Renu Final Project

A
PROJECT REPORT
ON
“ANALYTICAL STUDY OF FINANCIAL POSITION OF

BOI’S CUSTOMERS FOR FINANCING WORKING
CAPITAL REQUIREMENTS”
A detailed study done in
“BANK OF INDIA”
Submitted in partial fulfillment of the requirement for the award of degree of
Masters of Management Studies (MMS) under Mumbai University.
Submitted by
RENU R MAKHIJANI
ROLL NO: 87
BATCH: 2009-2011
Under the guidance of
Jayalaxmi P Salian
Bharati Vidyapeeth’s Institute of Management Studies & Research

Sector 8, CBD-Belapur, Navi Mumbai –400614
ACKNOWLEDGEMENT
Quoting Pablo Picasso, “Action is the foundational key to all success.”
This is what I believe and I strongly adhere to it. Taking any action is not a simple task as
its consequences have to be well thought of. This is the place where I would like to thank
all the people who helped me take the appropriate actions and made this project a success.
It gives me a sense of gratitude and pleasure in submitting a project report on -
WORKING CAPITAL FINANCE OF BANK OF INDIA
Proper guidance enables ordinary ones to achieve extra ordinary deeds .It is my fortune
that I am blessed with excellent guides Jayalaxmi P Salian- Senior Manager (Credit) at
Bank Of India and Aditya Sontakke – College Mentor who constantly motivated and
provided me with valuable information required to continue developing this project.
Last but not the least I express my sincere acknowledgement to the college for providing
me with excellent library resources and facilities to complete this project. This project
work gave me an opportunity to learn more about Working Capital Finance and it turned
out to be a value addition to my knowledge as it was great working and analyzing live
and authentic data. It was a great learning experience.
(i)
EXECUTIVE SUMMARY
Working capital refers to the administration of all aspects of current assets, namely cash,
marketable securities, debtors and stock (inventories) and current liabilities. The financial
manager must determine levels and composition of current assets. He must see that right
sources are tapped to finance current assets, and that current liabilities are paid in time.
Working capital provides an adequate support for the smooth functioning of the normal
business operations of a company. The question then arises as to the determination of the
quantum of investment in working capital that can be regarded as adequate. Therefore the
quantum of investment in the current assets has to be made in a manner that it not only
meets the needs of the forecasted sales but also provides a built-in cushion in the form of
safety stocks to meet unforeseen contingencies arising out of the factors such as delays in
arrival of raw materials, sudden spurts in sales demand etc.
There are many aspects of working capital finance, which make it an important function
of the financial manager:
 Time: working capital finance requires much of the financial manager’s time.
 Investment: working capital represents a large portion of the total investments in
assets.
 Significance: working finance has great significance for all firms but it is very
critical for small firms.
 Growth: the need for working capital is directly related to the firm’s growth.
Investment in current assets represents a very significant portion of the total investment in
assets. Working capital is critical for all firms. A small firm may not have much
investment in fixed assets, but it has to invest to in current assets. Small firms in India
face a severe problem of collecting their debtors.
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 year’s 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.
Banks have their own policies to assess the working capital of the firm to finance them
with the shortage. Bank of India adopts certain methods for financing their customer’s
working capital requirements. Banks normally provide Working Capital Finance by way
of advances against stocks and sundry debtors. Banks do not finance the full amount of
the funds required for carrying inventories and receivables. Bank finance is normally
restricted to the amount of funds locked up less a certain percentage of margins. Margins
are imposed with a view to have adequate stake of the promoter in the business both to
ensure his adequate interest in the business and to act as a bulwark against any shocks
that the business may sustain. The margins stipulated will depend on various factors like
saleability, whether imported or indigenous, quality durability, price fluctuations in the
market for commodity. There are certain recommendations from the committees for the
banks to finance the working capital needs of their clients.
It may, thus, be concluded that all precautions should be taken for the effective and
efficient financing of working capital. The finance manager should pay regular attention
to the levels of current assets and the financing of current assets.
(ii)
PLEASE PASTE HERE THE CERTIFICATE FROM THE BANK

(iii)
PLEASE PASTE HERE THE CERTIFICATE FROM THE INSTITUTE

(iv)
TABLE OF CONTENTS
PARTICULARS PAGE NO:
Acknowledgement (i)
Executive summary (ii)
Certificates (iii)
Chapter 1: Introduction to Working Capital Finance
1.1 Definition of Working Capital

1.2 Nature of Working Capital
1.3 Means to finance Working Capital
1.4 Need of Working Capital Management
1.5 Types of Working Capital
1.6 Determinants of Working Capital
1.7 Assessment of Working Capital Requirement
1.8 Various Sources Used For Financing Working Capital
1.9 Dangers of Inadequate Working Capital
1.10 Working Capital Ratios
Chapter 2: Introduction to the Industry
2.1 Introduction to the Banking Industry

2.2 Structure
2.3 Opportunities & Challenges for Players
2.4 Vision of Banks in India
2.5 Consolidation of Banks in India
2.6 Future Challenges of Banks in India
Chapter 3: Introduction to Bank Of India
3.1 Bank of India – Brief Introduction

3.2 About Bank of India
3.3 Milestones Achieved by Bank of India
3.4 Awards & Accolades
3.5 Highlights of Performance Q4FY0910
3.6 Investors Profile – Chart
3.7 Business Growth Trajectory – Chart
Chapter 4: Research Methodology
4.1 Meaning
4.2 Research Design
4.3 Types of Data Collection
4.4 Tools Used For The Project
4.5 Objectives Of The Study
Chapter 5: Data Analysis & Interpretation
5.1 Case Study 1

5.2 Case Study 2
5.3 Case Study 3
Chapter 6: Conclusion, Limitations & Suggestions
6.1 Conclusion
6.2 Limitations
6.3 Suggestions
1.1 DEFINITION OF WORKING CAPITAL
Working Capital for any manufacturing unit means the total amount of circulating funds
required for the continuous operations of the unit on a going basis. The Working Capital
comprises of:-
 Amount for raw material of various kinds.

 Amount for stock in process.
 Amount for all finished goods in stores and in transit.
 Amount for receivables or sundry debtors.
 Other routine expenses.
1.2 NATURE OF WORKING CAPITAL
Working Capital Management is concerned with the problems that arise in attempting to
manage the Current Assets, the Current Liabilities and the interrelationship that exists
between them.
(i) Current Assets:

The term Current Assets refer to those assets which in the ordinary course of
business can be, or will be, converted into cash within one year without
undergoing a diminution in value and without disrupting the operations of the
firm. The major current assets are cash, marketable securities, accounts
receivable and inventory.
(ii) Current liabilities:

The term Current Liabilities refer to 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 basic current liabilities are
accounts payable, bills payable, bank overdraft, and outstanding expenses.
The goal of Working Capital management is to manage the firm’s current assets and
liabilities in such a way that a satisfactory level of working capital is maintained. This is
so because if the firm cannot maintain a satisfactory level of working capital, it is likely
to become insolvent and may even be forced into bankruptcy. The current assets should
be large enough to cover its current liabilities in order to ensure a reasonable margin of
safety.
1.3 MEANS TO FINANCE WORKING CAPITAL ARE AS FOLLOWS:
 Credit available on purchases;

 Short term bank borrowings
 Surplus of long term funds over the long term uses(NWC)
1.4 NEED OF WORKING CAPITAL MANAGEMENT
The need for working capital (gross) or current assets cannot be overemphasized. The
objective of financial decision making is to maximize the shareholder’s wealth and
therefore, it is necessary to generate sufficient profits. The extent to which profits can be
earned will naturally depend, among other things, upon the magnitude of the sales. A
successful sales programme is, in other words, necessary for earning profits by any
business enterprise. However, sales do not convert into cash instantly; there is
invariably a time- lag between the sale of goods and the receipt of cash. There is
therefore, a need for working capital in the form of current assets to deal with the
problem arising out of the lack of immediate realization of cash against goods sold.
Therefore, sufficient Working Capital is necessary to sustain sales activity. Technically,
this is referred to as the Operating or Cash Cycle. The Operating Cycle can be said to be
at the heart of the need for Working Capital. The continuing flow from cash to suppliers,
to inventory, to accounts receivable and back into cash is what is called the operating
cycle. In other words, the term cash cycle refers to the length of time necessary to
complete the following cycle of events:
 Conversion of cash into inventory;

 Conversion of inventory into receivables;
 Conversion of receivables into cash.
The operating cycle, which is a continuous process, is shown in the Fig. below
Operating Cycle
 Cash management
Identify the cash balance which allows for the business to meet day to day
expenses but reduces cash holding costs.
 Inventory management
Identify the level of inventory which allows for uninterrupted production but
reduces the investment in raw materials - and minimizes reordering costs - and
hence increases cash flow; see Supply chain management; Just In Time (JIT);
Economic order quantity (EOQ); Economic production quantity
 Receivables management
Identify the appropriate credit policy, i.e. credit terms which will attract
customers, such that any impact on cash flows and the cash conversion cycle will
be offset by increased revenue and hence Return on Capital (or vice versa); see
Discounts and allowances.
 Short term financing
Identify the appropriate source of financing, given the cash conversion cycle: the
inventory is ideally financed by credit granted by the supplier; however, it may be
necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash"
through "factoring".
Computation of Operating Cycle:-
1. Raw Material Consumption = Average Raw Material

Raw Material Consumption Per Day
Average Raw Material = (Opening Stock Of Raw Material + Closing Stock Of Raw
Material ) / 2 .
Raw Material Consumption Per Day = Total Raw Material Consumption

Number of Days
2. Work In Process = Average Stock In Process
Cost Of Production Per Day
Average Stock In Process = ( Opening Stock Of Work In Process + Closing Stock Of

Work In Process ) / 2.
Cost Of Production Per Day = Total Cost Of Production

No. Of Days
3. Finished Goods = Average Stock Of Finished Goods

Cost Of Sales Per Day
Average Stock Of Finished Goods = ( Opening Stock Of Finished Goods + Closing

