A SUMMER TRAINING REPORT ON

THE STUDY OF
WORKING CAPITAL SCENARIO
AT

RELIANCE ENERGY LIMITED

(BSES POWER LIMITED)

NEW DELHI

Submitted By:
SWATI VIJAY
PGDM
2004-2006

in partial fulfillment of the requirement of the award of

Post Graduate Diploma in Management

INSTITUTE OF TECHNOLOGY &

SCIENCE
MOHAN NAGAR, GHAZIABAD.
This is to certify that Miss Swati Vijay, student of First Year, POST
GRADUATE DIPLOMA IN MANAGEMENT has successfully completed
his summer training project titled

WORKING CAPITAL MANAGEMENT

AT
Reliance Energy Limited
(BSES Power Limited)
New Delhi

And all the above statements made by the candidate are correct to the best of
our knowledge and belief.

We wish him all the best for his future endeavors.

Signature
Mr. Inderneel Deb
(Dy. Manager, Banking & Treasury Operations)
 Table of Contents

Sr. No CONTENTS

1). Acknowledgement

2). Company Profile

3). Objectives of the study

4). Research Methodology & Scope of the study

5). Need of the study

6). Actual study:

Working Capital Management
Cash Management & Collection
Process
Inventory Management
Receivables Management & Billing
Procedure
Payables Management
Working Capital Financing Procedure

7). Comparative Ratio Analysis BYPL & NDPL

8). Major Findings & Recommendations

9). Conclusion

10). Limitations of the study

11). Annexure

12). Bibliography
ACKNOWLEDGEMENT
A project of this nature calls for intellectual nourishment,
professional help and encouragement from many quarters.

I take this opportunity to express my profound sense of

gratitude to all those, without whose encouragement,
assistance and co-operation, successful completion of this
summer project would not have been possible.

I am deeply indebted to my guide, Mr. Inderneel Deb, Dy.

Manager, Banking & Treasury operations, Mr. Hemant
Goyal, Manager, Finance Central accounts for giving me
the opportunity to engage in an on the job training project
on Working Capital Management to get a detailed insight
of the topic and various issues related to it.

I am also grateful to all the staff in Finance Department for

their cooperation and valuable support throughout my
training. Their constant encouragement was a source of
strength for me in pursuing this work. A refreshing,
enlightened knowledge based experience was possible
because of the overall support of various officers of the
various departments, who took keen interest in sparing
their valuable time. I convey my sincere acknowledgement
to all of them.

It provides me immense pleasure to extend my grateful

thanks to my internal mentors Prof. Vidushi Sharma, Prof.
Raju Majumdar for their perpetual guidance and
encouragement.

I express my deep sense of gratitude and reverence for my

parents and my dear friends for their endless love,
guidance, moral support, encouragement and untiring co-
operation throughout my study and work, without which
this work would never have been completed.

It was learning and an enlightening experience for me and I

therefore will remain indebted to all the people mentioned
above as no words can thank them for their teaching and
love shown towards me.
Finally I would like to take this opportunity to thank the
organization, BSES who helped me to acquire proper
knowledge and success in my training.

(SWATI VIJAY)

COMPANY PROFILE
 RELIANCE ENERGY LIMITED

Powering Progress, Energizing the Economy

Reliance Energy Ltd, part of the Anil Dhirubai Ambani

Enterprise group, is India's leading integrated power
utility company in the private sector. It has a significant
presence in generation, transmission and distribution
of power in Maharashtra, Goa and Andhra Pradesh and in
the capital.

The Company has a pioneering history of leadership and

innovation spanning 75 years in Mumbai providing reliable
and dependable electricity at competitive prices to its
consumers .The company has 941 MW of power generation
capacity at plants located in Maharashtra, Andhra Pradesh,
Kerala and Karnataka. Reliance Energy and its affiliate
companies distribute over 15 billion units of power a year to
over 5 million customers in Mumbai, Delhi and Orissa.

The combined sales of Reliance Energy and its affiliate

companies are over Rs 9,500 crore and asset base of about
Rs. 10,700 crore. It aims to become one of the largest
power players in the country with expansion plans of over
Rs. 60,000 crore in generation, transmission and
distribution. The company ranks among the top 20 private
sectors listed companies in the country, in terms of all major
financial parameters, such as assets, sales, profits and
market capitalisation.
Reliance Energy is committed to expanding customer base
in its distribution through new licenses, through open
access on existing networks, and / or through participation
in the privatization process of state owned distribution
assets. The company plans to set up gas, wind, hydro and
coal based power generation projects, to match its
distribution capability. The Company is also exploring
growth opportunities in the power transmission sector.

Reliance Energy, through a special purpose vehicle viz.

Reliance Energy Generation Limited is setting up a 3740
MW gas based mega power project at Dhirubai Ambani
energy City, near Dadri in the state of Uttar Pradesh.With
an initial investment outlay of Rs. 11,000 crore, the power
project, to be developed in phases, will also be the worlds
largest power generating power plant at a single location.

Reliance Energy & BSES:

After being the single largest private sector shareholder in
BSES for over a decade, Reliance had made two open offers
of BSES, in accordance with the provisions of the SEBI
Takeover Code. As a result, Reliances stake in BSES
increased to 58 percent, and it acquired management
control over the company during the year 2003. Thus BSES
became a part of the Reliance Group on January 18,
2003.

PROFILE OF THE COMPANY

BSES, is the first private power distribution company

formed in 1929 earlier known as Bombay Suburban
Electric Supply Company. The company is engaged in the
generation, transmission and distribution of electricity in
and around Mumbai. It provides a portfolio of value added
services in electrical contracting, engineering, procurement
and construction (EPC) contracts and computer services.

BSES and its subsidiaries provide electricity service to more

than 2.70 million consumers in areas covering about 1,
23,000 sq. kms. With an estimated population of about 34
million. BSES operates a state-of-the-art 500 MW Thermal
Power Station at Dahanu near Mumbai and supplies the
power to the companies own distribution grid. The
Generation Division undertakes engineering and
construction of power plants. The Transmission Division
designs and installs transmission lines and sub-stations.
Contracts Division including the EPC Business Group
renders compressive value added services in construction,
erection and commissioning through a nationwide network
of regional-offices. The Computer Division offers a wide
range of utility related computer services.

BSES is considered to be India's no.1 integrated utility

in the private sector and is the first Indian power
utility company to get ISO 9002 accreditation. With
over seven decades in the field of power distribution, the
Electricity Supply Division has achieved the distinction of
operating its Mumbai distribution network with 99.9 % on
line reliability coupled with a miniscule distribution
loss of 11.5%, which is the lowest in the country.

Over the years BSES has received many coveted awards

and recognitions across various categories. BSES was
honored with the first Millennium Business award for
environment management. The United Nations Environment
Programmes and several international awards.

In Mumbai, the state-of-art technology interface which

caters to 22 lakh consumers includes online inquiry,
consumer centers, touch screen kiosks and mobile
collection vans all of which lead to a high level of consumer
satisfaction. The strong IT driven system with in-house
billing expertise adds to the reliable and efficient services
we offer our consumers. Besides, privatization

of the distribution system in Orissa makes BSES the only

utility company with more than 3 years experience in
managing privatized distribution.

BSES Limited is India's premier utility engaged in the

generation, transmission and distribution of electricity.
Formerly, known as Bombay Suburban Electric Supply
Limited, it was incorporated on 1st October 1929, for the
distribution of electricity in the suburbs of Mumbai, with a
pioneering mission to make available uninterrupted,
reliable, and quality power to customers and provide
value added services for the development of the power
and infrastructure sectors.
BSES caters to the needs of 2.07 million consumers over an
area of 384 sq. km. with a maximum system demand of
approximately 1198 MVA. With 7 decades in the field of
power distribution, the Electricity Supply Division of BSES
has achieved the distinction of operating its distribution
network with 99.98% on-line reliability and has a
distribution loss of only 11.6%.
BSES was amongst the first utilities in India to adopt
computerization in 1967 to meet the increasing workload
and to improve services to its customers.
With a view to optimally utilize trained manpower and
expertise in the field of power, the company commenced
contracting activities in 1966 by undertaking turnkey
electrical contracts, thermal, hydro and gas turbine
installations and commissioning contracts, transmission line
projects etc.
BSES set up its own 500 MW Thermal Power Plant and the
first 2 x 250 MW units of Dahanu Power Station were
synchronized and began commercial operation during 1995-
1996. A dedicated 220 kV double circuit transmission line
network with three 220 / 33 kV receiving stations have been
installed to evacuate the power to the distribution area of
the Company. This demonstrates BSES in-house capabilities
ranging from engineering, operation & maintenance of
power plants and transmission and distribution systems.
BSES through international competitive bidding acquired an
equity stake of 51% in three of the four Distribution
Companies of Orissa. At present, BSES along with its
subsidiaries provide electricity to more than 2.7 million
consumers in an area covering about 1,23,000 sq. km with
an estimated population of 34 million.

BSES, which has been the oldest professionally managed

private sector company in power generation, transmission
and distribution, has now become a part of the Reliance
group.

BSES will play an important role in the fulfillment of Shri

Dhirubhai Ambanis vision of contributing to the economic
growth of the country by accelerating the pace of
development of world-class power infrastructure and
serving millions of customers. This integration of BSES into
the Reliance family is another step forward to establish
Reliance as Indias only integrated Energy Company with
interests in oil and gas exploration and production, refining
and marketing of petroleum products, petrochemicals and
power.

BSES DELHI
In July 2002, Delhi Vidyut Board unbundled into five
successor entities the three distribution companies, a
transmission and a holding company. Two of the three
distribution companies have been handed over to BSES, and
one to TATA POWER.
As a part of its active support to the privatization process,
BSES has recently acquired an equity stake of 51% in two of
the three Distribution Companies of Delhi after unbundling
and privatization of the erstwhile Delhi Vidyut Board. The
two distribution companies, BSES Rajdhani Power
Limited covering South and West areas and BSES
Yamuna Power Limited covering Central and East
regions provide electricity to around 23 lakhs consumers
spread across an area of 1000 sq kms (approx).

Distributing Power in the Capital

The Delhi Distribution Companies, BSES Yamuna Power
Limited (BYPL) and BSES Rajdhani Power Limited (BRPL)
are two of the successor entities created as a result of the
functional unbundling of Delhi Vidyut Board. The
Companies commenced the business distribution and supply
of electricity in Delhi from 1st July. 2002. The Company
acquired assets, liabilities, proceedings and personnel of the
Delhi Vidyut Board as per the terms and conditions
contained in the Transfer Scheme.
BSES Yamuna Power Limited
BYPL has a consumer base of 10.49 lakhs covering Central
and East areas regions and consists of 14 divisions, Chandni
Chowk, Daryaganj, Paharganj, Shankar road, Patel Nagar,
Karkardooma, GT Road, Yamuna Vihar, Karawal Nagar,
Nand Nagri, Krishna Nagar, Laxmi Nagar, Mayur Vihar I &
II, Mayur Vihar III.

Consumer Profile
Category Central-East
LIP (Large 310
Industrial Power)
SIP (Small Industrial 26416
Power)
Non-Domestic 173248
Domestic 660866
Agriculture 341
Railways 0
Water 43
Public Lighting 1

BSES Rajdhani Power Limited

BRPL has a consumer base of 11.69 lakhs covering South
and West regions and consists of 19 divisions, Saket, Vasant
Kunj, Hauzkhas, Khanpur, Sarita Vihar, Tagore Garden,
Nehru Place, RK Puram, Jaffarpur, Mundka, Dwaraka,
Vikaspuri, Najafgarh, Alaknanda, Mehrauli, Palam, Nangloi,
Nizamuddin, Janakpuri and Punjabi Bagh areas.
 CONSUMER PROFILE

Category South-West
LIP (Large
Industrial Power)
SIP (Small Industrial 19802
Power)
Non-Domestic 100062
Domestic 717273
Agriculture 11173
Railways
Water
Public Lighting

These two Companies together provide service to an

estimated population of 7 million. BSES Delhi with its Two
Distribution Companies at Delhi comprises of functions &
roles that are multi-faced and dynamic. The functions
include system & Operations. Commercial, Billing,
Finance and Customer Services.

These Companies have introduced a number of

measures including infusion of information
technology in order to improve and monitor the
distribution system effectively and to ensure
transparency and accountability in the billing and
payment system. Some of the steps taken in this
direction are:

Focusing attention on strengthening and

streamlining of the organization structure
Capacity of Call Centers enhanced
Measures to reduce faults and improve supply -
including installation of 50 additional cheque
collection boxes, etc.

Regular meetings with local statutory authorities for

smooth coordination.
Undertaking of prompt efforts to meet the short
term exigencies and at the same time drawing up of
detailed action plans on each area of business
Replacement of defective and stalled meters.

With the above measures, both the Companies have been

able to reduce the system loss at a steady pace and
continual efforts are being made to achieve further loss
reduction and system improvement with the implementation
of above measures.
NETWORK OF THE COMPANY
 OBJECTIVES OF THE
STUDY

Everything that comes into existence must have an objective

for its existence. It holds true for my Project also.
The primary objective of this study is to have an insight into
the practices of the company with regards to management
of various elements of working capital.
An attempt has also been made to find out whether or not,
to what extent, the working capital management is efficient
and effective in BSES. Ways and means to improve working
capital management have also been suggested which lead to
better productivity.
Apart from the above, more specifically the present study is
conducted to find out as follows:
 To study the Collection process of BSES and
determining how far has the company been successful
in managing collection of receivables in time.
To study the Inventory management process in
BSES i.e. material planning, material procurement &
vendor selection procedure.
How well has the company been successful in
managing its Creditors / payables i.e. suppliers of
electricity, suppliers of inventory.

To Understand the Cash Management procedure in

BSES and suggesting ways with which company is able
to maintain adequate liquidity throughout the year.

To understand the entire Billing procedure of BSES

and recommending ways to fasten the revenue cycle
time of Billing to cash receipt.

To understand the need for Working Capital

Financing in BSES.
Research Methodology
&
Scope of the Study

The Research study is descriptive in nature. Descriptive

research includes surveys and fact-finding enquiries of
different kinds. The major purpose of descriptive research is
description of the state of affairs, as it exists at present.
The Study on various aspects of Working Capital such as
Cash Management, Inventory management, Receivables
Management, Payables Management involves
understanding the various processes in the company.

The scope of the study was restricted to the Finance

Department, Commercial Department & Operations
Department of BSES, a nearby Inventory Store at Okhla and
CPC (Collection Processing Centre) situated at Shankar
Road, New Delhi.

The identification of the issues in the report is mainly based

on the review of records, sample verification of Documents
& Financial Statements. Sample selection is purely
judgemental in view of the limited time available and
confidentiality of the documents.

SOURCES OF DATA COLLECTION:

The research plan called for gathering primary data as

well as secondary data. Though the research is based
more on secondary data.

Primary Data: - It is the data collected firsthand relating to

specific queries and problems from the process owners in
the organization. Its main advantage is that the information
is up-to-date but it is time consuming.
Sources of collecting Primary Data
The primary data is collected using two main research
instruments: questionnaires and mechanical devices. The
required information from the staff members of the Finance,
Inventory Department and Collection Department of the
BSES was gathered through personal interview.

Secondary Data: - It is the information, which has been

already collected for other purposes and is readily available
in some form.
Sources of Collecting Secondary Data
 Internal Sources the Company's Financial
Statements i.e. Balance Sheet & Profit & Loss
Accounts, Cash Flow Statement, Collection figures,
credit policies, CMA Data and various invoices.

Financial Books from libraries providing information

on working capital management.

Companys Website etc.

Analysis Technique

The obtained raw data was categorically and methodically

subjected to tabulation in Excel and statistical techniques
like mean and percentages were applied to analyze the
same. Flowchart has also been used to come out with the
findings. Ratio analysis was used to analyse the working
capital / short-term position of the company.
NEED OF THE STUDY
Along with the Fixed Assets, which yield returns over a
period of time, BSES like all other firms has also to employ
short-term assets and short-run sources of financing. The
management of such assets, described as working capital
management or current assets management, is one of the
most important aspects of financial policy of BSES.

Working Capital Management (WCM) is a crucial area of

study. All organizations, whether big or small,
manufacturing or trading have Working Capital. WCM is
concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and the
interrelationship that exists between them.

The problems involved in the management of working

capital in BSES differ from those in the management of
Fixed assets. In the first place, BSES acquires fixed assets
to retain them in the business over a period of time and
yield returns over the life of the assets.

Probably, the most notable feature of such assets, from the

point of view of financial analysis, is the time dimension. In
contrast, the stock-in-trade of working capital management
is short-term asset, which loses its identity fairly quickly,
usually within an operating cycle not exceeding a year. In
the management of working capital, therefore, the time
factor is not at all crucial as a decision variable.

Yet another notable feature of short-term assets is the

question of profitability versus liquidity and the related
aspect of risk. If the size of such assets is large, the liquidity
position would improve, but profitability would be adversely
affected, as fund will remain idle. Conversely, if the holdings
of such assets are relatively small, the overall profitability
will no doubt increase, but it will have an adverse effect on
the liquidity position and make the company more risk-
prone.

Working Capital management should, therefore, aim at

striking a balance such that there is an optimum amount of
short-term assets. No business can run successfully without
an adequate amount of working capital.

Justification for the Selection of this

Topic:

BSES enjoys the following advantages of maintaining

adequate working capital:

It has helped the company in fostering good relations

with trade creditors (both small-scale industries and
others) and suppliers of electricity, assets like
transformers, cables, and other inventory items.

The adequate level of cash with the BSES has helped

the company to prevent insolvency or bankruptcy
arising out of its inability to meet its obligations.

It has led to a strong credit rating, which enables

BSES to purchase goods on favourable terms and to
maintain its line of credit with banks and other sources
of credit.

BSES is able to meet its high cash expenditure with a

minimum of strain during the peak season like may-
june in summers when the expenditure on
transformers, cables and other operational &
maintenance expenses are high.
BSES is able to make regular payment of salaries,
wages and other day-to-day commitments, which raises
 the morale of its employees, increases their efficiency,
reduce wastage and costs, enhances business and
profits.

Sufficiency of working capital enables BSES to pay

quick and regular dividends to the investors.

By keeping the above points in mind, it was felt that the

working capital is the most critical financial activity, which
has to be properly tackled by the finance manager.

Therefore, I decided to study Working Capital

Management as my project topic for study during
summer training.

ACTUAL STUDY
Working capital management is management for the short-
term. It is concerned with the problems that arise in
attempting to manage the current assets, the current
liabilities and the interrelationship that exists between
them. This is of critical importance to BSES.

A firms working capital consists of its investment in

Current assets i.e. those assets, which in the ordinary
course of the business can be, or will be, converted into
cash within one year without a diminution in value and
without disrupting the operations of the firm. A firms
working capital consists of its investment in current assets,
which include short assets such as cash and bank balance,
inventories, receivables (including debtors and bills), and
marketable securities. Current Liabilities are those
liabilities, which are intended, at their inception, to be paid
in the ordinary course of business, within a year, out of the
current assets or earnings of the concern.
The goal of working capital management is to manage
the firms current assets and liabilities in such a way
that a satisfactory level of working capital is
maintained.

The need for Working Capital arises from the following

considerations:
First, existence of working capital is imperative in any firm.
The fixed assets, which usually require a large chunk of
total funds, can be used at an optimal level only if supported
by sufficient working capital.

Second, the working capital investments of funds of the

firm if the working capital level is not properly maintained
and managed, then it may result in unnecessary blocking of
scarce resources of the firm. The insufficient working
capital, on the other hand, put different hindrances in
smooth working of the firm.

To earn a steady amount of profit requires successful sales

activity. The firm has to invest enough funds in current
assets for generating sales. Current assets are required, as
sales do not convert into cash instantaneously. There is
always an operating cycle involved in the conversion of
sales into cash. The continuing flow from cash to suppliers,
to inventory, to accounts receivable and back into cash is
what is called the operating cycle. Thus, the term operating
cycle refers to the length of the time necessary to complete
the following cycle of events:

Conversion of cash into inventory.

Conversion of inventory into receivables.
Conversion of receivables into cash.

Cash flows in a cycle into, around and out of a business. It is

the business's lifeblood and every manager's primary task is
to help keep it flowing and to use the cash flow to generate
profits. If a business is operating profitably, then it should,
in theory, generate cash surpluses. If it doesn't generate
surpluses, the business will eventually run out of cash and
expire.

The faster a business expands, the more cash it will need for
working capital and investment. The cheapest and best
sources of cash exist as working capital right within
business. Good management of working capital will
generate cash will help improve profits and reduce risks.
Bear in mind that the cost of providing credit to customers
and holding stocks can represent a substantial proportion of
a firm's total profits.

There are two elements in the business cycle that absorb

cash - Inventory (stocks and work-in-progress) and
Receivables (debtors owing you money). The main sources
of cash are Payables (your creditors) and Equity and
Loans.

