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Credit management is the management of the credit portfolio of banks and financial institutions. Credit management is no longer a rule-of-thumb game .In a highly competitive and deregulated environment, banks and financial institutions have to evolve better systems and procedures to manage the credit needs of highly demanding customers, particularly in the corporate and retail sectors. The developments of the past decade have totally changed the perspective of management of credit .Credit management of canara bank:Capital adequacy norms Risk management including asset-liability management Exposure norms Risk pricing policy and credit risk rating Asset classification, income recognition and provisioning norms Appraisal, credit-decision making and loan review mechanism Hence a study is done to evaluate the credit management at canara bank. They are various parameters, techniques and strategies to evaluate the credit management of any bank. The principles of lending, which include the aforesaid parameters, form part of bankspecific loan policies. With progressive computerization of front-office and backoffice and net working of bank branches, software programmes are being introduced and developed for risk management are based on various models suggested by the canara bank. To study the pattern and procedures followed in canara bank regarding credit management, and to indicate the performance of credit management a research was taken up and various techniques are used to solve various problem areas in the area of credit management.
Indian Banks can be broadly classified in to Nationalised Banks, Private Banks and Foreign Banks. Currently, India has 88 scheduled commercial banks 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. The commercial banking structure in India consists of scheduled commercial banks and unscheduled Commercial Banks and unscheduled Banks. Schedule Commercial Banks Constituted those banks. Which have been included in the second schedule of Reserve Bank of India (RBI) Act 1934 RBI includes only those banks in the schedule which satisfy the criteria laid down vide section 42(6)(a) of the Act. The governments policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today he has a choice. Gone are days when the most efficient banks transferred money from one branch to other in two days. Now money transaction to any corner of the country within a few minutes is possible by the advent of technology.
CREDIT MANAGEMENT UNDER WORKING CAPITAL The milestones of Indian banking industry are:
The first bank in India, though conservative was established in 1786. From 1786 till today the journey of Indian Banking system can be segregated into three distinct phase. They are as mentioned bellow. Early phase from 1786 to 1969 of Indian Banks Nationalisation of Indian Banks and up to 1991 prior to Indian Banking sector reforms. New phase of Indian Banking system with advent of Indian Financial and Banking sector reforms after 1991.
Phase 1
The General Bank of India was set up in the year 1786. Next was come Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809). Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private share holders banks mostly Europeans Shareholders. In 1865 Allahabad Bank was established and first time exclusively Indians, Punjab national Bank Ltd, was set up in 1894 with head quarters at Lahore. Between 1906 and 1913, Bank of India central, Bank of India, Bank of Borada, Canara Bank, Indian Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and bank also experienced periodic failures between 1913 and 1948. There were approximately 1100 Banks, mostly small to streamline the functioning and activities of commercial Banks. The Government of India came up with the banking companies Act, 1949 which was later changed to Banking Regulation Act 2949 as per amending Act of 1965 (Act No.23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of
Phase 2
Government took major steps in this Indian Banking sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive Banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle Banking transactions of the Union and state Governments all over the country. Seven Banks forming subsidiary of state Bank of India was nationalised in 1960 on 19th July, 1969, major process of nationalisation was carried out. It was the effort of the then Prime Minister of India. Mrs. Indira Gandhi 14 major commercial Banks in the country was nationalised. Second Phase of nationalisation Indian banking sector reform was carried our in 190 with seven more Banks. This step bought 80% of the Banking segment in India under Government ownership. The following are the steps taken by the Government of India to regulate Banking Institutions in the country. 1944: Enactment of Banking Regulation Act. 1955: Nationalisation of State Bank of India 1959: Nationalisation of SBI subsidiaries 1961: Insurance cover extended to deposits. 1969: Nationalisation of 14 major Bank. 1971: Creation of credit guarantee corporation. 1975: Creation of regional rural Banks
Phase3
This phase has introduced many more product and facilities in the Banking sector in its reforms measure. In 1991, under the chairmanship of M. Narasimhann a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with foreign Banks and their ATM stations. Efforts are being put to give satisfactory service customers. Phone Banking and Net Banking is introduced. The entire system became more convenient and swift. Time is given more importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customer have limited foreign exchange exposure.
CREDIT MANAGEMENT UNDER WORKING CAPITAL 2. PROFILE OF THE BANK BACK GROUND AND INCEPTION OF THE COMPANY
Canara Bank was founded in 1906 by Sri, Ammembal Subba Rao Pai. The bank was initially named as Canara Bank Hindu Permanent Fund. It blossomed in to a limited company in 1910 and was renamed as Canara Bank Ltd, in 1969 the bank was nationalised and thereafter came to be known as Canara Bank. Today Canara Bank is one of the premier Banks in the country with a network of 2,578 branches spread all over the country. The Bank has many distinctions to its name. It was the first Bank to be conferred FICCI award for contribution to rural development Canara Bank was the first among Banks to launch networked ATMs and obtain ISO certification. Canara Bank has covered a niche for itself in providing IT based services with 100% computerization of the branches .The Bank provides a wide array of services, such as Networked ATMs Anywhere banking, Tele Banking, remote access terminals, internet and mobile Banking, debit card etc. For the year 2004-05 Canara Bank clocked the highest net profit (Rs1110 crore) among nationalized Banks, with significant improvement in capital adequacy ratio (12.78%) and asset quality (net NPA ration of 1.88%).My sore Canara Bank Regional Office (CBROM) was upgraded from Regional Office on April1998. The functions of Circle Office have been laid down by the Bank. However, on account of changing times, a review of these functions has been made, rather than replicating existing ones. Sections at Regional Offices will look for policy support from Head Office. All operational and administrative work relation to their functions shall be handled by the respective sections within the policy parameters set out by Head Office. Mysore Canara Bank Regional Office has a network of 111 level Branches scattered over 4 districts. Which Mysore, Mandy, C.H nagar, Hassan. In addition to these 5 currencies chest are functioning in all four districts catered to the cash requirements of these branches.
Canara Bank groups principal activities are to provide a full range of Banking and other financial services through 2,578 Branch Offices in India and Abroad. The service includes accepting deposits, commercial and institutional credit, treasury, investment, risk management and other related financial services. It operates through two segments. Banking operations consist of corporate Banking. Retail Banking, personal and commercial Banking, Cash management services, Deposits and other allied services. Treasury operations consist of dealing in SLR and Non-SLR securities and Money Market operation.
