PROJECT REPORT

ON

Working capital Management of J&K Bank

In partial fulfillment for the award of the degree of:

Masters in Business Administration

Submitted To

Department of Management Studies

University of Kashmir

Submitted by:

Shahzan Ali Beigh

Enrollment No - 21035111038

1|Page
 UNDERTAKING

This is to certify that the Project work entitled “Working Capital Management”
undertaken at The Jammu and Kashmir Bank, is an authentic work carried out by
SHAHZAN ALI BEIGH in the partial fulfillment for the award of degree of
Master’s in Business Administration of the Department of management studies,
University of Kashmir during the academic session 2021-2022. They have
fulfilled all the requirements as per the statues for the submission of this report
for evaluation.

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 DECLARATION

I, SHAHZAN ALI BEIGH, student of Department of Management Studies,

from MBA FM 4th Semester, hereby declare that the work which is being
presented in this project entitled “WORKING CAPITAL MANAGEMENT” in partial
fulfillment of the requirement for the award of Master’s Degree in Business
Administration during the session 2022-2023 is an authentic record of my own
work carried out under the guidance of Mr. Muhammad Yehya Rafiqi (Senior
Executive), Zonal Office, Kashmir, The Jammu and Kashmir Bank. The
information submitted is true and original to the best of my knowledge.

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4
 ACKNOWLEDGEMENT

First and foremost, we would like to thank almighty ALLAH for giving us the
strength and power to complete this project successfully. If words are considered
to be signs of gratitude, then let these words convey the very same. Our sincere
gratitude to JAMMU & KASHMIR BANK for providing us with an opportunity to
work with the BANK and giving necessary directions on doing this project to the
best of our abilities.

We are highly indebted to The Jammu and Kashmir Bank in general and to Mr.
Muhammad Yehya Rafiqi (Senior Executive, Zonal Office Kashmir) of The Jammu
and Kashmir Bank, in particular, for providing us a wonderful opportunity to
undertake the project entitled “Working Capital Management” in their esteemed
organization.

We are thankful to our Project guide, Mr. Muhammad Ayub Shah for his
valuable guidance, continuous encouragement and support throughout our task.
We are equally grateful to all our teachers for their complete support and
unwavering faith in us.

Finally, our deep-rooted thanks are due to our parents without whose love,
blessings, guidance, suggestions and encouragement none of us could come up
to this stage.

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 TABLE OF CONTENTS:

Particulars Page No.

Executive summary 08

Research Methodology

 Research objective 09

 Research design 10

 Sources of data 10

Profitability of J&K Bank 12

Introduction
13
 About Jammu and Kashmir Bank
13
 Company Profile
15
 Highlights of J&K Bank
15
 Unique characteristics of J&K Bank

6
  Infrastructure 15

 Financial services portfolio 16

 Board of directors 16

 Corporate management 17

 Investments 17

 Customer service 18

 Community service 18

 Future Trends 21

 Banks new identity 21

 Vision and mission 22

 History of J&K Bank 23

Working Capital Management

 Working Capital 24

 Types of working capital 26

Types of borrowers 32

Assessment of working capital 34

Assessment of WC by J&K Bank 55

Comparison of J&K Bank with SBI 59

Case Study 61

Findings 82

Suggestions and Recommendations 84

Limitations 86

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Bibliography 87

EXECUTIVE SUMMARY
The banking industry has shown tremendous growth in volume and complexity during the last
few decades. Despite making significant improvements in all the areas relating to financial
viability, profitability and competitiveness, there are concerns that banks have not been able to

8
include vast segment of the population, especially the under privileged sections of the society,
into the fold of basic banking services.

This project report is based on the Working Capital Management and its assessment, carried
out by me as a part of completion of my internship program, in partial fulfillment of the
requirements for the award of Degree in MBA. The internship was undertaken at The Jammu
and Kashmir bank. The project aims at analyzing how working capital requirement proposed
by a borrower is assessed by banks and how customers are satisfied with the working capital
policy of J&K Bank.

This project was completed within a time constraint of two months at Jammu and Kashmir
bank, corporate headquarters. Since my main objective was to understand working capital, its
level of satisfaction among customers and when banks are being approached by entrepreneurs
for financing working capital requirements, how banks examine the viability of the project
before agreeing to provide working capital for it, so I was being assigned a case study in which
I had to test a project on the basis of financial feasibilities as per the norms for banks provided
by Reserve Bank Of India.

This project tries to evaluate how the management of working capital is done in J&K Bank
Srinagar, through inventory ratios, working capital ratios, trends, computation of cash,
inventory and working capital, and short-term financing. Working capital is primarily
concerned with inventories management, Receivable management, cash management &
Payable management. The data thus gathered, was tabulated and thoroughly analyzed by way
of different financial tools like Ratio analysis, Maximum Permissible Bank Finance and all
others mentioned above.

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RESEARCH APPROACH AND METHODOLOGY:

Topic of the Research: Working Capital Management of J&K Bank its Assessment

Research Objective:

The objective of our project is to study the working capital management of Jammu and

Kashmir Bank. The scope of the study shall be:

 To learn the effective management of working capital.

 To understand the meaning of working capital as per RBI guidelines.

 To study how to keep the capital that is tied up in the working capital cycle at a minimum

and how to maximize profit.

 To study the different components of working capital and its impact on the performance of

the firm.

 To study how J&K Bank finances working capital requirements of the firms.

 To study how policies are formulated with regard to profitability, risk and liquidity in J&K

Bank.

 To measure the level of satisfaction among the customers regarding working capital.

 To make suggestions based on findings.

Need and Significance

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 This study was mainly carried to study the different aspects or mechanism of WC scheme of

J&K Bank.

 This study will help the organization to understand the behavior of customers towards the

WC scheme.

 This study is aimed at identifying factors that can be improved to provide better customer

service.

 This study was also aimed to highlight the complaints regarding the WC.

 Effective implementation of complaints redressal system and customer’s relationship will

ultimately drive the organization to surpass all competition.

RESEARCH DESIGN:

A Research Design is the detailed blue print used to guide a research study towards its
objectives. It helps to collect measure and analyze the data. The Research Design undertaken
for the study is Descriptive one. A study, which wants to portray the characteristics of a group
or individuals or situation, is known as Descriptive study. It is mostly qualitative in nature. The
main objective of Descriptive Study is to acquire knowledge. Survey is carried out by
employing self-administered questionnaire

SOURCE OF DATA:

Data are the raw materials in which marketing research works. The task of data collection
begins after research problem has been identified and research design is chalked out. Data
collected are classified into primary and secondary data.
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1. Primary data:

In this study, the primary data has been collected through questionnaire which was
distributed among customers and personal interview with the employees of J&K bank.

2. Secondary data:

Secondary data was collected through various reports, annual reports, documents charts,
management information systems, etc in J&K BANK, and also collected through various
magazines, books, newspapers etc

About J&K Bank

PROFITABLITY

Performance Highlights for the full year ended March 31, 2020:
 Deposits stood at INR 977882.3 Million as on March 31, 2020 compared to INR 896389.0 Million as on
March 31, 2019 (Growth of 9% YoY).

 CASA ratio stood at 53.66% as on March 31, 2020 compared to 50.70% as on March 31, 2019.

 Net Advances stood at INR 643990.7 Million as on March 31, 2020 compared to INR 662715.1 Million
as on March 31, 2019 (Down by 3% YoY).

 Operating Profit of INR 15250.5 Million for the financial year ended Mar, 2020 as compared to INR
17179.0 Million during the financial year ended Mar, 2019

 Provisions (other than Tax) & Contingencies made during the financial year ended March 2020 stood at
INR 26251.0 Million compared to INR 10581.6 Million made during the previous financial year.

· Net Loss of INR 11394.1 Million for the financial year ended Mar, 2020 as compared to Net Profit of INR
4648.8 Million during the financial year ended Mar, 2019.

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 EPS for the financial year ended Mar, 2020 at INR -15.97 compared to INR 8.35 during the previous
financial year.

 NIMs for the financial year ended Mar, 2020 at 3.92% vis-à-vis 3.84% for the previous financial year.

 Post tax Return on Assets at -1.10% for the financial year ended Mar, 2020 compared to 0.49% for the
previous financial year.

 Post Tax Return on Average Net-Worth for the financial year ended Mar, 2020 at - 19.96% compared
to 8.04% recorded for the last financial year.

 Cost of Deposits for the financial year ended Mar, 2020 at 4.96% compared to 4.90% recorded for the
last financial year.

 Yield on Advances for the financial year ended Mar, 2020 stood at 9.48% as compared to 9.05% for the
financial year ended Mar, 2019.

 Business per Employee and Net Loss per Employee were at INR 128.5 Million and INR 0.9 Million
respectively for the financial year ended Mar, 2020 compared to Business per Employee of INR 123.7
Million and Net Profit per Employee of INR 0.4 Million pertaining to the financial year ended Mar, 2019.
 Gross and Net NPA’s as percentages to Gross and Net Advances as on Mar, 2020 at 10.97% and 3.48%
respectively compared to 8.97% and 4.89 % a year ago.

 NPA Coverage Ratio as on Mar, 2020 at 78.59% as compared to 64.30% a year ago.

 Cost to Income Ratio stood at 64.14% for the financial year ended Mar, 2020 as compared to 59.06%
for the financial year ended Mar, 2019.

 Capital Adequacy Ratio stood at 11.40% as on Mar, 2020 which was recorded at 12.46 % as on Mar,
2019. EARNINGS UPDATE – MARCH 3

Introduction:

About Jammu and Kashmir Bank

The Jammu & Kashmir Bank is today one of the fastest growing banks in India with a network
of 691 branches/offices spread across the country offering world class banking
products/services to its customers. Today, the Bank has a status of value driven organization
and is always working towards building trust with Shareholders, Employees, Customers,
Borrowers, Regulators and other diverse Stakeholders, for which it has adopted a strategy

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directed to developing a sound foundation of relationship and trust aimed at achieving
excellence, which of course, comes from the womb of good Corporate Governance. Good
Governance is a source of competitive advantage and a critical input for achieving excellence
in all pursuits. J&K Bank considers good Corporate Governance as the sine qua non of a good
banking system and has adopted a policy based on all the four pillars of good governance –
Transparency, Disclosure, Accountability and Value, enabling it to practice Trusteeship,
Transparency, Fairness and Control, leading to stakeholder’s delight, enhanced shareholder
value and ethical corporate citizenship. It also ensures that bank is managed by an independent
and highly qualified Board following best globally accepted practices, transparent disclosures
and empowerment of shareholders, besides ensuring to meet shareholders’ aspirations and
societal expectations following the principles of management's executive freedom to drive the
bank forward without undue restraints but within the framework of effective accountability.

COMPANY PROFILE

Jammu & Kashmir Bank is the only Bank in the country with majority ownership vested with a
state government – the Government of Jammu & Kashmir.

J&K Bank functions as a universal bank in Jammu & Kashmir and as a specialized bank in the
rest of the country. It is also the only private sector bank designated as RBI’s agent for banking
business, and carries out the banking business of the Central Government, besides collecting
central taxes for CBDT.

J&K Bank follows a two-legged business model whereby it seeks to increase lending in its
home state which results in higher margins despite modest volumes, and at the same time,
seeks to capture niche lending opportunities on a pan-India basis to build volumes and
improve margins.

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J&K Bank operates on the principle of ‘socially empowering banking’ and seeks to deliver
innovative financial solutions for household, small and medium enterprises.

The Bank, incorporated in 1938, and is listed on the NSE and the BSE. It has a track record of
uninterrupted profits and dividends for four decades. The J&K Bank is rated P1+, indicating the
highest degree of safety by Standard & Poor and CRISIL.

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 HIGHLIGHTS OF J&K BANK

Unique characteristics

 Private sector bank despite government holding 68% of equity.

 Government Company under Indian companies Act 1956.

 Operational exclusivity – a virtual monopoly in J&K; and functional distinctiveness –

government owned private bank.

 Sole banker of the Government of J&K.

 Lender of last resort to the Government of J&K.

 Only private sector bank designated as agent of RBI for banking business.

 Carries out banking business of the Central Government in J&K.

 Collects taxes pertaining to Central Board of Direct Taxes in J&K.

Infrastructure: Global Standards

 The fastest growing bank with 1038 branches across the country.

 98% of the business computerized.

 Anywhere Banking, Tele-Banking and SWIFT facilities available.

 Internet Banking, SMS and Mobile Banking provided.

 ATMs connected globally to all MasterCard networked ATMs.

 Mobile ATM Service available – first of its kind in Northern India.

 J&K Bank Global Access Debit Cards: Cirrus and Maestro enabled.
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  Own credit card.

 Live on RTGS System of RBI.

