A Project Report on Working Capital Assessment at Canara Bank, Circle Office, Bangalore

Industry Profile
Introduction
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. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.

The fervor of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara (South Kanara) district. Four nationalized banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:

The Reserve Bank of India, India's central banking authority, was established in April 1934, but was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalization." The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit

delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. In the early 1990s, the then Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. In the private banking sector of India, FDI is allowed up to a maximum limit of 74% of the paid up capital of the Bank. On the other bank, FDI and Portfolio investment in the public or nationalized banks in India all subject to a limit of 20% of totality. This ceiling is also applicable to the investment in the SBI and its associates. Currently, banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some timeespecially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. The Rs. 64 trillion (US$ 1.22 trillion) Indian banking industry has made exceptional progress in last few years, even during the times when the rest of the world was struggling with financial meltdown. Even today, financial institutions across the world are facing the repercussions of the turmoil but the Indian ones are standing stiff under the regulator's watchful eye and hence, have emerged stronger.
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Ratings agency Moody's believe that strong deposit base of Indian lenders and Government's persistent support to public sector and private banks would act as positive factors for the entire system amidst the negative global scenario. The sector has undergone significant developments and investments in the recent past. Some of them are discussed hereafter along with the key statistics and Government initiatives pertaining to the same.

Key Statistics

According to the Reserve Bank of India's Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks', March 2011, Nationalized Banks, as a group, accounted for 53.0 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 21.6 per cent. The share of new private sector banks, old private sector banks, foreign banks and regional rural banks in aggregate deposits was 13.4 per cent, 4.6 per cent, 4.4 per cent and 3 per cent respectively.

With respect to gross bank credit also, nationalized banks hold the highest share of 52.8 per cent in the total bank credit, with SBI and its associates at 22.1 per cent and New Private sector banks at 13.2 per cent. Foreign banks, Old private sector banks and Regional Rural banks held relatively lower shares in the total bank credit with 4.9 per cent, 4.6 per cent and 2.4 per cent respectively. Another statement from RBI has revealed that bank advances grew 17.08 per cent annually as on December 16, 2011 while bank deposits rose 18.03 per cent.

RBI data shows that India raised US$ 1.6 billion through External Commercial Borrowings (ECBs) in November 2011 for new projects. 78 companies raised US$ 1.3 billion under automatic route and US$ 253 million was raised under the approval route (it requires case-by-case approval by the regulator).

India's foreign exchange reserves stood at US$ 297 billion as on Dec 30, 2011. In recent years, deposits under Non-Resident Indians (NRI) schemes have witnessed an upsurge. There was an inflow Rs. 14,763 crores (US$ 2.83 billion) under NRI deposits in 2010-11, which was 6.5 per cent higher from 2009-10. In 2011, the total of NRI deposits was Rs. 2,30,812 crores (US$ 44.2 billion), compared to Rs. 2,27,078 crores (US$ 43.5 billion) in 2010.
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Recent Developments

The US Export-Import Bank, with a commitment of US$ 7 billion, is on a way to diversify its portfolio in India by financing projects in education, healthcare and agriculture. After Mexico, India is the second biggest investment destination for the bank as the entity anticipates the country to become the largest market in next 12-18 months.

India Infrastructure Finance Company Ltd (IIFCL) and IDBI Bank have inked a five-year memorandum of understanding (MoU) to launch Infrastructure Debt Fund (IDF) schemes. The IDF, for which IDBI Bank and IIFCL would play strategic investors, is expected to get launched by the end of February 2012.

With 'green power' projects getting highly popular in India, especially in the states of Gujarat and Rajasthan, banks are increasingly opening up to projects from nonconventional (solar and wind) energy space. After receiving project proposals that were meant for a particular industry/consumer or group of industries/consumers for their own use, banks are now getting projects that entail commercial viability (25100 mega watts).

Recently, depreciation of partially convertible Indian Rupee against US Dollar has left Indian importer high and dry, more particularly those who have not hedged their dollar exposures. The unexpected depreciation of Rupee against US Dollar this year by over 17 percent has caused a great concern for the Government, RBI and corporate of India. On November 22, 2011 Indian Rupee has touched historic low of 52.73 before recovering little in next sessions. Since late 2009, sovereign debt crisis brewed in Europe concerning some euro zone states and the situation became tense in early 2010 with the downgrading of Greek debt rating by global credit rating agencies to Junk status with hints of default by the Greek Government. The situation became further grave recently in October 2011 with Greek coalition government headed by George Papandreou first announcing and then ditching a plan for a referendum on a euro zone bailout package to limit the damage from the currency blocs debt crisis with a deal in which the private sector was to agree to voluntarily accept a nominal 50 percent cut in its bond investments to reduce Greeces debt burden by 100bn Euros, cutting its debts to 120 percent of GDP by
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2020, from 160 percent at present. Besides forcing the investing banks to accept a haircut of 50 percent on Greek debt the deal, reached after prolonged hard-nosed negotiations between investing bankers, head of states and the IMF, also proposes to enlarge the European Financial Stability Facility (EFSF) war chest from 440bn to 1 trillion and requires European banks to find more capital against their losses on Greek debt. With cash in its treasury expected to last just over five weeks, Greece has been plunged into a fresh bout of uncertainty with political differences in that country, refusal of strong European countries to cough up more for the bailout, and G20 nations demanding more details of the rescue package declared on Oct 27, 2011 before they commit fresh cash to IMF, which could then lend to Europes bailout facility. RBI latest interest rate changes change date October 25 2011 September 16 2011 July 26 2011 June 16 2011 May 03 2011 March 17 2011 January 25 2011 November 02 2010 September 16 2010 July 27 2010 percentage 8.500 % 8.250 % 8.000 % 7.500 % 7.250 % 6.750 % 6.500 % 6.250 % 6.000 % 5.750 %

Graph Indian interest rate RBI - long-term graph

Company Profile
Background and Inception
Canara Bank was founded by Shri Ammembal Subba Rao Pai, a great visionary and philanthropist, in July 1906, at Mangalore, then a small port in Karnataka. The Bank has gone through the various phases of its growth trajectory over hundred years of its existence. This small seed blossomed into a limited company as 'Canara Bank Ltd.' in 1910 and became Canara Bank in 1969 after nationalization. Growth of Canara Bank was phenomenal, especially after nationalization in the year 1969, attaining the status of a national level player in terms of geographical reach and clientele segments. Eighties was characterized by business diversification for the Bank. In June 2006, the Bank completed a century of operation in the Indian banking industry. The eventful journey of the Bank has been characterized by several memorable milestones. Today, Canara Bank occupies a premier position in the comity of Indian banks. Canara Bank has an unbroken record of profits since its inception. Sound founding principles, enlightened leadership, unique work culture and remarkable adaptability to changing banking environment have enabled Canara Bank to be a frontline banking institution of global standards. Canara is Indias fifth largest bank in terms of asset size; as on March 31, 2010, it had an asset base of around Rs 2.6 trillion. The banks strong market position is underpinned by its market share of over 4.8% in deposits and advances, and its panIndia branch network. The new brand identity for Canara Bank is based on the idea of a bond and is a representation of the close ties between the Bank and its many stakeholders from customers and employees to investors, institutions and society at large. With its rich heritage of banking expertise, dedicated customer service and corporate social responsibility, Canara Bank is a powerful enabler who helps its stakeholders to

achieve their goals. The two seamlessly connected links capture the essence of this partnership.
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Significant Milestones
Year 1st July Canara Hindu Permanent Fund Ltd. formally registered with a capital of 2000 1906 1910 1969 1976 1983 1984 1985 1987 1989 shares of 50/- each, with 4 employees. Canara Hindu Permanent Fund renamed as Canara Bank Limited. 14 major banks in the country, including Canara Bank, nationalized on July 19. 1000th branch inaugurated. Overseas branch at London inaugurated Cancard (the Banks credit card) launched. Merger with the Laksmi Commercial Bank Limited. Commissioning of Indo Hong Kong International Finance Limited. Canbank Mutual Fund & Canfin Homes launched. Can bank Venture Capital Fund started. Became the first Bank to articulate and adopt the directive principles of Good Banking. Became the first Bank to be conferred with ISO 9002 certification for one of its branches in Bangalore. Opened a 'Mahila Banking Branch', first of its kind at Bangalore, for catering exclusively to the financial requirements of women clientele.

1989-90 Can bank Factors Limited, the factoring subsidiary launched. 1992-93 1995-96 2001-02

2002-03 Maiden IPO of the Bank. 2003-04 Launched Internet Banking Services. 2004-05 100% Branch computerization. Entered 100th Year in Banking Service. Launched Core Banking Solution in 2005-06 select branches. Number One Position in Aggregate Business among Nationalized Banks. Retained Number One Position in Aggregate Business among Nationalized 2006-07 Banks. Signed MoUs for Commissioning Two JVs in Insurance and Asset Management with international majors viz., HSBC (Asia Pacific) Holding and Robeco Groep N.V respectively. 2007-08 Launching of New Brand Identity. Incorporation of Insurance and Asset Management JVs. Launching of 'Online Trading' portal. Launching of a Call
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Centre. Switchover to Basel II New Capital Adequacy Framework. 2008-09 The Bank crossed the coveted 3 lakh crores in aggregate business. The Banks 3rd foreign branch at Shanghai commissioned. The Banks aggregate business crossed 4 lakh crores mark.