Stock Of Finished Goods ) / 2.
Cost Of Sales Per Day = Total Cost Of Sales

No Of Days
4. Receivables = Average Receivables

Sales Per Day
Average Receivables = Opening Receivables + Closing Receivables / 2
Sales Per Day = Total sales

No. Of Days
Operating Cycle = Total (1+2+3+4)
Assumption:- No. Of Days = 300 (For 1,2,3)

1.5 TYPES OF WORKING CAPITAL
I. ON THE BASIS OF CONCEPT
 Gross Working Capital
Gross Working Capital, simply refers to the firm's total Current Assets including
Cash, Marketable Securities, Accounts Receivable, and Inventory.
 Net Working Capital
Net working capital or liquid surplus means the difference between current assets and
current liabilities. The desired level of net working capital should be higher than 1:1
to ensure sufficient liquidity and availability of working funds.
II. ON THE BASIS OF TIME
 Permanent/Fixed Working capital
Business activity does not come to an end after the realisation of cash from
customers. For a company, the process is continuous and hence, the need for a regular
supply of working capital. However, the magnitude of working capital required is not
constant, but fluctuating. To carry on business, a certain minimum level of working
capital is necessary on a continuous and uninterrupted basis. For all practical
purposes, this requirement has to be met permanently as with other fixed assets. This
requirement is referred to as permanent or fixed working capital.
 Temporary/Variable Working capital
Any amount over and above the permanent level of working capital is temporary,
fluctuating or variable working capital. The position of the required working capital is
needed to meet fluctuations in demand consequent upon changes in production and
sales as a result of seasonal changes.
1.6 DETERMINANTS OF WORKING CAPITAL
The amount of working capital depends upon the following factors:-
1. Nature or Character of the Business
The nature and the working capital requirements of an enterprise are interlinked.
While a manufacturing industry has a long cycle of operation of the working
capital, the same would be short in an enterprise involved in providing services.
The amount required also varies as per the nature, an enterprise involved in
production would require more working capital than a service sector enterprise.
2. Size of the Business/Scale of Operations
The requirement of working capital fluctuates for seasonal business. The working
capital needs of such businesses may increase considerably during the busy
season and decrease during the slack season. Ice creams and cold drinks have a
great demand during summers, while in winters the sales are negligible.
3. Production Policy
Each enterprise in the manufacturing sector has its own production policy, some
follow the policy of uniform production even if the demand varies from time to
time, and others may follow the principle of 'demand-based production' in which
production is based on the demand during that particular phase of time.
Accordingly, the working capital requirements vary for both of them.
4. Manufacturing Process/Length of Production Cycle
In a manufacturing business, the amount of working capital increases in direct

proportion to length of manufacturing process. Longer the manufacturing process,
larger is the amount of working capital required.
5. Seasonal Variations
In certain industries raw material is not available throughout the year. Generally,
during the peak season, a firm requires larger working capital than in the slack
season.
6. Working Capital Cycle
The length of the operating cycle determines the working capital of a company. If
the operating cycle is lengthy, then the amount of working capital required is large
and vice-versa.
7. Rate of Stock Turnover
There is a high degree of inverse co-relationship between the quantum of working

capital and the speed with which the sales are affected.
8. Credit Policy
A concern that purchases its requirements on credit and sells its products/services
on cash requires lesser amount of working capital as there is immediate cash
generated from sales.
9. Business Cycles
During the boom period, larger amount of working capital is required due to
increase in sales, rise in prices, optimistic expansion of business, etc., and vice-
versa.
10. Earning Capacity and Dividend Policy
Company with good earning capacity requires less working capital cash inflows.
In case of high dividend paying firms more working capital is required, as
dividends are always paid in cash to the shareholders resulting in cash outflows.
Estimating Working Capital Requirements
In order to determine the amount of working capital needed by a firm, a number of

factors viz. production policies, nature of business, length of manufacturing process,
rapidity of turnover, seasonal fluctuations, etc. are to be considered by the finance
manager
1.7 ASSESSMENT OF WORKING CAPITAL REQUIREMENT
In terms of RBI instructions, the Working Capital requirement of a unit can be assessed
by adopting any one of the following methods:-
i) Turnover Method
ii) The method of lending on the basis of inventory and receivables (MPBF Method)
iii) Cash Budgeting Method
I. Turnover method
This would be applicable to all borrowers enjoying Fund Based Working Capital limits
up to and inclusive of Rs.5crores with the banking system. Under this method, the
working capital requirement will be computed on the basis of the 25% of the Annual
Projected Turnover/Sales of the borrowers. Out of this 25%, a minimum of 20% of the
projected turnover is to be provided by the bank as working capital limit and the rest 5%
is to be contributed by the borrowers as their margin towards the working capital.
This method of assessment of Working Capital has been recommended by Nayak
Committee.
Example:-
1. Projected turnover 300 lakhs
2. Working capital requirement 300 * 25/100 = 75 lakhs

(25% of projected turnover)
3. Bank finance for working capital 300 * 20/100 = 60 lakhs
(20% of projected turnover or OR
4/5 of working capital requirement) 75 * 4/5 = 60 lakhs
4. Margin money for working capital 300 * 5/100 = 15 lakhs

from long term sources OR
(5% of projected turnover or 75 * 1/5 = 15 lakhs
1/5 of working capital requirement)
Borrowers requiring Working Capital limits (Fund based) above Rs. 5crores from
banking sector may be given the choice to choose either the existing system of lending
based on Holding Level of Inventory (MPBF) OR the Cash Budget System of Lending.
However, the decision to allow the borrower to switch over to Cash Budget System
would rest with the bank.
II. The method of lending on the basis of inventory and receivables
Banks have the freedom to determine the level of holding for inventory and
receivables for various industries. They may continue to accept those levels which
are in conformity with the past levels of holding of the borrower on the basis of actual
for last 2 years and also keeping in view the industry levels in general as advised by
the RBI from time to time. Deviations may be permitted by the sanctioning authority
on merits of each case by the sanctioning authority. The existing CMA data forms for
assessment of limits and QIS Returns for monitoring of borrower’s accounts who
choose this method may be continued in use.
Tandon Committee Recommendations
The key recommendations of Tandon Committee related to:

a. Norms for current assets
b. Maximum permissible bank finance
c. Emphasis on loan system
d. Periodic information and reporting system
Emphasis on loan system
Tandon Committee suggested an information and reporting system, which was further
improved by the Chore committee. Its key components are as follows:
• Quarterly Information System- Form 1- This gives the –
i. Estimates of production sales for the current year and the ensuing quarter
ii. The estimates of current assets and liabilities for the ensuing quarter
• Quarterly Information System- Form 2- This gives the –
i. The actual production and sales during the current year and for the latest
completed year
ii. The actual current assets and liabilities for the latest completed quarter
• Half-yearly Operating statements- Form 3-
This gives the actual operating performance for the half-year ended against the
estimates for the same.
• Half-yearly Funds Flow Statement- Form 3 B-
This gives the sources and the uses of funds for the half-year ended against the
estimates for the same.
METHODS OF LENDING:
Like many other activities of the banks, method and quantum of short-term finance
that can be granted to a corporate was mandated by the Reserve Bank of India till
1994. This control was exercised on the lines suggested by the recommendations
of a study group headed by Shri Prakash Tandon.
The study group headed by Shri Prakash Tandon, the then Chairman of Punjab
National Bank, was constituted by the RBI in July 1974 with eminent personalities
drawn from leading banks, financial institutions and a wide cross-section of the
Industry with a view to study the entire gamut of Bank's finance for working
capital and suggest ways for optimum utilisation of Bank credit. This was the first
elaborate attempt by the central bank to organise the Bank credit. The report of this
group is widely known as Tandon Committee report.
Most banks in India even today continue to look at the needs of the corporates in
the light of methodology recommended by the Group.
As per the recommendations of Tandon Committee, the corporates should be

discouraged from accumulating too much of stocks of current assets and should
move towards very lean inventories and receivable levels. The committee even
suggested the maximum levels of Raw Material, Stock-in-process and Finished
Goods which a corporate operating in an industry should be allowed to accumulate
These levels were termed as inventory and receivable norms. Depending on the
size of credit required, the funding of these current assets (working capital needs)
of the corporates could be met by one of the following methods:
 First Method of Lending:
Banks can work out the working capital gap, i.e. total current assets less current
liabilities other than bank borrowings (called Maximum Permissible Bank
Finance or MPBF) and finance a maximum of 75 per cent of the gap; the balance
to come out of long-term funds, i.e., owned funds and term borrowings. This
approach was considered suitable only for very small borrowers i.e. where the
requirements of credit were less than Rs.10 lacks
 Second Method of Lending:
Under this method, it was thought that the borrower should provide for a
minimum of 25% of total current assets out of long-term funds i.e., owned funds
plus term borrowings. A certain level of credit for purchases and other current
liabilities will be available to fund the build up of current assets and the bank will
provide the balance (MPBF). Consequently, total current liabilities inclusive of
bank borrowings could not exceed 75% of current assets. RBI stipulated that the
working capital needs of all borrowers enjoying fund based credit facilities of
more than Rs. 10 lacs should be appraised (calculated) under this method.
 Third Method of Lending:
Under this method, the borrower's contribution from long term funds will be to
the extent of the entire CORE CURRENT ASSETS, which has been defined by
the Study Group as representing the absolute minimum level of raw materials,
process stock, finished goods and stores which are in the pipeline to ensure
continuity of production and a minimum of 25% of the balance current assets
should be financed out of the long term funds plus term borrowings.
(This method was not accepted for implementation and hence is of only
academic interest).
Maximum Permissible Bank Finance:
The Tandon Committee had suggested 3 methods for determining the maximum
permissible bank finance (MPBF).
The methods for determining the MPBF are described below:

Method 1- MPBF= 0.75(CA-CL)
Method 2- MPBF= 0.75(CA)-CL
Method 3- MPBF= 0.75(CA-CCA)-CL
III. Cash Budget System
Customers enjoying working capital limits in excess of Rs. 5crores will be given
option to adopt the Cash Budgeting method at the discretion of the bank. In case such
borrowers choose the cash
budget system of lending, they have to satisfy the bank that they have the necessary
infrastructure in place to submit the required information periodically in time. The
scope of internal MIS should be satisfactory and commensurate with the level of
operations. The borrower must have a finance professional and computerized
environment.
Comparative Chart of Three methods of lending
Turnover Method MPBF Cash Budgeting

(Nayak Committee)* method Method
(A) (Tandon (C)
Committee)
(B)
Working Capital upto Rs Applicable in case of Working
5crores Capital required above Rs.
5crores
Basis Projected Annual Turnover- Inventory and Peak level cash
assuming production/business receivable deficit
cycle of 3months holding levels
To whom Fund based & NFB w/c credit Borrowers having Working
applicable limits upto & inclusive of Rs. Capital limits (fund based and
5crores from the banking non fund based) above Rs.
system 5crores from the banking system.
Note: Borrowers given option to
choose between B & C but the
decision to allow the switch over
by borrower to cash budget
system would be purely at bank’s
discretion.
Further, borrowers opting for cash
budgeting method should satisfy
the bank about their having the
necessary infrastructure in place
to submit the required information
periodically in time.
Computation of 20% of projected annual Tandon’s II Peak level cash
limit turnover Method of deficit will be the
Lending level of total
(Levels to be W.C finance.
on conformity
with past or
industry as
may be
advised from
time to time
by RBI and
also
borrowers’s
level of
activity)
Margin/Borrower’ 5% of Projected Annual 25% of Debt equity ratio
s contribution Turnover Current of 3:1 and
Assets Current Ratio of
minimum 1.33:1
Applicable in case of w/c required
above Rs. 5crores
Details/Data to be For w/c limit(Less than Rs. CMA Data Projected Cash
obtained/other 10 lakhs) Operating Budget
requirements statement Statement(annual
Past 3 years sales, gross profit, Balance sheet ) comprising of
net profit etc. actual for last projected
Projections of the above for 2 years, receipts and
the current year. estimates for payments for the
Sales Tax current year & next 12 months
Returns/Declarations/Assessm projection for on account of:-
ent Orders, wherever next year. a)Business
applicable* Analysis of operation
Sales & Purchases details of B/S data as b)Non- Business
the relevant period. above. operation
Stocks of Book Debts Computation c)Cash flow
statements. of MPBF. from capital
Credit summation to be Funds flow accounts
commensurate with reported Statement. d)Sundry items
sales.
Periodical inspections. QIS Data Projected cash
Projection for flow for next
For w/c limits > Rs 10 lakhs next quarter at quarter
and more upto and inclusive least a week
of Rs 5 crores in advance. Quarterly
Operating statement in Form Actual for last summary of
No. II quarter within cash book
Analysis of Balance Sheet in 2 weeks after pertaining to
Form No.III ending. previous
Audited balance sheet for past Operating quarter(actual)
3years statement for certified by
the last half FCA within 2
year(actual) weeks of
within 6 closure.
weeks after
half yearly MSOD
closure.
Monthly
select
Operational
Data(MSOD)
* Turnover Method of assessment of Working Capital assumes operating cycle of

90days. However, where the operating cycle is longer, Banks have to provide the finance
in excess of 20% of the projected annual turnover based on the borrower’s requirements
of working capital computed as per traditional method.(MPBF method/On the basis of
holding level)
1.8 THE VARIOUS SOURCES USED FOR FINANCING THE WORKING

CAPITAL ARE AS FOLLOWS:
1. Working Capital Advance by Commercial Banks

2. Short- Term Loans from Financial Institutions
3. Commercial paper,
4. Factoring
Working Capital Advance by Commercial Banks:
The various aspects of this source of finance are:

a) Application and processing
b) Sanction and Terms of condition
c) Forms of bank finance
d) Nature of security
e) Margin amount
 Application and Processing:

A customer seeking an advance is required to submit an appropriate application form
and there are three different types of application form for different categories of
advances. The information furnished in the application form covers , the name and
address of the borrower and his establishments, the details of borrowers business, the
nature and amount of security offered. The application form has to be supported by
various ancillary statements like financial statements and financial projections of the
firm.
 Sanction and Terms and Conditions:

Once the application is duly processed , it is put up for sanction to the appropriate
authority.
 Forms of Bank Finance:
Working Capital advance is provided by commercial banks in three primary ways –
i. Cash credit – against hypothecation of Stocks and Book Debts

ii. Loans
iii. Bills discounting
• Cash Credit:
Under a cash credit or overdraft arrangement, a pre-determined limit for borrowing is
specified by the bank. The borrower can draw as often as required provided the
outstanding do not exceed the cash credit/overdraft limit. The borrower also enjoys the
facility of repaying the amount, partially or fully, as and when he desires. Interest is
charged only on the running balance, not only on the limit sanctioned.
• Loans:
These are advances of fixed amounts which are credited to the current account of the
borrower or released to him in cash. The borrower is charged with interest on the entire
loan amount, irrespective of how much he draws. In this respect this system differs
markedly from the overdraft or cash credit arrangement wherein interest is payable only
on the amount actually utilized. Loans are payable either on demand or in periodical
installments.
• Discount of Bills:
A bill arises out of a trade transaction. The seller of goods draws the bill on the purchaser.
The bill may be either clean or documentary and may be payable on demand or after a
usance period which does not exceed 90 days. On acceptance of the bill by the purchaser,
the seller offers it to the bank for discount. When the bank discounts the bill it realizes the
funds to the seller. The bank presents the bill to the purchaser and gets its payments.
• Letter of Credit:
A letter of credit is an arrangement whereby a bank helps its customer to obtain credit
from its suppliers. When a bank opens a letter of credit in favour of its customer for some
specific purchases, the bank undertakes the responsibility to honour the obligation of its
customer, should the customer fail to do so. This is an indirect form of financing as
against overdraft, cash credit, loans, and bill discounting which are direct forms of
financing. But in direct financing the bank assumes risk as well as provides financing.
• Security:
For working capital advances, commercial banks seek security either in the form of
hypothecation or in the form of pledge.
• Margin Amount:
Banks do not provide 100% finance. They insist that the customer should bring a portion
of the required finance in the form of Capital /Owned Fund to ensure promoters stake
in the business. This portion is known as margin amount.
1.9 DANGERS OF INADEQUATE WORKING CAPITAL:
i. It is not possible for it to utilize production capacity fully for want of working
capital.
ii. A company may not be able to take advantage of cash discount facilities.
iii. A company may not be able to take advantage of profitable business
opportunities.
iv. A company may not increase its cash sales and may have to restrict activities
to credit sales only.
v. A company may have to borrow funds at exorbitant rates of interest.
vi. Low liquidity would positively threaten the solvency of time business. The
credit worthiness of the company is likely to be jeopardized because of lack of
liquidity.
1.10 WORKING CAPITAL RATIOS:
The various Working Capital Ratios are:

• Current Ratio
• Quick Ratio
• Stock Turnover Ratio
• Debtors Turnover Ratio
• Interest Coverage Ratio
• Profitability Ratios
 Current Ratio:
It shows the short term financing position of the business. This ratio measures the ability
of the business to pay its current liabilities.
Current ratio = Current Assets / Current Liabilities
 Quick Ratio:
It is calculated to work out the liquidity of a business. This ratio measures the ability of
the business to pay its current liabilities in a real way.
Quick ratio = Quick assets / Current Liabilities
 Stock Turnover Ratio:
This ratio provides guidelines to the management while framing stock policy. It
measures how fast the stock is moving through the firm and generating sales. It helps to
maintain a proper amount of stock to fulfill the requirements of the concern. A proper
inventory turnover makes the business to earn a reasonable margin of profit.
Stock turnover ratio = Cost of goods sold / Average stock
 Debtors Turnover Ratio:
This ratio indicates the efficiency of the concern to collect the amount due from debtors.
It determines the efficiency with which the trade debtors are managed. Higher the ratio,
better it is as it proves that the debts are being collected very quickly.
Debtors turnover ratio = Credit Sales / Average Debtors
 Interest coverage ratio:
A ratio used to determine how easily a company can pay interest on outstanding debt. The
interest coverage ratio is calculated by dividing a company's earnings before interest and taxes
(EBIT) of one period by the company's interest expenses of the same period.
Interest Coverage ratio = EBIT / Interest Expense
The lower the ratio, the more the company is burdened by debt expense. When a company's
interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable.
An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to
satisfy interest expenses.
 Profitability Ratios:
• Return on Sales (Profit Margin) Ratio –
This ratio measures the profits after taxes on the year's sales. The higher this ratio,
the better prepared the business is to handle downtrends brought on by adverse
conditions. This ratio is calculated using the following formula:
Net Profit After Taxes / Net Sales
• Return on Assets (ROA) Ratio
This ratio shows the after tax earnings of assets and is an indicator of how profitable
a company is. Return on assets ratio is the key indicator of the profitability of a
company. It matches net profits after taxes with the assets used to earn such profits.
A high percentage rate will tell you the company is well run and has a healthy return
on assets. This ratio is calculated using the following formula:
Net Profit After Taxes / Total Assets
• Return on Net Worth Ratio –
This ratio measures the ability of a company's management to realize an adequate

return on the capital invested by the owners in the company. This ratio is calculated
using the following formula:
Net Profit After Taxes / Net Worth

