals of the limits.

B.

NON FUND BASED FINANCING

Non fund based financing are essentially in nature of promises made by banks in
favors of a third party to provide monetary compensation on behalf of their
clients if certain situations emerge. These non-fund based facilities may be in
nature of banks guarantee or letter of credit.

1. Letter of credit
Suppliers particularly the foreign suppliers insist that the buyer should ensure
that his bank will make the payment if he fails to honor his obligations. This is
ensured through a letter of credit (L/C) arrangement. A bank opens a L/C in
favors of a customer to facilitate his purchase of goods. If the customer does not
pay to the supplier within the credit period, the bank makes the payment under
the L/C arrangement. Bank charges the customer for opening the L/C. Banks
extends such facility to financially sound customers.

2. Line Of Credit
The line of credit is the maximum amount that can be borrowed under the term
of loan. The loans are made for the period of one year or less; and they should be
used to finance the seasonal increase in inventory and accounts receivables.
When the inventory is sold, receivables are collected and the funds are used to
reduce the loan. The loans are usually payable on demand by the banks or within
ninety days.

EPS OF JK BANK
2011-2015
250
200
150
100
50
0
2011

2012

2013

2014

2015

GROSS ADVANCES -GROSS ADVANCES SECTOR WISE (DEC SECTOR


2015) WISE (DEC 2015)
BANK AS WHOLE

IN REST OF INDIA

WITHIN JK STATE

PROCEDURE FOR WORKING CAPITAL FINANCE


Credit Sanction Process
The revised credit process is introduced with a view of reducing the time lag in
the sanction of credit besides clearly delineating the areas of responsibilities of
various functionaries. As per this the revised process is divide into two
components that is Pre-sanctioning and Post sanctioning In the pre sanctioning it
is the only time that the bank can take due assessment and precautions to make
sure that the investments are done for the benefit of the bank. The post
sanctioning is the follow of the payment. In case the payment defaults then the
account will go into NPA in stages and the bank is then said to scrutinize the said
account.

PRE SANCTION PROCESS


Obtain Loan Application
When a customer required loan he is required to complete application form and
submit the same to the bank also the borrower has to be submit the required
information along with the application form. The information, which is generally
required to be submitted by the borrower along with the loan application, is
under:
Audited balance sheets and profit and loss accounts for the previous three year
(in case borrower already in the business)
Estimated balance sheet for current year.
Projected balance sheet for next year.
Profile for promoters/directors, senior management personnel of the company.
In case the amount of loan required by borrower is 50 Lakh and above he
should be submit the CMA Report.

PRE SANCTION PROCESS

SANCTIONING

APPRA
&
RECOMME
ASSESSMENT

Appraisal & Recommendation, Assessment & Sanctioning

Examine for preliminary appraisal


RBI guidelines. Policies
Prudential exposure norms and bank lending policy
Industry exposure restriction and related risk factors.
Compliance regarding transfer of borrowers accounts from one bank

to another bank.
Government regulation / legislation impact on the industry.

Acceptability of the promoter and applicant status with regards to


other unit to industries.
Arrive at the preliminary decision.
Examine/analysis /assessment
Financial statement (in the prescribed forms) refers figure WC cycle &

BS assessment thumb rules.


Financial ratio & Dividend policy.
Depreciation method
Revaluation of fixed assets.
Records of defaults (Tax, dues etc.)
Pending suits having financial implication (Customs, excise etc.)
Qualifications to balance sheet auditors remarks etc.
Trend in sales and profitability and estimates /projection of sales.
Production capacities and utilization: past & projected production

efficiency and cost.


Estimated working capital gap W.R.T acceptable buildup of
inventory/receivables/other current assets and bank borrowing

patterns.
Assess MPBF determine facilities required
Management quality, competence, track records
Companys structure and system
Market shares of the units under comparison.

