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1.1 INTRODUCTION
Credit management is a term used to identify accounting functions usually conducted under the umbrella
of Accounts Receivables. Essentially, this collection of processes involves qualifying the extension of
credit to a customer, monitors the reception and logging of payments on outstanding invoices, the
initiation of collection procedures, and the resolution of disputes or queries regarding charges on a
customer invoice. When functioning efficiently, credit management serves as an excellent way for the
business to remain financially stable.
The process of credit management begins with accurately assessing the credit-worthiness of the customer
base. This is particularly important if the company chooses to extend some type of credit line or revolving
credit to certain customers. Proper credit management calls for setting specific criteria that a customer
must meet before receiving this type of credit arrangement. As part of the evaluation process, credit
management also calls for determining the total credit line that will be extended to a given customer.
Several factors are used as part of the credit management process to evaluate and qualify a customer for
the receipt of some form of commercial credit. This includes gathering data on the potential customer’s
current financial condition, including the current credit score. The current ratio between income and
outstanding financial obligations will also be taken into consideration. Competent credit management
seeks to not only protect the vendor from possible losses, but also protect the customer from creating
more debt obligations that cannot be settled in a timely manner.
Loans have become increasingly packaged for resale, meaning that an investor buys the loan (debt) from
a bank or directly from a corporation. Bonds are debt instruments sold to investors for organizations such
as companies, governments or charities. The investor can then hold the debt and collect the interest or sell
the debt on a secondary market. Banks are the main facilitators of funding through the provision of credit,
although private equity, mutual funds, hedge funds, and other organizations have become important as
they invest in various forms of debt. Financial assets, known as investments, are financially managed with
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careful attention to financial risk management to control financial risk. Financial instruments allow many
forms of securitized assets to be traded on securities exchanges such as stock exchanges, including debt
such as bonds as well as equity in publicly traded corporations.
Central banks, such as the Federal Reserve System banks in the United States and Bank of England in the
United Kingdom, are strong players in public finance, acting as lenders of last resort as well as strong
influences on monetary and credit conditions in the economy.
Finance for a business can't be undervalued and can be said that it's the lifeline of a business and is
required for its wellbeing. It can be said to be a lubricant which keeps the business running. Whether you
have a small, medium or large business, you will always need finance, right from the beginning to
promoting and establishing your product, acquiring assets, employ people, encouraging them to work for
the development of your product and create a brand name. In addition to that, a current business may need
finance for expansion or making changes to its products as per the market requirements.
Credit Management analysis is the process of determining the operating and financial characteristics of
the firm from accounting data, profit and loss account and Balance Sheet. The goal of rush analysis is to
determine the efficiency and performance of the firm’s management as reflected in the financial records
and reports. The financial analysis is a starting point for making plans before using any sophisticated,
forecasting and planning procedure. Hence the main objective of financial analysis is to make a detailed
study about the cause and effect of the profitability and financial condition of the firm. Financial
statements generally refer to four basic statements the Income statements (i.e., Trading and Profit & Loss
Account), the Balance Sheet, the Statement of Retained Earnings and the Sources and Uses of Funds
Statements. The Financial Statements, taken together, give the accounting picture of the firms operations
and financial position. Sound financial health of a bank is the guarantee not only to its depositors but is
equally significant for the shareholders, employees and whole economy as well. As a sequel to this
maxim, efforts have been made from time to time, to measure the financial position of each bank and
manage it efficiently and effectively. With the integration of Indian financial sector with the rest of the
world, the concept of banks and banking has undergone a paradigm shift. Before financial reforms, Indian
Banks were enjoying, in a protected environment with a strong cushion of the government and their
banks.
Sound financial health of a bank is the guarantee not only to its depositors but is equally significant for
the shareholders, employees and whole economy as well. As a sequel to this maxim, efforts have been
made from time to time, to measure the financial position of each bank and manage it efficiently and
effectively. With the integration of Indian financial sector with the rest of the world, the concept of banks
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and banking has undergone a paradigm shift. Before financial reforms, Indian Banks were enjoying, in a
protected environment with a strong cushion of the government and their banks.
Financial performance analysis is used as a general measure of a firm's overall financial health over a
given period of time, and can be used to compare similar firms across the same industry or to
compare industries or sectors in aggregation. It refers to an assessment of the viability, stability and
profitability of a business, sub-business or project.
Financial performance analyses assess the bank’s profitability, solvency, liquidity and stability.
Profitability is its ability to earn income and sustain growth in both short-term and long-term. A
company's degree of profitability is usually based on the income statement. Solvency is its ability to pay
its obligation to creditors and third parties in the long term. Liquidity is its ability to maintain positive
cash flow, while satisfying immediate obligations. Stability is the firm's ability to remain in business in
the long run, without having to sustain significant losses in the conduct of its business. Assessing a
company's stability requires the use of both the income statement and the balance sheet.
