Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Project Report
At
On
Dedicated
Dedicated
To
To My
My
Parents,
Parents,
Respected
Respected
Teachers
Teachers
&
&
Sincere
Sincere
Friends
Friends
COMPANY CERTIFICATE
It is to certify that BAILOCHAN SAHU a final year student of Sikkim
Manipal University has completed the project work entitled. A PROJECT
REPORT ON WORKING CAPITAL MANAGEMENT OF BANK. For the
award of the partial fulfillment for the degree of Masters in Business
Application
of
Sikkim
Manipal
University
of
health
Medical
and
technological sciences.
During his working period of project he found to be hardworking and
sincere.
I wish her a better Future in the field of Management.
Examiners Certificate
The project report of
BAILOCHAN SAHU
Entitled
A PROJECT REPORT ON WORKING CAPITAL MANAGEMENT OF BANK
CHANNEL OF ICICI BANK.
CERTIFICATE
of
Sikkim
Manipal
University
of
health
Medical
and
Certified
Mr.Rajesh Dash.
Branch Head-Finance.
ICICI BANK
CERTIFICATE
PROJECT REPORT ON
ACKNOWLEDGEMENT
It is my proud privilege to express my deep sense of gratitude to my Respected
Project-Head Mr. Saurav Kumar Dalabehera Faculty in Department of Management,
Gyanabharati, and Bhubaneshwar. For his wise concern, co-operation, inspiration,
valuable and scholarly guidance and consistent encouragement to undertake this
project work.
I am thankful to my loving friends for their help, encouragement, co-operation and kind
assistance to prepare this Project Report.
Finally my deep sense of gratitude to my loving parents.
DECLARATION
I BAILOCHAN SAHU do here by declare that the project report entitled A PROJECT
REPORT ON
the partial fulfillment of my MBA course to Sikkim Manipal University, India is of my own
efforts and has not been submitted for the award of any other degree, diploma,
fellowship, or any other similar title or prizes.
Acknowledgement
At this stage I must thank God, the Professor of Majesty and
Splendor, the Omnipresent and the ever merciful. Whose invisible
guidance helped me in each and every moment of my life.
I would also like to thank my parent for allowing me to do
whatever I liked, my elder brothers who helped me in facing each
and every problem of my life and without their support I would
not be able to reach at this stage.
In presenting this report I express my heartfelt thanks to Mr.
Prayag samal (Bank Manager of ICICI Bank), Mr.Ritesh Raj Singh
(Cashier Manager of ICICI Bank) ,My warmest thank to Mr. Samuel
Pradhan (Sn. Mgr Cashier of ICICI Bank),Mr Amit Daruka (Branch
Manager of ICICI Bank). who were always with me with there
valuable suggestion.
I am grateful to Mr. Sourav Kumar Dalbehera my internal guide
who was always for me and without his guidance the project could
not have been completed.
My sincere gratitude to Center head Mr. Surendra kumar sahoo
and faculties whose constant help immense me to be in track
throughout my project. Last but not the least I would like to thank
all friends and the entire person who helped me directly or
indirectly in making this report successful.
Bailochan sahu
Table of content
Chapt
Name of Chapter
er No.
1.
e
INTRODUCTION
BANK OVERVIEW
2.
Pag
NO.
0105
0607
3.
METHODOLOGY
08-
Research design.
12
13
5.
14
15-
Type of risk
17
Decision making
18-
Credit appraisal
20
21
2228
2931
3235
3644
4553
5463
6465
6.
7.
66-
APPENDIX
67
68
INTRODUCTIO
N
Its working capital financing consists mainly of cash credit facilities and bill
discounting. Under the cash credit facility, a line of credit is provided up to a preestablished amount based on the borrower's projected level of inventories,
receivables and cash deficits. Up to this pre-established amount, disbursements are
made based on the actual level of inventories and receivables. The facility is
generally given for a period of up to 12 months, with a review after that period. Its
cash credit facility is generally fully secured with full recourse to the borrower. In
most cases, ICICI Bank has a first charge on the borrower's current assets, which
normally are inventory and receivables. Bill discounting involves the financing of
short-term trade receivables through negotiable instruments. These negotiable
instruments can then be discounted with other banks if required, providing us with
liquidity.
ICICI Bank provides letter of credit facilities to its customers both for meeting
their working capital needs as well as for capital equipment purchases. Lines of
credit for letters of credit are approved as part of a working capital loan package
provided to a borrower. These facilities, like cash credit facilities, are generally
given for a period up to 12 months, with review after that period. ICICI Bank
provides guarantees, which can be drawn down any number of times up to the
committed amount of the facility. ICICI Bank issue guarantees on behalf of its
borrowers in favor of corporations and Government authorities. Guarantees are
generally issued for the purpose of bid bonds, guaranteeing the performance of its
borrowers under a contract as security for advance payments made to its borrowers
by project authorities and for deferral of and exemption from the payment of
import duties granted to its borrowers by the Government against fulfillment of
certain export obligations by its borrowers. The term of these guarantees is
generally up to 36 months though in specific cases, the term could be higher. In
addition, as a
Working capital is the life blood and controlling nerve center of a business.
Working capital is vital to a business. The organizations have to make available of
funds to pay their day to day bills, wages and so on. The working capital is made
up of the Current assets net of the current liabilities. It is very important to a
company to manage its working capital carefully. This is particularly true where
there is a substantial time lag between making the product and receiving the money
for it. In this situation the company has paid out all the costs associated with
making the product (labour, raw materials and so on) but not yet got any money for
it. They must therefore ensure they have enough Cash to do this.
The way working capital moves around the business is modeled by the working
capital cycle. This shows the cash coming into the business, what happens to it
while the business has it and then where it goes.Between each stage of this
working capital cycle there is a time lag. For some businesses this will be very
long where it takes them a long time to make and sell the product. They will need a
substantial amount of working capital to survive. Others though may receive their
cash very quickly after paying out for raw materials etc. Perhaps even before
theyve paid their bills- they will need less working capital.
For all businesses though they need to plan how much cash they are going to have.
The best way of doing this is a CASH FLOW FORECAST.
Working capital is a life blood and controlling nerve center of a business Various
aspects of working capital determines the health and growth of an Organization.
Working Capital refers to Current assets mines current liabilities. Working capital
measures how much in liquid assets a company has available to build its business.
The number can be positive or negative, depending on how much debt the
company is carrying. In general, companies that have a lot of working capital will
be more successful since they can expend and improve their operations.
Companies with negative working capital may lack the funds necessary for growth.
The above information about working capital influence me for making a project on
working capital Management of the ICICI BANK.
Economy needs capital to move on. Without sufficient capital, the infrastructural,
industrial, and agriculture activities cannot be undertaken. These are essential for
economic growth of the economy on which GDP, and thereby the per capita
income of the people depends.
Only when the savings of the people are mobilized and channelized, they
can be used systematically for economic activity. Here comes the role of banks and
FI who are involved in mobilizing the savings of the public and lending it for
various economic activities.
To understand the various problems faced by the company and the industry
as a whole in proper implementation of Working capital Management. The
necessary precautions if possible to be undertaken to prevent and control
them.