Each component of working capital (namely inventory,

receivables and payables) has two dimensions ...TIME .........
and MONEY. When it comes to managing working capital -
TIME IS MONEY. If you can get money to move faster
around the cycle (e.g. collect monies due from debtors more
quickly) or reduce the amount of money tied up (e.g. reduce
inventory levels relative to sales), the business will generate
more cash or it will need to borrow less money to fund
working capital. As a consequence, you could reduce the
cost of bank interest or you'll have additional free money
available to support additional sales growth or investment.
Similarly, if you can negotiate improved terms with
suppliers e.g. get longer credit or an increased credit limit,
you effectively create free finance to help fund future sales.

If you ...FHGYT Then ...

Collect receivables (debtors)
You release cash
faster
from the cycle
Collect receivables (debtors)
Your receivables
slower
soak up cash
Get better credit (in terms of
You increase your
duration or amount) from
cash resources
suppliers
Shift inventory (stocks) faster
You free up cash
Move inventory (stocks) slower
You consume more
cash

It can be tempting to pay cash, if available, for fixed assets

e.g. computers, plant, vehicles etc. If you do pay cash,
remember that this is now longer available for working
capital. Therefore, if cash is tight, consider other ways of
financing capital investment - loans, equity, leasing etc.
Similarly, if you pay dividends or increase drawings, these
are cash outflows and, like water flowing down a plughole,
they remove liquidity from the business.

Compution of Working Capital

Requirement Period
Thus the operating cycle in BSES can be computed as
follows:

BSES Yamuna on an average take 57 days to collect its

receivables and took 59 days to pay its payables. On
an average, average age of inventory is 24 days.

Operating cycle period

The length or time duration of the operating cycle of BSES
can be defined as the sum of its inventory conversion period
and the receivables conversion period.

The total of Inventory Conversion Period and Receivable

Conversion Period is also as Total Operating Cycle Period.

So, Gross Operating Cycle = (24 + 57) = 81 days.

BSES gets some credit facility from the supplier of

inventory; wage earners etc. This period for which the
payments to these parties are deferred or delayed is known
as Deferral Period. Deducting the Deferral Period from the
Total Operating Cycle arrives at the Net Operating Cycle of
the firm. Thus

Net Operating Cycle = (81 59) = 22 days.

Working Capital: Policy and Management

The Working Capital management includes and refers to the
procedure and policies required to manage the working
capital. It may be noted that the long-term profitability of a
firm, undoubtedly, depends upon the investment decisions
of a firm. The investment decisions determine the pattern of
sales

growth and sales in turn, determine the profitability.

However, the investment decisions and other decisions have
two important implications for working capital
management. First, the sales forecast of goods and services
being produced by the firm allow the financial manager to
estimate the working capital needs and levels of different
current assets. Second, the working capital management
helps maximizing the shareholders wealth by providing and
maintaining firms liquidity. The working capital
management need not necessarily have a target of
increasing the wealth of the shareholders; nevertheless it
helps attaining the objective by providing sufficient liquidity
to the firm.

The importance of the working capital management, thus,

can be expressed in terms of the following points:

The level of current assets changes constantly and

regularly depending upon the level of actual and
forecasted sales. This requires that the decisions to
bring levels of current assets to the desired level of
current assets should be made at the earliest
opportunity and as frequently as required.

The changing levels of current assets may also require

review of the financing pattern. How much working
capital needs to be financed by different sources of
financing must be periodically reviewed.

Inefficient working capital management may result in

loss of sales and consequently decline in profits of the
firm.
 Inefficient working capital management may also lead
to insolvency of the firm if it is not in a position to meet
its liabilities and commitments.

Current assets usually represent a substantial portion

of the total assets of the firm, resulting in investment
of a larger chunk of funds in the current assets.

There is an obvious and inevitable relationship between the

sales growth and the level of current assets. The target
sales level can be achieved only if supported by adequate
working capital. The increase in sales level requires
increase in working capital and thus the financial manager
must be able to respond quickly in providing and arranging
additional working capital.

Types of Working Capital Policy

There are three types of working capital, which a firm may

adopt

1.Moderate Working capital Policy

2.Conservative Working Capital Policy
3.Aggressive working Capital

Conservative

Current assets Moderate

Aggressive
 Sales Level

(Different Types of Working Capital Policies)

In case of Moderate Working Capital Policy, the increase

in sales level will be coupled with proportionate increase in
level of current assests also. For example if sales increase
or are expected to increase by 10% , then the levl of current
assets will also increased by 10%.

In case of Conservative Working Capital Policy the firm

does not like to take risk. For every increase in sales, the
level of current assets will be increased more than
proportionately. Such a policy tends to reduce the risk of
shortage of working capital by increasing the safety
component of current assets. The conservative working
capital policy also reduces the risk of non payment to
liabilities.

On the other hand the firm is said to have an Aggressive

Working Capital Policy if the increase in current assets
does not result in proportionate increase by 7% only. This
type of aggressive policy has many implications. First, the
risk of insolvency of the firm increases as the firm maintains
lower liquidity. Second, the firm is exposed to greater risk
as it may not be able to face unexpected change in market
and, third, reduced investment in current assets will result
in increase in profitability of the firm.

Thus efficient working capital management is important

from the point of view of both the liquidity and the
profitability. Poor and inefficient working capital
management means that funds are unnecessarily tied up in
idle assets. This reduces the liquidity as well as the ability
to invest funds in productive assets, so affecting the
profitability. So it is imperative to formulate a suitable
working capital policy for the firm.

Sales in Sales in Increase %

2004 (Rs.) 2005 (Rs.) in sales Increase
109154647 89398611 1975603 22.09
36.31 70.72 566
Current Current Increase %
assets in assets in in Increase
2004 (Rs.) 2005 (Rs.) current
assets
345480103 19739877 1480813 75.09
8 00 338

Evaluation of BSESs Working Capital

Policy
According to the above done analysis of the difference
between the two year current assets and sales it becomes
apparent that the Reliance BSES has adopted very
conservative working capital policy. There is increase in
sales of about 22% and increase in current assets is more
than 75%. Thus it indicates very conservative policy.

Working Capital requirements are determined by a variety

of factors. In general, the following factors are relevant for
the proper assessment of the quantum of working capital
required:

BSESs nature of business: The working capital

requirements of the company are entirely dependent
 on the conduct of the business. BSES, which is a power
utility company, have to maintain sufficient amount of
inventories and bookdebts. The proportion of current
assets to total assets measures the requirements of
working capital in the company. This ratio has been
increasing in case of BSES because of the increasing
consumer base and thus the investment in current
assets.

BSESs Inventory policy: If the business requires

keeping large stock of inventory then it requires more
working capital. It depends upon how efficiently the
company manages its inventories and the inventory
policy, which it frames.

BSESs Credit Policy: Electricity is alwyas sold on

credit. The period of credit in case of BSES depends
upon the time it takes for company to complete meter
reading and then dispatch the bills to the consumers.
This period usually takes 15 days and then 15 more
days are given to consumers for making their
payments. But the substantial period lies in the fact
that the bill charged is for two months. Thus very
lienient olicy is adopted in case of the company but
then it is therequirement of the electricity business
and it results in saving also due to the fact that ia
saves the expenses on meter reading and billind
procedure.credit policy of the BSES requires
reasonable investment in working capital.

BSESs Business Cycle: The working capital

requirements in case of BSES are also determined by
the nature of the business cycle. Business fluctuations
lead to cyclical and seasonal changes, which, in turn,
cause a shift in the working capital position,
particularly for temporary working capital
requirements. BSES has different working capital
requirements during its peak and non- peak season.
The peak season is in may-June during summers when
electricity consumption is more and more cases of
burnt wires etc. Thus during those periods, the size of
 the working capital mainly through inventories is
affected.

COMPOSITION OF CURRENT ASSETS OF

BRPL IN THE YEARS 2004 & 2005:

The majority of the Current assets (i.e. 61% in 2005 &

62% in 2004) are sundry debtors, which includes debt
for the period exceeding six months (considered good
 because they are secured by way of consumer
deposits) and other debt.

Inventory is the next highest contributor to working

capital (i.e. 32% in the year 2005), which has doubled
its share since last year. This is because of the huge
amount of inventory that was required for the
consumption in repairs & maintenance of buildings and
machinery. Also the increase in demand of electricity
with increasing consumer base in Delhi has made the
company keep higher levels of inventory (stores &
spares).

The percentage of the loans and advances has

remained same over the two years.

COMPOSITION OF CURRENT LIABILITIES

OF BRPL IN THE YEARS 2004 & 2005:
 The two major components of Current liabilities of
BSES are Sundry creditors and Consumer deposits.

The sundry creditors (both small-scale and the large

scale suppliers) of the electricity have increased in
absolute as well as relative terms. The company, due
to its reputation in the industry and backing of the
Reliance group is able to enjoy high credit from the
suppliers. The share of the creditors in the total
current liabilities have increased from 22% in 2004
to 54% in the year 2005.

Although, the percentage share of the consumer

deposits in the total current liabilities have come
down from 31% in 2004 to 20% in the year 2005, but
in absolute terms there has been an increase of Rs.
16.5 crores. This is due to the new connections
being taken by the residents of Delhi and the
deposits being kept with BSES.
 CASH MANAGEMENT

Cash Management is one of the key areas of working

capital management. Apart from the fact that it is the most
liquid asset, cash is the common denominator to which all
current assets can be reduced because the other major
liquid assets, that is, receivables and inventory get
eventually converted into cash. This underlines the
significance of cash management.

The term Cash in BSES Ltd. includes cash (currency) and

generally accepted equivalents of cash, such as cheques,
drafts and demand deposits in the banks. BSES keeps
substantial part of the cash with the scheduled banks in the
form of fixed deposits (as a deposit with Registrar of State).

The basic objectives of Cash management in BSES Ltd. are

two-fold:
 To meet the cash disbursement needs (payment
schedule)
To minimise funds committed to cash balances.

Meeting Payments Schedule:

In the normal course of business, BSES has to make

payments of cash on a continuous and regular basis to
suppliers of Power, Fixed Assets, Inventory, Employees and
so on. At the same time there, there is a constant inflow of
cash through collections from debtors (which are basically
the Electricity consumers) in case of BSES.Thus the basic
objective of cash management is to meet the payment
schedule, that is, to have sufficient cash to meet the cash
disbursement needs of the company.

BSES enjoys the following advantages of maintaining

adequate cash:

It has helped the company in fostering good relations

with trade creditors (both small-scale industries and
others) and suppliers of electricity, assets like
transformers, cables, and other inventory items.

The adequate level of cash with the BSES has helped

the company to prevent insolvency or bankruptcy
arising out of its inability to meet its obligations.

It has led to a strong credit rating, which enables

BSES to purchase goods on favourable terms and to
maintain its line of credit with banks and other sources
of credit.

BSES is able to meet its high cash expenditure with a

minimum of strain during the peak seasons like may-
june in summers when the expenditure on
transformers, cables and other operational &
maintenance expenses are high.
Minimising Funds Committed to Cash
Balances:

BSES enjoys the advantages of prompt payment of cash by

maintaining sufficient and not excessive cash. A low level
of cash balances, on the other hand, may mean the failure to
meet the payment schedule. Therefore, the aim of cash
management in BSES is to have an optimal amount of cash
balances.

BSESS CASH MANAGEMENT

: BASIC STRATEGY
The broad cash management strategies of the BSES are
essentially related to the cash turnover process, that is, the
cash cycle together with the cash turnover.

The Cash cycle refers to the process by which cash is used

to purchase power and then it is sold to the final consumers,
who later pay the electricity bills. BSES receives cash from
its customers on both monthly & bi-monthly basis and the
cycle repeats itself.

Details of Cash Cycle in BSES:

A B C D E F G H

A = Inventory Ordered \ Power Purchased

B = Inventory Received \ Power Received
C = Payments
D = Cheque Clearance
E = Goods Sold
F = Customers make payments
G = Payment Received
H = Cheques Deposited
I = Funds collected

BSES, which purchases power on credit, is required by the

credit terms to make payments within 30 days. On its side,
the company allows its customers to pay within 15 days. Its
experience has been that it takes, on an average, 59 days to
pay its creditors (suppliers) and 57 days to collect its
receivables. Moreover, 24 days elapse between the
purchase of power and the sale of Electricity; that is to say,
the average age of inventory (power in this case) is 24 days.

The Cash Flow of BSES can be calculated by finding the

average number of days that elapse between the cash
outflows associated with paying suppliers and the cash
inflows associated with collecting accounts receivables:

Cash Cycle = 24 days + 57 days 59 days = 22 days.

Cash turnover = the assumed number of days in a year

(normally 360) divided by the cash cycle = 360/ 22 =
16.36.

MINIMUM OPERATING CASH

The higher the turnover, the lesser is the cash a firm

requires. Thus BSES tries to maximize the cash turnover.
But it has to maintain a minimum amount of operating cash
balance so that it does not run out of cash.

The minimum level of operating cash in case of BSES

is equal to:

(TOTAL OPERATING OUTLAYS) / CASH

TURNOVER RATE)

= (364 + 167) / 16.36 = Rs.

32.46 crores
The Operational outlay for the year 2004-05 in case of BYPL
& BRPL was Rs. 364 & Rs. 167 crores(approximately).
The Cash turnover rate as calculated above is 16.36

The Cash Management strategies of the BSES are intended

to minimize the operating cash balance requirement. Thus
basic strategies that are employed to do the needful are as
follows:
Stretching Accounts Payable
Speedy Collection of Accounts Receivable

SPEEDING ACCOUNTS PAYABLE

One basic strategy of efficient cash management is to

stretch the accounts payable. In other words, BSES should
pay its suppliers as late as possible without damaging its
credit standing.

If BSES can stretch its accounts payable from the current

level of 59 days to 69 days, its cash cycle will be 12 days
(i.e. reduced by 10 days from the original 59 days). The
reduction in Cash cycle by 10 days as a result of the
stretching of the accounts payable by 10 days will increase
the cash turnover from the present level of 16.36 to 30 (360
/ 12). This will lead to a decrease in the minimum cash
requirement from Rs.32.46 crore to Rs.17.70 crore (Rs. 364
+ 167 / 30). That is, the requirement has been reduced by
Rs. 14.76 Crore. Assuming a 5 percent rate of interest,
there will be a saving in cost to BSES to the extent of Rs. 74
lacs per annum. .

SPEEDY COLLECTION OF RECEIVABLES

Yet another strategy for efficient cash management is to

collect accounts receivable as quickly as possible. I believe
BSES has improved its collections tremendously by taking
many steps, which has made making payments really easy
for the consumers.

Present system of Cash Management in

BSES
Regular Funds Inflow is received from collection proceeds
of sale of energy on daily basis through cash receipt and
cheque collections. Collections are heavily dependent on
drawl of power, which in turn varies significantly on
monthly basis.

In the normal course of business, BSES has to make

payments of cash on a continuous and regular basis to
suppliers of Power, Fixed Assets, Inventory, Employees and
so on. At the same time there, there is a constant inflow of
cash through collections from debtors (which are basically
the Electricity consumers) in case of BSES.Thus the basic
objective of cash management is to meet the payment
schedule, that is, to have sufficient cash to meet the cash
disbursement needs of the company.

Since major portion of monthly recurring cash inflows are

used for bulk power purchase payments, strict monitoring
of inflows and outflows is to ensure as far as possible
payment from own sources on due dates of payments.

BYPL is having fund based facilities of Rs. 63 crores from a

Consortium of seven bankers which usually remains
unutilized / underutilized. Cost of borrowed funds from
these Banks is 8% per annum.

Prepayment to Delhi Transco before due date earns an

rebate of 30% p.a. (i.e.2.5% per month) for period for which
amount is prepaid subject to maximum of one month
prepayment only.
The amount payable for bulk power drawl for each month
can be ascertained on 1st / 2nd day of every month even
before raising of invoice by Delhi Transco Ltd. The said
amount payable can be paid on either1st / 2nd day of month
by utilizing fund bases facilities after keeping some margin
for contingencies.

This will help the company in earning rebate, which will

help in increasing profitability. Further since interest
income will be given to various bankers, better terms for
other facilities like Letter of Credit, Bank Guarantees, Cash
Sorting Charges and other Bank Charges etc can be
negotiated with them.

INVESTMENT ACTIVITIES IN RELIANCE BSES

If investment activities of Reliance BSES are talked about then

there is no substantial investment in Reliance BSES. The company
does not come out with surplus amount that it can invest. With
whatever amount the company is left it invests it in Reliance
Mutual funds that too for short term.

Reliance Rajdhani Power Limited is sometimes able to generate

profits but Reliance Yamuna Power Limited is never in a position
to show any profit. The AT&C

(Agriculture Technical and Commercial) losses are on a high level

in Reliance Yamuna Power Limited. So it is never in a position to
show any profit.

For example in Reliance Yamuna Power Limited if the cost of

providing electricity is about Rs.100 then it comes out to be
almost Rs.85. So there is always loss of about 15%. There are
many reasons for this such as Reliance Yamuna Power Limited
covers East and Central Delhi where the population density is very
low, no. of payments are less, theft is more in comparison to South
and West Delhi where population is more and the conditions are
better. Like in Southern part people are educated and efficient so
there are no such problems.

The company is only maintaining Reserves & Surplus that

too is mandatory according to The Electricity (Supply) Act,
1948. According to the act there shall be created from the
existing reserves or from the revenues of the undertaking
that is called the Contingencies Reserves.

*The Act clearly defines

(a) The licensee shall appropriate to the Contingencies

Reserves from the revenues of each year of account a sum
not less than one-quarter of one per centum (.2) and not
more than one half of one per centum to the original cost of
fixed assets, provided that if the said reserves exceeds, or
would by such appropriation, be caused to exceed, five per
centum of the total cost of fixed assets, no appropriation
shall be made which would have the effect of increasing the
reserve beyond the said maximum.

(b) The sums appropriated to the Contingencies Reserves

shall be invested in securities authorized under the Indian
Trust Act, 1882 (2 0f 1882) and such investment shall be
made within a period of six months of the close of the year
of account in which such appropriation is made.

A Flow chart of present system being followed for cash

management is given hereunder
 Collection from
Sale of Energy

Cash Cheques

Deposited in Bank of Deposited in Bank of

Punjab on Next day Punjab on Next day

Available for utilization on Available for utilization after two

same day. days.

Utilized for making

Payments.

Used for making payments

for various expenses.
Transfer to SBI Chandani Chowk For Bulk Power
Purchse Payments on respective due dates.

Transfer to Other Bank Accounts for

Payments and Establishment expenses.
It is seen that at present, cash is deposited only in Bank Of
Punjab for which company is paying cash sorting due to
heavy cash deposit. Possibilities of depositing Cash
collection on Consortium Bankers may be explored.
This can help in reducing expense on account of cash
sorting charges as well as simultaneous liquidation of Debit
Balance in Cash Credit Accounts as cash will be distributed
among seven bankers thus vacating load on one banker.
 INVENTORY
MANAGEMENT
Inventory forms an important part of the total current
assets or working capital enterprises whether it is an
industrial undertaking or a trading enterprise. Inventories
are assets of the firm, and as a result it represents an
investment. Because such investment requires a
commitment if funds, it is necessary to maintain inventories
at the correct level. If they become too large, the firm loses
the opportunity to employ those funds more effectively.
Similarly, if they are too small, the firm may lose sales.
Thus, there is an optimal level of inventories and
there is an economic order quantity model for
determining the correct level of inventory.

The inventories need not to be viewed as idle assets rather

these are an integral part of firms resources. The basic
financial problem is to determine the proper level of
investment in the inventories and to decide how much
inventory must be acquired during each period to maintain
that level.
Types of Inventory means and includes the goods and
services being sold by the firm and the raw material or
other components being used in the manufacturing firm of
such goods and services. The different business may have
different types of inventory as per requirement of the
business. The common types of inventories for most of the
businesses may be classified as:
Raw Material
Work-in-progress or semi-finished goods
Other items of stores etc. held for being consumed in
the manufacturing process
Finished Goods awaiting sale

Inventory in BSES comprises of Stores, Spares & Loose

Tools. Since they are in the business of buying Power and
then selling Electricity to the consumers, there is no work-
in-progress.
The basic purpose of carrying inventory in BSES is to
uncouple the operation of the firm i.e. to make each
function of the firm independent of other functions so that
delays in one area do not affect the regular supply of
electricity to its consumers.

Any firm will like to hold higher levels of inventory. This will
enable the firm to be more flexible in supplying to the
customers and will find ease in its production. Most of the
customers may require immediate delivery and higher
inventories may help meeting their demands and hence
there would be less and fewer chances of transmission of
power being disrupted. But there is always a cost involved
in the inventories. This cost includes the capital cost of the
stock and the costs of storing and the carrying etc. on the
other hand, holding lower level of stock than required may
result in stock outs. The cost of stock out may be sales loss
or customers dissatisfaction. The stock outs may also result
in delays or hold-ups in the transmission process.

