Report On Working Capital Management of Sbi P Sharma 2

REPORT ON WORKING CAPITAL MANAGEMENT OF SBI
July 21, 2010
A REPORT ON Working Capital Management in STATE BANK OF INDIA

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR DEGREE OF
MASTER OF BUSINESS ADMINISTRATION (MBA) PROGRAMME OFFERED BY
PUNJAB TECHNICAL UNIVERSITY
SUBMITTED TO:PROF. S. PRAKASH
BY:- PRAKASH KUMAR SHARMA
ROLL NO. :- O F I N T E R N A T I O N A L I N S T I T U T E 36 B U S I N E S S S T U D I E S Page 1 SEC:- B (S09)
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ACKNOWLEDGEMENT
I take this opportunity to express my heart-felt gratitude to everyone who has given a valuable contribution towards the successful completion of my project. First of all, I acknowledge with thanks, the guidance and encouragement received from Prof. S. Prakash. I would like to thanks to Prof. Narayan Prasad & Prof. Satya Sidharth Panda & Prof Amit Kanjilal for helping me in choosing my topic of research and guiding me in the preparation of my research,
A Study on Working Capital Management in STATE BANK OF INDIA
Place: BANGALORE Date: 20TH JULY, 2010
Name: PRAKASH KUMAR SHARMA MBA ( 2nd SEM)
PRAKASH KUMAR SHARMA
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TABLE OF CONTENT
S.No. PAGE NO. CHAPTER
1. 2. 3. 4. 5. 6. 7. 8.
ABSTRACT EXECUTIVE SUMMARY INTRODUCTION REVIEW OF LITERATURE RESEARCH DESIGN & IMPLEMENTATION PRESENTATION & ANALYSIS OF FINDINGS CONCLUSION BIBILIOGRAPHY
04 05 07 21 27 46 55 58
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ABSTRACT
The study is an attempt to analyze the efficiency of working capital management of seven associate banks of state bank of India during 199091 to 2003-04 & last four years Instead of using common working capital ratios, performance index, utilization index and overall efficiency index are calculated to measure efficiency of working capital management. Again, assuming arithmetic mean of seven banks indices as target level, one more attempt was taken to test the speed of achieving that target level of efficiency by an individual bank during the study period. The study indicates that overall performance of associate banks were not bad, but performance of individual banks fluctuated very much during study period.
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EXECUTIVE SUMMARY
The findings from this research are as follows:-
Performance Index represents average performance index of the various components of current assets. If performance index of a firm is more than 1, it indicates the firm managed their working capital efficiently. It means the proportionate rise in sales (income) is more than the proportionate rise in current assets. Average performance indices of seven banks show that the performance indices were more than 1 in 7 periods out of 14. In 1992, average of performance index of seven banks shows very good condition (3.279). On the other hand, the year 1990-91 proved to be the worst year for those seven banks as average shows . 613. A year wise comparison reveals that the number of efficient firms varied from 0 to 6. In 1991, no bank could cross performance level (1). In the year 1994-95, 1998-99 and 1999-2000, only one bank could cross the level. But in the year 1991-92, six banks out of seven had managed their current assets efficiently and crossed performance level. Among the other years, during 1993-94 and 2002-03, 4 banks had managed working capital well and helped the average of the banks to get second position according to performance index. Year 1996-97, 1997-98 and 2000-01 is in third position according to number of banks crossed performance level. 3 banks had managed working capital in efficient way during those years. During other years, i.e., 1992-93, 1995-96, 2001-02 and 2003-04 banks performance as a whole was not so good, as only 2 banks could cross the level of performance.
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Individual bank wise analysis reveals that, State Bank of Travancore performed working capital management better way as 7 years out of study period of 14 years, the banks performance index crossed 1. State Bank of Indores performance over study period was not good. Out of 14 years of study, they crossed the performance level 3 times only. In comparison, State Bank of Patiala and state Bank of Saurashtra could do better, as they managed their working capital efficiently for 4 times. According to the number of times the banks crossed performance level, State Bank of Mysore is in second position crossing the level 6 times. Other two banks, i.e. State Bank of Bikaner and Jaipur and State Bank of Hydrabad got third position by managing various components of current assets better for 5 times. But, in the year 1991-92, when most of the firm performed well, State Bank of Bikaner could not perform well to manage currents assets.
Again, fluctuation in performance index is another interesting observation I found. Like, State Bank of Indores performance index was .515 in 1990-91. Just at the next year (1991-92), it raised to 7.156. Reasons are,1) income in 1991-92 increased by Rs. 7283 lakhs 2) tax paid in advance reduced by 1524 lakhs. 3) Stamps and stationary reduced by 2188 lakhs.
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INTRODUCTION:The working capital is the life-blood and nerve centre of a business firm. The importance of working capital in any industry needs no special emphasis. No business can run effectively without a sufficient quantity of working capital. It is crucial to retain right level of working capital. Working capital management is one of the most important functions of corporate management. A business enterprise with ample working capital is always in a position to avail advantages of any favorable opportunity either to buy raw materials or to implement a special order or to wait for enhanced market status. Working capital can be utilized for the payment of lease, employee's payroll, and pretty much any other operating costs that are involved in the everyday life of business. Even very successful business owners may need working capital funds when the unexpected circumstances arise. The overall success of the company depends upon its working capital position. So, it should be handled properly because it shows the efficiency and financial strength of company. Working capital management is highly important in firms as it is used to generate further returns for the stakeholders. When working capital is managed improperly, allocating more than enough of it will render management non-efficient and reduce the benefits of short term investments. On the other hand, if working capital is too low, the company may miss a lot of profitable investment opportunities or suffer short term liquidity crisis, leading to degradation of company credit, as it cannot respond effectively to temporary capital requirements. Efficient management of working capital means management of various components of working capital in such a way that an adequate amount of working capital is maintained for smooth running of a firm and for fulfillment of objectives of liquidity and profitability. But, it is very difficult for the management too to estimate working capital properly because, amount of working capital varies across firms over the periods depending upon the nature of the business, nature of raw material used, process technology used, nature of finished goods, degree of competition in the market, scale of operation, credit policy etc. Therefore,
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a significant amount of fund is required to invest permanently in the form of different current assets.
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Keeping in view the pragmatic importance of working capital management in finance, an attempt is made in this study to look into the working capital management of seven associates of State Bank of India. The specific purposes of the study are: To examine the efficiency of working capital management practices of state bank of India associates. To test how fast the banks have been able to improve their respective level of efficiency in working capital management with respect to a targeted level (average among the banks). Capital required for a business can be classified under two main categories via, 1) Fixed Capital 2) Working Capital Every business needs funds for two purposes for its establishment and to carry out its day- to-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as p&m, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day today expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested
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in current assts keep revolving fast and are being constantly converted in to 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.
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CONCEPT OF WORKING CAPITAL