 Electronic Fund Transfer (EFT) System.

Financial Services portfolio: One stop for all financial needs

Insurance joint venture for distribution of:

 Life insurance products of MetLife (India) Pvt. Limited

 Non-life insurance products of Bajaj Allianz General Insurance Co. Limited

 Offering UTI, Reliance and Kotak Mutual Funds.

 Providing Depository Services.

 Offering Stock Broking services.

 Collection agent for utility services provided by State and Private sector.

 Tie-ups for sale of consumer goods with number of companies like Samsung, Baja Auto,
Honda Genset etc.

Board of Directors

Currently there are 10 members on the Board of Directors of the Bank, excluding Chief

Executive Officer. The Board sits more than a dozen times in a year to review the business

activities of the Bank. It also plans and regulates the future activities of the Bank through policy

decisions and administrative guidelines. All the important decisions of the Bank have to be

endorsed by the Board of Directors before their implementation.

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 Corporate Management

At the top of management, there is Chairman and Chief Executive Officer, who is followed by

two Executive Directors and five Presidents. 20 Vice Presidents, who in turn are followed by the

Senior Executive Managers, follow the Presidents. The Senior Executive Managers are assisted

by the Executive Managers. In the Middle Management, there are Senior Executives and

Executives and in the Junior Management there are Associate Executives.

Investments:

Right from the beginning, the liquidity, safety and profitability of the funds have remained and

continue to be the focus of Bank’s policies. During the first few years, the surplus funds were

kept either in Current or Fixed Deposit Accounts with other banks. It was in the year 1944

when an amount of Rs. 1 million was invested in Government Securities. Thereafter, the

growth of investment portfolio has been a phenomenal one. The investment holdings of the

Bank have been far beyond the statutory requirements. The focus of the bank’s investment

policy continues to center around maximization of return on invested funds by investing in

safe and liquid securities.

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 CUSTOMER SERVICE

The Bank continued its emphasis on maintaining high standards of services to its customer. In

this direction the Bank introduced various hi-tech and customer friendly products during the

year, providing value added service to achieve customer satisfaction. Customer complaints

received are dealt promptly and expeditiously. The Bank is a member of the Banking codes and

Standards board of India and has adopted „Code of Bank’s commitment to customer ‟ a

voluntary code of providing protection and “Right to know‟ to the customer. The Bank has

established a 24x7 help desk address customer queries and the desk is slated to be converted

into a full-fledged call center in 2007-08. The Bank is keenly pursuing for ISO 9000

certification for its customer service.

COMMUNITY SERVICES

The Bank as a responsible corporate citizen continues its concern for poor and needy. Be it fire

victims, earthquake victims, disabled or patients with serious ailments who have no means to

fall back upon for their survival, the Bank supports and helps them. The Bank adopts orphans

by providing financial support to orphanage homes. Besides, Bank donates computer systems to

enable the socially / economically deprived children to acquire IT knowledge, scholarships to

meritorious poor and needy students, life supporting equipments / aids to disabled persons etc.

19
The Bank manages various public parks.

BANKS NEW IDENTITY

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The new identity of the J&K Bank is a visual representation of the Bank’s philosophy
and business strategy. The three colored squares represent the three regions of the erstwhile state
of Jammu and Kashmir, viz, Jammu, Kashmir and Ladakh. The counter-form created by the
interaction of the squares is a falcon with outstretched wings – a symbol of power, speed and
empowerment. The synergy between the three regions propels the bank towards new horizons.
Green signifies growth and renewal, blue conveys stability and unity, and red represents energy
and power. All these attributes are integrated and assimilated in the white counter-form.

VISION & MISSION

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 VISION
“To catalyze economic transformation and capitalize on growth.”
Our vision is to engender and catalyze economic transformation of Jammu and Kashmir and
capitalize from the growth induced financial prosperity thus engineered. The Bank aspires to
make Jammu and Kashmir the most prosperous state in the country, by helping create a new
financial architecture for the J&K economy, at the centre of which will be the J&K Bank.

MISSION

Our mission is two-fold: To provide the people of J&K international quality financial service
and solutions and to be a super-specialist bank in the rest of the country. The two together will
make us the most profitable Bank in the country.

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History

The Jammu & Kashmir Bank was founded on October 1, 1938 under letters patent issued by
the Maharaja of Jammu and Kashmir, Hari Singh. The Maharaja invited eminent Kashmiri
investors to become founding directors and shareholders of the bank, the most notable of
which were Abdul Aziz Mantoo, Pesten Gee and the Bhaghat Family, all of whom acquired
major shareholdings.

The Bank commenced business on July 4, 1939 and was considered the first of its nature and
composition as a State owned bank in the country. The Bank was established as a semi-State
Bank with participation in capital by State and the public under the control of State
Government.

The bank had to face serious problems at the time of independence when out of its total of ten
branches, two branches of Muzaffarabad, Rawalakot and Mirpur fell to the other side of the
line of control (now Pakistan-administered Kashmir) along with cash and other assets.
Following the extension of Central laws to the state of Jammu & Kashmir, the bank was defined
as a government company as per the provisions of Indian companies act 1956. Mr. Baldev
Prakash is the new Chairman and CEO of Jammu & Kashmir Bank.

J&K Bank’s Annual Report 2008-09 has won three awards at the prestigious LACP 2009 Vision
Awards – the world’s largest award program for Annual Reports, organized by California-
based League of American Communications Professionals (LACP), USA. The LACP is a forum
within the public relations industry that facilitates discussion of best-in-class practices in
public relations and recognizes exemplary communication capabilities at a global level. The

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awards received include – Rank 73 on the top hundred lists of annual reports from around the
world, 10 Platinum Award in the Commercial Banks – Up to $10billon annual revenue from
the Asia Pacific Region and Silver Award for Most Creative Report across all sectors from the
Asia Pacific Region. Dr Haseeb Drabu was chairman and chief executive of the bank for the
period 2005 to 2010.

The origin of Jammu and Kashmir Bank Limited, more commonly referred to as J&K Bank, can
be traced back to the year 1938, when it was established as the first state-owned bank in India.
The bank was incorporated on 1st October 1938 and it was in the following year (more
precisely on 4th July 1939) that it commenced its business, in Kashmir (India). It was initially
set up as a semi-State Bank, with its capital being contributed by State as well as the public
under the control of State Government.

Jammu and Kashmir Bank had to face serious problems in 1947 i.e. at the time of
independence. With the partition of Pakistan, two out of the total ten branches of the bank,
namely the ones in Muzaffarabad and Mirpur, fell to the other side of the line of control (now
Pak Occupied Kashmir), along with cash and other assets. At that point of time, in keeping with
the extended Central laws of the state, J&K Bank was categorized as a Government Company, as
per the provisions of Indian Companies Act 1956. It was in the year 1971 that Jammu and
Kashmir Bank was granted the status of a 'Scheduled Bank'. Five years later, it was declared as
"A" Class Bank, by the Reserve Bank of India (RBI). As the years passed on, the bank started
achieving more and more success. Today, it boasts of more than 1000 branches across the
country. It was only recently that Jammu and Kashmir Bank became a billion dollar company.
Governed by the Companies Act and Banking Regulation Act of India, it is regulated by RBI and
SEBI. It finds a listing on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE)
as well.

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Working Capital:
Capital required for a business can be classified under two main categories viz,

 Fixed capital.

 Working capital.

Every business needs funds for two purposes – for its establishment and to carry out its day to
day operations. Long term funds are required to create production facilities through purchase
of fixed assets such as plant and machinery, land, building, furniture, etc. Investments in these
assets represent that part of firm’s capital which is blocked on a permanent or fixed basis and is
called fixed capital. Funds are also needed for short-term purposes for the purchase of raw-
materials, payment of wages and other day to day expenses, etc. These funds are known as
working capital. In simple words, working capital refers to that part of the firm’s capital which
is required for financing short term or current assets such as cash, marketable securities,
debtors and inventories. Funds thus, invested in current assets keep revolving fast and are being
constantly converted into cash and this cash flows out again in exchange for other current
assets. Hence, it is also known as revolving or circulating capital or short-term capital. In the
words of Shubin, “Working capital is the amount of funds necessary to cover the cost of
operating the enterprise.” According to Genestenberg, “Circulating capital means current assets
of a company that are changed in the ordinary course of business from one form to another, as
for example, from cash to inventories, inventories to receivables, receivables into cash.”

There are two concepts of working capital:

 Balance Sheet Concept.

 Operating Cycle or Circular Flow Concept.

(A) Balance Sheet Concept :-

There are two interpretations of working capital under the balance sheet concept, viz;

25
 Gross Working Capital

 Net Working Capital

In the broad sense, the term working capital refers to the gross working capital and represents
the amount of funds invested in current assets. Thus, the gross working capital is the capital
invested in total current assets of the enterprise. Current assets are those assets which in the
ordinary course of business can be converted into cash within a short period of normally one
accounting year. Examples of current assets are cash in hand and bank balances, bills
receivables, sundry debtors (less provision for bad debts), short term loans and advances,
inventories of stocks, prepaid expenses, accrued incomes etc. In a narrow sense, the term
working capital refers to the net working capital. Net Working Capital is the excess of current
assets over current liabilities, or say:

Net Working Capital = Current Assets – Current Liabilities

Net working capital may be positive or negative. When the current assets exceed current
liabilities, the working capital is positive and the negative working capital results when the
current liabilities are more than the current assets. Current liabilities are those liabilities which
are intended to be paid in the ordinary course of business within a short period of normally
one accounting year out of the current assets or the income of the business. Examples of
current liabilities are bills payable, sundry creditors or accounts payable, outstanding expenses,
short term loans, advances and deposits, dividends payable, bank overdraft, provision for
taxation, if it does not amount to appropriation of profits etc. The gross working capital
concept is financial or going concern concept whereas net working capital is an accounting
concept of working capital. These two concepts of working capital are not exclusive; rather
both have their own merits.

To conclude, it may be said that, both, gross and net, concepts of working capital are important
aspects of the working capital management. The net concept of working capital may be suitable
only for proprietary form of organizations such as sole-trader or partnership firms. But the
gross concept is very suitable to the company form of organization where there is a divorce

26
 between ownership, management and control. However, it may be made clear that as per the
general practice, net working capital is referred to simply as working capital.

In the words of Hoagland, “Working capital is descriptive of that capital which is not fixed. But
the more common use of the working capital is to consider it as the difference between the
book value of the current assets and current liabilities.

The following example explains both the concepts of working capital:

BALANCE SHEET OF PEARL INDIA LTD.

Liabilities Rs. Assets Rs.

Equity Shares 2,00,000 Goodwill

8% Debentures 1,00,000 Land and Buildings 1,50,000
Reserve & Surplus 50,000 Plant and Machinery 20,000
Sundry Creditors 1,50,000 Inventories:
Bills Payable 30,000 Finished Goods 60,000
Outstanding Expenses 20,000 Work in process 40,000
Bank Overdraft 50,000 Prepaid Expenses 20,000
Provision For Taxation 20,000 Marketable 60,000
Proposed Dividend 30,000 Securities 90,000
Sundry Debtors 20,000
Bills Receivables 90,000
Cash & Bank Balance

Total 6,50,000 6,50,000

i. Gross Working Capital = Total of current assets

=60,000+ 40,000+20,000+60,000+90,000+20,000+90,000 = Rs. 3,80,000

27
ii. Net Working Capital = Current Assets – Current Liabilities
Total of current assets = Rs. 3,80,000
Total of current liabilities = 1,50,000+30,000+20,000+50,000+20,000+30,000

= Rs. 3, 00,000
W.C (Net) = Rs. 3, 80,000 – Rs. 3, 00,000 = Rs. 80,000

(B) Operating Cycle or Circular Flow Concept:

A manufacturing concern needs finance not only for acquisition of fixed assets but also for
its day to day operations. It has to obtain raw materials for processing, pay wage bills and
other manufacturing expenses, store finished goods for marketing and grant credit to its
customers. It may have to pass through stages to complete its operating cycle:

28
  Conversion of cash into raw-materials---raw materials may be procured either on
payment of cash or cash or on credit. Even if procured on credit, cash may have to be
paid after a certain period.

 Conversion of raw-materials into stocks-in-process.

 Conversion of stocks-in-process into finished goods.

 Conversion of finished goods into receivables/debtors or cash.

 Conversion of receivables/debtors into cash.

The gross operating cycle of a firm is equal to the length of the inventories and receivables
conversion periods. A non-manufacturing trading concern may not require funds for purchase
of raw materials and their processing, but it also needs finance for storing goods and providing
credits to its customers.

