INDUSTRY OVERVIEW

The Banking industry comprises of segments that provide financial assistance and advisory
services to its customers by means of varied functions such as commercial banking, wholesale
banking, personal banking, internet banking, mobile banking, credit unions, investment banking
and the like.

With years, banks are also adding services to their customers. The Indian banking industry is
passing through a phase of customers market. The customers have more choices in choosing their
banks. A competition has been established within the banks operating in India.

With stiff competition and advancement of technology, the services provided by banks have
become more easy and convenient. The past days are witness to an hour wait before withdrawing
cash from accounts or a cheque from north of the country being cleared in one month in the
south.

Banks are among the main participants of the financial system in India. Banking offers several
facilities & Opportunities. This section provides comprehensive and updated information,
guidance and assistance in all areas of banking in India.

Bank of Hindustan, set up in 1870, was the earliest Indian Bank . Banking in India on modern
lines started with the establishment of three presidency banks under Presidency Bank's act 1876
i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras.

The commercial banking structure in India consists of: Scheduled Commercial Banks &
Unscheduled Banks. Banking Regulation Act of India, 1949 defines Banking as "accepting, for
the purpose of lending or investment of deposits of money from the public, repayable on demand
or otherwise and withdrawable by cheques, draft, order or otherwise."

The arrival of foreign and private banks with their superior state-of-the-art technology-based
services pushed Indian Banks also to follow suit by going in for the latest technologies so as to
meet the threat of competition and retain customer base.

The evolution of IT services outsourcing in the Indian banks has presently moved on to the level
of Facilities Management (FM). Banks now looking at business process management (BPM) to
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increase returns on investment, improve customer relationship management (CRM) and
employee productivity.

For, these entities sustaining long-term customer relationship management (CRM) has become a
challenge with almost everyone in the market with similar products.

CLASSIFICATION OF THE INDUSTRY

Public Sector Banks:

Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs are still
dominating the commercial banking system. Shares of the leading PSBs are already listed on the
stock exchanges.

The PSBs will play an important role in the industry due to its number of branches and foreign
banks facing the constraint of limited number of branches. Hence, in order to achieve an efficient
banking system, the onus is on the Government to encourage the PSBs to be run on professional
lines.

Private Sector Banks:

The RBI has given licenses to new private sector banks as part of the liberalisation process. The
RBI has also been granting licences to industrial houses. Many banks are successfully running in
the retail and consumer segments but are yet to deliver services to industrial finance, retail trade,
small business and agricultural finance.

Foreign banks:

Foreign banks have been operating in India for decades with a few of them having operations in
India for over a century. The number of foreign bank branches in India has increased
significantly in recent years since RBI issued a number of licenses - well beyond the
commitments made to the World Trade Organisation. The presence of foreign banks in India has
benefited the financial system by enhancing competition, resulting in higher efficiency. There has
also been transfer of technology and specialised skills which has had some "demonstration
effect" as Indian banks too have upgraded their skills, improved their scale of operations and

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diversified into other activities. At a time when access to foreign currency funds was a constraint
for the Indian companies, the presence of foreign banks in India enabled large Indian companies
to access foreign currency resources from the overseas branches of these banks. Also with the
presence of foreign banks, as borrowers in the money market and their operation in the foreign
exchange market has resulted in the creation and deepening of the inter-bank money market.
Now, it is the challenge for the supervisors to maximize the advantages and minimize the
disadvantages of the foreign banks' local presence.

TREND ANALYSIS

Financial And Banking Sector Reforms

The last decade witnessed the maturity of India's financial markets. Since 1991, every
governments of India took major steps in reforming the financial sector of the country. The
important achievements in the following fields is discussed under separate heads:

• Financial markets

• Regulators

• Non-banking finance companies

• The capital market

• Mutual funds

• Overall approach to reforms

• Deregulation of banking system

• Consolidation imperative

FINANCIAL MARKETS

In the last decade, Private Sector Institutions played an important role. They grew rapidly in
commercial banking and asset management business. With the openings in the insurance sector
for these institutions, they started making debt in the market.

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Competition among financial intermediaries gradually helped the interest rates to decline.
Deregulation added to it. The real interest rate was maintained. The borrowers did not pay high
price while depositors had incentives to save. It was something between the nominal rate of
interest and the expected rate of inflation.

Regulators

The Finance Ministry continuously formulated major policies in the field of financial sector of
the country. The Government accepted the important role of regulators. The Reserve Bank of
India (RBI) has become more independant. Securities and Exchange Board of India (SEBI) and
the Insurance Regulatory and Development Authority (IRDA) became important institutions.
Opinions are also there that there should be a super-regulator for the financial services sector
instead of multiplicity of regulators.

Development finance institutions

FIs's access to SLR funds reduced. Now they have to approach the capital market for debt and
equity funds. Convertibility clause no longer obligatory for assistance to corporates sanctioned
by term-lending institutions. Capital adequacy norms extended to financial institutions.

DFIs such as IDBI and ICICI have entered other segments of financial services such as
commercial banking, asset management and insurance through separate ventures. The move to
universal banking has started.

Non-banking finance companies

In the case of new NBFCs seeking registration with the RBI, the requirement of minimum net
owned funds, has been raised to Rs.2 crores.

Until recently, the money market in India was narrow and circumscribed by tight regulations
over interest rates and participants. The secondary market was underdeveloped and lacked
liquidity. Several measures have been initiated and include new money market instruments,
strengthening of existing instruments and setting up of the Discount and Finance House of India
(DFHI).

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Long-term debt market: The development of a long-term debt market is crucial to the financing
of infrastructure. After bringing some order to the equity market, the SEBI has now decided to
concentrate on the development of the debt market. Stamp duty is being withdrawn at the time of
dematerialisation of debt instruments in order to encourage paperless trading.

Mutual funds

The mutual funds industry is now regulated under the SEBI (Mutual Funds) Regulations, 1996
and amendments thereto. With the issuance of SEBI guidelines, the industry had a framework for
the establishment of many more players, both Indian and foreign players.

The insurance industry is the latest to be thrown open to competition from the private sector
including foreign players. Foreign companies can only enter joint ventures with Indian
companies, with participation restricted to 26 per cent of equity. It is too early to conclude
whether the erstwhile public sector monopolies will successfully be able to face up to the
competition posed by the new players, but it can be expected that the customer will gain from
improved service.

Overall approach to reforms

The last ten years have seen major improvements in the working of various financial market
participants. The government and the regulatory authorities have followed a step-by-step
approach, not a big bang one. The entry of foreign players has assisted in the introduction of
international practices and systems. Technology developments have improved customer service.
Some gaps however remain (for example: lack of an inter-bank interest rate benchmark, an active
corporate debt market and a developed derivatives market). On the whole, the cumulative effect
of the developments since 1991 has been quite encouraging. An indication of the strength of the
reformed Indian financial system can be seen from the way India was not affected by the
Southeast Asian crisis.

Deregulation of banking system

Prudential norms were introduced for income recognition, asset classification, provisioning for
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delinquent loans and for capital adequacy. In order to reach the stipulated capital adequacy
norms, substantial capital were provided by the Government to PSBs.

Government pre-emption of banks' resources through statutory liquidity ratio (SLR) and cash
reserve ratio (CRR) brought down in steps. Interest rates on the deposits and lending sides almost
entirely were deregulated.

New private sector banks allowed to promote and encourage competition. PSBs were encouraged
to approach the public for raising resources. Recovery of debts due to banks and the Financial
Institutions Act, 1993 was passed, and special recovery tribunals set up to facilitate quicker
recovery of loan arrears.

Consolidation imperative

Another aspect of the financial sector reforms in India is the consolidation of existing institutions
which is especially applicable to the commercial banks. In India the banks are in huge quantity.
First, there is no need for 27 PSBs with branches all over India. A number of them can be
merged. The merger of Punjab National Bank and New Bank of India was a difficult one, but the
situation is different now. No one expected so many employees to take voluntary retirement from
PSBs, which at one time were much sought after jobs. Private sector banks will be self
consolidated while co-operative and rural banks will be encouraged for consolidation, and
anyway play only a niche role.

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KEY DRIVERS OF SUSTAINABILITY IN THE BANKING INDUSTRY

Lender's liability

Lender's liability is associated with the financial risks banks face when granting or extending
loans. Banks and other lenders rely on financial statements of companies when deciding whether
to grant or extend credit. Under current reporting requirements, potential environmental
liabilities can easily remain undiscovered unless a lender develops its own procedure to assess
the environmental risks. Therefore, some banks can end up spending the money on clean-ups of
sites contaminated through their clients' activities.

Borrower's ability to meet financial obligations

The borrower's obligation to clean up contaminated sites might impair his or her ability to repay
a loan. The contamination might also reduce the value of the collateral. Prudent lenders are
following the environmental trends and changes in regulatory framework to assess the possible
implications of these changes on their clients' overall financial position.

Growing environmental concerns

The last few decades have been marked by numerous changes in the regulatory framework
relating to environmental protection. Recent scientific discoveries of environmental and health
risks associated with pollution have contributed to an increase in public demand for
environmental quality. These growing concerns have contributed to a major shift in public
perception of corporate roles in society. Influenced by these trends, some banks have begun
looking closely into their own environmental and social performance. In many cases this effort
has resulted in adoption of energy and resource efficiency programs within the institutions
themselves.

Business opportunities

The traditional approach of the banking sector to sustainability is often regarded as reactive and
defensive. However, several international banks have recently adopted innovative, proactive
strategies to capture the opportunities associated with sustainability. They have developed new
products such as ethical funds or loans specifically designed for environmental businesses to
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capture new market opportunities associated with sustainability.

