SWATI SAHAY A Summer PROJECT REPORT ON “WORKING CAPITAL IN ICICI BANK OF INDIA” In Partial Fulfillment of the Post Graduate Diploma in Management RCMA, Bhubaneswar (Batch- 2010-12) SUBMITTED TO SUBMITTED BY FACULTY GUIDE SWATI SAHAY Mr. R.K.MISHRA REG NO:- 1001247129 LECTUER IN FINANCE RCMA (BHUBANESWAR) CORPORATE GUIDE :- Mr.RAJESH SRIVASTAV (MANAGER IN FINANCE) ICICI Bank, PATNA 1
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SWATI SAHAY
A
Summer PROJECT REPORT
ON
“WORKING CAPITAL IN ICICI BANK OF INDIA”
In Partial Fulfillment of the Post Graduate Diploma in Management RCMA, Bhubaneswar (Batch- 2010-12)
SUBMITTED TO SUBMITTED BY
FACULTY GUIDE SWATI SAHAY
Mr. R.K.MISHRA REG NO:- 1001247129LECTUER IN FINANCERCMA (BHUBANESWAR)
I AM SATISFIED WITH HIS SINCERE PERFORMANCE AND STUDYI AM SATISFIED WITH HIS SINCERE PERFORMANCE AND STUDY
CONDUCTED BY HER IN ICICI BANK OF LIMITED.CONDUCTED BY HER IN ICICI BANK OF LIMITED.
I RECOMMEND SUBMITTING THE PROJECT REPORT. I WISH HIM ALLI RECOMMEND SUBMITTING THE PROJECT REPORT. I WISH HIM ALL
SUCCESS IN LIFE.SUCCESS IN LIFE.
THIS IS ALSO CERTIFIED THAT THE PROJECT WORK IS ORIGINAL ANDTHIS IS ALSO CERTIFIED THAT THE PROJECT WORK IS ORIGINAL AND
HAS NOT BEEN SUBMITTED TO ANY OTHER PLACE.HAS NOT BEEN SUBMITTED TO ANY OTHER PLACE.
DATE: DATE:
R.K. MISHRAR.K. MISHRA
FACULTY IN FINANCE FACULTY IN FINANCE
RCMA(BHUBANESWAR)RCMA(BHUBANESWAR)
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SWATI SAHAY
DECLARATION
I HEREBY DECLARE THAT THE FOLLOWING DOCUMENTED PROJECTI HEREBY DECLARE THAT THE FOLLOWING DOCUMENTED PROJECT
REPORT TITLED “REPORT TITLED “WORKING CAPITAL MANAGEMENT IN BANKINGWORKING CAPITAL MANAGEMENT IN BANKING
SECTORSECTOR" IS AN AUTHENTIC WORK DONE BY ME AS A PART OF MY" IS AN AUTHENTIC WORK DONE BY ME AS A PART OF MY
STUDY ON FINANCE.STUDY ON FINANCE.
I ALSO FURTHER STATE THAT THE PROJECT HAS BEEN PREPARED BY MYI ALSO FURTHER STATE THAT THE PROJECT HAS BEEN PREPARED BY MY
OWN WITH THE SECONDARY DATA PROVIDED IN THE REPORTS OF THEOWN WITH THE SECONDARY DATA PROVIDED IN THE REPORTS OF THE
COMPANY, WHICH WERE ESSENTIAL FOR THE COMPLETION OF THECOMPANY, WHICH WERE ESSENTIAL FOR THE COMPLETION OF THE
PROJECT. THE PROJECT WAS UNDERTAKEN AS A PART OF THE COURSEPROJECT. THE PROJECT WAS UNDERTAKEN AS A PART OF THE COURSE
CURRICULUM OF PGDM PROGRAMME, RCMA,BHUBANESWAR. THIS HASCURRICULUM OF PGDM PROGRAMME, RCMA,BHUBANESWAR. THIS HAS
NOT BEEN SUBMITTED TO ANY OTHER EXAMINATION BODY EARLIER. NOT BEEN SUBMITTED TO ANY OTHER EXAMINATION BODY EARLIER.
SWATI SAHAYSWATI SAHAY
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SWATI SAHAY
INDEX
CONTENTS PAGE NO.
1. EXECUTIVE SUMMARY ………………………….. ………… 7.
2. INTRODUCTION TO INDUSTRY…………………………… 11.
3. COMPANY PROFILE……………………………………………31.
3.1 PRODUCTS AND SERVICES………………………. 42
3.2 SWOT ANLYSIS……………………………………… 45
3.3 FINANCIAL STATEMENT……………………. ……47
4. REVIEW OF LITERATURE
4.1 WORKING CAPITAL OVERVIEW………………...51
4.2 CASH MANAGEMENT…………………………… 56
5. RATIO ANALYSIS………………………………………………66
6. FINDINGS AND SUGGESSTION ……………………………...78
7. CONCLUSION………………………………………………….. 81
8. BIBILOGRAPHY………………………………..……………….82
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SWATI SAHAY
EXECUTIVE SUMMARY
INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA BANKINDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA BANK
(ICICI) IS THE LEADING PRIVATE BANK IN INDIA. ESTABLISHED IN(ICICI) IS THE LEADING PRIVATE BANK IN INDIA. ESTABLISHED IN
1955(AS INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF1955(AS INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF
INDIA).1994, ICICI ESTABLISHED BANKING CORPORATION AS A BANKINDIA).1994, ICICI ESTABLISHED BANKING CORPORATION AS A BANK
SUBSIDIARY FORMERLY INDUSTRIAL CREDIT AND INVESTMENTSUBSIDIARY FORMERLY INDUSTRIAL CREDIT AND INVESTMENT
CORPORATION OF INDIA. LATER ICICI BANKING CORPORATIONCORPORATION OF INDIA. LATER ICICI BANKING CORPORATION
RENAMED AS ‘ICICI BANK LIMITED’. ICICI BANK’S EQUITY SHARE ISRENAMED AS ‘ICICI BANK LIMITED’. ICICI BANK’S EQUITY SHARE IS
LISTED IN NSE AND BSE, AND ITS AMERICAN DEPOSITORY RECEIPTS ARELISTED IN NSE AND BSE, AND ITS AMERICAN DEPOSITORY RECEIPTS ARE
LISTED IN NEW YORK STOCK EXCHANGE. ICICI BANK’S IS INDIA SECONDLISTED IN NEW YORK STOCK EXCHANGE. ICICI BANK’S IS INDIA SECOND
LARGEST BANK WITH TOTAL ASSETS OF RS. 4,062.34 BILLION (US$ 91LARGEST BANK WITH TOTAL ASSETS OF RS. 4,062.34 BILLION (US$ 91
BILLION) AT MARCH 31, 2011 AND PROFIT AFTER TAX RS. 51.51 BILLIONBILLION) AT MARCH 31, 2011 AND PROFIT AFTER TAX RS. 51.51 BILLION
(US$ 1,155 MILLION) FOR THE YEAR ENDED MARCH 31, 2011. THE BANK(US$ 1,155 MILLION) FOR THE YEAR ENDED MARCH 31, 2011. THE BANK
HAS A NETWORK OF 2,543 BRANCHES AND ABOUT 7,037 ATMS IN INDIA,HAS A NETWORK OF 2,543 BRANCHES AND ABOUT 7,037 ATMS IN INDIA,
AND HAS A PRESENCE IN 19 COUNTRIES, INCLUDING INDIA. ICICI BANKAND HAS A PRESENCE IN 19 COUNTRIES, INCLUDING INDIA. ICICI BANK
IS LARGEST ISSUER OF CREDIT CARD IN INDIA.IS LARGEST ISSUER OF CREDIT CARD IN INDIA.
THE BANK IS EXPANDING RAPIDLY IN OVERSEAS MARKETS. ITTHE BANK IS EXPANDING RAPIDLY IN OVERSEAS MARKETS. IT
HAS OPERATIONS IN THE UK, HONG KONG AND CANADA. IT ACQUIRED AHAS OPERATIONS IN THE UK, HONG KONG AND CANADA. IT ACQUIRED A
SMALL BANK IN RUSSIA RECENTLY. IT HAS TIE-UPS WITH MAJOR BANKSSMALL BANK IN RUSSIA RECENTLY. IT HAS TIE-UPS WITH MAJOR BANKS
IN THE US AND CHINA. THE BANK IS AGGRESSIVELY TARGETING THEIN THE US AND CHINA. THE BANK IS AGGRESSIVELY TARGETING THE
NRI POPULATION FOR EXPANDING ITS BUSINESS. IT ALREADY OFFERSNRI POPULATION FOR EXPANDING ITS BUSINESS. IT ALREADY OFFERS
MONEY TRANSFER FACILITIES TO INDIA FROM MOST MAJOR COUNTRIESMONEY TRANSFER FACILITIES TO INDIA FROM MOST MAJOR COUNTRIES
ACROSS THE GLOBE. ICICI ALONG WITH UTI SETS UP CREDIT RATINGACROSS THE GLOBE. ICICI ALONG WITH UTI SETS UP CREDIT RATING
INFORMATIONINFORMATION SERVICES OF INDIA LIMITED, (CRISIL) INDIA'S FIRSTSERVICES OF INDIA LIMITED, (CRISIL) INDIA'S FIRST
PROFESSIONAL CREDIT RATING AGENCYPROFESSIONAL CREDIT RATING AGENCY
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SWATI SAHAY
THE WORKING CAPITAL RATIO IS CALCULATED AS:THE WORKING CAPITAL RATIO IS CALCULATED AS:
POSITIVE WORKING CAPITAL MEANS THAT THE COMPANY IS ABLE TOPOSITIVE WORKING CAPITAL MEANS THAT THE COMPANY IS ABLE TO
PAY OFF ITS SHORT-TERM LIABILITIES. NEGATIVE WORKING CAPITALPAY OFF ITS SHORT-TERM LIABILITIES. NEGATIVE WORKING CAPITAL
MEANS THAT A COMPANY CURRENTLY IS UNABLE TO MEET ITS SHORT-MEANS THAT A COMPANY CURRENTLY IS UNABLE TO MEET ITS SHORT-
TERM LIABILITIES WITH ITS CURRENT ASSETS (CASH, ACCOUNTSTERM LIABILITIES WITH ITS CURRENT ASSETS (CASH, ACCOUNTS
RECEIVABLE ANDRECEIVABLE AND INVENTORY).WORKING CAPITAL ALSO GIVESINVENTORY).WORKING CAPITAL ALSO GIVES
INVESTORS AN IDEA OF THE COMPANY’S UNDERLYING OPERATIONALINVESTORS AN IDEA OF THE COMPANY’S UNDERLYING OPERATIONAL
EFFICIENCY. MONEY THAT IS TIED UP IN INVENTORY OR MONEY THATEFFICIENCY. MONEY THAT IS TIED UP IN INVENTORY OR MONEY THAT
CUSTOMERS STILL OWE TO THE COMPANY CANNOT BE USED TO PAYCUSTOMERS STILL OWE TO THE COMPANY CANNOT BE USED TO PAY
OFF ANY OF THE COMPANY’S OBLIGATIONS.OFF ANY OF THE COMPANY’S OBLIGATIONS.
TO MEASURE EFFICIENCY WE HAVE USED RATIO ANALYSIS ASTO MEASURE EFFICIENCY WE HAVE USED RATIO ANALYSIS AS
A TECHNIQUE AND THE MAIN RATIO WE HAVE USED ARE LIQUIDITYA TECHNIQUE AND THE MAIN RATIO WE HAVE USED ARE LIQUIDITY
RATIO AND ACTIVITIES RATIO. ONE MORE TOOL WE HAVE USED ISRATIO AND ACTIVITIES RATIO. ONE MORE TOOL WE HAVE USED IS
CALCULATION OF OPERATING CYCLE WHICH SHOWS HOW EFFECTIVELYCALCULATION OF OPERATING CYCLE WHICH SHOWS HOW EFFECTIVELY
THE FIRM IS USING ITS RESOURCES OR HOW MUCH TIME ITS TAKE TOTHE FIRM IS USING ITS RESOURCES OR HOW MUCH TIME ITS TAKE TO
CONVERT ITS INVESTMENT BACK INTO CASH. CONVERT ITS INVESTMENT BACK INTO CASH.
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SWATI SAHAY
OBJECTIVE OF STUDY
TO FIND OUT THE EFFICIENCY OF WORKING CPITALTO FIND OUT THE EFFICIENCY OF WORKING CPITAL
MANAGEMENT.MANAGEMENT.
TO HAVE A PRACTICAL EXPERIENCE OF THE FUNCTIONING OF THETO HAVE A PRACTICAL EXPERIENCE OF THE FUNCTIONING OF THE
FINANCE DEPARTMENT OF A BANKING COMPANY.FINANCE DEPARTMENT OF A BANKING COMPANY.
TO STUDY HOW WORKING CAPITAL MANAGEMENT PRACTICES PLAYSTO STUDY HOW WORKING CAPITAL MANAGEMENT PRACTICES PLAYS
AN IMPORTANT ROLE IN SUPPORTING OTHER ACTIVITIES OF ANAN IMPORTANT ROLE IN SUPPORTING OTHER ACTIVITIES OF AN
BANKING INDUSTRY.BANKING INDUSTRY.
TO GAIN FAMILIARITY WITH THE VARIOUS COMPONENTS OF WORKINGTO GAIN FAMILIARITY WITH THE VARIOUS COMPONENTS OF WORKING
CAPITAL IN ICICI BANK OF INDIA.CAPITAL IN ICICI BANK OF INDIA.
TO FIND OUT THE DIFFERENCE BETWEEN THE THEORETICAL ANDTO FIND OUT THE DIFFERENCE BETWEEN THE THEORETICAL AND
PRACTICAL ASPECT OF WORKING CAPITAL MANAGEMENT.PRACTICAL ASPECT OF WORKING CAPITAL MANAGEMENT.
TO STUDY AND COME OUT WITH ANY SOLUTION FOR IMPROVEMENT OFTO STUDY AND COME OUT WITH ANY SOLUTION FOR IMPROVEMENT OF
WORKING CAPITAL MANAGEMENT AT ICICI BANK OF INDIA.WORKING CAPITAL MANAGEMENT AT ICICI BANK OF INDIA.
TO KNOW THE LIQUIDITY POSITION OF THE COMPANY WITH THE HELPTO KNOW THE LIQUIDITY POSITION OF THE COMPANY WITH THE HELP
OF CURRENT RATIO.OF CURRENT RATIO.
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SWATI SAHAY
METHODOLOGY
THE DATA WHICH I HAVE COLLECTEDFOR MAKING THIS PROJECT ISTHE DATA WHICH I HAVE COLLECTEDFOR MAKING THIS PROJECT IS
COMBINATION OF BOTH PRIMARY AND SECONDARY DATA.COMBINATION OF BOTH PRIMARY AND SECONDARY DATA.
PRIMARY DATA:PRIMARY DATA:
This data had been collected through meetings and interviews with variousThis data had been collected through meetings and interviews with various
managers and employees of the finance department of ICICI Bank Ofmanagers and employees of the finance department of ICICI Bank Of
India. Data are also collected through telephone conversations.India. Data are also collected through telephone conversations.
SECONDARY DATASECONDARY DATA::
Apart from the primary data certain secondary data were required for thisApart from the primary data certain secondary data were required for this
project. Following are the sources of secondary data:-project. Following are the sources of secondary data:-
Annual reportsAnnual reports
Cost & budget reportsCost & budget reports
Creditors reportsCreditors reports
Debtors reportsDebtors reports
Inventory reportsInventory reports
Cash reportsCash reports
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SWATI SAHAY
INTRODUCTION
INTRODUCTION TO BANKING INDUSTRYINTRODUCTION TO BANKING INDUSTRY
BANKS ARE IN THE BUSINESS OF ACCEPTING DEPOSITS FORBANKS ARE IN THE BUSINESS OF ACCEPTING DEPOSITS FOR
THE PURPOSE OF LENDING. THEY ACT AS FINANCIAL INTERMEDIARIESTHE PURPOSE OF LENDING. THEY ACT AS FINANCIAL INTERMEDIARIES
BETWEEN DEPOSITORS WITH SURPLUS FUNDS AND BORROWERS WHOBETWEEN DEPOSITORS WITH SURPLUS FUNDS AND BORROWERS WHO
ARE IN NEED OF FUNDS. BANKS OCCUPY A PIVOTAL PLACE IN THEARE IN NEED OF FUNDS. BANKS OCCUPY A PIVOTAL PLACE IN THE
PAYMENT SYSTEM FOR GOVERNMENT, BUSINESS AND HOUSEHOLDS.PAYMENT SYSTEM FOR GOVERNMENT, BUSINESS AND HOUSEHOLDS.
THUS, THEY PLAY A VITAL ROLE IN THE ECONOMIC AND FINANCIALTHUS, THEY PLAY A VITAL ROLE IN THE ECONOMIC AND FINANCIAL
LIFE OF COUNTRY. LIFE OF COUNTRY.