Similarly, a concern engaged in providing services may not have to keep inventories, but it may
have to provide credit facility to its customers. Thus, all enterprises engaged in manufacturing
or trading or providing service require finance for their day to day operations. The amount

29
required to finance day to day operations is called working capital and the assets and liabilities
created during the operating cycle are called current assets and current liabilities. The total of
all the current assets is called Gross Working Capital and the excess of current assets over
current liabilities is called Net Working Capital. While the study of gross working capital
indicates the nature and extent of working capital requirements, the analysis of net working
capital indicates liquidity position of an enterprise. As per the study on “Finances of Public
Limited Companies” conducted by Reserve Bank of India, current assets constitute more than
50 per cent of the total assets of the companies covered by the study.

The gross operating cycle of the firm is equal to the length of the receivables and inventories
conversion periods. Thus,
Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP

RMCP = Raw material conversion period

WIPCP = Work in process conversion period
FGCP = Finished goods conversion period
RCP = Receivable conversion period

However, a firm may acquire some resources on credit and thus defer payments for certain
period. In that case, net operating cycle period can be calculated as:
Net Operating Cycle Period = Gross Operating Cycle Period – Payable Deferral Period

Raw material conversion period = Average stock of raw material

Raw material consumption period

Work in process conversion period = Average stock of work in progress

Total cost of production per day

Finished goods conversion period = Average stock of finished goods

Total cost of sales per day

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Receivable conversion period = Average accounts receivables

Net credit sales per day

Payables deferral period = Average payables

Net credit purchases per day

When banks are approached by the entrepreneurs for financing working capital requirements,
the banks have to examine the viability of the project before agreeing to provide working
capital for it. A detailed viability study is done by financial institutions and banks while
providing Term Loan finance to a unit for acquisition of fixed assets. They have to ensure that
the project will generate sufficient return on the resources invested in it. The viability of a
project depends on technical feasibility, marketability of the products at a profitable price,
availability of the financial resources in time and proper management of the unit.

Reserve bank have issued guidelines to adopt proper system for recognition of income,
classification of assets and provisioning for bad-debts on prudential basis so that balance sheet
of a bank may reflect its actual financial health.

A Bank manages and creates Working Capital to different customers by issuing Working
Capital Loans. These customers are called as borrowers and can be classified as below:

TYPES OF BORROWERS:

Borrower is the one who receives something on the promise to return it or its equivalent or the
individual who applies for a loan and receives the proceeds of the loan.

 Individuals: They need money to purchase residential or commercial areas. Finance

is repaid in instalments over long term.

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 Sole proprietorship: When an individual decides to venture into business, then a

simple form of business to setup is sole proprietorship. The owner becomes the sole

proprietor. It is to be registered.

 Partnership: A partnership is an association of two or more persons to do business

in order to make profit. It is common in partnership to have a partnership deed.

They need funds to purchase a finished development or purchase an undeveloped

land and construct residential, commercial or industrial development or

renovate/redevelop an existing development. Owners either occupy the property or

let/lease it to a tenant. Finance is repaid in instalments over long term.

 Companies: Companies can either be public limited companies or private limited

companies. The companies have to be registered under Companies Act, 1956.

Companies can be the borrowers of Bank in different cases.

 Cooperative societies: All cooperative societies are registered under Cooperative

Societies Act. A cooperative may make loans to its members, employees or to

another registered society.

 Societies and Clubs: These are unincorporated bodies. They have no legal status of

their own. Formed by members grouping themselves together and at a general

meeting of members agreeing to form a society or club. Members draw up rules

and regulations. Except for societies which must be registered, all others do not

require registration.

 Government: Government requires finance for developments. Residential,

commercial, industrial developments of government are either held by public
sector organizations or sold to individual buyers. Public developments such as
roads and bridges are usually owned by the government.

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Assessment Of Working Capital:
A unit needs working capital fund mainly to carry current assets required for its operations.
Proper assessment of funds required for working capital is essential not only in the interest of
the concerned unit but also in the national interest to use scarce credit according to production
requirements. Inadequate levels of working capital may result in under-utilization of capacity
and serious financial difficulties. Similarly, excessive levels may lead to un- productive use of
credit and unnecessary burden on the unit.

With a view to have proper assessment of working capital requirements, the concept of
Maximum Permissible Bank Finance (MPBF) was introduced in November, 1975 as part of the
implementation of the recommendations of the study group to frame guidelines for follow-up
of bank credit (Tandon Study Group). Reserve Bank has decided in April, 1997 to withdraw the
prescription in regard to assessment of working capital needs based on the concept of MPBF
enunciated by Tandon Study Group. As banks have been given the freedom to adopt any
method for assessing the working capital requirements, they have several options before them.
Banks may provide working capital according to their perception of the borrower and the
credit needs.

If desired, banks may follow turnover method for large borrowers also after suitable
modifications. At present, turnover method is used for borrowers requiring credit limits up to
Rs. 2 crores. Despite the freedom given by RBI, the banks should continue to follow the
exposure norms relating to single/group borrowers/and prudential norms. Further, the reserve
bank’s instructions relating to directed credit such as to priority sector, export etc, quantitative
limits on lending (such as bridge finance in certain cases, re discounting of bills earlier
discounted by non banking finance companies etc) shall continue to apply.

33
 As per the Reserve Bank guidelines based on the concept of Maximum Permissible Bank
Finance, proper assessment of working capital requirements may be done as under:-

1. NORMS FOR INVENTORY AND RECEIVABLES:

If the bank credit is to be linked with production requirements, it is necessary to assess the
requirements on the basis of certain norms. The study group appointed by Reserve Bank of
India to frame guidelines for follow-up of bank credit has suggested the norms for inventory
and receivables regarding 15 major industries on the basis of company finance studies made by
Reserve Bank, process period in different industries, discussions with the industry experts and
feedback received on the interim report. Norms indicate the maximum levels for holding

inventory and receivables in each industry and they should not be taken as entitlements to hold
inventory or receivables up to the prescribed levels. If a borrower has maintained lower levels
in the past, he should continue to do so.

Norms are also not absolute or rigid. Deviations from norms may be permitted under certain
circumstances e.g. power cuts, strikes, transport delays etc. However relaxations from the
norms should not be given as a matter of routine but must be fully justified and allowed only
for a short period. Efforts should be made to revert back to the norms when conditions return
to normal. In brief the norms are required to estimate the reasonable levels of current assets
(receivables, inventory etc).

2. COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE:

After estimating the reasonable level of current assets required for the operation of the unit,
source of financing is decided. A part of the total current assets can be financed by credit for
purchases and other current liabilities. Funds required to carry the remaining current assets

34
 may be called the working capital gap which can be bridged partly from the borrower’s owned
funds and long term borrowings and partly by bank borrowings.

Two alternatives have been suggested by the Tandon study Group for working out the
maximum permissible level of bank finance:

 Bank can work out the working capital gap i.e. (Total current assets less Current liabilities
other than bank borrowings) and finance a maximum 75 percent of the gap; the balance
to come out of long term funds i.e. owned funds and term borrowings.

 Borrower should provide for a minimum of 25 percent of total current assets out of long
term funds i.e. owned funds and term borrowings.

The above two methods of lending may be illustrated by taking the following example of a
borrower’s financial position, projected as at the end of next year.

Current Liabilities Amount Current Assets Amount

Creditors for purchases 200 Raw materials 380

Other current liabilities 100 Stock-in-process 40
___ Finished goods 180
300 Receivables 110
Bank borrowings 400 Other current assets 30
___ ____
700 740

FIRST METHOD SECOND METHOD

Total current assets 740 Total current assets 740
25% of above from long-
Less: term sources 185
Current Liabilities other ____
than bank borrowings 300 555
____
440
Less:
Working capital gap 25% Current liabilities other
of above from long-term than bank borrowings 300
sources 110

35
Maximum permissible bank ____ Maximum permissible ____
Finance 330 bank finance 255
Excess bank borrowings 70 Excess bank borrowings 145
Current ratio 1.17:1 Current ratio 1.33:1

It may be observed from the above that in the first method, the borrower has to provide a
minimum of 25 percent of working capital gap from long term funds and it gives a minimum
current ratio of 1.17:1. In the second method, the borrower has to provide a minimum of 25
percent of total current assets from long term funds and gives a minimum current ratio of
1.33:1.

While estimating the total requirement of long term funds for new projects, financial
institutions/banks should calculate margin for working capital on the basis of norms prescribed
for inventory and receivables and by applying the second method of lending. Proper co-
ordination between banks and financial institutions is necessary to ensure availability of
sufficient working capital finance to meet the production requirements.

3. CLASSIFICATION OF CURRENT ASSETS AND CURRENT LIABILITIES:

In order to calculate net working capital and MPBF, it is necessary to have proper classification
of various items of current assets and current liabilities. An illustrative list of current assets and
liabilities for the purpose of assessment of working capital is furnished below:

CURRENT ASSETS:

 Cash and bank balances

 Investments

(a) Government and other trustee securities

(b) Fixed deposits with banks

 Receivables arising out of sales other than deferred receivables

36
 Instalments of deferred receivables due within one year

 Raw materials and components used in the process of manufacture including those in
transit

 Stock-in-process including semi-finished goods

 Finished goods including goods in transit

 Other consumable spares

 Advance payment for tax

 Pre-paid expenses

 Advances for purchase of raw material

 Payment to be received from contracted sale of fixed assets during the next 12 months.

CURRENT LIABILITIES:

 Short term borrowings from banks and others

 Unsecured loans

 Public deposits maturing within one year

 Sundry creditors for raw materials and consumable stores and spares

 Interest and other charges accrued but not due for payment

 Advances/progress payments from customers

 Deposits from dealers, selling agents, etc

STATUTORY LIABILITIES:

37
 Provident fund dues

 Provision for taxation

 Sales tax, excise duty etc

 Obligation towards workers considered as statutory

 Others (to be specified)

MISCELLANEOUS CURRENT LIABILITIES:

 Dividends

 Liabilities for expenses

 Gratuity payable within one year

 Other provisions

 Any other payments due within one year

4. INFORMATION/DATA REQUIRED FOR ASSESSMENT OF WORKING CAPITAL:

In order to assess the requirements of working capital on the basis of production needs, it is
necessary to get the data from the borrowers regarding their past/projected production, sales,
cost of production, cost of sales, operating profit etc. In order to ascertain the financial position
of the borrowers and the amount of working capital needs to be financed by banks, it is
necessary to call for the data from the borrowers regarding their net worth, long-term
liabilities, current liabilities, fixed assets, current assets etc. The reserve bank prescribed the
forms in 1975 to submit the necessary details regarding the assessment of the working capital
requirements under its credit authorization scheme. It was later changed into credit
monitoring arrangement in 1988. As the traders and merchant exporters who do not have
manufacturing activities are not required to submit the data regarding raw materials,

38
consumable stores, goods in process, power and fuel, a separate set of forms has been designed
for traders and merchant exporters.

The information/data is collected from the borrowers in the following six forms:-

a) PARTICULARS OF THE EXISTING/PROPOSED LIMITS FROM THE BANKING SYSTEM(Form I)

Particulars of the existing credit from the entire banking system as also the term loan facilities
availed of from the term lending institutions/banks are furnished in this form. Maximum and
minimum utilization of the limits during the last 12 months and the balances outstanding are
also given as on a recent date to make comparison with the limits now requested for and the
limits actually utilized during the last 12 months.

b) OPERATING STATEMENT (Form II)

The data relating to gross sales, net sales, cost of raw material, power and fuel, direct labour,
depreciation, selling, general and administrative expenses, interest etc. are furnished in this
form.

c) ANALYSIS OF BALANCE SHEET (Form III)

A complete analysis of various items of balance sheet last year’s balance sheet, current year’s
estimates and following year’s projections are given, in this form. The details of current
liabilities, term liabilities, net worth, current assets, fixed assets, and other non- current assets,
etc are given in this form as per the classification accepted by the banks.

d) COMPARATIVE STATEMENT OF CURRENT ASSETS AND CURRENT LIABILITIES (Form IV)

This form gives the details of various items of current assets and current liabilities as per the
classification accepted by the banks. The figures given in this form should tally with the figures
given in Form III where details of all the liabilities assets are given. In case of inventory,
receivables and sundry creditors, the holding/levels are given not only in absolute amounts but
also in terms of number of months so that a comparative study may be done with the
prescribed norms/past trends.

e) COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE (Form V)

39
On the basis of the details of the current assets and current liabilities given in Form IV, MPBF is
calculated in this form to find out the credit limits to be allowed to the borrowers.

f) FUNDS FLOW STATEMENT (Form VI)

In this form, funds flow of long term sources and uses is given to indicate whether long term
funds are sufficient for meeting the long term requirements. In addition to long term sources
and uses, increase/decrease in current assets is also indicated in this form.