Risk and reward

The ability to gauge the risks and take appropriate position will be the key to successful banking
in the emerging scenario. Risk-takers will survive, effective risk mangers will prosper and risk-
averse are likely to perish, the report asserts.

In this context, the report makes a very pertinent recommendation that risk management has to
trickle down from the corporate office to branches.

As audit and supervision shifts to a risk-based approach rather than transaction oriented, the risk
awareness levels of line functionaries also will have to increase.

The report also talks of the need for banks to deal with issues relating to `reputational risk' to
maintain a high degree of public confidence for raising capital and other resources.

J&K BANK PROFILE

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J&K Bank functions as a universal bank in Jammu & Kashmir and as a specialized bank in the
rest of the country. It is also the only private sector bank designated as RBI’s agent for banking
business, and carries out the banking business of the Central Government, besides collecting
central taxes 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. The J&K Bank is rated P1+, indicating the
highest degree of safety by Standard & Poor and CRISIL.
Jammu And Kashmir Bank Limited (J & K) was incorporated in 1st October of the year 1938
and commenced its business from 4th July of the year 1939 at in Kashmir (India). The Bank was
the first in the country as a state owned bank. It offers banking services under the three major
divisions as Support services, Depository services and Third party services. Presently, the bank
has more than 560 branches under its control to serve the customers across the country.
According to the extended Central laws of the state, Jammu & Kashmir Bank was defined as a
government of company as per the provision of Indian companies act 1956. In the year 1971, the
Bank received the status of scheduled bank. RBI declared it as 'A' Class Bank in the year of
1976. During the year 1993, the Bank made tie up with Reuter News Agency for instantaneous
information about global foreign currency rates and fluctuations. In the year of 1995, Banking
Ombudsman Scheme was launched in June and a loan delivery system was introduced in April,
which was used for large borrowers. During the year of 1998, J & K had introduced a new term
deposit scheme under the title of Jana Priya Jamma Yojna carrying flexibility in the repayment
schedule and in the same year the bank introduced Housing Loan and Education Loan Schemes.
The Bank had entered into an agreement with IBA to connect its ATMs through a shared network
in the year 1999. To offer Internet Banking and for its e-commerce initiatives, the bank made tie
up with Infosys Technologies and also in the same year J&K Bank had entered into agreement
with American Express to launch a co-branded credit card. J&K Bank had diversified into non-
life insurance and depository business, apart from life Insurance and asset management business
in the year of 2000. The Bank had launched Global Access Card (An International Debit Card) in
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association with Master Card International during the year of 2003. During the year 2004, J&K
Bank agreed with ICICI Bank to share the ATM network. In the same year the bank had received
the Asian Banking Award 2004 in Manila for its customer convenience programme. Signed MoU
with Bajaj Tempo in the year of 2004. During the year 2005-06, J&K opened its branches in
Chennai, Kanpur, Agra and Kolkata. Also in the same year introduced new product and services
for rural finance. During the period of 2006-2007, the bank introduced various hi-tech and
customer friendly products. The Bank and TATA Consultancy Services (TCS), Asia's largest IT
company signed a Memorandum of Understanding (MoU) to signal their intent to work together
to create an IT blue-print for the bank.

UNIQUE CHACTERISTICS OF THE BANK

 Private sector Bank despite government holding 53 per cent of equity. Sole banker and
lender of last resort to the Government of J&K.
 Plan and non -plan funds, taxes and non-tax revenues routed through the bank.

 Salaries of Government officials disbursed by the Bank.

 Only private sector bank designated as agent of RBI for banking.

 Carries out banking business of the Central Government.

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BRAND IDENTITY
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.

 Green signifies growth and renewal.

 Blue conveys stability and unity.
 Red represents energy and power.
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.

VISION
“To catalyse economic transformation and capitalise on growth.”

Our vision is to engender and catalyse economic transformation of Jammu and Kashmir and
capitalise 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

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ACHIEVEMENTS

1. Jammu and Kashmir bank is awarded for best financial statement prepared in corporate
sector.

2. Jammu and Kashmir bank is awarded for best annual report produced

3. Recently Jammu &Kashmir bank is awarded for best banker in India

SERVICES PROVIDED

DEPOSITORY

A Depository is like a bank where securities are held in electronic (Dematerialised) form. One
can avail the facility of buying and selling of shares under single roof. It integrates your Broker,
DP and Bank on a single platform. You may open a Trading account by opening a Demat
account and Saving account with J&K Bank and Stock Broking Account by filling Investor
Registration form of HSBC Invest Direct Securities Ltd.

SUPPORT SERVICES

Technology application has remained the thrust area of the Bank for last many years with an
objective to offer state of the art world class Banking facilities to its customers. The Bank
continued to leverage information technology as a strategic tool for its business operations, to
gain competitive edge in customer service as well as improving productivity and efficiency. The
Bank’s IT strategy emphasizes enhanced level of customer services through 24x7 availability,
multi-channel Banking and cost efficiency through optimal use of electronic channels, wider
market reach and opportunities for cross-selling. The Bank’s focus is on harnessing technology
for integrating diverse products and services. Keeping this in view, the Bank continued to widen
the scope of multiple delivery channels such as ATM installations, Anywhere Banking , Internet

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Banking and SMS Banking at more & more centres.

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THIRD PARTY SERVICES

Mutual funds

J&K Bank has entered into tie-ups with reputed Asset Management Companies for distribution
of Mutual Fund products.Mutual Funds have become an attractive proposition for investors in
the current context and for J&K Bank it will be a good investment option to have in our product
portfolio. This shall be an important step towards converting the bank branch into a financial
supermarket addressing all the financial needs of the customers thus helping the bank retain the
customers within its fold.Moreover the branch can augment its fee based income the Bank aims
to match to industry standards.

Life insurance

MetLife India Insurance Company Limited (MetLife) is an affiliate of MetLife, Inc. and was
incorporated as a joint venture between MetLife International Holdings, Inc., The Jammu and
Kashmir Bank, M. Pallonji and Co. Private Limited and other private investors. MetLife is one
of the fastest growing life insurance companies in the country. It serves its customers by offering
a range of innovative products to individuals and group customers at more than 600 locations
through its bank partners and company-owned offices The MetLife companies offer life
insurance, annuities, automobile and home insurance, retail banking and other financial services
to individuals, as well as group insurance, reinsurance and retirement and savings products and
services to corporations and other institutions.The bank is also Corporate Agent of MetLife and
is marketing its products through its strong branch network.

Non –life insurance

The Bank has entered into an alliance with Bajaj Allianz to distribute their non-life products.
These products are available at all branches of the bank across India.

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REMITTANCE SERVICES

The bank has a tie –up with Western Union Financial Services Inc., an international leader in
money transfer services through its primary agent SITA, a division of Kuoni Travels India Pvt.
(“Kuoni”) to provide inbound money transfer services to customers across the country. As a
result of this association, people in general and J&K Bank customers in particular are availing
the facility of receiving money from their relatives and friends abroad using the Western Union
Money Transfer service.

The bank has also has an arrangement with Reliance Capital –Travelmate to provide inbound
money transfer services to customers across the country. A number of branches in J & K and all
the branches outside state have been added to the existing list to bring more customers to the
bank’s fold for availing this facility.

CASH MANAGEMENT SERVICES

Real time gross settlement
J&K bank offers Real Time Gross Settlement (RTGS) payments and collections as a speedy,
convenient, cost-efficient and secure method to move large value funds across the country. This
offering is based on Reserve Bank of India's (RBI) RTGS payment system.

National electronic fund transfer

J&K Bank offers National Electronic Fund Transfer (NEFT) payments as a speedy, convenient,
cost-efficient and secure MECHANISM to move funds across the country.

BUSINESS OPERATIONS:
 loans and advances
 personnel
 law
 establishment
 balance sheet
 auditors
 SMT
 recovery
 remittance
 administration
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CUSTOMER SERVICES
The Bank continued its emphasis on maintaining high standards of services to its customer. In
this direction the Bank introduced various hi-tech and customer friendly products during the
year, providing value added service to achieve customer satisfaction. Customer complaints
received are dealt promptly and expeditiously. The Bank is a member of the Banking codes and
Standards board of India and has adopted „Code of Bank‟s commitment to customer‟, a
voluntary code of providing protection and „Right to know‟ to the customer. The Bank has
established a 24 x 7 help desk address customer queries and the desk is slated to be converted
into a full-fledged call center in 2007-08. The Bank is keenly pursuing for ISO 9000 certification
for its customer service.

HUMAN FACE/CORPORATE SOCIAL RESPONSIBILITY

 The Corporate Social Responsibility (CSR) of the J&K Bank seeks to recognize
obligations towards society and aims to integrate the CSR ideals into its mission for
optimizing both business and social performance. It stresses on promoting work life
balance, give attention to social and environmental concerns and host of factors that
facilitate business pursuits and accomplishment of economic goals.
 The Bank has established its credentials for the poor and needy by donating generously
for various philanthropic activities aimed at ameliorating their sufferings.
 In order to enable socially and economically weaker classes to live a healthy life the bank
shall endeavor to give financial support to the needy and poor patients, afflicted with
dreaded diseases like Cancer, cardiac failure, Kidney failure etc. for their treatment /
surgery.
 The thrust areas to assist in this respect for the Bank will be preservation of
historical/religious monuments, development of tourist sites, national properties,
museums, libraries, protection of environment/ecology etc. and sponsoring seminars and
awareness camps, art and literary works, 3rd cultural activities, social service camps,
college or university students clubs etc.