There are two concepts of working capital: 1. Gross working capital 2. Net working capital The gross working capital is the capital invested in the total current assets of the enterprises current assets are those Assets which can convert in to cash within a short period normally one accounting year. CONSTITUENTS OF CURRENT ASSETS 1) Cash in hand and cash at bank 2) Bills receivables 3) Sundry debtors 4) Short term loans and advances. 5) Inventories of stock as: a. Raw material b. Work in process
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c. Stores and spares d. Finished goods 6. Temporary investment of surplus funds. 7. Prepaid expenses 8. Accrued incomes. 9. Marketable securities.
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In a narrow sense, the term working capital refers to the net working. Net working capital is the excess of current assets over current liability, or, say:
NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES.

Net working capital can be positive or negative. When the current assets exceeds 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 assts or the income business.
CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.
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2. Short term loans, advances and deposits. 3. Dividends payable. 4. Bank overdraft. 5. Provision for taxation , if it does not amt. to app. Of profit. 6. Bills payable. 7. Sundry creditors. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital.Both the concepts have their own merits.
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The gross concept is sometimes preferred to the concept of working capital for the following reasons: 1. It enables the enterprise to provide correct amount of working capital at correct time. 2. Every management is more interested in total current assets with which it has to operate then the source from where it is made available. 3. It take into consideration of the fact every increase in the funds of the enterprise would increase its working capital.
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4. This concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for following reasons: It is qualitative concept, which indicates the firms ability to meet to its operating expenses and short-term liabilities. IT indicates the margin of protection available to the short term creditors. It is an indicator of the financial soundness of enterprises. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds.
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CLASSIFICATION OF WORKING CAPITAL:-
Working capital may be classified in to ways: On the basis of concept.
On the basis of time.
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On the basis of concept working capital can be classified as gross working capital and net working capital. On the basis of time, working capital may be classified as: Permanent or fixed working capital. Temporary or variable working capital
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PERMANENT OR FIXED WORKING CAPITAL:Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw material, work- in-process, finished goods and cash balance. This minimum level of current assts is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets.
TEMPORARY OR VARIABLE WORKING CAPITAL:Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc.
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Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business.
IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL: SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining the solvency of the business by providing uninterrupted of production. Goodwill: Sufficient amount of working capital enables a firm to make prompt payments and makes and maintain the goodwill. Easy loans: Adequate working capital leads to high solvency and credit standing can arrange loans from banks and other on easy and favorable terms. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence reduces cost. Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw material and continuous production. Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It leads to the satisfaction of the employees and raises the morale of its employees, increases their efficiency, reduces wastage and costs and enhances production and profits.
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Exploitation Of Favorable Market Conditions: If a firm is having adequate working capital then it can exploit the favorable market conditions such as purchasing its requirements in bulk when the prices are lower and holdings its inventories for higher prices.
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Ability To Face Crises: A concern can face the situation during the depression. Quick And Regular Return On Investments: Sufficient working capital enables a concern to pay quick and regular of dividends to its investors and gains confidence of the investors and can raise more funds in future. High Morale: Adequate working capital brings an environment of securities, confidence, high morale which results in overall efficiency in a business.
EXCESS OR INADEQUATE WORKING CAPITAL:Every business concern should have adequate amount of working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate nor shortages of working capital. Both excess as well as short working capital positions are bad for any business. However, it is the inadequate working capital which is more dangerous from the point of view of the firm.
DISADVANTAGES OF WORKING CAPITAL:-
REDUNDANT
OR
EXCESSIVE
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1. Excessive working capital means ideal funds which earn no profit for the firm and business cannot earn the required rate of return on its investments. 2. Redundant working capital leads to unnecessary purchasing and accumulation of inventories. 3. Excessive working capital implies excessive debtors and defective credit policy which causes higher incidence of bad debts. 4. It may reduce the overall efficiency of the business. 5. If a firm is having excessive working capital then the relations with banks and other financial institution may not be maintained. 6. Due to lower rate of return n investments, the values of shares may also fall. 7. The redundant working capital gives rise to speculative transactions
DISADVANTAGES OF INADEQUATE WORKING CAPITAL:Every business needs some amounts of working capital. The need for working capital arises due to the time gap between production and realization of cash from sales. There is an operating cycle involved in sales and realization of cash. There are time gaps in purchase of raw material and production; production and sales; and realization of cash.
Thus working capital is needed for the following purposes:
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For the purpose of raw material, components and spares. To pay wages and salaries To incur day-to-day expenses and overload costs such as office expenses. To meet the selling costs as packing, advertising, etc. To provide credit facilities to the customer. To maintain the inventories of the raw material, work-in-progress, stores and spares and finished stock.
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For studying the need of working capital in a business, one has to study the business under varying circumstances such as a new concern requires a lot of funds to meet its initial requirements such as promotion and formation etc. These expenses are called preliminary expenses and are capitalized. The amount needed for working capital depends upon the size of the company and ambitions of its promoters. Greater the size of the business unit, generally larger will be the requirements of the working capital. The requirement of the working capital goes on increasing with the growth and expensing of the business till it gains maturity. At maturity the amount of working capital required is called normal working capital. There are others factors also influence the need of working capital in a business.
FACTORS DETERMINING REQUIREMENTS:-
THE
WORKING
CAPITAL
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1. NATURE OF BUSINESS: The requirements of working is very limited in public utility undertakings such as electricity, water supply and railways because they offer cash sale only and supply services not products, and no funds are tied up in inventories and receivables. On the other hand the trading and financial firms requires less investment in fixed assets but have to invest large amt. of working capital along with fixed investments. 2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of working capital. 3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating inventories it will require higher working capital. 4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material and other supplies have to be carried for a longer in the process with progressive increment of labor and service costs before the final product is obtained. So working capital is directly proportional to the length of the manufacturing process. 5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger working capital than in slack season. 6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital. 7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the question of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover wuill needs lower amt. of working capital as compared to a firm having a low rate of turnover. 8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its product / services on cash requires lesser amt. of working capital and vice-versa.
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9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need for larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business, etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtor and the firm may have a large amt. of working capital. 10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large amt. of working capital. 11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also affects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profits needs working capital than the firm that retains larger part of its profits and does not pay so high rate of cash dividend. 12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital requirements. Generally rise in prices leads to increase in working capital.
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Others factors: These are:

Operating efficiency. Management ability. Irregularities of supply. Import policy. Asset structure. Importance of labor.
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Banking facilities, etc.
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MANAGEMENT OF WORKING CAPITAL:Management of working capital is concerned with the problem that arises in attempting to manage the current assets, current liabilities. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations are bad for any firm. There should be no shortage of funds and also no working capital should be ideal. WORKING CAPITALMANAGEMENT POLICES of a firm has a great on its probability, liquidity and structural health of the organization. So working capital management is three dimensional in nature as 1. It concerned with the formulation of policies with regard to profitability, liquidity and risk. 2. It is concerned with the decision about the composition and level of current assets. 3. It is concerned with the decision about the composition and level of current liabilities.
REVIEW OF LITERATURE
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The corporate finance literature has traditionally focused on the study of long-term financial decisions. However, short-term assets and liabilities are important components of total assets and needs to be carefully analyzed. Management of these short-term assets and liabilities warrants a careful investigation since the working capital management plays an important role for the firms profitability and risk as well as its value. The optimal level of working capital is determined to a large extent by the methods adopted for the management of current assets and liabilities. A research study on working capital management of paper industries in India was conducted by R. Sivarama and Prasad (2001). They reported that the chief executives properly recognized the role of efficient use of working capital in liquidity and profitability, but in practice they could not achieve it. Again they reported a clear reveal of a suboptimum utilization of working capital in paper industry. A study on working capital management of horticulture industry in himachal Pradesh by Joginder Singh Dulta (2001) observed the size of current assets and current liabilities with all variations, registered a slight increase, but due to inefficient use of the various components of working capital of Himachal Pradesh Horticulture Produce Marketing and Processing Corporation Ltd, the current liabilities increased proportionately at a faster rate than current assets and net working capital position was worsened continuously.
A study on working capital management is done by me Prakash Kumar Sharma on State Bank Of India on 12 june 2010. I had taken into consideration the current assets and the current liabilities of the State
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Bank Of India. It shows that in the year 2007 and 2008 the net working capital is so high but in the year 2009 it was so low , but in the year 2010 SBI is able to manage the working capital properly.
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State Bank of Bikaner and Jaipur:

State Bank of Bikaner and Jaipur was established in 1963 after amalgamation of erstwhile State Bank of Jaipur (established in 1943) with State Bank of Bikaner (established in 1944) as a subsidiary of State Bank of India. The Bank took over the business of the Govind Bank Pvt. Ltd. on 25.04.1966. The Bank's main area of operation is Rajasthan, with presence at all important centers in the country.
The Bank follows transparent corporate governance policies and is preparing itself for smooth migration to Basel II. On technology front, during 2005-06, the Bank migrated all branches to Core Banking Solution (CBS). The Bank has installed 336 ATMs and all ATMs are the part of over 5500 ATMs of State Bank Group. The Bank has been earning profit continuously since its inception and the Bank's business crossed the level of Rs. 49,245 crores with a net profit of Rs. 305.80 crores at the end of March, 2007.
State Bank of Hyderabad:

State Bank of Hyderabad of India was established on August 8, 1941. It was then known as Hyderabad State Bank. The bank was the central bank of the erstwhile princely State of Hyderabad during preindependence days. Hyderabad State Bank was responsible for
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managing Osmania Sikka-the currency of Hyderabad state in those days. The first branch of Hyderabad State Bank opened at Gunfoundry, Hyderabad on April 5, 1942. Hyderabad State Bank came under operational control of Reserve Bank of India (RBI) in 1953. The bank became RBI's subsidiary. Hyderabad State Bank was also renamed State Bank of Hyderabad in the same year. It became an associate of State Bank of India on October 1, 1959. Current business turnover is Rs. 88600 crores in the Financial Year ending March 31, 2008.
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State Bank of Mysore:

State Bank of Mysore was established in the year 1913 as Bank of Mysore Ltd. under the patronage of the erstwhile Govt. of Mysore, at the instance of the banking committee. Subsequently, in March 1960, the Bank became an Associate of State Bank of India. State Bank of India holds 92.33% of shares. The Bank's shares are listed in Bangalore, Chennai, and Mumbai stock exchanges.
State Bank of Patiala:

State Bank of Patiala was founded by Late Bhupinder Singh, Maharaja of erstwhile Patiala state, with one branch by the name of 'Chowk Fort to the year 1917.Patiala State Bank' was state owned and setup for the explicit purpose of fostering growth of agriculture, trade and industry. The constitution, scope and operations of the Bank underwent a sea change with the formation of the Patiala and east Punjab States Union (PEPSU) in 1948.The Bank was then reorganized and brought under the control of Reserve Bank of India. Another milestone in history of the
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Bank was its becoming a subsidiary of the State Bank of India on 1st April,1960 when it was named as the State Bank of Patiala and since then it has grown significantly both in size and volume of business. During these glorious years, the Bank has been playing an important role in banking sphere. The bank has now added a golden chapter to its history by fully computerizing all its branches on 24th January 2003 and became the first fully computerized Public Sector Bank in the country.
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Bank of Saurashtra:
The origins of State Bank of Saurashtra can be traced to Bhavnagar Darbar Bank, which was established in the year 1902. In 1948, when princely states were integrated to form Saurashtra state, the Bhavnagar Darbar Bank was formed into a statutory corporation, called State Bank Of Saurashtra, and the four Darbar Banks - Rajkot State Bank, Porbandar State Bank, Palitana Darbar Bank and Vadia State Bank were merged with it with effect from 1st July, 1950 as its branches. In 1960, the State Bank of Saurashtra joined the State Bank family as one of its fully owned subsidiaries. At the close of 1950, the Bank had only 9 branches and deposits of Rs.7 crores. By 31.03.2005, the total deposits amounted to Rs. 12613.04 crores and total advances reached the level of Rs. 6714.07 crores. Presently, the Bank has a network of 423 branches spread over 15 states and the Union Territory of Daman and Diu.
State Bank of Travancore:

State Bank of Travancore (SBT) was originally established as Travancore Bank Ltd. in 1945 sponsored by the erstwhile Princely State of Travancore. Under a special statute of the Indian Parliament (SBI subsidiary Banks Act 1959) it has been made an Associate of the State Bank of India and a member of the State Bank Group. Now it has network of 712 branches with total business of Rs. 66644 Crores.
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State Bank of Indore:

State Bank of Indore popularly known as Indore Bank in Malwa Region, originally known as Bank of Indore Ltd. was incorporated under a special charter of His Highness Maharaja Tukojirao Holker-III, the then ruler of this region. In terms of State Bank of India (Subsidiary Banks) Act, 1959 the Bank of Indore Ltd. became a subsidiary of State Bank of India w.e.f. 1st January 1960 and was renamed as State Bank of Indore The Bank acquired business of The Bank of Dewas Ltd. in 1962 and The Dewas Senior Bank Ltd. in 1965 and was up-graded to class 'A' category bank in 1971. Ever since, the Bank has been making steady progress and at the end of September 2008, the business turnover has crossed Rs.45000 crore.
LIMITATIONS:-
1) The survey was conducted in the Bangalore. 2) Managers were too busy persons, so it was difficult to get their time and view for specific questions. 3) Area covered for the project while doing job also was very large and it was very difficult to correlate two different customers / respondents views in a one.
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RESEARCH DESIGN & IMPLEMENTATION
RESEARCH METHODOLOGY:
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The Research and Methodology adopted for the present study has been systematic and was done in accordance to the objectives set which has been detailed as below.
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Research Definition:-
Research is a process in which the researcher wishes to find out the end result for a given problem and thus the solution helps in future course of action. According to Redman & Mory, research is defined as a Systemized effort to gain new knowledge.
Nature of Research:
Research is basically of two types. 1. Descriptive research 2. Explorative research
1. Descriptive Research:
. My research design is descriptive as descriptive research
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Describe the characteristics of certain groups/ samples / populations. Estimate proportions in specified populations. Make specific predictions.
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Determining sources of Data:
There are two main sources of data 1. Primary data 2. Secondary data
Primary Data:
It consists of original informations collected for specific Purpose. Primary data for this research, data are collected through a direct source like survey to obtain the first hand information is others resources are written below.
Survey. Face to face interaction.
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Secondary Data:
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It consists of information that already exists somewhere and has been collected for some specific purpose in the study. The secondary data for this study is collected from various sources like, Books. Website. Newspaper. Financial Magazine. ( weekly , business world etc)
Questionnaire Development:
Questionnaire is the most common instrument in collecting primary data. In order to gather primary data from viewers. The present questionnaire consists closed ended type of questions.
Sampling:-
Sampling is that part of statistical practice concerned with the selection of individual observations intended to yield some knowledge about a population of concern, especially for the purposes of statistical inference.
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In my survey, I have taken convenience sampling.
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My sampling is probability sampling as probability sampling that has been selected using simple random selection each unit in the population has a known chance of being selected.
Moreover, my sampling technique is simple random technique as in simple Random sampling; each unit of the population has an equal probability of inclusion in the sample. In my survey, each respondent have equal opportunity to be selected and the data, which I collected, was from customers of SBI who had taken loan.
INTRODUCTION OF THE BANK