THE BANKING SECTOR IN THE COUNTRY HAS UNDERGONE ATHE BANKING SECTOR IN THE COUNTRY HAS UNDERGONE A
METAMORPHIC PERSUADE THE POLICIES OF INTEREST RATEMETAMORPHIC PERSUADE THE POLICIES OF INTEREST RATE
DEREGULATION AND FINANCIAL LIBERALIZATION IN A BID TODEREGULATION AND FINANCIAL LIBERALIZATION IN A BID TO
SUPPLEMENT THE GOVERNMENT POLICIES OF ECONOMICSUPPLEMENT THE GOVERNMENT POLICIES OF ECONOMIC
LIBERALIZATION. THE MOST IMPORTANT CHANGE THAT HASLIBERALIZATION. THE MOST IMPORTANT CHANGE THAT HAS
OVERTAKEN THE NATION’S BANKING INDUSTRY, RELATES TO THE FACTOVERTAKEN THE NATION’S BANKING INDUSTRY, RELATES TO THE FACT
THAT THE COMPETITIVE FORCES ARE SOUGHT TO BE INTRODUCEDTHAT THE COMPETITIVE FORCES ARE SOUGHT TO BE INTRODUCED
CONSCIOUSLY IN THE FINANCIAL SERVICE SECTOR WIDE TO FACILITATECONSCIOUSLY IN THE FINANCIAL SERVICE SECTOR WIDE TO FACILITATE
THE ENTRY OF FOREIGN BANKS AND NEW PRIVATE SECTOR BANKS. THE ENTRY OF FOREIGN BANKS AND NEW PRIVATE SECTOR BANKS.
AFTER THE NATIONALIZATION OF 14 MAJOR COMMERCIALAFTER THE NATIONALIZATION OF 14 MAJOR COMMERCIAL
BANKS IN THE YEAR 1969, NO NEW PRIVATE BANKS WERE LICENSED BYBANKS IN THE YEAR 1969, NO NEW PRIVATE BANKS WERE LICENSED BY
RBI IN THE COUNTRY THOUGH THERE WAS NO LEGAL BANK ON THERBI IN THE COUNTRY THOUGH THERE WAS NO LEGAL BANK ON THE
ENTRY OF PRIVATE SECTOR BANKS. THE NARASIMHAM COMMITTEEENTRY OF PRIVATE SECTOR BANKS. THE NARASIMHAM COMMITTEE
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SWATI SAHAY
REPORT OF 1991, HAS ENVISAGED A LARGER ROLE FOR PRIVATE SECTORREPORT OF 1991, HAS ENVISAGED A LARGER ROLE FOR PRIVATE SECTOR
BANKS. BANKS.
HISTORICAL OF BANKING IN INDIAHISTORICAL OF BANKING IN INDIA
WITHOUT A SOUND AND EFFECTIVE BANKING SYSTEM, INDIAWITHOUT A SOUND AND EFFECTIVE BANKING SYSTEM, INDIA
CANNOT HAVE A HEALTHY ECONOMY. THE BANKING SYSTEM OF INDIACANNOT HAVE A HEALTHY ECONOMY. THE BANKING SYSTEM OF INDIA
SHOULD NOT ONLY BE HASSLE FREE BUT IT SHOULD BE ABLE TO MEETSHOULD NOT ONLY BE HASSLE FREE BUT IT SHOULD BE ABLE TO MEET
NEW CHALLENGES POSED BY THE TECHNOLOGY AND ANY OTHERNEW CHALLENGES POSED BY THE TECHNOLOGY AND ANY OTHER
EXTERNAL AND INTERNAL FACTORS. . EXTERNAL AND INTERNAL FACTORS. .
FOR THE PAST THREE DECADES INDIA'S BANKING SYSTEM HAS SEVERALFOR THE PAST THREE DECADES INDIA'S BANKING SYSTEM HAS SEVERAL
OUTSTANDING ACHIEVEMENTS TO ITS CREDIT. THE MOST STRIKING ISOUTSTANDING ACHIEVEMENTS TO ITS CREDIT. THE MOST STRIKING IS
ITS EXTENSIVE REACH. IT IS NO LONGER CONFINED TO ONLYITS EXTENSIVE REACH. IT IS NO LONGER CONFINED TO ONLY
METROPOLITANS OR COSMOPOLITANS IN INDIA. IN FACT, INDIANMETROPOLITANS OR COSMOPOLITANS IN INDIA. IN FACT, INDIAN
BANKING SYSTEM HAS REACHED EVEN TO THE REMOTE CORNERS OFBANKING SYSTEM HAS REACHED EVEN TO THE REMOTE CORNERS OF
THE COUNTRY. THIS IS ONE OF THE MAIN REASONS OF INDIA'S GROWTHTHE COUNTRY. THIS IS ONE OF THE MAIN REASONS OF INDIA'S GROWTH
PROCESS.PROCESS.
NOT LONG AGO, AN ACCOUNT HOLDER HAD TO WAIT FOR HOURS ATNOT LONG AGO, AN ACCOUNT HOLDER HAD TO WAIT FOR HOURS AT
THE BANK COUNTERS FOR GETTING A DRAFT OR FOR WITHDRAWINGTHE BANK COUNTERS FOR GETTING A DRAFT OR FOR WITHDRAWING
HIS OWN MONEY. TODAY, HE HAS A CHOICE. GONE ARE DAYS WHEN THEHIS OWN MONEY. TODAY, HE HAS A CHOICE. GONE ARE DAYS WHEN THE
MOST EFFICIENT BANK TRANSFERRED MONEY FROM ONE BRANCH TOMOST EFFICIENT BANK TRANSFERRED MONEY FROM ONE BRANCH TO
OTHER IN TWO DAYS. NOW IT IS SIMPLE AS INSTANT MESSAGING OROTHER IN TWO DAYS. NOW IT IS SIMPLE AS INSTANT MESSAGING OR
DIAL A PIZZA. MONEY HAS BECOME THE ORDER OF THE DAY.DIAL A PIZZA. MONEY HAS BECOME THE ORDER OF THE DAY.
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SWATI SAHAY
THE FIRST BANK IN INDIA, THOUGH CONSERVATIVE, WAS ESTABLISHEDTHE FIRST BANK IN INDIA, THOUGH CONSERVATIVE, WAS ESTABLISHED
IN 1786. FROM 1786 TILL TODAY, THE JOURNEY OF INDIAN BANKINGIN 1786. FROM 1786 TILL TODAY, THE JOURNEY OF INDIAN BANKING
SYSTEM CAN BE SEGREGATED INTO THREE DISTINCT PHASES. THEY ARESYSTEM CAN BE SEGREGATED INTO THREE DISTINCT PHASES. THEY ARE
AS MENTIONED BELOW: AS MENTIONED BELOW:
EARLY PHASE FROM 1786 TO 1969 OF INDIAN BANKS EARLY PHASE FROM 1786 TO 1969 OF INDIAN BANKS
NATIONALIZATION OF INDIAN BANKS AND UP TO 1991 PRIOR TONATIONALIZATION OF INDIAN BANKS AND UP TO 1991 PRIOR TO
INDIAN INDIAN
BANKING SECTOR REFORMSBANKING SECTOR REFORMS..
PHASE I:PHASE I: . .
THE GENERAL BANK OF INDIA WAS SET UP IN THE YEAR 1786. NEXTTHE GENERAL BANK OF INDIA WAS SET UP IN THE YEAR 1786. NEXT
BANK OF HINDUSTAN AND BENGAL BANK. THE EAST INDIA COMPANYBANK OF HINDUSTAN AND BENGAL BANK. THE EAST INDIA COMPANY
ESTABLISHED BANK OF BENGAL (1809), BANK OF BOMBAY (1840) ANDESTABLISHED BANK OF BENGAL (1809), BANK OF BOMBAY (1840) AND
BANK OF MADRAS (1843) AS INDEPENDENT UNITS AND CALLED ITBANK OF MADRAS (1843) AS INDEPENDENT UNITS AND CALLED IT
PRESIDENCY BANKS. THESE THREE BANKS WERE AMALGAMATED INPRESIDENCY BANKS. THESE THREE BANKS WERE AMALGAMATED IN
1920 AND IMPERIAL BANK OF INDIA WAS ESTABLISHED WHICH STARTED1920 AND IMPERIAL BANK OF INDIA WAS ESTABLISHED WHICH STARTED
AS PRIVATE SHAREHOLDERS BANKS.AS PRIVATE SHAREHOLDERS BANKS.
IN 1865 ALLAHABAD BANK WAS ESTABLISHED AND FIRST TIMEIN 1865 ALLAHABAD BANK WAS ESTABLISHED AND FIRST TIME
EXCLUSIVELY BY INDIANS, PUNJAB NATIONAL BANK LTD. WAS SET UPEXCLUSIVELY BY INDIANS, PUNJAB NATIONAL BANK LTD. WAS SET UP
IN 1894 WITH HEADQUARTERS AT LAHORE. BETWEEN 1906 AND 1913,IN 1894 WITH HEADQUARTERS AT LAHORE. BETWEEN 1906 AND 1913,
BANK OF INDIA, CENTRAL BANK OF INDIA, BANK OF BARODA, CANADABANK OF INDIA, CENTRAL BANK OF INDIA, BANK OF BARODA, CANADA
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SWATI SAHAY
BANK, INDIAN BANK, AND BANK OF MYSORE WERE SET UP. RESERVEBANK, INDIAN BANK, AND BANK OF MYSORE WERE SET UP. RESERVE
BANK OF INDIA CAME IN 1935.BANK OF INDIA CAME IN 1935.
DURING THE FIRST PHASE THE GROWTH WAS VERY SLOW AND BANKSDURING THE FIRST PHASE THE GROWTH WAS VERY SLOW AND BANKS
ALSO EXPERIENCED PERIODIC FAILURES BETWEEN 1913 AND 1948.ALSO EXPERIENCED PERIODIC FAILURES BETWEEN 1913 AND 1948.
THERE WERE APPROXIMATELY 1100 BANKS, MOSTLY SMALL. THERE WERE APPROXIMATELY 1100 BANKS, MOSTLY SMALL.
PHASE II:PHASE II: . .
GOVERNMENT TOOK MAJOR STEPS IN THIS INDIAN BANKING SECTORGOVERNMENT TOOK MAJOR STEPS IN THIS INDIAN BANKING SECTOR
REFORM AFTER INDEPENDENCE. IN 1955, IT NATIONALIZED IMPERIALREFORM AFTER INDEPENDENCE. IN 1955, IT NATIONALIZED IMPERIAL
BANK OF INDIA WITH EXTENSIVE BANKING FACILITIES ON A LARGEBANK OF INDIA WITH EXTENSIVE BANKING FACILITIES ON A LARGE
SCALE ESPECIALLY IN RURAL AND SEMI-URBAN AREAS. IT FORMEDSCALE ESPECIALLY IN RURAL AND SEMI-URBAN AREAS. IT FORMED
STATE BANK OF INDIA TO ACT AS THE PRINCIPAL AGENT OF RBI AND TOSTATE BANK OF INDIA TO ACT AS THE PRINCIPAL AGENT OF RBI AND TO
HANDLE BANKING TRANSACTIONS OF THE UNION AND STATEHANDLE BANKING TRANSACTIONS OF THE UNION AND STATE
GOVERNMENTS ALL OVER THE COUNTRY. .GOVERNMENTS ALL OVER THE COUNTRY. .
SEVEN BANKS FORMING SUBSIDIARY OF STATE BANK OF INDIA WASSEVEN BANKS FORMING SUBSIDIARY OF STATE BANK OF INDIA WAS
NATIONALIZED IN 1960 ON 19TH JULY, 1969, MAJOR PROCESS OFNATIONALIZED IN 1960 ON 19TH JULY, 1969, MAJOR PROCESS OF
NATIONALIZATION WAS CARRIED OUT. IT WAS THE EFFORT OF THENATIONALIZATION WAS CARRIED OUT. IT WAS THE EFFORT OF THE
THEN PRIME MINISTER OF INDIA, MRS. INDIRA GANDHI. 14 MAJORTHEN PRIME MINISTER OF INDIA, MRS. INDIRA GANDHI. 14 MAJOR
COMMERCIAL BANKS IN THE COUNTRY WERE NATIONALIZED.COMMERCIAL BANKS IN THE COUNTRY WERE NATIONALIZED.
THE FOLLOWING ARE THE STEPS TAKEN BY THE GOVERNMENT OF INDIATHE FOLLOWING ARE THE STEPS TAKEN BY THE GOVERNMENT OF INDIA
TO REGULATE BANKING INSTITUTIONS IN THE COUNTRY:TO REGULATE BANKING INSTITUTIONS IN THE COUNTRY:
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SWATI SAHAY
1949: ENACTMENT OF BANKING REGULATION ACT. 1949: ENACTMENT OF BANKING REGULATION ACT.
1955: NATIONALIZATION OF STATE BANK OF INDIA. 1955: NATIONALIZATION OF STATE BANK OF INDIA.
1959: NATIONALIZATION OF SBI SUBSIDIARIES. 1959: NATIONALIZATION OF SBI SUBSIDIARIES.
1961: INSURANCE COVER EXTENDED TO DEPOSITS. 1961: INSURANCE COVER EXTENDED TO DEPOSITS.
1969: NATIONALIZATION OF 14 MAJOR BANKS. 1969: NATIONALIZATION OF 14 MAJOR BANKS.
1971: CREATION OF CREDIT GUARANTEE CORPORATION. 1971: CREATION OF CREDIT GUARANTEE CORPORATION.
1975: CREATION OF REGIONAL RURAL BANKS.1975: CREATION OF REGIONAL RURAL BANKS.
1980: NATIONALIZATION OF SEVEN BANKS WITH DEPOSITS OVER 2001980: NATIONALIZATION OF SEVEN BANKS WITH DEPOSITS OVER 200
CRORE. CRORE.
PHASE III:PHASE III: . .
THIS PHASE HAS INTRODUCED MANY MORE PRODUCTS AND FACILITIESTHIS PHASE HAS INTRODUCED MANY MORE PRODUCTS AND FACILITIES
IN THE BANKING SECTOR IN ITS REFORMS MEASURE. IN 1991, UNDER THEIN THE BANKING SECTOR IN ITS REFORMS MEASURE. IN 1991, UNDER THE
CHAIRMANSHIP OF M NARASIMHAM, A COMMITTEE WAS SET UP BY HISCHAIRMANSHIP OF M NARASIMHAM, A COMMITTEE WAS SET UP BY HIS
NAME WHICH WORKED FOR THE LIBERALIZATION OF BANKINGNAME WHICH WORKED FOR THE LIBERALIZATION OF BANKING
PRACTICES.PRACTICES.
THE COUNTRY IS FLOODED WITH FOREIGN BANKS AND THEIR ATMTHE COUNTRY IS FLOODED WITH FOREIGN BANKS AND THEIR ATM
STATIONS. EFFORTS ARE BEING PUT TO GIVE A SATISFACTORY SERVICESTATIONS. EFFORTS ARE BEING PUT TO GIVE A SATISFACTORY SERVICE
TO CUSTOMERS. PHONE BANKING AND NET BANKING IS INTRODUCED.TO CUSTOMERS. PHONE BANKING AND NET BANKING IS INTRODUCED.
THE ENTIRE SYSTEM BECAME MORE CONVENIENT AND SWIFT. TIME ISTHE ENTIRE SYSTEM BECAME MORE CONVENIENT AND SWIFT. TIME IS
GIVEN MORE IMPORTANCE THAN MONEY. .GIVEN MORE IMPORTANCE THAN MONEY. .
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SWATI SAHAY
THE FINANCIAL SYSTEM OF INDIA HAS SHOWN A GREAT DEAL OFTHE FINANCIAL SYSTEM OF INDIA HAS SHOWN A GREAT DEAL OF
RESILIENCE. IT IS SHELTERED FROM ANY CRISIS TRIGGERED BY ANYRESILIENCE. IT IS SHELTERED FROM ANY CRISIS TRIGGERED BY ANY
EXTERNAL MACROECONOMICS SHOCK AS OTHER EAST ASIANEXTERNAL MACROECONOMICS SHOCK AS OTHER EAST ASIAN
COUNTRIES SUFFERED. THIS IS ALL DUE TO A FLEXIBLE EXCHANGECOUNTRIES SUFFERED. THIS IS ALL DUE TO A FLEXIBLE EXCHANGE
RATE REGIME, THE FOREIGN RESERVES ARE HIGH, THE CAPITALRATE REGIME, THE FOREIGN RESERVES ARE HIGH, THE CAPITAL
ACCOUNT IS NOT YET FULLY CONVERTIBLE, AND BANKS AND THEIRACCOUNT IS NOT YET FULLY CONVERTIBLE, AND BANKS AND THEIR
CUSTOMERS HAVE LIMITED FOREIGN EXCHANGE EXPOSURECUSTOMERS HAVE LIMITED FOREIGN EXCHANGE EXPOSURE..