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 The Bank has been playing a vital role in the promotion of tourism and it is in this
backdrop that the Bank has been shouldering the responsibility of registering yatris for
the Shree Amarnathji Yatra through its extensive network of branches spread across the
country.
 Apart from above activities the Bank has been constructing/developing the public utility
service like public parks, bus stands, drinking water posts, lavatories, conveniences, rain
shelters. In addition to this, the bank organizes relief camps, service camps, night
shelters, health resorts, health clinics, disaster & calamity management centers,
rehabilitation centers etc.

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ORGANIZATIONAL CHART:

CHAIRMAN

EXECUTIVE PRESIDENT

PRESIDENT

VICE PRESIDENT

SENIOR EXECUTIVE MANAGER

EXECUTIVE MANAGER EXECUTIVE SENIOR EXECUTIVE

ASSOCIATE EXECUTIVE BANKING ASSOCIATE ASST BANKING ASSOCIATE

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 Functional chart:

THE FUNCTIONAL DEPARTMENTS

OF JAMMU AND KASHMIR BANK Ltd.

AUDIT BANKING OPERATIONS

CORPORATE SERVICES
COMMUNICATIONS

EXECUTIVE AND LEGAL

DEBT
SERVICES
ADMINISTRATION

FINANCIAL SERVICES
FINANCIAL MARKETS

RESEARCH
MONETARY AND
FINANCIAL ANALYSIS

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RESEARCH DESIGN
STATEMENT OF THE PROBLEM:
Working capital management is concerned with the problem arise in attempting to manage the
current assets, current liabilities and interrelation between both. It operational goal is to manage
the smooth functioning of day-to- day operation of an organization.

OBJECTIVES:
 To understand the existing credit appraisal techniques in Jammu & Kashmir bank.
 To understand the various valuations those happen in credit appraisal.
 To understand the risk management that exists in credit appraisal.
 To understand how the credit is granted to the customers.
 To know the securities required to be mortgaged before granting credit to the parties.

List of documents to be enclosed with the credit proposals involving sanctions of fresh
facilities (working capital) to existing estimated units:
 Loan appraisal form.
 Credit reports of the proprietor/partners/directors/guarantors.
 Latest unit inspection report.
 Partnership deed/articles and memorandum of association, certificate of incorporation
and latest list of directors in case of companies.
 Copies of audited financial statements for the last 3years and projection for next 2years.
 Provisional financial statements if the date of the proposal falls 6months after the
previous accounting years.
 Valuation report of the immovable properties from banks approved values.
 Copies of the title deals and title verification report in respect of property offered pr
mortgage.
 Sales tax/income tax return acknowledgement for the last financial year with latest
assessment order.
 Copy of appraisal note of lead bank in case the applicant is enjoying working capital
facilities under consortium arrangement or of any other bank in case the borrower is
enjoying facility under multiple banking arrangement.

LIMITATIONS:
 This study was undertaken for limited period & done purely for academic purpose only.
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  The study was restricted to financing by Jammu and Kashmir bank only.

METHODS OF DATA COLLECTION:

The research dwells on primary and secondary data for attaining the set objectives.
Primary data:
It was collected with the help of data available in the organization and informal interviews with
the company’s executives and managers.

Secondary data:
This was obtained from the website, records and reports of the company as balance sheet and
profit and loss a/c given by the company and various other reference books relating to project
financing.
The study is nearly based on the data provided in the annual reports of the company for the year
2010, 2011 and 2012. In this study sampling design technique was used. Entire unit was
considered as sampling and financial performance was analyzed. It is analytical study and
techniques of credit appraisal.

WORKING CAPITAL
Definition of working capital
The Capital required to run the day-to-day operation of an organization is known as Working
Capital. It can be either gross working capital or net working Capital. Gross working capital
means the total of the all current assets whereas Net working capital means the difference
between the total Current assets and Current liabilities.
WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES
Current assets are those assets which will be converted in to cash within the current accounting
period or within the next year as a result of the ordinary operation of the business. They are cash
or near cash resources. These include:
 Cash and Bank balances
 Receivables
 Pre-Paid expenses
 Short-term advances
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  Temporary advance
 Inventory
 Raw materials, stores and spares
 Work-in-Progress
 Finished goods
The value represented by these assets circulates among several items. Cash is to buy raw
materials, to pay wages to meet others manufacturing expenses. Finished goods are produced.
These are held as inventories. When these are sold, accounts receivables are created. The
collections of accounts receivable bring cash into the firm. The cycle starts again
Current liabilities are the debts of the firms that have to be paid during the current accounting
period or within the a year. These include:
 Creditors for goods purchased
 Outstanding expenses i.e., expenses due but not paid
 Short-term borrowings
 Advances received against sales
 Taxes and Dividends payable
 Other liabilities maturing within a year.
Working capital is also known as circulating capital, fluctuating capital and revolving
capital .The magnitude and composition keep on changing continuously in the course of
business.
Every business needs adequate liquid resources in order to maintain day-to-day cash flow. It
needs enough cash to pay wages and salaries as they fall due and to pay creditors if it to keep its
workforce and ensure its supplies.
Maintaining adequate working capital is not just important in the short –term. Sufficient liquidity
must be maintained in order to ensure the survival of the business in the long-term as well.
Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as
they fall due.
Therefore, when businesses make investment decisions they must not only consider the financial
outlay involved with acquiring the new machine or the new building ,etc, but must also take
account of the additional current assets that are usually involved with any expansion of activity.

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Increased production increases need to hold more stock of raw material and work-in-progress.
Increased sales usually mean that the level of debtors will increase. A general increase in the
firm’s scale of operations tends to imply a need for greater levels of cash.

PERMANENT AND TEMPORARY WORKING CAPITAL

Considering times as the basis of classification, there are two types of working capital viz,
‘Permanent and Temporary working capital.
Permanent working capital represents the assets required on continuing basis over the entire year,
whereas temporary working capital represents additional assets required at different times during
of the year.
A firm will finance its seasonal and current fluctuation business operation through short-term
debt financing. For example, in Peak season, more raw material to be purchased, more
manufacturing expenses to be incurred, more funds will be locked in debtors balance etc. In such
times excess requirement of working capital will be financed from short –term financing sources.
The permanent components current assets which are required throughout the year will generally
be financed from long-term debt and equity. Tandon Committee has referred to this types of
working capital as ‘Core Current Assets’.
Core current Assets are those required by the firm to ensure of operations which represents the
minimum levels of various items of current assets viz., stock of raw material, stock of work-in-
process, stock of finished goods, debtors balance, cash and bank etc. This minimum level of
current assets will be financed by the long –term sources and any fluctuation etc. This minimum
level of current assets will be financed by long term sources and any fluctuation over the level of
the current assets will be financed by the short-term financing. Sometimes core current assets are
also referred to as ‘Hard core working capital’ The management of
working capital is concern with maximising the return to shareholder within the accepted risk
constraints carried by the participants in the company.

WORKING CAPITAL NEEDS OF A BUSINESS

Different industries have different optimum working capital profiles, reflecting their method of
doing business and what they are selling.

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  Business with a lot of cash sales and few credit sales should have minimal trade debtors.
Supermarkets are good examples of such businesses.
 Business that exists to trade in completed products will only have finished goods in
stock. Compared this with manufactures who will also have to maintain stock of raw
material and work-in-progress.
 Some finished goods, notably foodstuffs, have to be sold within a limited period because
of their perishable nature.
 Larger companies may be able to use their bargaining strength as customers to obtain
more favourable, extended credit terms from suppliers. By contrast, smaller companies,
particularly those that have recently started trading (and do not have a record of
accomplishment of credit worthiness) may be required to pay their suppliers immediately.
 Some business will receive their monies at certain times of the year, although they my
incur expenses thought the year at a consistent level. This is often known as “seasonality”
of the cash flow. For example, travel agents have peak sales in the weeks immediately
following Christmas.

WORKING CAPITAL CYCLE

Introduction
The working capital cycle can be defined as:
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 customer?
Cash is used to buy raw material and other stores, so cash is converted into raw material and
stores inventory. Then the raw material and stores are issued to the production department.
Wages are paid and other expenses are incurred in the process and work-in-process comes into
existence. Work –in-process becomes finished goods. Finished goods are sold to customer on
credit. In the course of time these customer pay cash for the goods purchase by them. ‘Cash’ is
retrieved and the cycle is completed. Thus, working capital cycle consists of four stage.
 The raw material and stores inventory stage
 The work-in-progress stage

24
 The finished goods inventory stage
 The receivable.
 The diagram below illustrates the working capital cycle for a manufacturing firm.

25
 Work-In- progress

Raw material stock Wages & overhead Finished goods stock

sales

Trade creditors Trade debtors

Selling expenses

Cash

Taxation Shareholders

Fixed assets loan Creditors

Lease payment

The upper portion of the diagram above shows in a simplified from the chain of a events in a
manufacturing firm. Each of the boxes in the upper part of the diagram can be seen as a tank
through which funds flow. These tanks, which are concerned with day-to-day activities, have
funds constantly following into and out of them.

