ASSIGNMENT ON PROFIT PLANNING IN BANKS

Session 2013-2014

Submitted to: Mrs. Namita kohli (PG deptt. Of commerce)

submitted by: Akansha kushwaha m.com (lll sem) Rollno. 2519

Guru nanak khalsa college for women

Introduction
Banks are the commercial organization and their objective is to earn profit. Banking business in India is quite old and approach to business has undergone changes from time to time. In 1969, when major banks were nationalized, the purpose was to raise the standard of living for the poorest segment of population and the slogan was GROWTH WITH PROFIT. Since 1992-93, when prudential accounting norms were introduced, the emphasis is changed and the present slogan is PROFIT WITH GROWTH.

Meaning of profit planning

Profit planning is a systematic approach to business by analyzing the operational areas of business, examine the scope, fixing up the targets under various segment and determine the strategies to achieve them. This process is required to be reviewed periodicallyhalf yearly or yearly so as to modify the strategies on an ongoing basis.

Profit planning involves two broad Objective:-

1. Increase in business , 2. Improvement in existing position e.g. recovery of NPAs balancing of books.

Profit planning

Survey area

analysis

fix up target

strategies

review

Advantage of profit planning 1. it indicates the priorties as to the operations depending upon location of
the branch e.g. market area, residential area etc.

2. It takes care of short term measures mobilizing deposits for a short period
to achieve targets, as also the long term steps required to be taken for enhancement in business and improvement in the existing business.

3. It gives clear direction to branch towards the desired goal, and who in turn
can guide the staff member assisting him.

4. It motivates the staff in effecting improvements from loss making to

profit making or lower profitability to higher profitability.

For better profit planning and for its result oriented implementation , the business areas of a branch can be attended to systematically.
1. Cash and funds management

Fix up minimum cash/fund holding per day, on the basis of average receipts and payment. Utilise cash received today for payment after counting and records of exchange between two cashiers. In case of huge cash received against issuance of DD/ TT/MT or realization of bills , remit excess cash to currency chest SBI frequently. On transfer of surplus funds to central office through state bank associates/ associate bank, ensure that funds are credited to bank principal account on next working day. in case of delay claim interest. As far as possible avoid purchasing IT from state bank instead locally from other banks which works out cheaper and sometime may be even at 0 cost.

 If TT is purchase from state bank verify that exchange is charge correctly and that overdue interest is levied is correct in terms of days of delay and rate of interest. Wherever is known that fund is to be required on a particular day to meet adverse clearing, informed in advance to central office to remit the funds for credit of accounts with local state bank. Ascertain from your corporate clients , civil contractor , labour contractor , who need large cash for wages., the dates on which it is needed. Thus timely remittance of cash /funds benefit the branch to earn more profit.on the other hand, it helps the central office in avoiding borrowing from call money market and funds can be remitted to needy branches and can be lent to other bank or financial institution through call money market. 2. Reporting of RBI Weekly figures Banks are required to maintain statutory reserves like CRR and SLR on the basis of net demand and time liabilities as reported by branches. Every branch has to report these figures promptly failing which central office has to repeat figures and consequently more CRR and SLR is required to be maintained , causing revenue loss to bank. Also, reporting is to be accurate eg. Inside liability should not be included in outside liability, otherwise, excess CRR and SLR is to be maintained by the bank. 3. Improving low / cash deposits

Every branch has to make efforts to improve the share of current and saving deposit so as to improve the deposit mix. where branch is located in market area current account should be encouraged and in case of residential locality branch should go new saving account. A notice board should be displayed on the entrance gate, WE WELCOME OPENING OF NEW ACCOUNTS as far as opening of deposit accounts concerned concept of command area may not be applied. reasons can be ascertained from perspective customer. Branch should open account of individual who are income tax payers or those who are paying telephone bills or who are subscribing to PPF account. its better to have accounts of professional persons like engineers, lawyers , CA, surveyors , consultants etc. as they are generally belong to high income group. Branch shall have to explore all possibilities of branch computerization either partial or total because computerization will improve customer service. In view of no-cost ( as in case of current accounts ) and low cost ( savings account), extra attention is required to be paid to these customers so as to attract new business from them and also their associate concerns/ friends and relatives. 4. remittances DD , MT and TT issuance gives sizeable income to branch. This business results in large floating funds to bank even when DD/TT are paid within a short time at drawee branches. Branch should be particular as to charging of 25% higher commission against tender of cash for issuance of DD/MT/TT bankers cheques.

This type of business is quite attractive in market area branches and branch should not discontinue such service even for a day otherwise it may loose its revenue income in the long run along with loosing business.