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SWATI SAHAY
RESERVE BANK OF INDIA
THE CENTRAL BANK OF THE COUNTRY IS THE RESERVE BANK OF INDIATHE CENTRAL BANK OF THE COUNTRY IS THE RESERVE BANK OF INDIA
(RBI). IT WAS ESTABLISHED IN APRIL 1935 WITH A SHARE CAPITAL OF RS.(RBI). IT WAS ESTABLISHED IN APRIL 1935 WITH A SHARE CAPITAL OF RS.
5 CRORES ON THE BASIS OF THE RECOMMENDATIONS OF THE HILTON5 CRORES ON THE BASIS OF THE RECOMMENDATIONS OF THE HILTON
YOUNG COMMISSION. THE SHARE CAPITAL WAS DIVIDED INTO SHARESYOUNG COMMISSION. THE SHARE CAPITAL WAS DIVIDED INTO SHARES
OF RS. 100 EACH FULLY PAID WHICH WAS ENTIRELY OWNED BY PRIVATEOF RS. 100 EACH FULLY PAID WHICH WAS ENTIRELY OWNED BY PRIVATE
SHAREHOLDERS IN THE BEGINNING. THE GOVERNMENT HELD SHARESSHAREHOLDERS IN THE BEGINNING. THE GOVERNMENT HELD SHARES
OF NOMINAL VALUE OF RS. 2, 20,000. .OF NOMINAL VALUE OF RS. 2, 20,000. .
RESERVE BANK OF INDIA WAS NATIONALIZED IN THE YEAR 1949. THERESERVE BANK OF INDIA WAS NATIONALIZED IN THE YEAR 1949. THE
GENERAL SUPERINTENDENCE AND DIRECTION OF THE BANK ISGENERAL SUPERINTENDENCE AND DIRECTION OF THE BANK IS
ENTRUSTED TO CENTRAL BOARD OF DIRECTORS OF 20 MEMBERS, THEENTRUSTED TO CENTRAL BOARD OF DIRECTORS OF 20 MEMBERS, THE
GOVERNOR AND FOUR DEPUTY GOVERNORS, ONE GOVERNMENTGOVERNOR AND FOUR DEPUTY GOVERNORS, ONE GOVERNMENT
OFFICIAL FROM THE MINISTRY OF FINANCE, TEN NOMINATEDOFFICIAL FROM THE MINISTRY OF FINANCE, TEN NOMINATED
DIRECTORS BY THE GOVERNMENT TO GIVE REPRESENTATION TODIRECTORS BY THE GOVERNMENT TO GIVE REPRESENTATION TO
IMPORTANT ELEMENTS IN THE ECONOMIC LIFE OF THE COUNTRY, ANDIMPORTANT ELEMENTS IN THE ECONOMIC LIFE OF THE COUNTRY, AND
FOUR NOMINATED DIRECTORS BY THE CENTRAL GOVERNMENT TOFOUR NOMINATED DIRECTORS BY THE CENTRAL GOVERNMENT TO
REPRESENT THE FOUR LOCAL BOARDS WITH THE HEADQUARTERS ATREPRESENT THE FOUR LOCAL BOARDS WITH THE HEADQUARTERS AT
MUMBAI, KOLKATA, CHENNAI AND NEW DELHI. LOCAL BOARDSMUMBAI, KOLKATA, CHENNAI AND NEW DELHI. LOCAL BOARDS
CONSIST OF FIVE MEMBERS EACH CENTRAL GOVERNMENT APPOINTEDCONSIST OF FIVE MEMBERS EACH CENTRAL GOVERNMENT APPOINTED
FOR A TERM OF FOUR YEARS TO REPRESENT TERRITORIAL ANDFOR A TERM OF FOUR YEARS TO REPRESENT TERRITORIAL AND
ECONOMIC INTERESTS AND THE INTERESTS OF CO-OPERATIVE ANDECONOMIC INTERESTS AND THE INTERESTS OF CO-OPERATIVE AND
INDIGENOUS BANKS. .INDIGENOUS BANKS. .
THE RESERVE BANK OF INDIA ACT, 1934 WAS COMMENCED ON APRIL 1,THE RESERVE BANK OF INDIA ACT, 1934 WAS COMMENCED ON APRIL 1,
1935. THE ACT, 1934 (II OF 1934) PROVIDES THE STATUTORY BASIS OF THE1935. THE ACT, 1934 (II OF 1934) PROVIDES THE STATUTORY BASIS OF THE
FUNCTIONING OF THE BANK. .FUNCTIONING OF THE BANK. .
THE BANK WAS CONSTITUTED FOR THE NEED OF FOLLOWING: THE BANK WAS CONSTITUTED FOR THE NEED OF FOLLOWING:
1. TO REGULATE THE ISSUE OF BANKNOTES 1. TO REGULATE THE ISSUE OF BANKNOTES
17
SWATI SAHAY
2. TO MAINTAIN RESERVES WITH A VIEW TO SECURING MONETARY2. TO MAINTAIN RESERVES WITH A VIEW TO SECURING MONETARY
STABILITY AND STABILITY AND
3. TO OPERATE THE CREDIT AND CURRENCY SYSTEM OF THE COUNTRY3. TO OPERATE THE CREDIT AND CURRENCY SYSTEM OF THE COUNTRY
TO ITS ADVANTAGE. TO ITS ADVANTAGE.
FUNCTIONS OF RESERVE BANK OF INDIAFUNCTIONS OF RESERVE BANK OF INDIA
THE RESERVE BANK OF INDIA ACT OF 1934 ENTRUST ALL THETHE RESERVE BANK OF INDIA ACT OF 1934 ENTRUST ALL THE
IMPORTANT FUNCTIONS OF A CENTRAL BANK,THE RESERVE BANK OFIMPORTANT FUNCTIONS OF A CENTRAL BANK,THE RESERVE BANK OF
INDIA. INDIA.
BANK OF ISSUE:BANK OF ISSUE: . .
UNDER SECTION 22 OF THE RESERVE BANK OF INDIA ACT, THE UNDER SECTION 22 OF THE RESERVE BANK OF INDIA ACT, THE
BANK HAS THE SOLE RIGHT TO ISSUE BANK NOTES OF ALLBANK HAS THE SOLE RIGHT TO ISSUE BANK NOTES OF ALL
DENOMINATIONS. THE DISTRIBUTION OF ONE RUPEE NOTES AND COINSDENOMINATIONS. THE DISTRIBUTION OF ONE RUPEE NOTES AND COINS
AND SMALL COINS ALL OVER THE COUNTRY IS UNDERTAKEN BY THEAND SMALL COINS ALL OVER THE COUNTRY IS UNDERTAKEN BY THE
RESERVE BANK AS AGENT OF THE GOVERNMENT. THE RESERVE BANKRESERVE BANK AS AGENT OF THE GOVERNMENT. THE RESERVE BANK
HAS A SEPARATE ISSUE DEPARTMENT WHICH IS ENTRUSTED WITH THEHAS A SEPARATE ISSUE DEPARTMENT WHICH IS ENTRUSTED WITH THE
ISSUE OF CURRENCY NOTES. THE ASSETS AND LIABILITIES OF THE ISSUEISSUE OF CURRENCY NOTES. THE ASSETS AND LIABILITIES OF THE ISSUE
DEPARTMENT ARE KEPT SEPARATE FROM THOSE OF THE BANKINGDEPARTMENT ARE KEPT SEPARATE FROM THOSE OF THE BANKING
DEPARTMENT. DEPARTMENT.
18
SWATI SAHAY
BANKER TO GOVERNMENTBANKER TO GOVERNMENT:: . .
THE SECOND IMPORTANT FUNCTION OF THE RESERVE BANK OF THE SECOND IMPORTANT FUNCTION OF THE RESERVE BANK OF
INDIA IS TO ACT AS GOVERNMENT BANKER, AGENT AND ADVISER. THEINDIA IS TO ACT AS GOVERNMENT BANKER, AGENT AND ADVISER. THE
RESERVE BANK IS AGENT OF CENTRAL GOVERNMENT AND OF ALLRESERVE BANK IS AGENT OF CENTRAL GOVERNMENT AND OF ALL
STATE GOVERNMENTS IN INDIA EXCEPTING THAT OF JAMMU ANDSTATE GOVERNMENTS IN INDIA EXCEPTING THAT OF JAMMU AND
KASHMIR. THE RESERVE BANK HAS THE OBLIGATION TO TRANSACTKASHMIR. THE RESERVE BANK HAS THE OBLIGATION TO TRANSACT
GOVERNMENT BUSINESS, VIA. TO KEEP THE CASH BALANCES ASGOVERNMENT BUSINESS, VIA. TO KEEP THE CASH BALANCES AS
DEPOSITS FREE OF INTEREST, TO RECEIVE AND TO MAKE PAYMENTS ONDEPOSITS FREE OF INTEREST, TO RECEIVE AND TO MAKE PAYMENTS ON
BEHALF OF THE GOVERNMENT AND TO CARRY OUT THEIR EXCHANGEBEHALF OF THE GOVERNMENT AND TO CARRY OUT THEIR EXCHANGE
REMITTANCES AND OTHER BANKING OPERATIONS. THE RESERVE BANKREMITTANCES AND OTHER BANKING OPERATIONS. THE RESERVE BANK
OF INDIA HELPS THE GOVERNMENT - BOTH THE UNION AND THE STATESOF INDIA HELPS THE GOVERNMENT - BOTH THE UNION AND THE STATES
TO FLOAT NEW LOANS AND TO MANAGE PUBLIC DEBT. IT ACTS ASTO FLOAT NEW LOANS AND TO MANAGE PUBLIC DEBT. IT ACTS AS
ADVISER TO THE GOVERNMENT ON ALL MONETARY AND BANKINGADVISER TO THE GOVERNMENT ON ALL MONETARY AND BANKING
MATTERS.MATTERS.
BANKERS' BANK AND LENDER OF THE LAST RESORTBANKERS' BANK AND LENDER OF THE LAST RESORT
THE RESERVE BANK OF INDIA ACTS AS THE BANKERS' BANK. THE RESERVE BANK OF INDIA ACTS AS THE BANKERS' BANK.
ACCORDING TO THE PROVISIONS OF THE BANKING COMPANIES ACT OFACCORDING TO THE PROVISIONS OF THE BANKING COMPANIES ACT OF
1949, EVERY SCHEDULED BANK WAS REQUIRED TO MAINTAIN WITH THE1949, EVERY SCHEDULED BANK WAS REQUIRED TO MAINTAIN WITH THE
RESERVE BANK A CASH BALANCE EQUIVALENT TO 5% OF ITS DEMANDRESERVE BANK A CASH BALANCE EQUIVALENT TO 5% OF ITS DEMAND
LIABILITIES AND 2 PER CENT OF ITS TIME LIABILITIES IN INDIA.LIABILITIES AND 2 PER CENT OF ITS TIME LIABILITIES IN INDIA.
THE SCHEDULED BANKS CAN BORROW FROM THE RESERVE BANK OFTHE SCHEDULED BANKS CAN BORROW FROM THE RESERVE BANK OF
INDIA ON THE BASIS OF ELIGIBLE SECURITIES OR GET FINANCIALINDIA ON THE BASIS OF ELIGIBLE SECURITIES OR GET FINANCIAL
19
SWATI SAHAY
ACCOMMODATION IN TIMES OF NEED OR STRINGENCY BYACCOMMODATION IN TIMES OF NEED OR STRINGENCY BY
REDISCOUNTING BILLS OF EXCHANGE. SINCE COMMERCIAL BANKS CANREDISCOUNTING BILLS OF EXCHANGE. SINCE COMMERCIAL BANKS CAN
ALWAYS EXPECT THE RESERVE BANK OF INDIA TO COME TO THEIR HELPALWAYS EXPECT THE RESERVE BANK OF INDIA TO COME TO THEIR HELP
IN TIMES OF BANKING CRISIS THE RESERVE BANK BECOMES NOT ONLYIN TIMES OF BANKING CRISIS THE RESERVE BANK BECOMES NOT ONLY
THE BANKER'S BANK BUT ALSO THE LENDER OF THE LAST RESORT.THE BANKER'S BANK BUT ALSO THE LENDER OF THE LAST RESORT.
CONTROLLER OF CREDITCONTROLLER OF CREDIT. . . .
THE RESERVE BANK OF INDIA IS THE CONTROLLER OF CREDIT I.E. IT HASTHE RESERVE BANK OF INDIA IS THE CONTROLLER OF CREDIT I.E. IT HAS
THE POWER TO INFLUENCE THE VOLUME OF CREDIT CREATED BYTHE POWER TO INFLUENCE THE VOLUME OF CREDIT CREATED BY
BANKS IN INDIA. IT CAN DO SO THROUGH CHANGING THE BANK RATEBANKS IN INDIA. IT CAN DO SO THROUGH CHANGING THE BANK RATE
OR THROUGH OPEN MARKET OPERATIONS. ACCORDING TO THEOR THROUGH OPEN MARKET OPERATIONS. ACCORDING TO THE
BANKING REGULATION ACT OF 1949, THE RESERVE BANK OF INDIA CANBANKING REGULATION ACT OF 1949, THE RESERVE BANK OF INDIA CAN
ASK ANY PARTICULAR BANK OR THE WHOLE BANKING SYSTEM NOT TOASK ANY PARTICULAR BANK OR THE WHOLE BANKING SYSTEM NOT TO
LEND TO PARTICULAR GROUPS OR PERSONS ON THE BASIS OF CERTAINLEND TO PARTICULAR GROUPS OR PERSONS ON THE BASIS OF CERTAIN
TYPES OF SECURITIES. AS SUPREME BANKING AUTHORITY IN THETYPES OF SECURITIES. AS SUPREME BANKING AUTHORITY IN THE
COUNTRY, THE RESERVE BANK OF INDIA, THEREFORE, HAS THECOUNTRY, THE RESERVE BANK OF INDIA, THEREFORE, HAS THE
FOLLOWING POWERS: FOLLOWING POWERS:
(A) IT HOLDS THE CASH RESERVES OF ALL THE SCHEDULED BANKS. (A) IT HOLDS THE CASH RESERVES OF ALL THE SCHEDULED BANKS.
(B) IT CONTROLS THE CREDIT OPERATIONS OF BANKS THROUGH(B) IT CONTROLS THE CREDIT OPERATIONS OF BANKS THROUGH
QUANTITATIVE AND QUALITATIVE CONTROLS. . QUANTITATIVE AND QUALITATIVE CONTROLS. .
(C) IT CONTROLS THE BANKING SYSTEM THROUGH THE SYSTEM OF(C) IT CONTROLS THE BANKING SYSTEM THROUGH THE SYSTEM OF
LICENSING, INSPECTION AND CALLING FOR INFORMATION. . LICENSING, INSPECTION AND CALLING FOR INFORMATION. .
20
SWATI SAHAY
(D) IT ACTS AS THE LENDER OF THE LAST RESORT BY PROVIDING(D) IT ACTS AS THE LENDER OF THE LAST RESORT BY PROVIDING
REDISCOUNT FACILITIES TO SCHEDULED BANKS.REDISCOUNT FACILITIES TO SCHEDULED BANKS.
CUSTODIAN OF FOREIGN RESERVESCUSTODIAN OF FOREIGN RESERVES: :
THE RESERVE BANK OF INDIA HAS THE RESPONSIBILITY TO MAINTAINTHE RESERVE BANK OF INDIA HAS THE RESPONSIBILITY TO MAINTAIN
THE OFFICIAL RATE OF EXCHANGE. ACCORDING TO THE RESERVE BANKTHE OFFICIAL RATE OF EXCHANGE. ACCORDING TO THE RESERVE BANK
OF INDIA ACT OF 1934, THE BANK WAS REQUIRED TO BUY AND SELL ATOF INDIA ACT OF 1934, THE BANK WAS REQUIRED TO BUY AND SELL AT
FIXED RATES ANY AMOUNT OF STERLING IN LOTS OF NOT LESS THANFIXED RATES ANY AMOUNT OF STERLING IN LOTS OF NOT LESS THAN
RS. 10,000. THE RATE OF EXCHANGE FIXED WAS RE. 1 = SH. 6D. SINCE 1935RS. 10,000. THE RATE OF EXCHANGE FIXED WAS RE. 1 = SH. 6D. SINCE 1935
THE BANK WAS ABLE TO MAINTAIN THE EXCHANGE RATE FIXED ATTHE BANK WAS ABLE TO MAINTAIN THE EXCHANGE RATE FIXED AT
LSH.6D. THOUGH THERE WERE PERIODS OF EXTREME PRESSURE INLSH.6D. THOUGH THERE WERE PERIODS OF EXTREME PRESSURE IN
FAVOUR OF OR AGAINST THE RUPEE.FAVOUR OF OR AGAINST THE RUPEE. AFTER INDIA BECAME A MEMBERAFTER INDIA BECAME A MEMBER
OF THE INTERNATIONAL MONETARY FUND IN 1946, THE RESERVE BANKOF THE INTERNATIONAL MONETARY FUND IN 1946, THE RESERVE BANK
HAS THE RESPONSIBILITY OF MAINTAINING FIXED EXCHANGE RATESHAS THE RESPONSIBILITY OF MAINTAINING FIXED EXCHANGE RATES
WITH ALL OTHER MEMBER +COUNTRIES OF THE I.M.F.BESIDESWITH ALL OTHER MEMBER +COUNTRIES OF THE I.M.F.BESIDES
MAINTAINING THE RATE OF EXCHANGE OF THE RUPEE, THE RESERVEMAINTAINING THE RATE OF EXCHANGE OF THE RUPEE, THE RESERVE
BANK HAS TO ACT AS THE CUSTODIAN OF INDIA'S RESERVE OFBANK HAS TO ACT AS THE CUSTODIAN OF INDIA'S RESERVE OF
INTERNATIONAL CURRENCIES. INTERNATIONAL CURRENCIES.