26
  The chain starts with the firm buying raw material on credit.
 In due course, this stock to be used in production ,work will be carried out on the stock,
and it will become part of the firm’s work in progress( WIP)
 Work will continue on the WIP until it eventually emerges as the finished product.
 As production progresses, labour costs and overheads will need to be met.
 Of course, at some stage trade creditors will need to be paid
 When the finished goods are sold on credit, debtors are increased
 They will eventually pay, so that cash will be injected into the firm
Each of the areas –stocks (raw material, work in progress and finished goods), trade
debtors, cash (positive or negative) and trade creditors-can be viewed as tanks into and
from which funds flow.
Working capital is clearly not the only aspect of a business that affects the amount of
cash:
 The business will have to make payments to government for taxation
 Fixed assets will be purchased and sold
 Lesser of fixed assets will be paid their rent.
 Shareholders (existing or new) may provide new funds in the form of cash.
 Some shares may be redeemed for cash.
 Dividends may be paid.
 Long –term loan creditors (existing or new) may provide loan finance ,loan will need to
be repaid from time to time , and
 Interest obligation will have to be met be the business.
Unlike movement in the working capital items, most of this ‘non- working capital’ cash
transaction is not every day events. Some of them are annual events (e.g. tax payments, lease
payment, dividends, interest and possibly, fixed assets purchase and sales). Others (e.g. new
equity and loan finance and redemption of old equity and loan finance would typically be rarer
events.
Working capital cycle involves conversions and rotation of various constituents/components of
the working capital. Initially ‘cash ‘converted into raw materials.

27
Subsequently ,with the usages of fixed assets resulting in value additions ,the raw material get
converted into work in process and then into finished goods. When sold on credit, the finished
goods assume the form of debtors who give the business cash on due date. Thus, ‘cash’ assumes
its original form against at the end of one such working capital cycle but in the course it passes
through various other forms of current assets too. This is how various components of current
assets keep on changing their forms due to value addition.
As a result, they rotate and business operation continues. Thus, the working capital cycle
involves rotation of various constituents of the working capital.
While managing the working capital, two characteristics of current assets should be kept in mind
viz.
1. Short life span
2. Swift transformation into other form of current assets.
Each constituent of current assets has comparatively very short life span. Investment remains in a
particular form of current assets for a short period. The life span of current assets depends upon
the time required in the activities of procurement, production, sales and collection and degree of
synchronisation among them. A very short life span of current assets results into swift
transformation into other form of current assets for a running business. These characteristics
have certain implication-
i. Decision regarding management of the working capital has to be taken frequently and
on a repeat basis.
ii. The various components of the working capital are closely related and mismanagement
of any one component adversely affects the other components too.
iii. The difference between the present value and the book value of profit is not significant.
The working capital has the following components, which are in several form of current
assets:
1. Stock of cash
2. Stock of raw material
3. Stock of finished goods
4. Value of debtors
5. Miscellaneous current assets like short term investment loans & advances.
FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENT
28
The is not set of universally applicable rules to ascertain working capital needs of a business
organisation. The factors which influence the need level are discussed below.
 Nature of Enterprise:-
The nature and the working capital requirement of an enterprise are interlinked. While a
manufacturing industry has a long cycle of operation of the working capital, the same
would be short in an enterprise involved in providing service. The amount required also
varies as per the nature; an enterprise involved in production would required more
working capital than a service sector enterprise.
 Manufacturing / Production Policy:
Each enterprise in the manufacturing sectors has its own production policy, some follow
the policy of uniform production even if the demand varies from time to time, and others
may follow the principle of ‘demand-based production’ in which production is based on
the demand during that particular phase of time. Accordingly, the working capital
requirement varies for both of them.
 Operation:
The requirement of working capital fluctuates for seasonal business. The working capital
needs of such businesses may increase considerably during the busy season and decrease
during the slack season. Ice creams and cold drinks have great demand during summers;
while winter the sales are negligible.
 Market Condition:-
If there is high competition in the chosen product category, then one shall need to offer
sops like credit, immediate delivery of goods etc, for which the working capital
requirement will be high. Otherwise, if there is no competition or less competition in the
market then the working capital requirement will be low.
 Availability of Raw material:-
If raw material is readily then one need not maintain a large stock of the same, thereby
reducing the working capital investment in raw material stock. On the other hand, if raw
material is not readily available then a large inventory/ stock needs to be maintained,
thereby calling for substantial investment in the same.
 Growth and Expansion:-
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 Growth and expansion in the volume of business result in enhancement of the working
capital requirement. As business grows and expands, it needs a larger amount of working
capital. Normally the need for increased working capital funds precedes growth in
business activities.
 Manufacturing Cycle :-
The manufacturing cycle starts with the purchase of raw material and is completed with
the production of finished goods. If the manufacturing cycle involves a longer period, the
need for working capital would be more. At times, business needs to estimate the
requirement of working capital in advance for proper control and management. The
factor discussed above influence the quantum of working capital in the business. The
assessment of working capital requirement is made keeping these factors in view. Each
constituent of working capital retains its form for a certain period and that holding period
is determined by the factors discussed above. So for correct assessment of the working
capital cycle requirement, the duration at various stages of the working capital estimated.
Thereafter, proper value is assigned to the respective current assets, depending on its
level of completion.
Each constituent of the working capital is valued on the basis of valuation enumerated
above for the holding period estimated. The total of all such valuation becomes the total
estimated working capital requirement. The assessment of the working capital should be
accurate even in the case of small and micro enterprise where business operation is not
very large. We know that working capital has a very close relationship with day-to-day
operation of a business. Negligence in proper assessment of the working capital,
therefore, cans affect the day-to day operation severely. It may lead to cash crisis and
ultimately to liquidation. An inaccurate assessment of the working capital may cause
either under-assessment or over assessment of the working capital and both of them are
dangerous.
CONSEQUENCES OF UNDER ASSESSMENT ON THE WORKING
CAPITAL.
 Due to lack of funds, payment of salaries may become irregular.
 Inadequate working capital may lead to non-payment of creditors’ amount in time.

30
  It will not allow the organization to produce the demanded number of items.
 Growth may by stunted. It may become difficult for the enterprise to undertake profitable
project due to non-availability of working capital.
 Implementation of operating plans may become difficult and consequently the profit
goals may be achieved.
 Cash crisis may emerge due to paucity of working funds.
 Optimum capacity utilisation of fixed assets may not achieved due to non – availability of
the working capital.
 The business may fail to honour its commitment in time, thereby adversely affecting its
credibility. This situation may lead to business closure.
 The business may be compelled to buy raw material on credit and sell finished goods on
cash. In the process it may end up with increasing cost of purchase and reducing selling
by offering discounts. Both these situation would affect profitability adversely.
 Non-availability of stock due to non- availability of funds may result in production
stoppage.
 While underassessment of working capital has disastrous implication on business, over
assessment of working capital also has its own dangers.

CONSEQUENCES OF OVER ASSESSMENT ON WORKING CAPITAL

 Idle funds which will earn no profit.
 It may lead to unnecessary purchase.
 It may allow the change of misuse of funds.
 It reduces the overall efficiency of the organization.
Excess of working capital may result in unnecessary accumulation of inventory. It may lead to
offer too liberal credit terms to buyers and very poor recovery system and cash management. It
may make management complacent leading to its inefficiency.
Over-investment in working capital in makes capital less productive and reduces return on
investment. Working capital is very essential for success of a business and, therefore, needs
efficient management and control. Each of the components of the working capital needs proper
management to optimise profit.

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IMPACT OF INFLATION ON WORKING CAPITAL REQUIREMENT.
When the inflation rate is high, it will have its direct impact on the requirement of the
working capital as explained below:
1. Inflation will cause to show the turnover figure at higher level even if there is no increase
in the quantity of sales. The higher the sales means the sales means the higher level of
balance in receivables.
2. Inflation will result in increase of raw material prices and hike in payment for expenses
and as a result, increase in balance of trade creditors and creditors for expenses.
3. Increase in valuation of closing stocks result in showing higher profit but without its
realisation into cash causing the firm to pay higher tax, dividends and bonus. Thus will
lead the firm in serious problem of fund shortage and firm may unable to meet its short-
term and long term obligation.
4. Increase in investment is current assets means the increase in requirement of working
capital without corresponding increase in sales or profitability of the firm.
Keeping in view of the above, the finance manager should be very careful about the impact of
inflation in assessment of working capital requirement and its management.

Zero working capital

The idea is to have zero working capital i.e. at all times the current assets shall equal the current
liabilities. Excess investment in current assets is avoided and firm meets its current liabilities out
of the matching current assets.
As current assets ratio 1 and the quick ratio below 1, there may be apprehension about the
liquidity, but if all current assets are performing and are accounted at their realisable values,
these fears are misplaced. The firm saves opportunity cost on excess investment current assets
and as bank cash credit limits are linked to the inventory levels, interest costs are also saved.
There would be self-imposed financial discipline on the firm to manage their activities within
their current liabilities and current assets and there may not be tendency to over borrow or divert
funds.

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Adequate Working Capital
Working capital is the lifeblood of the organization. Without working capital, the functioning of
an organization will come to a halt. No business can run successfully without adequate amount
of working capital. The main advantages of adequate working capital are as follows:-
Solvency of the business
Adequate working capital helps in smooth running of the business. The generates revenue and
maintains the solvency of the organization.
Goodwill
Sufficient working capital helps to makes prompt payments to the creditors, which maintain the
goodwill of the organization.
Easy Loan
Organizations having adequate working capital are viewed by the banks as good candidates to
offer the loan facilities.
Cash Discounts
Companies can make use of the discount facilities that come along with the repayment of the
credit.
Regular supply of Raw Material
Adequate working capital helps to make regular payment to the supplier.
Regular payment of Salaries
It helps to make regular payments of salaries to the employees, thereby keeping their moral high.