Introduction to Banking:Customers are broadly classified into two:
Personal Customers: Individuals having accounts singly or jointly (including minors)
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Non Personal Customers: Non individual customers like Proprietary concerns, Partnerships, Companies, Trusts, Associations, Clubs, Societies, Institutions, Govt. Departments, NGOs, SHG etc. Accounts are broadly classified into two:
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Customer accounts (external accounts) : Deposit accounts (Savings Bank, Current Account etc), Loan Accounts (Demand Loan, Term Loan etc) and Contingent accounts (Bank Guarantee etc) Office accounts. (Internal accounts): Cash Balance accounts, fixed assets account, Drafts account, Sundry Deposit account, Interest account etc.
Basic Deposits Account:
Savings Bank : Running account for saving with restriction in number of withdrawal Current Account: Running account without restriction on number of withdrawals Term Deposit : Deposit of an amount for a fixed period where interest is paid monthly/Quarterly
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Special Term Deposit : Deposit of an amount for a fixed period where interest is compounded (Capitalized) and paid on maturity. Recurring Deposit: Regular (Monthly) deposit of a fixed amount for a fixed period.
Types of Loan Account:
Overdraft Demand Loan Term Loan Cash Credit
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Overdraft:
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A Current account when permitted to overdraw (allowing withdrawal more than deposited or without deposits ) becomes an overdraft account Can be operated by cheque, ATM, INB A type of advance of temporary nature/ to valued clients sometimes against Term Deposit, NSC etc. A running account where further withdrawals (debits) can be permitted as and when deposits (credits) come.
Demand Loan:
Basically an advance payable on demand. Payment in installments also generally allowed. Given against Bank deposits, NSCs, Insurance policies Gold loans and Pension Loans are given as Demand loans Only one Debit allowed for disbursement. Cannot be operated by cheque & ATM.
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Term Loan:
Loan payable as per pre-determined installments over a fixed term. Extended for acquisition of assets like house, car, land, building, Plant & Machinery etc. Installments are to be paid out of the income of the person in case of Personal Segment loans Installments are to be paid out of the income of the activity financed in case of non-personal segment loans.
Cash Credit:
An advance facility for financing the working capital needs of commercial activities.
A running account on the lines of Overdraft. An account where all the receipts and payments of the activity on account of day-to-day operations are expected to be reflected. Extended against the stocks and receivables of the unit. (Stocks: raw materials, semi finished goods, finished goods etc, Receivable means money to be received towards sales).
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Security and Margin:
The physical or financial asset for / against which the advance is made is referred as security. A car is a security for which a car loan is given. Assets acquired out of bank finance is called primary security. Any additional security offered by the borrower is called collateral. However, in CBS parlance all securities are referred as collaterals. The amount contributed by the borrower to the project cost / the percentage value of the assets owned by him is referred as margin.
Charge:
An asset offered to the creditor (who lends the money) becomes a security only if a legally enforceable interest is created in his favour. This process is called the creation of Charge. Lien, Pledge, Hypothecation and Mortgage are different types of charges applicable to different types of securities.
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Transaction:
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There are three types of transactions:
Cash: Where receipt payment of physical cash is involved Transfer: Where funds are transferred from one account to another account without Clearing: Transfer transactions where funds are exchanged with other banks through clearing
Introduction to State Bank of India:
Evolution of SBI: Born as Bank of Calcutta (2 June 1806). Renamed Bank of Bengal (2 January 1809). Bank of Bombay (15 April 1840). Bank of Madras (1 July 1843). All three were called Presidency Banks. Amalgamated as Imperial Bank of India on 27 January 1921.
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Birth of SBI:
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An Act was passed in Parliament in May 1955 and the State Bank of India was constituted on 1 July 1955. State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over eight former Stateassociated banks as its subsidiaries (later named Associates). State Bank of India was thus born with a new sense of social purpose with 480 offices, 3 Local Head Offices and a Central Office.
History of SBI:
The evolution of State Bank of India can be traced back to the first decade of the 19th century. It began with the establishment of the Bank of Calcutta in Calcutta, on 2 June 1806. The bank was redesigned as the Bank of Bengal, three years later, on 2nd January 1809. It was the first ever joint-stock bank of the British India, established under the sponsorship of the Government of Bengal. Subsequently, the Bank of Bombay (established on 15 April 1840) and the Bank of Madras (established on 1 July 1843) followed the Bank of Bengal. These three banks dominated the modern banking scenario in India, until when they were amalgamated to form the Imperial Bank of India, on 27 January 1921.