2.1 INTRODUCTION TO THE BANKING INDUSTRY
Banking in India has a long and elaborate history of more than 200 years. The beginning
of this industry can be traced back to 1786, when the country’s first bank, Bank of
Bengal, was established. But the industry changed rapidly and drastically, after the
nationalization of banks in 1969. As a result, the public sector banks began
experiencing numerous positive changes and enormous growth. Then came the much-
talked-about liberalization and economic reforms that allowed banks to explore new
business opportunities and not just remain constrained to generating revenues from mere
borrowing and lending. This provided the Indian banking scenario a remarkable facelift
that only continues to get better with time. However, even today, despite the foray of
foreign banks in the country, nationalized banks continue to be biggest lenders in
the country. This is primarily due to the size of the banks and the penetration of the
networks
Bank may be defined as a financial institution which is engaged in the business of

keeping money for savings and checking accounts or for exchange or for issuing loans
and credit etc. A set of services intended for private customers and characterized by a
higher quality than the services offered to retail customers. The essential function of a
bank is to provide services related to the storing of deposits and the extending of credit.
Basic function may include Credit collection, Issuer of banking notes, Depositor of
money and lending loans. Now a days banking is not in its traditional way, with the
advancement of technology its focusing on more comfort of customer providing
services such as
• online banking
• investment banking
• electronic banking
• internet banking
• pc banking /mobile banking
• e-banking
The importance of banking sector is immense in the progress and prosperity of any State
or country. The economic progress and prosperity comes from the well-rounded
development and an impeccable banking management. Banks in general, governmental
and private, have eased our financial transactions, security, and facilitated the funding for
establishing a business or industry.
2.2 STRUCTURE
The Indian banking system can be classified into nationalized banks, private banks and
specialized banking institutions. The industry is highly fragmented with 30 banking
units contributing to almost 50% of deposits and 60% of advances. The Reserve Bank
of India is the foremost monitoring body in the Indian Financial sector. It is a centralized
body that monitors discrepancies and shortcomings in the system.
Industry estimates indicate that out of 274 commercial banks operating in the
country, 223 banks are in the public sector and 51 are in the private sector. These
private sector banks include 24 foreign banks that have begun their operations here. The
specialized banking institutions that include cooperatives, rural banks, etc. form a part of
the nationalized banks category.
Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks
(that is with the Government of India holding a stake), 30 private banks (these do not
have government stake; they may be publicly listed and traded on stock exchanges) and
38 foreign banks. They have a combined network of over 53,000 branches and 49,000
ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and foreign
banks holding 18.2% and 6.5% respectively
II.3 OPPORTUNITIES AND CHALLENGES FOR PLAYERS
The bar for what it means to be a successful player in the banking sector has been raised.
Four challenges must be addressed before success can be achieved. First, the market is
seeing discontinuous growth driven by new products and services that include
opportunities in credit cards, consumer finance and wealth management on the retail side,
and in fee-based income and investment banking on the wholesale banking side. These
require new skills in sales & marketing, credit and operations. Second, banks will no
longer enjoy windfall treasury gains that the decade-long secular
decline in interest rates provided. This will expose the weaker banks. Third, with
increased interest in India, competition from foreign banks will only intensify. Fourth,
given the demographic shifts resulting from changes in age profile and household
income, consumers will increasingly demand enhanced institutional capabilities and
service levels from banks.
II.4 VISION OF BANKS IN INDIA
The banking scenario in India has already gained all the momentum, with the domestic
and international banks gathering pace. The focus of all banks in India has shifted their
approach to 'cost', determined by revenue minus profit. This means that all the resources
should be used efficiently to better the productivity and ensure a win-win situation. To
survive in the long run, it is essential to focus on cost saving. Previously, banks focused
on the 'revenue' model which is equal to cost plus profit. Post the banking reforms, banks
shifted their approach to the 'profit' model, which meant that banks aimed at higher profit
maximization.
II.5 CONSOLIDATION OF BANKS IN INDIA
If the banking industry in India got opened up for more international competition, India
would see a large number of global banks controlling huge stakes of the banking entities
in the country. The overseas banking units would bring along with it capital, technology,
and management skills. This would lead to higher competition in the banking frontier and
ensure greater efficiency. The FDI norms in the banking sector would give more leverage
to the Indian banks.
Thus, a consolidation phase in the banking industry in India is expected in the near future
with mergers and acquisitions gathering more pace. One might also see mergers between
public sector banks or public sector banks and private banks. Credit cards, insurance are
the next best strategic places where alliances can be formed.
II.6 FUTURE CHALLENGES OF BANKS IN INDIA
The Indian banks are hopeful of becoming a global brand as they are the major source of
financial sector revenue and profit growth. The financial services penetration in India
continues to be healthy, thus the banking industry is also not far behind. As a result of
this, the profit for the Indian banking industry will surely surge ahead. The profit pool of
the Indian banking industry is probable to augment from US$ 4.8 billion in 2005 to US$
20 billion in 2010 and further to US$ 40 billion by 2015. This growth and expansion pace
would be driven by the chunk of middle class population. The increase in the number of
private banks, the domestic credit market of India is estimated to grow from US$ 0.4
trillion in 2004 to US$ 23 trillion by 2050. Third largest banking hub of the globe by
2040 - that vision is not too far away.
Relationships beyond banking
3.1 BANK OF INDIA-BRIEF INTRODUCTION
ESTABLISHED 7th September, 1906
LOCATION Mumbai, Maharashtra
SIZE Fourth Largest Public Sector Bank
Total Business Rs 401078 Crores as on 31st March 2010
REACH Pan India network of 3200+ Branches
TECHNOLOGY All Branches on CBS (Core Banking System Platform)
HUMAN RESOURCE 32000+ Dedicated Employees
3.2 ABOUT BANK Of INDIA
Bank of India is a premier and one of the oldest commercial banks in India, with
presence all over India as also in all time zones of the world. The Bank has a glorious
history dating back to the early years of this century. The Bank was founded in
September 1906 and has all along maintained a position of pride among the top 5
commercial banks in the country. In July 1969, Bank of India was nationalized along with
13 other large Indian commercial banks. Since then, the Bank has made enormous
contribution to India's efforts towards agricultural and rural development, industrial
diversification and modernization and export development. Keeping pace with financial
sector reforms in India, the bank has ventured into Merchant Banking, Mutual Funds,
Housing Finance, Custodial & Depository through it's subsidiaries.
Today the Bank has over branches spread all over India and 27 branches/representative
offices/subsidiaries/joint ventures etc. spread in 13 countries, spanning all time zones.
The International business accounts for over 20% of Bank's total business. Bank of India
believes in "Total Package Approach" to meet all the financial and non-financial
requirements of its customers.
Entrepreneurs are not only assisted in establishing their projects, but are also helped in
day-to-day operations by providing necessary working capital finance either on its own or
through syndication. The Bank also provides guarantees, letters of credit, remittance
facilities, supplier's credit, forward cover, advisory services for hedging exchange
rate and interest rate risks, trade information reports, bankers' opinion reports on
buyers and sellers, industry status reports and prospects, etc. In the new era of
economic and financial sector reforms leading to progressive liberalization and
globalization of the Indian market, Bank of India is poised to further it’s position as a
market leader and innovator in financial services. The Bank looks at the new competition
emerging in the Indian banking and financial sector as an opportunity to improve it's
customer servicing capability and overall performance. All the Branches are now under
CBS environment.
BOI came out with an IPO in 1997. BOI provides a wide range of banking products and
financial services to corporate and retail customers. The bank provides specialized
services for businesses (dealing in foreign exchange), NRIs, Merchant Banking, etc.
Apart from this, it also has specialized branches that deal in Asset Recovery, Hi-tech
Agricultural Finance, Lease Finance, SME Branches catering exclusively to needs of
SME clientele, Corporate Banking Branches to take care of the Corporate, Treasury and
Small Scale Industries. The bank has diversified into offering products (and services)
such as mutual funds, venture capital, depository services, bullion trading and credit
cards. BOI is a leading player in retail banking. It was the first nationalized bank to
establish a fully computerized branch and an ATM facility in India. It has a strong
network of approximately 270 branches that provide export credit. BOI is among the top
banks in India that provide export credit to industries such as Diamond Export. The bank
is among those that have been offering banker services to the Bombay Stock Exchange
and are managing the latter’s clearing house since 1921. The Bank of India has initiated
many services to meet the worldwide needs of its clients and leverage its domestic
banking strengths. The bank has a global presence through its branches in London,
Tokyo, New York, Paris, Hong Kong, Singapore, etc. It is also listed in India on the
Bombay Stock Exchange and the National Stock Exchange of India Limited.
 Offshore Credit Services

The Bank of India has a locally incorporated branch in the UK. Apart from retail services,
it also provides cross-border loans to joint ventures and wholly owned subsidiaries of
Indian companies. This helps these Indian companies to secure loans, allowing them to
increase their presence in the EU. The bank facilitates Indian companies in raising trade
finance, letters of credit or project finance for their business ventures in the EU. This has
enabled the bank’s growth, since many Indian companies are venturing in the EU.
 Technology Implementation
The Bank of India has been the leading bank in India to adopt new technologies to
provide better services to its consumers. The bank has been able to offer high-quality
technology-based products and services to its customers. This has assisted it in tapping
the EU market. The bank has successfully integrated technology to support applications
such as tele-banking, internet banking, signature retrieval system, fax on demand, remote
access terminal services for its corporate clients. It has also put in place effective
monitoring and control mechanisms to provide efficient services to its customers.
Recently, the Bank launched its Mobile Banking Services formally in the august presence
of Dy. Governor, RBI, Dr. K C Chakraborty.
 Leveraging Special Services