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Working Capital Leverage
One of the important objectives of the working capital management is by maintaining the
optimum levels of the investment in current assets and reducing the level of current liabilities,
the company can minimise the investment in working capital thereby improvement in Return on
Capital employed is achieved. The term working capital leverage refers to the impact of level of
working capital on company’s profitability. The working capital management should improve the
productivity of investment in current assets and ultimately it will increase the return on capital
employed. Higher levels of investment in current assets than is actually required mean increase
in the cost of interest charges on the short-term loans and working capital finance raised from
banks etc, and will result in lower return on capital employed and vice versa. Working capital
leverage measures the responsiveness of ROCE for charges in current assets. It is measured by
applying the following formula.
Working Capital leverage = C. A
T.A – C.A
Where,
C.A = Current assets
T.A = Total assets (i.e., Net fixed assets + Current assets)
C.A = Change in Current assets

Approaches to working Capital Finance

Every organization requires financing its working capital requirement. Generally, there are two
source of finance. One is long- term source and the other is short-term source. Long term is
considered less risky as the period is high and the amount repayment period is high and the
amount of interest is low. The short-term sources are considered risky as they have to be
repaying within a very short period and the interest rate is very high.
1. Conservative working capital Approach
A conservative approach suggests carrying high levels of current assets in relation to
sales. Surplus current assets enable the firm to absorb sudden variations in sales,
production plans and procurement time without disrupting production plans. Additionally,
the higher liquidity levels reduce the risk of insolvency. But lower risk translates into

34
 lower return. Larger investment in current assets leads to higher interest and carrying
costs and encouragement for inefficient. But conservative policy will enable the firm to
absorb day to day business risk. Under this approach long –term financings covers more
than the total requirement for working capital. The excess cash is invested in short term
marketable securities and in need, theses securities are sold off in the market to meet the
urgent requirement of working capital.
2. Aggressive working capital Approach
Under the approach current assets are maintained just to meet the current liabilities
without keeping any cushion for the variation in working capital needs. The core working
capitals financed by long-term sources of capital and seasonal variations are met through
short-term borrowings. Adoption of this strategy will minimise the investment in net
working capital and ultimately it lower the cost of financing working capital. The main
drawback of this approach is that it necessitates frequent financing and also increase risk
as the vulnerable to sudden shocks.

RsMatching working Capital approach

Under this approaches, manager undertake only the required amount of risk. The fixed
portion of working capital is financed from long-tem sources. Here the source of
financing is matched with the components of working capital.

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FINANCING WORKING CAPITAL
Now let us understand the means to finance the working capital. Working capital or current
assets are those assets, which unlike fixed assets change their form rapidly. Due to this nature,
they need to be finance through short-term funds is also called current liabilities. The following
are the also called current liabilities. The following are the major sources of raising short-term
funds.
1. Supplier’s Credit
At times, business gets raw material on credit from the suppliers. The cost of raw material is
paid after some time, i.e. upon completion of the credit period. Thus without having an outflow
of cash the business is in position to use raw material and continue the activities. The credit
given by the suppliers of raw material is for a short period and is considered current liabilities.
These funds should be used for creating current assets like stock of raw material, work in
process, finished goods, etc.
A. Bank Loan
This is a major source for raising short-term funds. Banks extend loans to business to help
them create necessary current assets so as to achieve the required business level. The loans are
available for creating the following current assets.
 Stock of raw materials
 Stock of work in process
 Stock of finished goods
 Debtors.
Banks give short-term loans against these assets, keeping some security margin. The advances
given by banks against current assets are short term in nature and banks have the right to ask for
immediate repayment if they consider doing so. Thus, bank loans for creation of current assets
are also current liabilities.
B. Promoter’s Fund
It is advisable to finance a portion of current assets from the promoters’ funds. They are long
term funds and therefore do not require immediate repayment. These funds increase the liquidity
of the business.

36
Method for estimating working capital requirement.
There are three methods for estimating the working capital requirement of a firm:
1. Percentage of Sales Method:-
It is traditional and simple method of determining the level of working capital and its
components. In the method, working capital is determined on the basis of past experience. If ,
over the years, the relationship between sales and working capital is found to be stable ,then this
relationship may be taken as a base for determining the working capital.
2. Regression analysis method :-
it is a useful statistical technique applied for forecasting working capital requirements. It helps in
making working capital requirement projection after establishing the average relationship
between sales and working capital and its various components in the past years. The method of
least square is used in this regard.
3. Operating cycle method:-
The following methods are used in operating cycle approach:
 Total operating cycle Duration Approach
Working capital requirement is estimated using the following formula
Estimated cost of goods sold x Operating Cycle + desired cash
365 balance
 Estimated working capital
Estimated cost of goods sold x Operating Cycle + desired cash
360 balance
 Individual component approach
Detailed estimation is made using the individual component of the operating cycle.

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 INVENTORY MANAGEMENT
Introduction:
Inventory includes all types of stocks. For effective working capital management, inventory
needs to be managed effectively. The level of inventory should be such that the total cost of
ordering and holding cost inventory is the least. Simultaneously, stock out costs should also be
minimised. Business, therefore, should fix the minimum safety stock level, re-order level and
ordering quantity so that the inventory cost is reduced and its management becomes efficient.
Every organisation required to maintain inventory for smooth running of its activities. The
investment in inventories constitutes the major proportion of the current assets. Therefore, it is
essential to have proper control and management of inventories. The purpose of inventory
management is to insure availability of material in right quality, in right time and at right
place.
Purpose of Following Inventory
i. Transaction Motive:-
In order to have smooth and continuous operation, the organizations maintain inventory.
ii. Precautionary Motive :-
In order to satisfy the fluctuating demands and supply as well as some emergency like
strikes, etc., inventory is maintained.
iii.Speculative Motive :-
In order to take advantage of the price changes, organizations sometimes maintain
inventory to make profit.

38
 OBJECTIVE OF INVENTORY MANAGEMENT:
In the context of inventory management, the firm can face the problem of meeting two
conflicting needs:
 To maintain a large size of inventories of raw material and work-in-progress for efficient
and smooth production and of finished goods for uninterrupted sales operation.
 To maintain a minimum investment in inventory to maximize profitability.
Both excessive and inadequate inventories are not desirable. These are two danger points,
which the firm should avoid. The objective of inventory management should be to determine
and maintain optimum level of inventory investment. The optimum level of inventory will lie
between the two –danger points of excessive and inadequate inventories.
The firm should always avoid a situation of over investment and under investment in
inventories. The major dangers of over investment are:
 Unnecessary tie up of the firm’s funds
 Excessive carrying cost
 Risk of liquidity
The excessive level of inventories consumes funds of the firm, which cannot be use for any other
purpose, and thus, it involves an insurance, recording and inspection increase in proportion to the
volume of inventory. These costs will impair the firm’s profitability further. Excessive
inventories carried for long period increase chances of loss of liquidity. It may not be possible to
sell inventories in time and full value. Raw materials are generally difficult to sell as the holding
period increases. There are exceptional circumstances where it may pay to the company to hold
stock of raw materials. This is possible under the conditions of inflation and scarcity. Another
danger of carrying inventory is the physical deterioration of inventories in storage.
An effective inventory management should in case of certain goods of raw material, deterioration
occurs with the passage of time, or it may be due to mishandling and improper shortage facilities.
Maintaining an inadequate level of inventories is also dangerous. The consequences of under-
investment in inventories are:
a. Production hold-ups, and
b. Failure to meet delivery commitments.

39
Inadequate raw material and work-in-progress inventories will result in frequent production
interruption; similarly, if finished goods are not sufficient to meet the demand of customer
regularly, they may shift to competitors, which will amount to a permanent loss to the firm. The
aim of inventory management, thus, should be to avoid excessive and inadequate levels of
inventories and to maintain sufficient inventory for the smooth and sales operation effort should.
 Ensure a continuous supply of raw material to facilitate uninterrupted production.
 Maintain sufficient stock of raw material in period of short supply and anticipate price
changes.
 Maintain sufficient finished goods inventory for smooth sales operation and efficient
customer service.
 Control investment in inventories and keep it at an optimum level.
Inventory Management Techniques:
 Economic Order Quantity-
EOQ = (2AB) 2
(CS) 2
Where,
EOQ = Economic Order Quantity.
A = Annual Consumption
B = Buying cost per order
C = Cost per unit
S = Storage and other inventory carrying cost

 Fixation of Inventory Levels-

The following levels of inventory are fixed for efficient management of inventory:
 Re-Order Level: - Re-order level is the level of the stock availability when a new
order should be raised.
Re-Order level = Maximum usage X Maximum lead time
 Minimum Stock Level: - Minimum stock level is the lower limit which the stock
of any stock items should not normally be allowed to fall. Their level is also
called safety stock or buffer stock level