CORPORATE VISION:
To emerge as a world class Bank with best Practices in realms of asset portfolio, Customer orientation, product innovation, Profitability and enhanced value to stake holders.
CORPORATE OBJECTIVES:
Efficiency Profitability and Productivity Organisational Effectiveness. Customer Centric Hi-tech Banking
2. CURRENT DEPOSITS
It is a perfect account to do business operations. It is available to traders, businessmen, and corporate bodies etc. who operate the account frequently. Bank
given all facilities like, pass book, pass sheet, standing instructions, cheque collection.
3. FIXED DEPOSIT
It is a safe way to solid returns method. Minimum deposit should be Rs. 1000/- and Maximum no ceiling. Period deposit is given minimum 15 days and maximum 120 months, 7-14 days period for deposit of 5 lakh and above. Interest should be pay monthly, quarterly, half-yearly or annual intervals at depositors choice.
4. KAMADHENU DEPOSIT
It is high returns deposit scheme interest will be compounded every quarter. Fixed deposit should be deposit minimum of Rs. 1000 and maximum-no ceiling.
7. ASHRAYA DEPOSIT
This scheme is available to all individuals. Who have completed the age of 60 years and above, in single or joint names.
8. RECURRING DEPOSIT
It is monthly deposit minimum to Bank Rs. 50/- per month. Interest will be compounded every quarter.
11.CANRELAX
Deposit under the scheme can be opened by individuals. Minimum deposit amount Rs.1,00,000/- and in the multiples of Rs.10,000/- thereafter. Rate of interest will be given of interest 0.50% over the rate applicable
CREDIT MANAGEMENT UNDER WORKING CAPITAL PRODUCT/SERVICE PROFILE CANARA BANK RETAIL PRODUCTS:
1. CANARA BUDGET PERSONAL LOAN Can budget personal loan is to fulfil only personal needs of salaried employees. This loan facility is available to any Central/State Government Employees, Lecturers/professors of colleges/universities/research institution.
This loan scheme is available to against security of mortgage of property (building). Only able to get Professionals, businessmen, salaried persons/individuals for meeting genuine needs. 13. TEACHERS LOAN This loan scheme is to meet the genuine personal needs of teaching or non teaching staff of schools or colleges. 14. CANARA PENSION This loan scheme is available to pensioners for drawing their pension through Canara Bank branches. Loans are for meeting medical expenses and other genuine personals needs. 15. CANARA TRADE This Loan scheme is available to Traders, Whole sale and Retail business, Business Enterprises, Commission Agents, Service sector, Professionals and self employed persons. It is fulfil the working capital of business. 16. CANCASH CANCASH will get when we need it without selling our blue chip portfolios, to meet the investments/domestic/personal needs (not to be utilized for speculative purposes) quantum upto Rs. 5 lakhs.
17.SWARNA LOAN
SWARNA LOAN is available to any individuals against Gold Jewellery to meet the medical expenses and other unforeseen commitments/ contingencies etc.
18.EDUCATIONAL LOAN (VIDYASAGAR) Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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NRI SERVICES:
1. BANK ACCOUNTS AND DEPOSITS a) NRE Accounts: This is term deposit scheme. Here customers are able to get saving, current and term deposits scheme in Indian rupees. b) FCNR (B) (Principal/Interest Repatriable): This is term deposit scheme available to foreign currencies only. Interest shall be paid in the currency of deposit.
2. REMITTANCE FACILITIES
Canara Bank has rupee drawing arrangements with 20 exchange Companys and 18 Banks for remitting funds by NRIs working in the Middle East to India.
customer can operate it from any other designated branches, with AWB customers have a host of facilities to make banking with banker pleasure. 13. ON-LINE TAX ACCOUNTING SYSTEM (OLTAS) Total 423 Canara Bank authorised branches across the country are handling Direct Tax collections i.e., Corporate tax, Income Tax Wealth Tax, Fringe Benefit tax etc. 14. CANBANK e-TAX: e-PAYMENT OF INDIRECT TAXES
AREA OF OPERATION-GLOBAL/ NATIONAL/ REGIONAL Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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OWNERSHIP PATTERN
The Canara Bank is Mainly Public company minority of the shares which were held by the general public, the remaining portion which will invests in the hands of Government of India. Canara Bank shares are listed at Bangalore, Mumbai and National stock exchanges. Ownership pattern is shown below;
Resident Individuals/HUF/Trust 25539091 6.23 Foreign Institutional investors 70573129 17.21 TOTAL 410000000 100 (# Nominal Value of each share is Rs. 10/-)
COMPETITORS INFORMATION
There are many competitors in Mysore District viz., Nationalised Banks are State Bank of India, Allahabad Bank, Bank of India, Punjab National Bank, Vijaya Bank, Corporation Bank and Syndicate Bank. Private Banks are ICICI Bank, HDFC Bank, UTI Bank, ING Vysya Bank. Co-operative Banks are HDCC Bank and KSCARD Bank. These are all Banks offered similar product. According to Mysore Lead Bank observation District wise performance of different Bank as bellow. Mysore District as a whole, Deposits have increased to Rs.1796.42 crore from Rs.1512.17 crore as on 31-03-2006 growth of 18.80%. State Bank of Mysore is leading under deposits with Rs.400.94 crore which is followed by Canara Bank with Rs. 302.94 crore. Market share of Deposits of State Bank of Mysore is 22.32% followed by Canara Bank 16.86%, Karnataka Bank, 13.97%, Corporation Bank 9.64% and Vijaya
ACHIEVEMENT/AWARDS
CBROM has achieved many targets apart from their strategic plan.
Achieved total business target by adding Rs.470 Crores over March2006. Low cost deposits sustained-19.90%. Achieved Twin term Deposit Target by marketing a growth of 19.80%. NR deposit Target achieved. Average Deposit and Average Advances grew by 13.90% and 17.50% respectively. Growth in Aggregate Advances by 19.90%.
3.3 OBJECTIVES OF THE STUDY The main objectives of the study are as follows; Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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brought into action. 3. To know about the different kinds of credit facilities. 4. To understand the concept of credit policies in banks. 5. To understand the concept of credit management under working capital. 6. Analyzing the reasons for credit management and its profitability in banks. 7. To know about what precautions to be taken at the time of granting advances.