POST SANCTION PROCESS


Supervision And Follow Up
Sanction credit limit of working capital requirement after proper assessment of
proposal is alone not sufficient. Close supervision and follow up are equally
essential for safety ofbank credit and to ensure utilization of fund lend. A timely
action is possible only close supervision and followed up by using following
techniques.
oMonthly stock statement
oInspection of stock
oScrutiny of operation in the account
oQuarterly/half quarterly statements.
oUnder information system
oAnnual audited report

POST SANCTION PROCESS

FOLLOW UP

MONITORING & CO

SUPERVISION

Credit Monitoring Arrangement


Consequent upon the withdrawal of requirement of prior authorization under the
erstwhile credit authorization scheme (CAS) and introduction of a system of post
sanction scrutiny under credit monitoring arrangement (CMA) the database forms
have been recognized as CMA database. The revised forms for CMA database as
drawn up by the sub-committee of committee of directions have come into use
from 1st April 1991.
The existing forms prescribed for specified industries continue to remain in force.
With a view to imparting uniformity to the appraisal system, database from all
borrowers including SSI units enjoying working capital limits of Rs. 50 Lakh and
more from the banking system should be obtained.
The revised sets of forms have been separately prescribed for industrial
borrowers and traders/merchant exporters. The details of forms are as under: Form 1:- Particulars Of The Existing/Proposed Limit From The Banking
System.
Form 2: -Operating Statement.
It contains data relating to gross sales, net sales, cost of raw material, power and
fuel, etc. It gives the operating profit and the net profit figures.
Form 3: - Analysis Of Balance Sheet.
It is complete analysis of various items of last years balance sheet; current years
estimate and following years projection are given in this form.

Form 4: - Comparative Statement Of Current Asset And Liabilities.


Details of various items of current asset and current liabilities are given. The
figures in this form must tally with those in Form III.
Form 5: - Computation Of Maximum Permissible Bank Finance For
Working Capital.
The calculation of MPBF is done in this form to obtain the fund based credit limits
to be granted to the borrower.
Form 6: - Fund Flow Statement
It provides the details of fund flow from long term sources and uses to indicate
whether they are sufficient to meet the borrowers long term requirements.

CREDIT RATING MODEL


The various risk faced by any company may be broadly classified as follows:
Industry Risk: It covers the industry characteristic, compensation, financial
data etc.
Company/ business risk: It considers the market position, operating efficiency
of the company etc.
Project risk: It includes the project cost, project implementation risk, post
project implementation etc.
Management risk: It covers the track record of the company, their attitude
towards risk,
Propensity for group transaction, corporate governance etc.
Financial risk: financial risk includes the quality of financial statements, ability
of the company to raise capital, cash flow adequacy etc.

SECURITY NEEDED BY BANKS


Banks need some security from the borrowers against the credit facilities
extended to them to avoid any kind of losses. Securities can be created in
various ways. Banks provide credit on the basis of the following modes of
security from the borrowers.

Hypothecation:under this mode of security, the banks provide credit to


borrowers against the security of movable property, usually inventory of goods.
The goods hypothecated, however, continue to be in possession of the owner of
the goods i.e. theborrower. The rights of the banks depend upon the terms of the
contract between borrowers and the lender. Although the bank does not have the
physical possession of the goods, it has the legal right to sell the goods to realize
the outstanding loans.
Hypothecation facility is normally not available to new borrowers.

Mortgage:It is the transfer f a legal / equitable interest in specific immovable


property for securing the payment of debt. It is the conveyance of interest in the
mortgaged property. This interest terminated as soon as the debt is paid.
Mortgages are taken as an additional security for working capital credit by banks.

Pledge:The goods which are offered as security are transferred to the physical
possession of the lender. An essential prerequisite of pledge is that the goods are
in thecustody of the bank. Pledge creates some kind of liability for the bank in
the sense that Reasonable care means care, which a prudent person would take
to protect his property.
In case of non-payment by the borrower, the bank has the right to sell the goods.

Lien:The term lien refers to the right of a party to retained goods belonging to
other party until a debt due to him is paid. Lien can be of two types viz.

Particular lieni.e. A right to retain goods until a claim pertaining to these goods
are fully paid, and
General lien, which is applied till all dues of the claimant are paid. Banks
usually enjoyed generallien.