40
 Minimum stock Level = Re-order level – (Average or Normal Usage X average
lead time)
 Maximum Stock Level: - Maximum stock levels represent the upper limit
beyond which the quantity of any item is not normally allowed to rise.
Maximum level = Re-order level + EOQ – (Minimum usage X Minimum lead
time)
 Danger level: - Danger level of stock is fixed below the minimum stock level and
if stock reaches below this level.
Danger Level = Average consumption X Lead time emergency Period.
 VED Analysis ( Vital, Essential, & Desirable)
 FNSD Analysis ( Fast moving items, Normal moving items, Slow moving items & Dead
stock)
 Pareto Analysis ( 80 : 20 Rule)
 ABC Analysis
 Two Bin system
 Perpetual Inventory system
 Continuous stock taking
 Periodic stock taking system
 Input-Output Ratio
 Stock Turnover Ratio
Receivables Management
Given a choice, every business would prefer selling its produce on cash basis. However due to
factors like trade policies, prevailing marketing conditions etc., businesses are compelled to sell
their goods on credit. In certain circumstances, business may deliberately extend credit as a
strategy of increasing sales. Extending credit means creating current assets in the form of
‘Debtors’ or Accounts Receivable. Investment in this type of current assets needs proper and
effective management as it to cost such as:
a. Carrying cost –
This cost includes the interest on capital blocked in the debtors balance the administration
costs associated with the credit decision making and controlling of debtors balances, cost
41
 of keeping the records of credit sales and payment ,cost of collection of payments from
customers , opportunity cost of cost of capital that can be employed elsewhere than in
debtors balances.
b. Default risk:-
There are also costs associated with the risk of default a certain portion of debtors will
never pay, and will become ‘Bad debts’ which has to be written off of the profits of the
firm.
Thus the objective of any management policy pertaining to account receivable would be
ensure that the benefit arising due to the receivables are more than the cost incurred for
receivable and the gap between benefit and cost increases profit. An effective control of
receivables helps a great deal in properly managing it. Each business should, therefore
,try to find out average credit extended to its client using the below given formula.
Average credit = Total amount of receivables
Extended (in days) Average credit sales per day
Each business should project expected sales and expected investment in receivables based on
various factors, which influence the working capital requirement. Form this it would be
possible to find out the average credit days using the above given formula. A business should
continuously try to monitor the credit days and see that the average credit offered to clients is
not crossing the budgeted period. Otherwise, the requirement of investment in the working
capital would increase and, as a result, activities may get squeezed. This may lead to cash
crisis.
Cash discount
Cash discounts are offered by the seller to the customer to encourage early payment. This is to
encourage payment before the end of the credit period –cash discounts are cost to the seller
and benefit to the buyer.
Credit Rating Customer
For credit rating customer the following information will be collected and processed,
depending upon which the individual limits and the term will be fixed to each individual credit
limits and the terms will be fixed each individual customer.
 The experience of sales force
 Financial statement of the customer
42
  Bank checking
 Company’s own experience
 Statistical data available with credit rating agencies.
The credit manager should check the following five C’s
Character- relates to the customer’s willingness to pay
Capacity- The customer should have ability to pay his dues.
Capital- The customer should have sufficient funds to pay the dues.
Collateral- The security available with the customer in paying the debt.
Condition- The economic position of the customer.
Credit Policy
A firm establish its own credit policy for proper management of debtors, otherwise it will lead
more outstanding balance in debtors account and the risk of bad debts will also arise.

Receivable collection policy

Sometimes a customer fails to pay on the due date. The following procedure will help in
efficient collection of overdue debtors.
 A reminder
 A personal letter
 Several telephone calls
 Personal visit of salesman
 A telegram
 A visit from salesman responsible to customer
 A reminder to the sales person that commission is based on cash received not
invoice sales.
 Restriction of credit.
 Use of collection agencies.
 Legal action : as a resort

Process of Receivables Management

43
The Following process will help in efficient management of the receivable.
 Take the opinion of the sales force and internal staff
 Frame the credit terms for the customer if credit is sanctioned.
 Established the initial creditworthiness.
 Check the credit before the despatch of consignment.
 Close monitoring of the credit terms and customer compliance.
 Develop the report for internal appraisal of the customer.

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ANALYSIS AND INTERPRETATION

TYPES OF RATIO:-
There are a number of types of ratio of interest to the various stakeholders of a business. The
main classification of ratio is as follows:
Profitability Ratios:
Measure the relationship between gross/net profit and sales, assets and capital employed. These
are sometimes referred as performance ratios.
Activity Ratio:-
These measure how efficiently an organization uses its resources. These are sometimes referred
as assets utilization ratios.
Liquidity Ratio:
These measure the short-term and long term financial stability of the firm by examining the
relationship between assets and liabilities. These are sometime called as solvency ratios.
Investment Ratios:
This group of ratio is concerned with analysing the return for shareholder. These examine the
relationship between the member of share issued, dividend paid , value of the shares, and
company profits. For obvious reasons these are quite often categorized as shareholder ratios.
Profitability Ratios:
A company should earn profits to survive and grow over a long period of time. Profits are
essential but it would be wrong to assume that every action initiated by management of a
company should be aimed at maximizing profits, irrespective of social consequences.
Profit is the difference between revenues and expenses over a period of time. Profit is the
ultimate output of a company and it will have no future if it fails to make sufficient profits.
Therefore, the financial manager should continuously evaluate the efficiency of the company in
terms of profits. The profitability ratios are calculated to measure the operating efficiency of the
company.
Generally, there are two types of profitability ratios

45
1. Profitability in relation to sales
2. Profitability in relation to investment
o Net profit ratio
o Operating profit ratio
o Return on Investment

NET PROFIT RATIO:

Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross
profit. The net profit margin is measured by dividing profit after tax or net profit by sales.
NET PROFIT RATIO= NET PROFIT
SALES/INCOME FROM SERVICES
Interpretation:
The net profit ratio is the overall measure of the firm’s ability to turn each rupee of income
from services in net profit. If the net margin is inadequate the firm will fail to achieve return on
shareholder’s funds. High net profit ratio will help the firm service in the fall of income from
services, rise in cost of production or declining demand.

OPERATING PROFIT RATIO:

OPERATING EXPENSE RATIO = OPERATING PROFIT
SALES/INCOME FROM SERVICES.

Interpretation:
The operating profit ratio is used to measure the relationship between net profits and sales of a
firm. Depending on the concept, it will decide. The operating profit ratio is increased compared
with the last year. The earnings are increased due to the increase in the income from services
because of Operations & Maintenance fee. So, the ratio is increased slightly compared with the
previous year

46
RETURN ON INVESTMENT:
It is an index of profitability of business and is obtained by comparing net profit with capital
employed. The ratio is normally expressed in the percentage. The term capital employed
includes share capital, reserves and surplus, long term loans such a debentures.
ROI = PAT / SHARE HOLDERS FUND

Interpretation:
This is the ratio between net profits and shareholders’ funds. The ratio is generally calculated as
percentage multiplying with 100. The net profit is increased due to the
increase in the income from services ant the shareholders funds are increased because of reserve
& surplus. So, the ratio is increased in the current year

ACTIVITY RATIOS:
Funds of creditors and owners are invested in various assets to generate sales and profits. The
better the management of assets, the larger is an amount of sales. Activity ratios are employed to
evaluate the efficiency with which the firm manages and utilizes its assets these ratios are also
called turnover ratios because they indicate the speed with which assets are being converted or
turned over into sales. Activity ratios, thus, involve a relationship between sales and assets. A
proper balance between sales and assets generally reflects that assets are managed well.
 Fixed assets turnover ratio
 Capital turnover ratio
 Working Capital turnover ratio

FIXED ASSETS TURNOVER RATIO:

NET ASSETS TURNOVER RATIO= SALES/ INCOME FROM SERVICES
NET FIXED ASSETS
Interpretation:
Fixed assets are used in the business for producing the goods to be sold. This ratio shows the
firm’s ability in generating sales from all financial resources committed to total assets. The ratio
indicates the account of one rupee investment in fixed assets. The income from services is
increased in the current year due to the increase in the Operations & Maintenance fee due to the
47
increase in extra invoice and the net fixed assets are reduced because of the increased charge of
depreciation. Finally, that affected a huge increase in the ratio compared with the previous year’s
ratio

CAPITAL TURN OVER RATIO:

CTO = SALES OR INCOME FROM SERVICES/CAPITAL EMPLOYED
Interpretation:
This is another ratio to judge the efficiency and effectiveness of the company like profitability
ratio.
The income from services is greaterly increased compared with the previous year and the total
capital employed includes capital and reserves & surplus. Due to huge increase in the net profit
the capital employed is also increased along with income from services. Both are effected in the
increment of the ratio of current year.

WORKING CAPITAL TURNOVER RATIO:

WCT RATIO = SALES OR INCOME FROM SERVICES/NET WORKING CAPITAL

Interpretation:
Income from services is greatly increased due to the extra invoice for Operations & Maintenance
fee and the working capital is also increased greater due to the increase in from services because
the huge increase in current assets.

LIQUIDITY RATIOS:
Liquidity ratios measure the firm ability to meet current obligations. It is extremely essential for
a firm to be able to meet its obligations as they become due liquidity ratio's measure. The ability
of the firm to meet its current obligations. In fact analysis is of liquidity needs in the preparation
of cash budgets and cash and funds flow statements, but liquidity ratios by establishing a
relationship between cash and other current assets to current obligations provide a quick measure
of liquidity.
A firm should ensure that it does not suffer from lack of liquidity and also that it does not have
excess liquidity. The failure of the company to meet its obligations due to the lack of sufficient
48
liquidity will result in poor credit worthiness, loss of creditors’ confidence or even in legal
tangles resulting in the closure of company. A very high degree of liquidity is also bad, idle
assets earn nothing. The firm's funds will be unnecessarily tied up to current assets. Therefore,
it is necessary to strike a proper balance between high liquidity and lack of liquidity.
 Current ratio
 Quick ratio
 Absolute liquidity ratio

CURRENT RATIO:-
Current ratio is dividing current assets by current liabilities. Current assets all cash and other
items, which can be encashed within one year duration. Current liabilities include an obligations
making within duration of the year. Current ratio is a measure of a firm’s short term solvency. It
indicates the availability of the current assets in rupees for every one rupee of current liability.
Interpretation:
As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position of the firm.
When compared with 2006, there is an increase in the provision for tax, because the debtors are
raised and for that the provision is created.