The Bank of India is strategically targeting Non- Resident Indians (NRIs). It facilitates
NRIs in their personal financial services needs such as remitting money to India. The
bank provides NRIs the facility of transferring funds to BOI accounts in India in an
efficient and cost-effective manner. Since the EU has a substantial Indian population, the
bank has grown rapidly and has been successful in the EU. It offers personal and
corporate banking services as well as specialist services, including forex dealings, loan
syndications, etc, to its customers in the EU. BOI is planning to increase its presence in
the EU by opening new branches and offering complete financial services to its
customers, including guidance for entering the market, loans, remittances, etc. BOI has
plans to open a branch in Antwerp (Belgium) to cater to the requirements of diamond
merchants, traders and in this segment BOI is market leader in India. BOI will have 9
branches in the EU to service its customers. BOI also plans to enhance its services to
Indian companies that are investing in the UK. It has plans to assist them in generating
corporate and project finance for their investments abroad. It plans to increase its focus
on other diversified services, apart from banking services such as venture capital,
merchant banking, etc. The bank also hopes to leverage IT technology and develop
quality products and services for increasing its reach and gaining competitive advantage.
3.3 MILESTONES ACHIEVED BY BANK OF INDIA
1906: Group of eminent businessmen establishes the Bank

1946: Opening of London Branch –First-ever Indian bank to open a branch overseas
1950: Opening of Tokyo Branch –First Indian bank to open a branch in Japan
1969: Nationalization along with 13 other banks –branch network: Indian: 207 &
Foreign: 12
1989: Established BOI Shareholding Ltd. –a JV with Bombay Stock Exchange (BSE) to
manage clearing house of BSE
1997: Launched maiden IPO –Government shareholding diluted to 76.53%

2003: Ranked as India’s Most Trusted Service Brand consecutively for 3 years by AC
Nielsen ORG-MARG
2004: Ranked 25thamong India’s Top 500 companies by D & B
2007: Surpassed landmark of INR 10 bn in net-profits
3.4 AWARDS & ACCOLADES
 The second Most Trusted Brands” (MTB), 2009 under PSU category 2009
 NDTV Profit Business Leadership Awards 2009 for Best PSU Bank
 Outlook money NDTV Profit Awards 2009 –Best Education Loan Provider Runner up
 Best Bank under Banking Category by Dun & Bradstreet – Rolta Corporate Awards
2009
 FE-EY Most Efficient Public Sector Bank Awards 2010 by Dalal Street
 Second best performance award in lending to Micro & Small Enterprises sector by the
Government of India.
The gist of the performance of the Bank as at 31.03.2010 is given below -
Performance as on 31.03.2010 (Rs. In Crores, Except %)

Deposits 2297 Operating Profit 4705
62
Growth 21% Net Profit 1741
1684
Advances 91 Gross NPA Ratio 2.85%
Growth 18% Net NPA Ratio 1.31%
4010
Business Mix 78
Provision Coverage 65.51%
Earnings Per Share
Growth 20% (Rs.) 33.15
14.76 Book value per Share
Growth Return on Equity % (Rs) 236.84
12.94
Capital Adequacy Ratio (Basel-II) %
3.5 HIGHLIGHTS OF PERFORMANCE Q4FY0910
Global business mix reaches INR 4011 bn (USD 89.33bn)
Total assets: INR 2750 bn (USD 61.25 bn)
International business constitutes ~17.28% of total business
3236 branches including 29 branches/offices overseas
Market cap: INR 194.71 bn (USD 4.36 bn) as on 05.05.2010
Raised INR 10 bn in July & August 2009 (Upper Tier II bonds)
Raised INR 3.25 bn in December 2009 (IPDI Bonds)
Raised INR 10bn in January 2010 (Upper Tier II bonds)
Bank of India announced its performance result for Q4 of 2009-10 and for the full
year 2009-10 following the approval by its Board of Directors on May 7, 2010.
 The Bank crossed milestone of Rs.4,00,000 Cr. of Business Mix.
 CASA Deposits grew by Rs.13,206 Cr. (a growth rate of 27%) touching a level of
Rs.61,843 Cr.; improved from 30.70% to 31.75%.
 As many as 31.5 lakhs Saving Bank accounts and 1.17 lakhs current accounts opened
during the year. Customer base improves by over 10%.
 Domestic network touched 3207 branches and 820 ATMs. 186 branches and 320
ATMs were inaugurated during the year.
 28 specialized Mid Corporate Banking Branches were opened.
 Syndication desk reactivated and projects involving outlay of close to Rs. 10,000 Cr.
processed.
 To aid credit delivery, online Credit Application Processing System (CAPS)

introduced.
 Bank achieved 100% CBS status.
 MTN programme of US$ 500 million concluded at a fine rate amidst immense
investor enthusiasm.
 Global Remittance Centre for facilitating NRE remittances from across the world was
opened in Mumbai.
 To facilitate control and monitoring Computer Aided Audit Tool (CAAT) launched.
 Manpower planning put on fast track and as many as 2650 employees promoted and
27200 staff members trained. Plans for recruitment of over 4500 staff finalized.
3.6 INVESTORS PROFILE (CHART)

3.7 Business Growth Trajectory (Chart)
RESEARCH METHODOLOGY
1.1 MEANING
Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying how research is done systematically. In that various
steps, are generally adopted by a researcher in studying his problem along with the logic
behind them.
It is important for the researcher to know not only the research method but also know the
methodology. The procedures by which the researcher goes about his work of describing,
explaining and predicting phenomenon is called methodology. Methods comprise of the
procedures used for generating, collecting and evaluating data. All this means that it is
necessary for the researcher to design his methodology for his problem as the same may
differ from problem to problem.
Data collection is important step in any project and success of any project will be largely
depend upon now much accurate you will be able to collect and how much time, money
and effort will be required to collect that necessary data, this is also important step. Data
collection plays an important role in research work. Without proper data available for
analysis you cannot do the research work accurately.
In research design we decide about:

 Type of data
 From whom to get data
 How to analyze data
 How to make report
4.2 RESEARCH DESIGN

STEP 1 - To study the Financial Statements of Bank Of India’s Clients.
STEP 2 – Data analysis of working capital of Bank of India’s Clients.
STEP 3 – Analysis of Balance Sheet, working capital financing and ratios of Bank Of
India’s Clients.
4.3 TYPES OF DATA COLLECTION
There are two types of data collection methods available:-
 Primary data collection

 Secondary data collection
1) Primary data collection method

The primary data is that data which is collected fresh or first hand, and for first time
which is original in nature. Primary data can be collected through personal interview,
questionnaire etc. to support the secondary data.
2) Secondary data collection method

The secondary data are those which have been already collected and stored. Secondary
data are easily available from records, journals, annual reports of the company etc. It will
save time, money and efforts to collect the data. Secondary data also made available
through trade magazines, balance sheets, books etc.
This project is based on secondary data collected through Balance sheets and Annual
Reports of the Bank’s clients. But primary data collection had limitations in view of the
confidentiality the Bank is required to maintain of its Client’s. Thus the project is based
on secondary information collected
through Annual Reports of the Bank’s clients, supported by various books and internet
sites. The data collection was aimed at studying the Working Capital finance of the
Bank’s clients.
4.4 TOOLS USED FOR THE PROJECT
While making the project file various tools were used. These tools helped in doing the
work. These are:-
 Microsoft Word
 Various analysis tools like Charts, Pie Graphs, tables
4.5 OBJECTIVES OF THE STUDY
Study of working capital finance is important because unless the working capital is
financed effectively, monitored efficiently, planned properly and reviewed periodically at
regular intervals the bottlenecks of any company cannot be removed to earn profits and
increase its turnover. With this primary objective of the study, the following further
objectives are framed for a depth analysis.
 To study how Bank of India finances working capital requirements of the firms.
 To study the optimum level of current assets and current liabilities of the Bank’s
Clients.
 To study the liquidity position through various working capital related ratios.
 To study the different components of working capital and its impact on the
performance of the firm.
 To estimate the working capital requirement of Bank’s Clients
 To study the operating and cash cycle of the Bank’s Clients
5.1 Case Study 1
Following is the Analysis of Balance Sheet of M/s ABC PVT. LTD
Amount- Rs in Crores
M/s ABC PVT.LTD, MUMBAI
ANALYSIS OF BALANCE SHEET

AS PER BALANCE SHEET AT
LIABILITIES Current
Last 2 years Year
Audited Audited Estimates
31.03.200 31.03.201
9 0 31.03.2011
1 2 3
CURRENT LIABILITIES
1. Short term Borrowings
(incl. Bills purchased discounted
and any excess borrowings on
repayment basis
a) From applicant bank 39.53 35.00 35.00
b) From other banks
c) Of which BP and BD
SUB-TOTAL (A) 39.53 35.00 35.00
2. Short term borrowings from others
3. Deposits (maturing within one year)
4. Sundry Creditors ( Trade) 1.82 1.75 1.25
5. Other Creditors
5.a. Creditors for expenses
b.Creditors for Machinery 0.47 0 0
6. Advances/progress payment from 2.14 2 2.75
customers/deposits from dealers etc.,
7. Interest and other charged accrued but
not due for payment.
8. Provisions for taxation 0 6.5 6.5
9. Dividend Payable
10.Other statutory liabilities 0 0.75 0.75
(due within one year)
11.Instalments of Term Loans/deferred 19.72 19.72 19.72
payment credits/debentures/redeemable
preference shares(due within one year).
12.Other current liabilities and provisions 0.4 0.55 0.45
(due within one year) Major items to be
specified individually.
SUB-TOTAL (B) 24.55 31.27 31.42
13. TOTAL CURRENT LIABILITIES 64.08 66.27 66.42
(Total of items 1 to 12)
TERM LIABILITIES
14. Debentures (not maturing within
one year)
15. Redeemable preference shares
(not maturing within one year, but
of maturity not exceeding 12 years)
16. Term Loans (exclusive of 102.76 83.04 63.32
instalments payable within one year)
17. Deferred payment credit
(exclusive of instalments payable
within one year)
18. Term Deposits/Unsecured Loans(repayable after 100.26 75 55.00
one year)
19. Other term liabilities(Auto Loan) 4 3.25 2.5
20. TOTAL TERM LIABILITIES 207.02 161.29 120.82
(total of items 14 to 19)
21. TOTAL OUTSIDE LIABILITIES 271.10 227.56 187.24
( item 13 + item 20)
NET WORTH
22. Share capital & Application Money 53.84 53.84 53.84
23. Preference Share Capital
(maturing after 12 years)
23 a Capital Reserve 37.20 37.20 37.20
24. GENERAL RESERVE 10.02 33.44 66.46
25. Development Rebate Reserve
26. Share Premium
27. Surplus or Deficit in P& L a/c
28. NET WORTH 101.06 124.48 157.50
( total of items 22 to 27)
29. TOTAL LIABLITIES 372.16 352.04 344.74
31.03.200 31.03.201
ASSETS 9 0 31.03.2011
CURRENT ASSETS
30. Cash and Bank Balance 1.47 1.65 2.67
31. Investment (Other than long
term investment e.g. Sinking fund,
Gratuity fund, etc.FDR
32.a) Receivables other than deferred 42.3 65.5 72.50
and export receivables (incl. Bills
purchased & discounted by bankers)
32.b) Export receivables incl., bills
purchased and discounted by bankers
32.c) Interest Subsidy Receivable 13 2.45 2.25
33. Instalments of deferred receivables
34. Inventory
a) Raw materials (incl, stores and
other items used in mfg., process)
b) Stocks in Trade 28.12 32.50 35.5
c) Finished Goods 26.8 28.5 30.5
d) Other consumable spares
35. Advances to suppliers of raw
materials and stores/spare parts
consumables
36. Advance payment of taxes 0 4.5 7.5
37. Other current assets ( Major
items to be specified individually)
38. TOTAL CURRENT ASSETS 111.69 135.1 150.92
FIXED ASSETS
39. Gross Block (Land & Building
Machinery, Construction in progress 265.16 265.16 265.16
40. Depreciation to date 45.35 76.92 103.19
41. NET BLOCK 219.81 188.24 161.97
(item 39 - item 40)
OTHER NON-CURRENT ASSETS