1.2REVIEW OF LITERATURE
Credit Management Analysis
Dhaka, July 30 -- Dhaka Bank Limited arranged a five-day training programme on 'Credit Management'
at its institute in the city recently.
Dhaka Bank Managing Director Honker Faze Rashid inaugurated the workshop as the chief guest while
Deputy Managing Director Mohammad Abu Musa attended the programme as the special guest, said a
press release.
A number of 32credit officers from different branches and head office of the bank took part in the
workshop.
The main objective of the workshop was to familiarise the participants with credit policy, credit risk
management, credit investigation, borrower selection and credit centralisation. The workshop also
discussed the way of loan documentation and its monitoring, classification, reporting and recovery
system.
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Bank of China said it appointed Lonnie Dounn, an expert on credit management, as its chief credit
officer. Mr Dounn is the first foreign financial expert to be appointed to the management of one of
China's four state-owned commercial bank, the bank said on its Web site.
Bank of China said it appointed Lonnie Dounn, an expert on credit management, as its chief credit
officer. Mr Dounn is the first foreign financial expert to be appointed to the management of one of
China's four state-owned commercial bank, the bank said on its Web site. Mr Dounn's appointment
"shows bank of China's resolution to push reform vigorously, reinforce corporate governance and raise
the level of risk management," the Web statement said. Mr Dounn's experience in bank risk management
spans more than 30 years, including stints at HSBC Holdings PLC and Marine Midland bank, the
statement said. Marine Midland bank later became HSBC USA Inc. after its acquisition by HSBC in
1987. Mr Dounn has been chief bank officer at HSBC Hong Kong since May 1998 and has gained a good
understanding of credit management in Asia, the statement said. HSBC confirmed his departure.
The rescue of credit Lyonnais, bailed out by the French government in March 1994 after losing Fr6.9
billion in 1993, has provoked a heated row over who is responsible for the bank's woes. Shocked French
taxpayers want to know why so much money has been squandered by and on a publicly owned company.
Right-wing politicians complain that credit Lyonnais' main problem was deference toward the French
Socialist Party and its favourites, until the Socialists were voted out of government in March 1993. In
credit general, megalomania, mismanagement, and political meddling are to blame for the problems of
credit Lyonnais, France's largest state-owned bank. The best way to put credit Lyonnais’ troubles behind
it and to protect it from interfering politicians will be to privatize it as soon as possible. Unfortunately, the
French government seems intent on waiting until the bank is back in profit before attempting a flotation;
so the timing will depend upon how long it takes credit Lyonnais' new management team to turn the
ailing bank around. It will probably be 1996 before French taxpayers finally part company with one of
their least-loved assets.
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CHAPTER 2
INTRODUCTION
In this chapter a brief description about banking industry is given with an ease to understand better. The
word co-operation is derived from the Latin word ‘co- operari’ which means working together. Generally
it implies living, thinking and working together .It signifies the spirit of human civilization. It is the basis
of the social life of human civilization.
The profile of Punnayurkulam Service Co-operative bank Ltd NO.P.417 states the objectives, functions,
members and the core areas that the firm deals with. All these mentioned details are included in this
chapter.
The Banking Industry was once a simple and reliable business that took deposits from investors at a lower
interest rate and loaned it out to borrowers at a higher rate. However deregulation and technology led to a
revolution in the Banking Industry that saw it transformed. Banks have become global industrial
powerhouses that have created ever more complex products that use risk and securitization in models that
only PhD students can understand. Through technology development, banking services have become
available 24 hours a day, 365 days a week, through ATMs, at online banking, and in electronically
enabled exchanges where everything from stocks to currency futures contracts can be traded.
The Banking Industry at its core provides access to credit. In the lenders case, this includes access to their
own savings and investments, and interest payments on those amounts. In the case of borrowers, it
includes access to loans for the creditworthy, at a competitive interest rate. Banking services include
transactional services, such as verification of account details, account balance details and the transfer of
funds, as well as advisory services that help individuals and institutions to properly plan and manage their
finances. The collapse of the Banking Industry in the Financial Crisis, however, means that some of the
more extreme risk-taking and complex securitization activities that banks increasingly engaged in since
2000 will be limited and carefully watched, to ensure that there is not another banking system meltdown
in the future.
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The banking sector in India originated in the late 18th century, when The General Bank of India started its
operations in 1786. Since then it has grown significantly after going through various phases of
development and is now one among the well-organized banking sectors in the world. The oldest bank in
existence in India is the State Bank of India which is also the largest commercial bank in the country. The
Reserve Bank of India (incorporated in 1935) which regulates, controls, and inspects the banks in India as
per the Banking Regulation Act 1949, is the supreme authority of Indian Banking Sector.
Definition of Bank
“An organization, usually a corporation, chartered by a state or federal government, which does most or
all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and
pays interest on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and
notes; certifies depositor's checks; and issues drafts and cashier's checks.”