3.4 METHODOLOGY
The project has been successfully completed with the use of various sources of information which has been bifurcated as primary source and secondary source. The primary source is drawn up from the bank where the study has been done by preparing questionnaires, face to face, discussion with the concerned people of the bank, by the ideas received from them. The secondary sources were collected from various periodicals i.e. journals, manuals, circulars, reports, brochure and annual reports provided by the bank. Apart from them the books, several websites of the bank and financial institutions was made use for the study.
3.7 LIMITATIONS
The uttermost limitation which minimized the theoretical issues of the report
is that there are no prescribed study materials or text book regarding the topic, as it is a recent concept. Therefore I was bound to manage with some test books, circulars, manuals, articles, brochures and annual reports of the bank only. Specific information had to be omitted because they were meant for confidential purpose.
credit record. Thus, the banker has to evaluate any prospect on the basis of thee 6 Cs. 1. Character: The client should possess good character. We all know character is a very difficult thing to judge and not easily measurable. Character of person can be found out by taking to the person his friends, business partners. Most important trait of any gentleman a is character. Perhaps because of this the old saying was three if character is lost every thing it lost one of the important traits to judge character of a person is his sincerity in meeting commitments and honesty in all his deals we believe that the most important requirement for granting facility to a customer is his Integrity. A person with high integrity will not report to dubious means and will be committed to doing the business for which finance has been sanctioned. Even if he were to foresee any financial difficulties in the future which would affect his commitments to the bank, he would come in advance and keep the bank appraised of the same. Therefore, in cases wheel the integrity of the client is beyond doubt, the chances of the accounts becoming NPA are very remote. Only in the event of unexpected changes in the market conditions which are beyond the control of the client, the account may become non-performing.
4. Collateral:
The word collateral literally means something additional but subordinate. In banking parlance, it means taking some security in addition to the primary security i.e., the assets created out of bank loan. Banks take collateral security in the form of mortgage of property, pledge of shares and securities, hypothecation of movables, etc. the banks do not insist on collaterals for small amounts and also
2. Liquidity: The second important quality of good lending is liquidity. By liquidity we meant the ability of the bank to convert the assets into cash. In simple terms, it means how fast the bank can convert an asset into cash. As been earlier, the entire amount that a bank mobilizes as deposits cannot be lent. A portion of the deposits should be kept with Reserve Bank of India in the form of Cash (Cash Reserve Ratio-CRR) and another sizable portion should be invested in approved securities (statutory liquidity ratio SLR). The RBI changes the rates of CRR and SLR as part of the Credit Policy announcements, every year, depending on RBIs assessment about the money supply in the economy. RBI is of the opinion that money supply is more, and then it would increase the CRR/SLR so that the lendable funds with commercial banks are reduced. RBI would reduce the CRR/SLR when it wants to inject more funds to the economy. To honour the demands made by its depositors in the form of cheques banks hold a percentage of demand deposits in form of cash. In the olden days, commercial banks were lending only for short term needs and long term loans were granted by Financial Institutions (FIs) like IDBI, IFCI, ICICI, etc. this was perfectly in tune with the principle of liquidity. Today, since almost all the FIs have been converted into Banks, the long term needs of the borrowers are also financed by commercial banks. Banks prefer to advance money for assets which are selfliquidating in nature (Eg.., Bills of Exchange).
CREDIT MANAGEMENT UNDER WORKING CAPITAL 3. Security: Banker should be confident of recovering the loans from the
business income of the borrower. The assets acquired out of bank finance constituted primary security for the loan. In some case where the banker perceives higher risks in the finance, he may seek additional security in the form of immovable property or shares/securities. These securities are termed as collateral security. Before nationalization of banks in the year 1969, bankers wre giving lot of importance to security and any person who could offer collateral security was getting loans easily. The banker was not giving that much importance to the purpose of the loan. Now, the focus of banks lending has shifted to the purpose of the advance. Hence, for financing any client banker does not solely rely on the collateral security but on the purpose and end-use of the amount lent. Collateral security would be sold by the bank, as a last resort, only if a borrower defaults in repayment, despite replacement of the loan and various steps taken for rehabilitation of the unit. 4. Spread: We are all familiar with the old saying Dont put all your eggs in one baskets. This applies to a banker also. The banker cannot affords to grant his entire advances to one particular individual or one type of industry. If he does so, the future performance of the bank would depend entirely on the success / failure of that particular individual or the industry.
CREDIT MANAGEMENT UNDER WORKING CAPITAL A prudent banker follows this principle in two ways: a) Financing of various industries:
Banks in their Credit policy detail the cap (maximum amount of exposure) on the exposure to various industries based on the past experience and the present exposure. Even RBI has prescribed maximum exposure levels for financing of individuals and a group. As per the current guidelines, maximum exposure, per individual, is restricted to 15% of the capital funds of the bank and 40% for a Group. As a measure to encourage financing infrastructure projects, the exposure limits have been kept a little high i.e., 20% for individuals and 50% for the group, for such projects. These guidelines themselves ensure that the banks do not concentrate their lending to a few individuals or one or two groups. The spread of advance among various industries is desirable since recession or depression of any particular industry would not adversely affect the position of the bank. b) Geographical spread: Banks also follow the practice of not concentrating their lending to one particular geographical location, even though they might have financed to various industries in that locality. Geographical spread helps at times of some calamities occurring in a particular area not very badly affecting the performance of the bank. For example, the earthquake in the Bhuj and satara areas or the Tsunami in coastal Tamil Nadu have not affected any Bank adversely since the banks had followed this sound principle of geographical spread.
CREDIT MANAGEMENT UNDER WORKING CAPITAL 5. Purpose: The loan granted should be for an approved purpose and should be
for a productive activity. Banks do not grant loans for activities which promote anti-national interest or for speculative/gambling purpose. The purpose of the loan should be for a business which is legally permissible and economically feasible i.e. capable of generating surplus out of its activity. Feasibility is also termed s viability of the proposal/project. As seen earlier, a Banker expects the borrower to repay the dues form his business income and in tune with this only, he gives importance to the viability of the project that he is going to finance. 6. Profitability: It is general common sense that no body would do any business to incur losses. This holds good even for a banker, who, by the very nomenclature of commercial is there to do business for profits. Banker should evaluate any proposal on this important aspect since there is no point in doing business for the sake of business without earning any profits. This aspect gains lot of importance in this modern cut-throat competitive age where banks, in order to entire customers from other banks, are charging interest rates that do not even cover the cost of funds. As part of the credit proposal of any client, the details of the interest income and other income expected from the client have to be estimated and all concessions/waivers requested by a client have to be brought in at one place. The CBA (cost benefit analysis) should ultimately result in justifying the
CREDIT MANAGEMENT UNDER WORKING CAPITAL 4.3 CREDIT CYCLE 1. Prospecting: The first stage in Credit Cycle is Prospecting. Prospecting is
looking for new clients who would be requirement bank finance. The sources for acquisition of new client could be leads from existing borrowers or well operated current account clients or a market survey.