REVIEW OF LITERATURE AND RATIONALE OF THE


STUDY

REVIEW OF LITERATURE
Literature review is indispensable part of a thesis because it
represents the whole range of research in the past on the topic
selected by the researcher on the basis of which research design of a
study is formulated. Literature review gives better insight and helps
bridge gap for the research to be undertaken.

Efforts have been made to present a common scheme of various


facets and issues relating to this empirical studies carried out in past
and the national and international stage in different companies.
Some important conclusions and research gap have been drawn from
review of some research papers , articles , thesis and text books
available in the accessible libraries and internet sources. Different
researchers have done studies in the field of management of working
capital , which have been summarized into following parts .

1:- Efficiency in management of working capital

VERMA (1989) examined working capital in TATA iron and steel


company limited (TISCO) , steel authority of india ltd (SAIL) and

Indian iron and steel company (IISCO) during the period from 1978-79
to 1985-86 by using the financial tools and statistical techniques. The
study revealed that TATA IRON AND STELL COMPANY LTD had better
Working Capital Management in comparison to SAIL and IISCO.
Results also revealed that all the three firms under study had made
excessive use of bank borrowings to finance the working capital
requirements.

MILLS (1996) has explored the question of the impact of inflation on


the capital budgeting process. The study reveals that it is reasonable
to expect that the cost of capital will increase at the same rate as the
rate of inflation on an ex-ante basis , and that this increase will be a
multiplicative relationship. It also reveals that the higher the net
working capital the greater is the impact of inflation on capital
spending.

BANSAL (2001) has studied working capital management in HP


AGRO INDUSTRIES CORPORATION LTD. For the period from 1985-86 to
1994-95 with the help of financial tools. The study reveals that the
corporation under study has adopted conservative policy of financing
current assets which resulted in inadequate working capital. Cash,
inventory , receivable and production capacity have not being
properly managed by the company under study.

VIJAYKUMAR AND VENKATACHALAM have made efforts to do in


depth study of TAMILNASDU SUGAR CORPORATION for the period of
1985-86 to 1993-94. Results indicate that the corporation has
maintained moderate level of working capital , less amount from long
term funds has been used for meeting short term liabilities and due
to excess liquidity , profitability was affected during the period of
study.

CHAPTER_2

Research methodology

OBJECTIVES OF THE STUDY

To assess and evaluate the working capital briefly.


To evaluate the liquidity position of the bank.
To assess the profitability of the bank year after year
To measure how far assets of bank have been utilized to increase the sales.
To know the Sources of working capital provided by the bank
To compare lending rates of JK BANK with SBI.

RESEARCH METHODOLOGY
Research Methodology is a systematic method of finding solutions to problems. It
is essentially an investigation, a recording and an analysis of evidence for the
purpose of gaining knowledge.
Success or failure of any project entirely depends upon methodology adopted by
the researcher. Methodologies basically use different methods of research
systematically and scientifically. Objectives of the study, its research design, its
sampling design, coding and editing methods, presentations and analysis of the
data together with interpretation of the data are essential part of research
methodology.

Research Type

Sample Unit

Analytical
Quantitative
Primary
Secondary
Business units applying for loan

Analysis Tool used

Financial Statements

Source of Data

TYPES OF RESEARCH:
Research purpose can be divided into four categories:
Exploratory research
Descriptive research
Diagnostic research
Hypothesis research

Exploratory research:
It is also termed as formulate research the main purpose of such research is to gain
familiarity with a phenomenon or to achieve new insights.

Descriptive research:
This portrays the particular characteristics of a particular individual situation or a group.

Diagnostic research:
To determine the frequency something occurred or which associated with something
else.

Hypothesis:
To test hypothesis of a casual relationship between variables
My research design is descriptive because the problem statement is based on the
present situation of liberty shoes financial statements

RESEARCH DESIGN
Analytical
This is analytical research area where we analyses information with cause and its
effects relationship. This analysis leads to the study of the assessment of working
capital and drawing conclusions of whether to lend money to the institution for
working capital requirement based on the various parameters which I try to make
it easy to understand with the help of case studies at the end.
Also if the money is lend then there is reality the norms are not always perfect
and hence it is essential to priorities stringent parameters and secondary
parameters.