42. Investment/Book-debts, Deposits 0.85 0.85 0.85
which are not current assets.
1. A) Investment in subsidiary 30.82 24 26.5
Companies/affiliations etc.,
B) Deposits & Other assets 8.99 3.85 4.5
2. Advances to suppliers of capital goods/spares and
contractors for capital expenditure
3. A) Deferred receivables (other
than those maturing within one year)
B) Others
43. Non consumable stores & spares
44. Other Misc. Assets
(incl., dues from debtors)
45. TOTAL NON-CURRENT ASSETS 40.66 28.70 31.85
( total of items 42 to item 44)
46. INTANGIBLE ASSETS 0.00 0.00 0.00
(Patents, goodwill, preliminary and formation expenses,
Bad/doubtful debts not provided for)
47. TOTAL ASSETS 372.16 352.04 344.74
(totals of items 38,41,45 & 46)
Check
48. TANGIBLE NETWORTH 101.06 124.48 157.50
(item 28 - item 46)
49. NET WORKING CAPITAL 47.61 68.83 84.5
(item 38 - item 13)
50. CURRENT RATIO 1.74 2.04 2.27
(item 38 / item 13 )
51. DEBT EQUITY RATIO 2.68 1.83 1.19
52.PROFITABILITY % 1.46 5.14 7.04
53.INTEREST COVERAGE RATIO 3.30 8.03 12.36
COMMENTS ON THE FINANCIAL POSITION:

From the financial position of the company, we may offer comments / our observations /
interpretation as under:-
 Capital/ Tangible Networth: Capital of the firm is 53.84crores which is constant

as on 31.03.2009 and 31.03.2010. It is estimated to remain the same as on 31.03.2011.
Tangible Networth is showing an increasing trend. It was 101.06crores as on
31.03.2009 and 124.48crores as on 31.03.2010 which is favourable because it
represents the liquidation proceeds a company would fetch if it shut down and sold
off all its assets. It is estimated to further increase to 157.50 as on 31.03.2011.
 Sales. Sales of the company are showing an increasing trend. It was 456.47crores
as on 31.03.2009 and increased to 524.94crores as on 31.03.2010. Considering the
past trend, the estimated/projected sales may be accepted as reasonable and
achievable.
 Gross Profit/ Net Profit: Gross Profit/ Net Profit of the firm are indicating an
increasing trend. The researcher observed that the Bank justified the increasing trend
in profit/profitability view of the increasing sales. Considering the past trend, the
estimated/projected Gross/Net Profit and the profitability is also justified.
RATIOS:
 Current Ratio: Current Ratio at 1.74 as on 31.03.2009 and 2.04 as on 31.03.2010

is above the Bench mark level which indicates a positive sign. However, the same is
estimated to increase to 2.27 as on 31.03.2011.
 Debt Equity Ratio: Debt Equity Ratio of the firm at 2.68 as on 31.03.2008 is
favourable, and the ratio has improved in the subsequent years and
estimated/projected to further improve, Bank has accepted the same.
 Interest Coverage Ratio: Interest Coverage ratio is 3.30 as on 31.03.2009 which is
favourable. It is necessary to have interest coverage of at least 1/1 to indicate a
company can pay its bills. However the same has improved to 8.03 as on 31.03.2010
and estimated to further increase to 12.36 as on 31.03.2011
 Profitability Ratio: Profitability% was 1.46 as on 31.03.2009 and has increased to
5.14 as on 31.03.2010 which is acceptable as it indicates the ability to earn profit. It is
estimated to further increase to to 7.04 as on 31.03.2011
The overall financial position of the firm can be considered satisfactory.
ASSESSMENT OF WORKING CAPITAL: (MPBF METHOD)

In the instant case, the Company has not requested for any enhancement of the Working
Capital Finance. It is a request for renewal of the existing Working Capital limit of Rs
35.00crores. Since the request for Working Capital is more than 500.00lakh, the
assessment of Working Capital is done on the basis of MPBF Method as per Tandon
Committee recommendations
The firm has projected sales of Rs.577.43crores for FY 2011. Considering the sales
turnover in the earlier years, the projected sales appear reasonable and achievable.
Following is the Computation of Operating Cycle of M/s ABC PVT. LTD
(in days)
2009 2010 2011

Raw Material Consumption 150 150 150
Work In Process 19 20 21
Finished Goods 23 18 18
Receivables 28 37 44
Less – S. Creditors 1.82 1.75 1.25
Operating Cycle 218 223 234
Following is the computation of Working Capital Assessment of M/s ABC PVT, Ltd
under MPBF Method:-
COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE FOR WORKING

CAPITAL
Name: M/s ABC Amount – Rs in Crores
PVT.
LTD
Last 2 years Current Year
Audited Audited Estimates
31.03.2009 31.03.2010 31.03.2011
1.Total Current 111.69 135.10 150.92
Assets
2.Other Current 24.55 31.27 31.42
Liabilities (Other
than bank
borrowings)
3.Working Capital 87.14 103.83 119.50
Gap (WCG) (1-2)
4.25% of Total 27.92 33.78 37.73
Current Assets (as
required under IInd
Method)
5.Actual / Projected 47.61 68.83 84.50
Net Working
Capital
6.Item 3 minus Item 59.22 70.06 81.77
4
7.Item 3 minus Item 39.53 35.00 35.00
5
8.Maximum 39.53 35.00 35.00
Permissible Bank
Finance (Item 6 or 7
whichever is lower)
9.Excess borrowings 0.00 0.00 0.00
representing
shortfall in Net
Working Capital
5.2 Case Study 2
Following is the Analysis of Balance Sheet of M/s XYZ PVT. LTD

Amount- Rs in Lakhs
M/s XYZ PVT. LTD, MUMBAI

LIABILITIES
Audited Audited Audited Audited Estimated Projection
31.3.2007 31.3.2008 31.3.2009 31.3.2010 31.3.2011 31.3.2012
CURRENT LIABILITIES
(incl. Bills purchased discounted
repayment basis
a) From applicant bank
b) From other banks
c) Of which BP and BD
SUB-TOTAL (A) 0.00 0.00 0.00 0.00 0.00 0.00
2. Short term borrowings from
others
3. Deposits (maturing within one
year)
4. Sundry Creditors ( Trade) 8.08 8.8 43.95 47.46 51.26 55.36
5. Other Creditors
6. Advances/progress payment from
customers/deposits from dealers etc.,
7. Interest and other charged accrued
but
8. Provisions for taxation
9. Dividend payable.
10.Other statutory liabilities
11.Instalments of Term
Loans/deferred
payment
credits/debentures/redeemable
preference shares(due within one
year).
12.Other current liabilities and
provisions 0.33 0.35 1.37 1.43 1.48 1.54
(due within one year) Major items to
be
specified individually.
SUB-TOTAL (B) 8.41 9.15 45.32 48.89 52.74 56.9
13. TOTAL CURRENT
LIABILITIES 8.41 9.15 45.32 48.89 52.74 56.9
TERM LIABILITIES
14. Debentures (not maturing within
one year)
15. Redeemable preference shares
(not maturing within one year, but
From the financial position of the company, it may offer comments / our observations /
interpretation as under:
 Capital : Capital of the firm is indicating a study growth due to plough back of
profit/ retention of profit in the business, which may be considered as a positive
aspect of the company. It is estimated to increase to Rs.47.85lakhs as on 31.03.2011
and projected at Rs.81.38lakhs as on 31.03.2012. The researcher’s observation s that
wherever the Capital is estimated/ projected to increase, the Bank normally stipulates
obtention of CA’s Certificate to confirm the same.
 Sales : Sales of the company has almost doubled and it was at Rs.524.55lakhs as
on 31.03.2009 on YoY basis. The Bank analyses the reason for increase/ decrease in
sale and accordingly incorporates in the comments. Besides, Bank also seeks proper
reasoning/justification for the estimated/projected increase in sales.
 Gross Profit/ Net Profit: Gross Profit/ Net Profit as also the profitability of the
firm is indicating an increasing trend. The researcher observed that the Bank justified
the increasing trend in profit/profitability view of the increasing sales. Considering
the past trend, the estimated/projected Gross/Net Profit and the profitability is also
justified.
RATIOS
is a little more than the Bench mark level. However, the same is estimated to improve
to 1.76 and 2.27 as on 31.03.2011 and 31.03.2012 respectively. The reason given by
the Bank for accepting the lower Current Ratio as on 31.03.2008 is that the firm had
to resort to purchases on credit to meet the increasing demand for supply of materials.
On the other hand, realization of Debtors was slow, which adversely affected the
Current Ratio.
 Debt Equity Ratio: Debt Equity Ratio of the firm at 4.94 as on 31.03.2008
though unfavourable, since the ratio has improved in the subsequent years and
estimated/projected to further improve, Bank has accepted the same. Nevertheless,
Bank also stipulated to obtain a stamped undertaking from the firm that the
unsecured loans will be retained in the business during the currency of Bank
finance.
 Interest Coverage Ratio: Interest Coverage ratio is 7.01 as on 31.03.2009 and
11.55 as on 31.03.2010 which is favourable. It is necessary to have an interest
coverage of at least 1/1 to indicate a company can pay its bills. It is estimated to further
increase to 18.86 as on 31.03.2011 and 28.36 as on 31.03.2012.
 Profitability Ratio: Profitability% is showing an increasing trend. It was 1.61 as
on 31.03.2009 and has increased to 2.50 as on 31.03.2010 which is acceptable as it
indicates the ability to earn profit. It is estimated to further increase to 3.60 as on
31.03.2011 and 4.58 as on 31.03.2012
ASSESSMENT OF WORKING CAPITAL: (TURNOVER METHOD)