5. Ancilliary income Branch may go in issuance of guarantees preferably with 100% margin. For issuance of letter of credit, the existing borrower can be contacted. In case of safe deposit locker, branch should not insist upon large deposits and thereby lose time. once the branch has made substantial capital expenditure , it must soon start earning income. keeping the locker vacant with the expectation of large deposits, will results in loss of rent to the branch. due to competition in local areas , branch should act fast on these matters. 6. Credit portfolio With gradual reduction in statutory reserves like CRR/SLR , banks may have sufficient liquidity. It is profitable to deploy the funds in credit portfolio rather than in investment. While investments earn an average interest of about 11.50%, credit portfolio may ensure an average yield of 14.5%.however in view of realities of the credit market such as the large quantum of NPAs and recessionary trends, branches can go in for fresh loans/advances to the schemes like trading advance. branch has to ensure worth of a prospective

borrower, study the market trends in the particular business activity and the security offer with a view to improving asset quality of loans. Measurement of credit risk will help in better profit planning at the central office as well as at the branch level. it is better to diversify the credit risk in different industries on the basis of activities, sectors , areas, nature of facilities and past experiences. This will lead to suitable plan for future sanctioning of incremental credit in future. Once credit risk is measured scientific price mechanism on the basis of risk may be formulated. Another is that, bank may discourage high borrower groups and take necessary risk and hedging measures. 7. Recovery management Branch is required to study the NPA;s and put extra efforts towards reduction of NPAs. In view of long delays in the legal system it is now preferable to go for non legal measures of recovery like rephasement , cash recovery, DICGC claims , nursing scheme and compromise settlements. Branch should try to maximize recovery with minimum sacrifice. By formation of staff teams either account wise or area wise, and by contacting frequently borrowers/guarantors, recovery can be improved. Special diary may be kept where in the dates on which borrowers have promised to repay can be noted for further follow up. Branch has also to see that performing assets do not slip to Non Performing Assets. To ensure that no such slippage take place certain border lines accounts can be identified e.g. Term loan accounts were installments are overdue for 3 months and above, cash credit accounts were operations are few and so on. These

accounts need special attention by Branch Manager so as to see that they do not slip to NPA on the date of Balance Sheet. There are distinct advantages of recovery in NPAs are: Unrealized interest amount is credited to profit/loss accounting. Provisioning is reversed to profit/loss account. Further provisioning is not required. Further legal expense/ other changes are not necessary. Funds can be recycled on which there will be income generation. Fixation of PLR will be better. There will be improvement in asset quality, in Capital Adequency Ratio and banks public image will go up because banking is now quite transparent and highly competitive. 8.Recovery of interest and service charges Every branch is required to ensure that appropriate interest rate is determined and charged. In case of accounts with sanctioned limit of over Rs. 2 lakhs, credit rating is to be done by branch accurately and applicable interest is charged. Interest and all charges are to be recovered in time, leaving no chance of revenue leakage. Wherever instructions of Central office cannot be interpreted, accurately , refer to RO/ZO for clarifications. Similarly, in case of disagreement with auditor/ inspector in respect of revenue leakage, branch manager should immediately refer to higher authorities for their instructions. Suitable registers are required to be maintained at branch level so that no charges are left out unrecovered, e.g.

 Branch must keep one register for Processing Charges with appropriate columns. Branch may note godown inspection charges in the last column of Inspection report itself.

9.Store keeping House keeping involves areas like balancing of books, inter branch reconcillation, reconcillation with state banks/associate bank/NBO, monitoring of nominal accounts and other such matters. Periodical balancing of various books ensures arithmetical accuracy of transaction and will help branch in finding out any wrong/excess credit to the account. if any overdraft is resulted due to such mistakes ,branch has to go for the recovery of the amount and plus the interest charges. Liquidation of old entries outstanding in IBR will avoid any possibility of making provision there against .Any double payment of TT can be located and efforts are made to recover the sum plus interest thereon. Follow up of outstanding entries in account with state bank/associates/NBO will reveal ay wrong debit to the account and interest can be claimed by the branch thereon. Nominal accounts with debit balances are to be vigorously attended to. These amount are recoverable from others and some of them are pertaining to profit /loss accounts. Adequate control is to be exercise on the purchase of table stationary. excess stationary is to be supplied to needy branches

obselete stationary is to be utilized for the rough noting pads this will save the space also. Old irrepairable furniture items are to be disposed off with the approval from RO/ZO. Others items are also to be repaired and used for conveince of customer and staff. Periodically, old unrequired records are to be disposed off by destroying. this will lead to the better utilization of space and improve the get-up of the branch premises. Profit planning can be effective and result oriented by adopting certain broad strategies which are as follow Recovery of all charges Reduction of NPAs Increase in business and anciallary income Control on expenditure. Efficient functioning of branch.