SUPERVISORY FUNCTIONS:SUPERVISORY FUNCTIONS: . .
IN ADDITION TO ITS TRADITIONAL CENTRAL BANKING FUNCTIONS, THEIN ADDITION TO ITS TRADITIONAL CENTRAL BANKING FUNCTIONS, THE
21
SWATI SAHAY
RESERVE BANK HAS CERTAIN NON-MONETARY FUNCTIONS OF THERESERVE BANK HAS CERTAIN NON-MONETARY FUNCTIONS OF THE
NATURE OF SUPERVISION OF BANKS AND PROMOTION OF SOUNDNATURE OF SUPERVISION OF BANKS AND PROMOTION OF SOUND
BANKING IN INDIA. THE RESERVE BANK ACT, 1934, AND THE BANKINGBANKING IN INDIA. THE RESERVE BANK ACT, 1934, AND THE BANKING
REGULATION ACT, 1949 HAVE GIVEN THE RBI WIDE POWERS OFREGULATION ACT, 1949 HAVE GIVEN THE RBI WIDE POWERS OF
SUPERVISION AND CONTROL OVER COMMERCIAL AND CO-OPERATIVESUPERVISION AND CONTROL OVER COMMERCIAL AND CO-OPERATIVE
BANKS, RELATING TO LICENSING AND ESTABLISHMENTS, BRANCHBANKS, RELATING TO LICENSING AND ESTABLISHMENTS, BRANCH
EXPANSION, LIQUIDITY OF THEIR ASSETS, MANAGEMENT AND METHODSEXPANSION, LIQUIDITY OF THEIR ASSETS, MANAGEMENT AND METHODS
OF WORKING, AMALGAMATION, RECONSTRUCTION, AND LIQUIDATION.OF WORKING, AMALGAMATION, RECONSTRUCTION, AND LIQUIDATION.
THE RBI IS AUTHORIZED TO CARRY OUT PERIODICAL INSPECTIONS OFTHE RBI IS AUTHORIZED TO CARRY OUT PERIODICAL INSPECTIONS OF
THE BANKS AND TO CALL FOR RETURNS AND NECESSARY INFORMATIONTHE BANKS AND TO CALL FOR RETURNS AND NECESSARY INFORMATION
FROM THEM. FROM THEM.
THE NATIONALIZATION OF 14 MAJOR INDIAN SCHEDULED BANKS INTHE NATIONALIZATION OF 14 MAJOR INDIAN SCHEDULED BANKS IN
JULY 1969 HAS IMPOSED NEW RESPONSIBILITIES ON THE RBI FORJULY 1969 HAS IMPOSED NEW RESPONSIBILITIES ON THE RBI FOR
DIRECTING THE GROWTH OF BANKING AND CREDIT POLICIES TOWARDSDIRECTING THE GROWTH OF BANKING AND CREDIT POLICIES TOWARDS
MORE RAPID DEVELOPMENT OF THE ECONOMY AND REALIZATION OFMORE RAPID DEVELOPMENT OF THE ECONOMY AND REALIZATION OF
CERTAIN DESIRED SOCIAL OBJECTIVES.CERTAIN DESIRED SOCIAL OBJECTIVES.
22
SWATI SAHAY
PROMOTIONAL FUNCTIONS:PROMOTIONAL FUNCTIONS: . .
THE BANK NOW PERFORMS A VARIETY OF DEVELOPMENTAL ANDTHE BANK NOW PERFORMS A VARIETY OF DEVELOPMENTAL AND
PROMOTIONAL FUNCTIONS, WHICH, AT ONE TIME, WERE REGARDED ASPROMOTIONAL FUNCTIONS, WHICH, AT ONE TIME, WERE REGARDED AS
OUTSIDE THE NORMAL SCOPE OF CENTRAL BANKING. THE RESERVEOUTSIDE THE NORMAL SCOPE OF CENTRAL BANKING. THE RESERVE
BANK WAS ASKED TO PROMOTE BANKING HABIT, EXTEND BANKINGBANK WAS ASKED TO PROMOTE BANKING HABIT, EXTEND BANKING
FACILITIES TO RURAL AND SEMI-URBAN AREAS, AND ESTABLISH ANDFACILITIES TO RURAL AND SEMI-URBAN AREAS, AND ESTABLISH AND
PROMOTE NEW SPECIALIZED FINANCING AGENCIES. IT SET UP THEPROMOTE NEW SPECIALIZED FINANCING AGENCIES. IT SET UP THE
DEPOSIT INSURANCE CORPORATION IN 1962, THE UNIT TRUST OF INDIADEPOSIT INSURANCE CORPORATION IN 1962, THE UNIT TRUST OF INDIA
IN 1964, THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ALSO IN 1964,IN 1964, THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ALSO IN 1964,
THE AGRICULTURAL REFINANCE CORPORATION OF INDIA IN 1963 ANDTHE AGRICULTURAL REFINANCE CORPORATION OF INDIA IN 1963 AND
THE INDUSTRIAL RECONSTRUCTION CORPORATION OF INDIA IN 1972.THE INDUSTRIAL RECONSTRUCTION CORPORATION OF INDIA IN 1972.
THESE INSTITUTIONS WERE SET UP DIRECTLY OR INDIRECTLY BY THETHESE INSTITUTIONS WERE SET UP DIRECTLY OR INDIRECTLY BY THE
RESERVE BANK TO PROMOTE SAVING HABIT AND TO MOBILIZERESERVE BANK TO PROMOTE SAVING HABIT AND TO MOBILIZE
SAVINGS, AND TO PROVIDE INDUSTRIAL FINANCE AS WELL ASSAVINGS, AND TO PROVIDE INDUSTRIAL FINANCE AS WELL AS
AGRICULTURAL FINANCE. THE RBI HAS SET UP THE AGRICULTURALAGRICULTURAL FINANCE. THE RBI HAS SET UP THE AGRICULTURAL
REFINANCE AND DEVELOPMENT CORPORATION TO PROVIDE LONG-REFINANCE AND DEVELOPMENT CORPORATION TO PROVIDE LONG-
TERM FINANCE TO FARMERSTERM FINANCE TO FARMERS.
23
SWATI SAHAY
FACTS FILES OF BANK IN INDIAFACTS FILES OF BANK IN INDIA
THE FIRST, OLDEST, LARGEST, THE BIGGEST ALL SUCHTHE FIRST, OLDEST, LARGEST, THE BIGGEST ALL SUCH
INFORMATION IN THIS SECTION:INFORMATION IN THIS SECTION:
THE FIRST BANK IN INDIA TO BETHE FIRST BANK IN INDIA TO BE GIVEN A ISO CERTIFICATIONGIVEN A ISO CERTIFICATION
CANARACANARA BANKBANK
THE FIRST BANK IN NORTHERN INDIATHE FIRST BANK IN NORTHERN INDIA TO GET ISO CERTIFICATION FORTO GET ISO CERTIFICATION FOR THEIR SELECTED BRANCHESTHEIR SELECTED BRANCHES
PUNJAB ANDPUNJAB AND SIND BANKSIND BANK
THE FIRST INDIAN BANK TO BE HAVETHE FIRST INDIAN BANK TO BE HAVE STARTED SOLELY WITH THE INDIANSTARTED SOLELY WITH THE INDIAN CAPITALCAPITAL
PUNJABPUNJAB NATIONALNATIONAL BANKBANK
THE FIRST AMONG PRIVATE SECTORTHE FIRST AMONG PRIVATE SECTOR BANK IN KERALA TO BECOME ABANK IN KERALA TO BECOME A SCHEDULED BANK IN 1946 UNDERSCHEDULED BANK IN 1946 UNDER THE RBI ACT1946.THE RBI ACT1946.
SOUTHSOUTH INDIANINDIAN BANKBANK
INDIA’S OLDEST, LARGEST AND MOSTINDIA’S OLDEST, LARGEST AND MOST SUCCESSFUL COMMERCIAL BANK,SUCCESSFUL COMMERCIAL BANK, OFFERING THE WIDEST POSSIBLEOFFERING THE WIDEST POSSIBLE RANGE OF DOMESTIC,RANGE OF DOMESTIC, INTERNATIONAL,AND NRI PRODUCTSINTERNATIONAL,AND NRI PRODUCTS AND SERVICES THROUGH ITS VASTAND SERVICES THROUGH ITS VAST NETWORK IN INDIA AND OVERSEAS.NETWORK IN INDIA AND OVERSEAS.
STATE BANKSTATE BANK OF INDIA.OF INDIA.
THE OLDEST PUBLIC SECTOR BANKTHE OLDEST PUBLIC SECTOR BANK IN INDIA HAVING BRANCHES ALLIN INDIA HAVING BRANCHES ALL OVER THE INDIA. AND SERVING THEOVER THE INDIA. AND SERVING THE CUSTOMERS FROM THE LAST 132 YRS.CUSTOMERS FROM THE LAST 132 YRS.
ALLABAHADALLABAHAD BANK OFBANK OF INDIAINDIA
24
SWATI SAHAY
Public Sector Banks in India:
AMONG THE PUBLIC SECTOR BANKS IN INDIA, UNITED BANK OF INDIA ISAMONG THE PUBLIC SECTOR BANKS IN INDIA, UNITED BANK OF INDIA IS
ONE OF THE 14 MAJOR BANKS WHICH WERE NATIONALIZED ON JULY 19,ONE OF THE 14 MAJOR BANKS WHICH WERE NATIONALIZED ON JULY 19,
1969. ITS PREDECESSOR, IN THE PUBLIC SECTOR BANKS, THE UNITED1969. ITS PREDECESSOR, IN THE PUBLIC SECTOR BANKS, THE UNITED
BANK OF INDIA LTD., WAS FORMED IN 1950 WITH THE AMALGAMATIONBANK OF INDIA LTD., WAS FORMED IN 1950 WITH THE AMALGAMATION
OF FOUR BANKS VIZ. CAMILLA BANKING CORPORATION LTD. (1914),OF FOUR BANKS VIZ. CAMILLA BANKING CORPORATION LTD. (1914),
BENGAL CENTRAL BANK LTD. (1918), COMILLA UNION BANK LTD. (1922)BENGAL CENTRAL BANK LTD. (1918), COMILLA UNION BANK LTD. (1922)
AND HOOGHLY BANK LTD. (1932).AND HOOGHLY BANK LTD. (1932).
THE FOLLOWING ARE THE LIST OF PUBLIC SECTOR BANKS IN INDIA THE FOLLOWING ARE THE LIST OF PUBLIC SECTOR BANKS IN INDIA
MS. CHANDA KOCHHAR, MANAGING DIRECTOR & CEO, WAS RANKEDMS. CHANDA KOCHHAR, MANAGING DIRECTOR & CEO, WAS RANKED
43RD IN THE FORBES LIST OF MOST POWERFUL WOMAN IN THE WORLD43RD IN THE FORBES LIST OF MOST POWERFUL WOMAN IN THE WORLD
ICICI BANK RECEIVED THE BEST MANPOWER EFFICIENT AWARDICICI BANK RECEIVED THE BEST MANPOWER EFFICIENT AWARD
AMONGST PRIVATE SECTOR BANKS BY FICCI – IBAAMONGST PRIVATE SECTOR BANKS BY FICCI – IBA
41
SWATI SAHAY
ICICI BANK WON THE BEST LOCAL BANK – GOLD BY TRADE ANDICICI BANK WON THE BEST LOCAL BANK – GOLD BY TRADE AND
FORFAITING AWARDS, UKFORFAITING AWARDS, UK
ICICI BANK RANKED SECOND IN THE FINANCIAL SERVICES SECTOR INICICI BANK RANKED SECOND IN THE FINANCIAL SERVICES SECTOR IN
BUSINESSWORLD'S,"MOST RESPECTED COMPANY AWARDS 2011"BUSINESSWORLD'S,"MOST RESPECTED COMPANY AWARDS 2011"
ICICI BANK HAS WON THE "BANKING TECHNOLOGY AWARDS 2010" ATICICI BANK HAS WON THE "BANKING TECHNOLOGY AWARDS 2010" AT THE INDIAN BANKS ASSOCIATION IN THE FOLLOWING CATEGORIES:THE INDIAN BANKS ASSOCIATION IN THE FOLLOWING CATEGORIES:
NRIS GET BENEFIT FROM THE FOLLOWING SERVICES:NRIS GET BENEFIT FROM THE FOLLOWING SERVICES:
MONEY TRANSFERMONEY TRANSFER
BANK ACCOUNTSBANK ACCOUNTS
INVESTMENTSINVESTMENTS
PROPERTY SOLUTIONSPROPERTY SOLUTIONS
INSURANCEINSURANCE
LOANS AGAINST FDLOANS AGAINST FD
BUSINESS BANKINGBUSINESS BANKING
CORPORATE NET BANKINGCORPORATE NET BANKING
CASH MANAGEMENTCASH MANAGEMENT
ONLINE TAXESONLINE TAXES
TRADE SERVICESTRADE SERVICES
CUSTODIAL SERVICESCUSTODIAL SERVICES
FXONLINEFXONLINE
SME SERVICESSME SERVICES
45
SWATI SAHAY
SWOT ANALYSIS:SWOT ANALYSIS:
STRENGTHSTRENGTH
OO ICICI BANK HAS TODAY EMERGED AS SECOND LARGEST BANK IN INDIAICICI BANK HAS TODAY EMERGED AS SECOND LARGEST BANK IN INDIA AND IS AMONG THE TOP 250 BANKS IN THE WORLD WITHIN THE DECADEAND IS AMONG THE TOP 250 BANKS IN THE WORLD WITHIN THE DECADE OF ITS OPERATION.OF ITS OPERATION.
OO ICICI BANK OFFER WIDE RANGE OF PRODUCTS AND SERVICES FROMICICI BANK OFFER WIDE RANGE OF PRODUCTS AND SERVICES FROM BANKING ACTIVITIES TO GENERAL INSURANCE.BANKING ACTIVITIES TO GENERAL INSURANCE.
OO ICICI BANK HAS EXPANDED ITS MARKET CAPITALISATION THROUGHICICI BANK HAS EXPANDED ITS MARKET CAPITALISATION THROUGH ENLISTMENT NOT ONLY IN BSE AND NSE, BUT ALSO IN BECOMING THEENLISTMENT NOT ONLY IN BSE AND NSE, BUT ALSO IN BECOMING THE FIRST NON-JAPENSE ASIAN BANK TO GET ENLISTED IN NYSE.FIRST NON-JAPENSE ASIAN BANK TO GET ENLISTED IN NYSE.
WEAKNESSWEAKNESS
OO IIT PRIMARLY TARGETS UPPER ,MIDDLE CLASS OF THE SOCIETY,T PRIMARLY TARGETS UPPER ,MIDDLE CLASS OF THE SOCIETY, THEREBY LOSING THE BUSINESS OPPORTUNTIES CONCENTRATED ATTHEREBY LOSING THE BUSINESS OPPORTUNTIES CONCENTRATED AT MIDDLE AND BOTTOM SECTIONS OF THE ECONOMICAL PYRAMID.MIDDLE AND BOTTOM SECTIONS OF THE ECONOMICAL PYRAMID.
OO ICICI LEVIES HIGHER SERVICESCHARGE FOR VARIOUS TRANSCATIONSICICI LEVIES HIGHER SERVICESCHARGE FOR VARIOUS TRANSCATIONS MAKING IT EXPENSIVETO AFFORD BY THE MAJOR SECTIONS OF THEMAKING IT EXPENSIVETO AFFORD BY THE MAJOR SECTIONS OF THE SOCIETY.SOCIETY.
OPPORTUNTIESOPPORTUNTIES
OO BRANCH EXPANSION FOR RAPID GROWTHBRANCH EXPANSION FOR RAPID GROWTH
OO BROADENING OF THE DEMOGRAPHIC BASEBROADENING OF THE DEMOGRAPHIC BASE
OO GROWTH IN GENERAL INSURANCE INDUSTRY WILL HELP IN INCREASINGGROWTH IN GENERAL INSURANCE INDUSTRY WILL HELP IN INCREASING THE MARKET SHARE OF ICICI BANK.THE MARKET SHARE OF ICICI BANK.