(1)
Credit Monitori ng (6) Credit Investigati on (2)
Credit disburseme nt (5)
CREDIT MANAGEMENT UNDER WORKING CAPITAL 2. Credit investigation: This is the most important stage in the credit cycle.
If the selection of client is good, half the battle is won in the entire credit process. Here, a through study is conducted about the prospect his business, his dealings with suppliers and customers, existing bankers. The relationship manage should be very tactful in gathering information about a client since it is a very delicate issue and if the client feels hurt at any stage, the chances of not getting the customer to banks fold would be high. Most of the informatio n should be collected in discreet fashion. The relationship manage should acquire the skills to collect information from the client in the course of a conversation and not by filling any structured format. It should be ensured that the proponents name is not appearing in RBI/ECGC/ Banks own defaulters / specific approval list of ECGC (Export Credit and Guarantee Corporation). Normal contents of the credit investigation report are name of he client, credit facilities sought, existing bankers and borrowings, if any, opinion from the customers and suppliers of the client, unit visit observations, any ratings from credit rating agencies etc. Client/customer acceptance criteria: After satisfying about the prospects
business standing in the market, how to proceed further? is there any tool which would help a banker in taking a decision on acceptance rejection of the clients proposal? Yes. Each bank has its own parameters to rate a client if only he scores minimum marks or gets a rating acceptable to the bank, the bank would proceed to prepare the proposal. The tool is entirely based on the risk acceptance criteria of the bank.
CREDIT MANAGEMENT UNDER WORKING CAPITAL The parameters that are normally employed in banks to rate a client (client Risk Rating) is:
1. Clients business track record 2. Industry in which the client is doing business and the competition for the product of the client. 3. Arrangements for supply of raw materials, etc. any long term arrangement exists (supply chain management), dependence on one supplier? (Risk is high) 4. Customers for the product is there wide customer base or only one or two customers (Risk grater if one or two customers). 5. Financial strengths on the basis of financial statements analysis (current ratio, debt equity ratio, sales growth, operation profit & net profit ratios, debt service coverage ratio). 6. Management structure professionally qualified, skilled, succession planning in place for the second line / the Top management etc. 7. Conduct of Account Application only for customers who are already having borrowing / other accounts with the bank. Promptness in servicing of loan instalments and interest, average balance maintained in the current account, other deposits with the bank, cross sell opportunities utilized (insurance / mutual fund sold) etc. Based on the above, the client will be rated. Rating varies form bank to bank (on a 5 point scale or 10 point scale). The customer rated 1 is excellent and as the rating goes up 2,3,4 etc. the risk of the bank increases. Bank might make a policy that only a customer upto a specific rating say 4-5 is acceptable.
3. Credit Proposal: Once the banker is satisfied about the genuineness of the client and the client risk rating is acceptable to the bank, the proposal is put up for approval of the facilities. Irrespective of whether the limits to be approved are within the branch powers or higher authorities, the proposal should be completed in all respects with same commitment. We have found that in those cases where the facilities are to be approved within branch, the quality of the proposal is very poor with many important data fields left blank. Each bank has its own structured formats (templates) to be used for various facilities. The complexity of the formats increases with the increase in the banks exposure. A clear understanding of the various items to b e filled in different columns by the desk officer /RM will go a long way in preparing quality proposal. Developing the skills of officers working in credit department in the preparation of proposals becomes very important.
CREDIT MANAGEMENT UNDER WORKING CAPITAL The following are the important things which are normally covered in the proposal: (a) Basic Information: Here, the name of the firm, Proprietor / Partners/
Guarantors / Directors of the company, address and contact details, share holing pattern, share market data, ratings if any, and the facilities sought, find a place. The data provided here are mostly of a static nature (b) Risk Assessment: Here a discussion on political, environmental, economic, managerial, financial and structural risks takes place. The important pointes to be taken care of are: Whether the company is manufacturing any hazardous substances and has obtained environmental clearances. Would there be any difficulty in the succession of business if the proprietor is quite aged Whether the supply chain management is in place with long-term relationships having been signed with the suppliers. What is the credit period allowed on the sales made (whether in turn with the practices prevalent in that trade), etc. A SWOT (Strength, weakness, opportunities & Threats) analysis of the client should also be made. In the end, it should be verified whether the parameters under the bank credit policy are complied with.
CREDIT MANAGEMENT UNDER WORKING CAPITAL (c) Justification for sanctioning the loan: A detailed write-up on the
purpose of the loan, security that are offered for the facilities, types of facilities to b e sanctioned, interest rates and commission etc., important covenants (turns and conditions of sanction), method of assessment of the
working capital with detailed calculations, sources of repayment for the loan, an abridged analysis of important financial parameters, what are the benefits to the bank (interest income, commission income, cross-sell benefits), if this limit is approved, should be very clearly brought out in the proposal. 4. Credit Approval: The delay in disbursement of any facilities takes place more because of the delay at this stage of the cycle. The approval authority should be conversant with the delegation of powers of the bank, credit policy of the bank and to a certain extent the profiles of various industries. While approving any facility, the authorities concerned with the sanctioning of the proposal should have a very practical and pragmatic approach and stipulate conditions which are possible to comply with and not stipulate a covenant just as a matter of abundant pre-caution. The RM should have good relationship with the approval authorities and take them into confidence and discuss any risks he perceive in a specific proposal and take the approval authorities suggestions to mitigate the same in fact, if a perfect rapport exists between the RM and the approval authority, the approval authority may be asked to join the discussions from the preliminary stage and also accompany the relationship manager for the unit visit. Seeing is believing and this would avoid time taken for seeking clarification on certain issues about the proposal. It is to be remembered that both the RM and the approval authority are working for the same Bank and are interested in protecting the banks advance
the corrections.