So every firm must manage the inventories in such a way as

to get the best return thereof. It must weigh the benefits of
holding inventory against its opportunity costs. While
achieving the objective of optimal level of inventory, a
financial manager has to reconcile the differing view points
of production department, marketing department and the
purchase department in consultation with the production
department, still the financial manager should ensure that
the inventories are properly controlled and should stress
the need for the consideration of financial implication of
inventory management.

Thus, the objective of inventory management is to

determine the optimum level of inventory i.e. the level
at whish the interest of all the departments are taken
care of. The inventory management seeks to maximize the
wealth of the shareholders by designing and implementing
such policies, which attempt to maximize the cost of
procuring and maintaining the inventory.
There are lots of benefits and different types of costs
associated with carrying the stock of inventory. For
uninterrupted production schedule independent sales
activity there is always need to maintain a sufficient stock of
inventory. But the cost like cost of storage, cost of financing,
cost of ordering, and cost of stock outs (if inventory is not
kept properly) is always there for concern. So it is necessary
to find a trade off between the risk and return so the firm
gets optimum results.

Out of different current assets inventory is the asset, which

requires to be monitored and managed not only in terms of
money value but also in terms of number of physical units.
Moreover inventory is the asset the investment in which is
the least liquid of all the current assets, any error in its
management cannot be readily rectified and hence may be
costly to the firm. The goal of inventory management should
therefore, be to establish an optimum level of each item of
the inventory.

BSES employs A B C classification system to

determine the type and degree of control required for each
item. This technique is based on the assumption that a firm
should not exercise the same degree of control on items of
inventory. It should rather keep a more rigorous control on
items that are

(i) The most costly, and/or

(ii) The slowest turning, while items that are less
expensive should be given less control effort.

On the basis of the cost involved, BSES has classified the

various inventory items into three classes:
A: The items included in group A involve the
largest investment i.e. 70% of the total value of
inventory. This group comprises of electric
cables, Transformers, Energy meters, conductors,
lightning arrestors, Fitting-Street Lights and oil
used in the transformers. Therefore, Inventory
control is most rigorous and intensive and most
sophisticated Inventory control techniques are
 applied to these few items. Out of around 1200
different items of inventory in BSES, only 40
items (i.e. 3.33%) account for the 70% of the
total value of inventory.

B: The items comprising group B account for 20%

of the investments in inventory. This group
comprises of Fitting-Industrial Street Lights,
Meter boxes, Panels, Thermovision Camera,
Switch boards, non-adhesive tapes, Pin-steel
insulators and ignitors etc. They get slightly less
attention than group A items. In group B also,
only 120 items ( i.e. 10%) account for 20% of
the investments in inventory.

C: The items comprising group C account for only

10% of the total value although number-wise its
share is as high as 86%. These items comprise of
fuse wires, sockets, drilling machines, ladder,
paint, grease, screwdrivers etc. These items get
minimum attention.

BSES also keep stocks of fixed assets like wires,

transformers, termination kits, steel, Street lighting &
poles, meters, L T boards, Insulators & accessories,
connection cables, conductors and circuit breakers.

ECONOMIC ORDER QUANTITY (EOQ) MODEL:

On the basis of a trade-off between benefits derived from

the availability of inventory and the cost of carrying that
level of inventory, the appropriate or optimum level of the
order to be placed is determined in BSES. This optimum
level of inventory is popularly referred to as the economic
order quantity (EOQ).
The EOQ may be defined as that level of inventory order
that minimizes the total cost associated with inventory
management.
BSES determines or forecasts the total annual usage or
inventory reqirement in the beginning of the year.The
acquisition costs and the carrying costs are determined for
each item of inventory.
The firm then tries to find the Total costs (carrying and
ordering costs taken together) at various order sizes.
Wherever, the total costs are the minimum, we get the EOQ.

REORDER POINT:
BSES determines the reorder point for each level of
inventory, using SAP. It is that level of inventory when fresh
order is placed with the suppliers for procuring additional
inventory equal to the economic order quantity.

Total re-order point = Lead time in days * average daily

usage of inventory

Where, Lead-time refers to the total time normally taken in

receiving the delivery after placing orders with the
suppliers.
Average usage means the quantity of inventory-consumed
daily.

The SAP software employed in BSES is real-time and lets

the users know about the stock levels of different inventory
items at all times. As soon as it reaches the minimum order
level, BSES orders its suppliers to send the inventory.

BSES has maintained safety stock for all inventory items in

its stores. It is the minimum additional inventory that serves
as a safety margin to meet an unanticipated increase in
resulting from an unusually high demand and/or an
uncontrollable late receipt of incoming inventory by its
suppliers.
INVENTORY MANAGEMENT PROCESS IN
BSES

There are four Main stores:

(i) Sriniwaspuri
(ii) Shadara
(iii) Rajghat
(iv) Ghazipur

The 3 main stores at Sriniwaspuri, Shadara and Rajghat are

Operations and Maintenance Stores and the one at
Ghazipur stores Capital Equipments.

In addition to this, there are 14 maintenance stores. There

are 4 Scrap stores (East, Central, West, South).

Main Stores are the feeder stores to 14 maintenance stores.

MATERIAL PLANNING:
The Material Planning comprises of:

Material Requirement Planning

Material Inspection.

Material Deliveries Follow-Ups.

A Material Requirement Planning

 It starts with the Fixation of minimum /maximum
/reorder levels based on the past consumption with
periodical review/revision.

Review & maintenance of inventory levels on

regular basis.

Collection of material requirements from field/users

department relating to schemes.

Preparation of annual material requirements and

generation of purchase requisition based on re-order
levels/indenters request/material requirement for
scheme.

B. Material Inspection
Receiving of quality plan from supplier for approval.

Approval of quality plan by CTS department after

evaluation with BSES requirements and standard
quality plans.

Receiving of inspection call from the supplier.

Coordination with inspection agency for conducting

inspection of material based on approved quality
plan.

Inspection at suppliers premises by inspecting

agency as per inspection plan and Indian standards.

Methodology for Inspection

1) 100% inspection in case of customers specific items

including major capital items.

2) Waiver is considered in following cases and conditions:

 Frequent supplied items based on request routine test
(in this case also inspection of at least one unit is
necessary.)
Consumable items.
Low value items based on sample approval from CTS
department or laboratory testing
results in impendent laboratory.

Receiving of inspection report from inspection

agency.

Verification of inspection reports and issuance of

MDCC.

C. Delivery Follow Ups

Preparation of delivery schedule

Coordination with suppliers

Updating the stores of the delivery schedule

Rescheduling the deliveries as and when required

CONTRACT PROCESS:
Step 1: Contract Formulation and Awarding.

This process consists of the following steps:

The user group identifies the requirements and

conducts a survey of the proposal to evaluate the
technical and financial feasibility.

The scheme is then drafted and sent to the CEO for

approval.
 The CEO cell anlayzes the draft scheme and if any
clarification is required, it is sent back to the user
group for further clarification.

The scheme is then sent to the CEO for approval. Post

approval, the scheme is sent to the Contract and
Maintenance department for formulation of contract.

The Contract and Maintenance department classifies

the contract under the following heads:
Power Distribution Contracts
Civil Contract
Non-distribution Contracts

The scheduled unit rates are derived on the basis of

past trends record. However the period for which the
rates are fixed is not defined.

After the classification, the drafting of the contract is

sent to the CFO for financial approval. In case the
value of the contract exceeds Rs. 20.00 lacs, the
contract is to be approved by the Mumbai office.

Post approval, the contract is awarded to the

contractor.

AFTER THE CONTRACT EXECUTION COMES THE

BILLING AND PAYMENTS OF CONTRACTS.

The Contracts which were awarded after 1 st April, 04 are

settled through automated processing in SAP.

MATERIAL PROCUREMENT:

It comprises of the following procedure:

Purchase Requisition

Procurement Process.
A Purchase Requisition

Receiving purchase requisition in SAP generated by an

authorized source, along with approval of HOD/CEO on
hard copy.

Verify that the account code is correct.

The respective buyer group processes purchase

requisition.
Buyer groups
All electrical items
Automobiles & Poles.
All information technology items.
All Administrative/Automobiles/HR Items.

The respective buyer group to process the purchase

requisition as follows:
Purchase Requisition of high value items like
transformers, switch gears, control relay, HT
cable, Isolators, Meters and related items and
other project / scheme material will be directly
transferred by the respective buyer to CPG for
processing and placing the order.
Balance items will be processed as per
procurement procedure.

B Procurement Process
Vendor Evaluation and selection:
The following steps are involved in the process:

The mode of Vendor identification is as follows:

Vendors transferred from DVB are duly
screened and validated.
Company approaches the vendor based on
their own database like manufactures
 directory, Internet, Trade magazines, personal
information network.
Vendor approaching the company.
The Vendor(s) is requested to submit an application in
a pre-defined format. The details in the format are
indicative and not exhaustive.

The Procurement department follows up with the

vendor for the following information:
Capital Structure of the Vendors
organization
Financial Position of the vendor
Organization structure
Present Customer profile
Volume of business with each customer
Supplies made to each customer during
last year to each customer by the
vendor
Manufacturing Equipments and quality
Control standards

It is followed by the Commercial evaluation being sent to

the Central Technical Services group, which visits the
vendors premises and submits a Technical evaluation
report to the Procurement department based on which
the vendor is registered.

After vendors approval, the vendor is asked to supply a

sample, which is put on trial. If the trial is successful,
then vendor is considered in due course for placing firm
orders.

Normally after 6 months from the date of registration of

vendor Vendors Performance evaluation is done. Vendor
is rated considering 3 attributes: Quality Rating (QR),
Delivery Rating (DR), and Service Rating (SR).

After calculating QR, DR and SR, Vendor Rating (VR) is

calculated as follows:
VR = 0.45*QR + 0.35*DR +0.20*SR
 After assigning the vendor rating, the category of the
vendor is defined as given below:
Category A if VR >= 80%
Category B if 60 <= VR <80%
Category C if VR <60%

Blacklisting of the vendors is done only in case of gross

breach of quality and delivery parameters.

Procurement and Expediting:

The following steps are involved in the process:

The respective departmental heads generates the

Purchase Requisition (PR) in SAP by using their Id and
forward to the purchase department.
In case of any clarification by purchase department,
information is sought from the respective user
department for the PR generated.

The Purchase department then identifies the priority

for procurement.

After identification of requirements and the related

priorities, some vendors are selected out of the
registered vendors.

Normally 3 to 4 quotations are invited from short listed

vendors. However in the following circumstances, the
normal procedures of inviting the quotations from the
vendors is not followed:
In case of emergency situation
In case of limited vendors for the product or in
case of propriety items, which are few and far
between.

The vendor is selected and the order is placed based

on the most appropriate terms and conditions after
taking approval from CEO.
 After obtaining the approval, the purchase order is
prepared and sent to the vendor concerned.

In case the procurement is to be made for value

exceeding Rs. 5 lacs, the Mumbai office approves the
purchase order and after this the Delhi office prepares
it.

Once the order is awarded to the vendor, the vendor

submits the technical details. If the order involves
fabrication, the quality parameters are also forwarded
to the vendors subsequently.

Expediting Cell:
The main objective of the expediting cell is to ensure that
the fabrication is done as per specifications, the quality
parameters are met and the delivery is made within the
time specified in the PO. Follow-up is also done in those
cases where fabrication is not involved.

Before commencing fabrication the vendor submits the

fabrication plan, and engineering drawings to the
expediting cell. The vendor also submits a quality plan
based on the quality parameters provided by BSES.

Subsequently the expediting group periodically visits the

premises of the vendor to ensure that the fabrication is
done as per the fabrication plan and the engineering and
the quality parameters are compiled with.

After the awarding of the PO, the vendor submits the

delivery plan.

A third party does the final quality inspection. The

selection of the third party is mainly based on market
reputation.

Third party quality report is submitted to the Central

Technical Services group for verification and validation.
 The acceptance of the material is not totally subject to
the third party quality tests but is also dependent on the
managements discretion.

After the verification and validation of the quality report

by CTS group, the Expediting cell issues a material
dispatch clearance certificate (MDCC), after which the
product can be dispatched.

If the delivery is not done as per the delivery scheduled

submitted by the vendor, LD (Late Delivery) charges are
levied on the vendor @0.5% per week up to a maximum
of 5%.

Process Description:

Following are the steps involved in the process:

NORMAL RECEIPTS:
Vendor sends the material along with the invoice and
copy of the Purchase Order.

The Dispatch advice, which represents pre-delivery

quality check at the premises of the vendor by the
Expediting group, is also sent along with the
consignment.

At the time of receipt of material, quality check is done

and they are physically verified for any damage during
the transit.

After the quality check, Goods Received Note (GRN) is

prepared in SAP.

In case of shortage/rejection, the fact is informed to

the vendor.
 The GRN is prepared only in cases where the payment
is involved. In the following cases GRN is not prepared,
instead a Receipt Note is prepared:
Transformers sent for replacement.
Inter unit stock transfer
Material return from site

NORMAL ISSUE:
SAP Processing In case of Summer scheme and other
operational and maintenance contract)

The Material reservation slip (MRS generated in SAP)

is sent to the stores by the users (site engineers) for
availing the material required for the execution of the
contract.

The user prepares the MRS by using his/her user id,

however a manual copy is also sent to the stores
department.

The MRS is authorized by the immediate superior of

the person who generated the MRS. Further the
authorisation procedure is manual.

In case the contractor comes along with the authorized

MRS, the issue is made directly to him only in case his
signatures are duly attested by the person who has
authorized the MRS.

Finally the material is issued and a material issue note

is prepared in the SAP.

MATERIAL DIRECTLY SENT TO THE SITE:

In case the materials are sent directly to the site from
the vendor premises, it accompanies the invoice
along with the challan. The challan is duly signed by
 the receiving authority at the site and is delivered to
the store department.

After the receipt of the challan, the store prepares the

GRN and simultaneously the Material Issue note.

MANUAL PROCESSING (IN CASE OF

EXTRA HIGH VOLTAGE CABLE):
In case of Manual processing, the requirement is sent
manually to the stores by the user with five sets of
copies, out of which the stores retain two copies. Out
of remaining three copies: One copy goes to the
security at the stores gate and the other two copies
goes back to the user along with the material.

The issue quantity is entered in the SAP and issue slip

is generated.

Finally the material is issued to the requirement group.

INTER UNIT TRANSFER:

In case of inter unit stock transfer, the following procedure
is followed:
The store having the requirement generates the
material reservation slip (MRS) .

The MRS is sent to the respective stores having the

requisite material and on the basis of MRS, the issuing
store generates material issue note (MIN) against
which the material is issued.

The receiving store on the receipt of the material

generates the Received Note.

MATERIAL RETURN FROM SITE:

This event has two scenarios:

 Material returned to the stores from where it is
received

Material returned to the store other than the stores

from which it is issued.

JOB COSTING:
The capitalization process begins at the time of receipt
of the completion report from the site manager.

The material part is capitalized on the basis of issue

details mentioned in the completion report.

The labour part is capitalized after the final payment is

released to the contractor.

The rate used for capitalization is the standard rate for

the whole year. The standard rate is calculated by
weighted average method on the basis of rates
mentioned in Purchase Order (P.O.)(Total amount paid
for the material during the whole year / Total quantity
purchased during the year).

Overheads are capitalized on the basis of absorption

costing. The absorption rate is 5% of material and
labour cost. The absorption rate is fixed at Mumbai
office.

PROCUREMENT & VENDOR SELECTION:

-PAYMENT TO VENDORS

The Vendor supplies the material as per the terms and

conditions mentioned in the P.O.

The stores department prepares GRN for the material

directly to stores.
 In case the materials are sent directly to site, the GRN
is prepared on the information of the site authority
which is the business manager, who signs on the
delivery challan.

The GRN along with the following documents are sent

to the Vendor Support Cell (a part of procurement):
Suppliers Invoice
L.R. copy
Excise Invoice
Delivery Instructions
Testing report
Performance guarantee

The Vendor Support Cell examines the details

received and generates an acknowledgement, which is
sent to the vendor.

The Vendor Support Cell hands over the details to

the accounts department.

The Accounts department conducts the invoice

verification (IV) as per the purchase order within 2 or 3
days from the date of receiving.

The payment is finally released as per the payment

period mentioned in purchase order.

In case of delay in supply of materials, late delivery

charges are levied at the rate of 0.5% per week subject
to the maximum of 5% at the time of making the
payment.

The retention money of 10% is deducted while making

the payment in cases where bank guarantee is not
taken from the vendor. Where bank guarantee is taken,
in that case the balance 10% payment is released only
when the installation certificate / successful running
certificate is received from site
 RECEIVABLES
MANAGEMENT
&
BILLING PROCEDURE

The Receivables represent an important component of the

current assets of the firm. The term receivable is defined as
debt owed to the firm by customers arising from sale of
goods or services in the ordinary course of business. When
a firm makes an ordinary sale of goods and services and
does not receive payment, the firm grants trade credit and
creates accounts receivable which could be collected in
future. Receivables credit is also called trade credit
management.
As a marketing tool, they are intended to promote sales and
thereby profits. However, extension of credit involves risk
and cost. Management should weigh the benefits as well as
cost to determine the goal of receivables management.
Since BSES is in the unique business of buying power from
the Transmission companies and then distributing power to
its customers, the receivables of the company includes the
consumers of electricity only.
DERC (Delhi Electricity Regulatory Commission) has
defined the following five categories of consumers:
Domestic: Consumers who use their premises for
bonafide residential purpose.
Industrial: Consumers who use their premises for
industrial activity.
Non-Domestic: Consumers who use their premises for
a purpose other than Industrial , agriculture or
residential (eg: A residential premises with a beauty
parlour).
Agricultural: Consumers who use power for
agriculture.
Mushroom cultivation: Consumers who use their
premises for mushroom cultivation (eg: greenhouses
used to cultivate mushrooms).
BSES has divided its consumers among LIP (Large
Industry Power), SIP (Small Industry Power), Non-
Domestic, Domestic, Agriculture, Railways, Water, Power
Lighting. BSES supplies electricity to over 22 lakh
consumers spread over approx. 1,000 sq km or 2/3rds
of Delhi. The two distribution companies BYPL and BRPL
have achieved aggregate sales of electrical energy of
a record 8503 million units during the year ended 31st
March, 2005, against 7085 million units in the previous
year, an increase of 20%. During the last year, the
aggregate consumer base increased by 2 lakh to reach
22.0 lakh
833 locations to make Bill Payments easy:
 BSES now provides its customers a choice of 833
locations for the easy payments of bills. These facilities
can be availed at:
400 EAZY BILL OUTLETS: Effective April, 05
BSES has also decided to avail the processing fee of
Rs. 5-/- which was earlier charged to customers at
these outlets.
33 Divisional Office Cash Counters: open from 8
am to 4 pm.
200 BSES Cash Counters: open from 8 am to 4
pm.
200 24x7 Skypack Drop Boxes.
Over the last two years, BSES has undertaken a
comprehensive computerization of all billing activities. This
has not only eliminated human errors but also ensured high
levels of accuracy and reliability. The fully Computerised
BSES billing system has in place elaborate checks and
balances, including a comprehensive pre-issue audit which
brings up all suspect cases for a rigorous recheck.
BSES has taken every care to ensure that the electronic
meter runs accurately and shows correct reading .
BILLING SYSTEM:
For Billing process, BSES has divided its consumers into 33
divisions. These divisions are responsible for collections
from the consumers in their own locality. These 33 divisions
are further divide into 4 cash circles:
BSES Yamuna Power Limited :
East Cash Circle has 9 divisions
Central Cash Circle has 5 divisions
BSES Rajdhani Power Limited :
South Cash Circle has 9 divisions
West Cash Circle has 10 divisions
The Domestic Billing System has following steps:
 Meter reading : The meter-reading is taken by 3
outside agencies SANDS, KLG Systel and DATAGEN.
The Reading is then sent to the District Data centers.
Daily NR (Not Read) & PL (Premises locked) Edit is
generated and verified.
Edit is uploaded and then sent to Billing Processing
unit.
Edit is generated by BPU.
Edit is then sent to VSNL for pre-audit purposes.
VSNL uploads the data in EBS after putting due date.
VSNL then runs the billing process in EBS, conducts
post audit and abnormal bills if any are held back
BPU raises the bill and sends it to outside agencies for
printing of the same.
Printed Bills are sent for distribution and delivery to
the consumer.
Consumer is given fifteen days for making the
payment.
The process of meter reading to dispatch of the bill on an
average takes around 15 days, while consumers are given
15 more days to make the payment.
The process of billing commences when the complete
consumption of a particular month is over and the meter
reading takes place. As a consequence, by the time the cash
against a particular bill is realized there is a gap of around
a month between sale of energy and realization of
cash.