To study the past performance of the working capital management in the
company, its future prospects
The main objective of this study i.e. to ascertain the risk while investing in a
particular borrower and accounting beforehand for and any unprecedented change
displayed by him over the time period is accomplished by the following steps:
Starting with brief overview of various risks in banking, and later emphasizing
on the credit risk management and the issues involved there in.
A broad overview of the credit appraisal process of the banks and the risk
analysis done by them.
A broad overview of the project finance process of the banks for financing
projects like infrastructure projects.
Using the credit risk rating framework to determine risk adjusted pricing for
exposures
METHODOLOGY
Research design.
The design chosen for this study is descriptive research design. The rationale
behind using the descriptive research design is that the study was carried on
working capital management for which the source is annual reports, and cost
reports etc. the financial analysis is done keeping special emphasis on balance
sheet profit and loss statement, cost report and ratio analysis.
Data Source and Methodology
The present study is based upon primary and secondary data. The sources of
primary data are the official records and discussion with the officers in the finance
dept. of the organization. The secondary sources of the data include various
publications of the organization and annual reports and audited financial
statements. The data, which are presented in this report, have been taken from
secondary sources.
For analyzing the performance of working capital management, simple
mathematical tools like Percentages, Averages, and Ratios have been used in this
project work. To know the financial performances of this division, calculation of
Operation Cycle, Earning before Interest & Taxes have been calculated.
The study was undertaken as a part of MBA curriculum during March- April in
the form of summer training.
The work was carried out in the office of ICICI BANK . Both primary and
secondary data were acquired for the smooth and successful completion of the
study. The primary report and interview and secondary data are collected from the
Balance sheet of the project and annual reports etc.
Tool used
Ratio analysis, current ratio, liquid ratio, inventory ratio, ratio of inventory to
working capital and graphs has been used as devices for analyzing the performance
of working capital management ICICI BANK..
Scope of the study
The study of the working capital helps someone to know about the position of the
current assets and current liability of an organization. This gives a clear picture that
how the firm is maintaining its day-to-day requirements by using the funds
available .the working capital requirements of the business are maintained
according to that.
Excess working capital more than its requirement is idle to the business point of
view. When the working capital is not sufficient that is also not good for the
business because it shows the weakness of liquidity. Above that if working capital
is not sufficient then it is difficult to maintain its day-to-day activities.
offers custodial services to clients. At year-end fiscal 2007, total assets held in
custody on behalf of its clients (mainly foreign institutional investors, offshore
funds, overseas corporate bodies and depositary banks for GDR investors) were
Rs. 910.49 billion. As a registered depositary participant of National Securities
Depository Limited and Central Depository Services (India) Limited, the two
securities depositaries operating in India, ICICI Bank also provide electronic
depositary facilities to investors. Further, ICICI Bank generates fee income from its
syndication and securitization activities.
theme, this study charts the mechanism adopted by the banks in rating the credit
risks, in fixing the amount of credit to be extended during a financial year, the
industries to focus on, the geographical spread, the type of proposals to be
financed, the disbursal mechanism, and the collateral value, the method of pricing,
the repayment schedule, the monitoring and review process.
The significance of the studying these considerations gets reflected in knowing
that, lending is not just a matter of making the loan and waiting for payment .Loans
are to be properly rated, priced, monitored, and reviewed so as to effectively
measure the credit risk along the risk continuum, and foreseeing before hand of
any undesirable prospect of the borrowers business.
Current accounts, which are non-interest bearing demand deposits. In addition to
deposits from Indian residents, ICICI Bank accept time and savings deposits from
non-resident Indians, foreign nationals of Indian origin and foreign nationals rking
in India. These deposits are accepted on a repatriable and a non-repatriable basis
and are maintained in rupees and select foreign currencies.
Following a strategy focused on customer profiles and product segmentation,ICICI
Bank offer differentiated liability products to various categories of customers
depending on their age group, such as Young Star Accounts for children below the
age of 18 years, Student Banking Services for students, Salary Accounts for alaried
employees and Senior Citizens Account for individuals above the age of 60 years.
During fiscal 2007, ICICI Bank launched special term deposit products for urations
of 390, 590 and 890 days. ICICI Bank have also segmented various categories of
customers to offer targeted products, like Private Banking for high net worth
individuals, Defence Banking Services for defence personnel, Special Savings
Accounts for trusts and Roaming Current Account for businessmen.
bonds by banks. During the financial year ended March 31, 2007, ICICI
Bank did not issue any bonds to retail investors. While ICICI Bank expects
that deposits will continue to be its primary source of funding, ICICI Bank
may conduct bond issues in the future.
Group provides foreign exchange and other treasury products to corporate as well
as small enterprise clients
Risk is inherent and absolutely unavoidable in banking. It is a variable which can
be calibrated, measured and compared. The degree of risk attached to an event is
generally linked to the likelihood of the occurrence of that event. The higher the
probability of the actual outcome being different from the expected outcome, the
higher is the risk attached to that event. Hence, risk is generally measured using the
concept of standard deviation.
It is the potential loss that an asset or a portfolio is likely to suffer due to a
variety of reasons .Since risk is accepted in business as a trade off between reward
and threat, it does not mean that taking risk brings loss only; it brings forth benefits
as well. In other words, it is necessary to accept risks, if the desire is to reap the
anticipated benefits.
Risk, in its pragmatic definition, therefore, includes both threats that can
materialize and opportunities that can be exploited. Stressing the downturn effect
of taking risks, there can be serious implications on banks when the various
explored /unexplored are not prudently managed.
The market where investment funds like bonds, equities and mortgages are traded
is known as the capital market. The primal role of the capital market is to
channelize investments from investors who have surplus funds to the ones who are
running a deficit. The capital market offers both long term and overnight funds.
The financial instruments that have short or medium term maturity periods are
dealt in the money market whereas the financial instruments that have long
maturity periods are dealt in the capital market. The different types of financial
instruments that are traded in the capital markets are equity instruments, credit
market instruments, insurance instruments, foreign exchange instruments, hybrid
instruments and derivative instruments.
In studying the capital market theory we deal with issues like the role of the capital
markets, the major capital markets in the US, the initial public offerings and the
role of the venture capital in capital markets, financial innovation and markets in
derivative instruments, the role of securities and the exchange commission, the role
of the federal reserve system, role of the US Treasury and the regulatory
requirements on the capital market.
The market where investment funds like bonds, equities and mortgages are traded
is known as the capital market. The financial instruments that have short or
medium term maturity periods are dealt in the money market whereas the financial
instruments that have long maturity periods are dealt in the capital market.
The main function of the capital market is to channelize investments from the
investors who have surplus funds to the investors who have deficit funds. The
different types of financial instruments that are traded in the capital markets are
equity instruments, credit market instruments, insurance instruments, foreign
exchange instruments, hybrid instruments and derivative instruments. The money
market instruments that are traded in the capital market are Treasury Bills, federal
agency securities, federal funds, negotiable certificates of deposits
The issues that have been mentioned above to explain the capital market theory
may be discussed under the following heads:
Type of Risks
A bank faces a number of risks in the course of its regular operations. Some of the
important risks faced by bank are as under:
Credit Risks
Interest-rate Risks
Operational Risks
Liquidity Risks
Market Risks
Insurance Risks
Business Risks
Strategy Risks
Reputation/Brand Risks
Credit Risks: Whenever a bank acquires a loan asset, it assumes the risk that the
borrower may default that is, not repay the principal and/or interest on time.