THREATSTHREATS
OO CCOMPETIVE PRODUCTSAND OFFERS FROM IDBI AND HDFCOMPETIVE PRODUCTSAND OFFERS FROM IDBI AND HDFC
OO MORE AND MORE BANKING COMING IN THE PRIVATE AND PUBLICMORE AND MORE BANKING COMING IN THE PRIVATE AND PUBLIC SECTOR WITH ONLINE BANKING SYSTEM.SECTOR WITH ONLINE BANKING SYSTEM.
OO GLOBAL AND DOMESTIC ECONOMIC SLOW DOWNCOULD AFFECTGLOBAL AND DOMESTIC ECONOMIC SLOW DOWNCOULD AFFECT FINANCIAL PERFORMANCE OF ICICI.FINANCIAL PERFORMANCE OF ICICI.
FINANCIAL STATEMENTFINANCIAL STATEMENT
Profit & Loss Account for the year ended 31st Dec, 2011
Current Year
31 Dec 11
(In Laces)
Previous Year
31
Dec 10
(In Laces)
Income
Sales 903.92 1134.22
Other Income 34.09 25.32
47
SWATI SAHAY
987.04 1159.54
Expenditure
Materials Consumed 621.23 738.73
Personnel Expenses 104.58 87.33
Mfg Other expenses 172.48 166.27
Dep / Amortisation 34.38 30.01
Financial Charges 30.57 26.72
Excise duty 120.04 130.87
Mis Expenditure W/off 20.28 18.33
1224.32 1198.26
Loss for the year before extra ordinary
items and prior period adjustments
(116.88) (38.72)
Extra ordinary items:
Expenses on abandoned project W/off -- --
Assets W/off -- --
Pension liability -- 5.14
Prior period adjustments -- 0.30
48
SWATI SAHAY
Loss after prior pd. Exp. & extra-ord.
Items.
(116.88) (44.16)
Loss b/f from early years (368.39) (324.23)
Less: Amt. Adjusted against Cap.
Reduction300
(68.39) ---
Loss: c/f to B/S (185.27) (368.39)
Balance Sheet as at 31 Dec 2010
Sources Of Funds 31 Dec 11 31 Dec 10.
Shareholders Fund
Capital 434.20 734.20
Reserves & Surplus 21.00 21.00
455.20 755.20
Loan Funds
Secured loans 360.46 198.09
Unsecured loans -- 0.04
49
SWATI SAHAY
Application of Funds
Fixed Assets
Gross Block 530.59 520.94
Less: Dep. 153.55 125.09
Net Block 377.04 395.85
Capital work in progress inc. capital
advances.
3.25 1.58
380.29 397.43
Investments 0.10 0.10
Current assets, Loans & Advances
Inventories 146.36 93.87
Sundry Debtors 114.71 123.22
Cash & Bank Balances 5.63 10.64
Other current Assets. 21.66 20.14
Loans & Advances 44.39 47.06
Less: Current liabilities & Provisions
Liabilities 116.07 137.02
50
SWATI SAHAY
Provisions 14.11 15.73
Net Current Assets 130.18 152.75
Misc. Expenditure 47.43 45.23
Profit & Loss A/c 185.27 368.39
Total: 815.66 953.33
WORKING CAPITAL MANAGEMENT
REVIEW OF LITERATURE
WORKING CAPITAL MANAGEMENT IS THE MANAGEMENT OF ASSETSWORKING CAPITAL MANAGEMENT IS THE MANAGEMENT OF ASSETS
THAT ARE CURRENT IN NATURE. CURRENT ASSETS, BY ACCOUNTINGTHAT ARE CURRENT IN NATURE. CURRENT ASSETS, BY ACCOUNTING
DEFINITION ARE THE ASSETS NORMALLY CONVERTED IN TO CASH IN ADEFINITION ARE THE ASSETS NORMALLY CONVERTED IN TO CASH IN A
PERIOD OF ONE YEAR. HENCE WORKING CAPITAL MANAGEMENT CAN BEPERIOD OF ONE YEAR. HENCE WORKING CAPITAL MANAGEMENT CAN BE
CONSIDERED AS THE MANAGEMENT OF CASH, MARKET SECURITIESCONSIDERED AS THE MANAGEMENT OF CASH, MARKET SECURITIES
RECEIVABLE, INVENTORIES AND CURRENT LIABILITIES. IN FACT, THERECEIVABLE, INVENTORIES AND CURRENT LIABILITIES. IN FACT, THE
MANAGEMENT OF CURRENT ASSETS IS SIMILAR TO THAT OF FIXEDMANAGEMENT OF CURRENT ASSETS IS SIMILAR TO THAT OF FIXED
ASSETS IN THE SENSE THAT IS BOTH IN CASES THE FIRM ANALYSESASSETS IN THE SENSE THAT IS BOTH IN CASES THE FIRM ANALYSES
THEIR EFFECT ON ITS PROFITABILITY AND RISK FACTORS, HENCE THEYTHEIR EFFECT ON ITS PROFITABILITY AND RISK FACTORS, HENCE THEY
DIFFER ON THREE MAJOR ASPECTS:DIFFER ON THREE MAJOR ASPECTS:
1. 1. IN MANAGING FIXED ASSETS, TIME IS AN IMPORTANT FACTORIN MANAGING FIXED ASSETS, TIME IS AN IMPORTANT FACTOR
DISCOUNTING AND COMPOUNDING ASPECTS OF TIME PLAY ANDISCOUNTING AND COMPOUNDING ASPECTS OF TIME PLAY AN
IMPORTANT ROLE IN CAPITAL BUDGETING AND A MINOR PART IN THEIMPORTANT ROLE IN CAPITAL BUDGETING AND A MINOR PART IN THE
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MANAGEMENT OF CURRENT ASSETS.MANAGEMENT OF CURRENT ASSETS.
2.2. THE LARGE HOLDINGS OF CURRENT ASSETS, ESPECIALLY CASH, MAYTHE LARGE HOLDINGS OF CURRENT ASSETS, ESPECIALLY CASH, MAY
STRENGTHEN THE FIRM’S LIQUIDITY POSITION, BUT IS BOUND TOSTRENGTHEN THE FIRM’S LIQUIDITY POSITION, BUT IS BOUND TO
REDUCE PROFITABILITY OF THE FIRM AS IDEAL CAR YIELD NOTHING.REDUCE PROFITABILITY OF THE FIRM AS IDEAL CAR YIELD NOTHING.
3. 3. THE LEVEL OF FIXED ASSETS AS WELL AS CURRENT ASSETS DEPENDSTHE LEVEL OF FIXED ASSETS AS WELL AS CURRENT ASSETS DEPENDS
UPON THE EXPECTED SALES, BUT IT IS ONLY CURRENT ASSETS THATUPON THE EXPECTED SALES, BUT IT IS ONLY CURRENT ASSETS THAT
ADD FLUCTUATION IN THE SHORT RUN TO A BUSINESS.ADD FLUCTUATION IN THE SHORT RUN TO A BUSINESS.
TO UNDERSTAND WORKING CAPITAL BETTER WE SHOULD HAVE BASICTO UNDERSTAND WORKING CAPITAL BETTER WE SHOULD HAVE BASIC
KNOWLEDGE ABOUT THE VARIOUS ASPECTS OF WORKING CAPITAL. TOKNOWLEDGE ABOUT THE VARIOUS ASPECTS OF WORKING CAPITAL. TO
START WITH, THERE ARE TWO CONCEPTS OF WORKING CAPITAL:START WITH, THERE ARE TWO CONCEPTS OF WORKING CAPITAL:
GROSS WORKING CAPITALGROSS WORKING CAPITAL
NET WORKING CAPITALNET WORKING CAPITAL
GROSS WORKING CAPITALGROSS WORKING CAPITAL: GROSS WORKING CAPITAL, WHICH IS ALSO: GROSS WORKING CAPITAL, WHICH IS ALSO
SIMPLY KNOWN AS WORKING CAPITAL, REFERS TO THE FIRM’SSIMPLY KNOWN AS WORKING CAPITAL, REFERS TO THE FIRM’S
INVESTMENT IN CURRENT ASSETS: ANOTHER ASPECT OF GROSSINVESTMENT IN CURRENT ASSETS: ANOTHER ASPECT OF GROSS
WORKING CAPITAL POINTS OUT THE NEED OF ARRANGING FUNDS TOWORKING CAPITAL POINTS OUT THE NEED OF ARRANGING FUNDS TO
FINANCE THE CURRENT ASSETS. THE GROSS WORKING CAPITALFINANCE THE CURRENT ASSETS. THE GROSS WORKING CAPITAL
CONCEPT FOCUSES ATTENTION ON TWO ASPECTS OF CURRENT ASSETSCONCEPT FOCUSES ATTENTION ON TWO ASPECTS OF CURRENT ASSETS
MANAGEMENT, FIRSTLY OPTIMUM INVESTMENT IN CURRENT ASSETSMANAGEMENT, FIRSTLY OPTIMUM INVESTMENT IN CURRENT ASSETS
AND SECONDLY IN FINANCING THE CURRENT ASSETS. THESE TWOAND SECONDLY IN FINANCING THE CURRENT ASSETS. THESE TWO
ASPECTS WILL HELP IN REMAINING AWAY FROM THE TWO DANGERASPECTS WILL HELP IN REMAINING AWAY FROM THE TWO DANGER
POINTS OF EXCESSIVE OR INADEQUATE INVESTMENT IN CURRENTPOINTS OF EXCESSIVE OR INADEQUATE INVESTMENT IN CURRENT
ASSETS. WHENEVER A NEED OF WORKING CAPITAL FUNDS ARISES DUEASSETS. WHENEVER A NEED OF WORKING CAPITAL FUNDS ARISES DUE
TO INCREASE IN LEVEL OF BUSINESS ACTIVITY OR FOR ANY OTHERTO INCREASE IN LEVEL OF BUSINESS ACTIVITY OR FOR ANY OTHER
REASON THE ARRANGEMENT SHOULD BE MADE QUICKLY, ANDREASON THE ARRANGEMENT SHOULD BE MADE QUICKLY, AND
SIMILARLY IF SOME SURPLUSES ARE AVAILABLE, THEY SHOULD NOT BESIMILARLY IF SOME SURPLUSES ARE AVAILABLE, THEY SHOULD NOT BE
ALLOWED TO LIE IDEAL BUT SHOULD BE PUT TO SOME EFFECTIVE USE. ALLOWED TO LIE IDEAL BUT SHOULD BE PUT TO SOME EFFECTIVE USE.
NET WORKING CAPITAL:NET WORKING CAPITAL: THE TERM NET WORKING CAPITAL REFERS TO THE TERM NET WORKING CAPITAL REFERS TO
THE DIFFERENCE BETWEEN THE CURRENT ASSETS AND CURRENTTHE DIFFERENCE BETWEEN THE CURRENT ASSETS AND CURRENT
LIABILITIES. NET WORKING CAPITAL CAN BE POSITIVE AS WELL ASLIABILITIES. NET WORKING CAPITAL CAN BE POSITIVE AS WELL AS
NEGATIVE. POSITIVE WORKING CAPITAL REFERS TO THE SITUATIONNEGATIVE. POSITIVE WORKING CAPITAL REFERS TO THE SITUATION
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WHERE CURRENT ASSETS EXCEED CURRENT LIABILITIES AND NEGATIVEWHERE CURRENT ASSETS EXCEED CURRENT LIABILITIES AND NEGATIVE
WORKING CAPITAL REFERS TO THE SITUATION WHERE CURRENTWORKING CAPITAL REFERS TO THE SITUATION WHERE CURRENT
LIABILITIES EXCEED CURRENT ASSETS. THE NET WORKING CAPITALLIABILITIES EXCEED CURRENT ASSETS. THE NET WORKING CAPITAL
HELPS IN COMPARING THE LIQUIDITY OF THE SAME FIRM OVER TIME.HELPS IN COMPARING THE LIQUIDITY OF THE SAME FIRM OVER TIME.
FOR PURPOSES OF THE WORKING CAPITAL MANAGEMENT, THEREFOREFOR PURPOSES OF THE WORKING CAPITAL MANAGEMENT, THEREFORE
WORKING CAPITAL CAN BE SAID TO MEASURE THE LIQUIDITY OF THEWORKING CAPITAL CAN BE SAID TO MEASURE THE LIQUIDITY OF THE
FIRM. IN OTHER WORDS, THE GOAL OF WORKING CAPITALFIRM. IN OTHER WORDS, THE GOAL OF WORKING CAPITAL
MANAGEMENT IS TO MANAGE THE CURRENT ASSETS AND LIABILITIESMANAGEMENT IS TO MANAGE THE CURRENT ASSETS AND LIABILITIES
IN SUCH A WAY THAT A ACCEPTABLE LEVEL OF NET WORKING CAPITALIN SUCH A WAY THAT A ACCEPTABLE LEVEL OF NET WORKING CAPITAL
IS MAINTAINED.IS MAINTAINED.
IMPORTANCE OF WORKING CAPITAL MANAGEMENT: IMPORTANCE OF WORKING CAPITAL MANAGEMENT:
MANAGEMENT OF WORKING CAPITAL IS VERY MUCH IMPORTANT FORMANAGEMENT OF WORKING CAPITAL IS VERY MUCH IMPORTANT FOR
THE SUCCESS OF THE BUSINESS. IT HAS BEEN EMPHASIZED THAT ATHE SUCCESS OF THE BUSINESS. IT HAS BEEN EMPHASIZED THAT A
BUSINESS SHOULD MAINTAIN SOUND WORKING CAPITAL POSITION ANDBUSINESS SHOULD MAINTAIN SOUND WORKING CAPITAL POSITION AND
ALSO THAT THERE SHOULD NOT BE AN EXCESSIVE LEVEL OFALSO THAT THERE SHOULD NOT BE AN EXCESSIVE LEVEL OF
INVESTMENT IN THE WORKING CAPITAL COMPONENTS. AS POINTED OUTINVESTMENT IN THE WORKING CAPITAL COMPONENTS. AS POINTED OUT
BY RALPH KENNEDY AND STEWART MC MULLER, “THE INADEQUACY ORBY RALPH KENNEDY AND STEWART MC MULLER, “THE INADEQUACY OR
MISS-MANAGEMENT OF WORKING CAPITAL IS ONE OF A FEW LEADINGMISS-MANAGEMENT OF WORKING CAPITAL IS ONE OF A FEW LEADING
CAUSES OF BUSINESS FAILURE.CAUSES OF BUSINESS FAILURE.
CURRENT ASSETS, IN FACT, ACCOUNT FOR A VERY LARGE PORTION OFCURRENT ASSETS, IN FACT, ACCOUNT FOR A VERY LARGE PORTION OF
THE TOTAL INVESTMENT OF THE FIRM.THE TOTAL INVESTMENT OF THE FIRM.
Current assets as percentage of Total assets
YEAR PERCENTAGE
2009 31%
2010 26%
2011 35%
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IT CAN BE VISUALIZED FROM THE TABLE THAT IN THE FIRST YEAR OFIT CAN BE VISUALIZED FROM THE TABLE THAT IN THE FIRST YEAR OF
OUR STUDY I.E. 2009 IT WAS 31% WHICH WAS REDUCED TO 26% IN THEOUR STUDY I.E. 2009 IT WAS 31% WHICH WAS REDUCED TO 26% IN THE
NEXT YEAR AND IN 2010 IT IS 35% SHOWS FLUCTUATING TREND.NEXT YEAR AND IN 2010 IT IS 35% SHOWS FLUCTUATING TREND.