The firm has requested for Working Capital limit of Rs.50.00lakhs. Since the request for
Working Capital is less than Rs.500.00lakhs, the assessment of Working Capital is done
on the basis of Turnover Method as per Nayak Committee recommendations
The firm has projected sales of Rs.798.00lakhs for FY 2012. Considering the sales
turnover in the earlier years, the projected sales appear reasonable and achievable. The
Working Capital requirement of the firm is assessed at Rs.127.17 as under on the basis of
Turnover method. limits upto Rs.500.00lakhs.
Following is the computation of Working Capital Assessment of M/s XYZ PVT, Ltd
under Turnover Method:-
Name: M/s Amount-Rs in lakhs

XYZ PVT. LTD
31.3.200 31.3.200 31.3.200
31.3.2010 31.3.2011 31.3.2012
7 8 9
a) Gross Sales 162.52 221.41 524.55 603.24 693.72 797.78
b 25% of Gross
40.63 55.35 131.14 150.81 173.43 199.45
) Sales
c) 5% of Gross
8.13 11.07 26.23 30.16 34.69 39.89
Sales
d Actual/Projected
) Net Working 2 3.41 7.58 18.85 39.99 72.28
Capital
e) (b-c) 32.5 44.28 104.91 120.65 138.74 159.56
f) (b-d) 38.63 51.94 123.56 131.96 133.44 127.17
g Permissible
) Bank Finance 32.5 44.28 104.91 120.65 133.44 127.17
(Lower of e & f)
It may be gauged from the above that the Working Capital requirement of the firm works
out to more than Rs.50.00lakh. However, the firm has requested for Working Capital
limit of Rs.50.00lakhs only and hence the Bank has proposed sanction of Working capital
limit of Rs.50.00lakhs. The researcher observed that the firm is having sufficient NWC to
take care of the shortfall and the Bank has also commented about this aspect in the
assessment note..
5.3 Case Study 3
Following is the Analysis of Balance Sheet of M/s PQR, PVT. LTD
Amount-Rs in Lakhs
M/s PQR PVT. LTD,
MUMBAI

LIABILITIES
31.3.2007 31.3.2008 31.3.2009 31.3.2010 31.3.2011 31.3.2012
CURRENT LIABILITIES
(incl. Bills purchased
discounted
repayment basis
a) From applicant
bank 76.4 174.37 400.00 400.00 500 500
b) From other banks
c) Of which BP and
BD
SUB-TOTAL (A) 76.40 174.37 400.00 400.00 500.00 500.00
2. Short term borrowings
from others
3. Deposits (maturing within
one year)
4. Sundry Creditors ( Trade) 267.79 204.52 142.39 239.17 293.42 303.28
5. Other Creditors
6. Advances/progress
payment from
customers/deposits from
dealers etc.,
7. Interest and other charged
accrued but
8. Provisions for taxation 38.72 73.58 67.4 78.73 96.99 117.34
9. Dividend payable.
10.Other statutory liabilities
11.Instalments of Term
Loans/deferred 66.72 66.72 38.76
payment
credits/debentures/redeemable
preference shares(due within
one year).
12.Other current liabilities
and provisions 46.45 28.39 53 76 92 104
(due within one year)( Major
items to be
specified individually.)
SUB-TOTAL (B) 352.96 306.49 329.51 460.62 521.16 524.61
13. TOTAL CURRENT
LIABILITIES 429.36 480.86 729.51 860.62 1021.16 1024.61
31.03.200 31.03.200 31.03.200 31.03.201 31.03.201

LIABILITIES 7 8 9 0 1 31.03.2012
TERM LIABILITIES
14. Debentures (not maturing
within
one year)
15. Redeemable preference
shares
(not maturing within one
year, but
of maturity not exceeding 12
years)
16. Term Loans(exclusive of
instalments payable within 0 0 105.48 38.76 0 0
one year)
17. Deferred payment credit
(exclusive of instalments
payable within one year)
18. Term Deposits(repayable
after one year)
19. Loan from family
members 408.85 420.83 245.83 233.42 133.42 0
20. TOTAL TERM
LIABILITIES 408.85 420.83 351.31 272.18 133.42 0
(total of items 14 to 19)
21. TOTAL OUTSIDE 838.21 901.69 1080.82 1132.80 1154.58 1024.61
LIABILITIES
NET WORTH
22. Partners' Capital 0.08 0.08 0.08 0.08 0.08 0.08
23. Partners Current A/c 132.44 239.47 309.05 423.98 611.94 763.49
24. General Reserve
25. Development Rebate
Reserve
26. Other Reserves
(excluding provisions)
27. Surplus or Deficit in P& L
a/c
28. NET WORTH 132.52 239.55 309.13 424.06 612.02 763.57
29. TOTAL LIABLITIES 970.73 1141.24 1389.95 1556.86 1766.6 1788.18
31.03.200 31.03.200 31.03.200 31.03.201 31.03.201

ASSETS 7 8 9 0 1 31.03.2012
CURRENT ASSETS
30. Cash and Bank Balance 3.05 11.43 16.22 17.16 20.21 23.44
31. Investment (Other than
long
term investment e.g. Sinking
fund,
Gratuity fund, etc.,FDR)
31.a)Govnt and other Trustee
Securities)
31.b)Fixed Deposits with
banks (less or upto 1 year) 20.34 57.3
32.a) Receiveable other than
deferred 255.21 330.94 340.37 360.52 552.97 594.88
and export receivables (incl.
Bills
purchased & discounted by
bankers)
32.b) Export receivables incl.,
bills
purchased and discounted by
bankers
33. Instalments of deferred
receivables
34. Inventory
a) Raw materials (incl.,stores
and
other items used in mfg.,
process)
(i)Imported
(ii)Indigenous 263.04 268.11 575 716.99 741.99 731.99
b) Stocks in Trade
c) Finished Goods
d) Other consumable spares
35. Advances to suppliers of
raw
materials and stores/spare
parts
consumables
36. Advance payment of taxes
37.Loans & Advances -duties
& taxes 110.58 100.72 112.33 142.35 157.23 168.82
38. TOTAL CURRENT
ASSETS 652.22 768.50 1043.92 1237.02 1472.4 1519.13
FIXED ASSETS
39. Gross Block (Land &
Building
Machinery, Construction in
Progress,etc.) 452.31 527.1 527.1 527.1 527.1 527.1
40. Depreciation to date 139.53 160.09 186.81 212.99 238.65 263.79
41. NET BLOCK 312.78 367.01 340.29 314.11 288.45 263.31
(item 39 - item 40)
31.03.200 31.03.200 31.03.200 31.03.201 31.03.201
ASSETS 7 8 9 0 1 31.03.2012
OTHER NON-CURRENT
ASSETS
42. Investment/Book-
debts,Deposits
which are not current assets.
1. A) Investment in
susidiary
Companies/affiliations etc.,
B) Others 5.74 5.74 5.74 5.74 5.74 5.74
2. Advances to suppliers
of captial goods/spares and
contractors for capital
expenditure
3. A) Deferred receivables
(other
than those maturing within
one year)
B) Others
43. Non consumable stores &
spares
44. Other Misc. Assets
(incl., dues from debtors)
45. TOTAL NON-
CURRENT ASSETS 5.74 5.74 5.74 5.74 5.74 5.74
( total of items 47 to item 49)
46. INTANGIBLE ASSETS 0.00 0.00 0.00 0.00 0 0
(Patents, goodwill,
preliminary and formation
expenses, Bad/doubtful debts
not provided for)
47. TOTAL ASSETS 970.73 1141.24 1389.95 1556.87 1766.6 1788.18
(totals of items 38,41,45 &
46)
48. TANGIBLE
NETWORTH 132.52 239.55 309.13 424.06 612.02 763.57
(item 28 - item 46)
49. NET WORKING
CAPITAL 222.86 287.64 314.41 376.4 451.24 494.52
(item 38 - item 13)
50. CURRENT RATIO 1.52 1.60 1.43 1.44 1.44 1.48
51. DEBT EQUITY RATIO 6.33 3.76 3.50 2.67 1.89 1.34
52. PROFITABILITY % 3.72 3.57 4.79 5.76 7.18 8.72
53. INTEREST
COVERAGE RATIO 6.72 5.95 6.25 6.90 9.85 13.86