CREDIT MANAGEMENT UNDER WORKING CAPITAL 4.4 CREDIT POLICY IN BANKS POLICIES ARE THE RESULT OF VALUES AND BELIEFS
A policy is a course of action or a guiding principle that influence our decisions. Policies are the rest of underlying values and beliefs. For instance you may decide that as a matter of policy you will buy only branded goods. This could be because you value quality and believe that branded goods offer good quality. A health conscious person may avoid processed and friend foods as policy because he values his health and believes that such foods affect good health in the long run. Policies thus help us in taking day-to-day decisions based on our underlying values and beliefs without wasting time and effort. In the examples cited, every time unbranded goods and processed or fried foods are offered, the individual involved does not weigh the pros and cons. He simply refuses them, because both are unacceptable as per his quality policy or health policy.
CREDIT MANAGEMENT UNDER WORKING CAPITAL Credit policy determines the banks credit culture
The sum total of policies on lending makes up the credit culture of the bank. Credit culture states. This is the way credit is handled in this bank.
Four types of credit culture Depending on corporate priorities, Credit culture of a bank could be one of four types;
1. If the emphasis is on the quality of loans given, the credit culture will be values driven. The credit polices adopted will be conservative and prudent. 2. In on the other hand short-term gains are the priority of the bank, the credit culture is likely to be earnings driven. The credit policy will then be focused on maximizing earnings regardless or risk. 3. A bank concerned primarily about market share would adopt a size and volume drier culture adopting policies that primarily promote market share and loan growth. 4. If there are no clear priorities the culture will be unfocused. The policies will most likely be ambiguous without a definite emphasis on any value or belief.
CREDIT MANAGEMENT UNDER WORKING CAPITAL SOUND CREDIT POLICY CONTRIBUTES TO THE WELL BEING OF A BANK
Loans constitute the most important assets of a bank. Therefore the policies, which govern the dispensation of loans, should aim to promote both quality of loans and earnings from the loan portfolio. Absence of a sound credit policy can be disastrous. American banking history witnessed several credit induced bank disasters in the 1980s. Continental, sea first and Texan Banks were examples of such disasters. The far eastern crisis of the 1990s and most recently the crisis experienced by some of the banks in our country, which were forced to be merged with other banks, were also the result of credit induced problems. The common factors that crippled these banks were aggression in lending, failure to diversify, risky practices and inadequate supervision. Usually these are the outcomes of a credit culture created by poorly articulated or badly implemented credit policy. Having seen how important credit policy is, let us now look at what a good credit policy aims to achieve.
the quality of the loans dispensed. Without quality the earnings will be compromised. Bad loans not only stop earning interest, they also require provisions, which eat into profits. So the credit policy should aim to create and maintain quality assets. It is easy to see that these three objectives can be sometimes conflicting with each other if pursued singly. For instance concentrating only on volumes could lead to poor quality assets and bring down earnings. On the Other hand, if quality standards or pricing of loans is unrealistically high, growth may suffer. A sound credit policy however optimizes these three objectives within the framework of; (1) Regulatory Prescriptions: The credit policy is formulated ensuring that the norms and procedures detailed in the policy document conform to guidelines and rules prescribed by RBI and Government. (2) Corporate goals: Besides adhering to the guidelines and rules prescribed by RBI and government, the credit policy also lays down the road map necessary for achieving the business goals of the bank in the area of credit.
CREDIT MANAGEMENT UNDER WORKING CAPITAL (3) Banks social responsibilities: Banks social responsibilities as a
corporate citizen in relation to lending activity are covered by the Credit policy. This usually involves creation of policies that help in the flow of credit to priority and other sectors that require bank assistance.
b) Prudential limit on large credits and asst concentrations: Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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Most banks place restrictions on what should be the maximum size of a credit facility, in line with the guidelines of RBI. This is linked to the capital of the borrowing entity and that of the bank. The purpose of such ceilings is to ensure that the failure of any large credits does not affect the bank seriously. c) Standard for loan collateral, loan review mechanism: The collateral securities to be obtained for loans, their valuation and the methodology for reviewing loans and advances are spelt out in the credit policy.
policy document.
company, firm, association of persons or individuals. The maximum amount up to which, having regard to the consideration sin Clause (c) Guarantees may be given by a banking company on behalf of anyone company, firm association of persons or individual. Credit control measures are framed by the Reserve Bank in lie with the Monetary Policy of the country. The objectives of the monetary policy are two fold: 1. To facilitate flow of adequate volume of bank credit to the various sectors with specific reference to the weaker sectors. 2. To keep a control on inflationary pressures by ensuring restraint on credit expansion and proper end-use of bank credit. The three major instruments of credit control available with the Reserve Bank are the Bank Rate, Open Market Operations and Variable Reserve Requirements or Rations. The first two instruments can be operated by the Reserve Bank under the Reserve Bank of India Act. Of the two variable reserve ratios, the Cash Reserve Ratio (CRR) is subject to the Reserve Bank of India Act, while the Statutory Liquidity Ratio (SLR) is covered under the Banking Regulation Act: Section 49 of the Reserve Bank Act defines the Bank Rate as the standard rate at which the Reserve Bank is prepared to buy or to rediscount bills of exchange or other
The 14-day repo will, however, be phased out is due course. In order to provide for any requirement arising out of unexpected temporary shortages of funds and to help in stabilizing ovemight interest rates in an environment of asymmetric distribution of liquidity, overmight reverse repo under LAF will be on a fixed rate auction basis.
CREDIT POLICY AS A RISK MANAGEMENT TOOL The credit policy of a bank fulfils the following vital functions: 1. It serves a Gate keeping role:
A credit portfolio is built one loan at a time. Loans are the building blocks that go into creating a portfolio. The credit policy l like a faithful gatekeeper helps in checking whether every now loan that is added satisfies the pre-defined standards of credit laid down by the bank, thereby ensuring quality of new loans assets. 2. It defined thrust areas: In relation to profit objectives and regulatory directions.
CREDIT MANAGEMENT UNDER WORKING CAPITAL 4.5 PRUDENTIAL NORMS INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING NORMS
In line with the international practices and as per the recommendations made by the Narsimham committee, the introduced, in a phased manner prudential normal for income recognition, Asset classification and provisioning Norms Fro the Loan assets of the Banks so as to mover towards greater consistency and transparency in the published accounts. The objective of the policy is to recognize income based on recovery rather than on accrual basis. Similarly, the classification of assets of banks has to be done on the basis of objective criteria which would ensure a uniform and consistent application of norms. Also, the provisioning should be made on the basis of the classification of assets based on the period for which the asset has remained non performing and the availability of security and the realizable value thereof.