DETERMINANTS OF WORKING CAPITAL:DETERMINANTS OF WORKING CAPITAL:
THERE IS NO SPECIFIC METHOD TO DETERMINE WORKING CAPITALTHERE IS NO SPECIFIC METHOD TO DETERMINE WORKING CAPITAL REQUIREMENT FOR A BUSINESS. THERE ARE A NUMBER OF FACTORSREQUIREMENT FOR A BUSINESS. THERE ARE A NUMBER OF FACTORS AFFECTING THE WORKING CAPITAL REQUIREMENT. THESE FACTORSAFFECTING THE WORKING CAPITAL REQUIREMENT. THESE FACTORS HAVE DIFFERENT IMPORTANCE IN DIFFERENT BUSINESSES AND ATHAVE DIFFERENT IMPORTANCE IN DIFFERENT BUSINESSES AND AT DIFFERENT TIMES. SO A THOROUGH ANALYSIS OF ALL THESE FACTORSDIFFERENT TIMES. SO A THOROUGH ANALYSIS OF ALL THESE FACTORS SHOULD BE MADE BEFORE TRYING TO ESTIMATE THE AMOUNT OFSHOULD BE MADE BEFORE TRYING TO ESTIMATE THE AMOUNT OF WORKING CAPITAL NEEDED. SOME OF THE DIFFERENT FACTORS AREWORKING CAPITAL NEEDED. SOME OF THE DIFFERENT FACTORS ARE MENTIONED HERE BELOW:-MENTIONED HERE BELOW:-
NATURE OF BUSINESS:NATURE OF BUSINESS: NATURE OF BUSINESS IS AN IMPORTANT FACTOR NATURE OF BUSINESS IS AN IMPORTANT FACTOR
IN DETERMINING THE WORKING CAPITAL REQUIREMENTS. THERE AREIN DETERMINING THE WORKING CAPITAL REQUIREMENTS. THERE ARE
SOME BUSINESSES WHICH REQUIRE A VERY NOMINAL AMOUNT TO BESOME BUSINESSES WHICH REQUIRE A VERY NOMINAL AMOUNT TO BE
INVESTED IN FIXED ASSETS BUT A LARGE CHUNK OF THE TOTALINVESTED IN FIXED ASSETS BUT A LARGE CHUNK OF THE TOTAL
INVESTMENT IS IN THE FORM OF WORKING CAPITAL. THEREINVESTMENT IS IN THE FORM OF WORKING CAPITAL. THERE
BUSINESSES, FOR EXAMPLE, ARE OF THE TRADING AND FINANCINGBUSINESSES, FOR EXAMPLE, ARE OF THE TRADING AND FINANCING
TYPE. THERE ARE BUSINESSES WHICH REQUIRE LARGE INVESTMENT INTYPE. THERE ARE BUSINESSES WHICH REQUIRE LARGE INVESTMENT IN
FIXED ASSETS AND NORMAL INVESTMENT IN THE FORM OF WORKINGFIXED ASSETS AND NORMAL INVESTMENT IN THE FORM OF WORKING
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CAPITAL.CAPITAL.
SIZE OF BUSINESS: SIZE OF BUSINESS: IT IS ANOTHER IMPORTANT FACTOR INIT IS ANOTHER IMPORTANT FACTOR IN
DETERMINING THE WORKING CAPITAL REQUIREMENTS OF A BUSINESS.DETERMINING THE WORKING CAPITAL REQUIREMENTS OF A BUSINESS.
SIZE IS USUALLY MEASURED IN TERMS OF SCALE OF OPERATING CYCLE.SIZE IS USUALLY MEASURED IN TERMS OF SCALE OF OPERATING CYCLE.
THE AMOUNT OF WORKING CAPITAL NEEDED IS DIRECTLYTHE AMOUNT OF WORKING CAPITAL NEEDED IS DIRECTLY
PROPORTIONAL TO THE SCALE OF OPERATING CYCLE I.E. THE LARGERPROPORTIONAL TO THE SCALE OF OPERATING CYCLE I.E. THE LARGER
THE SCALE OF OPERATING CYCLE THE LARGE WILL BE THE AMOUNTTHE SCALE OF OPERATING CYCLE THE LARGE WILL BE THE AMOUNT
WORKING CAPITAL AND VICE VERSA.WORKING CAPITAL AND VICE VERSA.
BUSINESS FLUCTUATIONSBUSINESS FLUCTUATIONS: MOST BUSINESS EXPERIENCE CYCLICAL: MOST BUSINESS EXPERIENCE CYCLICAL
AND SEASONAL FLUCTUATIONS IN DEMAND FOR THEIR GOODS ANDAND SEASONAL FLUCTUATIONS IN DEMAND FOR THEIR GOODS AND
SERVICES. THESE FLUCTUATIONS AFFECT THE BUSINESS WITH RESPECTSERVICES. THESE FLUCTUATIONS AFFECT THE BUSINESS WITH RESPECT
TO WORKING CAPITAL BECAUSE DURING THE TIME OF BOOM, DUE TOTO WORKING CAPITAL BECAUSE DURING THE TIME OF BOOM, DUE TO
AN INCREASE IN BUSINESS ACTIVITY THE AMOUNT OF WORKINGAN INCREASE IN BUSINESS ACTIVITY THE AMOUNT OF WORKING
CAPITAL REQUIREMENT INCREASES AND THE REVERSE IS TRUE IN THECAPITAL REQUIREMENT INCREASES AND THE REVERSE IS TRUE IN THE
CASE OF RECESSION. FINANCIAL ARRANGEMENT FOR SEASONALCASE OF RECESSION. FINANCIAL ARRANGEMENT FOR SEASONAL
WORKING CAPITAL REQUIREMENTS ARE TO BE MADE IN ADVANCE.WORKING CAPITAL REQUIREMENTS ARE TO BE MADE IN ADVANCE.
PRODUCTION POLICY: PRODUCTION POLICY: AS STATED ABOVE, EVERY BUSINESS HAS TOAS STATED ABOVE, EVERY BUSINESS HAS TO
COPE WITH DIFFERENT TYPES OF FLUCTUATIONS. HENCE IT IS BUTCOPE WITH DIFFERENT TYPES OF FLUCTUATIONS. HENCE IT IS BUT
OBVIOUS THAT PRODUCTION POLICY HAS TO BE PLANNED WELL INOBVIOUS THAT PRODUCTION POLICY HAS TO BE PLANNED WELL IN
ADVANCE WITH RESPECT TO FLUCTUATION. NO TWO COMPANIES CANADVANCE WITH RESPECT TO FLUCTUATION. NO TWO COMPANIES CAN
HAVE SIMILAR PRODUCTION POLICY IN ALL RESPECTS BECAUSE ITHAVE SIMILAR PRODUCTION POLICY IN ALL RESPECTS BECAUSE IT
DEPENDS UPON THE CIRCUMSTANCES OF AN INDIVIDUAL COMPANY.DEPENDS UPON THE CIRCUMSTANCES OF AN INDIVIDUAL COMPANY.
FIRM’S CREDIT POLICY:FIRM’S CREDIT POLICY: THE CREDIT POLICY OF A FIRM AFFECTS THE CREDIT POLICY OF A FIRM AFFECTS
WORKING CAPITAL BY INFLUENCING THE LEVEL OF BOOK DEBTS. THEWORKING CAPITAL BY INFLUENCING THE LEVEL OF BOOK DEBTS. THE
CREDIT TERM IS FAIRLY CONSTANT IN AN INDUSTRY BUT INDIVIDUALSCREDIT TERM IS FAIRLY CONSTANT IN AN INDUSTRY BUT INDIVIDUALS
ALSO HAVE THEIR ROLE IN FRAMING THEIR CREDIT POLICY. A LIBERALALSO HAVE THEIR ROLE IN FRAMING THEIR CREDIT POLICY. A LIBERAL
CREDIT POLICY WILL LEAD TO MORE AMOUNT BEING COMMITTED TOCREDIT POLICY WILL LEAD TO MORE AMOUNT BEING COMMITTED TO
WORKING CAPITAL REQUIREMENTS WHEREAS A STERN CREDIT POLICYWORKING CAPITAL REQUIREMENTS WHEREAS A STERN CREDIT POLICY
MAY DECREASE THE AMOUNT OF WORKING CAPITAL REQUIREMENTMAY DECREASE THE AMOUNT OF WORKING CAPITAL REQUIREMENT
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APPRECIABLY BUT THE REPERCUSSIONS OF THE TWO ARE NOT SIMPLE.APPRECIABLY BUT THE REPERCUSSIONS OF THE TWO ARE NOT SIMPLE.
HENCE A FIRM SHOULD ALWAYS FRAME A RATIONAL CREDIT POLICYHENCE A FIRM SHOULD ALWAYS FRAME A RATIONAL CREDIT POLICY
BASED ON THE CREDIT WORTHINESS OF THE CUSTOMER. BASED ON THE CREDIT WORTHINESS OF THE CUSTOMER.
AVAILABILITY OF CREDITAVAILABILITY OF CREDIT: THE TERMS ON WHICH A COMPANY IS ABLE: THE TERMS ON WHICH A COMPANY IS ABLE
TO AVAIL CREDIT FROM ITS SUPPLIERS OF GOODS AND DEVICESTO AVAIL CREDIT FROM ITS SUPPLIERS OF GOODS AND DEVICES
CREDIT/ALSO AFFECTS THE WORKING CAPITAL REQUIREMENT. IF ACREDIT/ALSO AFFECTS THE WORKING CAPITAL REQUIREMENT. IF A
COMPANY IN A POSITION TO GET CREDIT ON LIBERAL TERMS AND IN ACOMPANY IN A POSITION TO GET CREDIT ON LIBERAL TERMS AND IN A
SHORT SPAN OF TIME THEN IT WILL BE IN A POSITION TO WORK WITHSHORT SPAN OF TIME THEN IT WILL BE IN A POSITION TO WORK WITH
LESS AMOUNT OF WORKING CAPITAL. HENCE THE AMOUNT OFLESS AMOUNT OF WORKING CAPITAL. HENCE THE AMOUNT OF
WORKING CAPITAL NEEDED WILL DEPEND UPON THE TERMS A FIRM ISWORKING CAPITAL NEEDED WILL DEPEND UPON THE TERMS A FIRM IS
GRANTED CREDIT BY ITS CREDITORS.GRANTED CREDIT BY ITS CREDITORS.
GROWTH AND EXPANSION ACTIVITIESGROWTH AND EXPANSION ACTIVITIES: THE WORKING CAPITAL NEEDS: THE WORKING CAPITAL NEEDS
OF A FIRM INCREASES AS IT GROWS IN TERM OF SALE OR FIXED ASSETS.OF A FIRM INCREASES AS IT GROWS IN TERM OF SALE OR FIXED ASSETS.
THERE IS NO PRECISE WAY TO DETERMINE THE RELATION BETWEENTHERE IS NO PRECISE WAY TO DETERMINE THE RELATION BETWEEN
THE AMOUNT OF SALES AND WORKING CAPITAL REQUIREMENT BUTTHE AMOUNT OF SALES AND WORKING CAPITAL REQUIREMENT BUT
ONE THING IS SURE THAT AN INCREASE IN SALES NEVER PRECEDES THEONE THING IS SURE THAT AN INCREASE IN SALES NEVER PRECEDES THE
INCREASE IN WORKING CAPITAL BUT IT IS ALWAYS THE OTHER WAYINCREASE IN WORKING CAPITAL BUT IT IS ALWAYS THE OTHER WAY
ROUND. SO IN CASE OF GROWTH OR EXPANSION THE ASPECT OFROUND. SO IN CASE OF GROWTH OR EXPANSION THE ASPECT OF
WORKING CAPITAL NEEDS TO BE PLANNED IN ADVANCE.WORKING CAPITAL NEEDS TO BE PLANNED IN ADVANCE.
PRICE LEVEL CHANGES:PRICE LEVEL CHANGES: GENERALLY INCREASE IN PRICE LEVEL GENERALLY INCREASE IN PRICE LEVEL
MAKES THE COMMODITIES DEARER.HENCE WITH INCREASE IN PRICEMAKES THE COMMODITIES DEARER.HENCE WITH INCREASE IN PRICE
LEVEL THE WORKING CAPITAL REQUIREMENTS ALSO INCREASES. THELEVEL THE WORKING CAPITAL REQUIREMENTS ALSO INCREASES. THE
COMPANIES WHICH ARE IN A POSITION TO ALTER THE PRICE OF THESECOMPANIES WHICH ARE IN A POSITION TO ALTER THE PRICE OF THESE
COMMODITIES IN ACCORDANCE WITH THE PRICE LEVEL CHANGES WILLCOMMODITIES IN ACCORDANCE WITH THE PRICE LEVEL CHANGES WILL
FACE FEWER PROBLEMS AS COMPARED TO OTHERS. THE CHANGES INFACE FEWER PROBLEMS AS COMPARED TO OTHERS. THE CHANGES IN
PRICE LEVEL MAY NOT AFFECT ALL THE FIRMS IN SAME WAY. THEPRICE LEVEL MAY NOT AFFECT ALL THE FIRMS IN SAME WAY. THE
REACTIONS OF ALL FIRMS WITH REGARDS TO PRICE LEVEL CHANGESREACTIONS OF ALL FIRMS WITH REGARDS TO PRICE LEVEL CHANGES
WILL BE DIFFERENT FROM ONE OTHER..WILL BE DIFFERENT FROM ONE OTHER..
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WORKING CAPITAL - OVERALL VIEW
CASH MANAGEMENT
CASH IS THE IMPORTANT CURRENT ASSET FOR THE OPERATIONS OF THECASH IS THE IMPORTANT CURRENT ASSET FOR THE OPERATIONS OF THE
BUSINESS. CASH IS THE BASIC INPUT NEEDED TO KEEP THE BUSINESSBUSINESS. CASH IS THE BASIC INPUT NEEDED TO KEEP THE BUSINESS
RUNNING ON A CONTINUOUS BASIS. IT IS ALSO THE ULTIMATE OUTPUTRUNNING ON A CONTINUOUS BASIS. IT IS ALSO THE ULTIMATE OUTPUT
EXPECTED TO BE REALIZED BY SELLING THE SERVICE OR PRODUCTEXPECTED TO BE REALIZED BY SELLING THE SERVICE OR PRODUCT
MANUFACTURED BY THE FIRM. THE FIRM SHOULD KEEP SUFFICIENTMANUFACTURED BY THE FIRM. THE FIRM SHOULD KEEP SUFFICIENT
CASH, NEITHER MORE NOR LESS. CASH SHORTAGE WILL DISRUPT THECASH, NEITHER MORE NOR LESS. CASH SHORTAGE WILL DISRUPT THE
FIRM’S OPERATIONS WHILE EXCESSIVE CASH WILL SIMPLY REMAINFIRM’S OPERATIONS WHILE EXCESSIVE CASH WILL SIMPLY REMAIN
IDLE, WITHOUT CONTRIBUTING ANYTHING TOWARDS THE FIRM’SIDLE, WITHOUT CONTRIBUTING ANYTHING TOWARDS THE FIRM’S
PROFITABILITY. THUS A MAJOR FUNCTION OF THE FINANCIAL MANAGERPROFITABILITY. THUS A MAJOR FUNCTION OF THE FINANCIAL MANAGER
IS TO MAINTAIN A SOUND CASH POSITION.IS TO MAINTAIN A SOUND CASH POSITION.
CASH IS THE MONEY WHICH A FIRM CAN DISBURSE IMMEDIATELYCASH IS THE MONEY WHICH A FIRM CAN DISBURSE IMMEDIATELY
WITHOUT ANY RESTRICTION THE TERM CASH INCLUDES CURRENCYWITHOUT ANY RESTRICTION THE TERM CASH INCLUDES CURRENCY
AND CHEQUES HELD BY THE FIRM AND BALANCES IN ITS BANKAND CHEQUES HELD BY THE FIRM AND BALANCES IN ITS BANK
ACCOUNTS. SOMETIMES NEAR CASH ITEMS, SUCH AS MARKETABLEACCOUNTS. SOMETIMES NEAR CASH ITEMS, SUCH AS MARKETABLE
SECURITIES OR BANK TIME DEPOSITS ARE ALSO INCLUDED IN CASH. THESECURITIES OR BANK TIME DEPOSITS ARE ALSO INCLUDED IN CASH. THE
BASIC CHARACTERISTICS OF NEAR CASH ASSETS ARE THAT THEY CANBASIC CHARACTERISTICS OF NEAR CASH ASSETS ARE THAT THEY CAN
READILY BE CONVERTED INTO CASH. CASH MANAGEMENT ISREADILY BE CONVERTED INTO CASH. CASH MANAGEMENT IS
CONCERNED WITH MANAGING OF:CONCERNED WITH MANAGING OF:
I) I) CASH FLOWS IN AND OUT OF THE FIRMCASH FLOWS IN AND OUT OF THE FIRM
II) II) CASH FLOWS WITHIN THE FIRMCASH FLOWS WITHIN THE FIRM
III) III) CASH BALANCES HELD BY THE FIRM AT A POINT OF TIME BYCASH BALANCES HELD BY THE FIRM AT A POINT OF TIME BY
FINANCING DEFICIT OR INVESTING SURPLUS CASH. FINANCING DEFICIT OR INVESTING SURPLUS CASH.
SALES GENERATE CASH WHICH HAS TO BE DISBURSED OUT. THESALES GENERATE CASH WHICH HAS TO BE DISBURSED OUT. THE
SURPLUS CASH HAS TO BE INVESTED WHILE DEFICIT CASH HAS TO BESURPLUS CASH HAS TO BE INVESTED WHILE DEFICIT CASH HAS TO BE
BORROWED. CASH MANAGEMENT SEEKS TO ACCOMPLISH THIS CYCLEBORROWED. CASH MANAGEMENT SEEKS TO ACCOMPLISH THIS CYCLE
AT A MINIMUM COST. AT THE SAME TIME IT ALSO SEEKS TO ACHIEVEAT A MINIMUM COST. AT THE SAME TIME IT ALSO SEEKS TO ACHIEVE
LIQUIDITY AND CONTROL. THEREFORE THE AIM OF CASH MANAGEMENTLIQUIDITY AND CONTROL. THEREFORE THE AIM OF CASH MANAGEMENT
IS TO MAINTAIN ADEQUATE CONTROL OVER CASH POSITION TO KEEPIS TO MAINTAIN ADEQUATE CONTROL OVER CASH POSITION TO KEEP
FIRM SUFFICIENTLY LIQUID AND TO USE EXCESS CASH IN SOMEFIRM SUFFICIENTLY LIQUID AND TO USE EXCESS CASH IN SOME
PROFITABLE WAY.PROFITABLE WAY.