From the financial position of the company, it may offer comments / our observations /
interpretation as under:-
 Capital/ Tangible Networth: Capital of the firm is 0.08lakhs which is constant

as on 31.03.2009 and 31.03.2010. It is estimated & projected to remain the same as on
31.03.2011 & 31.03.2012.
Tangible Networth is showing an increasing trend. It was 309.13lakhs as on
31.03.2009 and 424.06 lakhs as on 31.03.2010 which is favourable because it
represents the liquidation proceeds a company would fetch if it shut down and sold
off all its assets. It is estimated to further increase to 612.02 lakhs as on 31.03.2011
and projected at 763.57lakhs as on 31.03.2012.
 Sales. Sales of the company is showing an increasing trend. It was 1815.31lakhs

as on 31.03.2009 and increased to 2494.23lakhs as on 31.03.2010. The Bank analyses
the reason for increase/ decrease in sale and accordingly, incorporates in the
comments. Besides, Bank also seeks proper reasoning/justification for the
estimated/projected increase in sales.
 Gross Profit/ Net Profit: Gross Profit/ Net Profit of the firm is indicating an
increasing trend. The researcher observed that the Bank justified the increasing trend
in profit/profitability view of the increasing sales. Considering the past trend, the
estimated/projected Gross/Net Profit and the profitability is also justified.
RATIOS
is above the Bench mark level which indicates a positive sign. However, the same is
projected to increase to 1.48 as on 31.03.2012.
 Debt Equity Ratio:: Debt Equity Ratio of the firm at 3.50 as on 31.03.2009
though unfavourable, since the ratio has improved in the subsequent years and
estimated/projected to further improve, Bank has accepted the same. Nevertheless,
Bank also stipulated to obtain a stamped undertaking from the firm that the
unsecured loans will be retained in the business during the currency of Bank
finance
 Interest Coverage Ratio: Interest Coverage ratio is 6.25 as on 31.03.2009 and 6.90
as on 31.03.2010 which is favourable. It is necessary to have interest coverage of at
least 1/1 to indicate a company can pay its bills. However the same is estimated to
improve to 9.85 as on 31.03.2011 and projected at 13.86 as on 31.03.2012
 Profitability Ratio: Profitability% was 4.79 as on 31.03.2009 and has increased to
5.76 as on 31.03.2010 which is acceptable as it indicates the ability to earn profit. It is
estimated to further increase to 7.18 as on 31.03.2011 and projected at 8.72 as on
31.03.2012
ASSESSMENT OF WORKING CAPITAL: (MPBF METHOD)

The firm has requested for Working Capital limit of Rs. 500crores. Since the request for
Working Capital is more than 500.00lakh, the assessment of Working Capital is done on
the basis of MPBF Method as per Tandon Committee recommendations
The firm has projected sales of Rs.3862.36 for FY 2012. Considering the sales turnover
in the earlier years, the projected sales appears reasonable and achievable. The Working
Capital requirement of the firm is assessed at Rs. 500crores as under on the basis of
MPBF method. limits more than Rs.500.00lakhs.
Following is the computation of Working Capital Assessment of M/s PQR PVT, Ltd
under MPBF Method:-
COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE FOR

WORKING CAPITAL
Name: M/s PQR Amount – Rs in Crores
PVT. LTD
Audited Audited Audited Audited Estimates Projection
31.03.2007 31.03.2008 31.03.2009 31.03.2010 31.03.2011 31.03.2012
1.Total Current 652.21 768.50 1043.92 1237.02 1472.40 1519.13
Assets
2.Other Current 352.96 306.49 329.51 460.62 521.16 524.61
Liabilities (Other
than bank
borrowings)
3.Working Capital 299.25 462.01 714.41 776.40 951.24 994.52
Gap (WCG) (1-2)
4.25% of Total 74.81 115.50 178.60 194.10 237.81 248.63
Current Assets (as
required under
IInd Method)
5.Actual / 222.85 287.64 314.41 376.40 451.24 494.52
Projected Net
Working Capital
6.Item 3 minus 224.44 346.51 535.81 582.30 713.43 745.89
Item 4
7.Item 3 minus 76.40 174.37 400.00 400.00 500.00 500.00
Item 5
8.Maximum 76.40 174.37 400.00 400.00 500.00 500.00
Permissible Bank
Finance (Item 6 or
7 whichever is
lower)
9.Excess 0 0 0 0 0 0
borrowings
representing
shortfall in Net
Working Capital
WorkingCapital
600
500
400
300
WorkingCapital (in lakhs)
200
100
0
2007 2008 2009 2010 2011 2012
6.1 CONCLUSION
Working Capital is the lifeline of every industry, irrespective of whether it’s a
manufacturing industry, services industry. Working Capital is the prime and most
important requirement for carrying out the day to day operations of the business. Working
Capital gives the much-needed liquidity to the business. Working Capital Finance reduces
the overall fund requirement, required to build up the Current Assets, which in turn help
you improve your Turnover Ratio.
We have discussed in this project, various ways in which Working Capital requirements
can be financed. The Researcher observed that generally for manufacturing units the
Bank adopts MPBF method for computation of Working Capital by computing Operating
Cycle. Whereas in case of Trading Concerns, the Bank computes the Working Capital
requirements on the basis of Turnovermethod. The Researcher also observed that even in
cases where the Bank assesses the Working Capital limits on the basis of Turnover
method as mandated by Nayak Committee for assessment of Working Capital
requirements upto Rs.500.00lakh, if the operating Cycle is more than 90days as presumed
in Turn over method, the Bank works out the Working Capital limits in proportion to the
operating cycle.
The Researcher also observed that the while analyzing the Balancesheet/ Financial
Statements of the Business Unit, the Bank analyses each and every element of the
financials of its client’s, computes the relevant ratios and proper interpretation is also
done with reason for increase/ decrease in sales, profit, profitability etc. in the comments.
Besides, Bank also seeks proper reasoning/justification for the estimated/projected
increase in sales
6.2 LIMITATIONS OF THE STUDY
Following limitations were encountered while preparing this project:
1) This project has been completed with the annual reports of the Bank’s Clients. It just
constitutes one part of data collection i.e. secondary. There were limitations for primary
data collection because of confidentiality. In the absence of sufficient data personal
judgment has been taken on reasonable assumption.
2) This project is based on three to six years annual reports. Conclusions and
recommendations are based on such limited data. The trend of last three to six years may
or may not reflect the real working capital position of the company.
3) Also it was difficult to collect the data regarding the competitors and their financial
information.
Industry figures were also difficult to get.
6.3 SUGGESTIONS
Working capital financing at Bank of India is done as per the recommendations proposed
by different competent authorities, such as Tandon committee report, Chore committee
report, Turnover method etc. which are scientific methods adopted by the bank. However,
it is observed that the Cash Budget Method is not widely used by the Bank. The
Researcher humbly wish to suggest that Cash Budget method needs to be increasingly
used for smaller business unit who may not be having the expertise to prepare and submit
to Bank the required CMA data for assessment and consideration of his Working Capital
finance.,
BIBLIOGRAPHY
 Financial Management by Prasanna Chandra

 Financial Management by M Y Khan & P K Khan
 www.bankofindia.com
 www.google.com

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A

“ANALYTICAL STUDY OF FINANCIAL POSITION OF

A detailed study done in

Bharati Vidyapeeth’s Institute of Management Studies & Research

Quoting Pablo Picasso, “Action is the foundational key to all success.”

WORKING CAPITAL FINANCE OF BANK OF INDIA

Bank Financing for Working Capital

 Bank Financing Limit: Determined on an annual basis based on an assessment

Bank Financing (max. permissible) = Bank Financing Limit OR Drawing Power

PLEASE PASTE HERE THE CERTIFICATE FROM THE BANK

PLEASE PASTE HERE THE CERTIFICATE FROM THE INSTITUTE

PARTICULARS PAGE NO:

Chapter 1: Introduction to Working Capital Finance

1.1 Definition of Working Capital

Chapter 2: Introduction to the Industry

2.1 Introduction to the Banking Industry

Chapter 3: Introduction to Bank Of India

3.1 Bank of India – Brief Introduction

Chapter 4: Research Methodology

Chapter 5: Data Analysis & Interpretation

5.1 Case Study 1

Chapter 6: Conclusion, Limitations & Suggestions

 Amount for raw material of various kinds.

1.2 NATURE OF WORKING CAPITAL

(i) Current Assets:

(ii) Current liabilities:

 Credit available on purchases;

1.4 NEED OF WORKING CAPITAL MANAGEMENT

 Conversion of cash into inventory;

 Short term financing

Computation of Operating Cycle:-

1. Raw Material Consumption = Average Raw Material

Raw Material Consumption Per Day = Total Raw Material Consumption

Average Stock In Process = ( Opening Stock Of Work In Process + Closing Stock Of

Cost Of Production Per Day = Total Cost Of Production

3. Finished Goods = Average Stock Of Finished Goods

Average Stock Of Finished Goods = ( Opening Stock Of Finished Goods + Closing

Cost Of Sales Per Day = Total Cost Of Sales

4. Receivables = Average Receivables

Average Receivables = Opening Receivables + Closing Receivables / 2

Sales Per Day = Total sales

Operating Cycle = Total (1+2+3+4)

Assumption:- No. Of Days = 300 (For 1,2,3)

I. ON THE BASIS OF CONCEPT

 Gross Working Capital

 Net Working Capital

II. ON THE BASIS OF TIME

 Permanent/Fixed Working capital

 Temporary/Variable Working capital

The amount of working capital depends upon the following factors:-

1. Nature or Character of the Business

2. Size of the Business/Scale of Operations

In a manufacturing business, the amount of working capital increases in direct

6. Working Capital Cycle

7. Rate of Stock Turnover

There is a high degree of inverse co-relationship between the quantum of working

10. Earning Capacity and Dividend Policy

Estimating Working Capital Requirements

In order to determine the amount of working capital needed by a firm, a number of

1. Projected turnover 300 lakhs

2. Working capital requirement 300 * 25/100 = 75 lakhs

3. Bank finance for working capital 300 * 20/100 = 60 lakhs

(20% of projected turnover or OR