The word bank is derived from the German word ‘bank’ meaning joint stock fund. Subsequently, it was
Italianized into ‘banca’, ‘banque’ and ‘bank’ which means a bench at a marketplace for transactions
involving keeping valuables and withdrawing the same as and when required.
2.2 THE BANKING SYSTEM IN INDIA
The commercial banking structure in India consists of:
Scheduled Commercial Banks in India
Unscheduled Banks in India
Scheduled Banks in India constitute those banks which have been included in the Second Schedule of
Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which
satisfy the criteria laid down vide section 42 (6) (a) of the Act.
As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918
branches. The scheduled commercial banks in India comprise of State bank of India and its associates (8),
nationalized banks (19), foreign banks (45), private sector banks (32), co-operative banks and regional
rural banks.
• The State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955) or,
• A subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959)
or,
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• A corresponding new bank constituted under section 3 of the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies
(Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980) or,
• Any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act,
1934 (2 of 1934), but does not include a co-operative bank.
"Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the
Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank".
2.3 HISTORY
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 phases. They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks
Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms
New phase of Indian Banking System with the advent of Indian Financial & Banking Sector
Reforms after 1991To make this write-up more explanatory, we divide scenario in
Phase I, Phase II and Phase III
Phase I
The General Bank of India was set up in the year 1786. Next were 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 shareholders banks, mostly
Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd.
was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of
India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of
India came in 1935.
During the first phase the growth was very slow and banks 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 1949 as per amending Act of 1965.
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Phase II
Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it
nationalized 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 nationalized in 1960 on 19th July, 1969,
major process of nationalization was carried out. It was the effort of the then City Minister of India, Mrs.
Indira Gandhi. 14 major commercial banks in the country were nationalized.
Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more
banks. This step brought 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:
1949: Enactment of Banking Regulation Act.
Phase III
This phase has introduced many more products and facilities in the banking sector in its reforms measure.
In 1991, under the chairmanship of M Narasimham, 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 a satisfactory service to customers. Phone banking and net banking
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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 customers have limited foreign exchange exposure.
Banking in India originated in the last decades of the 18th century. The first banks were The General
Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now
defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of
Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three
presidency banks, the other two being the Bank of
Bombay and the Bank of Madras, all three of which were established under charters from the British East
India Company.
BANKS
Co-operation means voluntary association on the basis of equality and for some common purpose. In the
word of H. Calvert, “co-operation is a form of organization where in persons voluntarily associate
together as human beings on the basis of equality for the promotion of their economic interest”. A co-
operative bank is a co-operative society registered either under the central act, multiunit co-operative
societies act or under a state act governing co-operative societies and carrying on banking business. A co-
operative bank is a co-operative society engaged in the business of banking. If a co-operative bank is
operating in more than one state, the central act applies. In other cases, state laws apply. The banking
laws (Application to co-operative societies) Act, 1965extented to the co-operative banking sector
provides certain provisions of the banking regulations Act and the Reserve Bank of India Act. This policy
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planning and control including statutory audit functions are supervised by the government while
functional aspects like licensing, permission to undertake foreign exchange business and inspection are
looked after by the RBI.
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Malabar area or then the Madras state. It was in 1969 that the Kerala co-operative societies Act came into
force after merging and modifying the above Acts.
In 1914 the Travancore co-operative societies Act was passed. The first society was registered on 17th
November 1914 by the name Trivandrum Central Co-Operative Bank Ltd. In 1932 the Madras Co-
operative societies Act was passed. In 1949 the Travancore and Cochin state was formed. In 1952
Travancore Cochin co-operative societies Act was passed. Hence a common law, Kerala co-operative
societies Act1 969 was passed.
The head of the co-operative movement in Kerala is the ‘Registered of Co-operative Societies’. Joint and
deputy register of district level and by assistant register at Taluk level assist him.
At the top of the co-operative credit institutions, state co-operative bank is situated. They are also known
as apex banks.
The central co-operative banks are established at the district level. They are generally situated at the
headquarters of districts or some prominent towns of district.
The primary co-operative banks are working in village and deal with the ultimate borrowers.
Service Co-operative Societies
A service co-operative are occupying an important place among the primary agricultural societies. The
word ‘service’ itself tells that service co-operatives are giving maximum service to the members and
community in general. These are stated by uplifting the ‘service moots’ principles of co-operation.
The social development ministry during sixties gives the definition of service co-operative. Accordingly
a service co-operative society is an organization of the villagers who willingly combined together for
mutual help and co-operation in meeting their common economic requirements and increasing their
agricultural production.
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Objectives and Features of Service Co-operative Society
It is essentially an institution which helps the members to improve their agricultural yields at a
lower cost.
It extends short term and medium term loans to agriculturists.
It provides quality seed and bio-fertilizers at affordable rates.
It frames programmes for soil conversation, small irrigation etc.
It collects the output from agriculturist and undertakes the marketing of the same.
It device appropriate programme of little and poultry development.
It increases the standard of living of the villagers by adopting various developmental
programmers.