THE CASH MANAGEMENT IS ALSO IMPORTANT BECAUSE IT IS DIFFICULTTHE CASH MANAGEMENT IS ALSO IMPORTANT BECAUSE IT IS DIFFICULT
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TO PREDICT CASH FLOWS ACCURATELY, PARTICULARLY THE INFLOWSTO PREDICT CASH FLOWS ACCURATELY, PARTICULARLY THE INFLOWS
AND THAT THERE IS NO PERFECT COINCIDENCE BETWEEN THE INFLOWSAND THAT THERE IS NO PERFECT COINCIDENCE BETWEEN THE INFLOWS
AND OUTFLOWS OF THE CASH. DURING SOME PERIODS CASH OUTFLOWSAND OUTFLOWS OF THE CASH. DURING SOME PERIODS CASH OUTFLOWS
WILL EXCEED CASH INFLOWS BECAUSE PAYMENT FOR TAXES,WILL EXCEED CASH INFLOWS BECAUSE PAYMENT FOR TAXES,
DIVIDENDS OR SEASONAL INVENTORY ETC., BUILD UP. ON THE OTHERDIVIDENDS OR SEASONAL INVENTORY ETC., BUILD UP. ON THE OTHER
HAND CASH INFLOWS WILL BE MORE THAN CASH PAYMENT BECAUSEHAND CASH INFLOWS WILL BE MORE THAN CASH PAYMENT BECAUSE
THERE MAY BE LARGE CASH SALES AND MORE DEBTORS’ REALIZATIONTHERE MAY BE LARGE CASH SALES AND MORE DEBTORS’ REALIZATION
AT ANY POINT OF TIME. CASH MANAGEMENT IS ALSO IMPORTANTAT ANY POINT OF TIME. CASH MANAGEMENT IS ALSO IMPORTANT
BECAUSE CASH CONSTITUTES THE SMALLEST PORTION OF THEBECAUSE CASH CONSTITUTES THE SMALLEST PORTION OF THE
CURRENT ASSETS, YET MANAGEMENT’S CONSIDERABLE TIME ISCURRENT ASSETS, YET MANAGEMENT’S CONSIDERABLE TIME IS
DEVOTED IN MANAGING IT. AN OBVIOUS AIM OF THE FIRM NOW-A-DAYSDEVOTED IN MANAGING IT. AN OBVIOUS AIM OF THE FIRM NOW-A-DAYS
IS TO MANAGE ITS CASH AFFAIRS IN SUCH A WAY AS TO KEEP CASHIS TO MANAGE ITS CASH AFFAIRS IN SUCH A WAY AS TO KEEP CASH
BALANCE AT A MINIMUM LEVEL AND TO INVEST THE SURPLUS CASHBALANCE AT A MINIMUM LEVEL AND TO INVEST THE SURPLUS CASH
FUNDS IN PROFITABLE OPPORTUNITIES. IN ORDER TO RESOLVE THEFUNDS IN PROFITABLE OPPORTUNITIES. IN ORDER TO RESOLVE THE
UNCERTAINTY ABOUT CASH FLOW PREDICTION AND LACK OFUNCERTAINTY ABOUT CASH FLOW PREDICTION AND LACK OF
SYNCHRONIZATION BETWEEN CASH RECEIPTS AND PAYMENTS, THESYNCHRONIZATION BETWEEN CASH RECEIPTS AND PAYMENTS, THE
FIRM SHOULD DEVELOP APPROPRIATE STRATEGIES REGARDING THEFIRM SHOULD DEVELOP APPROPRIATE STRATEGIES REGARDING THE
FOLLOWING FOUR FACETS OF CASH MANAGEMENT.FOLLOWING FOUR FACETS OF CASH MANAGEMENT.
1. CASH PLANNINGCASH PLANNING: - CASH INFLOWS AND CASH OUTFLOWS SHOULD: - CASH INFLOWS AND CASH OUTFLOWS SHOULD
BE PLANNED TO PROJECT CASH SURPLUS OR DEFICIT FOR EACH PERIODBE PLANNED TO PROJECT CASH SURPLUS OR DEFICIT FOR EACH PERIOD
OF THE PLANNING PERIOD. CASH BUDGET SHOULD PREPARED FOR THISOF THE PLANNING PERIOD. CASH BUDGET SHOULD PREPARED FOR THIS
PURPOSE. PURPOSE.
2.2. MANAGINGMANAGING THE CASH FLOWSTHE CASH FLOWS: - THE FLOW OF CASH SHOULD BE: - THE FLOW OF CASH SHOULD BE
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PROPERLY MANAGED. THE CASH INFLOWS SHOULD BE ACCELERATEDPROPERLY MANAGED. THE CASH INFLOWS SHOULD BE ACCELERATED
WHILE, AS FAR AS POSSIBLE DECELERATING THE CASH OUTFLOWS.WHILE, AS FAR AS POSSIBLE DECELERATING THE CASH OUTFLOWS.
33. . OPTIMUM CASH LEVELOPTIMUM CASH LEVEL: - THE FIRM SHOULD DECIDE ABOUT THE: - THE FIRM SHOULD DECIDE ABOUT THE
APPROPRIATE LEVEL OF CASH BALANCES. THE COST OF EXCESS CASHAPPROPRIATE LEVEL OF CASH BALANCES. THE COST OF EXCESS CASH
AND DANGER OF CASH DEFICIENCY SHOULD BE MATCHED TOAND DANGER OF CASH DEFICIENCY SHOULD BE MATCHED TO
DETERMINE THE OPTIMUM LEVEL OF CASH BALANCES.DETERMINE THE OPTIMUM LEVEL OF CASH BALANCES.
4. 4. INVESTING SURPLUS CASHINVESTING SURPLUS CASH: - THE SURPLUS CASH BALANCE SHOULD: - THE SURPLUS CASH BALANCE SHOULD
BE PROPERLY INVESTED TO EARN PROFITS. THE FIRM SHOULD DECIDEBE PROPERLY INVESTED TO EARN PROFITS. THE FIRM SHOULD DECIDE
ABOUT THE DIVISION OF SUCH CASH BALANCE BETWEEN BANKABOUT THE DIVISION OF SUCH CASH BALANCE BETWEEN BANK
DEPOSITS,DEPOSITS, MARKETABLE SECURITIES AND INTER CORPORATE LENDING.MARKETABLE SECURITIES AND INTER CORPORATE LENDING.
THE IDEAL CASH MANAGEMENT SYSTEM WILL DEPEND ON THE FIRM’STHE IDEAL CASH MANAGEMENT SYSTEM WILL DEPEND ON THE FIRM’S
AVOIDANCE OF EARLY PAYMENTS:AVOIDANCE OF EARLY PAYMENTS: ONE WAY TO DELAY PAYMENTS IS ONE WAY TO DELAY PAYMENTS IS
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SWATI SAHAY
TO AVOID EARLY PAYMENTS. ACCORDING TO THE TERMS OF CREDIT, ATO AVOID EARLY PAYMENTS. ACCORDING TO THE TERMS OF CREDIT, A
FIRM IS REQUIRED TO MAKE A PAYMENT WITHIN A STIPULATED PERIOD.FIRM IS REQUIRED TO MAKE A PAYMENT WITHIN A STIPULATED PERIOD.
IT ENTITLES A FIRM TO CASH DISCOUNTS. IF HOWEVER PAYMENTS AREIT ENTITLES A FIRM TO CASH DISCOUNTS. IF HOWEVER PAYMENTS ARE
DELAYED BEYOND THE DUE DATE, THE CREDIT STANDING MAY BEDELAYED BEYOND THE DUE DATE, THE CREDIT STANDING MAY BE
ADVERSELY AFFECTED SO THAT THE FIRMS WOULD FIND IT DIFFICULTADVERSELY AFFECTED SO THAT THE FIRMS WOULD FIND IT DIFFICULT
TO SECURE TRADE CREDIT LATER. BUT IF THE FIRM PAYS ITS ACCOUNTSTO SECURE TRADE CREDIT LATER. BUT IF THE FIRM PAYS ITS ACCOUNTS
PAYABLE BEFORE THE DUE DATE IT HAS NO SPECIAL ADVANTAGE. THUSPAYABLE BEFORE THE DUE DATE IT HAS NO SPECIAL ADVANTAGE. THUS
A FIRM WOULD BE WELL ADVISED NOT TO MAKE PAYMENTS EARLY I.E.A FIRM WOULD BE WELL ADVISED NOT TO MAKE PAYMENTS EARLY I.E.
BEFORE THE DUE DATE.BEFORE THE DUE DATE.
CENTRALIZED DISBURSEMENTSCENTRALIZED DISBURSEMENTS: ANOTHER METHOD TO SLOW DOWN: ANOTHER METHOD TO SLOW DOWN
DISBURSEMENTS IS TO HAVE CENTRALIZED DISBURSEMENTS. ALL THEDISBURSEMENTS IS TO HAVE CENTRALIZED DISBURSEMENTS. ALL THE
PAYMENTS SHOULD BE MADE BY THE HEAD OFFICE FROM APAYMENTS SHOULD BE MADE BY THE HEAD OFFICE FROM A
CENTRALIZED DISBURSEMENT ACCOUNT. SUCH AN ARRANGEMENTCENTRALIZED DISBURSEMENT ACCOUNT. SUCH AN ARRANGEMENT
WOULD ENABLE A FIRM TO DELAY PAYMENTS AND CONSERVE CASHWOULD ENABLE A FIRM TO DELAY PAYMENTS AND CONSERVE CASH
FOR SEVERAL REASONS. FIRSTLY IT INVOLVES INCREASE IN THEFOR SEVERAL REASONS. FIRSTLY IT INVOLVES INCREASE IN THE
TRANSIT TIME. TRANSIT TIME.
FLOATFLOAT: A VERY IMPORTANT TECHNIQUE OF SLOW DISBURSEMENTS IS: A VERY IMPORTANT TECHNIQUE OF SLOW DISBURSEMENTS IS
FLOAT. THE TERM FLOAT REFERS TO AMOUNT OF MONEY TIED UP INFLOAT. THE TERM FLOAT REFERS TO AMOUNT OF MONEY TIED UP IN
THE CHEQUE THAT HAVE BEEN WRITTEN, BUT HAVE YET TO BETHE CHEQUE THAT HAVE BEEN WRITTEN, BUT HAVE YET TO BE
COLLECTED AND ENCASHED. ALTERNATIVELY, FLOAT REPRESENTS THECOLLECTED AND ENCASHED. ALTERNATIVELY, FLOAT REPRESENTS THE
DIFFERENCE BETWEEN THE BANK BALANCE AND BOOK BALANCE OFDIFFERENCE BETWEEN THE BANK BALANCE AND BOOK BALANCE OF
CASH OF A FIRM. THE DIFFERENCE BETWEEN THE BALANCE AS SHOWNCASH OF A FIRM. THE DIFFERENCE BETWEEN THE BALANCE AS SHOWN
IN THE FIRM’S RECORD AND THE ACTUAL BANK BALANCE IS DUE TOIN THE FIRM’S RECORD AND THE ACTUAL BANK BALANCE IS DUE TO
TRANSIT AND PROCESSING DELAYS. TRANSIT AND PROCESSING DELAYS.
ACCRUALSACCRUALS: FINALLY, A POTENTIAL TOOL FOR STRETCHING ACCOUNTS: FINALLY, A POTENTIAL TOOL FOR STRETCHING ACCOUNTS
PAYABLE IS ACCRUALS WHICH ARE DEFINED AS CURRENT LIABILITIESPAYABLE IS ACCRUALS WHICH ARE DEFINED AS CURRENT LIABILITIES
THAT REPRESENT A SERVICE OR GOODS RECEIVED BY A FIRM BUT NOTTHAT REPRESENT A SERVICE OR GOODS RECEIVED BY A FIRM BUT NOT
YET PAID FOR. FOR INSTANCE, PAYROLL, I.E., REMUNERATION TOYET PAID FOR. FOR INSTANCE, PAYROLL, I.E., REMUNERATION TO
EMPLOYEES, WHO RENDER SERVICES IN ADVANCE AND RECEIVEEMPLOYEES, WHO RENDER SERVICES IN ADVANCE AND RECEIVE
PAYMENT LATER. PAYMENT LATER.
CIRCULATION SYSTEM OF WORKING CAPITALCIRCULATION SYSTEM OF WORKING CAPITAL
IN THE BEGINNING THE FUNDS ARE OBTAINED BY ISSUING SHARES,IN THE BEGINNING THE FUNDS ARE OBTAINED BY ISSUING SHARES,
OFTEN SUPPLEMENTED BY LONG TERM BORROWINGS. MUCH OF THESEOFTEN SUPPLEMENTED BY LONG TERM BORROWINGS. MUCH OF THESE
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SWATI SAHAY
COLLECTED FUNDS ARE USED IN PURCHASING FIXED ASSETS ANDCOLLECTED FUNDS ARE USED IN PURCHASING FIXED ASSETS AND
REMAINING FUNDS ARE USED FOR DAY TO DAY OPERATION AS PAY FORREMAINING FUNDS ARE USED FOR DAY TO DAY OPERATION AS PAY FOR
RAW MATERIAL, WAGES OVERHEAD EXPENSES. AFTER THIS FINISHEDRAW MATERIAL, WAGES OVERHEAD EXPENSES. AFTER THIS FINISHED
GOODS ARE READY FOR SALE AND BY SELLING THE FINISHED GOODSGOODS ARE READY FOR SALE AND BY SELLING THE FINISHED GOODS
EITHER ACCOUNT RECEIVABLE ARE CREATED AND CASH IS RECEIVED.EITHER ACCOUNT RECEIVABLE ARE CREATED AND CASH IS RECEIVED.
IN THIS PROCESS PROFIT IS EARNED. THIS ACCOUNT OF PROFIT IS USEDIN THIS PROCESS PROFIT IS EARNED. THIS ACCOUNT OF PROFIT IS USED
FOR PAYING TAXES, DIVIDEND AND THE BALANCE IS PLOUGHED IN THEFOR PAYING TAXES, DIVIDEND AND THE BALANCE IS PLOUGHED IN THE
BUSINESS.BUSINESS.
WORKING CAPITAL IS CONSIDERED TO EFFICIENTLY CIRCULATE WHENWORKING CAPITAL IS CONSIDERED TO EFFICIENTLY CIRCULATE WHEN
IT TURNS OVER QUICKLY. AS CIRCULATION INCREASES, THEIT TURNS OVER QUICKLY. AS CIRCULATION INCREASES, THE
INVESTMENT IN CURRENT ASSETS WILL DECREASE. CURRENT ASSETSINVESTMENT IN CURRENT ASSETS WILL DECREASE. CURRENT ASSETS
TURNOVER RATIO SPEAKS ABOUT THE EFFICIENCY OF ICICI BANK INTURNOVER RATIO SPEAKS ABOUT THE EFFICIENCY OF ICICI BANK IN
THE UTILIZATION OF CURRENT ASSETS. FAST TURNOVER CURRENTTHE UTILIZATION OF CURRENT ASSETS. FAST TURNOVER CURRENT
ASSETS RESULTS IN A BETTER RATE ON INVESTMENT.ASSETS RESULTS IN A BETTER RATE ON INVESTMENT.
TABLE SHOWING CURRENT ASSETS TURNOVER RATIOTABLE SHOWING CURRENT ASSETS TURNOVER RATIO
Year Ratio (in times)
2009 1.78
20010 2.98
2011 1.98
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SWATI SAHAY
Average: 2.24
ICICI BANK OF INDIA
RATIO ANALYSIS:
RATIO ANALYSIS
LIQUIDITY RATIO:
LIQUIDITY RATIO SHOWS THE FIRM’S SHORT TERM SOLVENCY AND ITSLIQUIDITY RATIO SHOWS THE FIRM’S SHORT TERM SOLVENCY AND ITS ABILITY TO PAY OFF THE LIABILITIES. IT HAS BEEN DEVISED TO KEEP AABILITY TO PAY OFF THE LIABILITIES. IT HAS BEEN DEVISED TO KEEP A TRACK OF THEIR FIRM’S EXPOSURE THE RISK THAT IT WILL NOT BETRACK OF THEIR FIRM’S EXPOSURE THE RISK THAT IT WILL NOT BE ABLE TO MEET ITS SHORT TERM OBLIGATIONS. IT PROVIDES A QUICKABLE TO MEET ITS SHORT TERM OBLIGATIONS. IT PROVIDES A QUICK MEASURE OF LIABILITY OF THE FIRM BY ESTABLISHING AMEASURE OF LIABILITY OF THE FIRM BY ESTABLISHING A RELATIONSHIP BETWEEN ITS CURRENT ASSETS AND ITS CURRENTRELATIONSHIP BETWEEN ITS CURRENT ASSETS AND ITS CURRENT LIABILITIES.LIABILITIES.