Different types of assets in the bank exhibit different probabilities of default.
Loans typically exhibit the greatest Credit risk. Banks investment securities
generally exhibit less Credit risk because the borrowers are predominantly
central, state, and local government units where the default percentage is Zero.
To assess the borrowers creditworthiness, banks perform a credit analysis on
each loan request to assess the borrowers capacity to repay.
without the effective ability to trade or to assess its current portfolio. To take
case of this risk, most banks have identified system vendors for a proper
workflow and process automation, which will help the banks in reducing and
detecting errors. But the success in controlling this risk through system vendors
is to be seen over a period.
Market Risks: Market Risk is defined as the risk of a potential loss in fair
values arising form adverse changes in market rates and prices.
Insurance Risks: The risk that the product pricing and reserves did not
appropriately cover claims.
Business Risks: The risk that the businesses were not able to cover their
ongoing expense with ongoing income following a severe crisis(excluding
items already captured by other risk categories)
Strategy Risks: The risk that business activities were not responsive to changes
in industry trends.
Reputation/Brand risks: The risk that the banks market or service image might
decline.
Apart form the above mentioned risk, there are various types of risks like
exchange risk, country risk, off balance sheet risk etc. which add more intricacies
to the major head of default risk.
Decision Making
A decision on providing credit to an entrepreneur may be arrived at in a subjective
or objective manner. A subjective analysis is often impressionistic in character
An objective analysis instills a certain degree of certainty and
refinement. A credit functionary in a bank has always been undertaking risk
analysis in course of taking a lending decision, but the present day emphasis on
credit risk management is all about objective of a given scenario, quantifying the
risk and taking appropriate precautions.
Credit Appraisal
Low efficiency and high default rates are the major risks in lending. After a loan
has been disbursed, financing institutions rely on a punctual and complete
repayment of the amount granted. Thus, it is of utmost importance to carefully,
assess the acceptability of the promoter(s) and viability of the planned project at its
pre-investment stage (i.e before sanction of the loan)
Objectives of Credit Appraisal
To ensure healthy, productive and strong loan portfolio of the bank. Towards this:
Avoid over-financing or under-financing
Minimize interest risk and liquidity risk
Maintain a balance between liquidity and profitability.
Determine the required terms & conditions while lending.
Elements of Credit Appraisal
Risk is inherent in all credit appraisals. Analysis is to be done to assess whether it
is a fair banking risk or not. In fact, the ultimate aim of all appraisals is to assess
whether the loan proposal is fair banking risk or not. Sometimes, a proposal may
be considered a fair banking risk only with certain stipulations or pre-conditions.
The Appraisal by a credit analyst usually, involves the Five Ps model. The first P is
with regard to the acceptability of the person or the prospective borrower. This
involves ascertaining whether his integrity and capacity are as per banks norms.
If the first P i.e. the person is found acceptable then only the appraiser should
go on to the next step i.e. he should checkout on the technical feasibility and
commercial viability of the project. This is second P discussed in detail
If the project is also found acceptable per say, then the appraiser can go on to the
third P i.e. Payment (re-payment), to determine the liquidity and interest risk
involved in the lending
If all the above Ps are found acceptable, the appraiser still needs to check out on
the Protection offered i.e. the security aspect of lending. This is the fourth P .In
other words, the appraiser examines whether the prospective borrower is offering
adequate collateral security. Collateral security is the additional security offered
to the banker. The assets purchased out of the bank finance constitute the primary
security. Anything additional offered as a security is known as collateral security.
This is examined for the reason that the assumptions made while checking out the
first 3 P may not hold true in the changing scenario. Or the assessment on the first
3 P may turn to be incorrect, despite due to diligence.
In short as much as a banker basically, deals with funds borrowed from the public,
he is a Trustee of the public economy. He needs something to fall back upon if
things do not turnout as expected.
It is quite possible that a banker may decide not to finance even if all the four Ps
discussed above are acceptable in the case of a particular proposal. This could be
because of the fifth P i.e. the perspective. In other words, a proposal has to fit into
the perspective i.e. the lending has to be in tune with the priorities and policies of
the Government, the RBI (which controls the functioning of the banks) and the
bank concerned. For instance the financing liquor related activities may be low
priority or prohibition may be in force. Some activity, even if viable, may not be in
the national interest. Of course, the perspective, or priorities, and policies, keep
changing form time to time and the perspective at what material time is what
matters.
Perspectiv
e
Protection
Payment/Repayment
Project /Proposal
Person
The different Ps dealt with in more detail here under:
Person:
Person
Integrity
Capacity
Managerial
Experience
Financial
Expertise.
Integrity is the most important of all the factors in assessing the credit worthiness
of the customer. Integrity refers to moral uprightness, honesty and soundness of the
person.
Technical feasibility
Economic Viability
Primary Security
Collateral Security
Collateral Security is the additional security obtained by banks form the borrowers
as a cushion to fall back upon, in case of need i.e. in case the assumption goes
wrong. Especially, when the primary security is insufficient to cover the entire loan
with interest
The significance of collateral security is that it makes a good loan better but it
cannot make a bad loan good. In other word a proposal has to be first viable by
itself, without which a banker would never consider funding, even if 100%
collateral security cover is available.
Perspectives/Policies
Even if all the above 4 parameters are satisfactory, a loan can not be sanctioned
unless the following considerations are also taken care of:
It should not be against the law of the land.
It should not be against national interest
Compliance of environmental regulations
RBI Guidelines
Banks own loan policies
The banks loan policy may prescribe exposure restrictions like industry/sector
exposure limits and the country exposure limit. These are monitored by the risk
management Department (RMD) of the bank concerned on an on-going basis.
Besides, some activities may be considered as low priority by a particular bank at a
particular point of time. For instance Commercial complex was considered low
priority by ICICI BANK about a decade back, but not so any longer. Even personal
loans (consumption Loans) which are a rage these days were not encouraged about
a decade back.
A proposal thus has to satisfy all the above parameters to become eligible for bank
finance.
2) The team of the credit processing cell (CPC) of the bank carries out a pre
sanction inspection of the site of the venture (existing or proposed)
3) The team holds discussions with the promoters/management team to
crystallize the requirements of the company and facilitates /pricing to be
sanctioned to meet such requirements. They also seek clarifications
regarding the observation made by them while going through the proposal or
during the pre sanction visit.
4) The relationship managers of the bank are, of course, also involved in the
interactions with the company.
5) On obtaining of all data/information, the CPC team members carry out the
appraisal with the help of a prescribed format of the bank, which naturally
covers the Five Ps of appraisal indicated earlier
6) The Appraisal /proposal, in the prescribed format, is put up into the
appropriate authority for sanction .on receipt of sanction the same is
conveyed to the application company.
7) Flow chart.
Flow Chart
Start
Collection of Data
Preparation of
credit proposal
Proposal sent to
sanction authority
Does
Sanction
authority
approve?
Queries to be
No
answered
Yes
No
If
approve
s?
Proposal sent to
loan sanctioning
authority
Yes
Stop
cycles in a year. Under this method, the working capital required is a function
of Operating expenses and length of operating cycle.