5. CHECK-LIST FOR VERIFICATION OF THE INFORMATION/DATA:

Banks should verify not only the arithmetical accuracy of the data furnished by the borrowers
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 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 products 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 borrowers.

I. UTILISATION OF EXISTING LIMITS:

(a) It may be examined whether the limits have been adequately utilized during the last 12
months. 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 modernization,
diversification etc thereby creating need for recouping working capital funds. The sanction of
funds in such cases, may lead to a slip back in the current ratio, but slip back should not be
allowed to a level below 1.33.

(b) In the case of large borrowers enjoying aggregate fund based working capital limits of Rs. 5
crores and above, it is necessary that limits sanctioned against book debts should not be more

40
than the 75 per cent of the aggregate limits sanctioned to them. In other words, at least 25 per
cent of the aggregate limits for financing should be provided by way of bills.

II. OPERATING STATEMENT:

(a) 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 capacity,
availability of inputs, environmental conditions, marketing prospects etc. In case of existing
units projection of sales should be according to the past trends.

(b) If the unit is likely to implement a modernization/expansion project, its impact on sales may
be assessed.

(c) If there is a declining trend in net sales, reasons thereof may be studied. A detailed study
should be done if an increase in limits is sought in such cases.

(d) The valuation of sales projections should be based on the current ruling prices. Similarly,
the valuation of various inputs constituting cost of sales should also be based on current prices.

(e) It may be ascertained whether the raw material consumption is in keeping with the past
trend, without any undue increase and also the consumable stores are included in raw
material.

(f) It may be ascertained whether the adequate depreciation has been provided. If the method
of providing depreciation is changed, its impact on cost production may be analyzed.

(g) It may be ascertained whether selling, general and administrative expenses are keeping
with the past trend.

(h) It may be ascertained whether the operating profit/ PBT is increasing in line with the sales.

(i) In case of new units, the estimated production may be assumed at 40 to 80 per cent of the
installed capacity in the first year depending on the nature of products, inputs, marketing and
after it may gradually increase in subsequent years. Thus the projections of the new unit
regarding sales, requirement of raw material, and cost of production should be taken as the
basis for providing working capital.

41
III. ANALYSIS OF BALANCE SHEET:

(a) The classification of current assets and liabilities should be made as per accepted approach
of banks and guidelines by reserve bank.

(b) Inventory and receivables should be in conformity with the stipulated norms. If the norm
for finished goods and receivables is combined, monthly average for the purpose of arriving at
the combined norm may be worked out on the one hand, and cost of sales and gross sales on
the other hand.

(c) In case of industries where the norms have not been stipulated, the level of inventory and
receivables should be in tune with the past trends.

(d) The level of the stock of spares may be estimated on the basis of past experience. The
projected stock spares not exceeding 12 months, whether imported or indigenous, if so it may
be treated as non-current assets.

(e) The higher requirement for imported raw material should be justified on the basis of
economic quantity.

(f) Normally the level of stock in process in terms of months related to the cost of production
should not change. Its change should be justified only in case of change in production process.

(g) If the level of inventory is high, the age of inventory should be obtained in order to find out
the obsolete items.

(h) If the level of receivables is very high, name of main buyers and period of credit should be
ascertained in order to find out irrecoverable receivables. So that provisions should be made for
bad debts.

(i) The details of inter corporate investments and advances should be obtained and reasons for
not liquidating them.

(j) Some of the borrowers may have a tendency to show sundry creditors and current liabilities
at a reduced level. This level should be in accordance with the past trend. If a decline in
purchase is shown, month wise data for previous 12 months should be ascertained.

42
(k) It may be ensured that intangible assets like patents, goodwill, etc are written off over a
period of years.

(l) It may be ascertained whether the net worth is an increasing trend or not, if not reasons
should be ascertained.

(m) If the date of balance sheet has been changed, the reasons for it should be ascertained to
find out whether it has been done only for the purpose of shoeing a rosy picture.

(n) Information about contingent liabilities should be obtained to know their impact on the
working of the unit.

IV. COMPUTATION OF MAXIMUM PERMISSIBLE BANK FIANANCE:

(a) Generally, Maximum Permissible Bank Finance (MPFB) should be calculated on the basis of
the second method of lending (as mentioned above). If the second method of lending has not
been followed, reasons for it may be ascertained.

(b) In the case of sick/weak units, MPFB may be calculated on the basis of the first method of
lending.

(c) 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 receivables should also be excluded
from the buildup of current assets. Separate limits may be given for export receivables even
without 25 per cent margin from long term sources.

(d) 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 and
above the MPBF.

43
(e) It may be ascertained whether there is any co-relation between projected increase in
production/sales and increase in limits. If not, the reasons for it should be ascertained.

V. FUND-FLOW STATEMENT:

(a) The long-term sources should be adequate to cover the long-term uses and leave a
reasonable surplus for being employed as 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 purpose
other than working capital need. It should be examined.

(b) Increase in carry of various items of inventory which is disproportionate to percentage rise
in sales should be examined.

(c) The increase in short-term bank borrowings should be in line with the increase in current
assets, particularly inventory and receivables. If it is not so, It might be utilized for repayment
of other current liabilities or be diverted for fixed assets or for inter-corporate
investments/advances. It should be examined properly.

6. EXEMPTIONS FROM SECOND METHOD OF LENDING:

All borrowers having aggregate fund based working capital limits above Rs. 2 crores from
banking system are expected to follow the second method of lending. However following credit
facilities may be exempted from the application of second method of lending even if the
working capital limits are above Rs. 2 crores:-

(i) Borrowing units engaged in export activities need not bring in 25 per cent contribution
from long-term funds in respect of export receivables. Similarly, 25 per cent contribution from
long-term funds is not required in respect of receivables arising out of domestic sales by
drawing of bills of exchange under letter of credit (whether revocable or irrevocable).
Therefore they should be excluded from total current assets while calculating minimum
contribution required from long-term funds. In other words, entire export receivables and
receivables arising out of domestic sales by drawing of bill of exchange under usance letters of
credit are counted in the total current assets while calculating MPBF. However they are
excluded while calculating minimum stipulated net working capital.

44
(ii) Sometimes, exporters may receive certain export orders which were not taken into account
earlier while fixing MPBF. Therefore it has been decided that additional credit may be provided
to exporters for executing export orders even if sanction of such additional credit exceeds the
MPBF sanctioned to a unit.

(iii) With a view to facilitating marketing of products of village, tiny and small scale industrial
units, it has been decided by the Reserve Bank in 1993 April that the companies engaged in
such activities should be provided with working capital by banks using first method subject to
following two conditions:-

(a) Borrowing unit is exclusively 100 per cent dealing with the products manufactured by
village, tiny and SSI units. In case such a borrower is also marketing products manufactured by
medium/large industries then finance should be provided for the above portion only.

(b) Dues of the said village, tiny and SSI units have been settled by the borrower within a
maximum period of 30 days from the date of supply; this should be certified by the statutory
auditors.

(iv) Sick/weak units under rehabilitation may also be exempted from the application of second
method of lending.

7. SLIP BACK IN CURRENT RATIO:

If the existing net working capital of a unit exceeds 25 per cent of the total current assets, its
current ratio will be more than 1.33:1. Such industrial units with a good past performance
record and a sound current ratio may be permitted by banks to withdraw funds from the unit
and slip back in current ratio for certain specific purposes. However, it should be ensured that
withdrawal of funds may be done to the extent that the current ratio of at least 1.33:1 is
maintained. It should be permitted for the following purpose:-

(a) Undertaking either an expansion of existing capacity or diversification or setting up of a

new unit.

(b) Fuller utilization of existing plant capacity.

45
(c) Meeting a substantial increase in the units working capital requirements on account of
abnormal price rise,

(d) Investment in allied concerns with the concurrence of the bank, if such an investment is
considered necessary in the business interests of the borrowing unit i.e. for procuring supply of
raw material, etc.

(e) Bringing about a reduction in the level of deposits accepted from the public for complying
with statutory requirements.

(f) Repayment of the installments due under foreign currency loans and other term loans.

(g) Rehabilitation/reviving of weaker units in the group by allowing flow of funds from cash
rich units in the group in terms of guidelines framed under group approach subject to the
condition that no amount lent to a healthier unit of a group for its working capital requirement
is transferred to another unit within the group so as to reduce the current ratio of the
transferor unit to a level below 1.33:1.

In addition, banks should charge penal interest of not less than 2 per cent over and above
lending rate on the amounts diverted. Where borrowers fail to repay the amounts diverted for
other than approved purposes, banks should reduce the limits to the extent of the amounts
diverted. In addition to regular monitoring of operations in cash credit/loan/overdraft accounts,
banks must evolve and implement a system to affect scrutiny for each withdrawal of Rs. 50
lakhs and above for large borrowable accounts, say with working capital credit limits of Rs. 10
crores and above from the entire banking system and ensure before allowing such withdrawal
that the amount is drawn for approved purposes.

8. FIXATION OF FUND-BASED AND NON-FUND-BASED LIMITS:

After arriving at the MPBF on the basis of the inventory and receivable norms and the
appropriate method of lending, banks may decide about the various fund-based and non-fund
based limits and sub limits. The fund based limits should not exceed the MPBF. The bulk of the
inventory limit is generally released by way of open cash credit based on the projected level of
the borrowers operations. The receivable limit may be either by way of cash credit or overdraft

46
against book debts or by way of bills limit. Within the sanctioned limits, drawing powers may
be allowed on the basis of statements received under the quarterly/monthly information system
depending upon the regularity and reliability of the information or on the basis of monthly
stock statements ensuring that there is no double financing involved with a view to bringing
about discipline in the availment of bank finance by borrowers and to facilitate better fund
management. It was decided to levy a commitment fee on the unutilized portion of the working
capital limits with effect from January 1, 1991. With the effect from July 1, 1996 the levy of
commitment charge has been left to the discretion of the financing bank/consortium/syndicate
and will not be mandatory for banks. Therefore banks may evolve their own guidelines on
regard to commitment charge for ensuring credit discipline.

In addition to the fund-based limits, non-fund based limits like inland letters of credit/Foreign
letter of credit, guarantees and acceptances are given keeping in view the genuine needs and
the capacity of the borrowers. While considering Foreign letter of credit, the requirement of
imports , Quantum of import license on hand/expected, sources of funds to retire the import
bills when received, availability of funds to pay import duty etc should be kept in view. In case
of financial/performance guarantees, it may be ensured that the borrower has the necessary
experience, capacity and means to perform the required obligations under the contract without
any default and will be in a position to reimburse the bank, if default occurs. Banks should
examine the proposals made by borrowers for non-fund based limits keeping in view their
genuine needs, financial position and capacity to meet the commitments. In the case of existing
borrowers, bank’s past experience about retirement of bills under letters of credit and
reimbursement to the bank when any guarantee was invoked. Non-fund based limits should
not be out of proposition of the borrowers genuine needs and his financial position.

9. LOAN SYSTEM FOR DELIVERY OF BANK CREDIT:

With a view to bringing about discipline in the utilization of bank credit and having better
control over the flow of credit, a loan system for delivery of bank credit was introduced in April
1995 which has been modified from time to time to make further improvements. The salient
features of this system are as under:-

(I) AMOUNT OF LOAN COMPONENT AND CASH CREDIT COMPONENT:

47
In case of borrowers having working capital credit limits from the banking system of Rs. 10
crores or above, the cash credit component should not be more than 20 per cent. The balance
80 per cent may be provided as loan component. If a borrower desires to avail a loan
component for working capital purpose more than 80 per cent, such request may be
considered by reducing cash credit limits proportionately.

For borrowers with working capital credit (fund based) limit of less than Rs.10 crores, The
reserve bank has not prescribed the level of loan and cash credit components and in case of
borrowers with working capital (fund based) credit limit less than Rs. 10 crores, banks may
persuade them to go in for the loan system by offering an incentive in the form of lower rate of
interest. In such cases the actual percentage of the loan component is settled by the bank with
its borrower clients.

In respect of certain business activities which are cyclical and seasonal in nature, the strict
application of loan system can create difficulties for the borrower. Banks, may with the
approval of their respective boards, identify such activities which may be exempted from the
loan system of delivery.

(II) SHARING LOAN COMPONENT:

In case of a consortium/syndicate, member banks should share the cash credit component and
the loan component on the basis of their individual shares of MPBF and they need not wait for
a formal meeting of the consortium/syndicate for the purpose of bifurcation. In the case of
multi-banking, each bank must restrict the sanction of cash credit component to a maximum
of 20 per cent of the credit limit sanctioned by it.