The Bulk supply Billing System has following steps:

Key Consumer Cell (KCC) handles consumers under the
following categories:
Large Industrial Power having load of more than 100
KW.
Small Industrial Power having load of100 KW or less.
 Non-Domestic Commercial
Railways
Public lighting
STEPS:
Meter reading: BSES has allocated the task of meter
reading to an outside agency KLG Systels. The
agency does it from the 1st of every month to the 10th.
Meter reading is recorded in CMRI (Consumer Meter
Reading Instrument) at consumer site
Electronic Data Processing (EDP): Recording on
CMRI machines is downloaded on computers by KLG
Systel (during night shift), using specified software.
Specified data is transferred to EDP in text format by
KLG through CDs.
Pre-Billing Scan: It is carried out to ensure meter
reading validity for detection of errors, if any.
Electronic Data Processing at EDP BSES and
Billing: The EDP team at KCC incorporates the meter
reading text files, (handed over by KLG) into the
database in COBOL. The front end VB Screen is
backed by ORACLE which generates and records the
bills.
Edit is generated by IT and checked by KCC team.
Corrected Edit is then uploaded by IT.
Consumer bills generated for current demand and
arrears, if any, taking into account LPSC, Current
Tariff rates, Demand Charges, Electricity Duty etc.
Checked and verified bills are dispatched by KCC
team to consumers through speed post after review by
deputy manager (Circle).
Consumers are given fifteen days for making the
payment.
CLINICAL TESTING POST BILLING: After Dispatch of
Bills, analysis of Data commences data contains a thirty
five day record of Load survey i.e. KWH, KVAH, KVA, KW.
Abnormalities in data generated is reworked on, and
supplementary bill is issued/additional units charged to the
consumer for billing with currents billing cycle, if
necessary. If abnormality detected is in relation to the
meters, a report is sent to the Meter Management Group
through e-mail for checking the meter / installing a new
meter.
CONSUMER GRIEVANCES: In case any consumer
grievance / dispute, additional processes are carried out to
settle the same as deemed necessary.
COORDINATION OF KCC ISSUES in relation to the new
meters, enhancement of load or new connections, transfers
from enforcement etc. are carried out as deemed necessary.
REVENUE ACCOUNTING: Monthly Circle-wise, category-
wise Assessment Summary is prepared by EDP Executive at
KCC. This statement is forwarded to the Finance &
Accounts, which evaluates to establish that the average rate
of the total population for the period is around the
acceptable rate (Rs. 5 per unit). Thereafter the EDP
executive at KCC uploads the income (for LIP and SIP
consumers) in SAP.

The study of Receivables brings out one fact that the

realizations from Key Consumers are not aligned to major
cash outflows.
The process of billing commences when the complete
consumption of a particular month is over and the meter
reading takes place. As a consequence, by the time the cash
against a particular bill is realized there is a gap of around
a month between sale of energy and realization of
cash.
However, BSES is currently being billed six times
subsequent to the month of consumption by Delhi Transco
Ltd. for purchase of energy and on pre-payment of the bill
amount, it is entitled to a rebate of 2.5% per month on the
number of days the amount due is pre-paid.
 Delays in billing new consumers (due to the delay in
receipt of information from the commercial section)
and Untimely recognition of revenue results in loss of
interest revenue or opportunity gain.
Time bound Program be carried out to change the
Mechanical / L&T meters of all consumers to electronic
meter.

COLLECTION PROCESS

1). Process (Collection Point wise)

The consumer can make payments for energy/ non-energy
bill at any of the following collection points -

1. Payment at the Collection Counters.

2. Deposit at the Drop Boxes present at the

Collection Centers/ Circle Office for cheques
only.

3. Deposit at the SFS Drop Boxes for cheques

only.

4. Payment through Easy Billing System.

5. Payment through internet(i.e. bill junction,

bill desk)

Collection Point -1(Collection Counters)

1.1 Collection Counters (POS)

The collection counters can be categorized as

follows -

1. K & SIP Counters

 2. Key Consumers (KCC) Counters

3. Theft collection Counters

4. Non-energy (Commercial) Counters

1. K & SIP Counters -

Cashiers at the collection counters use POS

machines which has a specific User ID and
password.

Consumer presents the bill along with

cash/cheque.

The cashier at the collection counter scans the

barcode through POS machines(If the barcode
is not readable or for any reason it is not
scanned fully then Forced / Manual entry is
passed )

The cashier then accepts the payment after

counting the currency or after examining the
cheques for accuracy.

The bill is then entered into the print machine

on which acknowledgement of receipt of
cash/cheque (as the case maybe) is printed.

While the stub is retained by the cashier, the

bill is returned to the consumer.

The cashier affixes the Revenue Stamps where

the amount collected is more than Rs. 500/-.

Cheque details like cheque no., name of the

bank are keyed into the POS machines.
 Where the customer makes part payment
against a bill or where there is an extension of
due date, cashier checks the authorization
before accepting the payment.

On close of transaction hours the counter is

closed and Counter Summary* & Collection
Summary Report* etc. is generated from POS
machines.

The cashier tallies the cash in hand with the

collection summary report and prepares
Annexure I* and Annexure II (Incase of Non-
energy collection counters).
The cashier gets the acknowledgement from
the Head Cashier on Annexure-1 on handing
over the cash(without counting it), cheque,
floppy (having data downloaded from the POS
machine) and documents prepared (i.e. stubs,
counter summary, collection summary, cheque
list, Annexure-II) .

2. Key Consumers (KCC) Counters -

The normal POS machines are not used at KCC

counters rather a desktop with barcode reading
facility is in operation.

Details generated at these counters-

1. Daily Summary
2. Daily Summary circle wise
3. Daily Cheque/ DD statement
4. Circle wise summary

Data is not sent through Floppy/ e-mail to circle

office or CPC.
 The collection for all the circles are received at
this counter and thereafter circle wise
summary is generated at the counter itself.

Circle wise details are shown in south circle

summary for KCC counter at the bottom but the
total amount is shown in front of KCC counter
column.

Stubs and counter summary is forwarded to

CPC through circle office.

Other process followed is same as in case of K

& SIP counter.

1.2 Collection Counter (Manual)

When the POS machine is not working, Cash /

Cheques are accepted and acknowledged by
stamping the customers bill and stub of bill is
retained. The stamp reflects the counter
number, date of receipt, nature of payment-
cash/cheque, and serial no. per scroll sheet.

Revenue stamp is affixed if the amount of the

payment received is more than Rs.500/- and
stub of the bill is retained.

Stub is required to be posted on an on-going

basis in Cashier Scroll (manual cashier
summary), number wise indicating K account
Cash, K Account cheques, SIP Cash, SIP
cheques etc.

Collections through Cash and cheque are

recorded on 2 separate Daily Collection
Summary-Cash/Cheque.

After transaction hours, the counter cashier -

 (a) Tallies the cash with the total per
Cashier Scroll- cash.

(b) Reexamines the accuracy of the Cashier

Scroll-cheques with cheques and stubs on
hand.

(c) Prepares Annexure 1.

1.3 Circle Office

On receipt of cash from various Cash Collection

Counters, the Head Cashier at Circle Office
counts it and prepares the Collector Sheet
(Annexure - III). Cash received is kept
overnight in the locker room after making entry
in the key register.

In key register, opening and closing time of

locker room is recorded. It is signed by Head
Cashier, AFO(R) or Superintendent and
Gunman.

There are 2 keys for safe/locker room. 1st key

is kept by Head Cashier who locks the cash
chest. Thereafter Section
Officer/Superintendent operates the 2 key and
nd

gets the cash chest closed under his

supervision.

Cash received at circle office is deposited with

the bank on the following day except for
collections on Saturday and Sunday where the
cash received is deposited on the next working
day.

Head Cashier accompanies the cash along with

security personnel to deposit the cash with the
Bank (SBI, Chandni Chowk).
 The stubs of the pay-in-slips obtained are
pasted in the register maintained for this
purpose.

Floppy disk (having data of collection details)/

e-mail, Annexure-I(Counter Summary), Circle
Summary, Cheque Scroll and stubs are sent to
the Central Processing Cell.

1.4 Central Processing Cell (CPC)

Floppy disk/ e-mail (having data of collection),

Annexure - I (Counter Summary), Circle
Summary, Cheque, Scroll and Stubs from all
the 4 circles are received at the CPC.

Data received from manual counters are

converted into digital mode at CPC. Stubs
received from these counters are punched
through POS machines.

Data received from KCC counter is also

converted into digital mode by using the stubs
forwarded from this counter via circle office.

Data received from circle office are verified.

Validation checks carried out are:

(i) Verifying Counter wise circle summary with

counter wise Annexure 1.

(ii) Soft data forwarded from circle office (in

floppies) are processed through software
for validation.

(iii) The software generates a list of invalid or

improper K. A/c. no. and the same are
saved in separate file.
Following factors are considered:
 (a) Incomplete field
(b) Wrong District Code
(c) Wrong K. No.

Every entry in Invalid K. A/c. no. list is

checked against :
(a) The details made in collection
summary
(b) Related stub and consequently
rectifications are made in the
soft data.

(iv) After the validation procedure is over, the

Input files are prepared.

(v) Difference between various documents

like Annexure 1, Circle Summary, Input
files (POS.dat), etc. is corrected on the
basis of source document at CPC and duly
authorized by the Officer In Charge.
However the authorized individual
does not sign the corrections made.

(vi) 11 Input files are prepared as mentioned

below :
(a) POS.dat
(b) POS.txt
(c) SFS.dat
(d) SFS.txt
(e) EBL.dat
(f)EBL.txt
(g) BJR.dat
(h) BJR.txt
(i) BDK.dat
(j) BDK.txt
(k) Summary.txt

(vii) Similarly bulk supply (KCC) files are

prepared.
 These files are e-mailed to Head Office.-IT on a
daily basis.

The details of K. Nos. which can not be

uploaded in the EBS for some reason are sent
to the CPC through e-mail called Suspense
File. At CPC the search for reasons of non-
uploadation is done by checking the stubs (the
procedure is known as 1st level suspense
clearance and 2nd level suspense clearance) and
sent to the Head Office IT Dept. after which the
final Suspense List is generated at Head Office
IT Dept. The Final Suspense list is then sent to
the centralised office at VSNL Bldg. G.K.-I.

Pay-in slips are prepared and cheques

deposited.

The difference of acknowledgement received

from the bank with concerned pay-in-slips
details is required/ looked into.

If a mistake is found then the respective

Debit/Credit is made to the consumer through
passing of Debit/Credit note to the centralised
office at VSNL Bldg. G.K.-I where
corresponding JE is passed.

Entry is made in SAP on a daily basis for

Collection and Dishonour of cheques.

CPC retains notice from bank along with circle

wise list of cheques dishonored. It prepares :

(a) List containing old K. No. , New K

Account No., Amount of cheque, Date of
cheque, Reason for dishonour, Cheque no.,
Bank name is prepared and such list is
forwarded to Head Office-IT.
 (b) Dishonor notices are sent to consumers by
courier.

(c) List of dishonoured Cheques is forwarded to

the Business Manager of all districts on a
monthly basis for recovery purposes.

Collection Point-2 (DROP BOX)

Drop Box facility is available at every collection

centre. The stubs collected from drop boxes
are stamped Drop Box. A Drop Box Register
prepared recording therein a single figure
representing sigma total of all cheques
received through the drop box system.

Further, the cheques get recorded in the

system through POS machines/manual scroll of
the designated counter for the day.

Adjustment in value of Revenue stamp usage

for the day is carried out where consumer does
not provide the bill for release of receipt.

Other documentation in this regard are similar

to one described under para 1.3 and 1.4 above.

Collectiion Point 3 (SFS Skypak Financial Services

Drop Boxes)

Skypack Drop Boxes across Delhi were

introduced as an additional collection point.
Skypack provides services of depositing the
cheques along with the pay-in-slips with the
SBI, Chandni Chowk Bank.

3 files (Soft Copy) are sent by Skypak to CPC.

(i) DAT.file
 Collection details per consumer in digital
mode circle wise.
(ii) PRN file

Circle wise collection details giving cheque

no., customer no., cheque amount, cheque
date, MICR No., Bank and Branch details,
book no., district code and zonal office.

(iii) Invalid cheques:

These cheques are primafacie incomplete

and therefore not deposited by SFS. SFS
gives details of such cheques circle wise
specifying reasons. CPC then send notices to
the consumers.

The SFS sends the stubs deposited date wise

and circlewise.

As per the instruction of BSES, SFS should not

invalidate cheques of value more than Rs.5000.

Eight pay-in-slips are prepared for collection

from four circles i.e. two pay-in-slips per circle
wherein branch transfer and local clearing
cases are separately recorded.

Collection Point -4 (Easy Billing System)

This system was introduced on 1st Feb., 2004

through which the consumers can make
payment against their bill at any of the Easy
Bill Counters located at various places in
Delhi.

At the Easy Bill Counter the bills and cheques

are scanned by the machine similar to the POS
machine and receipt is given to the consumer
 on the bill, specifying the cheque number and
amount paid.

At the Easy Billing Office the Pay-in-slips are

prepared. One pay-in-slip is used for maximum
no. of 150 cheques.

At the end of day, the data is consolidated at

the Easy Billing office for four circles.

The next day cheques are deposited in the

designated bank and the data is forwarded to
Central Processing Cell (CPC) through e-mail.

The CPC receives the following two files :

(i) DAT.file - containing the consolidated

data of all the circles.
(ii) PRN.file - containing the pay-in-slips
detail of each circle separately.

This data is not validated through the normal

validation procedure at CPC.

At CPC a summary file containing date, no. of

cheques, amounts etc, is prepared with the
help of dat.file.

Collection Point - 5 (E- Collection)

Two outside agencies are engaged in collection

through e-mode. These are-

i. Bill Junction
ii. Bill Desk

Collection through bill junction was started on

4th Feb. 2004 and through bill desk it was
started on 28th April, 2004.
 Consumer having an account with these
agencies can avail the facility of payment
through e-mode.

The consumer has to make a request for paying

the bill to these agencies through internet.

On receiving the request, the Bank debits the

consumer account for the billed amount.

These agencies consolidate the data company-

wise i.e. for BRPL and BYPL separately and
forward it to the CPC along with the Demand
Draft made in favour of both the companies
separately.

Data is received by CPC in the form of dat.file

and a file in letter format showing K.A/c No.
(Old as well as New), Amount, Payment date
(i.e. date of forwarding the DD).

The DD is deposited by the CPC the next day in

the designated bank.

The data is consolidated with that from other

collection points.

2. DOCUMENTATION
2.1 Records Maintained At Collection Centres

2.1.1 In case of POS Counters (Energy

Collections)

(a) Collection Details

 Individual customer wise details with S. No.,
K. No., Amount, Entry Mode (Scanned,
Manual, and Forced), Payment Mode (Cash
or Cheque) are recorded, 3 copies are
printed, one copy is retained at the counter
and 2 copies are forwarded to the Circle
Office.

(b) Counter Summary

Total collections are categorized into

Domestic and SIP collections. These
collections are further bifurcated into cash
and cheque collections. Revenue stamps
used along with no. of stubs is also
mentioned under respective head.

(c) Cheque List

Details of cheque collections i.e. S. No. Tr.

No., Cheque No., Bank name, Cheque
amount is mentioned in it.

(d) Annexure I

Summary of total collections at the counter

is recorded in Annexure I which is equal to
counter summary prepared from POS
machine the only difference being that the
Annexure 1 is prepared manually by counter
cashier and the figures are written after
actual counting of the no. of stubs and the
total amount received. Four copies are
prepared, 2nd copy is retained and the rest
are forwarded to Circle Office. It is verified
by Circle Head Cashier.

(e) Log Book for POS Machine per collection

counter
 Time and date of making complaint to the
vendor, along with the nature of problem/s
is/are recorded in the POS machines.
Service Engineer Report, which is received
when any person from the vendor attends
complaint, is also attached in this log book.

(f) Drop Box Register

The following are recorded:-

Date
Total Amount
Counter No. allocated (to cover the
days cases of receipt through drop
box).
No. of Cheques

2.1.2 In case of Commercial Counters (Non-

Energy Collections)

(a) Cash Receipt Book

Receipt is issued to the consumer who makes

the payment. It is signed by Cashier.

(b) Daily non energy collection sheet (Annexure

II)

Details of daily collections are recorded.

Non energy collections under 16 different
types are recorded separately under
respective column in the sheet. This sheet is
prepared manually. Entries relating to old
connections are made in this sheet since the
database is not there. It is prepared by
cashier. 4 copies of Annexure II are
prepared. One copy to Accounts
department, 2 nd
copy to CPC via Circle
Office, 3 copy to Circle Office and 4th Copy
rd

is retained for file purpose.

 (c) Cashier Chart (Summary)
Entries relating to new connections are
made in the computer where database has
been created otherwise they are written on
Annexure II sheet. At the end of the day,
the Cashier Chart (Summary) is printed and
filed/dispatched to the circle office.

(d) Annexure I

(i) Refer 2.1.1(d) above.

2.1.3 Manual Collection Counters (Theft

Collections)

(a) Daily collection summary

The total collections are recorded manually

consumer wise. One copy is sent to
Enforcement Department, while others are
retained.

(b) Annexure - I

Refer 2.1.1(d) above

2.2 Records Maintained At Circle Office

1. Collector Sheet / White Book

Counter wise details of cash and cheque

collections are entered in this sheet. Value
and number of Revenue Stamps used is also
mentioned along with No. of cheques and no.
of stubs received at the counter.

A detail of inventory of cash (currency notes

denomination wise) is recorded. It is
prepared by the Head Cashier at the circle
office.
2. Heavy Collection Sheet

The Head Cashier at Circle office prepares

Heavy Collection Sheet counter wise with
the help of counter summary Annexure I,
submitted by various collection centers. The
collections are bifurcated into Energy and
Non-Energy collections. Under energy
collections, details are cash stubs, no. of
cheque stubs, no. of cheques, no. of revenue
stamp used, head of the account K or SIP
duly indicating the POS or Manual Counter.
Under non-energy collections details are
under 16 columns.

Three copies are prepared and distributed

as:

1st - CPC
2nd - Central Circle
3rd - Retained (File Copy)

3. Circle Summary

It is prepared by the clerk under the

supervision of Superintendent or AFO(R).
Wherein counter wise details of cash
collections, cheque collections, no. of
cheques, no. of stubs under Manual and POS
counter, number of commercial slips,
revenue stamps used is recorded. It also
indicates the type of counter - POS or
Manual or Commercial.
It is forwarded to CPC, Shankar Road, for
preparation of Input files.
The Circle Summary is prepared through use
of MS Excel.

This document is almost same as Collector

Sheet/White Sheet.
4. Heavy Collector Sheet (in addition to Circle
Heavy Collection Sheet):

This sheet is only prepared in Central Circle

by AFO(R) and sent as a soft copy to Head
Office via CPC. The sheet prepared on daily
basis by AFO(R) at the month end gives total
collections for the month.

The collection details circle wise, district

wise are bifurcated into energy, theft and
non-energy collections. While energy
collections are further bifurcated into K &
SIP Account wise, Non energy collections are
bifurcated into 15 sub head and energy
collection on account of Pro-Rata and
without stub under 17 total sub heads. This
sheet is prepared from Circle Office Heavy
Collection sheet received on daily basis.

5. Miscellaneous

a) Daily Collection Register

Daily collections under energy and non-

energy head, Cash and cheque are recorded.
Pre-printed register is pending introduction.

b) Revenue Stamp Register

Per Circle daily revenue stamps used at

district is recorded along with and the date
on which this information is forwarded to
Head Office.

Reimbursement of imprest on account of

utilization of revenue stamp is sought
through voucher prepared in duplicate. The
duplicate copy is retained in this register.
 c) Imprest Book Register

Record of utilization of fund on:

(ii) Daily counter wise revenue stamp

utilized
(iii) Local purchases
(iv) Diesel etc. is maintained and the
balance of imprest is drawn against
imprest of Rs.75,000/- given by HO to
the respective Circle Office.

d) Key Register

Opening and closing time of Strong

Room/Safe is maintained. The signatures of
Head Cashier, AFO(R) & Gunman are
recorded /obtained in this register.

e) Pay-in-slip Register

Acknowledge cash pay-in slip by the bank is

pasted and the day total is compared against
cash collection total per circle summary.

2.3 Records Maintained At CPC Shankar Road

1. Input Files (Energy Collections) consists of
11 files(Soft Copy)

(i) POS.dat

Collection details of all POS counters of the

Circle are consolidated into a file known as
POS.dat. Data is in digital mode in this file.

(ii) POS.txt

Counter wise details of Cash and cheque

collection is recorded.

(iii) SFS.dat
 Circle wise collection details relating to SFS
Drop Box maintained through Skypack in
digital mode.

(iv) SFS.txt

Circle wise collections by Skypack under

Drop Box scheme is recorded.

(v) EBL.dat

Circle wise collection details relating to Easy

Bill collection point maintained through Easy
Bill Ltd. in digital mode.

(vi) EBL.txt

Circle wise collections by Easy Bill scheme is

recorded

(vii) BJR.dat

Company wise collection details relating to

e-collection point maintained through the
agency Bill Junction in digital mode.

(viii) BJR.txt

Company wise collections by Bill Junction is

recorded.

(ix) BDK.dat

Company wise collection details relating to

e-collection point maintained through the
agency Bill Desk in digital mode.