Funds
Share capital, borrowings, reserves, governmental aid etc. constitute the source of revenue of service co-
operatives. Besides these the Kerala service co-operatives are arranging deposit mobile station
programme to increase their revenues.
Difficulties Faced by Co-operative Banks in Rural Area
Slow Progress: The progress of co-operative banks is not up to the expectation and is low when
comparing other type of banks because of many restrictions on their operations.
Limited Scope of Investment: The main objective of co-operative banks is to provide credit
facilities to the poor people that are to small and marginal farmers and other weaker sections.
They were originally having limited scope to invest their surplus funds freely.
Delay in Decision Making: The co-operative banks are directly or indirectly regulated by various
agencies i.e. NABARD, RBI. Thus it takes long time to take decision on some important issues.
Thus in turn affects the progress of co-operative banks.
Lack of Training Facilities: Generally the staffs at co-operative banks are urban oriented and
they may not know the problems and conditions of rural areas. Lack of training facility concerning
these areas also affects the growth of co-operative banks.
Lack of Local Participation: Rural co-operative banks have not received sufficient participation.
The co-operative banks have been trust upon the rural people from above without involving local
people in its operation and management in this connection, it is suggested that knowledgeable
persons in the rural areas need to be associated with the management of co-operative banks.
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2.5 INTRODUCTION OF PUNNAYUARKULAM SERVICE CO-OP,
BANK LTD.NO.P.417
The Punnayuarkulam service co-op, bank Ltd NO.417 started its operation since 1958. On building at the
bank is registered in 1914 under Travancore Co-operative Regulation Act, No 10. The date of registration
is 16-4-1958.It formed as per the Government policy to finance primary societies through taluk bank in
each taluk. This bank is situated in Chavakkad taluk in Trissur district. The area of operation of bank is
ward No 1 to 12 of punnayuarkulam village. The society started it’s functioning as Co-operative bank
with 38 members.
The first managing committee meeting elected K.P Menon as a President and R.Parameshwara Menon as
Secretary. At present sri. K.S Gopal is acting as President and Sri.P.satheesh is the Secretary of the bank.
The Punnayoorkulam service Co-Operative Bank Ltd 417, with its 55year history of Co-Operative
banking, has earned the goodwill of the people in the locality. The committee members and
administrative staff of the bank have developed the institutional mechanism for effective working. The
main operational area of the bank is 1 to 12 wards of Punnayoorkulam village. The main aim of the bank
is to provide financial facility to the public.
President
President is responsible for all banking activities. He presides over the committee and the president and
the secretary must sign general body meetings documents that are given to depositors and the sanction for
the loan. The president and the secretary must handle all the affairs of the bank.
Secretary
The secretary is the chief executive of the society. Some of his duties are:
MEMBERSHIP
The person who fulfills the conditions prescribed by the by-law of Punnayoorkulam service Co-
operative Bank Ltd.No.p.417 can became the member. The general conditions mentioned there in are:-
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1. He should be sound mind.
2. He should be major ie completed 18 years.
3. He should be a permanent resident or owner of land in the town.
4. A criminal cannot become a member but after 6 years he can apply for shares
5. District and state Co-operative and state Government can purchase shares.
6. Bank employees could not become it’s member.
7. When a member dies his share can passed to his nominee.
The person who fulfills the above qualification can apply in the prescribed forms can become
member. The decision of the Registrar will be final.
The bank offers two types of membership that is ‘A’ class and ‘B’ class memberships. Bank issues
identity card to all the members at the time of admission.
For ‘A’ class membership
• The person should attain the age of 18 years.
• He should be sound minded, residing in the area of operation of the bank.
• He should not be an insolvent.
• A person who has not been sentenced for any offence and a period of 5 years has been elapsed
from the date of expiry.
For ‘B’ class membership (Normal or Associate)
• No right to vote.
• No right to take part in the assets, liabilities and profit of the bank.
• No right to participate in official matters to represent the bank.
• No right to participate in general body meeting.
BOARD OF MANAGEMENT
The board of activities of the banks is vested in the Board of Directors. The board includes twelve
members. Their right and duties as started in the by –law of the bank. One seat is reserved to the women
member and another seat is reserved to the backward community. As per directions of the Registrar, the
board will get sitting fees and the President will get honorarium. The board of directors is appointed for a
period of 2 years. The rights and duties of the board of directors are started as under:-
1. The board has the right to determine the operating fund of the bank and it can be raised in the
form of loans or deposits.
2. It is the duty of the board to submit the audited report before the general meeting of the
shareholders.
3. The board has the right to sanction loans and advances to the members with the prior approval of
the financing bank.
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4. It has the right to sanction the necessary amount for meeting the expense of the bank.
5. To lay down the rules and regulations regarding of the operations of the bank.
6. The board has the duty to examine the annual report and submit it before the general body for its
approval.
To provide short term and medium term loan to it members for agricultural purposes.
To borrow funds from members or others to be utilized for loans to members.