SOME OF THE LIQUIDITY RATIO:SOME OF THE LIQUIDITY RATIO:
A)A) CURRENT RATIO CURRENT RATIO::
THE CURRENT RATIO GIVES THE MARGIN BY WHICH THE VALUE OF THETHE CURRENT RATIO GIVES THE MARGIN BY WHICH THE VALUE OF THE CURRENT ASSETS MAY GO DOWN WITHOUT CREATING AND PAYMENTSCURRENT ASSETS MAY GO DOWN WITHOUT CREATING AND PAYMENTS THE FIRMS. THE TOTAL CURRENT ASSETS INCLUDE PREPAID EXPENSESTHE FIRMS. THE TOTAL CURRENT ASSETS INCLUDE PREPAID EXPENSES AND SHORT TERM INVESTMENTS. WHEREAS THE CURRENT LIABILITYAND SHORT TERM INVESTMENTS. WHEREAS THE CURRENT LIABILITY INCLUDES ALL TYPES OF LIABILITY WHICH WILL MATURE FORINCLUDES ALL TYPES OF LIABILITY WHICH WILL MATURE FOR PAYMENTS WITHIN A PERIOD OF ONE YEAR E.G. BANK OVERDRAFT,PAYMENTS WITHIN A PERIOD OF ONE YEAR E.G. BANK OVERDRAFT, BILLS PAYABLE, TRADE CREDITOR, OUTSTANDING ETC. THE CURRENTBILLS PAYABLE, TRADE CREDITOR, OUTSTANDING ETC. THE CURRENT RATIO THROW LIGHT ON THE FIRMS ABILITY TO PAY ITS CURRENTSRATIO THROW LIGHT ON THE FIRMS ABILITY TO PAY ITS CURRENTS LIABILITIES OUT OF ITS CURRENTS ASSETS.LIABILITIES OUT OF ITS CURRENTS ASSETS.
THE CURRENT RATIO IS COMPARED WITH THE STANDARD RATIO OFTHE CURRENT RATIO IS COMPARED WITH THE STANDARD RATIO OF TWO TIMES FOR 2: 1 TWO TIMES FOR 2: 1
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SWATI SAHAY
B) B) QUICK RATIO / ACID TEST RATIO / LIQUID RATIOQUICK RATIO / ACID TEST RATIO / LIQUID RATIO::
THIS RATIO ESTABLISHES RELATIONSHIP BETWEEN QUICK CURRENTTHIS RATIO ESTABLISHES RELATIONSHIP BETWEEN QUICK CURRENT ASSETS AND CURRENT LIABILITIES. A CURRENT ASSETS IS CONSIDEREDASSETS AND CURRENT LIABILITIES. A CURRENT ASSETS IS CONSIDERED TO BE LIQUID IF IT I CONVERTIBLE INTO CASH WITHOUT LOSS OF TIMETO BE LIQUID IF IT I CONVERTIBLE INTO CASH WITHOUT LOSS OF TIME AND VALUE. THEREFOREAND VALUE. THEREFORE
THE INVENTORY IS SINGLED OUT OF THE TOTAL CURRENT ASSETS ASTHE INVENTORY IS SINGLED OUT OF THE TOTAL CURRENT ASSETS AS THE INVENTORY IS CONSIDERED TO BE THE POTENTIAL ILLIQUID. THETHE INVENTORY IS CONSIDERED TO BE THE POTENTIAL ILLIQUID. THE REASON FOR KEEPING INVENTORY OUT IS THAT IT MAY BECOMEREASON FOR KEEPING INVENTORY OUT IS THAT IT MAY BECOME ABSOLUTE, UN SALEABLE OR OUT OF FASHION AND ALWAYS REQUIRESABSOLUTE, UN SALEABLE OR OUT OF FASHION AND ALWAYS REQUIRES TIME FOR REALIZING INTO CASH. GENERALLY A QUICK RATIO OF 1:1 ISTIME FOR REALIZING INTO CASH. GENERALLY A QUICK RATIO OF 1:1 IS CONSIDERED TO BE SATISFACTORY BECAUSE THIS MEAN THAT THECONSIDERED TO BE SATISFACTORY BECAUSE THIS MEAN THAT THE QUICK ASSETS OF THE FIRM ARE JUST EQUAL TO THE QUICK LIABILITYQUICK ASSETS OF THE FIRM ARE JUST EQUAL TO THE QUICK LIABILITY AND THERE HAS NOT BEEN SEEN TO BE A POSSIBILITY OF DEFAULT INAND THERE HAS NOT BEEN SEEN TO BE A POSSIBILITY OF DEFAULT IN PAYMENTS BY THE FIRM.PAYMENTS BY THE FIRM.
C) C) NET WORKING CAPITAL RATIONET WORKING CAPITAL RATIO::
IT INDICATES THE FIRMS’ POTENTIAL RESERVOIR OF FUND.IT INDICATES THE FIRMS’ POTENTIAL RESERVOIR OF FUND.
NET WORKING CAPITAL RATIO= NET WORKING CAPITAL/ NET ASSETSNET WORKING CAPITAL RATIO= NET WORKING CAPITAL/ NET ASSETS
IT IS MEASURE OF MOVEMENT AND THUS INDICATES AS TO HOWIT IS MEASURE OF MOVEMENT AND THUS INDICATES AS TO HOW FREQUENTLY AN ACCOUNT HAS MOVED OVER DURING A PERIOD. ITFREQUENTLY AN ACCOUNT HAS MOVED OVER DURING A PERIOD. IT SHOWS AS TO HOW EFFICIENTLY AND EFFECTIVELY THE ASSETS OF THESHOWS AS TO HOW EFFICIENTLY AND EFFECTIVELY THE ASSETS OF THE FIRM ARE BEING UTILIZED. THESE RATIOS ARE USUALLY CALCULATEDFIRM ARE BEING UTILIZED. THESE RATIOS ARE USUALLY CALCULATED WITH REFERENCES TO SALES / COST OF GOODS SOLD AND ITSWITH REFERENCES TO SALES / COST OF GOODS SOLD AND ITS EXPRESSED IN TERMS OF RATE OR TIMES.EXPRESSED IN TERMS OF RATE OR TIMES.
A) WORKING CAPITAL TURNOVER RATIOA) WORKING CAPITAL TURNOVER RATIO::
THE WCT RATIO STUDIES THE VELOCITY OR UTILIZATION OF THETHE WCT RATIO STUDIES THE VELOCITY OR UTILIZATION OF THE WORKING CAPITAL OF THE FIRM DURING A YEAR. THE WC HERE REFERSWORKING CAPITAL OF THE FIRM DURING A YEAR. THE WC HERE REFERS TO THE NET WORKING CAPITAL WHICH IS EQUAL TO THE TOTALTO THE NET WORKING CAPITAL WHICH IS EQUAL TO THE TOTAL CURRENT ASSETS LESS TOTAL CURRENT LIABILITIES.CURRENT ASSETS LESS TOTAL CURRENT LIABILITIES.
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SWATI SAHAY
THE HIGHER THE WCT RATIO THE LOWER IS THE INVESTMENT IN THETHE HIGHER THE WCT RATIO THE LOWER IS THE INVESTMENT IN THE WORKING CAPITAL AND HIGHER WOULD BE THE PROFITABILITY. A HIGHWORKING CAPITAL AND HIGHER WOULD BE THE PROFITABILITY. A HIGH WCT RATIO REFLECTS THE BETTER UTILIZATION OF THE WC OF THEWCT RATIO REFLECTS THE BETTER UTILIZATION OF THE WC OF THE FIRM. HOWEVER, A HIGH WCT RATIO IMPLIES A LOW NET WORKINGFIRM. HOWEVER, A HIGH WCT RATIO IMPLIES A LOW NET WORKING CAPITAL IN RELATION TO THE SALES VOLUME AND THEREFORE IMPLIESCAPITAL IN RELATION TO THE SALES VOLUME AND THEREFORE IMPLIES OVER TRADING BY THE FIRM IN RELATION TO ITS NET WC.OVER TRADING BY THE FIRM IN RELATION TO ITS NET WC.
B) FIXED ASSETS TURNOVER RATIO:B) FIXED ASSETS TURNOVER RATIO:
THIS RATIO SHOWS THE CONTRIBUTION OF AVERAGE FIXED ASSETS TOTHIS RATIO SHOWS THE CONTRIBUTION OF AVERAGE FIXED ASSETS TO NET SALES. HIGHER THE RATIO BETTER WILL BE THE SALES PER UNIT OFNET SALES. HIGHER THE RATIO BETTER WILL BE THE SALES PER UNIT OF FIXED ASSETS.FIXED ASSETS.
FA TURNOVER RATIO = (NET SALES) / AVERAGE FIXED ASSETS FA TURNOVER RATIO = (NET SALES) / AVERAGE FIXED ASSETS
C) CAPITAL TURNOVER RATIOC) CAPITAL TURNOVER RATIO::
CAPITAL TURNOVER RATIO = (NET SALES) / AVERAGE CAPITALCAPITAL TURNOVER RATIO = (NET SALES) / AVERAGE CAPITAL EMPLOYED.EMPLOYED.
Ratios useful to analyze working capital management
(A) EFFICIENCY RATIOS(A) EFFICIENCY RATIOS 200200
99
201201
00
201201
11
IDEAL IDEAL
RATIORATIO
1. WORKING CAPITAL 1. WORKING CAPITAL
TURNOVER (TIMES)TURNOVER (TIMES)
4.844.84 10.10.
2323
5.75.7
11
--
2. CURRENT ASSETS 2. CURRENT ASSETS
TURNOVER (TIMES)TURNOVER (TIMES)
1.781.78 2.92.9
88
1.91.9
77
--
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SWATI SAHAY
3. INVENTORY 3. INVENTORY
TURNOVER (TIMES)TURNOVER (TIMES)
9.499.49 9.29.2
00
7.87.8
88
--
(B) LIQUIDITY RATIO(B) LIQUIDITY RATIO
1. CURRENT RATIO1. CURRENT RATIO 2.122.12 1.81.8
00
2.42.4
11
2.02.0
2.ACIDTESTRATIO2.ACIDTESTRATIO 1.151.15 0.90.9
88
1.01.0
33
1.01.0
3. CASH RATIO3. CASH RATIO 0.570.57 0.00.0
88
0.00.0
55
0.50.5
Current ratio and quick ratio
YEARYEAR CURRENT RATIOCURRENT RATIO QUICK RATIOQUICK RATIO
20092009 2.122.12 1.511.51
20102010 1.801.80 0.970.97
20112011 2.412.41 1.031.03
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SWATI SAHAY
(C) STRUCTURAL HEALTH OF WORKING CAPITAL(C) STRUCTURAL HEALTH OF WORKING CAPITAL
RATIO/YEARRATIO/YEAR 20092009 20102010 20112011
1. CA 1. CA 0.310.31 0.260.26 0.350.35
2. CL2. CL 0.150.15 0.140.14 0.140.14
3. CASH TO CA3. CASH TO CA 0.270.27 .04.04 0.020.02
4. RECEIVABLES TO CA4. RECEIVABLES TO CA 0.270.27 0.500.50 0.400.40
5. LOANS AND ADVANCES TO5. LOANS AND ADVANCES TO CACA
0.150.15 0.190.19 0.150.15
6. INVENTORY TO CA6. INVENTORY TO CA 0.420.42 0.380.38 0.500.50
7. RM TO INVENTORY7. RM TO INVENTORY 0.440.44 0.460.46 0.300.30
8. STOCK SPARES TO8. STOCK SPARES TO INVENTORYINVENTORY
0.120.12 0.140.14 0.110.11
9. WIP TO INVENTORY9. WIP TO INVENTORY 0.060.06 0.080.08 0.030.03
10. FINISHED GOODS TO10. FINISHED GOODS TO INVENTORYINVENTORY
THE UTILIZATION RATE OF NET WORKING CAPITAL AS DEPICTED BYTHE UTILIZATION RATE OF NET WORKING CAPITAL AS DEPICTED BY WORKING CAPITAL TURNOVER RATIO IS FLUCTUATING DURING THEWORKING CAPITAL TURNOVER RATIO IS FLUCTUATING DURING THE PERIOD. IT SHOWS THAT WORKING CAPITAL HAS NOT BEENPERIOD. IT SHOWS THAT WORKING CAPITAL HAS NOT BEEN EFFECTIVELY USED OVER THE PERIOD OF YEARS EXCEPT IN THE YEAREFFECTIVELY USED OVER THE PERIOD OF YEARS EXCEPT IN THE YEAR 2006.2006.
AS SHOWN BY CURRENT ASSETS TURNOVER RATIO, THE UTILIZATION OFAS SHOWN BY CURRENT ASSETS TURNOVER RATIO, THE UTILIZATION OF CURRENT ASSETS IN TERMS OF SALES HAS SHOWN A DECREASINGCURRENT ASSETS IN TERMS OF SALES HAS SHOWN A DECREASING TREND WHICH SHOWS THAT CURRENT ASSETS HAS BEEN EFFECTIVELYTREND WHICH SHOWS THAT CURRENT ASSETS HAS BEEN EFFECTIVELY USED TO ACHIEVE SALES.USED TO ACHIEVE SALES.
AGAIN IF WE LOOK AT THE EFFICIENCY WITH WHICH INDIVIDUALAGAIN IF WE LOOK AT THE EFFICIENCY WITH WHICH INDIVIDUAL ELEMENTS OF WORKING CAPITAL HAVE BEEN UTILIZED, THE PICTUREELEMENTS OF WORKING CAPITAL HAVE BEEN UTILIZED, THE PICTURE OF INVENTORY TURNOVER IS NOT VERY BRIGHT.OF INVENTORY TURNOVER IS NOT VERY BRIGHT.
RECEIVABLES TURNOVER ALSO SHOWS A DECLINING TREND.RECEIVABLES TURNOVER ALSO SHOWS A DECLINING TREND. GENERALLY SUCH A SITUATION DOES NOT SUIT THE COMPANY.GENERALLY SUCH A SITUATION DOES NOT SUIT THE COMPANY.
AS WE LOOK AT THE EXTENT OF LIQUIDITY OF WORKING CAPITAL, WEAS WE LOOK AT THE EXTENT OF LIQUIDITY OF WORKING CAPITAL, WE NOTICE THAT THE RATIO SHOWS AN INCREASING TREND. THISNOTICE THAT THE RATIO SHOWS AN INCREASING TREND. THIS INDICATES IMPROVEMENT ON THE LIQUIDITY FRONT.INDICATES IMPROVEMENT ON THE LIQUIDITY FRONT.
IF WE ANALYZE THE STRUCTURAL HEALTH OF WORKING CAPITAL, THEIF WE ANALYZE THE STRUCTURAL HEALTH OF WORKING CAPITAL, THE PROPORTION OF CURRENT ASSETS TO TOTAL ASSETS HAS BEENPROPORTION OF CURRENT ASSETS TO TOTAL ASSETS HAS BEEN APPROPRIATE DURING THIS PERIOD.APPROPRIATE DURING THIS PERIOD.
SUCH A HIGHER PROPORTION OF CURRENT ASSET IN THE ASSETSSUCH A HIGHER PROPORTION OF CURRENT ASSET IN THE ASSETS PORTFOLIO OF ICICI BANK OF INDIA. IS QUITE ACCEPTABLE.PORTFOLIO OF ICICI BANK OF INDIA. IS QUITE ACCEPTABLE.
OUR ANALYSIS ABOVE INDICATES THE AREAS OF CONCERN TOOUR ANALYSIS ABOVE INDICATES THE AREAS OF CONCERN TO MANAGEMENT IN MAKING BEST POSSIBLE USE OF RESOURCES.MANAGEMENT IN MAKING BEST POSSIBLE USE OF RESOURCES. DECREASING EFFICIENCY IN THE USE OF CURRENT ASSETS HINTS OFDECREASING EFFICIENCY IN THE USE OF CURRENT ASSETS HINTS OF THE POSSIBILITY OF PROBLEMS IN WORKING CAPITAL MANAGEMENT.THE POSSIBILITY OF PROBLEMS IN WORKING CAPITAL MANAGEMENT.
ON FURTHER ANALYSIS, INVENTORY CONSTITUTES A MAJORON FURTHER ANALYSIS, INVENTORY CONSTITUTES A MAJOR PROPORTION OF TOTAL CURRENT ASSETS. AMONG ITS VARIOUSPROPORTION OF TOTAL CURRENT ASSETS. AMONG ITS VARIOUS COMPONENTS, RAW MATERIALS, STOCKS, SPARED AND FINISHED GOODSCOMPONENTS, RAW MATERIALS, STOCKS, SPARED AND FINISHED GOODS
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SWATI SAHAY
IN PARTICULAR NEED FURTHER ANALYSIS AS HERE STAND OUT TO THEIN PARTICULAR NEED FURTHER ANALYSIS AS HERE STAND OUT TO THE PROBLEM AREAS.PROBLEM AREAS.