(x) BDK.txt
 Company wise collections by Bill Desk are
recorded.

(xi) Summary.txt

Circle wise energy collections are recorded

in this file.

2. Pay-in-slip file (Hard Copy on file)

Daily Counter wise pay-in-slip are prepared

which are filed month wise along with
acknowledgement received from bank.

3. Bank Voucher File

Bank Voucher for daily collections through

POS counters, SFS, Easy Bill mode are
recorded circle wise and counter wise
separately for cash & cheque separately.

4. Dishonour Lists

(i) Circle and Date wise lists of dishonour

cheques are recorded in a soft copy.
(ii) The amount of dishonour is grossed up
by Rs. 20/-per cheque towards bank
charges .
(iii) Total amount of dishonour including
bank charges is tallied with the bank
debits per bank statements.
(iv) Circle wise dishonour lists in digital
mode is prepared and sent to IT for
uploading in the Customer receivable
module.
(v) Total dishonour value covering no. of
consumers in a circle is listed and
forwarded to HO-Accounts.

5. Final Suspense List

 The collections from consumers, which could
not be uploaded at the IT department after
going through 1st, level suspense clearance
and flagging are sent to the CPC.

3.6 Accounting for Collections

(i) The "Receipt view" and "Consumer table"
(back end tables in EBS) are joined.

(ii) A person of IT department runs a specific

Query (function) on above-mentioned joined
tables.

(iii) Through this query, collections for any

specific day are segregated District wise and
Category wise.

(iv) District-wise collection total and Category-

wise collection total is counter checked by
the personnel of IT department.

(v) A query is executed on Category-wise

collection total to link and post the data in
SAP.

(vi) At the month end, total collection data

(posted in SAP for the whole month) is
cleared and financial records are thereafter
affected.

(vii) For the collection data, not received through

Interface, certain journal entries are passed
at month end.

(vii) At month end, the inter company

adjustments are cleared by passing journal
entries.

(viii) The Collection Control Account is reconciled

at month end.
Cash Collection Process in Reliance BSES

There are many kinds of consumers for RELIANCE ENERGY

GROUP COMPANY M/s BSES RAJDHANI / YAMUNA
POWER LIMITED. It has mainly divided its consumers into
the following parts:

Domestic Connections
LIP- Large Industry Power.
SIP- Small Industry Power.
Commercial- e.g. new connection, meter change etc.
Consumers against theft billing

These above mentioned consumers form various sources of

income for the company. The process starts with billing.

Bill System

For billing purpose the consumers are divided into 33

divisions. These divisions are designed for sending bills to
the consumers. These 33 divisions are bifurcated under four
REVENUE CIRCLES. Like

*UNDER BSES YAMUNA POWER LIMITED

Under East Revenue Circle- 9 Divisions are there.

Under Central Revenue Circle-5 Divisions are there.

*UNDER BSES RAJDHANI POWER LIMITED

Under South Revenue Circle-9 Divisions are there.

Under West Revenue Circle-10 Divisions are there.

All revenue circles are responsible for sending bills to all

the consumers lying under them. All bills consist of two
parts. The same details are mentioned on both parts. The
upper part of the bill which is kept by the cashier is entitled
as `STUB`
Here it is shown;

The bill includes various details like consumer name, circle

detail, district name , k no.(includes 12 digits , first four
represents the district , the next four represents the
consumer book account no., the last four represents the
particular consumer and it is particular for every
consumer),bill no., bill month/bill date, due date, amount to
be paid etc.

Bill Payment at Cash Counters

For bill payment at cash counters, the consumers can

access any cash counter. The cash counter are generally
kept open till 8 p.m. At these cash counters, the cashier
accepts the bill through POS machine. All the POS machines
are connected through main server to ELECTRICITY
BILLING SYSTEM (EBS) and all payments are credited to
the respective consumers K A/C through the centralized
office at Shankar Road named as CPC. He provides the
consumers a cash receipt and keep the upper part of the bill
with him (mentioned earlier it is called `stub`)

The cashier notes every transaction. He uses POS machine

(point of sale). This machine helps him to check bar code.
The cashier only after checking bar code accepts the
payment. He properly notes every payment and mentions
every thing whether the payment is done in cash or in form
of cheques.

At the end of the day, the cashier makes separate bundles of

cash and makes his report in the Cashier Annexure. The
Cashier Annexure is extremely important document .

This Cashier Annexure includes various details regarding

counter no., date, total cash received (in different
denominations), no. of stubs received, amount paid in form
of cash , amount paid in form of cheques etc. with names of
workers at particular cash counter and cashiers signature.

After making annexure and finishing compilation and other

related works, the cashiers job is over with handling over
all these details to the revenue circle under which it lies.

The cashier submits all stubs, scrolls, data in floppy

cheques, cash, and cashier annexure to revenue circle on
the same day.

The officer at revenue circle recounts all cash, cheques,

stubs, verify from annexure etc. and after being satisfied
gives acknowledgement to the particular cash counters
cashier. The officer at revenue circle prepares a summary
report of all cash counter separately lying under its
authority.

This summary report includes the details regarding the

mode of payment, total no. of cheques, total cash, counter
no., amount paid in every transaction etc.

This summary report with all other data submitted by each

cash counter are sent to CPC (Collection Processing Centre)
situated at Shankar Road, New Delhi on the same day for
further processing. But the cash is directly deposited by
each revenue circle to the banks on the next day. For this
purpose BSES has chosen two banks

1. State Bank of India Chandni Chowk, New Delhi.

2. Bank of Punjab Nehru Place, New Delhi.

PAYMENT THROUGH HIRED OUTSOURCING AGENCIES

1. SKYPAK-

Skypak is hired agency by BSES. This agency collects bills

for various businesses. It has created its no. of drop boxes
in various parts of Delhi. The boxes are approximately 200.
The consumers of BSES can access any drop box and drop
his or her payment in it. The payment should be made only
in cheques. Here no cash is accepted.

The consumers prepares his cheques with total due amount

and put the upper part of the bill (stub) also and also writes
some details regarding cheques no., bank name etc. on the
back side of the stub.

These drop boxes are checked on routine basis by Skypak

office and all cheques and stubs are brought to its agency
office.

The Skypak office makes pay slips of all cheques and

separates all invalid cheques. The appropriate cheques are
deposited by it to the bank and all data is recorded.

All stubs are sent to CPC physically on the second day and
the data is e-mailed.

EASY BILL LIMITED

Easy Bill Limited is a Hero Group Company. It has created

computerized machines. These machines have been posed
on different places like medical shops, petrol pumps etc.
These account for about 400 machines.

These electronic machines accept the bills payments

through consumers in form of cheques with stubs and gives
acknowledgement to them by giving a receipt. This work is
completely done by electronic machine itself.

This is better in comparison of Skypak as it gives a receipt

as evidence to consumers that they have made payment.

Then on routine basis Easy Bill Limited also collects stubs

and cheques, prepares complete data and e-mails it and
sends stubs physically to CPC. The payment file is again
uploaded in the online software at CPC.
Both Skypak and EBL find out the invalid cheques and
separate them for further processing by CPC. It is discussed
later on.

PAYMENT THROUGH BJR AND BDR

BJR is a facility extended by ICICI Bank. It provides online

payment facility to BSES consumers. The consumers can
make payments online and their account is debited
accordingly.

In the same manner BDR is a facility provided by Bank of

Baroda for online payment.

Both above mentioned outsourcing agency e-mail data file

to CPC. To these agencies BSES provides all consumers`
details, all their bill details and the agencies directly
debited consumers account.

WORKING AT CPC

CPC is an abbreviated form of Collection Processing Centre

established by BSES. It is located at Shankar Road, New
Delhi. CPC works 24/7. CPC does not get off even for a
single day and working perpetually. It has been established
only after privatization and revitalized the entire collection
management process.

Every revenue circle submits all data and documents to CPC

so as all outsourcing agencies do. Then further processing is
done at CPC.

CPC works for all time as already mentioned but for

explaining it mode of operations, its working has been
bifurcated into two shifts. It will help in explaining its
operations in a more lucid way.
(a) Night Shift (b) Morning Shift

All cheques, cashier annexure, floppy data, scrolls, circle

summary reports, stubs come to CPC from every revenue
circle by 10 p.m. Then after processing is started at CPC
itself.

NIGHT SHIFT

The cheques are first validated. The cheques validation is

the first priority of night shift employees. Earlier it was just
the counting of cheques which was used to be done but now
this work has been extended to verifying the written amount
on cheques. All amounts are checked and matched with all
stubs. At night shift itself all pay slips are prepared for each
cash counter. A single pay slip can have details of only 150
cheques as per banking norms. Accordingly no. of pay slips
is prepared.

DAY SHIFT

After this the process starts in morning shift. At the next

day morning even before 8 a.m. all cheques are sent to
banks.

On the basis of pay slips prepared in the night, other data

sent by revenue circle accounts are prepared.

For accounting point of view cash collection can be

bifurcated into two parts-

1. Collection other than SAP module.

2. Collection through SAP module.

Collection other than SAP---For Cash

Circle office intimates CPC about the amount deposited.

According two entries are passed in CPC.

Bank A/c Dr.

 To EDP Collection Interface.
(EDP is general a/c for all the consumers)

For Cheques

The cheques sent in the night to CPC are verified and pay
slips are prepared. So the entry for the same is passed.

Bank A/c Dr.

To EDP Collection Interface.

All accounting is prepared at CPC in the day shift. All data

collected through various cash counters, agencies are
recorded in the accounting form.

Every consumers account is also updated. Now CPC has

got EPS system. As soon as bill payment is done at cash
counter, the consumers account is updated.

All data related to cash is also maintained at CPC and the

data files are prepared for cash transactions also.

Collection through SAP

When cashier accepts the payment and saves the entry,

automatically the accounting entry is passed I.e. the bank
account is debited and the concerned revenue head is
credited. Nothing is to be done at CPC for accounting.

The bank prepares a bank statement for all transaction. This

bank statement is accessed by CPC through extranet.

When collection is done through SAP, the bank statement is

uploaded in SAP at CPC and bank reconciliation statement
is prepared at CPC.
All accounting is matched with bank statement and if found
any difference it is sought out by correcting on any one side.
Finally bank reconciliation statement is prepared.

At CPC the day shift includes many other works. The

employees checks all manual entries done by cashier at
different cash counter. If there is any correction needed, it
is carried out. All are checked for minimizing any
suspension of transaction at IT office, Nehru Place, New
Delhi. All stubs, scrolls, annexures are verified and checked
properly.

All accounting data file is sent to IT department, Nehru

Place, New Delhi for uploading IT department uploads the
data and update consumers` account.

If even after entire checking of CPC, there is any difference

found by IT department, a suspense list is issued by IT
department and sent to CPC which includes all such
transactions.

CPC checks all transaction involved in suspense list with

stubs make appropriate corrections and then sent to IT
department physically.

IT department again, enter the suitable ones and send to

CPC the final suspense list. Finally with mutual consent
there remains zero suspense. For last eight years there has
been a record of zero suspense.

PROCESSING OF INVALID CHEQUES

Many cheques are held invalid for many reasons like

outdated, postdated, any over writing in cheques may be
there or may be there is any difference in amount in words
and in amount written in numbers. In all these situations
the cheque is held as invalid. All outsource agencies send
these invalid cheques to CPC and their processing is done
there. The cheques at cash counters are checked by cashier
itself. The cheques which are held invalid are communicated
to particular consumers through letters (notices).

(ANNEXURE)

These notices are standard format in which agency name,

date, consumer name, cheque no. with K no. and the reason
is mentioned for invalidity. The consumer is requested to
pay the bill afresh and he or she may collect the invalid
cheque from CPC. This process is done to avoid possible
bouncing of cheques and delay in realizing the revenue.

PROCESSING OF DISHONOURED CHEQUES

At CPC, a separate cell has been established for processing

of dishonored cheques. In this particular cell, employees are
working only on dishonored cheques.

All dishonored cheques need to be communicated to

consumers. They are informed about it. Both banks State
Bank of India and Bank of Punjab send a list of dishonored
cheques.

State Bank of India sends a prepared list with all dishonored

cheques which looks like this..
(ANNEXURE)

Bank of Punjab sends the list of dishonored cheques in a

raw form which looks like this..
(ANNEXURE)
Accounting is also changed accordingly. That means the
consumers account is debited accordingly and the total
collection is subtracted by the amount.

For dishonored cheques a notice under sec. (138) of

Negotiable Instrument Act, is sent to the consumer
requesting him to pay the bill immediately. A levy of Rs
200/- is charged towards handling charges for dishonored
cheque. A copy of the notice is here:

(ANNEXURE)

To realize the amount at much faster pace, recovery

department and division office are also sent information
regarding dishonored cheques of their area on fortnight
basis.
 PAYABLES
MANAGEMENT

There is an old adage in business that "if you can buy

well then you can sell well". Management of the
creditors and suppliers is just as important as the
management of your debtors. It is important to look after
your creditors- slow payment by you may create ill feeling
and can signal that your company is inefficient (or in
trouble!).

But a good supplier is someone who will work with you

to enhance the future viability and profitability of your
company.

Creditors are a vital part of effective cash management and

should be managed carefully to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous
purchasing function can create liquidity problems.

The Creditors in case of BSES includes the suppliers

of power. The Creditors have been divided into Small
scale Industries like Analogic Technomatics (P) Ltd.,
Manahar Brothers, Shreem Capacitors Pvt. Ltd. and others
i.e. Large scale Industries.

The task of power generation and transmission in Delhi

remained in the hands of government-controlledS entities
Genco & Transco. Genco generates power and steps it up to
33 / 66 KV and then to 220 KV before sending it to Transco.

Transco receives power at 220 KV and steps it down to 66 /

33 KV before sending it to DISCOMs.

DISCOMs (BSES) receive power at 66 / 33 KV and step it

down further to 11 KV before feeding it to the distribution
transformer.
Finally, thousands of BSES distribution transformers step
the power down to 0.4 KV and supplied to the consumers.

It is observed that Import of Electricity is done at 66 / 33 KV

transmission system and export to other DISCOMs is done
through 11 KV transmission system. It results in Revenue
Loss to BSES as transmission loss of DTL / other DISCOMs
is being borne by BSES.

According to the Article 5 of the Bulk Supply Agreement

signed by TRANSCO Transmission Company) with the
three DISCOMs (Distribution Companies) , TRANSCO
shall from the month of the date of transfer intimate
through four monthly invoices the amounts payable by
the DISCOMs to TRANSCO for energy charges which shall
become payable on the date falling 20 days after the date
of delivery of such invoice.

After the first four monthly invoices, the DISCOMs start

releasing the payments to TRANSCO without waiting for
the monthly invoice. It is specifically stipulated that the
DISCOMs shall pay the full amount to TRANSCO without
deduction, set-off or withholding on any amount
whatsoever unless otherwise agreed upon.

Where the DISCOMs make payment in full before the

due date, TRANSCO shall allow a rebate of 2.5% in
accordance with the provisions of the Bulk Supply Tariff. It
is also stipulated, that in case the DISCOMs fail to pay the
amounts due to TRANSCO on or before the due date of
payment, then for the period of delay, the DISCOMs shall
be required to pay a Late Payment Surcharge (LPSC) at a
rate equal to 2.5 percent per month on the amount
delayed. LPSC is a penalty levied on the buyer for default
in timely payment of full amount due.

As per bulk supply agreement, if payments are released to

TRANSCO before due dates i.e. 4th , 9th, 14th, 19th, 24th
and Last day of the month, then the company is entitled
for rebate of 2.5 % per month for the period for which
amount is prepaid subject to maximum one month
prepayment.

BSES should see that funds transfer in SBI main

account takes place before due dates and payments to
TRANSCO are made on the same day of funds transfer
in order to get rebate.

Thus any company should consider the following while

managing its creditors:
Who authorizes purchasing in the company - is it
tightly managed or spread among a number of (junior)
people?
Are purchase quantities geared to demand forecasts?
Do the company have alternative sources of supply? If
not, get quotes from major suppliers and shop around
for the best discounts, credit terms as it reduces
dependence on a single supplier.
Is the company in a position to pass on cost increases
quickly through price increases to its customers?
It is important BSES to effectively manage its creditors both
Small scale Industries and major suppliers of power. The
need for maintaining payables in BSES arises from the non-
synchronisation of the inflows and outflows of cash. In the
normal course of business, BSES has to make payments of
cash on a continuous and regular basis to suppliers of
Power, Fixed Assets, Inventory, Employees and so on. At the
same time there, there is a constant inflow of cash through
collections from debtors (which are basically the Electricity
consumers) in case of BSES.
WORKING CAPITAL
FINANCING
 SOURCES OF FINANCING CURRENT
ASSETS
A firm adopts different financing policies vis a vis current
assets. There are three types of financing that can be taken
up by a company:
Long term financing :
The sources of financing include ordinary share
capital, preference share capital, debenture, long term
borrowings from financial institutions and reserves and
surplus.
Short term financing:
The short term financing is obtained for a period less
than one year. It is arranged in advance from banks
and other suppliers of short-term finance in the money
market. Short-term finance includes working capital
funds from banks, public deposits, commercial paper
etc.
Spontaneous financing:
This refers to the automatic sources of short -term
funds arising in the normal course of a business.
Trade credit and outstanding expenses are examples
of spontaneous financing. There is no explicit cost of
spontaneous financing.
Usually when the firm has utilised the spontaneous
sources of financing fully, the firm has to decide between
the long-term and short term sources.

TYPES OF WORKING CAPITAL FINANCING

Fund based financing facilities
Cash credit:
Cash credit refers to a system of financing where a
borrower is provided a credit limit, which could be
utilized by him for the purpose of his business. The limits
are decided based on his overall credit requirement and
the quantum of such requirement met through other
instruments of financing (bills, short term loans, etc.). In
case of SMEs where the term loan component is not
mandatory, the bulk of the bank financing to a unit is in
the form of cash credit.
Cash credit system is the most convenient from the point
of the borrower as this provides him the maximum
flexibility by allowing withdrawal and repayments at his
convenience. Interest is charged only on the average
utilization. However, a commitment charge is levied on
the unutilized limits as the bank is committed to
providing him financing when called upon.
Working Capital loan:
Working capital loan refers to the part of the working
capital limit of a borrower extended to him in the form of a
loan. The loan component is intended to cover the
permanent part of the working capital need while cash
credit component would cater to the fluctuating part of the
limit. The key distinction between the loan component of
the Working Capital limit and the cash credit component is
that interest is charged on the loan component irrespective
of utilization when such a term loan is availed.
Working capital loan component was introduced in the mid
nineties to ensure better credit discipline on the part of the
borrowers. However, carving out a loan component is
mandatory only in case of medium and large companies
(with working capital limits in excess of Rs. 10 crores).
Since SMEs do not generally possess expertise in managing
loan funds in case of low utilization of limits and also have
lower control on their working capital management, carving
out a loan component is not mandatory in their case.