To sell the agricultural products of the members like seed, manure, implements, cattle feed etc.
To collect and store new and modified agricultural equipment’s for the members on hire.
To help the agriculturist for the production of new kind of seeds.
Purchasing of seeds, fertilizers, pesticides, cattle feed and agricultural equipment’s and selling
these among the members at reasonable rates or helping them to purchase through financial
assistance.
To purchase moveable and immoveable properties for the working of the bank.
To provide financial assistance in the form of purchase to the members for purchasing house hold
and other articles.
To encourage thrift, self-help mutual aid among the members.
Receiving deposits from the members for the purpose of issuing long term, medium term and
short term loans.
To provide facilities to the members for pricing green manure with in the area of operation.
To introduce chitty by the approval of register for the financial welfare of its members.
Source of Fund
Shares
Loans and deposits
Donations
Reserves and other funds
Un-distributed profit
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Special subscriptions
Source of Raising Fund
The Punnayuarkulam Service Co-operative Bank Ltd; No: R.209, creates funds from the following
sources
Shares Loans
Deposits
Current Deposits
Saving Bank Deposits
Fixed Deposits
Recurring Deposits
Donations
Special Subscriptions
Reserve and other funds
Conclusion
Through this chapter, an insight into banking industry and the related government regulations are made.
This helped the researcher in having a thorough understanding about the same. The detailed profile of co-
operative bank in which the study was conducted helped the researcher to further get acquainted with the
norms and parameters that the bank considers important in its functioning.
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CHAPTER 3
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter Research Methodology is described systematically by showing the objectives of the study,
scope of the study, limitation, sources of data and methodology used for making the analysis. The scope
of the study is to understand the credit management analysis of Service Co-operative Bank.
Every business needs adequate liquid resources in order to maintain day-to-day cash flow. It needs
enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its workforce
and ensure its supplies. Maintaining adequate working capital is not just important in the short-term but
sufficient liquidity must be maintained in order to ensure the survival of the business in the long-term as
well. Even a profitable business may fail if it does not have adequate cash flow to meet its liabilities as
they fall due.
3.1 OBJECTIVES OF THE STUDY
The study aims at critical evaluation of the Credit Management Analysis of Punnayuarkulam Service Co-
op, Bank LTD. The objectives of the study are:-
To study about proper allocations of funds such as providing loans, various investments,
borrowings.
To study the credit management analysis of punnayuarkulam service co-op,bank for the period of
2008-2012
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3.2 SCOPE OF THE STUDY
The scope of the study is to understand the financial performance and to analyses and interpret the
requirement of finance of punnayurkulam Service Co- operative Bank. This Study has considered the data
for a period of last five years based on the historical data. The financial statements provide a summary of
the accounts, the balance sheet reflecting the assets, liabilities and capital as on a certain date and the
profit and loss statement showing the results achieved during a certain period. The various reports and
schedule forming part of the financial statements also reflect the present position and future prospects of
the institution. Its aim is to assess the financial position, liquidity position, solvency and profitability of
the organization. They are also useful in identifying areas where more focus is required and also provide
with opportunity to bench mark successful banking practices. The study will be useful for the
improvement in the performance of the bank.
This project has been undertaken to enhance my understanding of credit management in an organization
and it also give me an opportunity to be a part of practical implication of credit management. In my study
I would also ascertain the problems associated with credit management and suggests measures to be
adopted to overcome those issues
The study is based on secondary data. However the primary data is also collected to fill the gap in the
information.
Primary data will be through regular interaction with the officials of Punnayuarkulam Service
Co-operative Bank.
Secondary data collected from annual reports and also existing manuals and like company
records balance sheet and necessary records.
For the purpose of analysis of data various statistical and accounting techniques are used.
a) Ratio Analysis
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Current Ratio
Quick Ratio
Debt Equity Ratio
Proprietary Ratio
Gross Profit Ratio
Total Asset To Debt Ratio
Inventory Turnover Ratio
b) Trend Analysis
c) Comparative Statement
PERIOD OF STUDY
The study is conducted to a period of five years that is from 2007-2008 to 2011-2012.
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3.5 LIMITATIONS OF THE STUDY
Conclusion
This chapter described the research methodology. The purpose of a research design is to maximise valid
answers to a research question. This was achieved by using a non-experimental, qualitative, exploratory-
descriptive approach that was contextual. Here the research was done using five years annual report i.e.,
2008-2012. Ratio analysis, diagrams were the tools used for the ratio analysis.
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CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
INTRODUCTION
Analysis was done by using five year report (2008-2012) of Co-operative bank. Ratio analysis is used
here for analysis. Interpretation is done from the collected facts after an analytical or experimental study.
In fact it is done for broader meaning of research findings. Interpretation is relationship with the collected
data, and do partially overlap in the analysis. Analysis and interpretation are closely related. Interpretation
is not possible without analysis, and without interpretation analysis has no value.