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An important turning point in the history of State Bank of India is the launch of the first Five Year Plan of independent India, in 1951. The Plan aimed at serving the Indian economy in general and the rural sector of the country, in particular. Until the Plan, the commercial banks of the country, including the Imperial Bank of India, confined their services to the urban sector. Moreover, they were not equipped to respond to the growing needs of the economic revival taking shape in the rural areas of the country. Therefore, in order to serve the economy as a whole and rural sector in particular, the All India Rural Credit Survey Committee recommended the formation of a state-partnered and state-sponsored bank.
The All India Rural Credit Survey Committee proposed the take over of the Imperial Bank of India, and integrating with it, the former stateowned or state-associate banks. Subsequently, an Act was passed in the Parliament of India in May 1955. As a result, the State Bank of India (SBI) was established on 1 July 1955. This resulted in making the State Bank of India more powerful, because as much as a quarter of the resources of the Indian banking system were controlled directly by the State. Later on, the State Bank of India (Subsidiary Banks) Act was passed in 1959. The Act enabled the State Bank of India to make the eight former State-associated banks as its subsidiaries. The State Bank of India emerged as a pacesetter, with its operations carried out by the 480 offices comprising branches, sub offices and three Local Head Offices, inherited from the Imperial Bank. Instead of serving
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as mere repositories of the community's savings and lending to creditworthy parties, the State Bank of India catered to the needs of the customers, by banking purposefully. The bank served the heterogeneous financial needs of the planned economic development.
July 21, 2010
State Bank Today:(Rupees in Crores) BALANCE SHEET AS AT 31ST MARCH 2009 Balance Sheet size Aggregate Deposits Total Advances 7,21,526 5,37,404 4,16,768
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Capital Funds Net Profit Paid-up Capital 69,762.64 6,729.12 631.47
July 21, 2010
(In percentage terms) BALANCE SHEET AS AT 31ST MARCH 2009 Yield on Advances (Domestic) Cost of Deposits (Domestic) Net Interest Margin Gross NPA Ratio Net NPA Ratio Capital Adequacy Ratio Return on Average Assets 9.90 5.59 3.07 3.04 1.78 13.47 1.01
AS AT 31ST MARCH 2009
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No. of Branches No. of Foreign Offices No. of Branches on CBS No. of employees No. of ATMs 10,186 84 All Branches 1,79,205 > 8,000
July 21, 2010
The Bank handles almost the entire gamut of financial services. It is a financial supermarket. The Bank extends banking services to: Corporate Sector SMEs Rural sector, especially Agriculture and allied activities Retail sector, i.e., Personal Segment The Bank has designed both Deposits as well as Advances products for specific segments as per their requirements. The loans range from Rs.100/- to say, Rs. 10,000 crores.
STATE BANK GROUP:
ASSOCIATE BANKS
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State Bank of India has the following 6 Associate Banks (ABs) with controlling interest ranging from 75% to 100%: State Bank of Bikaner and Jaipur (SBBJ) State Bank of Hyderabad (SBH) State Bank of Indore (SBIn) State Bank of Mysore (SBM) State Bank of Patiala (SBP) State Bank of Travancore (SBT) The six ABs have a combined network of 4596 branches in India, which are fully computerized and on CBS. The ABs has 1070 ATMs, which are networked with SBI ATMs, providing value added services to clientele.
FOREIGN BANKING SUBSIDIARIES:-
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State Bank of India has the following Foreign Banking Subsidiaries: State Bank of India (Canada) SBI International (Mauritius) Ltd. State Bank of India (California) Indian Ocean International Bank Ltd. Commercial Bank of India LLC, Moscow PT Bank Indo Monex
July 21, 2010
NON-BANKING SUBSIDIARIES / JOINT VENTURES
State Bank of India has the following Non-Banking Subsidiaries / Joint Ventures: SBI Capital Markets Ltd. (SBICAP) SBICAP Securities Ltd. (SSL) SBICAPS Ventures Ltd. (SVL) SBICAP (UK) Ltd. SBI Funds Management Pvt. Ltd. (SBIFMPL) SBI Factors & Commercial Services Pvt. Ltd. (SBIFACTORS) SBI DFHI Ltd. SBI Cards & Payment Services Pvt. Ltd. (SBICSPL) SBI Life Insurance Company Ltd. (SBILIFE) Global Trade Finance Ltd. (GTFL) SBI Mutual Funds Trustee Company Pvt. Ltd.
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July 21, 2010
OTHERS
In addition to these, there are other Subsidiaries / Jointly Controlled Entities such as: Ltd. C-Edge Technologies Ltd. SBI Commercial and International Bank Ltd. SBICAP (UK) Ltd. SBI Funds Management (International) Ltd. GE Capital Business Process Mgmt. Services Pvt.
All these together constitute this mammoth organization the STATE BANK.
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July 21, 2010
PRESENTATION & ANALYSIS OF FINDINGS