Non-fund based facilities from banks

 Bank Guarantee:
Bank guarantees are issued on the behalf of the customers
in the favour of Government Departments, Public Sector
Undertakings, Corporations and Companies. A banker issues
a letter of guarantee to a third party indicating that the bank
would meet the financial consequences (to a specified
amount) in the event of failure of its client in adhering to the
terms of the contract with the third party.
Letters of guarantee are primarily of the following nature:
Performance Guarantees: are guarantees issued in
respect of performance of a contract. In the case of
performance guarantees, in the event of non-
performance or short performance of a contract, the bank
will be called upon to make good monetary loss due to
non- fulfillment of the contract by the party on whose
behalf the guarantee is issued. While recommending
performance guarantees, branches will have to scrutinise
the proposals with regard to the nature of the
performance, competence of the party, duration of the
contract etc. It is desirable to have full cover by way of
cash margin or other permissible security for such
guarantees.
Financial Guarantees: are those, which are given in
lieu of purely monetary obligations such as guarantees
issued towards money deposits, income-tax and sales tax
liabilities and bridge finance granted under term loans
sanctioned by financial institutions, pending compliance
with the various formalities like documentation, etc.
Deferred Payment Guarantee (DPG): are normally
issued in connection with the purchase of indigenous
machinery under IDBI Bills Rediscounting Scheme. The
guarantee is issued on he behalf of the purchaser of the
machinery guaranteeing payment of the bills drawn by
the supplier towards the purchase price of the machinery
less advance amount paid. In case of equipment
financing, the manufacturer (by itself/through a financing
tie-up) offers credit to the buyers of its equipment at very
attractive terms to generate additional demand for its
products. However, the manufacturer may not be willing
 to assume the risk of default by the buyer and
consequently demand a guarantee from the buyers
bankers that the terms of such financing would be met.
The Deferred Payment Guarantee (DPG) is a bank facility
where the bank does not directly extend a loan to a unit
for acquiring an equipment. Instead, it extends a
guarantee to the equipment manufacturer on behalf of its
client that the financing extended by the manufacturer
(by himself or through its preferred financier would be
repaid as per the terms agreed upon.
The advantage to the buyer here is that he benefits to the
extent of savings in interest charges accruing on account
of opting for equipment financing less the guarantee
charges paid to the bank. In the normal course where the
guarantee does not devolve onto the banker, the banker
stands to earn fee-based income.
Letter of credit :
A letter of credit is issued by a bank and signifies its
commitment to honour the payment terms of the underlying
transaction if the seller delivers the goods as stipulated in
the contract.
A letter of credit could be issued either for domestic
transaction or for international trade. However, its usage is
generally in the context of transactions between parties of
different countries. The usage of Letter of Credit in foreign
trade has arisen because of the characteristics of foreign
trade such as long time gap between dispatch of goods &
realization of proceeds and lower level of comfort about the
counterparty. As a result of this, the banker of the exporting
party generally insists on a letter of credit from the
counterpartys banker in order to verify the authenticity of
the transactions and the buyers credentials. The payment
in case of these transactions would subsequently be
conducted directly between the banks.
BANK FINANCING FOR WORKING
CAPITAL
The financing limits are granted based on assessment of the
working capital requirement. The assessment factors
include various characteristics such as the nature of
industry, industry norms, actual level of activity for the
previous year and the projected level of activity for the
subsequent year to arrive at the working capital
requirement. The bank financing limit is thereafter decided
after factoring in margins on the different types of current
assets forming part of the working capital.
The Bank Financing Limit is fixed on an annual basis.
However, since such limit is provided to meet specific
requirements, utilizing the limits is subjected to the
Drawing Power, which is decided on a monthly/ quarterly
basis.
The effective bank financing is therefore to the extent of the
lower of:
Bank Financing Limit: Determined on an annual
basis based on an assessment of the current years
projections and the actuals for the previous year.
Drawing Power: Linked to the quantum of current
assets (and current liabilities) owned by the business
with appropriate margins. Fixed on a monthly/
quarterly basis depending on the submission of
Monthly/Quarterly Information System returns
indicating the position of the stock statement,
receivables, Work in Progress, payables, etc.
Bank Financing (max. permissible) = Bank Financing
Limit OR Drawing Power whichever is less.
In case of exports the proceeds are generally realized
through 180 day usance L/Cs.
PROCEDURES TO AVAIL WORKING CAPITAL
FINANCING FROM BANKS
Banks exercise extreme caution in lending to first time
applicants starting up their business. A first time applicant
would be asked for collateral in the form of land, building or
residential property. This would be in the addition to a
second charge on the fixed assets of the enterprise.
Sequence of steps to avail working capital:
 Application for the working capital:
Most of the large commercial banks are moving towards
the trend of specialised SSI branches near the industrial
concentrations. The applications for the working capital
are generally accepted and proceed at these branches.
List of Documents accompanying the application:
The application for working capital would need to have a
covering letter containing a request for sanction of
working capital limits. The following documents would
need to be enclosed along with:
Detailed Project Report containing the detailed
financials at projected levels of operations for the next
5 years.
Memorandum and Article of Association
Copies of Incorporation documents (relating top
formalities with the Registrar of Companies in case of
corporates)
Statutory approvals obtained /applied for such as for
power, water, pollution control, environment clearance,
clearance from other agencies/ departments with
purview over the business.
Other relevant documents - Letter of intent/ confirmed
orders from prospective buyers.
Networth statement of promoters.
In case of the larger loans (above Rs 5 crore in case of
most banks), the projections generally submitted in
the CMA format prescribed by Reserve Bank Of India
In -Principle Sanction for Working Capital:
The time frame for in-principle sanction depends upon
two factors:
Time taken for submission of necessary documents.
The decision structure at the bank
Most of the large banks have specialized SSI branches at
the industrial concentrations in the country. These branches
are headed by senior executive often with the sanctioning
power of Rs. 5-6 crores at the branch. In such instance,
delays for processing the applications at the banks are
limited. Infact the stage of in -principle sanction maybe
dispensed with and final sanction accorded on full appraisal.
In other cases, such processing may take 30-45 days for
according In- principle sanction to the project. The newer
private sector banks are generally faster in according such
approval. The significance of the In - principle sanction of
working capital is that such sanction are required for
obtaining term funding from the financial institutions.
Appraisal and Final Sanction:
The appraisal and the final sanction of the request for
working capital is based on a through appraisal of the
Detailed Project Report (DPR). The traditional banks
generally have specified formats for submission of the DPR.
The usual coverage of the DPR includes:
Overview of the business
Background of the promoters
Details of the products to be manufactured -
manufacturing process and raw material
Market overview and competition Sensitivity Analysis -
What if on Finished Goods prices, raw material costs
and so on
Detailed financial projections covering the BALANCE
Sheet, Profit and Loss account, Fund Flow and the
Financial Ratios.
The time frame for a Final Sanction in cases where all the
requirements have already been submitted by the borrower
is 90 days from the submission of the application.
Post Sanction Requirements:
Post sanction requirements involve completion of
documentation creating a charge in favour of the bank. This
could include a charge on assets related to the business and
charge on collateral offered (if any). In case of then assets
of the business already being mortgaged with the term
lending institution, second or third charge maybe created in
the favour of the bank.
The financing facilities sanctioned can thereafter be availed
by the borrower.
Monitoring and Follow up:
Working Capital financing is extended fort the current
assets build up of a business, which is linked to its activity
level. These assets are mobile (in case of inventory) and also
easily convertible into cash. At best, the banks have a
second charge on the fixed assets of the company and
without the power of Seizure (u/s Sec29 as available to the
state financial institutions) realizing money fr0om the
security is time consuming. Hence, banks pay extremely
high importance to the monitoring and follow-up of the loan.
The system of a current account through which all the
transactions are routed acts as an in - built check on the
operations of the borrower. By studying the current account
transaction in detail, the banker is able to make an
assessment of the business. In addition to this, The banks
also undertake other forms of monitoring.
These include:
Stock Statements collected on a monthly basis from
the borrower.
Quarterly Operating Statement giving details of the
operations for the quarter.
Stock Audit by independent firms of chartered
accountants
This would involve a visit to the storage areas of the
borrower, visual inspection and scrutiny of the stock
statements the spot.
Branch Inspection conducted by the internal audit/
bank staff
In case of larger loans, Consortium meetings where the
operations of the unit are jointly reviewed are also
undertaken.
Review, enhancement of limits and adhoc limits :
Review of the limit is usually undertaken on an annual
basis. In cases where a request for enhancement of limits is
made by the borrower during the course of the year, such a
request is processed based on the stock statements and the
QOS submitted. In case of temporary need, an adhoc limit of
upto 25% of the existing limits could be granted on request.
CREDIT MONETARY ASSESMENT
FORMAT
The C.M.A format is presently used by banks, for the
assessment of the working capital requirements of the
borrowers where working capital limit exceeds Rs. 2 crores
(Enhanced to Rs. 4 crores under recent Budget proposed).
The forms are designed by RBI for reporting purposes
under the C.M.A scheme..
While his is no longer mandatory and individual banks may
devise their own forms for the purpose of appraisal, for
purpose of illustration RBI prescribed the CMA forms. Bank
may suitably modify the forms for their use.
Different set of forms have been designed for
manufacturers, traders/merchants, exporters, leasing and
hire purchase concerns and diamond exporters, in view of
their different nature of activities.
There are six forms for manufacturing concerns under
CMA:-
I.Particular of the existing/propose limits from the banking
system.
II. Operating Statement
III. Analysis of Balance Sheet
IV. Comparative Statement of Current Assets and Current
Liabilities
V. Computation of Maximum Permissible Bank Finance
VI. Fund Flow Statement
VERIFICATION OF THE INFORMATION / DATA
Banks should verify not only the arithmetical accuracy of
the data furnished by the borrower but also the logic behind
various assumptions based on which the projections have
been made .For this purpose, bank officials should hold
discussions with the borrowers on the projected sales, level
of operations, level of inventory , receivables, etc. If
necessary a visit to the factory may also be made to have a
clear idea of the product and processes. An illustrative
check- list is given below to indicate the various points to be
examined by banks while finalizing the credit requirements
of the borrower.
1. I. Utilisation of the Existing Limits:

(i) It may be examined whether the limits have been

adequately utilized during the last 12 months. If not, the
justification for further enhancement may be ascertained.
It may so happen that the past profits which were
employed in working capital might be intended to be
withdrawn for investment in fixed assets on account of
modernisation , expansion, diversification etc thereby
creating need for recouping working capital funds. In
such cases, additional limit might be sought although the
existing limits were not utilised adequately during the
last year. The sanction of additional limits in such cases
may lead to slip-back in the current ratio, but slip-back
should not be allowed to a level below 1.33.
(ii)If the limits have been overdrawn its reasons may be
ascertained. If the financial position of the unit is weak,
steps for its improvement may be decided.
(iii) In the case of borrowers coming under the purview of
Credit Monitoring Arrangement (i.e., those borrowers
who enjoy aggregate working capital facilities exceeding
Rs. 10 crores), it is necessary

that limits sanctioned to such borrowers against book

debts should not be more than 75% of the aggregate
limits sanctioned to them for financing their inland credit
sales. In other words, at least 25% of the aggregate limits
 for financing inland credit sales should be provided by
way of bills. If bills finance is lower than 25%, reasons for
it may be ascertained and necessary steps may be taken
to develop bill culture in case of such borrowers.
2. II. Operating Statement:

(i) As the entire working capital assessment is directly

linked to the sales figure, it may be ensured that the
annual projection of sales is reasonable in relation to the
installed/ licenced capacities, availability of inputs,
environmental conditions, marketing prospects, etc.
(ii) In the case of existing units, projected sales should be
in accordance with the past trend, If the projected sales
are not in tune with, the past trend and appear to be over
ambitious, the reasons should be ascertained into ensure
that the sales projections are realistic.
(iii) If the unit is likely to implement a modernisation/
expansion/ diversification project, its impact on sales may
be assessed.
(iv) It may be ascertained whether the previous years
projection of sales, on the basis of which limits were fixed
last year, has been realised. If not, the reasons for the
short-fall may be examined. If a borrower approaches for
additional limits on the basis of the projection higher
than that given in the previous year which was not
realised, the matter should be carefully examined.
(v) If there is a declining trend in net sales, reasons
therefore may be studied. A detailed study should be
done if an increase in limits is sought in such cases.
(vi) The valuation of sales projections should be based on
the current ruling prices.
(vii) Similarly the valuation of various inputs constituting
cost of sales in the projections should also be based on
current prices. it should be ensured that prices
escalations are not built into the projections of sales as
well as cost of various inputs.
(viii) It may be ascertained whether the raw materials
consumption as a percentage of cost of production is in
 keeping with the past trend. If it shows any undue
increase, the reasons for it may be examined.
(ix) It may be ensured that consumable stores and other
items used in the process of manufacture are included in
raw material. The norms for raw materials include
consumable stores and other materials used in the
process of manufacture.
(x) It may be ascertained whether adequate depreciation
has been provided. If the method of providing
depreciation is charged, its impact on cost of production
may be analysed.
(xi) It may be ascertained whether selling, general and
administrative expenses are in keeping with the past
trends, if they show an increase in terms of the
percentage to sales, the reasons for it may be examined.
(xii) It may be examined whether the operating profit/profit
before tax is increasing in line with the sales. If not, its
reasons may be ascertained and analysed.
(xiii) In the case of new units, he estimated production may
be assumed at 40 to 80% of the capacity in the first year
depending on the nature of products, availability of
inputs, marketing prospects, etc. The utilisatioin of the
capacity may gradually increase in subsequent years. In
the case of new units financed by term lending
institutions, projections accepted by them regarding
sales, requirement of raw materials, cost of production,
etc. may be taken as the basis for providing working
capital. Banks and lending
Institutions should have joint/ simultaneous appraisal of the
projects.
III. Analysis Of Balance Sheet :
(i) The classification of current assets and current
liabilities should be made as per the usually accepted
approach of banks and the guidance indicated in this
regard by Reserve Bank may be serve as an indication.
(ii) It may be ascertained whether the levels of raw
material, stock-in-process, finished goods and
 receivables are in conformity with the stipulated norms
of the bank/ RBI.
(iii) If unit which has been maintaining the past inventory
and receivables at levels lower than the accepted norms
wants to raises the levels upto the norms, the reason for
it may be examined.
(iv) If the norm for finished goods and receivables is a
combined one, monthly average for the purpose of
arriving at the combined norms may be worked out by
combining the levels of finished goods and receivables
on the one hand and cost of sales and gross sales on the
other hand.
(v) In the case of industries where norms have not been
stipulated, the levels of inventory and receivables
should be in tune with the past.
(vi) The level of the stock of spares may be estimated on
the basis of past experience. The projected stock of
spares not exceeding 12 months consumption for
imported items and 9 months consumption for
indigenous items may be treated as current assets. In
the case of fertiliser industry spares upto 12-months
consumption even for indigenous items mat be treated
as current assets. Spares held beyond these levels may
be treated as non- current assets as per norms
stipulated by Bank/ RBI.
(vii) If the levels of inventories and receivables are above
the norms a detailed analysis may be done to find the
reasons. A time- bound programme may be prepared to
bring them down in tune with the norms.
(viii) If the level of inventories is very high, the details of the
age of inventory may be obtained to find out whether
some of the items have become obsolete.
(ix) If the level of receivables is very high, the names of
main buyers and the credit offered may be ascertained.
It may be examined whether a portion of the
receivables is likely to be irrecoverable and if so,
sufficient provision should be made for bad debts.
(x) The details of inter-corporate investments and advance
should be obtained and the reasons for not liquidating
them may be examined.
(xi) Some of the borrowers may have a tendency to show
the sundry creditors and other current liabilities in the
projected figures at a reduced level. Although no
norms have been fixed for sundry creditors, it is
expected that the level of sundry creditors, it is
expected that the level of sundry creditors should be in
accordance with the past trend and trade practices.
(xii) The borrowers should make adequate provision for
taxes, dividend, statutory liabilities etc, and if this has
not been one, the extent of liabilities under these
heads which have to met within one year should be
classified as current liabilities.
(xiii) It may be ensured that intangible assets like
patents, goodwill, etc., are written off over a period of
years.
(xiv)It may be ascertained whether the net worth shows an
increasing trend if the trend shows a decline in net
with, its reason may be ascertained.
(xv) Net working capital should show an increasing trend
from year to year. If not, reasons thereof should be
ascertained
3. IV. Computation Of Maximum Permissible Bank
Finance:

(i) Generally, Maximum Permissible Bank Finance (MPBF)

should be calculated on the basis of the second method
of lending or as per norms stipulated by the bank
under the recent relaxations discussed above here.
(ii) Under the existing system if export bills limit is to be
allowed over and above the permissible Bank Finance,
the export bills should be excluded from the total sales
and export receivable should also be excluded from the
build-up of current assets. Separate limits could be
given for export receivables even without keeping the
25% margin from long term sources.
 (iii) The third party outstation cheques / drafts purchase
limits should be within the MPBF. However, at the
request of the borrowers, such limits may be allowed
to a small extent over and above the MPBF.
(iv) It may be ascertained whether there is any co-relation
between projected increase in production or sales and
increase in limits. If not, the reason for it may be
studied.
4. V. Funds flow Statement:

(i) The long term sources should be adequate to cover the

long-term uses and leave a reasonable surplus for being
employed in working capital. If long term sources are
less than the long term uses. It may be inferred that
short-term funds are being diverted for purposes other
than working capital needs. Such cases should be
properly examined.
(ii) Increase in carry of various items of inventory, which is
disproportionate to percentage rise in sales, should be
examined in details.
(iii) The company should in line with the additional limits
seek the increase in short-term bank borrowings over
the previous years level of availment.
(iv) The increase in short term bank borrowings should be
matched suitably by the increase in current assets,
particularly inventory and receivables. If it is not so,
short-term funds might be utilised for repayment of
other current liabilities or be diverted for fixed assets or
for inter-corporate investments advance. Such matters
should be examined in detail.
BANK FINANCE AND MARGIN MONEY
The banker finances the working capital requirement after
taking the net current assets into consideration. As parts of
funds are made available to the business through the
current liabilities, the bank will like to finance only that
portion of the assets which are not financed by the
creditors.
The bank will not finance the net working capital
requirement to the extent of 100% of the net current assets.
Some amount of the assets is put in by the company and the
rest of the amount is financed by the bank. The balance
amount that is brought in by the company or the promoters
is known as margin money for the working capital.
IMPORTANCE AND SIGNIFICANCE OF MARGIN
MONEY
The prime importance of the margin money for the working
capital is that the amount to some extent should be brought
in by the promoter. This was essentially done to see that the
current assets are not double financed.

Double financing of current assets means that current

assets are financed both by the bank as well as by current
liability. There may be a situation where the company has
got the assets financed from the current liabilities and also
obtain the working capital assistance from the bank as well.
In such a case, the current assets will be deemed to be
financed more than once. The bankers are very much averse
to the companies which get their assets financed from the
banks and from the creditors as well. The phenomenon is
called as double financing.
In business, promoter contributes 25% of the net current
assets and the remaining 75% is financed by the bank.
Margin money also forms the cost of projects in the new or
expansion projects. The financial institutions provide term
loans for procuring the fixed assets only and the portion of
the margin money for working capital constitute the part of
the total project cost.

CREDIT FACILITY PROVIDED BY

CONSORTIUM OF BANKS TO MEET THE
WORKING CAPITAL REQUIREMENT HAS
BEEN AN IMPORTANT SOURCE OF
SHORT TERM FUNDS FOR BSES.

The Bank Credit, in general, is a short term

financing say for a year or so. BSES takes these loans to
finance the seasonal demand i.e. to cover the seasonal
increase in Inventories or Receivables. The Banks have
approved separate limits for peak season and non-peak
season.
The need for Working Capital arises whenever there is a
Working Capital Gap i.e. the total current assets are less
than total current liabilities (other than Bank Borrowings).
BSES has high cash requirement. Generally, one Bank does
not take all the risk. Hence BSES takes loan from
CONSORTIUM OF BANKS. This system of financing on
consortium arrangement emerged due to consequential
increase in demand for funds of substantial magnitude and
the inability of the Individual Banks to take care of the
entire funds requirement of large customers. The system of
Consortium Banking provides scope & opportunity to share
risk amongst banks.

7 Banks have agreed to finance BSES in the following

percentages:

BANK
PERCENTAGE
1) SBI 30%
2) Bank Of Baroda 20%
3) IDBI Bank 10%
4) Federal Bank 10%
5) Punjab National Bank 10%
6) Corporation Bank 10%
7) Bank Of Punjab 10%

Here, SBI is the Lead Bank. Some of the ground rules for
lending under Consortium arrangement are:
Maximum of 10 banks in case of Fund based working
capital limits upto Rs. 100 crore and 15 banks in case
of limits upto Rs. 100 crores.
Minimum share of each bank should be 5% of Fund
based Credit limits or Rs. 5 crore, whichever is more.
 Borrower should obtain NOC from the leader before
approaching the new bank.
Lead Bank levies service charges.
The borrower should not obtain any additional banking
facility or open current accounts or obtain bill limits,
guarantees / acceptance, letter of credit etc. from non-
member bank , without the concurrence of the lead
bank.
Each member to decide its own Credit rating and rate
of interest.
Non Fund based limits should be shared in the same
proportion as the Fund based limits in the consortium.
 COMPARATIVE
BALANCE SHEET
ANALYSIS, COMMON
SIZE STATEMENT &
COMPARATIVE RATIO
ANALYSIS
(BYPL & NDPL)

In this present section I wish to take up my own analysis of

companys financial statement in order to understand and
make decision regarding the operation of the firm. The
analysis of financial statements of the firm is basically my
effort to study the relationship among various financial facts
and figures as given in a set of financial statements.

The basic financial statements of the company i.e. balance

sheet and the income statement are dissected into simple
and valuables elements and significant relationship are
established between elements of the same financial
statement and different statements. Therefore I have made
a small effort to establish and identify the financial
weakness and strength of the firm.
1.Comparative financial statements
2.Common size financial statement
3.Ratio analysis

Comparative Financial Statements

In Comparative Financial Statements I have put three years

balance sheets and three years income statements in
columnar form. Thus presenting financial data of three
years in adjacent columns have tried to present a periodic
comparison, facilitating to show the magnitude and
direction of changes.

The preparation of Comparative Financial Statements is

based on the premise that a statement covering a period of
a number of years is more meaningful and significant than
for a single year. The financial data of one year show the
information of only one phase of long and continuous
history of the firm.

The Financial Statements are prepared under the

historical cost convention, on the accrual basis of
accounting and in accordance with the Electricity
(Supply) Act, 1948, Companies Act, 1956and
provisions of the Delhi Electricity Reform (transfer
Scheme) Rules, 2000.