Quantitative
This is Quantitative research type of research also, relates to aspects that can be
quantified or can be expressed in terms of quantity. It involves the measurement
of quantity or amount. The various available statistical and econometric methods
are adopted for analysis in such research.

DATA COLLECTION
Data collection is an essential part of every project. Success or failure of any
project entirely depends on the way of collection of data. The data in this
research were collected from the following two ways.

Primary Data

Observation, Discussion with the Project coordinator.


The company profile, annual reports have been obtained from JK
Bank.

Secondary Data
Secondary data relating to the procedure of assessment of working capital
finance, old sanction proposals, RBI guidelines, JK Bank norms etc. have been
sourced from reference books.

DATA REPRESENTATION

Tabular form
Pie Chart
Graph

RESEARCH SAMPLE
Different types of cases representing different situations which a bank generally
faces while financing the working capital to those who require these funds.

ANALYTICAL TOOLS USED


Since this is the analytical as well as quantitative type of research so the tools
and techniques which are used in this project are Financial Statements,
Performance reports, Illustrations.

LIMITATIONS OF THE STUDY

Time limit of 45 days was not enough to study the financial statement of the
bank
Annexures were not provided to me of financial statements.

Financial data was provided to me of the year 2014 which was not the recent
data.

Financial statements of JK bank is made by very much high professionals


with their standards so analysis of those statements was very tough time.
Support from staff of JK bank was not so good because they have very busy
schedule.

My lack of experience in the field of research creates so many problems


during the study.

Chapter_3
DATA ANALYSIS

RATIO ANALYSIS
Ratio Analysis is a very important tool of financial analysis. It is the process of
establishing the significant relationship between the items of financial
statements to provide meaningful understanding of the performance and
financial position of a firm. Ratios are classified as under:-

Liquidity Ratios
Activity Ratios
Leverage Ratios
Profitability Ratios

Financial ratio analysis is a useful tool for users of financial statement. It has
following advantages:

Advantages
1. It simplifies the financial statements.
2. It helps in comparing companies of different size with each other.
3. It helps in trend analysis which involves comparing a single
company over a period.
4. It highlights important information in simple form quickly. A user can
judge a company by just looking at few numbers instead of reading
the whole financial statements.

Limitations
Despite usefulness, financial ratio analysis has some disadvantages. Some key
demerits of financial ratio analysis are:
1. Different companies operate in different industries each having
different environmental conditions such as regulation, market
structure, etc. Such factors are so significant that a comparison of
two companies from different industries might be misleading.
2. Financial accounting information is affected by estimates and
assumptions. Accounting standards allow different accounting
policies, which impairs comparability and hence ratio analysis is less
useful in such situations.
3. Ratio analysis explains relationships between past information while
users are more concerned about current and future information.

Bench mark of key financial ratios in J&K bank:


Financial ratios are the only tools and not an end in credit appraisal process.
They are means to an end and the only pass guiding signals. Analysis of a
combination of critical financial ratios can help in proper decision making. They
are also practical constraints in evolving industry wise benchmarks for key
financial indicators.
Some important ratios are used during analysis of the financial statement by the
banks to ascertain the credit worthiness of the borrowers are described as under:

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

2013

2014

2015

Current Assets

37371.65

42343.9

50116.52

Current Liabilities36623.6

41347.8

49259.3

Current Ratio

1.02

1.01

1.02

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

2013

2014

2015

Liquid Assets

37371.65

42343.9

50116.52

Current Assets

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

2013

2014

2015

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

2013

2014

2015

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

2013

2014

2015

Net Sales

53934.51

60294.39

70869.57

Net Fixed Assets


1,994,1.43

3,937,7.02

1,920,0.15

FATOR

1.53 Times

3.69 Times

2.7 Times

Significance: - It indicates the extent to which the investment in fixed assets


contributes towards sales. It compared with the previous period, it indicates
whether the investment in fixed assets has been judicious or not.