2009-10 Net profit of the Bank crossed 3000 crores. The Banks branch network crossed the 3000 mark. The Banks aggregate business crossed 5 lakh crores mark. Net profit of the Bank crossed 4000 crores. 100% coverage under Core Banking Solution. The 2010-11 Banks 4th foreign branch at Leicester and a Representative office at Sharjah, UAE, opened. The Bank raised 1993 crores under QIP. Govt. holding reduced to 67.72% post QIP. As at December 2011, the total business of the Bank stood at 534710 crores.

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Nature of the business carried

Canara bank, being a major public sector banks in India, is well known for its banking operations. It provides various products and services to customers in the banking industry. Other than banking operations it also provides Foreign Business, Asset Management, Financial Services, Securities Market, Computer Services, Home Loans, Corporate Cash Management Services, Factoring, Venture Capital Fund, Mercantile Banking, and Insurance Banking to the various customers in India as well as in abroad.

Vision and Mission

Vision To emerge as a Best Practices Bank by pursuing global benchmarks in profitability, operational efficiency, asset quality, risk management and expanding the global reach. Mission To provide quality banking services with enhanced customer orientation, higher value creation for stakeholders and to continue as a responsive corporate social citizen by effectively blending commercial pursuits with social banking. Quality Statement The branches will provide total banking services and continually review and improve the processes for total customer satisfaction by quality management system requirements as per ISO 9001:2000

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Products and Services

I. Personal Banking 1. Savings & Deposits: a. SB Gold Scheme ( Min. balance Rs. 50000) b. Canara Bank Champ Scheme ( SB deposit for children) c. Canara Saral Saving Scheme (An SB product designed for the common man to provide a basic banking facility as part of the financial inclusion objective of RBI) d. Current Account e. Canara premium current account f. Fixed Deposit g. Kamadhenu Deposit ( Re-investment Plan) h. Canara tax saver scheme (A term deposit scheme under the Fixed Deposit & Kamadhenu Deposit streams) i. Recurring deposit j. Special recurring deposit scheme k. Ashraya Deposit Scheme (For Senior Citizens) l. Canara Auto Renewal Deposit (Card) m. Canara Super Savings Salary Account Scheme 2. Loan Products a. Housing Loan b. Canara Mobile (Vehicle) c. Canara pension d. Canara rent (To provide loans to owners of the property to meet their business needs and / or genuine personal needs, against rents receivable) e. Canara Jeevan (Reverse Mortgage Loan (RML) scheme for senior citizens) f. Home improvement loan g. Canara site loan h. Teachers loan
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i. Canara Mortgage j. Doctors choice k. Canara cash (Shares) l. Canara Budget (For employed/Business) m. Swarna Loan (Gold Loan) n. Canara guide (Loan scheme to finance individuals possessing a valid certificate to practice as a Tax Return Preparer (TRP) as per the scheme formulated by the Ministry of Finance, Government of India for preparation of income tax returns) o. Education Loan 3. Technology Products a. Transactions Through the Bank ATMs And Other Bank ATMs b. Purchase Of Goods And Services At POS Merchant Establishments c. Mobile Top up d. VISA Money transfer e. E-Ticketing 4. Mutual Funds 5. Insurance Products 6. International services 7. Credit card services 8. Depository services 9. Ancillary services a. Sale of Gold coins b. Safe deposit locker c. Safe custody services II. Corporate Banking
1. 2. 3. 4. 5. 6. 7.

Accounts & Deposits Cash Management Services Loans and Advances Syndication Services IPO Monitoring activity Merchant banking Services Canara E-Tax
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III.

NRI Remittance Facility

1. 2. 3. 4.

Deposit Products Loans & Advances Remittance Facilities Consultancy Services

IV. V.

Internet Banking Priority & SME Banking

1. 2. 3. 4. 5.

Agriculture And Rural Credit Schemes Education Loan And Other Priority Sector Loans Government Sponsored Schemes Lead Bank Activities Lending to minority communities

Area of Operation
As a premier commercial bank in India, Canara Bank has a distinct track record in the service of the nation for over 105 years. Today, Canara Bank has a strong pan India presence with 3432 branches and 2623 ATMs, catering to all segments of an ever growing clientele base of 4.04 crores. Across the borders, the Bank has 5 branches, one each at London, Hong Kong, Shanghai, Leicester and Manama and a Representative Office at Sharjah, UAE. Canara Bank is recognized as a leading financial conglomerate in India, with as many as nine subsidiaries/sponsored institutions/joint ventures in India and abroad.

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Ownership Pattern
Category Government of India Banks & Financial Institutions Mutual Funds Bodies Corporate NRIs/OCBs Resident Individuals/HUF/Trust etc. FII Total No. of Shares 300000000.00 45931757.00 4903743.00 4101867.00 339316.00 21603092.00 66120225.00 443000000.00 % of shareholding 67.72 10.37 1.11 0.93 0.08 4.88 14.93 100.00

The data is category wise as on 31/03/2011. Nominal value of each share is Rs. 10.

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Competitors Information
Both Public sector and Private sector banks are competitors for the Bank. The local financial organization and money lenders along with the multinational banks are also giving strong competitions to the Bank. Following table shows the Deposits, Investments and Advances of the 19 Public sector banks and SBI and its associates as on 31st March, 2011. (Rs. in crores) Investments Advances 43,247 24,204 74,018 85,872 22,491 83,700 54,504 43,453 18,769 34,784 48,610 42,075 18,644 95,162 35,068 42,927 58,399 26,259 25,139 877,326 295,601 13,521 28,447 12,927 17,275 17,927 93,625 71,435 228,676 213,096 46,881 212,467 129,725 86,850 44,828 75,250 111,833 95,908 42,638 242,107 106,782 99,071 150,986 53,502 48,719 2,154,380 756,719 41,207 64,720 34,030 51,433 46,044
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S. No. I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 II III 1 2 3 4 5 6

BANKS NATIONALISED BANKS Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank Total State Bank of India (SBI) ASSOCIATES OF SBI State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Travancore

Deposits 131,887 92,156 305,439 298,886 66,845 293,973 179,356 116,747 64,210 105,804 145,229 139,054 59,723 312,899 135,596 145,278 202,461 77,845 73,248 2,946,636 933,933 53,852 88,628 43,225 68,066 58,158

Infrastructure Facilities
The bank took several initiatives in the InfoTech front. The Bank covered all its branches/Offices under Core Banking Solution (CBS). With 100% CBS, the Bank now offers technology banking services, such as, Internet Banking, Funds transfer through NEFT and RTGS, SMS alerts. The bank also offers online trading facility to its clients through its subsidiary M/s Canara Bank Securities Ltd. The ATMs have been enabled to offer value added services like Travel ticket booking, Mobile top up and utility bill payments. In view of the increased attacks of phishing and pharming the Bank has put in place 24X7 centralized monitoring system of anti phishing and anti malware. To make the Internet Banking facility more secure a slew of measures like implementation of OTP (One Time Password) module, two live validation of account number for NEFT/RTGS transaction through Net Banking and mutual authentication of Internet Server customer PC (CAN Secure) were introduced. With increased confidence, the number of customers enrolled for internet banking has moved up to 3.86 Lakhs (March, 2011). The Bank upgraded its Data Centre infrastructure to comply with ISO 27001 standards and did the upward migration of database to Oracle 11G version. The bank has a well designed and secured corporate network covering all the branches and offices. A customer terminal has also been provided in the branches for easy and ready

reference to own accounts of customers. The Bank has also implemented Electronic Data Interchange Module for payment of customs duty and fulfilling the related formalities in electronic mode. To connect with the youth of the country and obtain first hank unrestricted feedback, the bank has a presence at Twitter (http://twitter.com/canarabanktweet).

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Know Your Customer (KYC)

The Bank took several measures for the effective implementation of KYC and Anti Money Laundering (AML) guidelines and for ensuring KYC compliance by all branches. To ensure better compliance of guidelines on KYC/AML following steps have been initiated. 1. All Zonal/ Circles have nominated an Executive as Nodal Compliance Officer for monitoring and ensuring compliance of guidelines on KYC/AML/Combating of Financial of Terrorism (CFT). 2. Branches were advised to strictly adhere to the guidelines on KYC/AML/CFT to prevent abuse of banking system by money launderers using money mules. 3. NREGA (National Rural Employment Guarantee Act) job card/Aadhar document has to be accepted as identification document for opening of accounts. Accounts opened with these documents will have restrictions applicable to 'small accounts'. 4. Printing and dispatch of Thanks giving letters to new account holders and introducers are done centrally at Zonal/Circles Offices.