BSES YAMUNA POWERLIMITED

On the basis of Comparative Balance Sheet many facts

about the composition of assets and the financial structure
of the firm can be revealed.
1. The Fixed Assets have increased over the period
by 56.23%. This amount would have been greater
but it is so due to the higher depreciation amount
charged. There is net increase in depreciation of
34.59%. The depreciation on Batteries, Vehicles,
 and Fault Locating Equipments consists
substantial amount.
2. The Gross Working Capital or Current Assets have
increased by 75%. This is very substantial
because Inventories have increased by huge
255%.
3. The Net Current Assets or Net Working Capital
has been in negative both the years due to the
fact that company does not book non recoverable
energy bills at the first instance so as to reflect
conservative debtors. Had the company booked
income on billing basis, the debtors would have
gone up and the working capital requirement
have been positive. The Current Liabilities have
increased by 90.83%. So the Net Working Capital
has decreased. The increase in Current Liabilities
is more than increase in gross current assets so
the working capital is properly managed to an
extent.
4. The company has not raised any capital during
the period and increase in total capital employed
is due to Consumer Contribution for Capital
Works. At the same time Reserves and Surplus
have been used during the period. The Secured
Loans also seem to be utilized for financing the
Fixed Assets as Secured loans have also increased
by more than 108%. This will definitely affect the
long term profitability of the company and
increase the earning capacity of the company.
5. The increase in total liabilities is matched with
the total Assets.

INTERPRETATION OF INCOME STATEMENT

1. On the basis of Comparative Income Statement

shown it can be said that Gross Profit for the year
2005 has increased by 14.42% over the profit for
the year 2004.
2. The Net Loss has decreased by 2.5%. Though the
profit has decreased. The Net Profit after tax is
 not the true reflector of the profit and loss
account due to the fact that it has a line item
called Deferred Tax which is notional amount.
but the matter of appreciation is decrease in Net
Loss. The company is successfully reducing the
losses which were very higher in times of Delhi
Vidhyut. The AT&C i.e. Aggregate Technical and
Commercial Losses have been reduced to a great
extent.
3. The Total Income during the same period has
increased by more than 22%. The total
expenditure of electricity purchased has also
increased by more than 25%. It is partially
because of increased number of consumers and
other because of increased per unit cost of
electricity by 30 paisa. But it is noteworthy here
that in the previous year where the expenditure
on electricity purchase was 73.145 of the total
income it has reduced to 71.40% this year. I can
say that the system has been improved.

4. The expenditure on Meter Reading has decreased

by more than 33%. That signifies improved system
of billing and meter reading.

5. The Employees related expenses have decreased

as the company announced voluntary retirement
scheme in the year 2003 that reduced the
Employees Related Expenses substantially.

6. Contingency Reserves has been created as per

the Electricity (Supply) Act 1948 even though
there is no surplus in the profit and loss account.

BSES RAJDHANI POWER LIMITED

INTERPRETATION OF BALANCE SHEET

On the basis of Comparative Balance Sheet many facts
about the composition of assets and the financial structure
of the firm can be revealed.

1. The Fixed Assets have increased over the period

by 73%. This amount would have been greater but it
is so due to the higher depreciation amount
charged. There is net increase in depreciation of
29.5%. The depreciation on Batteries, Vehicles, and
Fault Locating Equipments consists substantial
amount.

2. The Gross Working Capital or Current Assets

have increased by 55%. This is very substantial for
the reason Inventories have increased by huge
390%.

3. The Net Current Assets or Net Working Capital

has been in negative both the years due to the fact
that company does not book non-recoverable energy
bills at the first instance so as to reflect conservative
debtors. Had the company booked income on billing
basis, the debtors would have gone up and the
working capital requirement have been positive. The
Current Liabilities have increased by more than
181%. So the Net Working Capital has decreased.
The increase in Current Liabilities is more than
increase in gross current assets so the working
capital is properly managed to an extent.

4. The company has not raised any capital during

the period and increase in total capital employed
is due to Consumer Contribution for Capital
Works. At the same time Reserves and Surplus
have been used during the period. The Secured
Loans also seem to be utilized for financing the
Fixed Assets as Secured loans have also increased
by more than 35%. This will definitely affect the
long term profitability of the company and
increase the earning capacity of the company.
 5. The increase in total liabilities is matched with
the total Assets.

INTERPRETATION OF INCOME STATEMENT

6. On the basis of Comparative Income Statement

shown it can be said that Gross Profit for the year
2005 has increased by 23% over the profit for the
year 2004.

7. BSES Rajdhani has showed profit of 60.47 crore.

The Net Profit after tax is not the true reflector of
the profit and loss account due to the fact that it
has a line item called Deferred Tax which is
notional amount. But the matter of appreciation is
decrease in Net Loss. The company is successfully
reducing the losses, which were very higher in
times of Delhi Vidhyut. The AT&C i.e. Aggregate
Technical and Commercial Losses have been
reduced to a great extent.

8. The Total Income during the same period has

increased by more than 27.34%. The total
expenditure of electricity purchased has also
increased by more than 32.95%. It is partially
because of increased number of consumers and
other because of increased per unit cost of
electricity by 42 paisa. But it is noteworthy here
that in the previous year where the expenditure
on electricity purchase 0f total expenditureit has
reduced to 71.40% this year. I can say that the
system has been improved.

10.The Employees related expenses have

decreased as the company announced voluntary
retirement scheme in the year 2003 that reduced
the Employees Related Expenses substantially.

11.Contingency Reserves has been created as

per the Electricity (Supply) Act 1948 even
though there is no surplus in the profit and loss
account.

COMPARATIVE RATIO ANALYSIS:

 (BYPL & NDPL)

BYPL i.e. BSES Yamuna Power Limited and NDPL i.e. North
Delhi Power
Limited are two of the three power distribution companies
in Delhi, the other being BSES Rajdhani Power Limited.

NDPL under Tata Power limited is engaged in the

distribution of electricity in North and North-West Delhi.

1) Current ratio:
Formula: Current assets/Current liabilities.

Min. Expected even for a new unit in India = 1.33:1.

Significance = Net working capital should always be
positive. In short, the higher the net working capital, the
greater is the degree of overall short-term liquidity.
Means current ratio does indicate liquidity of the
enterprise.

Year 2005 2004 2003

0.87 0.94 0.54
BYPL
(REL)
NDPL 1.24 1.21 1.87
(TATA
POWER)

The C/R of BYPL has more or less remained stable in the

last two years. It was 0.54 in 2003 and increased to 0.87
in 2005 which is comparatively low as compared to
NDPL. The increase in Current ratio has been due
to the increasing investments in Inventory and
receivables. There has been an increase in loans
and advance by the company to its staff and also
towards advance income tax payments. The slight
decrease in the C/R from 0.94 in 2004 to 0.87 in
2005 has been due to increase in amounts payable
to the suppliers of electricity to BSES.
 The C/R of NDPL has decreased from 1.87 in 2003 to 1.24
in 2005, so it needs to take a close look at the business
and make sure there are no liquidity issues.

The Current Ratio is only a broad indication of the

liquidity of the company, as all assets cannot be
exchanged for cash easily and hence for a more accurate
measure of liquidity, we see quick asset ratio or acid
test ratio.

2). Acid Test Ratio:

Formula: Liquid Assets/Current liabilities

This ratio is the most stringent measure of how well the

company is covering its short-term obligations, since the
ratio only considers that part of current assets which can be
turned into cash immediately (thus the exclusion of
inventories). The ratio tells creditors how much of the
company's short term debt can be met by selling all the
company's liquid assets at very short notice also called
acid-test ratio.

Year 2005 2004 2003

0.58 0.79 0.42
BYPL
(REL)
NDPL 1.08 1.08 1.69
(TATA
POWER)

The ideal ratio is 1:1. The Liquid ratio for BYPL is less than
the ideal ratio of 1:1 for all the 3 years. This is not much of
the problem for BSES as its transactions with the suppliers
of power are on credit. Also the collections efficiency of the
company has improved, so the company does not have much
liquidity problem. The Liquid ratio of NDPL is also on a
decline which shows that company is moving towards
the ideal.

Thus, it can be concluded that BYPLs liquidity ratios like

current ratio, liquid ratio are satisfactory and it can be
inferred from them that the firm will be able to meet its
short-term obligations as an when they become due.

3). Another ratio which is important is current assets as a

proportion of total assets. This ratio tells us how much
funds of the company are employed in current assets as
compared to the total amount of funds invested in total
assets.

Year 2005 2004 2003

0.49 0.35 0.23
BYPL
(REL)
NDPL 0.26 0.23 0.19
(TATA
POWER)

It is very clear from the above figures that the

proportion of current assets in the asset portfolio of
both the companies is not very high. Infact, it is not
even fifty percent of the total assets. The ratios for
BSES are higher than NDPL in all the three years.

4). Inventory Turnover Ratio:

Formula: (Cost of Goods Sold or Credit sales) /Average
Inventory

This ratio also known as stock turnover ratio measures how

many times the inventory has been turned over (sold)
during the year. It provides insight into liquidity of inventory
and tendency to overstock. It is therefore important to
ensure that the level of stock is kept as low as possible. But
if the level falls too low, there is the danger of not meeting
the consumers demands in time and the distribution
business of the company getting effected.

The credit sales in case of both the companies refer to the

income from operations i.e. sale of electricity.
 Year 2005 2004 2003
15.26 35 26.47
BYPL
(REL)
NDPL 34.98 48.48 41.45
(TATA
POWER)

This ratio indicates the liquidity of the inventory, that is, the
number of times, on an average, the inventory was utilized
during the accounting year and consequently use of
inventory for debt-paying purposes. This ratio is a useful
indicator of the management performance.
NDPL has done better than BYPL in all the 3 years, reason
being low levels of inventory.
Another useful way to evaluate how inventory management
is done in the concern is to look at the average period for
which inventory is being held.
Average Holding period: Average holding period of
inventory can be calculated by dividing the number of days
in a year (365) by inventory turnover ratio.

Year 2005 2004 2003

24.01 10.43 13.83
BYPL
(REL)
NDPL 10.43 7.6 8.82
(TATA
POWER)

The Inventory turnover of BYPL was better in 2004 as

compared to 2005 . Now the number of days the inventory
is held before it is turned into accounts receivable through
sales is more. The amount of funds blocked in inventory is
high and the number of days it takes to convert Inventory
into sales is more for BSES than NDPL.

5). Receivables (Debtors) Turnover ratio:

Formula: Credit sales /Average Debtors
It is a fact that a part of capital is issued to finance the
credit of goods or credit for the payment of electricity bills
in the case of two companies here. The total outstanding
amount at the end of the year is recorded as debtors /
receivables in the balance sheet. This gives rise to two
questions :
(i) whether the amount of resources tied up in debtors
is reasonable;
(ii) whether the company has been efficient in
converting debtors into cash.

Year 2005 2004 2003

6.47 10.07 9.14
BYPL
(REL)
NDPL 5.46 6.33 5.31
(TATA
POWER)

BYPL is doing slightly better than NDPL when it comes to

conversion of debtors into cash.

Average Collection Period: This ratio purports to measure

the average length of time that debtors (consumers) take to
pay.

Year 2005 2004 2003

56.40 36.47 39.91
BYPL
(REL)
NDPL 66.85 57.66 68.74
(TATA
POWER)

BYPL exhibits greater collection efficiency as compared

to NDPL i.e. the nimber of days it takes for BYPL to convert
its debtors into cash is lesser than those of NDPL. BYPL has
been able to achieve this through better management of
receivables. Opening up of easy bill payment outlets and
the mobile van lately have tremendously boosted the
collections of the company.

6). Payable (Creditors) Turnover Ratio

Formula: Credit Purchases /Average Creditors

Accounts payables and creditors constitute an important

source to provide spontaneous working capital finance for
the firm. To what extent management is able to use it
properly is an important area worth probing.

The credit purchases of the company refers to the cost of

electricity purchased from the electricity generating
companies. The creditors of the company comprise of both
the small scale industries and the large scale industries.

Year 2005 2004 2003

6.19 18.13 19.70
BYPL
(REL)
NDPL 6.77 11.07 19.90
(TATA
POWER)

Another variant of this ratio is Average Payment period. It

is obtained by dividing 365 by the payable turnover ratio.

Year 2005 2004 2003

58.97 20.28 18.53
BYPL
(REL)
NDPL 54.48 33.18 18.20
(TATA
POWER)

The average payment period for both the companies have

gone up over last three years. It is not much of the problem
as long as the companies are not offending the credit terms
of the suppliers.

7). Cash Turnover Ratio

Formula: Cash Operating Expenses / Average Cash Balance

Year 2005 2004 2003

10.29 9.61 3.28
BYPL
(REL)
NDPL 4.58 4.79 1.06
(TATA
POWER)

The increase in the cash turnover ratio in case of BSES

shows the intensive utilization of cash. The operating
and maintenance expenses of the company have increased
over the last few years with lot of cash utilized for the
payment of repairs and maintenance on Machinery and
Buildings of the company. The consumption of the stores &
spares for repairs & maintenance also contributes to the
utilization of the cash.

COMMON SIZE STATEMENT

ANALYSIS OF MAJOR EXPENDITURE OF

BSES:
For BSES Rajdhani Power Limited
EXPENDITURE 2004
2005
(AS A PERCENTAGE OF THE TOTAL):
Cost Of Electrical Energy Purchased
84.7% 87.2%
Employee related Expenses 8.2%
5.9%
Store, Spares, Operational & Maintenance expenses
5.5% 4.9%
Administration & Other Expenses 1.6%
2.0%

There has been a 2.5% rise in the cost of electricity

purchased as a percentage of the total expenditure
during the year 2005 as compared to 2004. This is due
to the increase in the bulk supply tariff rate by 32%.

The share of Employee Related expenses in the total

expenditure have come down from 8.2% in the year
2004 to 5.9% in the year 2005. This has been due to
VRS scheme being offered to the employees in the year
 2004 with number of employees taking it and leaving
the company. As a result, The companys contribution
to PF, Gratuity Fund and holiday expenses came down.
But there has been a rise in the amount of contractual
salaries being paid & recruitment expenses of the
company during the year 2005.

The Operational & maintenance expenses of the

company increased by Rs. 12 crores in absolute terms.
This was due to the huge maintenance and preventive
costs being incurred by the company in the year 2005.

The administration expenses of BSES Rajdhani

increased by Rs. 13 crores which was due to the
amount being spent on vehicle & equipment charges,
rent rates & taxes, House keeping charges & licence
fees paid by the company.

For BSES Yamuna Power Limited

EXPENDITURE 2004
2005
(AS A PERCENTAGE OF THE TOTAL):
Cost Of Electrical Energy Purchased
79.6% 81.6%
Employee related Expenses 12.6%
9.4%
Store, Spares, Operational & Maintenance expenses
5.9% 6.6%
Administration & Other Expenses 1.9%
2.4%
Similarly, BSES Yamuna Power Ltd. also showed increase
in the cost of electricity energy purchased, Operational &
maintenance expenses and administration expenses.

The reasons were the same as BSES Rajdhani Power Ltd.

There was a 24% rise in the bulk supply tariff, increase in
the contractual salaries & recruitment expenses of the
company.
 MAJOR FINDINGS &
RECOMMENDATIONS

The Two Delhi Power Distribution companies i.e. BSES

Yamuna Power Ltd. and BSES Rajdhani Power Ltd.
registered significant all-round improvement performance
during the financial year ended 31st March, 2005.

The two companies achieved aggregate sales of electrical

energy of a record 8503 million units during the financial
year ended 31st March, 2005, against 7,085 million units in
the previous year, an increase of 20%.

During the year under review, a peak load of 2,321 MW was

met, against 2,206 MW in the previous year, an increase of
5%.
During the year under review, the aggregate consumer base
increased by 2 lakh to reach 22 lakh.

The aggregate total income during the year under review

was Rs. 3,248 crore (1092 + 2156), as against Rs. 2,587
crore (1693 + 894) in the previous year, an increase of 26%.

The aggregate Profit before tax (PBT) was Rs. 179 crore, as
against Rs. 149 crore in the previous year, an increase of
20%.

The aggregate PBT would have been higher by Rs. 208

crore at Rs. 387 crore, but for the DERC tariff order
effective from 19th June, 2004, which increased bulk supply
tariff by 32% (in BSES Rajdhani) and 24% (in BSES
Yamuna), while increasing the retail sales tariff by only 7%
in both companies.

The aggregate technical and commercial (AT&C) losses

have reduced from the opening loss levels of 57.2% and
63.2% in BSES Rajdhani and BSES Yamuna repectively, to
40.9% and 50.2% respectively at the end of the financial
year ended 31st March 2005. Further reduction in At&C loss
levels will provide substantial upside to these two
companies.

The two distribution companies are implementing a series

of measures for modernization and up gradation of existing
distribution infrastructure, and reduction of aggregate
technical & commercial losses.

During the year under review, electronic meters replaced

over 2 lakh electro-mechanical meters. There was also
marked improvement in technical parameters, leading to
significant improvement in the quality of power load
shedding declined by 70% during the last year, and the
number of distribution failures came down by 98%.
 In line with the findings, the following actions are
recommended:

For Improving Collections:

It is observed that there has been a constant delay in
the process of meter reading (stipulation 3 days) and
dispatch of bills (another 4 stipulated days). The
increased use of Automated Meter Reading will reduce
meter reading time & revenue cycle time of Billing to
Cash Receipt.
Administration should deploy more staff , if required
for Packing and dispatching of Bills which will prevent
the delay in receipt of the bill by the consumer.
The time frame for each activity be scheduled and the
same be documented.
It is recommended that KLG Systel, the agency
responsible for meter reading should be asked to equip
its staff with adequate number of CMRI machines and
proper records be maintained in this regard.

It becomes apparent that BSES Rajdhani has

started to show profit but BSES Yamunais not in a
position to show the profits. This is because the
areadefined under Rajdhani is much better in terms of
qualified and prosperous public while the connections
under Bses Yamuna are always very problematic in
recovery of payments.there is a need to improve the
collection there . the cost of electricity is less in case of
Yamuna even then there is huge loss. The company has
adopted some strict measures like direct electricity
supply to the nearest poles (any person attempting to
steal electricity from pole will result in total fuge in his
house) and others. But there is still need to either
improve billing system and meter reading process so
that it can result in savings to the company.
The Key Consumer Cell at BSES may consider the
following to improve the billing mechanism and
realization.
Bill its consumer on an average consumption basis on
the commencement of the month in which it is
consuming energy. Then make adjustments in the bill
of the succeeding month of the actual energy
consumption of the previous month based on the meter
reading taken. Grant a rebate for pre-payment on the
same basis as it would receive from Delhi Transco Ltd.
for its Key Consumer.
It is also suggested that KCC consumers be billed twice
in a month post DERC clearance, if required.
All care should be taken to see that the bills are
dispatched in time so as to reach the consumer by 12 th
day of the month. Consumers should be made aware
that they can access their bills through web as as soon
as their bill is prepared.
It should be seen that the permanently disconnected
consumers data be reviewed regularly and outstanding
dues be recovered from them.
Some consumers notably Delhi Jal Board, Railways etc.
do not make payment on due date for all their bills.
The bill dates are usually extended and LPSC gets
waived. It is recommended that variations in due dates
be standardized for all consumers having many
connections where it is known that the payment will be
received via a single cheque at the end of the month.
Time target to recover the Previous Arrears should be
set. If the outstanding receivable cannot be recovered
then same should be written off from the books after
getting the assent of the Board of directors.
There is a chance that some consumers, other than in
the process of permanent disconnection are billed only
the fixed charges or the demand charges. All such
 consumers should be reviewed and the site inspection
be conducted to specifically study the reason for non-
consumption of power during the period. There may be
cases where units are not being billed due to cable
fault or similar reasons, so timely action be taken.
Delays in billing new consumers (due to the delay in
receipt of information from the commercial section)
and Untimely recognition of revenue results in loss of
interest revenue or opportunity gain.
Time bound Program be carried out to change the
Mechanical / L&T meters of all consumers to electronic
meter.

For Cash Management:

Prepayment to Delhi Transco before due date earns an
rebate of 30% p.a.(i.e.2.5% per month) for period for
which amount is prepaid subject to maximum of one
month prepayment only.
The amount payable for bulk power drawl for each
month can be ascertained on 1st / 2nd day of every
month even before raising of invoice by Delhi Transco
Ltd. The said amount payable can be paid on
either1st / 2nd day of month by utilizing fund bases
facilities after keeping some margin for contingencies.
This will help the company in earning rebate which will
help in increasing profitability. Further since interest
income will be given to various bankers, better terms
for other facilities like Letter of Credit, Bank
Guarantees, Cash Sorting Charges and other Bank
Charges etc can be negotiated with them.
It is seen that At present, cash is deposited only in
Bank Of Punjab for which company is paying cash
sorting due to heavy cash deposit. Possibilities of
depositing Cash collection on Consortium
Bankers may be explored. This can help in reducing
expense on account of cash sorting charges as well as
simultaneous liquidation of Debit Balance in Cash
 Credit Accounts as cash will be distributed among
seven bankers thus vacating load on one banker.