CURRENT ASSETS
CURRENT RATIO =
CURRENT LIABILITIES
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CURRENT RATIO
(TABLE: 4.1)
Current ratios of past five years are showing increase tendency at the year 2010-2011 four times increased
and come down 4.32 into 3.55 in the year 2011-2012.The values of current assets are increased in the year
2010-2011&2011-2012.But current liabilities are not increased that much. By comparing the current
assets and current liabilities, short term solvency of the firm can be ascertained. As a conventional rule a
current ratio of 2:1 or more is considered to be the best. Thus the liquidity position is satisfactory. The
ratios are increased in the first two years but next year .30 decreased and in 2010 3.01 increased ,the
current assets are increased in four times among previous years, in the year 2012 ratio become decreased
in to 3.55 (.77). Overall performance of this ratio indicates a positive tendency.
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CURRENT RATIO
5
4.5
3.5
2.5
CURRENT RATIO
1.5
0.5
0
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
In the above diagram not showing a positive indication. It means that in order to ensure the short-term
solvency of the concern, the current assets must be at least four times the amount of current liabilities.
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4.2 QUICK RATIO
In finance, the Acid-test or quick ratio or liquid ratio measures the ability of a company to use its near
cash or quick assets to extinguish or retire its current liabilities immediately. Quick assets include those
current assets that presumably can be quickly converted to cash at close to their book values. A company
with a Quick Ratio of less than 1 cannot currently fully pay back its current liabilities.
QUICK ASSETS
QUICK RATIO =
QUICK LIABILITIES
QUICK RATIO
QUICK
YEAR QUICK ASSETS QUICK LIABILITIES
RATIO
(TABLE: 4.2)
First three years Quick ratios are moving on a constant degree as 1.56; 1.59; 1.31 respectivelly.In the year
2010-2011 Quick ratio become increase four times. And down from4.09 into 3.38 in the year 2011-2012.
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Quick ratio supplements the use of current ratio. It gives a better picture of liquidity for meeting current
liabilities. As a rule of thumb the quick ratio of 1:1 is satisfactory. Thus the bank’s liquidity position is
satisfactory.In the year 2011-2012 ratio down in to .70.except 2010-2011&2011-2012, the level of Quick
ratios is very weak. The main objective of computing this ratio is to measure the ability of the firm to
meet its short term liabilities and when due without depending upon the realization of stock.
QUICK RATIO
4.5
3.5
2.5
QUICK RATIO
2
1.5
0.5
0
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
In the above diagram not showing the positive indication, because the quick ratio 1:1 is satisfactory. But
in this concern the amount of liquid assets are not enough to meet the liquid liabilities.
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4.3 DEBT-EQUITY RATIO
The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders’ equity
and debt used to finance a company's assets. Closely related to leveraging, the ratio is also known as Risk,
Gearing or Leverage.
DEBT
(TABLE: 4.3)
Debt-Equity ratio, in the year 2007-2008 is very high i.e., 19.59 but upcoming years Debt-Equity ratio
indicates down . And in the year 2011-2012, showing positive tendency. This is the ratio between
borrowed fund and owners’ fund that means debt and equity. This ratio measures the extent to which debt
financing has been used. The standard or ideal debt equity ratio is 1:1.This means the fund provided by
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the outsiders and shareholders must be equal. Some experts suggest 2:1 as standard ratio. However lower
the ratio better it is. So the bank is satisfying ideal contribution. This ratio indicates as a negative
direction under here.in the year 2009-2010, was the very low such as 13.90.
DEBT-EQUITY RATIO
25
20
15
DEBT-EQUITY RATIO
10
0
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
In this diagram shows the proportion of owners fund and borrowed fund invested in the business. In this
aspect it is in satisfactory level.
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4.4 TOTAL ASSETS TO DEBT RATIO
Debt Ratio is a financial ratio that indicates the percentage of a company's asset that is provided via debt.
It is the ratio of total debt (the sum of current liability) and long term liability and total asset (the sum of
current asset and fixed asset other assets such as goodwill)
TOTAL ASSETS
DEBT
(TABLE: 4.4)
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The debt/asset ratio shows the proportion of a company's assets which are financed through debt. In
addition, high debt to assets ratio may indicate low borrowing capacity of a firm, which in turn will lower
the firm's financial flexibility.Total Assets to Debt Ratio, is the relationship between Total Asset and
Debt. Total Asset to Debt ratio showing positive tendency but in the year 2010-2011 we can see a narrow
down.In the year 2011-2012 financial year Total Asset to Debt ratio showing increase. This ratio tries to
measure the proportion of total assets funded by long term debt. It expresses the relationship between
long term loans and total assets of the business.in the year 2009-2010, was indicates high ratio as
5.40.This ratios are move in the range 3-5.
3
Total Asset To Debt Ratio
0
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
(CHART 4.4)
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INTERPRETATION
This diagram shows high total assets to debt proportion. This means that the firm heavily depends on
outside loans for its existence.