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Awards & Achievements

Received during 2011-12

Canara Bank was awarded coveted Skoch award for financial inclusion on 5.01.2012 at New Delhi. The award was handed over by Dr. C. Rangarajan, Chairman Prime Ministers Economic Advisory Council to Smt. Archana Bhargava, Executive Director, Canara Bank in a glittering function held at New Delhi. The other dignitaries present on the occasion were Dr. D. Damodaran Former Chairman SEBI, Dr. Govinda Rao, and Mr. Yogesh Aggarwal, Chairman PFRDA. A certificate of merit was handed over to S. S. Bhat, General Manager Financial Inclusion Wing for Canara Banks role in providing Access to Banking and Financial Services. Citation reads as "Canara Bank has a hand in every arena when it comes to promoting financial inclusion through skilling and self employment. During last one year it has shown significant improvement in its financial inclusion efforts.

The Bank was conferred with National Award - 2011 for excellence in the field of Khadi and Village Industries - Best Bank, South Zone for PMEGP (Prime Ministers Employment Generation Program).

Corporate Social Responsibility Award-2011.

Received during 2010-11 Awards/Accolades

Canara Utsav & SLBC Kerala-Declaration of total banking coverage The Bank has been conferred with the Second Best Bank Award under National Awards for Excellence in lending to Micro Enterprises for the year 2009-10, by the Ministry of MSME and Outstanding Performer at National level for implementation of Interest Subsidy Eligibility Scheme (ISEC) of KVIC in the country for 2009-10.

The Bank was conferred 4 awards by the Public Relations Council of India (PRCI), in the following categories

Silver Award for Corporate Film ( TV Commercial ) English Bronze Award for House Journal/Magazine Languages Bronze Award for Table Calendar Bronze Award for Corporate Advertisement Single - English
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Specific achievements pertaining to recovery wing are as follows: 1. Cash recovery of rs.750 crores achieved during June 2011 quarter which is all time high for any particular quarter. 2. On line auction of secured assets introduced and implemented under sarfaesi. Achievement of inspection wing: Total Number of Branches / Units risk rated: 3378 Number of LOW Risk branches: 2009 % of LOW Risk branches: 59.47 % Number of HIGH Risk branches: 1 Audit / Inspection conducted as per the audit plan and there is no backlog. The concurrent audit of 494 branches covers 79 % of advances and 53 % of deposits of the Bank. Priority Sector Performance Highlights of Priority Sector Performance in last 3 years.

Bank has achieved hat-trick by crossing all mandated and Internal Targets in Priority Credit. Bank has doubled the growth under Agriculture in 2009-10 compared to 2008-09. The Agriculture disbursement in FY 07-08 was Rs.11443 crores while in it in FY 10-11 Rs. 22374Crores, which is almost doubled in a period of 3 years.

Education loan stood at Rs.3503 crores, compared to O/s level of Rs.1737 crores for Mar 08 more than doubled in 3 years. Weaker Sections, SC/ST and Minority advances also more than doubled in 3 years.

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Work Flow Model

Flow chart for Deposits Customer Inquiry

New

Existing

Officer/Manager explains rules of business/Bank requirements and compliance to KYC guidelines.

Reject

Request for fund transfer from SB A/c to Deposit A/c Acceptance by manager and authorize to open

Clerk opens the A/c /completes the formalities

Officer/ Manager Verify/ Authorize

Passbook updating/ Issue of deposit receipt

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Flow chart for Advances

Customer Inquiry

New

Existing

Compliance with KYC guidelines.

Acceptance

Manager/Branch in charge discussion a. Availability scheme resources b. Explain Bank requirements c. Accept application and details d. Process the application e. Sanction f. Pass on to the appropriate account Not viable Reject

Clerk opens the account/ Documentation/ Disbursement

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Future growth and Prospectus

The coming years are likely to be of strong but uneven global growth. As financial markets continue to normalize and households and firms reduce their indebt ness, growth is projected to gradually strengthen the emerging and developed economies. The IMF projected global growth at 4.5% for 2012. Emerging economies will continue to lead global growth. However, uncertainties in the form of higher oil and non-oil commodity prices and public debt pose risk to global growth. Indian economy is expected to continue its broad based growth momentum in FY12 backed by strong investment and consumption demand. Domestic demand will continue to hold the key to GDP growth. Inflation is under control after a long period. A strong saving and investment and consumption rates, favorable capital market conditions, capital flows and positive business outlook will also help the economy to maintain its growth momentum. Services sector will be a major contributor in the positive domestic outlook and banking sector will continue to be among the performing sectors in FY12. Efforts to bring in more inclusive growth and focus on the rural economy would propel the growth engine of the economy further.

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McKinsey's 7s Framework
The McKinsey 7S framework is developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company consulting firm, the basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful. The 7S model can be used in a wide variety of situations where an alignment perspective is useful. The McKinsey 7S model involves seven interdependent factors which are categorized as either "hard" or "soft" elements: "Hard" elements are easier to define or identify and management can directly influence them: These are strategy statements; organization charts and reporting lines; and formal processes and IT systems. "Soft" elements, on the other hand, can be more difficult to describe, and are less tangible and more influenced by culture. However, these soft elements are as important as the hard elements if the organization is going to be successful.

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Strategy: The key elements for the Bank's business strategy are;

To focus on quality growth opportunities by maintaining and enhancing the strengths in services Use technology for competitive advantage and customer centric progressive bank Branch expansion to provide services to a larger customer segment during 2010-11 210 branches were added. On January 2012, there were 3432 branches of the Bank.

To become one stop financial supermarket, the Bank has forayed into newer areas of banking products and services to meet the increasing needs of the customers.

Systems: The Bank has taken various proactive technology initiatives to maintain its competitive edge in Indian banking industry. Canara Bank has chosen Flex cube from Oracle Financial Services as the software application. Now all branches of Canara Bank are live on core banking application Flex cube. Flex cube is a universal banking solution for retail, corporate, internet and investment banking, from front to back office work. Flex cube also has the ability to support multi-bank, multi-currency, and multi-channel operations, using a widely recognized data model that will keep abreast of market dynamics. Canara Bank has a strong pan India presence with 2623 ATMs

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Style: In Canara Bank, the decisions are taken by the top management concerning matters related to the organization. The decisions relating to department matters are taken by the departmental heads. The bank follows a participative leadership style which allows the ideas, suggestions etc. for the betterment of the bank. The team members are cooperative rather than being competitive. Staff: The departments in the Bank consist of Senior Manager/Manager, Officers, Clerks and sub-staff. The HR policies of the Bank have been reinvented and refocused time and again to suit to the changing banking scenario. HR interventions like SPANDAN for bringing attitudinal change among front line staff, PRATIBHA for grooming inhouse talents in varied specialized areas and executive grooming through reputed institutes and other significant HR tools like Quality Circles, Staff meetings and Brain Storming Sessions have been implemented for effective team building and fostering collective excellence. Specialized trainings to the Senior Management level/ Top level executives are conducted based on the requirement. Canara Bank has more than 45,800 employees and business per employee and profit per employee is Rs. 12.28 crores and Rs. 9.76 Lakhs respectively. Skills: Training policies and programs are suitably designed, modified and updated on a continuous basis to upgrade the knowledge levels and skills of its Executives, Officers, and Workmen on par with the best in the industry. While several new programs are introduced in tune with the corporate goals, the existing programs are made more interactive and learner friendly. Risk management and Basel II are the focus areas of their training programs.

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Shared Values: Canara Bank was founded on these Principles, 1. To remove Superstition and ignorance. 2. To spread education among all to sub-serve the first principle. 3. To inculcate the habit of thrift and savings. 4. To transform the financial institution not only as the financial heart of the community but the social heart as well. 5. To assist the needy. 6. To work with sense of service and dedication. 7. To develop a concern for fellow human being and sensitivity to the surroundings with a view to make changes/remove hardships and sufferings. "A good bank is not only the financial heart of the community, but also one with an obligation of helping in every possible manner to improve the economic conditions of the common people" - A. Subba Rao Pai

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SWOT Analysis
Strengths: 1. The Bank have well experienced, well trained, most dedicated and committed staff. There are sustained and focused efforts at every level, by each employee of the Bank, to continue to build up core deposits. 2. Strong rural presence. 3. It is well equipped to meet the challenges of 21 st century, in the areas of IT, Knowledge and competition. 4. It has launched Core Centralized banking solutions where all branches are connected live. 5. The Bank has specialized branches catering to the specific clientele segment. Weaknesses: 1. The Bank does not have many overseas branches. 2. As the employees are experienced the Bank has more number of aged workforces. Opportunities: 1. Controlling NPA through cash recovery. NPA was at 1.11% (Rs. 2347 crores) for the year ended 31st March, 2011. 2. To expand overseas business. 3. Upward revision in Deposit/interest rates attracts new customers/deposits. 4. Up gradation in technological products saves time and improves business. Threats: 1. The Bank face competition from other public sector bank, private sector banks, foreign banks and other financial institutions. 2. Changing economic policies of Government will have direct impact on interest rates. 3. Globalization has allowed other industries, such as IT industry, to attract talent human resource.