Performing Asset Non-performing Asset Standard assets Sub-standard Asset Doubtful Asset Loss Asset
CREDIT MANAGEMENT UNDER WORKING CAPITAL (2) Overdraft and cash credit:
If the account remains out of order for 90 days. Out of order means. The outstanding balance remains continuously in excess of sanctioned limit or drawing power or Where the outstanding balance in the account is less than the sanctioned limit or drawing power but there is no credit in the account for continuously for 90 days as on the date of balance sheet of the bank or the credits are not enough to cover the interest debited during the same period. (3) Bills purchased and discounted: If bills remain overdue and unpaid for 90 days. Banks cannot take overdue interest to income unless realized. Even if one bill of a borrower is overdue for 90days, the entire liability is to treated as NPA. (4) Other credit facilities: Where any amount to be received in respect of such a facility remains in default for 90 days.
CREDIT MANAGEMENT UNDER WORKING CAPITAL Other applicable guidelines for income recognition and asset classification norms:
When a particular facility offered to a buyer becomes a NPA, then all other credit facilities to the borrowers will be treated as NPAs. The interest that is recovered partially on the NPAs will be taken into the income account. When a credit facility qualifies for the first time as NPA, then all the interest, commission, fees etc., that remain as arrears during the previous year which have still not been realized, will have to be provided for during the current year. Security / net worth of borrower/ guarantor will not be considered while qualifying an account as NPA. Advances that are fully secured against term deposits, National Savings Certificates, Indira vikas Patras, Kisan Vikas Patras and surrender value of life insurance policies need not be treated as NPAs. In the case of advances guaranteed by Central / state governments, such advances will not be classified as NPAs until the time the guarantee is invoked and the government repudiates. The asset will remain as standard asset. However, for income recognition purpose, interest will be taken into account only if realized.
Doubtful Asset:
Asset which has remained NPT for a period exceeding 12 months and realization of dues in full in highly improbable. Rescheduling of loan accounts does not entitle the bank to upgrade the Doubtful account into sub-standard or standard Asset.
Loss Asset:
A Loan account will be classified as Loss Asset if; NPA not supported by any security or DICGC/ECGC cover, Asset identified by the bank or its internal or external auditors or RBI inspectors as loss assets but the amount has not been written off wholly or partly; Considered uncollectible and does not warrant continuance. Existing bankable asset may have negligible salvage or recovery value compared to the loan outstanding.
Period Amount of provision Up to 1 yr 20% 1-3 yrs 30% Beyond 3 years 100% of the outstanding irrespective of the security available. CREDIT MANAGEMENT UNDER WORKING CAPITAL
With regard to the secured portion, provision is made on the following basis, at the rates ranging from 20% to 100% of the secured portion depending upon the period for which the loan asset has remained doubtful asset.
fixed interest basis the same rate of interest is charged throughout the period of loan. Floating rate of interest means, as and when there is change in the link rate (say PLR of a bank) the rate of interest will change. Interest will be charged on the balance outstanding (i.e., daily reducing balance method or balance outstanding at the beginning of the month/quarter). The term loans have a repayment period of say 3 years and above normally up to 8 years. The loans are secured by primary security assets purchased are charged to banks (hypothecation/mortgage, etc). collateral securities in the form of additional pledge/mortgage of assets and guarantees by 3rd parties are also insisted, where the loan amount is very high.
CREDIT MANAGEMENT UNDER WORKING CAPITAL Following are the popular fund based facilities:
Overdrafts Cash credit Bills finance
Overdrafts
An overdraft is a fluctuating account wherein the balance some times may be in credit and at other times in debit. Overdraft facility is allowed as a running account (current account). Many drawings and repayments are allowed in the account. Drawings are normally made by the drawer by issuing cheques. The security is an overdraft account may be either personal or tangible security insurance policies, fixed deposits receipts, shares and debentures, book debts, etc.
Cash Credits
A cash credit is a drawing account against credit granted by the bank and is operated in the same as a overdraft account. The bank will sanction limit based on the
Credit DPG
BILLS FINANCE
Bills finance is a post sale credit facility granted to borrowers. Otherwise borrowers (i.e. sellers of the goods, who supply the goods on credit basis will have to wait for a specified period say 3 months) this would help the borrower to increase his business, as his working capital cycle is reduced. As the bank directly recovers the money advanced from the buyer of goods. Bills finance is also known as self liquidating finance. Bills are classified as clean bill or Documentary bill. A documentary bill is accompanied by documents of title to goods such as Railway receipts or bills of lading. Clean bills are not accompanied by documents of title to goods. Banks are secured if the bills financed are documentary bills. As the goods are pledged to banks, in case of dishonor of bills, they can take delivery of the goods and recover the dues by sales of the goods. Clean bills are unsecured bills. Bills are further classified as Sight bills and usance bills. Sight bills have to be paid by the purchaser of goods immediately sights bills are purchased. Usance bills are payable by the purchaser of goods after a specified period of time (say 3 months, etc). usance bills are discounted. In the case of usance bills, bank will deduct the discount amount (say 20 ro 25%) and pay the balance to the borrower and pay the discount amount on realization of the bill.
BANK GUARANTEES
Banks issue guarantee on behalf of customers in favour of third parties
undertaking to pay the guaranteed sum of money to the third parties (beneficiary) in the event of the (his) customer failing to perform the agreed obligations. Guarantees are classified as financial guarantee and performance guarantee. Performance. Guarantee is an undertaking by a bank that in the event of a failure by the applicant, the guarantor bank will complete the original contract. In India, however performance guarantee (as also financial guarantee) will obligate the guaranteeing bank to pay the fixed amount only. Similar to LC, there is no fund based credit facility sanctioned.
DEFERRED PAYMENT GUARANTEE Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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There are number of financial decisions to be taken by a Finance manager in day-to-day process. Among them major financial decisions are:
1. Capital Structure 2. Capital Budgeting 3. Working Capital Management It is observed that working capital management is critical for success or failure of working capital. It is also noted that most of N.P.As results out of ineffective use of funds and ineffective working capital management. Therefore, it is proposed to study as to how Public Sector Banks {PSBS} like canara bank.process and sanction working capital funds. Working capital is the funds required by a unit for its day-to-day working. In the course of business which deals only in trading there is need for purchase of goods meant for sale, payment of wages to workers employed, rend, lighting, locking up of money in credit sales etc. in the case of manufacturing unit, money required for
purchase etc. in the case of a manufacturing unit, money required for purchase of raw materials (RM), payment of wages / salaries, overheads like rent lighting money locked up in raw material stock, work in process (WIP), finished goods (FG) held constitute working capital requirement.