2) Simple or Traditional Method: Under this method, the average level of
different current assets (raw materials, Stock-in process, finished goods, and
receivables) required for completing one production cycle is reckoned as the
total working capital required. The total working capital net of credit available
in respect of raw materials supply is reckoned as the Working capital
Gap(WCG). After stipulating a margin(borrowers own contribution) of 2025% of the WCG, the balance is made available as bank finance(working
capital limit)
3) Turnover Method: (Nayak Committee recommendations on credit to SSI
sector)
The working capital assistance to all SSI units must be computed on the basis of
a minimum 20% of the projected annual turnover (PAT). For new/existing units
enjoying/ requiring aggregate fund-based working capital limits up to Rs5
Crores. The total working capital requirement, working capital loan and
(borrowers) margin must be 25%, 20%, and 5% respectively of the PAT. The
above norm is also used for commercial(C&I) and Small business finance
(SBF) segment for appraising limits up to Rs25lacs. The projected annual
turnover means gross sales inclusive of excise duty.
Projected Balance sheet (PBS) Method:
As the name suggests, the assessment is based on the analysis of the borrowers
projected balance sheet, funds flow and critical parameters like profitability,
liquidity, gearing etc. The quantification will be carried out in a flexible manner
with proper examination of all relevant parameters and acceptability in each
case. Unlike in the MPBF method which is done with projected balance sheet,
the minimum margin stipulation is not insisted upon. The Working Capital
finance assessed under this method is therefore known as Assessed bank
Finance (ABF) instead of MPBF. MPBF method is now being used for
financing only the NBFCs.
Cash Budgeted Method: Cash Budget is a projected cash flow statement
showing the forecast of the cash receipts, cash disbursements and net cash
balance over a period of time. No credit or transfer transactions are reported in
cash budget. Cash Budget is a prepared, at short intervals, in advance to ensure
efficient management of cash as cash is an idle asset.
The Cash Budget Method is in use for assessing working capital finance for
seasonal industries (Sugar, tea etc) for construction activities and also for
sanction of Ad-hoc working capital limits, i.e. temporarily additional limits
during the run of a year Bankers also obtain Cash Budget while issuing usance
Letter of Credit and in case of sick units under rehabilitation. The basic
information required for preparing cash budget is:
Production & Sales Budget
Terms of Sale- Cash Sales and credit sales with their respective shares
(%)
Period of credit allowed on sales and period of actual realization of
sundry debtors (receivables)
Details of other definite receipts, if any
Period of credit available for purchases
Terms of payment for other expenses/payables
Cost of Project:
It gives the components of cost included in the project viz,
Plant
Land &Building
Machinery
Generator set
Other equipment
Preliminary & Pre operative Expenses
Provision for contingencies
Working capital margin
Means of Finance:
It gives the detailed idea about different means of financing i.e.
Internal accruals
Unsecured loans
Term Loan required from bank
Project Implementation Schedule:
Project implementation schedule gives the idea about the expected
schedule of
completion of the project up to commencement of commercial
production.(in
case of new unit)
Production factors- Land, building, raw materials, labor power,
water etc
Marketing Strategies
Commercial
viability
including
Debt
service
coverage
ratio(DSCR)
Break even analysis (refer to the decision making tools for the
detailed description)
Project Financing:
A funding structure that relies on future cash flows form a specific
development as the primary source of repayment with that development assets,
rights and interests legally
It already has similar tie ups with ICICI Bank,Punjab National Bank, IDBI,
Oriental Bank of Commerce, Bank of Rajasthan and Karur Vysya Bank
Union Bank of India, with its network, ethos and customer-centric approach
plan, is attempting to address the fast-growing phenomenon of internet
trading and seamlessly cater to the convenience and value-seeking, cash-rich
and time-poor new-age consumers.
The integrated portal ICICI Bank paisabuilder.in will allow customers of the
bank to seamlessly execute their transactions as per their needs and
demands.
Any customer of Union Bank of India at any of its CBS branches can use
this online trading platform from any place having an internet connection.
When the customer indicates an intention to purchase any security, his
account is earmarked with the amount. The amount is debited from his
account only when the transaction is put through and his demat account is
credited in due course.
This new alliance is in line with ICICI Capitals strategy of increasing its
reach and penetration across the country.
This also facilitates the creation of new business opportunities and seamless
customer centricity by leveraging the core competencies of both the
organizations. Both organizations will work closely and leverage each
others strengths to eventually ensure customer delight
Commenting on the tie up with ICICI Bank , Union Bank of India, said, This
tie up takes Union Bank one step closer towards its vision of becoming a
one stop shop for financial services offering technology based products for
its customers
An advanced online trading portal, ICICI BANK paisa builder in is built
with a core objective to provide easy and informed investing experience to
investors.
This association will provide customers of the bank with a world class
online investing platform with the backing of two very reputed and
established financial institutions of the country.
This strong alliance will help us to expand our services to the consumers on
a larger platform; ICICI Bank paisa builder in is targeted mainly at the retail
investors.
The portal enables online investing in Equities, Mutual Funds and IPOs.
ICICI Bank paisa builder in helps investors make the right investment
decisions by providing them with pertinent news, information and analysis
along with company specific fundamental analysis. Facilities of investing
online in Equity (NSE & BSE), Mutual Funds (including SIP facility) and
IPOs, portfolio tracker, choice of equity trading platforms and custom stock
screener are some of the other unique features, apart from the
comprehensive information and analytical tools that are showcased on ICICI
Bank paisa builder in
The portal has been designed keeping a retail investor in mind for easier
comprehension and very easy navigation within the site
ICICI Bank is seeking to extend its reach to the growing small enterprises sector
through segmented offerings. ICICI Bank provides supply chain financing,
including financing of selected customers of its corporate clients. ICICI Bank also
provide financing on a cluster-based approach that is financing of small enterprises
that have a homogeneous profile such as apparel manufacturers, auto ancillaries,
pharmaceuticals and gems & jewellery. ICICI Bank has launched smart business
loans to meet the working capital needs of small businesses. ICICI Bank also
provides short term loans to small businesses for a period of up to 36 months. The
funding under this facility is unsecured and the loan amount varies from more than
Rs. 0.2 million to Rs. 2.5 million per customer.
ICICI Capital provides a complete range of financial products and services that
includes Stock Broking for Institutional and Retail clients, Depository
Types of Project financing Project finance with recourse ---to sponsors
Non recourse ------------- recourse only to project cash flows and project
assets
Legal
Environment
Force majeure risk
Interest rate risk
Inflation
Mechanism for control of cash
TRA mechanism
Lockbox Arrangement
Build up of various reserves such as maintenance reserves
Debt service reserve
CMA Data
As indicated earlier the bank calls for certain information and data for processing a
loan request. The data referred to earlier is primarily what is known as CMA data.
This is so known as it was developed by the RBI under its Credit monitoring
Arrangement. The CMA data consists of the following:
Operating Statement (Profit & Loss)
Analysis of assets and Liabilities
Fund flow statement
Comparative Statement of current assets & current Liabilities
The data relating to the last two years and the next year is incorporated in the
statement.
The Steps involved in the preparation of CMA:
Preparation of operating statement form the profit & Loss a/c and balance
sheet of the firm for the past two years, the estimates for the current year and
the projections for the next year.