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Financial Statements
P & L A/c for the year ended 31 March 2011 Sl. No. (Rs. In Crores) Particulars 1 Interest Earned (a)+(b)+(c)+(d) (a) Interest/discount on advances/bills (b) Income on Investments (c) Interest on balances with Reserve Bank of India & Other Inter-Bank Funds (d) Others Other Income Total Income (1+2) Interest Expended Operating Expenses (I)+(ii) (I) Employees Cost (ii) Other Operating Expenses 31.03.2011 31.03.2010 23064.02 18751.96 17051.85 13946.43 5788.01 4577.99 223.3 0.86 2703.03 25767.05 15240.74 4419.31 2954.84 1464.47 19660.05 6107 1081.11 0 5025.89 1000 4025.89 0 4025.89 210.42 17.12 2857.9 21609.86 13071.43 3477.62 2193.7 1283.92 16549.05 5060.81 1239.38 0 3821.43 800 3021.43 0 3021.43

2 3 4 5

Total Expenses ((4+5) excluding Provisions & 6 Contingencies) Operating Profit before Provisions and Contingencies 7 (3-6) 8 Provisions (Other than Tax) and Contingencies 9 Exceptional items Profit (+) / Loss (-) from Ordinary Activities before tax 10 (7-8-9) 11 Tax expense Net Profit (+) / Loss (-) from Ordinary Activities after 12 tax (10-11) 13 Extraordinary items (net of tax expense) 14 Net Profit (+) / Loss (-) for the period (12-13)

29

15 16 17

Paid up Equity Share Capital (Face Value of each shareRs.10/-) Reserves excluding Revaluation Reserves Analytical Ratios (i) Percentage of shares held by Government of India (ii) Capital Adequacy Ratio (iii) Earnings per Share (EPS) (Not Annualized) a) Basic and diluted EPS before Extraordinary items (net of tax expense) for the period, for the year to date and for the previous year b) Basic and diluted EPS after Extraordinary items for the period, for the year to date and for the previous year (iv) NPA Ratios (a) Amount of Gross Non Performing Assets (b) Amount of Net Non Performing Assets (c) Percentage of Gross Non Performing Assets

443 17498.46 67.72% 15.38%

410 12129.1 73.17% 13.43%

97.83 97.83 3089.21 2347.33 1.45%

73.69 73.69 2590.31 1799.7 1.52%

18

19

(d) Percentage of Net Non Performing Assets 1.11% 1.06% (v) Return on Assets (Annualized) 1.42% 1.30% Public shareholding - Number of Shares 143000000 110000000 - Percentage of shareholding 32.28% 26.83% Promoters and promoter group shareholding NIL - Number of shares 300000000 300000000 - Percentage of shares (as a % of the total shareholding of promoter and promoter group) 100.00% 100.00% - Percentage of shares (as a % of the total share capital of the Company) 67.72% 73.17%

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Balance Sheet as on 31.3.2011 (`Rs. in Crores) As on 31.03.2010 410 14261.8 234651 8440.56 6977.3 264741 15719.5 3933.75 69677 169335 2859.37 3216.92 264741

As on 31.03.2011 Capital and liabilities Capital Reserves and surplus Deposits Borrowings Other liabilities and provisions Total Assets Cash & balances with reserve bank of India Balances with banks and money at call And short notice Investments Advances Fixed assets Other assets TOTAL 443 19596.82 293972.65 14261.65 7804.64 336078.76 22014.79 8693.32 83699.92 212467.17 2844.41 6359.15 336078.76

31

Segment wise results

(Rs. In crores) 31.03.2011 31.03.2010 6249.48 6700.99 12220.51 0 596.07 25767.05 869.61 2207.25 2652.26 0 5729.12 377.88 6107 1081.11 1000 4025.89 5477.69 5646.6 10041.64 0 443.93 21609.86 1346.85 1664.16 1999.24 0 5010.25 50.56 5060.81 1239.38 800 3021.43

Business Segment (a) Segment Revenue 1 Treasury Operations 2 Retail Banking Operations Wholesale Banking 3 Operations 4 Other Banking Operations 5 Unallocated Total (b) Segment Results 1 Treasury Operations 2 Retail Banking Operations Wholesale Banking 3 Operations 4 Other Banking Operations Total Unallocated (c) Income/Expenses (d) Operating Profit Provisions and (e) Contingencies (f) Income Tax (g) Net Profit (h) Other Information (i) Segment Assets 1 Treasury Operations 2 Retail Banking Operations Wholesale Banking 3 Operations 4 Other Banking Operations 5 Unallocated Assets Total (j) Segment Liabilities 1 Treasury Operations 2 Retail Banking Operations Wholesale Banking 3 Operations 4 Other Banking Operations 5 Unallocated Liabilities 6 Capital and Reserves Total

108292.57 60302.3 160148.44 0 5237.09 333980.4 47011.06 124960.75 125895.27 0 18171.86 17941.46 333980.4

87199.12 51555.25 121344.65 0 2509.39 262608.41 39833.45 123063.48 76290.47 0 10881.9 12539.11 262608.41
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Geographical Segment Domestic Operations Revenue Assets International Operations Revenue Assets Total Revenue Assets

(Rs. In Crores) 31.03.2011 31.03.2010 25448.69 318377.28 21299.71 252609.97

318.36 15603.12

310.15 9998.44

25767.05 333980.4

21609.86 262608.41

Key Financial Ratios

(In %) 31st Mar 31st March 2010 2011 5.65 5.37 8.1 8.13 6.12 5.8 9.81 9.73 7.52 7.72 2.45 2.76 2.8 3.12 1.5 1.52 1.3 1.42 26.76 28.26 9.83 12.28 7.35 9.76 305.83 405 73.69 97.83

Cost of Funds Yield on funds Cost of Deposits Yield on Advances Yield on Investments Spread as a % to AWF Net interest margin Operating Expenses to AWF Return on average assets Return on average net worth Business per employee (Rs. In crores) Profit per employee (Rs. In Lakhs) Book value (Rs.) EPS (Rs.) AWF: Average Working Funds

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Learning Experience
The project work was carried out at Canara Bank gave me a lot of insight into the practical working of a Bank. I could understand the various functions of an organization like, Planning, Organizing, Directing, Controlling and Staffing. I learned the various methods used to assess the working capital of firms, companies etc. and the various forms of working capital extended to organizations. I understood various services provided by the Bank apart from the basic functions of accepting deposits and lending loans and learnt about the technology used in the Bank to provide quality, secure and faster services. I also learned the workflow for accepting deposits and providing loans and various strategies, policies and systems adopted by the Bank.

34

Statement of the problem

The sufficiency of working capital assists in raising credit standing of a business because of better terms on goods bought, lesser cost of manufacturing due to the acceptance of cash discounts, favorable rates of interest etc. Working capital needs of every organization varies depending upon various parameters. For assessing the working capital limits, the Banks should analyze the business operations in detail and credit worthiness of the organizations. Based on business operations, type of industry, creditworthiness and other parameters working capital needs are assessed. For all organizations a single method cannot be applied for assessing the limits. Different methods should be used based on suitability to the organization and acceptability by the Banks.

Objectives of the study

1. To understand the various methods used to assess the maximum working capital limits of different organizations. 2. To learn the different forms of working capital extended by the Banks. 3. To identify the different modes of security acceptable by the Banks for providing working capital finance. 4. To study the importance of adequate working capital. 5. Analysis of case studies pertaining to working capital financing. 6. To identify the different factors those affect the working capital requirement.

Scope of the study

The scope of the study was related to the various methods used by Canara bank. The procedures adopted by the Bank for sanctioning the working capital have been explained with the help of different case studies. The parameters to be analyzed for sanctioning or renewing the credit limit are explained.

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Methodology
Research Design It is a descriptive study consisting of quantitative and qualitative factors. Descriptive research, also known as statistical research, describes data and characteristics about the population or phenomenon being studied. Descriptive research answers the questions who, what, where, when, why and how. Although the data description is factual, accurate and systematic, the research cannot describe what caused a situation. Nature of Data Primary and Secondary. Sources of Data collection Primary Data was collected by interviewing with the Bank employees. Secondary Data was personally collected from the Banks internal sources, official records, annual reports, the Banks website, data released by RBI in its website and management books.

Limitations of the Study

1. Though there was interaction with the Bank employees, more data was taken from secondary sources made available by the Bank. 2. The identity of the real borrower in the case study has been concealed as per the Banks requirement for maintaining the confidentiality. 3. The conclusion and interpretations drawn are based on few cases. Anyhow, different cases would have different situation. 4. Canara Bank has 34 circle offices but study was confined to only Bangalore rural Circle Office, covering 97 branches.

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Analysis and Interpretation

Working capital It is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash. Operating cycle It is the average length of time between when a company purchases items for inventory and when it receives payment for sale of the items. A long operating cycle tends to harm profitability by increasing borrowing requirements and interest expense. The Operating Cycle determines the amount of working capital that a business requires to operate on a day-to-day basis. The shorter the Operating Cycle the lower the amount of working capital required for the business and the greater opportunity for investments in other value-adding activities. The following diagram shows the operating cycle.

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Current Assets Current asset is represents the value of all assets that can reasonably be expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other liquid assets that can be converted readily to cash. Current Ratio Current ratio is liquidity ratio that measures a company's ability to pay short-term obligations. Also known as "liquidity ratio", "cash asset ratio" and "cash ratio". The Current Ratio formula is:

The ratio is mainly used to give an idea of the company's ability to pay back its shortterm liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations.