SHAREHOLDERS FUND
5. PROPRIETARY RATIO =
TOTAL ASSETS
PROPRIETARY RATIO
TOTAL PROPRIETARY
YEAR SHARE HOLDERS FUND
ASSETS RATIO
(TABLE: 4.5)
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Shareholders fund are too much lesser than the Total Assets. Therefore the proprietary ratio is very low. It
consisted in the range between .01-.02. It shows the relationship between proprietor’s funds and total
assets. It reflects the general financial strength of the concern. The high proprietary ratio infers the good
financial position of the bank. Generally a ratio of 0.5:1 or above is considered ideal. This ratio indicates
on a constant basis. In the year 2009, 2010 & 2012 are equal as .01 and in the year 2008 & 2011 are same
as .02.This ratio helps to find out the general financial strength of the concern. Compare the amount of
Total Asset into shareholders fund, is too low. This ratio used to determine the financial stability of the
concern in general. Proprietary Ratio indicates the share of owners in the total assets of the company. It
serves as an indicator to the who can find out the proportion of shareholder‘s funds in the total assets
employed in the business. A higher proprietary ratio indicates relatively little secure position in the event
of solvency of a concern. A lower ratio indicates greater risk to the creditors. A ratio below 0.5 is
alarming for the creditors.
PROPRIETARY RATIO
0.025
0.02
0.015
Proprietary Ratio
0.01
0.005
0
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
(CHART 4.5)
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INTERPRETATION
In the above diagram shows the relationship between shareholders fund and total assets. If the bank shows
a high ratio means that less danger to creditors in case of winding up. But in this diagram shows
comparatively less proportion between these two items.
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INVENTORY TURNOVER RATIO
INVENTORY
COST OF GOODS AVERAGE
YEAR TURNOVER
SOLD INVENTORY
RATIO
(TABLE: 4.6)
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INVENTORY TURNOVER RATIO
12
10
(CHART 4.6)
INTERPRETATION
This diagram shows a high ratio that indicates the firm has the liquidity position. But a low ratio indicates
that stock is slow moving. A high ratio is desirable from the point of view of liquidity. In 2007-08 shows
a high ratio.
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4.7 GROSS PROFIT RATIO
Gross profit is defined as the difference between net sales and cost of goods sold. This ratio shows the
margin left after meeting manufacturing costs. It measures the efficiency of production as well as pricing.
GROSS PROFIT
× 100
GROSS PROFIT RATIO =
SALES
GROSS
YEAR GROSS PROFIT SALES PROFIT
RATIO
(TABLE 4.7)
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The FY 2008-2009, Gross Profit Ratio is very high as 7.19.But in the FY 2008-09 &2009-10, the Gross
Profit Ratios are very low as 1.52 &1.89 respectively. Gross profit ratio shows the relationship between
gross profit and sales. Gross profit is the excess of sales over cost of goods sold. This ratio indicates the
relationships between Gross profit And Sales.In the years 2009&2011 are the highest ratio of Gross Profit
Ratio. This ratio reflects profitability of the firm. In concern higher ratio is better than low ratio. Higher
ratio indicates the profitability and lower rate indicates insolvency of the concern. When analysing a
company, gross profit is very important because it indicates how efficiently management uses labour and
supplies in the production process. More specifically, it can be used to calculate gross profit margin. Keep
in mind that gross profit varies significantly from industry to industry.
4
Gross Profit Ratio
3
0
2007-2008 2008-2009 2009-2010 2010-2011 2011-2012
(CHART 4.7)
INTERPRETATION
This diagram shows the gross profit ratio. This ratio measures the margin of profit available on sales. It
reflects the profitability of the firm. Higher ratio is better to the concern. It shows high ratio in 2007-08
and 2009-10 years. But in the last year it shows less gross profit.
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4.8 TREND ANALYSIS
37
TREND ANALYSIS OF INCOME STATEMENT FOR 2010, 2011&2012
7000
6000
PARTICULARS OPENING
5000 STOCK PURCHASES DIRECT
EXPENSES ESTABLISHMENT
EXPENSES CONTINGENCIES
4000 INTEREST ON BORROWERS
INTEREST PAID
MISCELLANEOUS EXPENSES
NET PROFIT Net loss of the
3000
previous year SALES TRADE
INCOME CLOSING STOCK
INEREST RECEIVABLES
2000 MISCELLANEOUS
1000
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
(CHART 4.8)
INTERPRETATION
The increase or decrease in the financial data may be referred to as trend and the analysis is termed as
trend analysis. In above diagram shows the trend of various items in the income statement for three years.