For Receivables Management:

The study of Receivables brings out one fact that the

realizations from Key Consumers are not aligned to major
cash outflows.
The process of billing commences when the complete
consumption of a particular month is over and the meter
reading takes place. As a consequence, by the time the cash
against a particular bill is realized there is a gap of around
a month between sale of energy and realization of
cash. Thus BSES should minimize the time consumed
in meter reading and billing procedure.
However, BSES is currently being billed six times
subsequent to the month of consumption by Delhi Transco
Ltd. for purchase of energy and on pre-payment of the bill
amount, it is entitled to a rebate of 2.5% per month on the
number of days the amount due is pre-paid.
Delays in billing new consumers (due to the delay in
receipt of information from the commercial section)
and Untimely recognition of revenue results in loss of
interest revenue or opportunity gain.
Time bound Program be carried out to change the
Mechanical / L&T meters of all consumers to electronic
meter.
For Payables Management:

Where the DISCOMs make payment in full before the

due date, TRANSCO shall allow a rebate of 2.5% in
accordance with the provisions of the Bulk Supply Tariff. It
is also stipulated, that in case the DISCOMs fail to pay the
amounts due to TRANSCO on or before the due date of
payment, then for the period of delay, the DISCOMs shall
be required to pay a Late Payment Surcharge (LPSC) at a
rate equal to 2.5 percent per month on the amount
delayed. LPSC is a penalty levied on the buyer for default
in timely payment of full amount due.

As per bulk supply agreement, if payments are released to

TRANSCO before due dates i.e. 4th , 9th, 14th, 19th, 24th
and Last day of the month, then the company is entitled
for rebate of 2.5 % per month for the period for which
amount is prepaid subject to maximum one month
prepayment.

BSES should see that funds transfer in SBI main

account takes place before due dates and payments to
TRANSCO are made on the same day of funds transfer in
order to get rebate.

For Inventory Management & Better

Vendor selection:

The layout plan for all the stores should be prepared to

avoid random storage which hampers the timely
location of material requisitioned. This may also result
in inappropriate assessment of physical stock vis--vis
book stock.
It is important to periodically monitor the inventory
position at all stores to avoid the situation of stock-
outs resulting in possible disruption in the
implementation of the various schemes and
maintenance schedules.
There is every chance of the shelf space of the specific
items expiring without putting them in use and the
Obsolescence of the items lying at the stores may
result in the loss to the company. So, It is important to
have the periodical reconciliation of book stock
with the physical stock for the timely detection of
obsolete, dead & missing items.
 There have been regular cases of inventory missing
from the sores, so Security system has to be made
more effective to prevent thefts.
It is important to have the proper maintenance of
scrap / waste records in the stores.

For Vendor Selection & Procurement:

Payments to vendor should be made only after

obtaining the complete details of the vendors. The
information given by the vendor at the time of
preliminary evaluation should be verified for its
authencity, accuracy & validity. It guards against risk
of procurement of spurious material and not
considering a competent vendor for supplies.
There should be no deviation from the payment terms,
which may result in financial loss.
Bank Guarantee taken from the vendors should be
renewed on time.
The data used for vendor performance evaluation
should be accurate.
The vendor who does not comply with the standards of
the company should be blacklisted.
The Purchase Department should have current
information database of all the vendors available in the
market to explore the alternative sources. Also It
results in having backups in the case of emergency
requirements.
It should be ensured that full credit period is utilized
and all discounts / rebates are availed.
Also It should be ensured that all requisite information
is there in the invoice so that CENVAT credit can be
availed.

GENERAL EVALUATION

1.The company has been showing upwards trend of increase

in revenue and profit before tax, which indicates the
improvemnt in overall performance of the company. The
revenue has gone upby 22% and profit before tax by
15%inspite of steap increase in power urchase cost.

2.Cash profit of the company has gone up by 23% means the

company has been able to manage operetional funds
requiremnent and also has been able to fund capital
expenditure requirement internally.

3.The lifeline of the company depends in reducing the AT&C

i.e. aggregate technical and commercial loss substantially
year by year. 1% decrease in AT&C losses works out to be
25 crore recurring increase in revenue but the company has
only been able to achieve AT&C target at bid level. However
the competitor company that id NDPL (North delhi Power
Limited) in sameplace has been able to AT&C loss reduction
more than 5% over and above the bid level.
Therefore, had the company in subject , taken the due
measure to arrest power theft , at 5% AT&C level reduction
the company has been able to post another 125 crore
additional revenue year by year.

4.The company being a joint venture with Govt.of Delhi,

nspite fo addditional fnds by thr share capital, Govt. has not
agreed to infuse additional fund by the share capital as the
company has incurred a huge amount of Rs.415 crore on
fixed assets addtion this year after aranging internally to
fund fixed assets. The company had to go for find loans
worth Rs.272 crore.

5.According to generally debt-equity ratio of 1.5 % since the

additional amount on account of share capital has not been
infusedin the company and a term loan of 272 crore had
been taken. The debt equiy is at 3-march 2005 stand at
4.24%. Which is very as compared to normal industry trend.
The Govt. should forward to infuse share caital so as to
reduce debt-equity ratio resulting into lower interest
burden.

6.Since the first year of opertion the working capital ratio

has been negative all time. If we see balance sheet carefully
that current liabiliies part includes money received from
consumers on account of secrity deposists, works and
earners money dposit consumer secuirty. Deposit is either
refunable in long period. Only when the consumer
surrenders the electricity connecxtion. Works deposis is
non-refunable.these two items are not exactly of thenature
of current liabilities and hence is the reult for negative
working capital. If both the items are shfted to long-term
funding and then if we work out the working capital
requirement it comes positive in the ratioof 1.08. Hence the
company should transfer these two to long term funding in
bakance shrrt to reflect and it will also help in raising the
funds if require.

7.The company maintains only one store to take care of

recuring maintenance equiremnet of distribution network as
wellas upgradation of network an dfor new fixed assets
devvelopment. All the items purchased for both kinds are
parked in inventorty and at the time of issue the item is
seggregated from R&M and capex point of view. Until any
item is issued it is reflected in inventory and hence is the
result that inventory as at 3.3.05 stand at 134 crore.
Actually item pertaining to capex should be part in capital
worka nd progress and only items related ro R&M of
distribytion nmetwoirk should liein inventory.
LIMITATIONS OF THE
STUDY

As it is practically not possible to study all the aspects

of the process in its entirety thoroughly during the
limited time period of training, I conducted a review of
the process & held discussions with the process
owners and other key people in the process which
helped me in identifying specific areas where control
weaknesses and process gaps may exist, opportunities
for process improvement and or cost reduction and
revenue enhancement.

The work carried out and the analysis thereof is based

on the interviews with the personnel and the records
provided by them.

The identification of the issues in the project report is

mainly based on the review of records, sample
 verification of documents / transactions. As the basis of
selection is purely judgemental in view of the time
available, the outcome or findings of the study may not
be exhaustive and representing all possibilities, though
I have taken reasonable care to cover the major
eventualities.

Also since the company took over DVB in june 2002,

the figures for the year 2003 were available only for
nine months in the year 2003. so the ratio analysis for
that year may not be true representative of the actual
position.

Confidentiality of some data like Bank agreements etc.

made it difficult to understand the financing part of the
working capital.

The study has covered the functioning of the various

processes in the company for a short period of time i.e.
for the years 2004 & 2005 and it is very difficult to
give the exact trend for such a short span of time.
 ANNEXURES

BSES RAJDHANI Power Limited

Balance Sheet as at 31.03.2005
Schedule As at 31.03.2005 As at 31.03.2004
(Rs./Crores) (Rs./Crores)
SOURCES OF FUNDS
Shareholders' Funds
Share Capital 1 460.00 460.00
Reserves & Surplus 2 35.10 33.90
Consumer Contribution for Capital Works 141.54 81.63
Loan Funds 3

Secured Loans 965.50 726.80

Unsecured Loans - 965.50

Service Line Deposits from Consumers 31.40 26.60

Less: Transferred to Profit & Loss Account 14.90 16.50 10.80 15.78
Deferred Tax Liability (Net) 118.40 64.06
Total 1,737.10 1,382.17
APPLICATION OF FUNDS
Fixed Assets 4

Gross Block 1,877.80 1,619.53

Less:- Depreciation
 705.30 579.80

Net Block 1,172.50 1,039.73

Capital Work-in -progress 692.70 1,865.20 35.31 1,075.04

Investments 5 15.40 57.40
Current Assets, Loans & Advances 6
Inventories 208.83 42.54
Sundry Debtors 447.75 249.51
Cash and Bank Balances 30.99 57.30
Loans and Advances 40.71 120.60
728.29 469.95
Less: Current Liabilities & Provisions 7

Current Liabilities 913.66 324.06

Provisions 9.84 923.49 0.09 324.15

Net Current Assets (195.21) 145.80
Profit & Loss Account 51.76 104.11
Total 1,737.16 1,382.34

BSES Rajdhani Power Limited

PROFIT AND LOSS ACCOUNT
FOR THE PERIOD 01.4.2004 TO 31.03.2005
Schedule Current Year Previous Year
01.04.04 to 01.04.03 to
31.03.2005 31.03.2004
(Rs./Crores) (Rs./Crores)
INCOME

Income from operations 8 2,116.79 1,666.16

Other Income 9 39.32 26.93

Total (A) 2,156.11 1,693.09

EXPENDITURE

Cost of Electrical Energy Purchased 1,653.89 1,243.99

Employees Related Expenses 10 112.65 120.97

Stores, Spares, Operational & Maintenance
Expenses 11 92.02 80.31

Administration & Other Expenses 12 37.37 24.27

Meter Reading & Bill Distribution Expenses 13 3.73 5.00

Interest and Finance Charges 14 6.27 2.43

Depreciation 4 125.49 114.80

Total (B) 2,031.41 1,591.77

Profit (Loss) for the year (A-B) 124.71 101.32

Less: Extra-ordinary items - 132.66

(Special Voluntary Retirement Scheme Ex-
gratia)

Less:- Provision for Taxation 15 9.80 0.30

Less:- Provision for Deferred Tax Liability/(Assets) 54.43 0.40

Profit / (Loss) after Tax 60.47 (32.04)

Transfer to Contingency Reserve 8.09 7.45

Profit / (Loss) after Contingency Reserve 52.39 39.49

Profit/(Loss) carried forward to Balance Sheet 51.78 104.11

BSES Yamuna Power Limited

Balance Sheet as at 31.03.2005
Schedule As at 31.03.2005 As at 31.03.2004
(Rs./Crores) (Rs./Crores)
SOURCES OF FUNDS
Shareholders' Funds
Share Capital 1 116.00 116.00
Reserves & Surplus 2 12.85 19.85
Consumer Contribution for Capital Works 57.19 22.71
Loan Funds 3

Secured Loans 582.57 277.87

Unsecured Loans - 582.57 60.45 338.31

Service Line Deposits from Consumers 21.39 16.17

Less: Transferred to Profit & Loss Account 10.44 10.95 6.53 9.64
Deferred Tax Liability (Net) 35.48
Total 814.94 506.52
APPLICATION OF FUNDS
Fixed Assets 4

Gross Block 648.61 432.12

 Less:- Depreciation 164.78 122.39

Net Block 483.93 309.73

Capital Work-in -progress 226.50 710.43 36.52 346.25

Investments 5 3.65 1.74

Current Assets, Loans & Advances 6
Inventories 110.65 31.15
Sundry Debtors 209.32 121.29

Cash and Bank Balances 3.66 34.51

Loans and Advances 21.76 10.45
345.49 197.40
Less: Current Liabilities & Provisions 7

Current Liabilities 398.52 209.85

Provisions 1.51 400.03 0.04 209.89

Net Current Assets (54.54) (12.49)

Deferred Taxation Asset (Net) - 11.15
Profit & Loss Account 155.51 159.87
Total 814.94 506.52

BSES Yamuna Power Limited

PROFIT AND LOSS ACCOUNT
FOR THE PERIOD 01.4.2004 TO 31.03.2005
Schedule Current Year Previous Year
01.04.04 to 31.03.2005 01.04.03 to 31.03.2004
(Rs./Crores) (Rs./Crores)
INCOME

Income from operations 8 1,068.68 881.80

Other Income 9 22.87 12.19

Total (A) 1,091.55 893.99

EXPENDITURE

Cost of Electrical Energy Purchased 798.38 638.29

Employees Related Expenses 10 92.07 100.95

Stores, Spares, Operational & Maintenance Expenses 11 64.59 47.14

Administration & Other Expenses 12 23.41 15.04

Meter Reading & Bill Distribution Expenses 13 3.15 4.71

Interest and Finance Charges 14 12.94 8.13

Depreciation 4
 42.36 31.96

Total (B) 1,036.90 846.22

Profit (Loss) for the year (A-B) 54.65 47.77

Less: Extra-ordinary items - 94.83

(Special Voluntary Retirement Scheme Ex-
gratia)

Less:- Provision for Taxation 15 1.50 0.01

Less:- Provision for Deferred Tax Liability/(Assets) 46.63 8.21

Profit / (Loss) after Tax 6.52 (55.28)

Transfer to Contingency Reserve 2.16 1.84

Profit / (Loss) after Contingency Reserve 4.36 (57.12)

Profit/(Loss) carried forward to Balance Sheet (155.51) (159.87)

NORTH DELHI POWER LIMITED

Balance Sheet as at 31.03.2005

Schedule As at 31.03.2005 As at 31.03.2004 As at 31.03.2003

(Rs./Crores) (Rs./Crores) (Rs./Crores)
SOURCES OF FUNDS
Shareholders' Funds
Share Capital 1 368.00 368.00 368.00
Reserves & Surplus 2 70.50 51.50 22.20
438.50 419.50 390.20
CAPITAL GRANTS 9.60 9.60
Consumer Contribution for
Capital Works 2.01 14.20 8.73
Loan Funds 3
Secured Loans 750 692.50 584.10
Deferred Tax Liability (Net) 53.47 35.10 14.15
Total 1,253.58 1,170.90 983.03
APPLICATION OF FUNDS
Fixed Assets 4

Gross Block 1,625.00 1,446.20 1,251.70

Less:- Depreciation 457.73 420.30 365.41

Net Block 1,167.27 1,025.90 886.29
Investments 5 6.04 6.04
 Current Assets, Loans &
Advances 6
Inventories 50.90 30.90 20.97
Sundry Debtors 300.00 227.30 156.02
Cash and Bank Balances 28.00 20.33 17.90
Loans and Advances 37.00 21.33 11.90
415.90 299.86 206.79
Less: Current Liabilities &
Provisions 7 335.63 247.10 110.10
Net Current Assets 80.27 52.76 96.74
MISCELLANEOUS
EXPENDITURE 86.20

Total 1,253.58 1,170.90 983.03

NORTH DELHI POWER LIMITED

PROFIT AND LOSS ACCOUNT
for the Year ending 31st March 2005
Year ended
Year ended 31.03.05 31.03.04 Year ended 31.03.03
(Rs./Crores) (Rs./Crores) (Rs./Crores)
INCOME
Income from operations 11 1,500.00 1,268.42 867.24
Less: Energy Tax 65.06 55.86 37.55
1,434.94 1,212.56 829.69
Other Income 12 70 55.21 33.52
Total (A) 1,504.94 1,267.77 863.21
EXPENDITURE
Cost of Electrical Energy Purchased 1,015.00 868.15 598.85
Employees Related Expenses 13 120 103.03 81.71
Operational & Maintenance Expenses 14 111 91.09 19.52
Administration & Other Expenses 15 24 18.94 12.9
Provision fo doubtful debts 35 37 42.54
Loss on sale of assets 3.21 25.68 2.21
Depreciation 98.2 87.46 65.51
Interest 16 6.12 4.19 0.34
Total (B) 1,412.53 1,235.54 823.58
Prior period Adjustment Income/(Expenditure) 22.3
Profit (Loss) for the year (A-B) 92.41 54.53 39.63

Less:- Provision for Taxation 6.78 4.18 3.1

Less:- Provision for Deferred Tax Liability/(Assets) 32.2 21.01 14.15
Profit / (Loss) after Tax 53.43 29.34 22.38
Transfer to General Reserve 13 8 12
Transfer to Contingency Reserve 7.05 6.75 6.03
Profit/(Loss) carried forward to Balance Sheet 33.38 14.53 4.15
COPY OF ANNEXURE SENT EVERY CASH COUNTER
LIST OF DISHONOURED CHEQUES SENT BY BANK
OF PUNJAB
REPORT OF DISHONOURED CHEQUE
NOTICE SENT FOR INVALID CHEQUES
 NOTICE SENT FOR DISHONOURED CHEQUES
DIST: 2640 BSES RAJDHANI/YAMUNA POWER LIMITED REFERENCE NO.: 8765
302, CPC, SHANKAR ROAD, NEW-DELHI-II 0060
Mr. /Mrs./Ms R. N BANSAL
CHANDGI RAMRD NO 85 H NO 6 F NO 7 SFPUNJABI BAGH
WEST 1 10026
Book No. TO14 Dated: -13/04/2005
DELHI
Sub :- Intimation re ardin non -a ment of bills under section 24 of Indian Electricit Act
and dishonor of che ue under section 138 of the Ne otiable Instruments Act.
Ref Consumer Number OLD ( 13 digits' K No.) :- 9PB2063415234
Ref Consumer Number NEW ( 12 digits' K No.) :- 2640TOI40455
Dear Consumer,
258150 07042005 446000
We regret to inform that your cheque no dated for Rs. .drawn
on, S81 has been dishonored by the bank for the INSUFFICIENT FUNDS
reason and therefore the receipt for this payment issued earlier stands cancelled with immediate effect Accordingly we have
debited this amount plus our handling charge to your accounts.
You
uelnl.are requested
(Incluolng to make payment
of handling of Rs.200
charges of Rs. 4660.00
) by cash or pay order immediately on receipt of this notice at any of the 8SES Cash Counter In
This communication may be treated as notice of disconnection of your supply u/s 24 of the Indian Electricity Act.1910
and also notice u/s 138 of the Negotiable Instruments Act for dishonor of cheque.
If the payment
recover is not of
the charges made, the electricity
any sum due from supply
you by of your
suit premises shall be disconnected without prejudice to our right to
or otherwise.
For further enquiry please contact CPC, Room No. 302, Shankar Road ,New Delhi. Ph. No.- 28743163
Yours Faithfully,
J ( Auth .Signatory) ~~ i;
Please note that if the payment against this demand has already been made, then ignore this disconnection notice.
( FOR OFFICE USE ONL Y) PAYMENT RECEIVED AGAINST DISHONOURED CHE!lE
Ref Consumer Number OLD ( 13 digits' K No.) :- 9PB2063415234 REFERENCE NO.: 8765
Ref Consumer Number NEW( 12 digits' K No.) :.2640TO140455
Mr. /Mrs./Ms R. N BANSAL
CHANDGI RAMRD NO 85 H NO 6 F NO 7 SFPUNJABI
BAGH WEST 1 10026
Book No. TO14 Dated: -13/04/2005 Received payment
of Rs in cash against cheque dishonoured
(Po No. Dated for Rs. 4660.00
Counter No)
At District Signature of Cashier Receipt date.

COPY OF STUB ACCEPTED DURING THE TIME OF

PAYMENT
BIBLIOGRAPHY
 Transaction Documents Between Delhi Vidhyut Board
and BSES.

Financial Management and Policy (By:

Van Horne )

Working Capital Management (By D R

Mehta )

Basic Financial Management (By M Y

Khan & P K Jain )

www.rel.co.in

www.indiainfoline.com

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BSES Yamuna Power Limited

CASH FLOW STATEMENT FOR THE PERIOD ENDED 31st March, 2005

Rs.'in
Cash flow from operating activities Crores'
3/31/05 3/31/04
 4
7
.
7
6
Profit before Taxation 54.65 54.65 47.76
Adjustments for :
3
1
.
9
6
Depreciation 42.36
Interest and finance charges
0
.
0
5
Investment income (0.16) 42.19 32.01
Operating Profit before working capital changes 96.85 79.77

Adjustments for :
(
6
6
.
8
3
Trade and other receivables )
(
1
1
.
4
4
Inventories )
(
9
4
.
8
3
SVRS )
8
5
.
3
5
Trade payables 0.00 (87.75)
Net cash from Operating Activities 96.85 (7.98)
Cash flow from investing activities :-

(
7
3
.
1
1
Purchase/acquisition of fixed assets )
Depreciation Adjustment on Sale of Assets (0.01)
(
0
.
5
9
Purchase of investments )
(
4
0
.
4
5
Loans and deposits ( non-trade ) ( net ) )
(
0
.
0
5
Investment income 0.16 )
1
4
4
.
7
7
Secured/Unsecured Loans/ Grant 0.15 30.57
Net Cash used in investing Activities 0.15 30.57

Cash flow from financing activities :

0
.
0
0
Interest and finance charges paid 0.00 0.00 0.00

Net cash used in Financing Activities 0.00 0.00

Net increase in cash and cash equivalents ( A+B+C) 97.00 22.59

Cash and cash equivalents as at the commencement of
the year
1
1
.
9
2
( opening balance )
Cash and cash equivalents as at the end of the year
( closing Balance )

Net Decrease \ Increase as disclosed above 0.00 97.00 22.59