Project findings reveal that SBI is sanctioning less Credit to agriculture, as compared with its key competitors viz., Canara Bank, Corporation Bank, Syndicate Bank Recovery of Credit: SBI recovery of Credit during the year 2006 is 62.4% Compared to other Banks SBI s recovery policy is very good, hence this reduces NPA Total Advances: As compared total advances of SBI is increased year by year. State Bank Of India is granting credit in all sectors in an Equated Monthly Installments so that any body can borrow money easily Project findings reveal that State Bank Of India is lending more credit or sanctioning more loans as compared to other Banks. State bank Of India is expanding its Credit in the following focus areas: 1. SBI Term Deposits 2. SBI Recurring Deposits
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3. SBI Housing Loan 4. SBI Car Loan 5. SBI Educational Loan 6. SBI Personal Loan etc
July 21, 2010
Working capital Management in State Bank Of India In case of indirect agriculture advances, SBI is granting 3.1% of Net Banks Credit, which is less as compared to Canara Bank, Syndicate Bank and Corporation Bank. SBI has to entertain indirect sectors of agriculture so that it can have more number of borrowers for the Bank.
SBIs direct agriculture advances as compared to other banks is 10.5% of the Net Banks Credit, which shows that Bank has not lent enough credit to direct agriculture sector. Credit risk management process of SBI used is very effective as compared with other banks.
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July 21, 2010
From the finding I found that STATE BANK OF INDIA is able to manage the Working capital . from the above graph we can see that the bank is having 56.75% of current assets and 43.25% of current liabilities, it means that the bank is good in working capital management.
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ASSETS
REPORT ONASSETS WORKING CAPITAL MANAGEMENT CURRENT OF SBI