QUICK RATIO:
It establishes a relationship between quick or liquid assets and liabilities. An asset is liquid if it
can be immediately converted into cash. As cash is the quickest asset and other assets are
relatively quick and liquid.
QUICK RATIO = CURRENT ASSETS-INVENTORIES/CURRENT LIABILITIES
Interpretation:
Quick assets are those assets which can be converted into cash within a short period of time, say
to six months. So, here the sundry debtors which are with the long period does not include in the
quick assets.

49
 CASE

RENEWAL PROPOSAL OF M/S ABC LEATHER

FASHIONS

50
 Renewal Proposal of M/S ABC Leather Fashions

A. GENERAL INFORMATION:
1. Name of the Applicant Borrower
2. Name of the Branch
3. Date of receipt of Proposal
4. Nature of Proposal
5. Existing Banking arrangements.
6. Proposed banking arrangements
7. Activity
8. Sector
9. Priority Classification
: M/S ABC Leather Fashions
:Indira Nagar.
:10/05/2012
: Renewal
: Sole banking arrangement
: Sole banking arrangement
: Manufacturing & Export of Finished /
Semi Finished Leather
: SME
: Priority Sector

B. BORROWER INFORMATION:
a) Address of registered Office : 181 Macdoom Sheruf Street Baracks Road,
Administrative Office Bangalore-600003
b) Business place/ Godown : Same as above
c) Constitution : Partnership
d) Year of Establishment : 09.02.2006
e) Date of reconstitution : N/A
f) PAN of the firm : AAAFZ 1111 A
g) Certificate of Incorporation : IEC No 04064545689
h) Period of dealing with Branch : Since Year 2007

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C. PARTICULARS OF PARTNERS:

S.No Name Address Net % of

worth share
holding
1. Naushaba Nu Tech Heights, IInd ` 65.00 50%
Banu Floor, #11 T Chinaswami Lac
Road Bangalore-560010
2. T. Farzeen 73/3 Kamdar Nagar III Rd ` 37.88 50%
Street, Bangalore-560034 Lac

D. BRIEF HISTORY OF THE ACCOUNT :

M/s ABC Leather Fashions, a partnership concern is engaged in manufacturing &
export of finished Leather. The partners of the firm belong to the families who are
in Leather trade since decades. The day to day activities of the firm are being
looked after by Mr. Mubeen Ahmad husband of Naushaba Banu (Partner of the
Firm). As reported by the B/u the firm is exclusively dealing with our Bank and
conduct of the account is satisfactorily. The concern along with its partners is
enjoying a good market reputation.

E. PARTICULARS OF THE EXISTING CREDIT FACILITIES:

52
 Type of Limit B.O.S as on Margin Conduct of the
Facility 29.06.12 Account
Cash Credit ` 55.00 ` 50.31 Lac 25% Satisfactory
Lac
PCL ` 50.00 ` 13.98 Lac 25% Satisfactory
Lac
PSL ` 80.00 ` NIL Satisfactory
Lac 75.00Lac
ILC ` 15.00 ` 5.08 Lac 20% Satisfactory
Lac
Total ` 200.00 ` 144.37 Lac
Lac

Note: Interchangeability of ` 30.00 Lac allowed from PSL to PCL and vice versa.
The said facilities of ` 200.00 Lac was lastly Enhanced / Renewed by this office
against the following securities:

Primary Security:
I. Hypothecation of all types of stocks (raw/semi finished/ finished) and book
debts (present & future).
II. Pledges of Original Letters of Credit / Confirmed orders.

53
Collateral Security:
a. Equitable mortgage of property comprising of factor building together with
tannery land, underneath & appurtenant thereto, measuring to the extent of
19240 sq. ft bearing Plot No 57 situated at Ranipet SIDCO industrial Estate
belonging to the borrower firm valued at ` 116.78 Lac as per the valuation
report dated 11.07.2007 by K.B.S Associates Private Limited (forced Sale value
` 99.26 Lac).
b. Equitable mortgage of residential building together with land underneath &
appurtenant thereto, measuring to the extent of 2400 Sq. ft bearing plot No. 99
situated at kaveri Street, Palaniappa Nagar, Valasaravakkam, Bangalore-560087
belonging to Mr. T. Sarfaraz Hussain S/o Mr. M. Tajamul Hussain valued at `
108.39 Lac as per the valuation report dated 06.08.2009 by K.B.S Associates
Private Limited (forced Sale value ` 92.13 Lac).
c. Third party Guarantee of :
 Mr. Mubeen Ahmad S/o Mr Abdul Ahad R/o Nu Teek Heights IInd Floor
# 11 Thambia wamy Road Bangalore-70 (ENW: ` 60.00 Lac)
d. Personal guarantee of the mortgagors.

54
 F. OTHER CREDIT FACILITIES ENJOYED BY THE APPLICANT
BORROWER:
The firm is also availing a car loan facility for ` 4.70 Lac (` 3.19 Lac B.O.S as on
29.06.2012) sanctioned by the Branch itself within the discretionary powers of the
Branch. The Branch has stated that the account is running satisfactorily.
G. PRESENT REQUEST:
The borrower firm has requested for renewal of the existing Working Capital limit
of ` 200.00 Lac (Rupees Two Crore only) for a further period of one year against
the existing securities, terms and conditions.
H. RECOMMENDATION OF THE BRANCH:
The Branch has recommended for renewal in existing Working Capital limits of `
200.00 Lac (Rupees Two Crore only) against the existing securities, terms &
conditions.

I. FINANCIAL POSITION: (Amount in Lac of `)

2010 2011 2012 2013
Particulars (audited) (audited) (proviosnal) (Projected)
LIABILITIES
Capital 93.15 103.09 119.91 135.79
Reserves & Surplus 0.00 0.00 0.00 0.00
Total 93.15 103.09 119.91 135.79
Term Liabilities
Unsecured loans 49.62 42.62 49.62 49.62
Secured loans 0.79 4.70 3.25 1.80
Total Term Liabilities 50.41 47.32 52.87 51.42
Current Liabilities
Working capital 99.43 113.25 150.00 185.00
Other liabilities 0.00 0.00 0.00 0.00
Advances / Deposits 0.00 0.00 0.00 0.00
Creditors for trade 42.72 122.32 84.80 91.06
LC- Creditors (Inland) 15.00 15.00 15.00 15.00
55
Total Current Liabilities 157.15 250.57 249.80 291.06
TOTAL LIABILITIES 300.71 400.98 422.58 478.27
ASSETS
Fixed Assets
Net Block 75.48 73.38 71.29 69.55
Deposits 4.00 4.00 4.00 4.00
Advances / Deposits 0.00 0.00 0.00 0.00
Investments 0.00 0.00 0.00 0.00
Total 4.00 4.00 4.00 4.00
Current Assets
Sundry debtors 9.47 28.35 1.23 5.00
Foreign Debtors 22.49 39.71 35.00 50.00
Stocks of raw material 75.75 85.15 97.34 100.15
Stocks of semi finished
goods 15.50 18.75 19.25 20.15
Stocks of finished goods 90.80 146.24 188.56 224.88
Cash & Bank balance 7.22 5.40 5.91 4.54
Other Advances/Assets 0.00 0.00 0.00 0.00
Total Current Assets 221.23 323.60 347.29 404.72
TOTAL ASSETS 300.71 400.98 422.58 478.27
0.00 0.00 0.00 0.00
BUSINESS RESULTS
Income
Export Sales 357.04 722.99 1221.45 1343.6
Other sales 224.92 115.14 75.00 102.50
Total 581.96 838.13 1296.45 1446.10
Raw materials consumed
Raw material purchases 563.88 769.85 1157.23 1272.35
Add opening stocks of RM 34.55 75.75 85.15 97.34
Less closing stocks of RM 75.75 85.15 97.34 100.15
Raw materials consumed 522.68 760.45 1145.04 1269.54
Cost of production
Direct expenses 26.70 35.02 54.15 60.40
Add opening stocks of SFG 10.50 15.50 18.75 19.25
Less closing stocks of SFG 15.50 18.75 19.25 20.15
Total 544.38 792.22 1198.69 1329.04
Cost of sales
Cost of production 544.38 792.22 1198.69 1329.04
56
Add opening stocks of FG 56.51 90.80 146.24 188.56
Less closing stocks of FG 90.80 146.24 188.56 224.88
Total 510.09 736.78 1156.37 1292.72
Gross Profit 71.87 101.35 140.08 153.38
Operating Expenses 64.85 93.50 126.26 137.49
Other income 0.00 0.00 0.00 0.00
Total expenditure 574.94 830.28 1282.63 1430.21
Net Profit 7.02 7.85 13.82 15.89
Prov. For tax 0.00 0.00 0.00 0.00
Profit after tax 7.02 7.85 13.82 15.89

FINANCIAL
INDICATORS
Income 581.96 838.13 1296.45 1446.1
Sales Growth % 44 55 12
Current Assets 221.23 323.60 347.29 404.72
Current liabilities 157.15 250.57 249.80 291.06
Stock period/raw material
(days) 52 40 31 28
Stock period / semi
finished(days) 10 9 6 5
Stock period / finished
(days) 60 66 57 63
Debtors period (days) 20 29 10 14
Creditors period (days) 37 64 31 30
Working cycle 105 80 72 80
NWC 64.08 73.03 97.49 113.66
Total Net Worth 93.15 103.09 119.91 135.79
TOL/TNW 3.23 3.89 3.52 3.52
Current ratio 1.41 1.29 1.39 1.39
N.P. to sales ratio 1.21 0.94 1.07 1.10
Observations/ Comments:

57
1) The firm had achieved Sales of ` 581.96 Lac & ` 838.13 Lac during the FY
2009-2010 & FY 2010-11 respectively, showing an increase of 44% in FY
2010-11 over the previous year.
For the year 2011-12, the firm has submitted Provisional financials & a sales
turnover of ` 1296.45 Lac has been shown. Further the firm is projecting a sales
figure of ` 1446.10 Lac for the FY 2012-2013.Further the account turnover of
the firm for the period of 01.04.2011 to 31.03.2012 is ` 1180.67 Lac, so the
projected sales figure of ` 1446.1 Lacs for the financial year 2012-13 seems to
be acceptable, hence the projected sales figures have been accepted for the
calculation of MPBF.