Analysis of balance sheet i.e. re-arranging the balance sheet items (assets
and liabilities) under the respective heads to enable analysis as per banks
norms
Generation of fund flow Statement to analyze the movement of funds
between 2 balance sheet items
Preparation of the comparative statement of current assets and current
liabilities to delineate the trend which is necessary for projections
Current year estimates and future years projections are made based on the
trends of net sale figure and the profitability ratios
The CMA helps in quantifying and analyzing the financial risk of the company.
Credit Risk Assessment (CRA)
Start
Prepare the
financials CMA
data
Quantification of
financial Risk
Quantification of
management Risk
Quantification
Industry
Risk Risk
of
Comparison with
SBI thresholds
Whether threshold
level & overall
rating acceptable?
Check if
No
deviations
are
justifiable
Yes
Evaluation Process
Completed
Stop
Borrowers accounts are rated through the Credit Risk Assessment (CRA) process.
The Credit Risk Assessment (CRA) system is an essential ingredient of the credit
appraisal exercise.
CRA takes into account the various types of risks associated with borrower unit/
loan proposal .The CRA rating is a one point risk indictor of an individual credit
exposure and is used to identify, measure and monitor the credit risks of individual
proposals. At the corporate level, CRA is used to track the quality of Banks credit
portfolio.
The CRA exercise quantifies the various types of risks involved in a loan proposal
and assigns a Credit Risk rating CRA is rating. This rating is done with two
major objectives in view
The project formulation process appears to have been deficient in some respects.
For instance, the success of NHBs CFI refinance scheme1 3 (launched in January
1999) was limited by capacity constraints among CFIs and NGOs, and the high
intermediation cost of HFI lending through these institutions. These issues were
subsequently highlighted in the HF I PCR.1 4 The processing mission failed to
address these issues in the project design; doing so might have
resulted in more rapid implementation and better achievement of outcomes of
components involving CFIs and NGOs. Furthermore, the appraisal mission carried
out a financial review of the Borrowers, but did not address the fact that the
refinance operations of NHB lacked a system to track detailed end-borrower data
(including income levels). This emerged as a major implementation bottleneck. In
addition, an appropriate definition of what constitutes a LIH should have been
determined at appraisal, and the income threshold adjusted appropriately for
inflation
Management risks
These are individually measured, through a set of processes, to arrive at an
integrated value of credit risk.
1. Financial Risks: An assessment of financial risks is done through an appraisal
of the
long-term investors. In addition, MBS issues in India do not typically meet the
true sale criteria under the Basle II norms.2 5 A study is being undertaken as
part of ADB TA (footnote 6) to NHB and HDFC that will include ecommendations
for policy and regulatory development and establishment of an agency to enable
issuance of true sale residential MBSs.
The rating by these agencies may also be factored into in the decision making
of the lending bank but their ratings are no substitute for Credit Risk
Assessment (CRA) rating of the bank.
Net Assets
required to pay off the principal if the company has a good record of covering the
interest expense. A company with high interest coverage ratio can finance high
amount of debt at a low rate of interest from the market.
2. Liquidity Ratios:
a) Current Ratio =
Current
Assets
Current
Liabilities
It measures the excess value of current assets over Current Liabilities. Higher
current ratio indicates that higher the amount of current assets in relation to current
liabilities and greater assurance to meet the current liabilities. For creditors the
excess of current assets over current liabilities provide a buffer against losses that
may be incurred in disposition or liquidation of the current assets other than cash.
So we can say that current ratio measures the merging of
safety for the creditors. It measures the level of safety against uncertainty. The
current ratio is considered to be more indicative of the short-term debt-paying
ability than the working capital. Current ratio also depends on the operating cycle
of the company. The longer the operating cycle, the higher the current ratio and
vice versa.
b) Quick Ratio =
Current Assets
Inventory
Current Liabilities
This ratio is considered to be more reliable indicator of a companys ability to meet
its short-term financial obligations. This ratio deducts inventory from the assets
before computing the ratio. The reasons for removing the inventory are that
inventory may be slow-moving or possibly obsolete, and parts of the inventory that
may have been pledged to specify creditors can sometimes be difficult to liquidate.
Potential creditors like to use this ratio because it reveals a companys ability to
pay-off under the worst possible conditions.
3. Solvency Ratios
a.) Debt Ratio = Total Outstanding
Liabilities
Tangible Net-Worth
It indicates the firms long-term debt paying ability and indicates the percentage of
assets financed from debt fund. Debt Ratio is used to measure long term solvency
of the company. Generally the creditors are the users of the ratio as it helps to
determine how well they are protected in case of solvency. Creditors prefer low
debt ratios because lower the ratio, the greater the cushion against creditors losses
in the event of liquidation. If the debt ratio is higher it means creditors are not well
protected and company may find difficulties in issue of additional debt.
Total Debt
Total
Equity
This ratio helps determine how well creditors are protected in case of solvency.
Normally, the debt component includes all the liabilities including current. And the
equity component consists of net-worth and preference capital. It includes only the
preference shares not redeemable in one year. From the perspective of long-term
debt-paying ability, the lower this ratio is, the better the companys debt position.
b.) Gross Debt-Service Coverage Ratio = PAT + Depreciation + Noncash Expenditure+ Interest on Term Loan
Annual
Term Loan Repayment Obligation + Interest on Term Loan
Debt-Service Coverage Ratio is mostly used by term-lending financial institutions
to measure the interest payment ability of the firm.
Break-Even Analysis
Break-even analysis is a technique widely used by production management and
management accountants. It is based on categorizing production costs between
those which are "variable" (costs that change when the production output changes)
and those that are "fixed" (costs not directly related to the volume of production).
The break even point for a product is the point where total revenue received equals
total costs associated with the sale of the product (TR=TC). A break even point is
typically calculated in order for businesses to determine if it would be profitable to
sell a proposed product, as opposed to attempting to modify an existing product
instead so it can be made lucrative. Break-Even Analysis can also be used to
analyze the potential profitability of an expenditure in a sales-based business.
The Break-Even Chart
In its simplest form, the break-even chart is a graphical representation of costs at
various levels of activity shown on the same chart as the variation of income (or
sales, revenue) with the same variation in activity. The point at which neither profit
nor loss is made is known as the "break-even point" and is represented on the chart
below by the intersection of the two lines:
In the diagram above, the line OA represents the variation of income at varying
levels of production activity ("output"). OB represents the total fixed costs in the
business. As output increases, variable costs are incurred, meaning that total costs
(fixed + variable) also increase. At low levels of output, Costs are greater than
Income. At the point of intersection, P, costs are exactly equal to income, and
hence neither profit nor loss is made.
Sensitivity Analysis:
Sensitivity analysis is the study of how the variation in the output of a model
(numerical or otherwise) can be apportioned, qualitatively or quantitatively, to
different sources of variation
Overview
A mathematical model is defined by a series of equations, input factors,
parameters, and variables aimed to characterize the process being investigated.
Input is subject to many sources of uncertainty including errors of measurement,
absence of information and poor or partial understanding of the driving forces and
mechanisms. This uncertainty imposes a limit on our confidence in the response or
output of the model. Further, models may have to cope with the natural intrinsic
variability of the system, such as the occurrence of stochastic events.