(III) AD-HOC CREDIT LIMIT:

Ad-hoc credit limit can be sanctioned only after the borrower has fully utilized the cash credit
component and the loan component of the MPBF.

(IV) RATE OF INTEREST:

Banks are free to prescribe Prime Lending Rates (PLR) and spreads over PLR separately for “loan
component” and “cash credit component”.

48
(V) PERIOD OF LOAN:

The minimum period of the loan for working capital purposes may be fixed by bank in
consultation with borrowers. Banks may decide to split the loan according to the need of the
borrower with different maturity bases for each segment and allow roll over.

(VI) SECURITY:

In regard to security, sharing of charge, documentation, etc, banks may decide on their own
and/or in consultation with other participant banks, particularly where single window
documentation is involved.

(VII) EXPORT CREDIT:

Where export credit limits (pre shipment and post shipment) granted to a borrower are in
excess of the permissible level of cash credit component, such limits may be allowed to
continue. The bifurcation of the working capital limit into loan and cash credit components
should be affected after excluding the export credit limits.

(VIII) BILLS LIMIT:

Bills limit for inland sales may be fully carved out of the ‘loan component’. Bills limit also
include limits for purchase of third party (outstation) cheques/bank drafts. Banks must satisfy
themselves that bills limit is not misutilized.

(IX) RENEWAL/ROLLOVER OF LOAN COMPONENT:

The loan component may be renewed/rolled over at the request of the borrower. However,
banks may lay down policy guidelines for periodical review of the working capital limit ant the
same may be scrupulously adhered to.

(X) COMMERCIAL PAPER:

Commercial paper can be issued by all bank borrowers eligible to issue the same up to 100 per
cent of the working capital (fund based) limit sanctioned by bank/banks, subject to compliance
with other prescribed terms and conditions. The working capital limit of every company

49
issuing commercial paper should be correspondingly reduced by the financing banks. Its
quantum to be issued can be adjusted either from cash credit component or from the loan
component or both. On repayment of the commercial paper, any request for restoration of the
limit may be considered by banks by way of enhancement of fund-based working capital limit.

(XI) PROVISION FOR INVESTMENT OF SHORT TERM SURPLUS FUNDS BY BORROWERS:

The gradual switch over to loan system has caused some strain to the borrowers in the
management of their short term surplus. As a measure of easing this difficulty, banks, at their
discretion, may permit the borrowers to invest their short term/temporary surpluses in short
term money market instruments like Commercial Paper, Certificates of Deposit, and in Term
deposits with banks, etc.

(XII) APPLICABILITY:

The loan system would be applicable to borrowal accounts classified as ‘standard’ or ‘sub
standard’.

10. SANCTION OF AD-HOC LIMITS:

Banks may sanction ad-hoc limits to the borrowers for their genuine requirements. The period
of ad-hoc limits may be decided by banks on the basis of their commercial judgment and merit
of each case. It is not mandatory for the banks to charge additional interest over and above
normal rate of interest for sanction of ad-hoc limits.

In case of borrowers having MPBF of Rs. 10 crores and above for whom loan system is
mandatory, banks should sanction ad-hoc limits only after the borrower has fully utilized cash
credit component and the loan component of the MPBF. Any ad-hoc loan sanctioned for
meeting temporary requirements should be repaid at the end of three months. If the need of
funds is for more than three months, it is desirable to reassess the credit requirements.

11. FINANCING OF TRADE AND SERVICES:

50
It has been represented to the Reserve Bank that adequate bank finance is not available for
trade, particularly retail trade. Therefore, the Reserve Bank has advised in October 1997 that
each bank’s board may review arrangement for trade financing with a view to enhancing the
resources flowing to trade.

Service sector is gaining importance. This sector includes activities like tourism activities,
tourism related hotels and computer software. The traditional method of assessing of the loan
requirement based on the ‘current ratio’ may not be applicable to such activities. Banks were
therefore, advised by the Reserve Bank in October 1997 to devise with the approval of their
boards, alternative methods of assessing loan requirement of this category of borrowers.

12. BANK FINANCE FOR PAYMENT OF BONUS:

Bonus and other statutory liabilities are normal items of expenditure which may be financed
from within the permitted working capital limits sanctioned to a borrower. In the liquidity
problems, such applications may be considered by the bank taking in to account special
circumstances and merits of each case. While sanctioning bank finance for payment of bonus,
Banks should ensure the following points:-

(i) The previous bonus loans should have been fully repaid on the due dates.

(ii) If not repaid, there should be valid explanation for that.

(iii) The proposed loan should be for payment of statutory bonus at the minimum level of 8.33
per cent only.

(iv) The loan should be repayable in not more than six months installments.

(v) The repayment of the proposed loan is not likely to cause an irregularity in the cash credit
account.

Cases of such bank finance to those of borrowers enjoying working capital limit above Rs. 10
crores should be reported to Reserve Bank for post sanction scrutiny.

13. PROCEDURE FOR ASSESSMENT OF WORKING CAPITAL REQUIREMENTS UPTO Rs. 2

51
 CRORES:

With the object of simplifying the procedure for assessment of working capital requirements
for small and medium units, the instructions relating to the First and Second methods of
lending and the norms for inventories and receivables have been replaced by simplified
formula. The new formula is meant for working out the credit requirements of those units
whose fund-based working capital limits is up to Rs. 2 crores from the banking system. As per
the guidelines issued by the Reserve Bank, Such units may be provided working capital limits
by banks on the basis of a minimum of 20 per cent of their projected annual turnover for new
as well as existing units. Borrowers would be required to bring in 5 per cent of their annual
turn-over as margin money. In other words, 25 per cent of the output value should be
computed as working capital requirement of which at least 4/5 th (20 per cent of projected
turnover) by the borrowers towards margin for the working capital.

It can be explained by following illustration:-

(1) Projected turnover = 300 lakhs

(2) Working capital requirement

(25 per cent of projected turnover) = 300*25/100= 75 lakhs

(3) Bank finance for working capital

(20 per cent of projected turnover = 300*20/100= 60 lakhs

Or

4/5th of working capital requirement) = 75*4/5= 60 lakhs

(4) Margin money for working capital

from long term sources.

(5 per cent of projected turnover = 300*5/100= 15 lakhs

52
 Or

1/5th of working capital requirement) = 75*1/5= 15 lakhs

The above guidelines have been framed assuming an average production/processing cycle of
three months (i.e. working capital is likely to be turned over four times in a year). However
certain industries may have production cycle shorter or longer than three months. Therefore
the assessment of working capital requirement may be done both ways i.e. as per projected
turnover basis and also traditional method based on borrowers overall production cycle. If the
credit requirement based on production/processing cycle is higher than the one assessed on the
projected turnover basis, the higher limit may be sanctioned as the guidelines stipulate to
provide credit limits at the minimum of 20 per cent of the projected turnover. If the higher
limit is sanctioned, the borrower should also bring in proportionately higher amount in
relation to his requirement of bank finance, i.e. margin money, 1/5 th of the total working
capital requirement and bank will finance 4/5th of the total working capital requirement.

In case the assessed credit requirement on traditional method is lower than the one assessed on
projected turnover basis, the credit limit can be sanctioned at 20 per cent of the projected
turnover. In case of traders also, credit limit maybe assessed at 20 per cent of the projected
turnover. However, many traders may have high turnover or they may avail of credit facility
from the market. Therefore, actual drawls should be allowed by bank on the basis of drawing
power to be determined after ensuring that unpaid stocks are excluded.

14. BRIDGE LOAN FACILITY BY BANKS:

Banks can provide bridge loan/interim finance, subject to the following conditions, against the
commitment of a financial institution and/or another bank in the event of the latter institution
facing temporary liquidity constraint:-

(I) The bank extending bridge loan/interim finance should obtain prior approval of the other
bank/financial institution which has sanctioned the term loan.

53
(II) The sanctioning bank must also obtain a commitment from the other bank/financial
institution that the latter would directly remit the amount of term loan to it at the time of
disbursement.

(III) Period of such bridge loan/interim finance should not exceed four months. Banks should
not allow extension of time for repayment of bridge loan/interim finance.

(IV) Banks should ensure that bridge loan/interim finance sanctioned and disbursed is utilized
strictly for the purpose for which the term loan has been sanctioned by the other
bank/financial institution.

15. FREEDOM OF BANKS FROM GUIDELINES OF LENDING:

As mentioned earlier, banks have been given greater operational freedom to evolve their
own system for assessing the working capital requirements of borrowers, within the
prudential norms. It is now not mandatory for banks to follow the prescription of MPBF
recommended by Tandon study group. In the past, the Reserve Bank has also issued various
guidelines / instructions to banks with the objective of ensuring lending discipline in
appraisal, sanction, monitoring and utilization of bank finance.

Methodology of Working Capital Assessment by J&K BANK

For Assessment of working capital requirements of borrowers, following methods will be
followed:

A) TURN OVER METHOD

Assessment of working capital (fund based) finance based on projected turnover / sales
of the unit will be applicable incase of following category of borrowers, subject to
fulfillment of conditions described herein:

Category of Borrower Maximum amount of WC Conditions to be fulfilled

facility under turnover

54
 method

a) Micro and Small Rs. 5.00 crores a) Required WC

Enterprises in the Margin is available
Manufacturing as per First method
Sector of lending. It shall
be fully established
b) Micro and Small
with the support of
Enterprises
relevant
providing or
documentary
rendering services
evidence that
c) Export trade reflected sales as
advances shown in the latest
available financial
statements
(furnishing of
audited financial
statements to be
insisted incase of
units having sales /
receipts in excess of
Rs. 40.00 lacs per
annum) are based
on actual figures. A
reasonable growth
in sales by amount
ranging between
15% and 25% over
the actual sales of
current year may be

55
 accepted.

b) In the event of WC
margin being
available for
amount less than
they required
margin
contribution as per
First Method of
Lending, MPBF
worked out on the
basis of turnover
method shall be
sanctioned up to
prescribing
condition to the
effect that the
borrower shall
induct deficit
amount and after
being satisfied that
the borrower has
sufficient resources
to induct the deficit
in WC Margin. In
absence of this
arrangement, MPBF
shall be worked out
on the basis of First

56
 Method of lending

B) SECOND METHOD OF LENDING

Incases, other than those specified above, assessment of WC will be made on the basis of
Second Method of lending.

C) Cash Budget System

This system shall be followed in following cases:

a) For assessing WC requirement for seasonal industries like tea, coffee, sugar and for
construction activity and service sector

b) For WC finance above Rs.2 crores for borrowers engaged in IT and software
industry.

c) Any other borrower who is desirous of shifting to monthly cash budget system will
be encouraged.

d) Incase of construction companies, the fund based limits ( not exceeding the peak
level deficit projected in the cash flow statement) and the non-fund based limits
sanctioned to a borrower, put together, should also not exceed ten times the net
owned funds of the company. Considering the special features of such companies, it
is preferable to follow the cash budget system for assessment of WC requirements. J

JK BANK WORKING CAPITAL SCHEME AND ITS COMPARISON

WITH OTHER MAJOR BANKS LIKE SBI

 Interest Rates

57
Interest Rates for working capital are undoubtedly the most important parameter to factor into

your calculations. And in most cases is the decisive factor for an investor to narrow down on a

certain Housing Finance Company's working capital offer. Both J&K Bank and SBI, under

different schemes of working capital, charge interest usually between 10-`15% for lower

advances and for higher advances credit risk assessment (CRA) method is used where when a

customer achieves certain rating, gets discount on interest rate.

 Security

For Manufacturing and Servicing companies, SBI does not take any mortgage upto 1 crore and
above 1 crore Land and Building is usually taken in the form of collateral security. For trading
companies SBI takes Land and Building and Guarantor as collateral security. J&K Bank usually
takes Plant and Machinery, Land and Building and Guarantor as collateral security.

Conclusion

On comparing security we can see that both banks require mortgage of property for which

finance is to be taken. Moreover few banks move ahead by providing different options like

promissory notes, first power of attorney etc. So the need is to provide better options which

make the process of taking WC convenient and easy.

 Repayment

For both banks, the WC amount is usually repaid in less than a year.

 Margin money

SBI follows two methods Nayak committee recommendations and Turnover method and

usually provide 80% to the annual working capital requirement whereas J&K Bank follows

58
mostly Turnover method and usually provides 75% to the annual working capital

requirements. So revision is required in this case.

CASE STUDY ON JK TUBES PVT. LTD.

While doing the internship training I studied many cases on the Working Capital Facilities and
learned how to assess the Working Capital Limit of the Borrowers who approach the Bank. For
the assessment of Working Capital Requirement, the Case Study I have taken is JK Tubes which
requires Working Capital Facility and with the knowledge I have gained during this time I have
assessed their Working Capital Limit which is illustrated as below:

Name of the Applicant Borrower : JK Tubes Pvt. Ltd

BACKGROUND OF THE BORROWER:

Reg: - Enhancement Proposal of M/s J.K. Tubes.