2) The capital of the firm was recorded at ` 93.15 Lac for the FY 2009-2010 & `
103.09 Lac for the FY 2010-2011. As per the Provisional financials on

58
 31.03.2012 the firm is showing its capital at ` 119.91 Lac & for the FY 2012-
2013 it has been projected at ` 135.79 Lac.

3) The Net profit of the firm was at ` 7.02 Lac for the FY 2009-2010 & ` 7.85 Lac
for FY 2010-11. The firm as per the provisional financials on 31.03.2012 is
increasing it to ` 13.82 Lac. The firm is further expecting an increase in its Net
profit for FY 2012-13 & is thus projecting it at ` 15.89 Lac.

59
60
4) The Net Profit to Sales ratio stands at 1.21 & 0.94 for the FY 2009-2010 & FY
2010-2011 respectively. As per provisional financials on 31.03.2012 Net Profit
to Sales ratio has been shown at 1.07 & further projected at 1.10 for the FY
2012-2013.

5) The firm has recorded NWC of ` 64.08Lac & ` 73.03 Lac for the FY 2009-2010
& FY 2010-2011 respectively. An NWC of ` 97.49 Lac have been shown in
61
 provisional figures on 31.03.2012 & further it has been projected at ` 113.66
Lac for the FY 2012-2013, which is sufficient to meet the margin requirement.

6) The current ratio of the firm stands at 1.41 for the FY 2009-2010 & 1.29 for the
FY 2010-2011. It has been shown at 1.39 both in provisional financials for the

62
 FY 2011-2012 & projected financials for the FY 2012-2013, and which is
within the bench mark level.

7) The stock period for Raw Material of the firm stands at 52 days & 40 days for
the FY 2009-2010 & FY 2010-2011 respectively. As per the provisional figures
on 31.03.2012 Stock period for Raw materials is shown at 31 days & 28 days
has been projected for the FY 2012-13.
63
8) The stock period for Semi Finished Material of the firm stands at 10 days & 9
days for the FY 2009-2010 & FY 2010-2011 respectively. As per the
provisional figures on 31.03.2012 Stock period for Semi Finished material is
shown at 6 days & further 5 days has been projected for the FY 2012-13.

64
9) The stock period for finished Material of the firm stands at 60 days & 66 days
for the FY 2009-2010 & FY 2010-2011 respectively. As per the provisional
figures on 31.03.2012 Stock period for finished material is shown at 57 days &
further 63 days has been projected for the FY 2012-13.

65
10) The debtors’ period of 20 days & 29 days stands for FY 2009-2010 & FY
2010-2011. As per the provisional figures on 31.03.2012 debtors period stood at
10 days & 14 days has been projected for the FY 2012-13.

66
11)The creditors’ period stands at 37 days & 64 days for FY 2009-2010 & FY
2010-2011 respectively. Moreover creditor’s period of 31 days has been shown
by firm in provisional financial submitted for FY 2011-2012. A period of 30
days has been projected by the firm for FY 2012-13.

67
12) The account has been rated on Risk Score Application and the risk score rate
of the account is JKB-SBS4.

13) Assessment of MPBF based on accepted figures:

On the basis of following accepted levels, the M.P.B.F. is being
calculated as:

Amt. in Lac of `

Sales 1446.10
Purchases 1272.35

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 No. of Amount Min.
days Margin
Current Assets required
Raw material holding 28 100.15 25.04 25%
Semi finished goods 5 20.15 5.04 25%
Finished goods 63 224.88 56.22 25%
Debtors 14 5.00 1.25 25%
50.00
Cash & bank balance 4.54 4.54 100%
Other current assets 0.00 25%
Total current assets 404.72 101.18
Less: current liabilities 106.06
Working capital Gap 298.66
Less 25% of total current
whichever
assets 101.18
or Less NWC projected is higher 74.66

M.P.B.F 197.48

J. SANCTIONING AUTHORITY:
The sanction of the proposal falls under the powers of Business Head – Zone on
the basis of exposure norms / security parameters.

K. OUR RECOMMENDATION:
In view of the above and as recommended by the Branch, it is proposed that we
may, if approved, sanction renewal of the existing Working Capital limit of `
200.00 Lac (Rupees Two Crore only), in favour of the Party for a further period
of one year, against the existing securities, terms & conditions, in addition to the
following terms & conditions:

MARGIN:

69
Cash Credit : 25%
PCL : 25%
PSL (FDBP/FUDBP) : NIL
LC : 20% in Shape of Fixed Deposit.

INTEREST: Base Rate (At present 10.50%) + % p.a i.e. % p.a (at present) with
monthly rests, or as prescribed by the bank from time to time (Risk rating of the
borrower is JKB SBS-4.
INSURANCE: All stocks and mortgaged properties to be got comprehensively
insured with usual bank clause at Borrower’s cost.
DEFAULT INTEREST:
Penal rate of interest @ 2% above the applicable rate of interest will be charged
under the following circumstances:
 Irregularity in Cash Credit account and submission of stocks and Book debts
statements.
 Default in compliance of borrowing covenants (agreement contracts).

LOAN PROCESSING CHARGES:

0.10% loan processing charges have to be collected by the Branch as on the
renewed limit.
OTHER TERMS & CONDITIONS:
1) The Branch to ensure that drawings in cash credit account are allowed strictly
as per the available drawing power calculated on paid stocks and book debts not
older than 90 days.
2) The monthly statement of hypothecated stocks /debtors / creditors to be
obtained regularly from the party.

70
3) The Branch shall ensure that the party deals exclusively with the Branch and
routes all transactions through the Bank account.
4) All other terms and conditions as applicable to such type of advances shall also
apply.

FINDINGS

 JAMMU & KASHMIR Bank has played a major role in nurturing

companies/parties/individuals and helping them to stand up in the market.
 They take an overview of the project before forwarding it, which includes detailed study
capital expenditure, phases of capital budgeting, facets of project analysis etc.
 They have detailed project analysis which include the following:
 Technical Appraisal: Consists of all technical aspects of the project of an enterprise,
such as location, land, building, plant and machinery, essential services etc.
 Financial Appraisal: Includes the examination of all financial aspect of an enterprise
to find the financial viability of the project.
 Market Appraisal: Is a detailed study of the market for a product and its future
marketability.
 JAMMU & KASHMIR Bank provides financial assistance to all the sectors of the society
and it doesn’t confine itself to any of the particular society.
 JAMMU & KASHMIR Bank has contributed most significantly for the growth of
companies and promotion of entrepreneurs.

71
CONCLUSION
JAMMU & KASHMIR Bank in its fruitful existence of 74 years has extended assistance to
individuals/entrepreneurs/companies with the credit/ loan exposure of over 26193 CRORES the
corporation, has undertaken an active role in providing working capital, term loans, curtail initial
sickness for want of working capital and various other kinds of credit facilities.
Finally it is concluded that the JAMMU & KASHMIR BANK has a good image in the minds of
public and it has a good appraisal procedure, AS because the bank had never been in the state of
losses from the year of its commencement having won the various categories of awards the
JAMMU & KASHMIR bank is performing exceptionally well but due to its less popularity in
southern part of India, it is not much known by the locals of south Indian states.

72
RECOMMENDATIONS
 JAMMU & KASHMIR Bank can improve its activities by implementing suitable policies
and strategic measures that are entrepreneur friendly, in order to compete with the state
level financial organizations.
 To provide better value added service and benefits for the early repayment by which the
customers are attracted in this competitive financial market.
 Improve services in the southern part of the country
 A good publicity of this organization is simplest mode of appraisal and reduction in the
rates of interest may attract more customers where – by customers are more important for
today’s and future business.
 Clients will feel that there is delay in sanctioning of loan due to long procedures and high
documentation, so the bank must cut down complex documentation and procedures and
make it feasible and short.
 Constant review & up-gradation of systems & practices.
 Close co-ordination with allied government agencies, other banks & financial institutions.
 Posting of experienced personnel for different segment of appraisal work.
 More stringent screening of applicants before acceptance.
 Cautious evaluation of investment should be made by the promoters.
 More frequent visits to project sites.
 Periodical interaction with applicant’s bankers.
 Regular up-gradation of registered suppliers lists.
 Regular view of the problems & prospects of different industries & sectoral defaults so as

to decide on further funding of projects from that sector.

73
BIBLIOGRAPHY
Books referred:
 I M Pandey, “Financial Management”, Ninth Edition, Vikash Publishing House Pvt Ltd.
 Dr.S.N.Maheshwari, “Financial Management”, Second Edition, Sultan Chand & Sons.
 J&K Bank Manual of Loans and Advances

Web-sites:
 www.Google.com
 www.jkbank.net
 www.yahoosearch.com
 www.economictimes.com

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