Good modeling practice requires that the modeler provides an evaluation of the
confidence in the model, possibly assessing the uncertainties associated with the
modeling process and with the outcome of the model itself. Uncertainty and
Sensitivity Analysis offer valid tools for characterizing the uncertainty associated
with a model.
Methodology
There are several possible procedures to perform uncertainty (UA) and sensitivity
analysis (SA). The most common sensitivity analysis is sampling-based. A
sampling-based sensitivity is one in which the model is executed repeatedly for
combinations of values sampled from the distribution (assumed known) of the
input factors. Other methods are based on the decomposition of the variance of the
model output and are model independent.
In general, UA and SA are performed jointly by executing the model repeatedly for
combination of factor values sampled with some probability distribution. The
following steps can be listed:
Specify the target function and select the input of interest
Assign a distribution function to the selected factors
Generate a matrix of inputs with that distribution(s) through an appropriate
design
Evaluate the model and compute the distribution of the target function
Select a method for assessing the influence or relative importance of each
input factor on the target function.
Business Context
In a decision problem, the analyst may want to identify cost drivers as well as other
quantities for which we need to acquire better knowledge in order to make an
informed decision. On the other hand, some quantities have no influence on the
predictions, so that we can save resources at no loss in accuracy by relaxing some
of the conditions.
Sensitivity analysis can help in a variety of other circumstances which can be
handled by the settings illustrated below:
To identify critical assumptions or compare alternative model structures
Guide future data collections
Detect important criteria
Optimize the tolerance of manufactured parts in terms of the uncertainty in
the parameters
Depreciation
Sales
Interest Cost of Borrowing
Previous Years Expenses
Investments & advances in associates/Subsidiaries
Fixed assets
Frequency of change in accounting policies
Balance sheet manipulations
Off- Balance sheet items
Check Points that the banks need to be Careful of
All the information provided by the prospective customers may not be
true. So, the addresses and other details furnished by the applicant needs
to be verified.
The applicant may deposit false document of land and other properties in
order to avail the credit facilities. There have been instances of the same
property being mortgaged to more than one bank/Financial Institutions.
The position of any evasion of tax payment or other statutory dues
(liabilities towards the government) by the applicant, as these will have
priority over bank dues.
The stock which may be offered as security, may be moved out of the
position may not be updated, which may effect the interest of the bank.
The Letter of credit (LC) may be drawn in favor of non-existing equity.
The company may obtain payment of bills directly through another bank.
APPENDIX
PAGE NO.
I. Appendix 1
69-72
II. Appendix 2
73-78
III. Appendix 3
79-83
IV. Appendix 4
84-100
V. Referrence
101
APPENDIX-I
What is Individual Credit Rating (ICR)?
Individual Credit Rating (ICR) is an objective assessment of the risk attached to a
financial transaction with respect to an individual at a given point of time, based on
the quantification of parameters influencing credit risk. There is need for credit
ratings of individuals who not only borrow form banks, but also form various other
creditors. Individual Credit Rating (ICR) is necessary in countries like the US and
the UK. No loan is sanctioned to an individual without a certification form the
rating agency.
Utility of Individual Credit Rating (ICR)
The concept of Individual Credit Rating (ICR) is useful for personal transactions
like credit card membership, leasing and hire purchases, housing finance, trade
advances, consumer durables financing and personal bank loans.
The agencies which extend credit to individuals are banks, finance companies that
have expertise in credit assessment. Hence, the rating by an agency may not be of
great values unless it is found that it is more cost-effective. If the rating agency has
large databases so as to provide instant service, then the service may become
attractive to the lender.
ONICRAs Model
Onida Individual Credit Rating Agency (ONICRA), a subsidiary of Onida Finance
was launched by Onida to give ratings to the individuals.
Potential
Capability
Strength
Potential Strength
Income
Financial Assets
- Qualification
- Occupation
Discipline
Stability
Willingness to pay
- Job Tenure
- Duration of stay in present
Place of residence
Transaction
Risk
Security
Modalities of payment
Direct
Post-dated
cheques
Control over the use of funds
Payment
on due date
Exposure
on demand
Payment
Environment
Generally Prevalent Economic Situation
Figure: ONICRAs Model
Can Banks take-up individual credit rating?
While making advances, banks do not rely on the credit ratings of other
agencies, but make a detailed credit appraisal of the proposals as per their lending
norms to assess the need for facilities and viability for repayment. All bank
branches are best suited for the credit ratings of individuals who keep account in
the branches. The modus operandi could be like this:
Every individual should be given a Credit rating card (CRC) by the branch, where
he/she has an account. No bank branch should give a CRC to a person not holding
an account in that branch. Whether it is the bank or the outside agency,
maintenance of individual files is a must. The file contains collection of all details
about the individual to work out his net worth. Copies of ration card, gas
connection card, passport identity card etc. must be filed in besides details of assets
and liabilities. The net worth is worked out by deducting total liabilities form total
assets. The net worth with previous annual income as against projected yield
should determine the level of credit entitlement for an individual in cash or in kind
to repay with interest. The Individual Credit Rating (ICR) could also take into
considerations the status of the relatives of the individual, his educational
background, his reputation in his field and reference letters from two respectable
persons in the society.
APPENDIX-II
Indian Credit Rating Agencies
In India, the credit rating service is offered by four agencies which include:
The Credit Rating Information Services of India (CRISIL)
Credit Analysis and Research Limited (CARE)
Investment Information and Credit Rating Agency of India Limited
(ICRA)
Duff and Phelps Credit Rating India Private Limited (DCR India)
ONICRA Credit Rating Agency of India Limited
Credit Rating Information Services of India Limited (CRISIL)
CRISIL was the first credit rating agency established in India during 1987. It is
being promoted initially by ICICI, UTI, HDFC and its shareholders include ADB,
LIC, GIC and some nationalized banks and foreign banks. In 1993, CRISIL made
its first public offer of equity.
Services offered by CRISIL as a Credit Rating Agency include corporate bond
ratings, CP ratings, Rating Municipal debt, Infrastructural bond ratings, Utilities
ratings, State government ratings, Rating of asset backed securities, Rating of
structural obligations etc.
CRISIL Ratings
Capacity Debenture
Fixed
Short-
Real
Structure
Bond
Term
Estate
Fund
Obligatio
Portfolio
ns
for timely
Deposit
repayme
/Bonds
nt of
Instrumen Project
ts
interest
&
Principal
Highest
AAA
FAAA
P-1
PA1
AAA(so)
AAAf
AA
FAA
P-2
PA2
AA(so)
Aaf
FA
P-3
PA3
A(so)
Af
BBB
BBB(so)
BBBf
BB
FB
P-4
PA4
BB(so)
BBf
FC
B(So)
C(So)
e to
Cf
default
In Default
FD
P-5
PA5
D(so)
Safety
High
Safety
Adequate
Safety
Moderate
Safety
Inadequat
e Safety
High Risk
Substantia
l Risk
Vulnerabl
CRISIL
Assigns Analytical
team,
Conducts basic research
Document Preparation
Collection of
Information
Dissemination of rating
ICRA has been promoted by industrial finance corporation of India and other
financial institutions. The objective of ICRA is to provide guidance to investors/
creditors in determining the credit risk associated with debt instrument.