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The benchmark current ratio for borrowers whose working capital limits are assessed under MPBF & Cash Budget system is 1.33. However in respect of those parties whose working capital limits ate assessed based on Turnover method is 1.25. If the current ratio is less than the bench mark of 1.33 (MPBF/Cash budget system) or 1.25 (Turnover Method) for the concerned financial year, but not less than 1, the limits may be permitted/renewed/enhanced by the respective sanctioning authority within the delegated powers. If the current ratio is less than 1 the sanctioning authority can permit only renewal of the existing limits, based on his/her delegated powers, subject to normal appraisal norms being followed. However in respect of accounts falling under the sanctioning powers of Executive Director/Chairman and Managing Director, the same can be permitted by the respective sanctioning authority.

39

The Bank considers the following factors for assessing the working capital
1. 2. 3. 4. 5. 6. 7. 8. General nature of the business carried. Size of the business. Production cycle of the organization and the industry. Changes in technology, as the advanced technology requires less amount of working capital. Business cycle, cyclical fluctuations like boom and depression affects working capital needs. Credit policy of the organization. Growth and expansion. Operating efficiency of the organization. Dividend policy of the organization.

9.

Adequacy of Working capital

The investment in current assets should be just adequate to the needs of the firm. Both excess working capital and inadequate working capital are dangerous to the firm. Problems of Excessive working capital 1. Low returns on investment as excess funds in current assets remains idle and earn nothing. 2. There is possibility of over capitalization. A firm having excess working capital may be tempted to invest heavily on fixed assets that may not be justified by its actual sales. This results in lower rate of return. 3. It results in unnecessary accumulation of inventories. Thus chances of inventory mishandling increases. 4. Excessive working capital makes management complacent. This may lead to management inefficiency. 5. It is an indication of defective working capital policy. It indicates firms inability to utilize the available resources productively.

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Problems of inadequacy 1. A firm is not in a position to utilize the available production facilities effectively. 2. Inadequacy stagnate growth. It becomes difficult for the firm to undertake profitable project because of non-availability of working capital. 3. It also becomes difficult to implement operational plans of the firm. 4. Operational inefficiencies come up when it is difficult to meet even day to day commitments. 5. Fixed assets are not efficiently utilized because of lack of working capital; the firm's profitability may come down. 6. It makes the firm unable to enjoy attractive credit facilities from creditors and others. 7. In due course of time the firm may lose its reputation.

Importance of adequate working capital 1. It protects the solvency of the firm. Suppliers of goods, customers, creditors and others keep their faith in such a firm that is inn a position to meet its financial obligations promptly. 2. It enables the firm to get the benefits of cash discounts as a firm having sound working capital position can meet its financial obligations promptly. 3. It enables to extend better credit terms to the customers. 4. It helps in achieving stability of the firm. 5. It enables the firm to get easy loans and advances from banks and other financial institutions because of its good credit standard. 6. A firm having adequate working capital can execute rush orders as it can easily purchase additional raw materials and employ additional labor. 7. It provides capacity to hold up inventories. A firm with adequate working capital can wait for better market opportunities by holding up inventories till the prices increase favorably. But, has to sell its products as early as possible. 8. It improves general morale of the employees and creates goodwill for the firm.

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Mode of Security
Banks provide credit on the basis of the following modes of security. 1. Hypothecation Under this, bank provides credit against the security of movable property, usually the inventory of goods. The hypothecated goods continue to be in the possession of the borrower, but the Bank has legal right to realize the outstanding notes. 2. Pledge Goods offered are transferred to the physical position of the lender. The goods will be in the custody of the lender. However, the Bank has to take reasonable care of thee goods. In case of the nonpayment by the borrower, the Bank has the right to sell the goods. 3. Mortgage Under this, security offered is immovable property. It involves transfer of legal interest in the immovable property by an instrument called Mortgage Deed. The Mortgage Deed terminates as soon as the debt is repaid. Mortgage is taken as additional security for working capital credit. 4. Charge Whenever proposals from a corporate entity are received, the financing bank before sanctioning any credit facility is expected to inspect the Register of Charges to find out whether the proposed properties/assets to be charged to the Bank are unencumbered or not. Register for applications pending registration should also be looked into. 5. Margin money Banks do not provide 100% finance. They insist that customers should bring a portion of required finance from other sources. This amount is called as Margin Money.
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Forms of Bank Finance

I.
Inventory Limits (Pre sales) 1. Open Cash Credit (OCC) 2. Simplified OCC for Traders and SSI 3. OCC-Cum loan scheme for traders 4. Key shut cash credit 5. Produce loan 6. Packing credit and clean packing credit 7. Overdraft

II.

Finance against receivables (Post sales) 1. Book debts 2. Bills discounting

III.

Non Fund based limits

1. Letter of credit 2. Bank guarantees 3. Advance payment guarantees 4. Co-acceptance

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I. Inventory Limits
1. Open Cash Credit Open Cash Credit scheme (OCC) is a running credit facility to Micro, Small & Medium Sector entrepreneurs against stocks and receivables. Assessment limit depends on the working capital requirement of the unit assessed as per turnover method/MPBF System/Cash Budget System. OCC is granted against the hypothecation of Raw materials, WIP, Finished Goods and Receivables. Drawings from the account is against Drawing limit arrived based on stocks such as raw materials, work-in-process, finished goods and receivables. Whenever required, Overdraft against Book debts is also permitted against book debt of specific age arising out of genuine trade transactions with Government/Public Sector Undertakings/Joint Stock Companies/firms of repute. Prime security are Stocks, Receivables and Collateral securities are Land and building, plant and machinery plus personal guarantee is obtained whenever applicable. 2. Simplified OCC Simplified OCC is a liberalized credit facility to Small Entrepreneurs who are not in a position to maintain detailed stock books. Purpose is to provide working capital needs of Small Enterprises units. This Facility is available as Running Limit. Maximum limit available is Rs. 5 Lakhs only. Prime securities are assets created out of the credit facility and no collateral security for loans up to Rs.5 Lakhs. 3. OCC cum loan scheme for small traders This scheme is meant for tiny retail traders and small business enterprises like petty shop keepers who are not able to comply with the requirements laid down even under the SOCC scheme such as maintenance of stock books, submission

44

statements etc. The maximum amount of credit facility is Rs. 25,000 per borrower. Stock statements should be submitted once in a year as at 31st March, every year. 4. Produce loan It is an advance against pledge of stock, separate loan account is maintained for advance granted each time. 5. Key Shut Cash Credit This is an advance by way of running account advance is granted as and when goods are pledged. Whenever party wants to relates the goods he has to credit the required amount to Key Shut Cash Credit account. 6. Packing Credit Packing Credit is any loan or advance granted or any other credit provided by the Bank to an exporter for financing the purchase, processing, manufacturing or packing of goods prior to shipment, on the basis of letter of credit opened in his favor or in favor of some other person, by an overseas buyer or a confirmed and irrevocable order for the export of goods from the producing country or any other evidence of an order for export from that country having been placed on the exporter or some other person, unless lodgment of export orders or letter of credit with the bank has been waived. 7. Overdraft Overdraft is an extension of credit from the Bank when an account reaches zero. An overdraft allows the customers to continue withdrawing money even if the account has no funds in it. Basically the bank allows people to borrow a set amount of money.

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II. Finance against receivables

1. Book debts A book debt is a sum of money due to a business in the ordinary course of its business. It has been described as a debt that would normally be entered in the books of the business regardless of whether or not it is in fact entered. Book debts include sums owed to a business for goods or services supplied or work carried out. 2. Bills discounting While discounting a bill, the Bank buys the bill (i.e. Bill of Exchange or Promissory Note) before it is due and credits the value of the bill after a discount charge to the customer's account. The transaction is practically an advance against the security of the bill and the discount represents the interest on the advance from the date of purchase of the bill until it is due for payment

III. Non fund based limits

1. Letter of Credit A Letter of Credit (LC) is a written instrument issued by a Banker (Opening Bank), at the request of a buyer (Applicant) in favor of a seller (Beneficiary), undertaking to honor drafts drawn by the seller in accordance with the terms and conditions specified in the letter of credit. An inland letter is one in which is opened by a Bank at the request of its customer (Buyer) in favor of the seller in the same country. 2. Bank guarantee It is a guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it.

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3. Advance payment guarantee Advance payment guarantees are forms of protection making it possible for buyers to recover an advance payment extended to sellers. If a seller fails to pay according the terms and conditions laid down for governing the purchases of goods/services, then this guarantee comes into play. 4. Co-acceptance The banks constituent strikes deal with his seller to sell goods on credit by drawing usance bill of exchange. The seller draws the bills, they are accepted by the buyer and then co accepted by the buyers banker. The supplier gets the proceeds immediately by discounting the co accepted bills with his banker. Any borrower irrespective of the size of the credit limits can seek this facility. It is not necessary that the borrower should enjoy cash credit facilities with the bank. However, if the borrower does not have any credit facilities, the branch should at, the time of recommending this facility, ensure that proper arrangements are made for retiring the bills. Adequate balance should be available in the current account for retiring the bills.