Most of the items show an upward trend when compared to base year
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TREND ANALYSIS OF INCOME STATEMENT FOR 2010, 2011&2012
35000
30000
PARTICULARS 1. SHARE
2.SAVINGS BANK 3.FIXED
25000 DEPOSIT 4.OTHER DEPOSITS
5.BORROWINGS TDCB
6.RESERVE FOR OVER DUE
INTEREST 7.RESERVE FOR
20000
BADDEBT 9.INTEREST PAYABLE
10.OTHER LIABILITIES 11.NET
PROFIT 1.CASH IN HAND
15000 2.CASH AT BANK
3.INVESTMENTS 4.SHARE AT
OTHER
10000 Series3
Series2
5000 Series1
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
(CHART 4.9)
INTERPRETATION
The increase or decrease in the financial data may be referred to as trend and the analysis is termed as
trend analysis. In above diagram shows the trend of various items in the balance sheet for three years.
Most of the items show an upward trend when compared to base year.
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4.9 COMPARATIVE BALANCE SHEET 2007-2008 & 2008-2009
40
COMPARATIVE BALANCE SHEET ON 2008-2009 &2009-2010
41
COMPARATIVE BALANCE SHEET ON 2009-2010 & 2010-2011
When we compare 2007-2008 and 2008-2009, the amount of increase is 33592777.9 and the percentage
of increase is 8.29%.
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COMPARATIVE BALANCE SHEET ON 2010-2011 & 2011-2012
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CHAPTER 5
FINDINGS, SUGGESTIONS&CONCLUTIONS
Introduction
From the credit management analysis of Punnayuarkulan Service Co-operative bank, a series of findings
are to be listed that will expose its present financial status. The elaborate details of the findings are
highlighted in this chapter.
5.1 FINDINGS
1) In the FY 2009-2010 showing as a decrease tendency in current ratio. Again in the FY 2011-2012 also
Showing diminishing tendency.
2) Quick ratio is increased four times in the FY 2010-2011.And it’s down in the FY 2011-2012.
3) Bank’s debt – equity ratios are decreasing first 3 years and slowly growing up next coming two FY.
4) Inventory turnover ratio indicates the efficiency of the bank. In the FY 2008-2009 we can see highest
Ratio
5) In the both FY 2010-2011 & 2011-2012 current assets are showing positive tendency. These shows,
Banks have sufficient funds to meets their short term requirements .
6) Bank’s liquidity position is good. Because, the rate of investments by public in the bank is very high.
7) Financial efficiency of the bank is very excellent. Because trend analysis of bank indicates positively.
8) Total asset to debt ratios are showing negative tendency in the FY 2010-2011 & 2009-2010.
5.2 SUGGESTIONS
1) Loan should be issued only on the basis of repayment capacity of the parties.
2) Formalities required by the scheme should be reduced to the minimum. So that it will be attract
more customers.
3) There is a net increase in trend percentage of current assets. Hence, it is to be suggested to the
bank management that, they can follow the same principles to keep trend percentage of current
assets. So that they can meet there short term obligations appropriately.
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4) It has been observed that there is continues in investment trend. So I suggest that the increase in
investment leads to manage the working capital properly and it creates liquidity position in the
company.
5) It is suggested that bank should not increase the borrowing as it is difficult to payback it.
6) The current ratio is decreasing means shows that the sufficient fund is also decreasing. So it is
suggested that they have to concentrate on to increase or at least to meet its standard 2:1.So that
they can meet its short term solvency of bank. The downfall represents that the company’s short
term liquidity position is not satisfactory.
7) The company has to take the effective steps to increase the profile, which is helps for its future
growth and expansion.
8) Bank must try to maintain its short term liquidity position, by investing only in those investments,
which are easily convertible into cash.
5.3 CONCLUTION
To conclude, it can be stated that THE PUNNAYOORKULAM SERVICE CO-OP, BANK LTD
No.P.417 has been following well-established systems, policies, and procedures with respect to CREDIT
MANAGEMENT ANALYSIS and recovery. The bank has invested in a systematic manner,
disbursement of loans /advances. However, as suggested, the bank should consider some additional
strategies and policies to face challenges of the competitors in future, to improve the quality of its service
of lending and recovery.
I would like to conclude that the bank has to take proper steps to increase the income, so that the company
can grow and expand its business efficiently. The company should also have to decrease its operating
expenses and also to give concentration on total assets, so that they can increase the profit more.
It was a wonderful experience and worthwhile for me to be a part of THE PUNNAYOORKULAM
SERVICE CO-OP, BANK LTD No.P.417 for around two month and working on a research project for
the company was a tremendously excellent experience and also helps to understand the functions,
procedures, strength and weaknesses of the bank.
I hope the organization will be benefited from this study and with the help of the suggestions given by
me to the organization can improve its financial performance furthermore and the overall satisfaction
level at the organization and its performance level will increase through decreasing operating expenses
and increasing net profit
Overall I would like to conclude that this study gave me a good practical exposure. Working capital
management shows the organization’s present position through which they can take the further decision
in the future
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BIBLIOGRAPHY
1. BOOKS
WEBSITE
1. www.southindianbank.com
2. www.investopedia.com
3. www.workingcapitalmanagement.com
4. www.site.fin.com
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