Assessed method of working capital used in various types of advances: Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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Borrowers and Limits of Rs.5 cores & above for Small Scale industry Borrowers. Projected Balance Sheet method. 2. Small scale industry borrowers who require working capital finance of Rs. 25 lakhs and above but up to Rs. 5 cores. Turnover Method however working under projected balance sheet, Method and limits so assessed will be sanctioned if it exceeds 20% of the turnover under turnover method. 3. Limits up to Rs. 25 lakhs to Small scale Industry Borrower. Turnover Method 4. Limits below Rs. 50 lakhs for: Nonsmall Scale industry Borrowers (other than Trade & Service advance) Simple assessment Method, which is in use in Bank for assessing WC limits of Rs. 2 to 15 lakhs for Small Scale Industry Units. 5. Limits of Rs. 10 lakhs and below for Trade & Service Sector borrowers. Assessed Bank Finance method. 6. Limits of Rs. 10 lakhs & above: Up to Rs.50 lakhs under Trade & Service sector. Simple assessment method.
The salient features of the reused scheme in relation capital limits are as under
1. The banks should consider proposals for sanctions within the broad framework of guidelines issued by RBI from time to time. 2. Initially, under CMA, the sanction / renewal of credit limits to borrowers enjoying working capital facilities beyond Rs. 10 cores only needed to be reported to RBI for the sanction scrutiny. It is now not necessary for the commercial banks to scale formal post sanction. Approval from the RBI in respect of sanctions and renewal of fund based working capital limits exceeding Rs. 10 cores. Where norms relating to inventory / receivables had been laid down by RBI credit limits had to be determined according to such norms.Banks could sanction ad-hoc limits to borrowers for temporary periods not exceeding 3 months. Such ad-hoc sanction to borrowers enjoying working capital beyond Rs. 10 cores should be reported to RBI in case where ad-hoc limits are needed for period should be reappraised.
Working capital loans under single window to tiny and small-scale industry unit (S S I): Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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CREDIT MANAGEMENT UNDER WORKING CAPITAL a) Eligible financing institutions: Earlier the state-financing corporation
had twin function industrial development corporation. Now scheme is being channelized through commercial banks also. b) Eligible units: New tiny and small-scale units whose cost of project, excluding working capital margins does not exceeds Rs.20 lakhs, (raised from the earlier Rs. 10 lakh) and the total working capital requirements at the normal level of operations is up to Rs. 10 lakhs (raised from the earlier Rs. 5
lakhs) provided the unit has been sanctioned term loans for fixed assets and loan for working capital by the same institution. Project cost was later raised to Rs.50 lakhs. Project with outlay up to Rs.1 core (raised from the earlier Rs.50 lakhs) are now eligible for refinance under the single window scheme of SIDBI. c) Nature and Amount of Assistance: Working capital loans within above ceiling to units for meeting the working capital requirements of tiny and Small Scale units. An advance is also granted against other securities: They are as follows; 1) Advances against government securities such as government promissory note, stock certificates, bearer bonds, national savings certificates, Units of UTI public sector bonds etc. 2) Advances against term deposits. 3) Advances against gold ornaments / silver ornaments to Agriculturist. d) Assisted unit may approach the bank for meeting its existing working capital requirements for additional working capital requirements at any time during the currency of the loan.
Some Important clarification of Working Capital: a) Working capital exceeding 20% of Projected Annual Turnover (PAT):
Where the working capital requirement of S.S.1 units exceeds 20% of PAT higher quantum of bank finance can be produced to them. (If it is found necessary to do so on the basis of need based requirement) b) W. C. Below minimum level: The WC below the minimum level may be justified special circumstance in which the retirement is demonstrable lower than the minimum level as in the case of an ancillary unit with assured supply of inputs and off take of outputs. c) Higher liquid surplus: Since the bank finance is only intended to support need based requirements of borrowers, if the available net working capital is more than 5% of the turnover, the former should be reckoned for assessing the extent of bank finance. d) Short WC cycle: The same approach as indicated in the preceding paragraph should be adopted. It should, however be ensured that the genuine credit requirements of the unit adequately.
CREDIT MANAGEMENT UNDER WORKING CAPITAL e) Efficient WC management: If the unit has been having an efficient WC
management and thus managed with lesser working capital, the limits can be set a lower level, subject to (c) and (d) above. f) Peak season: In case or seasonal industries, the peak season and off-season turnover, instead of annua1 turnover can be separately considered for determining the respective 20% levels. g) Creditor / Advance payments: These continue to be treated in the same manner as earlier. These are among the sources of funds required for building up the current assets. These should not be reckoned towards margin. Only the liquid surplus available reckoned for the purpose of margin. Traders: In case of traders, while bank finance could assessed at 20% of project turnover, the actual draws should be allowed on the basis of drawing power to be determined by the bank after ensuring that unpaid stocks are excluded. h) Lower margins: As a general rule, there should not be dilutions in the stipulations of margin requirements except under the circumstances where it is otherwise permitted e.g. under the entrepreneur scheme, in case of rehabilitations of stock units. i) Limit / Sub-limits: The banks have to fix the limits and sub limits taking into account all the relevant factors. j) Monthly sales figures: The existing system of regulating drawings in the account continues. However it is also necessary to obtain the sales data f) Peak season: In case or seasonal industries, the peak season and off-season turnover, instead of annua1 turnover can be separately considered for determining the respective 20% levels.
6. DATA ANALYSIS AND INTERPRETATION Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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1. Current Ratio
Current assets Current Ratio = Current Liability
Analysis:
The above ratio shows that there was constant growth in current ratio in 2006 and 2007 was 1.02 and it was slightly declined in 2008,that is 1.00.It indicates that the bank having sufficient cash to meet its current liabilities and the bank is using its current assets efficiently and profitably. So over all ratios of current assets and current liabilities is satisfactory.