General Information on the proposal
Name of party M/s JK Tubes

Name of Trikuta Nagar, Jammu

Branch

Date of Receipt 30/05/2017

of the proposal

Date of receipt 03/06/2017

of last
information

Nature of Enhancement in existing working capital limit from Rs.700.00 Lacs to Rs.1000.00
proposal Lacs.

59
Existing Sole Banking Arrangement
Banking
Arrangement

Proposed Sole Banking Arrangement

Banking
Arrangement

Activity Manufacturing of GI Pipes

Priority Priority (SME)

Classification

Particulars of Last Sanctioned vides Sanction No. JKB/CHQ/A&AP/2010-8267- dated.15.02.15 &

the existing lastly renewed vide No. JKB/A&AP/2016-3823 dated 01/12/2016
facilities (Amount in Lacs of Rs.)
enjoyed by the
Applicant Type of facility Limit B.O.S Margin (%) Interest/
Borrower 30/05/13 Commission

Cash credit 700.00 642.94 Stocks 25% Base rate +

3.50%
& Book Debts
25%

Term Loan 284.73 146.16

The above facilities have been sanctioned against following securities.

Securities: -

Primary: -

 Hypothecation of all current assets of the firm including Raw material, Work
in progress & Finished goods along with all the receivable of the firms,
present and future.
 Hypothecation of plant & machinery along with all the Misc fixed assets of
the firm both present & future.
 Mortgage of property comprising of factory building along with land
admeasuring 24 Kanals 6 marlas at kangrail, Akhnoor Road, Jammu under
Khasra No.1389 (New), 54 (old), Khewat no.49 min and Khata no.167 valuing
Rs.559.74 Lacs as per the valuation dated 09.08.2016 by Anuj & Associates

60
 Collateral: -

 Equitable mortgage of plot of land measuring 1.50 Kanal situated at 38 C/C,

Gandhi Nagar, Jammu standing in the name of Ms.Goldi Mahajan valuing
Rs.459.95 lac as per the valuation report dated 09.08.2016 of M/S Anuj &
Associates.
 Mortgage of 8 kanals of land belonging to Mr. Rakesh Kumar Choudhary
under khewat No.20, khata No.200 situated at village Nandpur Gujran
(Raipur Satwari), jammu, valuing Rs.252.00 Lacs as per the valuation report
dated 09.08.2016 of M/S Anuj & Associates.
 Mortgage of residential house belonging to Rakesh Kumar Choudhary over
18 marlas of land under Khewat No.48, Khata No.267 and Khasra No.271 min
situated at Raipur Satwari valuing Rs.78.39 Lacs as per the valuation report
dated 09.08.2016 of M/S Anuj & Associates.
 3rd party guarantee of 2 persons: -
i) Mr.Jagar Singh Choudhary S/O Sh.Koula Ram
R/O 36 C/C, Ghandhi Nagar, Jammu.

ii) Mr.Balbir Singh S/o Sh.Jagar Singh

R/O 36 C/C, Gandhi Nagar, Jammu.

Requested Enhancement in the existing cash credit limit of Rs700.00Lacs to Rs1000.00Lacs

credit facilities Amount in Lacs of Rs.
from our Bank
Type of Limit Margin Interest
facility
(%)

Cash credit 1000.00 Stocks 25% As applicable

Book Debts – 25%

Recommendati The branch has recommended enhancement in the existing cash credit limit of
ons of branch Rs700.00Lacs to Rs1000.00Lacs against following securities

Primary:

Hypothecation of all current assets of the firm including Raw material, Work
in progress & Finished goods along with all the receivable of the firms,
present and future.
 Extension of charge over property comprising of factory building along with
land admeasuring 24 Kanals 6 marlas at Kangrail, Akhnoor Road, Jammu
under Khasra No.1389 (New), 54 (old), Khewat no.49 min and Khata no.167
valuing Rs.559.74 Lacs as per the valuation dated 09.08.2016 by Anuj &
Associates.
Collateral security of: -

 Extension of charge over entire movable fixed assets of the firm that

61
 includes Plant & Machinery, Furniture & Fixture and other miscellaneous
assets, both present & future.
 Equitable mortgage of plot of land measuring 1.50 kanal situated at 38 C/C,
Gandhi Nagar, Jammu standing in the name of Ms.Goldi Mahajan valuing
Rs.459.95 lac as per the valuation report dated 09.08.2016 by M/S Anuj &
Associates.
 Mortgage of 8 kanals of land belonging to Mr.Rakesh Kumar Choudhary
under khewat no.20, khata no.200 situated at village Nandpur Gujran (raipur
Satwari), jammu valuing Rs.252.00 lac as per the valuation report dated
09.08.2016 by M/S Anuj & Associates.
 Mortgage of residential house belonging to Rakesh Kumar Choudhary over
18 marlas of land under kheat no.48, khata no.267 and khasra no.271 min
sitautae at Raipur Satwari valuing Rs.78.39 lac as per the valuation report
dated 09.08.2016 by M/S Anuj & Associates.
 3rd party guarantee of 2 persons: -
i) Mr.Jagar Singh Choudhary S/O Sh.Koula Ram
R/O 36 C/C, Ghandhi Nagar, Jammu.

ii) Mr.Balbir Singh S/o Sh.Jagar Singh

R/O 36 C/C, Gandhi Nagar, Jammu.

Borrower information

Address of Head Village Kangrail, Address of Village Kangrail, Akhnoor Road,

/ Registered Administrative office
office Akhnoor Road, Jammu

Jammu

Address of Village Kangrail, Constitution Partnership Firm

manufacturing
units (Factory) Akhnoor Road,

Jammu

Date of 27/02/2013 Date of reconstitution 18/02/2016

constitution/
incorporation

Date of 27/02/2013 SSI 07/04/16/ BIS CM/L ISO

commencement Registratio 10857 Certi 9753401 certificati
of business n No. ficati dated on
on 08/10/14 (IS
No. 1239 Part

62
 I:2004)

Period of Since inception i.e. 2013 Borrower

dealings with Code No.
the branch

Particulars of Partners

Name and address of present partners of the firm as per reconstitution Net worth in Lacs of Rs
deed dated 18/02/2016
( As on 09/08/2016)
Name Address Status/

share

Mr. Rakesh Kumar Choudhary S/o Sh. Koula Ram Partner 479.40

R/o Raipur Satwari, Jammu 45%

Mrs.Seema Choudhary S/o Mr.Rakesh Choudhary Partner 30.00

R/o Raipur Satwari, Jammu 25%

Mrs. Goldi Mahajan W/o Sh. Aditya Mahajan, Partner 543.23

R/O H. No. 20, sector-6-A, 25%

Trikuta Nagar, Jammu

Mr. Amit Gupta S/o Sh. Ashok Kumar Gupta, Partner 185.32

R/o 21/6, Trikuta Nagar, 5%

Jammu

Capital Structure of the applicant Firm (amt. in Lacs)

Particulars Existing as As on As on As on Projected

on 31.03.2015 31.03.2016 31.03.2017 31.03.18
31.03.2014
Firm’s Net Worth 206.86 172.90 73.68 306.81 644.81

Other related information

63
Whether name of the Applicant Borrower, its proprietor/ Reportedly No
partners/directors is appearing in the caution / defaulter list of RBI/
CIBIL/ ECGC/.
Whether proprietor/ any of the partners / directors of the Applicant Reportedly No
Borrower firm /company is a director or a specified near relation of a
director of a banking company.
Whether proprietor/ any of the partners / directors of the Applicant Reportedly No
Borrower firm /company is a specified near relation of any Senior
Officer of the rank of Scale –iv and above of the Bank.

Account operations (applicable in case the Applicant Borrower is enjoying credit facilities from the
Bank)

Date of last sanction DEC-2016

Due date of renewal DEC-2017

Reasons for delay in submission of the NA

renewal proposal

Account operations Satisfactory

Turnover in accounts of working capital From 01.04.16 to 31.03.17 :-

facilities
 Credit Summations : Rs.3714.65 Lacs
 Debit Summations : Rs.3440.37 Lacs
Number of times account overdrawn and N/A
maximum amount of overdrawing

Cumulative number of days for which DP N/A

Limit exceeded

Number and amount of BG/ LC invoked or N/A

devolved.

Instances of cheques /bills returned None

unpaid

Delay in submission of audited financials NA

Variance in projected sales & actual sales 32%

Particulars of irregularity, if any, in the NIL

64
operations of the account

Particulars of irregularities pointed out in The branch has informed that all irregularities pointed
internal inspection/ con –current audit/
statutory audit / RBI inspection reports out by internal/external auditors have been rectified
and status of their rectification
except the marking of lien in one of the property at

Gandhi Nagar, which cannot be marked. However

measures suggested by the Law department has been

taken by the branch

Ad hoc Limits granted in favour of firm Adhoc facility of Rs50.00Lacs sanctioned on 12/04/2017
during current FY 2017-18

Internal Rating of applicant borrower:-

Internal Rating History Original Rating Rating as per Last review Current Rating

Rating of account JKB-INFRA1 JKB-LC4 JKB-LC4

Rate of interest PLR-1% Base rate +4.50% BR+4.50

Banking Arrangements (applicable in case the Applicant Borrower is enjoying credit facilities under
multiple/consortium arrangement) NIL

Details of income earned through the account of the applicant firm / group companies / sister
concerns during last financial year ended 31.03.2016

Name of the firm Interest w.e.f 01.04.15 to Processing Total

31.03.2016 fee
M/S J K Tubes Rs.101.37 Lacs 0.77 Rs102.14 Lacs

Background of the Applicant Borrower

65
M/s J. K. Tubes, a partnership firm established on 27-02-2013 by a group of four person’s viz. Mr.
Rakesh Kumar Choudhary, Dr. Aditya Mhajan, Mrs. Goldie Mahajan, and Mr. Amit Gupta vide
partnership deed dated 27/02/2013 registered with Registrar Jammu on 27/02/2013 & reconstituted
on 18.02.2016 with retirement of Mr. Aditya Mahajan & induction of Mrs. Seema Choudhary (wife of
Mr. Rakesh Choudhary). The main activity of the firm is manufacturing of G. I. pipes. The firm is
registered with District Industries Centre, Jammu, as Small Scale Industry vide Registration Number
07/04/16/10857 dated 30/10/2013.

The firm is dealing with the branch since 2013 & was initially granted a term loan of Rs 284.73Lacs &
working capital facility of Rs240.00Lacs for establishment of G.I. Pipes manufacturing unit at Village
Kangrail, Akhnoor Road, Jammu vide sanction No. JKB/A&AP/J-563/2009-2661 dated 02/09/2013,
modified for replacement of collateral security vide No. JKB/A&AP/J-563/2009-6990 dated 06/01/2014.
The unit started commercial production on 30/10/2013 & sales were made from January 2014.

The working capital limit was subsequently enhanced to Rs700.00Lacs vide sanction No.
JKB/CHQ/A&AP/2010/8267 dated 15/02/2015 & lastly renewed on 01/12/2016.

Brief About Partners

i) Mr.Rakesh Kumar Choudhary S/O Sh. Koula Ram resident of Raipur, Satwari is into the business for
more than 20 years. He is running flour mill and is also engaged into transportation business as
carriage contractors. He has vast business experience and is well known industrialist. He is also
having its share in the firm namely M/S New Kissan Flour Mills, which is availing a cash credit limit of
Rs.400.00 Lacs from the branch.
ii) Mrs. Seema Choudhary w/o Rakesh Kumar Choudhary aged 38 years has been inducted as new
partner in the business with 25% share holding in the firm.
iii) Mr. Amit Gupta, graduate has experience in civil construction. His experience has helped in
successful completion of unit within stipulated period. In the absence of Mr. Rakesh Choudhary, Mr.
Amit was managing the business in a very efficient manner.
iv) Dr. Goldie Mahajan wife of Dr. Aditya Mahajan is not directly engaged in the activities of the unit.

Details of Inspection of the unit

The unit inspection has been conducted by Branch on 28/03/2017 & reported stocks worth
Rs473.59Lacs. Further it has been reported in the inspection report that unit was operational & stocks of
raw material, semi finished goods & finished goods for manufacturing of GI pipes were found at factory
site.

Brief Profile of the unit

Location

66
The unit has been established over freehold land belonging to Mr. Aditya Mahajan at village where all
infrastructure facilities are available Kangrail (the case regarding the ownership & transfer of said land is
registered with State Vigilance Organization).