ICRA Ratings
Capacity for
timely
repayment of
interest &
Principal
Highest Safety
High Safety
Adequate Safety
Moderate Safety
Inadequate
Safety
Risk Prone
Substantial Risk
Default
Debentures
Commercial
/Bonds/Preference
Deposits/Fixed
Shares
Deposits
(Long term)
(Medium Term)
LAAA
LAA
LA
LBBB
MAAA
MAA
MA
-
A1/A1+
A2/A2+
A3/A3+
-
LBB
MB
LB
LC
LD
MC
MD
A4/A4+
A5
Commercial
Paper
(Short Term)
(Source:
www.ICRA.com)
CARE credit rating covers all types of debt instruments such as debentures, fixed
deposits, Certificate of Deposits, commercial Paper, Structured Obligations,
Convertible preference shares and redeemable preference shares.
Credit Analysis Rating
Rating Symbol
CARE-1
CARE-2
Meaning
Excellent debt management capability. Characterized
as leaders in the respective industries.
Very good debt management capability. Normally
regarded as close to CARE-1 but with lower
capability to withstand changes in assumptions.
Good debt management capability. Assumptions that
CARE-3
CARE-4
CARE-5
sustainability and en-durability of the affected banks. The positive results of the
chain of measures affected under banking reforms by the Government of India and
RBI in terms of the two Narasimhan Committee Reports in this contemporary
period have been neutralized by the ill effects of this surging threat. Despite
various correctional steps administered to solve and end this problem, concrete
results are eluding. It is a sweeping and all pervasive virus confronted universally
on banking and financial institutions. The severity of the problem is however
acutely suffered by Nationalized Banks, followed by the SBI group, and the all
India Financial Institutions.
Table1: Non-Performing Assets of Private Sector Banks- Sector Wise
(As at ended March06)
(Amo
unt in Crore)
Small
Na
me
Agricult
Scale
ure
Industrie
of
Public
Sector
Sector
s
%
the
Ban
Others
Priority
Am
to
%
Am
to
%
Am
to
%
Am
to
Am
NonPriority
Sector
to Amo
to
unt
Tota
l
tot
tal
al
al
Priv 514. 6. 807. 10. 961. 12.
228
al
tal
al
29. 4.02 0. 5541 70. 7,82
ate
4.03
17
Sect
or
Ban
60
57
44
31
99
29
05
.37
78
9.42
ks
Old
Priv
ate
265.
7.
.07
14
ate
249.
6.
Sect
53
06
.89
Sect
or
66
.93
16
163
43.
1.55
96
0. 2078
1.23
3711
56
03
.33
.11
0.
3,46 84.
Ban
ks
Ne
w
Priv
9
.05
6.1
652. 15.
48
84
2.79
07 3.04
09
4,11
8.30
or
Ban
ks
Table2: Non-Performing Assets of Public Sector Banks- Sector Wise
(As at ended March06)
(Amo
unt in Crore)
Nam
Small
e of
Agricult
Scale
the
ure
Industri
Ban
k
Am
es
Am %
Others
Am
Priority
Public
Sector
Sector
Am
Am
NonPriority
Sector
Am
tot
tot
tot
tot
tot
Tot
al
al
al
al
al
al
al
Publ
ic
Sect
6,20
or
2.92
14
.9
9
Ban
691
7.40
16
.7
2
925
3.43
22 22,3 54
.3
73.7
.0
20
151
53
.9
23.9
.6
186
45 41,3
63.9
.1
78.2
128
45
281
45.3
.5
84.8
340.
0.
82
215.
0.
58
76
124.
0.
.92
95 8.64
ks
Nati
onali
3,89
zed
8.88
Ban
13
.8
3
532
4.83
18
.8
9
590
0.20
ks
State
Ban
k
Gro
230
4.03
17
.4
6
159
2.47
12
.0
7
3,35
3.23
25
.4
2
7,24
9.83
54
.9
5
581
44 13,1
.1
93.3
up
2001
12.37
2004
7.79
Banks
Private Sector
Banks
Foreign Banks
8.37
9.64
8.07
5.84
6.64
5.38
5.25
4.62
Table II:(in
Percentage)
Category
Public Sector
Banks
Private Sector
Banks
Foreign Banks
2001
2004
6.74
5.82
4.53
2.98
2.27
2.49
2.32
1.32
1.82
1.89
1.76
1.49
The table I and II show that the percentage of gross NPA/ gross advance and net
NPA/ net advance are in a decreasing trend. This shows the sign of efficiency in
public and private sector banks but still if compared to foreign banks Indian private
sector and public sector banks have a higher NPA.
The table I&II shows that during initial sage the percentage of NPA was higher.
This was due to show ineffective recovery of bank credit, lacuna in credit recovery
system, inadequate legal provision etc. Various steps have been taken by the
government to recover and reduce NPA. Some of them are as follows:
One Time Settlement/ Compromise Scheme
Lok Adalats
APPENDIX-IV
INTERPRETATION
Its working capital financing consists mainly of cash credit facilities and bill
discounting. Under the cash credit facility, a line of credit is provided up to a preestablished amount based on the borrower's projected level of inventories,
receivables and cash deficits. Up to this pre-established amount, disbursements are
made based on the actual level of inventories and receivables. The facility is
generally given for a period of up to 12 months, with a review after that period. Its
cash credit facility is generally fully secured with full recourse to the borrower. In
most cases, ICICI Bank has a first charge on the borrower's current assets, which
normally are inventory and receivables. Bill discounting involves the financing of
short-term trade receivables through negotiable instruments. These negotiable
instruments can then be discounted with other banks if required
Working capital of different years (2001 2006) of ICICI BANK can be found out
by considering current assets and current liabilities. It is calculated and illustrated
in the following table and graph.
Particulars 2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
3327.35
2658.08
3870.28
3031.42
2279.02
4009.69
1854.60
2172.92
2731.79
5607.41
5611.13
7873.67
3283.28
3473.54
3771.75
Current
Asset
Cash &
Bank
Balance
ii
Iii
Sundry
Debtors
Inventories
Loans
v
Advances
6218.45
4899.00
6199.13
9112.46
8822.57
5713.49
--
--
--
--
236.42
422.22
& Deposits
Other
v
Current
Asset
Total Current
Assets A
Liability
1534.43
1922.87
2480.56
7065.79
8963.95
16782.95
ii
Provision
740.56
1039.47
1059.94
1474.50
1573.23
8398.98
2274.99
2962.34
3540.50
8540.29
10537.18 25181.93
Total Cur
Liabilities B
Net Working
capital (A-B)
From the above diagram it is observed that the wotking capital of the company is
always fluctuating in the tear 2001 it is 12408.69 but in the year 2001 it is
decreased to 10241.20 due to decrease in Current Assets and increased to 19233.22
due to increase in current Assets at higher rate comparing to liability. The working
capital is at higher position during the year 2002 at 19582.32 million. It is due to
increase in current assets.
RATIO ANALYSIS
Current Ratio :
Current ratio may be defined as the relationship between current assets and current
liability. This ratio also known as working capital ratio, is measure of general
liquidity and is most widely used to make the analysis of a short term financial
position or liquidity or a firm. Thus,
Current Ratio =
Current Ratio
Current Liability
Interpretation
1. High current ratio indicate that the firm is in a liquid position.
2. Low current ratio indicate that the firm is not in a position to pay its current
liability in time.