IV.Short term lending products

Following are the short term facilities that are permitted, selectively, to top rated borrowers, PSU, MNCs etc as per the guidelines evolved by the bank from time to time. 1. Corporate loan scheme. 2. MIBOR Linked product: Mumbai Inter-bank offered rate (MIBOR) is fluctuating in nature and indicates prevailing rates in money market. 3. Short term lending rate. 4. Bills under letter of credit.

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Credit limits could be made available in any of the following methods as required:
1. Sole banking Under this, the entire requirements of the borrower are met by one bank only. 2. Multiple banking arrangements Borrowers can avail any credit facilities from any banks without a formal consortium arrangement. So long as the total credit limits enjoyed by a borrower from the bank is within the permissible resources of a single bank, or within the prudential exposure norms, such facilities can be extended by individual banks without a formal consortium under the Multiple Banking Arrangement. 3. Consortium Arrangement When the amount involved is very large and beyond the permissible resources of a single bank or beyond what a single bank would like to risk under ordinary circumstances on a single borrower beyond the prudential exposure norms. 4. Syndication A syndicated credit is an agreement between two or more lending institutions to provide the borrower credit facility using common loan documentation.

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Assessment of working capital

Assessment is based on: 1. Total study of the business operations. 2. Production and processing cycle of the industry. 3. Financial and managerial capability of the borrower and the various parameters relating the unit and the industry. Norms for Working capital assessment are made depending upon the quantum of finance required, segment of the borrower, prevailing mandatory instructions by RBI and trade and industry practice prevailing.

Methods of assessment
Working capital requirements of a unit would be assessed by adopting various methods like Turnover Method, Maximum Permissible Bank Finance (MPBF) System, and Cash Budget System, depending on the type of activity.
1. 2. 3.

Turnover Method Maximum Permissible Bank Finance Cash Budget system

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1. Turnover Method
Origin of this method is traced to the P R Nayak Committee recommendations which were reviewed by the Vaz Committee. The working capital limit is computed at 20% of the projected gross sales accepted by the bank. The Projected sales is computed based on the sales for the previous periods and demands for the products. For SSI borrowers, fund based working capital facilities are assessed up to Rs. 5 crores under Turnover Method or MPBF system at the option of the borrower. For non SSI borrowers, fund based working capital limit up to Rs. 2 crores can be assessed under this method. This system is made applicable to traders, merchants and exporters who are not having a pre determined manufacturing/trading cycle. However, even such borrowers can opt for MPBF system, if the same is more suitable for assessing the working capital needs and is advantageous to them. Under this method branches/offices shall ensure maintenance of a minimum margin on the projected annual sales turnover i.e. 25% of the estimated gross sales turnover value is provided as working capital requirement, of which 20% is provided by the bank and the balance 5% is by way of promoters contribution towards margin money. However, if the available Net Working Capital is more, the same is reckoned for assessing the extent of bank finance and lower limits can be considered. As the working capital requirements are linked to projected sales turnover, branches should satisfy themselves about the reasonableness of the projected annual turnover of the applicant. This should be done with reference to the past performance of the units, as reflected in the audited financial statements, the orders on hand, installed capacity of the units, power, availability of raw material and other inputs and infrastructural facilities. In case of new units the branches should ensure that the projections made are realistic by analyzing the installed capacity, availability of infrastructural facilities, marketability of the product and performance of similar units in the industry, background of the promoters and
50

such other factors relevant to a particular unit. In case where the actual performance of the unit exceeds the projected level accepted by the bank and the assessed working capital is found to be inadequate, the branches should reassess the working capital needs of the units and additional limits should be permitted in tune with the actual requirements of the unit.

2. Maximum Permissible Bank Finance

Assessment of working capital limits over Rs. 2 crores for Non SSI borrowers and over Rs.5 crores for SSI borrowers, but up to Rs. 25 crores is assessed based on MPBF system. For limits of over Rs. 25 crores, credit facilities may be assessed on the basis of MPBF or Cash Budget System, at the option of the borrower. The assessment of credit requirement of the party is based on the total study of the borrowers business operations via-a-via the production/processing cycle of the industry which shall represent a reasonable build up of current assets for being supported by bank finance. Based on Kannan Committee recommendations RBI has allowed freedom to the banks to decide holding levels of various components of current assets for financial support to ensure efficient functioning of the unit. 10% of tolerance level is allowed on the assessed MPBF. Classification of Current Assets and Current Liabilities: A few important classifications are given below; a. All short term/temporary investment in money market instruments like commercial papers, certificate of deposits can be considered as current assets. However, other investments like Inter Corporate Deposits (ICD), instruments in listed shares and debentures including investments in subsidiaries and associations are to be considered as noncurrent assets. b. Cash margin for non fund based limits (like Letter of Credit, Guarantees) may be treated as part of current assets for the purpose of MPBF and current ratio. However, such margin held for deferred payment guarantees should be considered as noncurrent assets.

51

c. All term loan installments (FDs, Debenture, etc.) repayable within next 12 months should be considered as current liability for computation of current ratio and MPBF. d. Inter Corporate Deposits are to be treated as current liability. Tandon Committee has recommended 3 methods to arrive at the MPBF. As per the recommendations of Tandon Committee, the corporate should be discouraged from accumulating too much of stocks of current assets and should move towards very lean inventories and receivable levels. The committee even suggested the maximum levels of Raw Material, Stock-in-process and Finished Goods which a corporate operating in an industry should be allowed to accumulate. These levels were termed as inventory and receivable norms. Depending on the size of credit required, the funding of these current assets (working capital needs) of the corporate could be met by one of the following methods: First Method of Lending Banks can work out the working capital gap, i.e. total current assets less current liabilities other than bank borrowings (called Maximum Permissible Bank Finance or MPBF) and finance a maximum of 75 per cent of the gap; the balance to come out of long-term funds, i.e., owned funds and term borrowings. This approach was considered suitable only for very small borrowers i.e. where the requirements of credit were less than Rs.10 lakhs. Second Method of Lending Under this method, it was thought that the borrower should provide for a minimum of 25% of total current assets out of long-term funds i.e., owned funds plus term borrowings. A certain level of credit for purchases and other current liabilities will be available to fund the buildup of current assets and the bank will provide the balance (MPBF). Consequently, total current liabilities inclusive of bank borrowings could not exceed 75% of current assets. RBI stipulated that the working capital needs of all borrowers enjoying fund based credit facilities of more than Rs. 10 Lakhs should be appraised (calculated) under this method.
52

Third Method of Lending Under this method, the borrower's contribution from long term funds will be to the extent of the entire Core Current Assets, which has been defined by the Study Group as representing the absolute minimum level of raw materials, process stock, finished goods and stores which are in the pipeline to ensure continuity of production and a minimum of 25% of the balance current assets should be financed out of the long term funds plus term borrowings. (This method was not accepted for implementation and hence is of only academic interest).

3. Cash Budget System

Cash budget is an estimation of the cash inflows and outflows for a business or individual for a specific period of time. Cash budget is a detailed plan showing how cash resources will be acquired and used over some specific time period. Cash budgets are often used to assess whether the entity has sufficient cash to fulfill regular operations and/or whether too much cash is being left in unproductive capacities. A cash budget is extremely important as it allows a company to determine how much credit it can extend to customers before it begins to have liquidity problems. This method is applied where borrowers require credit facilities of over Rs. 25 crores. MPBF system can also be applied for assessing the requirement of over Rs. 25 crores at the option of the borrowers. However, in case of specific industries/seasonal activities such as construction activity, tea and sugar, the system of assessment based on cash budget is adopted.

53

Cash Flow Statement It is a summary of receipts and disbursements of cash for a particular period of time. It also explains reasons for the changes in cash position of the firm. Cash flows are cash inflows and outflows. Transactions which increase the cash position of the entity are called as inflows of cash and those which decrease the cash position as outflows of cash. Cash flow Statement traces the various sources which bring in cash such as cash from operating activities, sale of current and fixed assets, issue of share capital and debentures etc. and applications which cause outflow of cash such as loss from operations, purchase of current and fixed assets, redemption of debentures, preference shares and other long-term debt for cash. In short, a cash flow statement shows the cash receipts and disbursements during a certain period. The statement of cash flow serves a number of objectives which are as follows: Cash flow statement aims at highlighting the cash generated from operating activities. Cash flow statement helps in planning the repayment of loan schedule and replacement of fixed assets, etc. Cash is the centre of all financial decisions. It is used as the basis for the projection of future investing and financing plans of the enterprise. Cash flow statement helps to ascertain the liquid position of the firm in a better manner. Banks and financial institutions mostly prefer cash flow statement to analyze liquidity of the borrowing firm. Cash flow Statement helps in efficient and effective management of cash. The management generally looks into cash flow statements to understand the internally generated cash which is best utilized for payment of dividends. Cash Flows are inflows and outflows of cash and cash equivalents. The statement of cash flow shows three main categories of cash inflows and cash outflows, namely; operating, investing and financing activities.

54

1. Operating activities are the principal revenue generating activities of the enterprise. Cash flow from operating activities is primarily derived from the principal revenue generating activities of the enterprise. A few items of cash flows from operating activities are; Cash receipt from the sale of goods and rendering services. Cash receipts from royalties, fee, Commissions and other revenue. Cash payments to suppliers for goods and services. Cash payment to employees. Cash payment or refund of Income Tax.