Capacity of the unit

Licensed/installed capacity of the unit:- 11391 MTPA

Projected sales target Rs5000.00Lacs

Projected capacity utilization of installed capacity 73%

Raw Materials

Major raw material used in the process is HR strips, Hydrochloric Acid (HCL), Zinc, G.I. Socket. PVC Rings,
furnace oil & other chemicals. The raw material is procured by the firm from Punjab, Haryana & Delhi.

Borrowing purpose

For the expansion/ smooth running of the business, the party has requested for enhancement in its
existing cash credit limit of Rs.700.00 Lacs to Rs.1000.00 Lacs for a period of 1-year against the existing
securities already held by the bank

Financial Results and Projections

Balance Sheet A/C JK Tubes

Liabilities (amt in Lacs of Rs)

31.03.14 31.03.15 31.03.16 31.03.17 31.03.18

Particulars
(Audited) (Audited) (Audited) (Audited) Projected

Partners Capital 175.25 155.55 48.40 281.53 619.53

Capital Receipts 31.61 17.35 25.28 25.28 25.28

Capital 206.86 172.90 73.68 306.81 644.81

Secured loan (Term loan) 283.07 237.37 199.57 155.29 111.49

Unsecured Loan 0.00 0.00 34.90 34.90 34.90

Total LTS 489.93 410.27 308.15 497.00 791.20

67
Current Liabilities

Secured Loan (CC) 336.29 595.81 798.44 524.17 1000.00

Sundry Creditors 54.13 146.99 21.22 5.48 80.31

Expenses payable 2.59 26.14 10.23 2.39 0.00

Total Current Liabilities 393.02 768.94 829.89 532.04 1080.31

Total Liabilities 882.94 1179.21 1138.04 1029.04 1871.51

Assets (amt in Lacs of Rs)

31.03.14 31.03.15 31.03.16 31.03.17 31.03.18

Particulars
(Audited) (Audited) (Audited) (Audited) Projected

Fixed Assets 258.17 296.74 289.78 276.94 235.40

Current Assets

Raw material 109.90 250.00 135.68 122.51 500.00

Work in Process 79.87 150.00 169.46 73.06 100.00

Finished Goods 175.79 292.22 98.04 151.96 400.00

Sundry Debtors 191.66 140.10 234.00 293.69 625.00

Loans & Advances 22.70 34.45 97.30 21.35 0.00

Cash in Hand 6.03 4.16 70.34 28.19 5.90

Cenvat Credit 26.67 0.00 29.63 43.42 0.00

OCA 0.00 11.54 12.86 11.76 0.00

Total current Assets 612.62 882.47 847.31 745.94 1630.90

Security deposits 0.31 0.00 0.95 6.16 5.21

Preliminary Exp. Not

11.84 0.00 0.00 0.00 0.00
written off

Total 882.94 1179.21 1138.04 1029.04 1871.51

Key Financial Indicators (amt in Lacs of Rs)

68
 31.03.14 31.03.15 31.03.16 31.03.17 31.03.18
Particulars
(Audited) (Audited) (Audited) (Audited) Projected

358.97
Sales 1457.83 1849.10 3662.60 5000.00
(3MONTHS)

% of growth in sales 0.00 6% 27% 98% 37%

Gross Profit 60.35 206.00 81.59 347.00 580.00

% of Gross Profit to sales 16.81% 14.13% 4.41% 9.47% 11.60%

Net Profit 31.60 101.32 (-29.00) 253.86 350.00

% of Net Profit to sales 8.80% 6.95% 0 6.93% 7%

Net worth 206.86 172.90 73.68 306.91 644.81

Current Assets 612.94 882.47 847.31 745.94 1630.90

Current Liabilities 393.01 768.94 829.89 532.04 1080.31

NWC 219.93 113.53 17.42 213.90 550.59

Current Ratio 1.56 1.15 1.02 1.40 1.51

Debt Equity Ratio 1.37 1.37 2.71 0.51 0.17

TOL/TNW 3.27 5.82 14.45 2.35 1.90

Comments on Financials of the Firm (Past performance & Projections): -

Capital
Capital base of the firm which stood at Rs206.86Lacs as on 31/03/2014 eroded to Rs 172.90Lacs during
FY2014-15 as drawings to the extent of Rs152.63Lacs were made during the year for the purpose of
investing in the group business. The capital base of the firm had further eroded to Rs73.68Lacs during
FY2015-16 due to the losses incurred by the firm & drawings made by the partners during the year.
However with the retention of major portion of profit earnings in the capital account the capital base of
the firm rose to Rs306.81Lacs during FY2016-17 & has been projected at Rs644.81Lacs as on 31/03/2018

Reserve & Surplus

Reserve & surplus reflect capital receipts which are on account of capital subsidy received by the firm
from DIC Jammu which has to be reflected in the balance sheet as per Govt. directives.

69
Unsecured loans
Unsecured loan to the extent of Rs34.90Lacs were available to the firm during the FY2016-17 &2016-17
& has been projected at same level for FY2017-18. Unsecured loan represent the amount raised from
the retiring partner Mr. Aditya Mahajan.
Sales
The firm has achieved sales turnover of Rs.1457.83Lacs during FY2014-15 & Rs1849.10Lacs during the
year 2015-16, but failed to achieve the projected sales targets envisaged by the firm for these years, as
huge chunk of its business remained blocked with PHE, which affected its working capital cycle, resulting
in non-achievement of its sales targets. But during the year 2016-17 the firm achieved sales turnover of
Rs3662.60Lacs registering a significant growth of 98% over the previous year, thereby had achieved the
sales target envisaged by A&AP for the year while renewing the existing limit. Now the firm has
projected to achieve a sales target of Rs5000.00Lacs for FY-2017-18, envisaging an increase of 37% over
the sales of preceding year. The branch has submitted that projected targets seems achievable in view
of the previous year growth in sales besides party is expecting good number of orders from PHE
Department in view of recent Govt. policy that the supply orders from PHE department shall be allotted
to the manufactures of J&K State.

Profitability: -

Against the net profit of Rs 101.32Lacs during the FY2014-15 the firm has incurred loss of Rs29.00Lacs
during FY2015-16 due to decline in sales. But during the FY2016-17 the firm recorded a net profit of
Rs253.86Lacs with the increase in volume of sales turnover by 98%. The firm has projected the profit
earning of Rs350.00Lacs for the FY 2017-18 being 7% of the projected sales of Rs5000.00Lacs which is in
line with previous trend.

Net Worth
The net worth of the firm eroded from Rs206.86Lacs in FY2014-15 to Rs 172.90Lacs during 2014-15 &
further to Rs73.68Lacs during FY2015-16. The erosion in the capital base was due to the drawings made
by the partners & losses incurred during FY2015-16. However with the retention of profits in the capital
account the net worth of the firm has increased during FY2016-17 to the extent of Rs306.81Lacs & has
been projected at Rs644.81Lacs as on 31/03/2018 with retention of profits.

NWC
The NWC which was available with the firm to the extent of Rs113.53Lacs as on 31/03/2015s decreased
to Rs17.42Lacs as on 31/03/2016 due to the drawings & losses incurred by firm. However with the
increase in capital base of the firm during FY2016-17 the NWC of the firm has increased to Rs213.90Lacs
as on 31/03/2017. The NWC has been projected at Rs549.64lacs as on 31/03/2018, which is sufficient to
meet the margin requirements against the build up of current assets.

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Current ratio

The current ratio of the firm had remained below the bench mark level during FY2014-15 & 2015-16.
However current ratio of the firm improved to 1.40:1 as on 31/03/2017 due to the increase in the capital
base of the firm. The current ratio projected for FY2017-18 is above bench mark level.

Calculation of holding levels (Amt. in Lacs of rupees)

31.03.2015 31.03.2016 31.03.2017 31.03.2018

Audited Audited Audited Projected

Sales 1457.85 1849.10 3662.60 5000.00

Purchases 1423.73 1396.90 3138.75 5072.47

Raw Material Cons. 1283.63 1511.22 3151.92 4694.98

Cost of production 1368.27 1573.33 3369.19 4668.04

Cost of Sales 1381.44 1920.61 3495.46 4654.50

Holding Pattern

Raw Material 250.00 135.68 122.51 500.00

Work in Process 150.00 169.46 73.06 100.00

Finished Goods 292.22 98.04 151.96 400.00

Holding Period (R/M) days 70 32 14 38

Holding Period (WIP) days 39 39 8 8

Holding Period (F/G) days 76 18 16 31

Debtors 140.10 234.00 293.69 625.00

Period (days) 35 46 29 45

Creditors 146.99 21.22 5.48 80.31

Period (days) 37 5 1 6

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Inventory Holding: --

The inventory holding of the unit comprises of Raw material, Semi-Finished and Finished Goods. The
Inventory holding period of the Unit remained at (70+39+76) days in the FY 2014-15, at (32+39+18) days
in the FY 2015-16 & at (14+8+16) in the FY2016-17. Now the firm has projected the Inventory holdings at
(38+8+31) days for the current FY 2017-18. The projected holding level as compared to previous year
are on higher side, the party has submitted that higher holding level has been projected to ensure the
timely execution of huge supply orders at any point of time which the party is expecting during current
fiscal in view of new Govt. policy. The branch has accepted the projection in toto for assessment of
working capital requirement, which is endorsed for computation of MPBF.

Debtor Period: -

The firm is supplying its products mainly to J&K PHE Department & are major debtors of the firm. The
velocity of debtor during the FY 2014-15 , 2015-16 & 2016-17 were at 35days, 46days & 29 days
respectively & have been projected to remain at 45 days for the CFY 2017-18. Since the firm is supplying
its finished product to PHE department of J&K Govt; where realization of payments usually takes more
time because of the process involved there, hence debtors are accepted at 45 days for computation of
MPBF.

Creditor Period: -

The credit available to the firm against purchases was to extent of 37 days during FY-2014-15, 5 days
during FY-2015-16 & 1 day for FY2016-17. The firm has projected same at 06 days for FY2017-18 which
has been accepted by the branch, hence endorsed for computation of MPBF

Assessment of Working Capital Requirements

In view of performance of the firm during the last year the projections envisaged for current fiscal seems
reasonable/ achievable hence accepted for computation of MPBF. The working capital requirements of
the firm are being assessed as under.

(Amt. in Lacs of Rupees)

Particulars Achieved for Accepted targets

2016-17 for 2017-18

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 Sales 3662.60 5000.00

Purchases 3138.75 5072.47

Raw material consumed 3151.92 4694.98

Cost of production 3369.19 4668.04

Cost of sales 3495.46 4654.50

Particulars Holding period Amt. in Lacs of

Rupees)
No. of days

Raw material 38 500.00

Semi-Finished goods 8 100.00

Finished goods 31 400.00

Sundry Debtors 45 625.00

Other Current assets 5.90

A) Total Current Assets 1630.90

Current Liabilities

Sundry creditors 6 80.31

Other current liabilities

B) Total of Current liabilities

C) Working capital Gap (A-B) 1550.59

D) Margin at 25% of CA 407.48

E) Projected NWC as on 31/3/14 550.59

MPBF ( C-D or E) whichever is higher 1000.00

Internal rating
Based on audited financials of 31/03/2017 the account has notched final risk grade of JKB-LC4 with
probability of default at 3.84% as detailed hereunder

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 Particulars FY2016-17

Financial Risk Score 5.72

Business Risk Score 1.00

Management Risk Score 1.00

Industry Risk Score 4.17

Basic Borrower Risk Score 4.23

Project Risk Score 1.00

Borrower Risk Score (with project) 4.23

Conduct of Account Risk Score 1.40

Final Risk Grade JKB-LC4 (4.34)

Probability of Default 3.84%

PRICING OF ACCOUNT
The unit falls under MSE sector & based on above rating the account qualifies for interest rate of
BR+4.50% effective rate 14.75% which is endorsed for approval.

Bank’s exposure to the Applicant Borrower and the Group

(Amount in Crores of Rs.)