A ratio 2 :1 is treated to be satisfactory.
Calculation of Current Ratio
Particulars
Current Asset
2001
14683 .
68
Current
Liability
Current Asset
Current
Liability
2002
2003
2004
2005
2006
2274.99
2962.34
3540.50
8540.29
6.45:1
4.45:1
4.68:1
3.25:1
10537.18 25181.93
2.73:1
1.77:1
Findings :
From
Liquid Ratio
It shows a firm ability to meet current liability with its most liquid asset (quick
asset) liquid asset are those asset which are readily converted into cash and will
include cash balance, Bill receivable, sundry debtors and short-term investment.
Liquid Ratio = Current asset (Inventories + prepaid exp
Current liability Bank overdraft)
Important :
The ratio 1:1 is considered to ideal for the concern.
CALCULATION
Particulars
Current
asset
less
Investments
Liquid Asset A
Liquid
A/\b
Ratio
2001
14683 .68
2002
2003
13203.5 16572.9
9
3283.28
3473.54 3771.75
11400.4
9730.0
12801.2
5.01:1
2.2:1
3.61:1
2004
27773.5
2005
28862.
1
10022.2
57
11913.
2
17751.2
43
16949.
14
2.07:1
1.60:1
2006
44764.25
23745.18
21019.07
0.83:1
2001
3283.28
2002
3473.54
2003
3771.75
2004
2005
2006
10022.22 11913.43 23715.18
0.33:1
2.28:1
0.52:1
0.65:1
1.21:1
ii.
Cash in hand, Bank and readily realizable securities are taken into
consideration.
ii.
2001
14683 .
less
68
Less Inventory 3283.28
Sundry
1854.60
debtorsAbsolute
9545.80
liquid asset
Current
2274.99
Liabilities
Absolute
4.19:1
liquid ratio
2002
2003
13203.59
16572.95
3473.54
3771.75
2172.92
2731.79
5607.41
7557.08
2004
2005
2006
5611.13
7873.67
13145.4
2962.34
3540.50
8540.29
2.55:1
2.84:1
1.42:1
10537.18 25181.93
1.07:1
0.52:1
From the year 2001 to 2005 the absolute current asset is more than liability
so in these year cash in hand and Bank is more than liability so in these year
cash in hand and Bank is more comparing to liability.
ii.
As per absolute liquid ratio norms the year 2006 is good because in this
year the ratio 1:2 is established. The ratio for this year is 0.52. Therefore not
much cash is laying unnecessarily idle. The current liability of this year is
increased more.
INTERPRETATION
After analyzing various data from the year 2001to 2006 it is found that :
During the year 1999 there is sufficient working capital. In this year the
short term deposit of the organisation is more. Cash & Bank balance is also
more.
In the year 2002 the working capital decreased due to decrease in Bank
balance and deposit and increase in liability. Sundary debtors also increased
due to defective credit policy.
During the year 2003 there is an increase is working capital due to increase
in bank balance and deposits. The liability has increased as compared to last
year. But the proportion of increase in current asset than current liabilities is
more.
During the year 2004 and 2006 there is an increase in working capital due to
increase in current asset. In this period the inventory is more. But during the
year 2005, there is decline in working capital due to decrease in Bank
balance and increase in liability. From the whole picture of the organization
it is said that the organization maintain stability in working capital.
During the year 2001 the current ratio of the organisation is more than the
satisfactory level. The ratio in this year is 6.45. The current asset is more due
to idleness of funds in this year. In this year due to insufficient investment
opportunities the Bank balance remains idle. It continue s till the year 2008.
In the year 2005 and 2006 it comes down nearer to the satisfactory level
2:1. During the year 2006 it is 1.77. It decreases due to high short term
investment.
The liquid ratio of the organisation is also high during the year 2001 to 2004.
In the year 2005 and 2006 it comes near to the satisfactory level 1:1. During
the year 2006 it is 1.60 and during the year 2010 it is 0.83.
The inventory of the organisation is not overstocking in these period. The
inventory of the organisation is below the satisfactory level expect the year
2006. (i.e.) 1.21)
The absolute liquid ratio is more than the satisfactory level except the year
2006 when it is near to the satisfactory level 1:2 in the year 2006 it is 0.52.
PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST MARCH, 2006
31st March
2006
31st March
2005
Rs.
Rs.
1,217,278,156
1,613,546,315
Other Income
64,371,493
393,151,600
86,891,137
____
1,368,540,768
1,636,989,655
INCOME
Sale
EXPENDITURE
Materials Expenses
666,536,158
795,084,582
374,962,784
356,213,451
Excise Duty
157,857,135
159,837,173
105,538,941
79,397,454
Depreciation
48,212,910
41,11,345
1,52,282
42,008
(329.656)
__
1,353,149,936
1,431,470,631
15,390,850
205,519,024
Current Tax
1,295,140
16,150,000
Deferred Tax
(5,567,831)
79,782,504
1,174,647
-------
18,488,894
109,586,520
16,751,673
102,794,643
35,240,567
212,381,163
APPROPRIATION
Proposed Dividend
------
17,828,976
------
2,500,514
General Reserve.
------
175,300,000
35,240,567
1.53
16,751,673
9.22
Rs.
31st March
2006
31st March
2005
SOURCES OF FUNDS
Shareholders Funds
Share Capital
130,900,000
118,905465
393,151,600
340,524,694
524,051,600
459,430,159
Loan Funds
Secured Loans
Unsecured Loans
2,060,149,602
767,753,100
47,154,744
21,921,985
2,107,304,346
789,675,085
175,814,245
181,382,076
2,807,170,191
1,430,487,320
Deferred Taxation
(Refer Note 25 in schedule 148)
TOTAL
APPLICATION OF FUNDS
Fixed Assets
Gross Block
1,984,325,562
1,968,325,920
Less : Depreciation
1,176,435,917
1,104,219,336
807,889,645
864,106,584
1,345,071,083
253,235,622
Net Block
Capital Work-in-progress
2,152,960,728
1,117,342,206
18,763,592
12,855,700
Investments
Current Assets, Loans and Advance
Inventories
463,037,219
246,173,014
Sundry Debtors
162,938,312
80,850,462
86,891,137
21,164,391
21,746,063
394,016,442
311,497,481
1,128,047,501
660,267,020
492,601,630
359,997,606
Total
635,445,871
2,807,170,191
300,289,414
1,430,487,320
References:
http://www.tutor2u.net/business/production/break_even.htm
http://en.wikipedia.org/wiki/Break_even_analysis
http://en.wikipedia.org/wiki/Sensitivity_analysis
http://www.investopedia.com/terms/o/operatingcashflow.asp
http://www.investopedia.com/terms/c/cashflowfromfinancing.asp
http://www.investopedia.com/terms/c/cashflowfinvestingactivities.asp
http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Trend%20and
%20Progress%20of%20Banking%20in%20India
www.riskglossary.com
www.findarticles.com
www.garp.com/garpriskreview/Issues/Issue16.asp
http://www.financial-conferences.com/events/E39308.htm?
ginPtrCode=00000&identifier
http://www.cil-ts.com/credit.htm
Management of Financial Institutions: ICFAI Publications