2. Investing activities include the acquisition and disposal of long term assets and other investments not included in cash equivalents. Investing Activities refer to transactions that affect the purchase and sale of fixed or long term assets and investments. Examples of cash flow arising from investing activities are; Cash payments to acquire fixed Assets. Cash receipts from disposal of fixed assets. Cash payments to acquire shares, or debenture investment. Cash receipts from the repayment of advances and loans made to third parties.

Thus, Cash inflows from investing activities are, Cash sale of plant and machinery, land and Building, furniture, goodwill etc. Cash sale of investments made in the shares and debentures of other companies. Cash receipts from collecting the Principal amount of loans made to third parties. Cash outflow from investing activities are; Purchase of fixed assets i.e. land, Building, furniture, machinery etc. Purchase of Intangible assets i.e. goodwill, trade mark etc. Purchase of shares and debentures. Purchase of Government Bonds.
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3. Financing activities are activities that result in change in the size and composition of the owners capital (including Preference share capital in the case of a company) and borrowings of the enterprise. The third section of the cash flow statement reports the cash paid and received from activities with non-current or long term liabilities and shareholders Capital. Examples of cash flow arising from financing activities are; Cash proceeds from issue of shares or other similar instruments. Cash proceeds from issue of debentures, loans, notes, bonds, and other shortterm borrowings. Cash repayment of amount borrowed.

Cash Inflows from financing activities are; Issue of Equity and preference share capital for cash only. Issue of Debentures, Bonds and long-term note for cash only

Cash outflows from financing activities are; Payment of dividends to shareholders. Redemption or repayment of loans i.e. debentures and bonds. Redemption of preference share capital. Buy back of equity shares.

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Format for Cash flow Statement for the year ended.............. (i) Cash flow from operating activities A. Operating cash receipts B. Less: Operating cash payment C. Cash generated from operation (A B) D. Less: Income tax paid (Net of tax refund received) E. Cash flow before extraordinary items F. Adjusted extraordinary items (+/)/Receipt/payment G. Net cash flow from (or used in) operating activities (ii) Cash flow from investing activities (iii) Cash flow from financing activities (iv) Net increase/decrease in cash and cash equivalents (i + ii + iii) (v) Add: cash and cash equivalent in the beginning of the year (vi) Less: cash under cash equivalent in the end of the year xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx XXX

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The following are to be clarified while fixing the limits based on the cash budget. 1. The cash budget is realistic and based on the operations in the business/similar business. 2. The cash budget statement tallies with the underlying financial statements viz. Balance Sheet and Profit and Loss A/c. 3. Outstanding bank borrowing figured in the projected Balance Sheet tallies with the deficit as shown in the cash budget statement. 4. The closing balance of debtors is correctly arrived at summing up (Opening balance of debtors + Credit sales-Realization of Debtors). 5. The expenses as indicated in the cash budget tallies with the expenses as reflected in the projected Profit and Loss A/c. The assessment of working capital limits is done based on the projected cash flow statement, profitability statement and projected Balance Sheet. Wherever there is no deficit in operating cycle and net deficit is only due to investing/financing cycles, such deficit is not financed. Branches should obtain the required details at least one month before the commencement of the year for which the assessment is to be made.

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Case Study I
Application for sanction of working capital limit: Rs. 15 Lakhs (Renewal). Nature of limit: OCC. Margin: 40% on consumables & 40% on debtors. Security: Plant and Machinery, and Hypothecation of Stocks & Receivables. The unit is engaged in anodizing aluminium panel. It gets orders on contract basis. The company gets orders from different customers and do the anodizing process and deliver it to the party. Anodizing is a process of coating on aluminium panels. Working capital requirement of the unit is mainly to meet their expenses for consumables and against amount locked up as debtors. Findings while the Unit visit: Operating cycle in relation to unit, The trade activity starts from picking material on behalf of customers, anodizing (executing work order) and delivering it to the customers. Consumables are held for 3 months. The unit allows 45 days to 60 days credit to the customers. The duration of the operating cycle differs from one order to another; normally it takes 4 days to 5 days. The Unit use some of the materials like Sulphuric acid and Nitric acid which has to be purchased 2-3 days before order execution. The unit avails 90 days credit from creditors.

Working capital limit is assessed on Turnover Method. The Unit has opted for it as it befits them. The Units main activity is anodizing. The holding level of inventory is less. The unit is satisfied with the Banks finance.

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Balance Sheet of AB Coaters (P) Ltd. As on 31/3/2011 Particulars Sources of funds Shareholders fund Share capital Share application money Reserves and surplus Loan Fund Secured loan Unsecured loan 31/3/2010 Previous 31/3/2011 Current 31/3/2012 Projected

2000000.00 1000000.00 -

2000000.00 1000000.00 1650507.34

2000000.00 1000000.00 3600000.00

8822615.95 7074990.55 5200000.00 2745154.70 2670154.70 2670000.00 Total 14567770.65 14395652.59 14470000.00

Application of funds Fixed assets 11787742.41 10367101.64 9900000.00 Investments 3000.00 3000.00 3000.00 Current assets, loans and advances Cash in hand 91468.00 86744.50 50000.50 Cash at bank 319557.22 200000.00 Deposit 442139.00 1645207.05 1935000.00 Loans and Advances 324948.00 631560.00 600000.00 Sundry debtors 1885443.09 2555900.08 2847000.00 Closing stock 410636.00 535319.55 600000.00 Total (A) 3154634.09 5774288.40 6232000.00 Sundry creditors, Current liabilities & Provisions Sundry creditors 171475.80 419428.20 300000.00 Current liabilities & Provisions 722962.79 1425994.25 1500000.00 Total (B) 894438.59 1845422.45 1800000.00 Net Current Assets (A-B) 2260195.50 3928865.95 4432000.00 Deferred tax asset 62323.00 71497.00 95000.00 miscellaneous expenditure 454509.74 25188.00 40000.00 Total 14567770.65 14395652.59 14470000.00

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P & L A/c for the year ended 31/3/2011 Particulars 31/3/2010 Previous 31/3/2011 Current 31/3/2012 Projected

Income 1. Anodizing & Other charges 10015421.32 16634391.12 20000000.00 2. Other income 160777.30 170695.05 200000.00 Total (A) 10176198.62 16805086.17 20200000.00 Expenditure 3. Consumables utilized 2008789.94 3148534.92 4000000.00 4. Processing costs 2283319.02 2693671.50 3200000.00 5. Employee costs 2046327.00 3171393.00 3800000.00 6. Operation & Other expenses 2244786.20 3279837.10 3934000.00 Total (B) 8583222.16 12293436.50 14934000.00 PBIDT (A-B) 1592976.46 4511649.64 5266000.00 7. Interest & Finance charges 978751.95 971063.00 900000.00 8. Depreciation 1137985.85 1707122.77 1468000.00 9. Preliminary expenses written off 12594.00 12594.00 50000.00 PBT -536355.32 1820869.88 2848000.00 10. Provision for Taxes Current tax 346741.00 800000.00 Differed tax Asset 223573.00 9174.00 2000.00 Fringe benefits Tax 37923.99 47903.00 50000.00 11. Net Profit/(Loss) -350706.31 1435399.88 2000000.00 12. Balance b/f -66021.43 -416727.74 13. Balance carried to Balance Sheet -416727.74 1018672.14 2000000.00

Key Information Particulars Current ratio Gross profit: Sales Net profit: Sales Net sales (Rs. In Lakhs) PBDIT (Rs. In Lakhs) PBT (Rs. In Lakhs) PAT (Rs. In Lakhs) NWC (Rs. In Lakhs) Net worth (Rs. In Lakhs) 2011 1.21 0.27 0.08 165.59 45.11 18.2 14.35 8.98 36.26 2010 0.61 0.16 100.15 15.93 -5.36 -3.51 -14.22 15.45

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Interpretations: There is an increase in the current ratio from .61 in 2010 to 1.21 in 2011. Though the ratio is below the benchmark of 1.25, it is satisfactory. Net worth of the company has increased by Rs. 20.18 Lakhs for the year ended 2011 due to the retention of earnings in the system. Net working capital increased from Rs. -14.22 Lakhs to Rs. 8.96 Lakhs for the year 2011. Electricity and staff salary are the main expenses of the Unit.

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Assessment of working capital Based on Turnover Method (Rs. In Lakhs) Amount 200.00 50.00

Particulars Amount Accepted projected annual gross sales 25% of the above Less: Minimum margin by the party 5% of projected sales 10.00 or NWC of previous year 8.98 (Whichever is higher) Bank finance

10.00 40.00

Calculation of NWC Calculation of NWC Particulars Current assets Debtors(less than 6 months) Closing stock Cash and Bank Deposit Advances Deferred Tax Total (A) Current liabilities Sundry creditors current liabilities & Provisions Canara Bank OD Loan installment in 12 months Total (B) NWC (Rs. In Lakhs) 2010 2011 14.72 4.10 0.91 1.00 1.49 0.62 22.84 1.71 7.23 14.30 13.83 37.07 23.47 5.35 4.06 13.05 5.27 0.71 51.91 4.19 14.26 10.67 13.83 42.95 8.96

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Based on MPBF (Rs. In Lakhs) Current Assets Debtors Closing stock Cash Bank Deposits Total (A) Current liabilities Sundry creditors Current liabilities & Provisions Total (B) WC Gap (A-B) Less: 25% of Current assets MPBF 28.47 6 0.5 2 15.95 52.92 3 15 18 34.92 13.23 21.69

Conclusion: Under Turnover method as well as MPBF method the customer is eligible for higher working capital limits. However, the party has asked only for the renewal but not for enhancement. The Bank has financed Rs. 15 Lakhs. When compared both the methods, limit under Turnover method is more.