S.N Particulars Information on exposure to the Borrower/Group

o

Name of the Firm/ Existing exposure Proposed exposure Total Exposure

Company FB NFB Total FB NFB Total FB NFB Total

1 Applicant firm 8.47 0.00 8.47 11.47 0.00 11.47 11.47 0.00 11.47

2 New Kissan Flour Mills 4.00 0.00 4.00 4.00 0.00 4.00 4.00 0.00 4.00

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 15.47

Exposure (existing and proposed) to the Applicant Exposure (existing and proposed) to the
Borrower as a % of Bank’s Net worth as on Group as a % of Bank’s Net worth as on
31/03/2017 (Rs5691.60Crores) 31/03/2017

0.20 0.27

Compliance of Applicant Borrower & Whether Reasons for recommending

the Group complied with the facility in case of
Exposure norms deviations

Applicant Borrower Yes NIL

Group Yes NIL

Status of Reasons for recommending

Compliance of the facility in case of
lending policy Key parameters Whether deviations
guidelines complied with

TOL / TNW Yes NIL

Current Ratio Yes 1.40:1 Nil

DER Yes NIL

DSCR N.A NIL

Risk score YES NIL

Security Cover

Based on the fresh valuation reports the existing security cover available against the exposure is detailed
as under:-
Proposed Exposure Particulars of proposed tangible Value
security
Total=Rs.11.47Crores Factory land & building Rs5.60 Crores
Plot of land at Gandhi Nagar Rs4.60Crores
Jammu

75
 08 Kanals of land at Village Rs.2.52 Crores
Nandpur Gujran Raipur Satwari
Residential House with land at Rs0.78Crores
Raipur Satwari
Total tangible security cover Rs.13.50Crores
The value of tangible security (excluding current assets & plant/ machinery) as per the latest valuation
reports is Rs13.50Crores, which is equal to 1.17 times of the proposed exposure (TL Rs147Lacs
+CCRs1000Lacs). Whereas the book value of plant & machinery as per balance sheet as on 31/03/2017 is
Rs 1.80Crores.

Recommendations of A&AP, Division, CHQ.

In view of the forgoing Para’s, assessments & recommendations of the branch, it is proposed that
sanction may accorded for enhancement in the existing cash credit limit of Rs700.00Lacs to
Rs1000.00Lacs (Rupees Ten Crores only) in favour of M/s JK Tubes against the existing securities,
following terms & conditions.

Facility Enhanced Cash Credit Limit of Rs1000.00Lacs

Period One year subject to annual review

Margin 25% on stocks/ book debts

Rate of interest Base Rate+4.50% (present effective rate 14.75%)

Purpose To meet the genuine working capital requirements strictly as per

the drawing power available.

Drawing Power Drawings in the account shall be allowed as per the drawing
power available against the stocks & book debts

Processing Charges 0.10% of the existing limit & 0.20% for the enhanced portion
(Maximum Rs1.50Lacs)

Commitment Charges i) 0.50% p.a on the entire unutilized portion if average utilization
is less than 50%

ii) 0.25%p.a on the entire unutilized portion in average utilization

is more than 50% but less than 70%

Penal Interest Penal rate of interest of 2% above the applicable rate should be
charged under the following circumstances:
 Irregularity in cash credit loan account;
 Non–submission of stock statement and financials/other
papers/data.

76
  Default in servicing of interest in the cash credit account.
 Default in compliance of borrowing covenants
(agreement contracts).
Pre-disbursement  All legal –cum-security documents to be got executed in
conditions consultation with Law Department ZOJ
 Branch to ensure marking of bank’s lien against the
mortgaged properties with the concerned authorities &
copy of acknowledgement shall be placed on records
 Branch to ensure the rectification of all the irregularities if
any pointed by stock / credit / internal auditors.
 Branch to ensure that all statutory permissions, licenses &
approval for running the unit are on record & presently in
force
 Branch shall obtain an undertaking from the applicant
borrower that unsecured loans shall not be withdrawn
during the currency of bank finance
 Branch to ensure compliance of all terms & conditions of
previous sanction.
Securities Primary:

 Hypothecation of all current assets of the firm including

Raw material, Work in progress & Finished goods along
with all the receivable of the firms, present and future.
 Extension of charge over property comprising of factory
building along with land admeasuring 24 Kanals 6 marlas
at Kangrail, Akhnoor Road, Jammu under Khasra No.1389
(New), 54 (old), Khewat no.49 min and Khata no.167
valuing Rs.559.74 Lacs as per the valuation dated
09.08.2016 of Anuj & Associates.
Collateral:

 Extension of charge over entire movable fixed assets of

the firm that includes Plant & Machinery, Furniture &
Fixture and other miscellaneous assets, both present &
future.
 Equitable mortgage of plot of land measuring 1.50 Kanal
situated at 38 C/C, Gandhi Nagar, Jammu standing in the
name of Ms. Goldi Mahajan valuing Rs.459.95Lacs as per
the valuation report dated 09.08.2016 of M/S Anuj &
Associates.
 Mortgage of 8 kanals of land belonging to Mr. Rakesh
Kumar Choudhary under Khewat no.20, Khata no.200
situated at village Nandpur Gujran (Raipur Satwari),
Jammu valuing Rs.252.00Lacs as per the valuation report
dated 09.08.2016 of M/S Anuj & Associates.
 Mortgage of residential house belonging to Rakesh Kumar
Choudhary over 18 marlas of land under Khewat No.48,

77
 Khata No.267 and Khasra No.271 min situated at Raipur
Satwari valuing Rs.78.39Lacs as per the valuation report
dated 09.08.2016 of M/S Anuj & Associates.
 3rd party guarantee of 2 persons: -
iii) Mr.Jagar Singh Choudhary S/O Sh.Koula Ram
R/O 36 C/C, Gandhi Nagar, Jammu.

iv) Mr.Balbir Singh S/o Sh.Jagar Singh

R/O 36 C/C, Gandhi Nagar, Jammu.

Insurance All the assets of the company charged/to be charged to the bank
shall be got comprehensively insured against all risks with usual
bank clause & policy to be drawn in the joint name of the bank &
the borrower company.

Other terms & conditions a. Monthly statement of hypothecated stocks/book

debts/creditors should be obtained and verified by an official of
the bank on regular intervals. The working capital facilities
should be released strictly as per the drawing power available.
The book-debts older than 90 days should be excluded while
calculating the drawing power.
b. Creation of security interest over the property to be registered
with Central Registry as per A&AP Division CHQ circular No. CR-
46-543 dated 31/12/2015.
c. The borrower firm to maintain adequate books of accounts,
which should correctly reflect its financial position and scale of
operations and should not radically, change its accounting
system without notice to the bank.
d. Branch Head to personally inspect the properties & satisfy
himself about the valuation in terms of corporate Headquarters
circular No. CR-74-203 dated 01/11/2002 to ensure that bank’s
interest is safe.
e. Bank reserves the right to add/alter/amend any of the terms
and conditions from time to time.
f. Bank will have the right to examine at all times the company’s
books of accounts and to have the company’s factories
inspected from time to time by officer(s) of the bank and/ or
qualified person and/ or technical experts and/ or management
consultants of the bank’s choice. Cost of such inspection shall
be borne by the borrower company.
g. The firm should keep the bank informed of the happening of
any event likely to have a substantial effect on their profit or
business; if, for instance, the monthly production or sales are

78
 substantially less than what had been indicated to the bank,
the concern will inform accordingly with explanations and the
remedial steps proposed to be taken.
h. Company to agree and consent for the disclosure by the bank
of all or any such (i) information and data relating to him; and
(ii) the information and data relating to any credit facility
availed/to be availed of by him and default, if any, committed
by him in discharge of his such obligation, as the bank may
deem appropriate and necessary to disclose and furnish to
Credit Information Bureau (India) Limited and any other agency
authorized in this behalf by RBI.
i. The borrower company to undertake that during the currency
of credit facilities it should not without the bank’s prior
permission in writing:
 Affect any change in the concern’s constitution/ capital
structure.
 Undertake any new project, implement any scheme of
expansion or acquire fixed assets except those indicated
in the funds flow statement submitted to the bank from
time to time and approved by the bank.
 Enter into borrowing arrangement either secured or
unsecured with any other bank, financial institution, and
concern or otherwise or accept deposits apart from the
arrangement indicated in the projected financial
statements submitted to the bank from time to time and
approved by the bank.
 Undertake any guarantee obligation on behalf of any
other concern (including group companies).
 Create any charge, lien or encumbrances over the
undertaking or any part thereof in favor of any financial
institution, bank, concern, firm or persons.
 Sell, assign, mortgage or otherwise dispose off any of the
fixed assets charged to the bank.
 Enter into any contractual obligation of a long term
nature or adversely affecting the concern financially to a
significant extent.
 Undertake any trading activity other than the
manufacturing operations.
 All other terms & conditions governing such type of
advance shall also apply.

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 Findings :-

 Customers long been associated with the Bank were found to be more satisfied as

compared to those associated with the company for shorter time period.

 Respond to complaints is the major issue the customers are facing. Number of

respondents said that the bank officials are not taking any immediate action on

complaints. As the executives are not ready to lend a patient ear to the grievances of

customers.

 Majority of respondents especially freshers claim that the bank employees completely

lack the kind of behavior that how to treat with the customers. As it is a well-known

fact that the customer is the king of business. The growth and success of any business is

wholly dependent on how a company will attract and retain its customers, otherwise

there is a threat of customer churn.

 Majority of respondents were found to be partially satisfied with the documentation

procedure adopted by the bank.

 Majority of respondents are dissatisfied with interest rate charged by bank.

 Most of the respondents have provided Land and Building, Guarantor as collateral

security.

 Majority of respondents said that they are taking working capital from J&K Bank

because they have an account in J&K Bank and are also getting term loan from the

Bank.

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  The respondents who were not taking working capital from J&K Bank sighted many

reasons like:

a) Lack of Collateral security

b) Difficult and lengthy procedures adopted by the bank

c) High interest rate charged by bank

d) Taking working capital from other bank like SBI, etc.

 The most important source of information was found to be newspaper and other

sources of information like friends, etc.

 It was also found that majority of employees are not satisfied with transparency

regarding rules and regulations. Bank relationship matters a lot.

The suggestions and recommendations based on findings are:-

 In order to provide hassle- free service to the customers there is a need for the

comprehensive revamping of existing home loan scheme like revising interest rates,

sanctioned amount etc.

 For the convenience of customers, inclusion of online facility of all the factors related to

working capital product might prove to be beneficial for both bank and the customer.

Providing online application form and other online facilities should be launched.

81
 There should be proper information about the product/ services through advertisement

i.e. (Print and electronic media). The bank officials should adopt various forms of

advertisement in order to give timely information about the updated product/ services

to the customers.

 Timely checks on the executives for the work done & their performances should be

gauged from time to time.

 The customers should be given proper reminders about their queries that will help us

making our services better.

 The documentation process should be made more easy and understandable to the

customers and should not be time consuming as well so that more customers are

attracted to apply for working capital.

 The customers should be given quick responses to their queries without any delay. The

number of enquiry counters should be increased at every branch.

 Customers should be encouraged to provide J&K Bank services with open feedback.

 The employee should be given a proper knowledge about the updated product and

service. It should make sure that the employees are well versed with all the services

related to loan, which the bank is providing

 A timely feedback must be taken from each customer regarding the responses

generated.

 Quick and immediate response should be given to the complaints made by the

customers.

 Executives must keep a track of past & current behavior shown by the customer at the

time of taken the loans it is the best predictor of future customer behavior.

82
  The J&K bank is facing a stiff competition with other banks e.g. HDFC, ICICI, SBI so

there is a need to revise the existing product in order to make its product more

demanding than others.

 J&K Bank requires mortgage of the property for which the loan is being taken. Where

mortgage can’t be provided, other tangible security would need to be provided. The title

of the property should be clear, for which a certificate would be required from the

bank’s approved advocate, safeguarding customer’s interest as well as Bank’s interests.

LIMITATIONS OF THE STUDY:

Every care has been taken to make this report authentic. Yet, there were a few uncountable

factors, which might have had their influence on the final report. It is said ,” nothing is perfect”

83
and if this quote is true, I am sure there would be few shortcomings in this project also. Sincere

efforts have been made to eliminate the limitations of the study. However, the following

limitations hampered the course of the study:-

 The survey was conducted only in some areas of state; the respondents belonged only to

some areas of Kashmir. This might have its impact of biasness.

 The study was to be completed in a short time; the time factor put a considerable limit

on the scope and the extensiveness of the study.

 Because of the diversity of nature of respondents, the findings could not be generalized.

 Some of the respondents gave ambiguous replies for certain questions or omitted the

responses to some of them. Thus the interpretation of some responses became difficult

and could generate wrong results.

 Some respondent were unable to understand some questions properly and intervention

was required for such cases which might have hampered the genuine response of

respondents.

 Only the printed data about the company are available and not the back–end details.

 Future plans of the company are not being disclosed to us.

84
 BIBLIOGRAPHY

Books
 PANDEY I.M. “Financial Management”
 GUPTA SHASHI K., SHARMA R.K., “Management Accounting and
Business Finance”
 Sarda D. P , “HANDBOOK ON WORKING CAPITAL FINANCE”

Journals
 Annual reports of JK Bank.

WEBLIOGRAPHY:
www.netbank.org

www.rushabhinfosoft.com

www.advancedbusinesscapital.com

www.wikipedia.org

www.jkbank.net

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86