6.

Working capital Turnover Ratio: - Working capital ratio is talking


about utilization of working capital for the firm. Working capital
turnover ratios express the relation between net sales and working
capital. It is calculate by the following formula;

WCTOR = Net Sales/Working capital


Working capital = Current assets current liabilities

Year

2013

2014

2015

Net Sales

53934.51

60294.39

70869.57

Working Capital37371.65

42343.9

50116.52

WCTOR

1.42 Times

1.41 Times

1.44 Times

Significance: - Working capital turnover ratios express the relation between net sales and
working capital. The ratio of the bank is decreasing year after year

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;

TATOR = Total assets/total turnover

Year

2013

2014

2015

376,932,318

327,559,871

425,467,948

Turnover

53934.51

60294.39

70869.57

TATOR

69%

54%

60%

Total assets

Significance;-The Banks aggregate business crossed yet another psychological


mark and stood at ` 70,869.57 Crores at the end of the financial year 2013-14.
The Banks total business increased by ` 10,575.18 Crores from the previous
years figure of ` 60,294.39 Crores, registering a growth of 17.54%

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.

DIFFERENT TYPES WORKING CAPITAL LOANS EXTENDED BY JK


BANK ALONG WITH INTEREST RATES (w.e.f. 19-02-2015)

NATURE

LOANS

COST OF FINANCE

COMMERCIAL PREMISES FINANCE


15%-15.50%
CONSTRUCTION EQUIPMENT
TERM CREDIT FINANCE

13.75%-14.75%

CRAFT DEVELOPMENT FINANCE13.25%-13.75%


LOAN AGAINST MORTGAGE OF 14%-15%
IMMOVABLE PROPERTY
CONTRACTOR FINANCE
FAIR PRICE SHOP SCHEME
WORKING CAPITAL
FACILITY
DASTKAR FINANCE

13.25% - 14.25%
14.75%
10.75%

KHATAMBAND CRAFTSMEN
13.25%-13.75%
CASH CREDIT/FINANCE
OVERDRAFT MORTGAGE LOAN FOR TRADE &14.75-16.25
SERVICE SECTOR

LETTER OF CREDIT
BILLS DISCOUNT

10.25%-10.75%

COMPARATIVE ANALYSIS OF THE AVERAGE LENDING


RATES OF WORKING CAPITAL LOAN BETWEEN JK BANK
AND SBI

WORKING
CAPITAL FACILITY
TERM LOAN
CASH CREDIT
LETTER OF CREDIT

JK BANK
13.33%

SBI
15%

14.375%
14.5%
10.50%

14%
18%
11%

% DIFFERENCE
-1.67%
+0.375%
-3.50%
0.50%

AVERAGE LENDING RATES


20
18
16
14
12
RATE OF INTEREST (%)

10
8
6
4
2
0
WCF

TERM LOAN CASH CREDIT

LC

The analysis shows comparative average lending rates of various types of


working capital loan provided by J&K BANK and SBI. From the above analysis we
came to know about the following finding:

1. The average interest rate of working capital facility provided JK BANK


is quite comparatively low up to 13.33% as compared to SBI rate of
15%. Thus, having a difference of 1.67% in JK BANK
2. While as in case of term loan SBI rate is low against JK BANK rate by
0.375%. But this difference is not too much that can be negotiated.
3. In cash credit facility there is a lot of difference between the rate
charged by JK BANK that is 14.5% and the rate of SBI that is 18%
thereby JK BANK leading by margin of 3.5%
4. Now in case of letter of credit type of funding that is usually in the
form of bills discounting, there is also not much difference between
JK BANK and SBI that is 10.5% and 11% respectively