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Case Study II
Name: ABC Fuels Application for sanction of working capital limit: Rs. 35 Lakhs (Renewal) Nature of limit: OCC Margin: 35% on Stocks and Debtors Security: Hypothecation of Stocks & Receivables Final accounts of ABC Fuels are given below.

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Trading and P & L A/c for the year ended 31/3/2011 Particulars 1 Opening Stock 2 Purchases 12.5% VAT purchases Exempted purchases 3 Sales 12.5% VAT sales Exempted sales 4 Closing stock 5 Gross profit (3+4)-(1+2) 6 Rental income from HPCL 7 Total (5+6) 8 Operating expenses Accounting charges Audit fees Staff uniform & Welfare Books & periodicals Electricity charges General expenses Profession Tax Salaries Postages Telephone charges Bank interest & charges Insurance Rent paid to site owner 9 Net Profit (7-8) 10 Total (8+9) 2010 2011 2012 Previous Current Projected 395859.00 1916597.51 321797.00 20016102.00 263443.00 20114685.00 395859.00 436088.00 180000.00 616088.00 6000.00 10000.00 3600.00 1210.00 4960.00 3162.00 2500.00 60000.00 368.00 4610.00 125396.00 17682.00 180000.00 196600.00 616088.00 362745.00 400000.00 34387149.00 35000000.00 374002.00 400000.00 33582922.00 36910574.51 1916597.51 849205.00 727768.51 843482.00 180000.00 180000.00 907768.51 1023482.00 12000.00 10000.00 5420.00 1560.00 8190.00 7120.00 2500.00 72000.00 410.00 6630.00 305856.51 17682.00 180000.00 278400.00 907768.51 12000.00 10000.00 60000.00 1800.00 9000.00 8000.00 2500.00 90000.00 500.00 7000.00 325000.00 17682.00 180000.00 300000.00 1023482.00

Capital A/c as on 31/3/2011 Particulars Balance b/d Add: Net profit share of profit Less: Drawings TDS Bank OD interest Balance c/d 2010 1021193 196600 7200 60000 30540 150000 984453 2011 984453 278400 7400 72000 30588 300000 867665 2012 867665 300000 7500 80000 31000 350000 714165
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Balance Sheet as on 31/3/2011 Particulars Liabilities Capital A/c Secured Loan Canara Bank OD Current Liabilities Audit fees payable Total Assets Fixed assets Gold Jewellery Deposit Security deposit in HPCL Telephone deposit Current assets Stock in trade VAT refundable Moidu Tiles & Brick Ind Bharath Hardware KGF Moidu Jowar Cash & Bank Balance Total 2010 2011 2012 Previous Current Projected 984453 4200692 10000 5195145 867665 4798359 10000 5676024 714165 3500000 10000 4224165

46000 200000 2000

46000 200000 2000

46000 200000 2000 849205 6000 300000 580000 2119230 121730 4224165

395859 1916597.51 7292 5212 300000 300000 580000 580000 2119230 2119230 1544764 506984.49 5195145 5676024

Key Information Particulars Current ratio Gross profit: Sales Net profit: Sales Net sales (Rs. In Lakhs) NWC (Rs. In Lakhs) Net worth (Rs. In Lakhs) Gross profit Closing stock 2011 0.51 2.14 2.78 339.57 -23.79 8.68 7.27 19.16 2010 0.45 2.14 1.97 203.78 -22.62 9.84 4.36 3.96

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Interpretation: There is reduction in Net Worth from the year 2010 to 2011 as there is increase in drawings. Sales have increased over the previous year (66.64%). Net profit has increased. The % of net profit to gross sales has been reduced marginally due to increase in the operating expenses. One of the important aspects that should be noticed is that Bank OD interest is charged in Capital A/c instead of P & L A/c. If the Bank OD is charged in P&L A/c, it will bring down the profit. Investments in subsidies are shown under current assets, which are treated as non-current assets. Assessment of Working Capital Under Turnover Method Particulars Accepted projected annual gross sales 25% of the above Less: Minimum margin by the party 5% of projected sales or NWC of previous year (Whichever is higher) Bank finance Under MPBF (Rs. In Lakhs) Current Assets Stocks VAT refund Cash Total (A) Current Liabilities Audit fees Total (B) WC Gap (A-B) Less: 25% of CA MPBF 8.49 0.06 1.22 9.77 0.1 0.1 9.67 2.4425 7.2275 (Rs. In Lakhs) Amount Amount 373.11 93.28 18.65 23.79

23.79 69.49

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Case Study III

Name: B Poultry Farm (P) Ltd. Limit: Rs.106.06 Lakhs Nature of limit: OCC Margin: 35% Purpose: To meet the working capital requirement for purchase of feed, medicine etc.

Observations during the unit visit: Raw material required for 2 months were stored. All the sales made by the unit were cash sales and thus they did not have any debtors. Interest rate is 12.5% which is paid once in 6 months.

Operating cycle in relation to the Unit Trade activity starts from procuring day to day old chicks for the purpose of producing and selling eggs. Day old chicks are fed. Birds start hatching eggs after 25th week and the life span of a bird ranges between 68 to 75 weeks. Stock of feed are purchased for cash and are held for 2 months. The birds start laying eggs from the 25th week, once then unit will be receiving the sale proceeds. The operating cycle ends when birds lose their fertility, after which they are sold.

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Balance Sheet as on 31/3/2011 Particulars 31/3/2011 31/3/2010 Sources of fund Share holders fund a. share capital 500000 500000 b. Advance towards share capital 7085000 7085000 Loan Fund a. Secured loan 31259488 28836338 Total Funds 38844488 36421338 Application on funds Fixed assets Gross Block 16864014 18721566 Less: Depreciation 1916459 1857552 Net block 14947555 16864014 Current assets & Loans & Advances 24067111 17636104 Less: Current liabilities & Provisions 761463 534473 Net Current Assets 23305648 17101631 P&L A/c Dr. balance 2455693 1045184 Add: Profit/Loss 1864407.81 -1410509 P&L A/c Dr. balance 591285.19 2455693 Total Assets 38844488 36421338

P&L A/c for the year ended 31/3/2011 Particulars Income Culling of birds Sale of eggs Other income Total Expenditure Cost of birds, feed Personnel Administration expenses Maintenance expenses Depreciation Total Net Profit/Loss 31/3/2011 2985235.00 50607529.00 2353789.00 55946553.00 41202874.00 3594427.00 5324030.00 2044355.00 1916459.19 54082145.19 1864407.81 31/3/2010 5398795.00 9470035.00 1903457.00 16772287.00 10396275.00 2222371.00 2458573.00 1248025.00 1857552.00 18182796.00 -1410509.00

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As poultry business comes under agriculture sector, the assessment is based on total cost of the chick and expenditure. (Rs. In Lakhs) Amount 88.32 67.13 6.74 0.98 163.17 57.1095 106.0605

Particulars Chick cost (69000 chicks @128) Stock of feed ingredients Finished feed stock Stock of medicines Total Current Assets Less: Margin 35% Working capital limit 65%

Sanctioned amount is Rs. 106.0605 Lakhs.

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Findings
1. Growth of the organization may not be projected accurately. In one of the cases analysed, the Bank had under assessed the projected sales. The sales grew at 66%. 2. Some of the parties inflate Balance Sheet to show the favourable ratios. Hence, the quality of the components of ratios is given more importance. 3. In one of the cases, bank OD interest was debited to Capital A/c to inflate the net profit which indicates that the funds have been diverted for some other purposes. 4. Working capital needs are assessed according to the industry standards. For poultry, assessment was made based on costs and other expenses.

Suggestions
1. Bank has to educate its customers especially large borrowers regarding the various products and services of the Bank. 2. Though RBI guidelines and Right to Information details are available on the Banks website, all customers will not be interested to go through them. A better means of communication to its customers is required.

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Conclusion

Canara Bank was established in 1906. Since then it has been successfully carrying out its activities. The company is known for its systematic of the business. All the departments in the organization are well equipped with the modern technology and controlled by competent persons. Most of the clerical work is done by using computers that saves time and energy. The Bank has created friendly atmosphere for the employees and gives them freedom to work freely. The Bank also gives many benefits from its various schemes and keeps the employees happy. It believes that happy work force is the foundation of a prosperous company. The Bank follows various methods for assessing the working capital needs of the companies depending on the industry standards. Analysis of financial statements is considered very important for the projections and accuracy is based on the level of understanding and interpretation of the statements. The Bank is providing working capital to all sectors of Indian Economy.

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