2. Debt Equity Ratio: Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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Table-2 Showing the Debt-Equity Ratio of the CANARA BANK Graph-2 Showing the Debt-Equity Ratio of the CANARA BANK Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
87 Year 2005-2006 2006-2007 2007-2008 Debt 19230.05 20334.79 36789.77 Equity 360 360 360 Ratio 53.41 56.48 102.00
Analysis:
The above chart shows that there is a debt e.g., Ratio in 2006 is 53.41% it was increased to 56.48% and in 2008 it is 102.00% it shows that in each year e.g., capital is same but debt capital is increasing generally 2/3 ratio is good for any capital structure. Thus in first 2 year debt is not more thus the bank is not given any interest on debt and in that period for e.g., share holders are got benefited and in third year 2008 .The debt e.g. ratio is 102.00% it is not a good capital structure the bank is need to pay heavy interest an debt thus the bank is need to reduce the debt capital and wise it is very it is very much burden in future.
3. Fixed Assets to Net worth Ratio Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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Table-3 Showing the Fixed Assets to Net worth Ratio of the CANARA BANK Graph-3 Showing the Fixed Assets to Net worth Ratio of the CANARA BANK Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
89 Year 2005-2006 2006-2007 2007-2008 Fixed assets 4094.90 4330.01 9489.72 Share holder fund 360 360 360 Ratio 11.97 14.75 26.36
Analysis:
By observing the above ratios the fixed assets to net worth ratio is increasing per year that is in 2006 it is 11.97% it was increased to 14.75% and in 2008 it is 26.36. It shows that at what extent the e.g. share capital is contributing to net worth, higher the ratio better is the net worth.
CREDIT MANAGEMENT UNDER WORKING CAPITAL Table-4 Showing the Return on Share Holders Investments Ratio of the CANARA BANK Graph-4 Showing the c Return on Share Holders Investments Ratio of the CANARA BANK Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
91 Year 2005-2006 2006-2007 2007-2008 Net profit 20625.80 21671.67 24922.90 Share holder fund 360 360 360 Ratio 5.73 6.01 6.92
Analysis:
The ratio is continuously increasing it is in 2006 id 5.73% and it was increased to 6.01% and 6.92% in 2008. Higher the ratio the shareholder will get more benefit and higher the return on investment to share holders.
5. Equity Ratio
Share holders fund Equity Ratio = Total assets
CREDIT MANAGEMENT UNDER WORKING CAPITAL Table-5 Showing the Equity Ratio of the CANARA BANK
Year 2005-2006 2006-2007 2007-2008 Share holders fund 360 360 360 Total assets 165526.20 193374.50 268426.50 Ratio 0.002 0.018 0.0013
Graph-5 Showing the Equity Ratio of the CANARA BANK Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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Analysis:
This ratio shows that at what % the share holders fund included in total asset lesser the ratio better is for the shareholders in this ratio the equity ratio is 0.002% in 2006 and was decreased to 0.018% and in 2008 it is 0.0013% it is better for the company and also for the shareholders finally the ratio of the bank is satisfactory.
6. Solvency Ratio
Total liability to outsiders
Table-6 Showing the solvency Ratio of the CANARA BANK TABLE 6 Showing the solvency Ratio of the CANARA BANK Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
95 Year 2005-2006 2006-2007 2007-2008
Total liability to outsiders 22100.05 20334.79 36789.77 Total assets 165526.20 193374.50 268426.50 Ratio 0.13 0.10 0.13
7. Earnings per Share Ratio: Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
96 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005-2006 2006-2007 2007-2008 Total liability to outsidersTotal assets Ratio
Table-7 Showing the Earning per Share Ratio of the CANARA BANK Graph-7 Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
97 Year 2005-2006 2006-2007 2007-2008 Net profit available for equity share 20625.80 21671.67 24922.90 Number of equity share 275994 275994 275994 Ratio 0.07 0.078 0.09
CREDIT MANAGEMENT UNDER WORKING CAPITAL Showing the Earning per share Ratio of the CANARA BANK
0 50000 100000 150000 200000 250000 300000 2005-2006 2006-2007 2007-2008 Net profit availlable for equity share Number of equity share
Analysis:
The ratio of earning per share in 2006 was 0.07% and was decreased to 0.078% it is again increased to 0.09% in 2008. The higher ratio better for the share holders and it is also better for the bank. When bank incurring loss because no obligation of paying ratio on equity-shares.
8. Return on Gross Capital employed: Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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Table-8 Showing the Return on Gross Capital employed Ratio of the CANARA BANK
Year 2005-2006 2006-2007 2007-2008 Adjusted net profit 2062.58 2161.16 2492.92 Gross capital employed 165526.20 193374.50 268426.50 Ratio 1.20 1.10 0.92
CREDIT MANAGEMENT UNDER WORKING CAPITAL Graph-8 Showing the Return on Gross Capital employed Ratio of the
CANARA BANK
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2005-2006 2006-2007 2007-2008 Ratio Gross capital employed Adjusted net profit
Analysis:
The ratio indicates percentage of profit for the capital employed higher the ratio better for the bank. The ratio is 1.20% in 2006 and was decreased 1.10% and 0.92% in 2007 and 2008 respectively. The ratio is decreased every year. It is not satisfactory for the bank.
Table-9 Showing the Return on Net Capital employed Ratio of the CANARA BANK
Year 2005-2006 2006-2007 2007-2008 Adjusted net profit 2062.58 2167.16 2492.29 Net capital employed 143416.15 173039.71 231636.73 Ratio 1.43 1.25 1.07
CREDIT MANAGEMENT UNDER WORKING CAPITAL Graph-9 Showing the Return on Gross Capital employed Ratio of the CANARA BANK
0 50000
100000 150000 200000 250000 20052006 20062007 20072008 Adjusted net profit Ratio Adjusted net profit Net capital emploed Ratio
Analysis:
The ratio is decreasing every year. It is not satisfactory for the bank. The ratio is 1.43% in 2006 and was decreased to 1.25% and 1.07% in 2007and 2008 respectively higher the ratio higher the profit and benefit to bank.
FINDINGS AND RECOMMENDATIONS Pooja Bhagavat Memorial Mahajana P.G Centre Mysore-16
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years.
With the above canara bank will certainly become number one bank in India. soon.
BIBLIOGRAPHY
Books Referred:
S.Murali and K.R.Subbakrishna, Bank credit management, Himalaya Publishing House Pvt.ltd., First Edition: 2008. Prassanna Chandra, Financial Management, Tata McGraw Hills. I.M Pandey, Financial Management, Vikas Publishing House Pvt Ltd., Ninth Edition: 2005. Arun chatterjee Credit Management In Particle Approach, Skylark Publications., First Edition:2004. Other sources: Bank Broachers Annual reports Bank websites Journals