EARNING UPDATES AS ON 31 DEC 2015


Performance Highlights for the 3rd quarter ended December
31, 2015:
Net Profit up 11.02 % at 321.29crore for the quarter ended Dec, 2015 as
compared to 289.40 crore earned during the quarter ended Dec, 2014.
EPS for the quarter ended Dec, 2015 at 66.28 up 11.02 % from 59.70 earned
during the corresponding quarter of previous financial year.
NIMs (Net Interest Margins) Ratio for the quarter ended Dec, 2015 at 3.97 %
(annualized) vis--vis 4.07 % for the corresponding quarter of previous financial
year.
Post tax Return on Assets at 1.88 % (annualized) for the quarter ended Dec,
2015 compared to 1.87 % for the corresponding period of the previous financial
year.
Post Tax Return on Average Net-Worth (annualized) for the quarter ended Dec,
2015 at 22.80 % compared to 24.35 % recorded for the corresponding quarter
of last financial year.
The Cost of Deposits (Annualized) for the quarter ended Dec, 2015 at 6.94 %
compared to 6.74 % recorded for the corresponding quarter of last financial
year.
The Yield on Advances (annualized) for the quarter ended Dec, 2015 stood at
12.24 % as compared to 12.60 % for the quarter ended Dec, 2014.
Business as per Employee and Net profit per Employee (annualized) were at
11.36 crore and

13.71 Lakh respectively for the quarter ended Dec, 2015

compared to 9.91 crore and

12.37 Lakh pertaining to the quarter ended Dec,

2014.
Gross and Net NPAs as percentages to Gross and Net Advances as on Dec, 2015
at 1.65 % and 0.22 % respectively compared to 1.61 % and 0.14 % a year ago.
NPA Coverage Ratio as on Dec, 2015 at 90.24 % well above RBI stipulated norm
of 70 %.
Cost to Income Ratio stood at 39.94 % for the quarter ended Dec, 2015 as
compared to 36.50 % for the quarter ended Dec, 2014.
Capital Adequacy Ratio (Basel III) stood at 13.01 % as on Dec, 2015 wellabove
RBI stipulated norm of 9 %.

Performance Highlights for the Nine months ended December


31, 2015

Net Profit up 15.76 % at

931.87crore for the nine months ended Dec, 2015 as

compared to 805.02crore earned during the nine months ended Dec, 2014.
EPS for the nine months ended Dec, 2015 at 192.23 up 15.76 % from
166.06 earned during the corresponding nine months of previous financial year.
NIMs (Net Interest Margins) Ratio for the nine months ended Dec, 2015 at 4.18
% (annualized) vis--vis 3.93 % for the corresponding nine months of previous
financial year.
Post tax Return on Assets at 1.88 % (annualized) for the nine months ended Dec,
2015 compared to 1.78 % for the corresponding period of the previous financial
year.
Post Tax Return on Average Net-Worth (annualized) for the nine months ended
Dec, 2015 at 23.31 % compared to 23.88 % recorded for the corresponding
nine months a year ago.
The Cost of Deposits (Annualized) for the nine months ended Dec, 2015 at 6.70
% compared to 6.92 % recorded for the corresponding nine months of last
financial year.
The Yield on Advances (annualized) for the nine months ended Dec, 2015 stood
at 12.25 % as compared to 12.61 % for the nine months ended Dec, 2014.
Business per Employee and Net profit per Employee (annualized) were at 11.36
crore and 13.25 Lakh respectively for the nine months ended Dec, 2015
compared to

9.91 crore and

11.47 Lakh pertaining to the nine months

ended Dec, 2014.


Gross and Net NPAs as percentages to Gross and Net Advances as on Dec, 2015
at 1.65 % and 0.22 % respectively compared to 1.61 % and 0.14 % a year ago.
NPA Coverage Ratio as on Dec, 2013 at 90.24 % well above RBI stipulated norm
of 70 %.
Cost to Income Ratio stood at 37.31 % for the nine months ended Dec, 2015 as
compared to 34.98 % for the nine months ended Dec, 2014.

Chapter_4
FINDINGS

Findings
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.

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
Net profit ratio indicates net margin on sales. This margin is continuously increasing
year to year.
The Banks aggregate business crossed yet another psychological
mark and stood at ` 70,869.57 Crores at the end of the financial year
2013-14. The Banks total business increased by ` 10,575.18 Crores
from the previous years figure of ` 60,294.39 Crores, registering a
growth of 17.54%
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.

Other Findings

A listed company with 53% equity of J&K state.


Bankers to the Govt. of J&K state.
Four decades of un-interrupted profitability & Dividends. Dividends
50% for the year 2014 as compared to 40% of previous year.
Business as on march 2014 crossed

1935 cores registering an

increase of 21% Credit take off recorded a remarkable growth of 35%


as against national growth of 12.8% Fastest growing bank in India
with a network of 451 branches spread across the country. ATM
facility available at 217 branches as on 05.02.2014. Tele-banking
facility available at 40 branches (Kashmir (17), Jammu ( 10 ) &
outside (13). Swift facility available at almost all the forex branches.
Co-branded J&K bank Amex credit cards available. Providing
depository services accredit with ISO 9002 certification & a
depository participant of NSDL. Entered into alliance with Bajaj
Allianz to distribute their non life insurance products on terms &

conditions of 17.5% (15% commission & 2.5% service charges).


Launched MetLife insurance operations in joint venture with MetLife
international (USA) in the country in respect of %age as under:-

MetLife Intl Inc.Holding


Jammu & Kashmir Bank Ltd.
M.Pallonji& co
Other small investors

26%
25%
31%
18%

CRISIL:One of the leading credit rating agency re-affirmedP1+ ratingto the banks
certificate of Deposit program indicating the highest degree of safety for timely
payment of principle & Interest. Launching JK Bank Global Access Debit Card
shortly, which shall be cirrus & Maestro enabled. Agreement signed with
MasterCard International.

Chapter_5
CONCLUSIONS

CONCLUSIONS
The requirement of working capital finance is ever increasing.
Loans and advances formed a major portion of the current
assets of the firmbecause of which the working capital gap is
large.
The bank prefers to use the second method of lending working
capital under theMPBF rather than evolving their own method.
In most of the cases, hypothecation and/or mortgage are used
to create securitiesfor the banks.
After doing the assessment of the financial indicators it is up to
the judgment of the top management of the bank to sanction
such loan. The very decision could beagainst the assessment
result.
Bank has their own internal credit rating procedure to rate the
clients (Borrowers).
If the company is with bank from inception stage then they are
given preference,as credible and loyal party over their financial
indicators.
There is a stiff competition to the nationalized banks from the
foreign investors astheir lending rates are much lower than
nationalized banks.
Today the foreign investors are very big threat to business and
its existence.

Chapter_6
SUGGESTIONS

SUGGESTIONS
Closely monitoring and inspecting the activities and stocks of
the borrowers from time to time can avoid the misuse of
working capital.
While working out the working capital limits, banks must
exclude the loans and advances from the current assets. The
assessment should be done mainly stock and the inventory
level of borrower.
Bank must extend working capital finance through non-fund
based facilities.
Another ideal method would be to use LC as the primary source
of extending, working capital clubbed with bill discounting. This
would ensure that the credit is put to the right use by the
borrower and repayment is guaranteed to the bank.
The bank must further secure themselves by holding a second
charge on all the fixed assets of the borrower.
The time period taken by the banks to sanction the limits
should be significantly reduced to allow the borrowers to make
use of the credit when the need is most felt.

Chapter_7
ANNEXURES

BALANCE SHEET OF JAMMU AND KASHMIR BANK

Capital and Liabilities:


Total Share Capital
Equity Share Capital
Share Application Money
Preference Share Capital
Reserves
Revaluation Reserves
Net Worth
Deposits
Borrowings
Total Debt
Other Liabilities & Provisions
Total Liabilities

Cr.

Mar '15
12 mths

Mar '14
12 mths

Mar '13
12 mths

Mar '12
12 mths

Mar '11
12 mths

5,675.12

4,816.20

4,044.69

3,430.19

2,961.97

5,723.61
69,335.86
1,765.00
76,824.47
1,795.26
78,619.73

4,864.69
64,220.62
1,075.00
65,295.62
1,583.00
71,743.31

4,093.18
53,346.90
1,240.96
54,587.86
1,588.18
60,269.22

3,478.68
44,675.94
1,104.65
45,780.59
1,248.88
50,508.15

3,010.46
37,237.16
1,100.21
38,337.37
1,198.97
42,546.80

Mar '15
12 mths

Mar '14
12 mths

Mar '13
12 mths

Mar '12
12 mths

Mar '11
12 mths

2,695.15
2,709.18
39,200.41
25,741.07
456.18

2,783.65
1,670.21
33,077.42
21,624.32
855.52
440.42
415.10

2,974.96
573.85
26,193.64
19,695.77
788.10
396.47
391.63

2,744.73
1,869.51
23,057.23
13,956.25
561.35
358.54
202.81

Assets
Cash & Balances with RBI
3,045.59
Balance with Banks, Money at Call
1,168.31
Advances
46,384.60
Investments
26,195.07
Gross Block
533.81
Accumulated Depreciation
Net Block
533.81
Capital Work In Progress
Other Assets
1,295.35
Total Assets
78,619.73
Contingent Liabilities
Bills for collection
Book Value (Rs)

in

456.18

941.33
693.34
676.17 714.95
71,743.32 60,269.22 50,508.15 42,546.80

16,140.71 21,738.95 11,081.48


12,358.90 11,439.85 4,904.93
1,003.49 844.34

18,189.26 8,291.77
8,790.08
3,799.74
717.58
621.00

PROFIT & LOSS ACCOUNT OFJAMMU AND KASHMIR BANK LTD


IN

Mar '15
12 mths
Income
Interest Earned
Other Income
Total Income
Expenditure
Interest expended
Employee Cost
Selling and Admin Expenses
Depreciation
Miscellaneous Expenses
Preoperative Exp Capitalized
Operating Expenses
Provisions & Contingencies
Total Expenses

Net Profit for the Year


Extraordinary Items
Profit brought forward
Total
Preference Dividend
Equity Dividend
Corporate Dividend Tax
Per share data (annualized)
Earnings Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)

CR

Mar '14
12 mths

Mar '13
12 mths

Mar '12
12 mths

Mar '11
12 mths

6767.00 6,136.80
390.26 483.73
7157.26 6,620.53

4,835.58
334.12
5,169.70

3,713.13
364.76
4,077.89

3,056.88
416.24
3,473.12

4082.52 3,820.76
743.91 652.26

2,997.22
521.41
198.48

2,169.47
523.61
221.12

1,937.54
366.36
233.39

605.38

510.56

386.51

550.20 1,042.68
450.28
147.88
5974.79
Mar '15

989.01
755.66
5,565.43
Mar '14

892.14
477.08
4,366.44
Mar '13

888.93
404.29
3,462.69
Mar '12

727.36
295.83
2,960.73
Mar '11

12 mths

12 mths

12 mths

12 mths

12 mths

1182.47

1,055.10

803.25

615.20

512.38

1182.47

1,055.10

803.25

615.20

512.38

242.39

162.40

126.04

106.65

165.69
335.00
844.34

126.90
260.00
717.58

105.69
220.00
621.00

243.93 217.65
500.00
1,003.49

Appropriations
Transfer to Statutory Reserves 343.15
Transfer to Other Reserves
428.37
Proposed Dividend/Transfer to Govt
283.58
Balance c/f to Balance Sheet 0.00
Total
1,055.10

200.81
413.68
188.76
0.00
803.25

153.80
314.42
146.98
0.00
615.20

128.89
258.71
124.78
0.00
512.38

102.34
211.60
95.90
0.00
409.84

Chapter_8
BIBLIOGRAPHY

REFERENCES AND BIBLIOGRAPHY


During the completion of this project work I have taken references from various
sources which include:
Annual report of The Jammu and Kashmir Bank ltd.
Magazines such as Business Economics, Newspaper such as Greater Kashmir,
Bank Dairy, Bank Catalogue, Bank magazine etc.
Yearly journals of the Jammu and Kashmir Bank Ltd.
Website of the bank;
www.jkbank.net
www.jkbank.com
www.rbi.org.in
Circulars of J&K Bank

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