Cash and cash equivalents Time deposits Cash required to be segregated under regulations Trade notes and accounts receivable Operational investment securities Valuation allowance for operational investment securities Operational loans receivable Real estate inventory Trading assets Margin transaction assets: Receivables from customers Cash deposits as collateral for securities borrowed Loans secured by securities Short-term guarantee deposits Deferred tax assetscurrent Prepaid expenses and other current assets Allowance for doubtful accounts TOTAL CURRENT ASSETS PROPERTY AND EQUIPMENT-Net 274,887 17,995 13,414 1,053 66,723 (1,762) 1,069,271 12,652 134,792 46,009 1 8,846 5,921 46,951 (2,703) 832,590 8,578 \159,007 1,518 313,817 10,985 115,717 (4,967) 66,261 32,895 1,728 \126,313 1,141 266,267 7,915 105,236 (6,207) 47,868 36,515 7,725
2008 31st March
2009 31st March
2010 31st March
July 21, 2010
\142,582 1,233 318,909 8,484 121,576 (8,424) 34,694 28,768 3,515
221,107 40,534 5,944 7,667 55,767 (2,033) 980,323 20,614

INVESTMENTS AND OTHER ASSETS
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July 21, 2010
Working Capital of SBI for last 4 years
Reason for increasing in working capital from 2007 to 2008 and reason for decreasing working capital in 2009 and again increasing in working capial in 2010:-
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July 21, 2010
liabilities so working capital is accurate.
In the
year 2007 SBI has the equal distribution of assets and
In the year 2008, due to ression all the people were
withdrawling their money so the liabilities of the bank was very low so the working capital was increased double of 2007.
Again in the year 2009 the working capital is very low
because after the ression people ware want to deposite the money in bank , so thi liabilities of the Bank was increased and the working capital was decreased more than half of the year 2008.
In the
year 2010 SBI is able to manage the working capital properly so it is able to balance both assets and liabilities.
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July 21, 2010
CONCLUSION
In this study I investigated the efficiency of managing working capital of seven associate banks of State Bank of India for the period from 1990-91 to 2003-04. But traditional methods of analyzing working capital ratios are not used here. Three index values, Performance index, Utilization index and efficiency index have been used to find individual banks efficiency in working capital management. Regression analysis also has been done to find the comparative speed of achieving targeted level of efficiency by individual banks during the study period. This report will be very helpful for my future career because this project is going to give me a broad idea about the working capital management which is one of the most important part of an organisation as well as SBI. Working capital is a very vital part of an organisation weather it is a Bank or any other organisation and this project is going to help me in my future a lot.
From this study, it is observed that the associates average efficiency level was satisfactory. Average of average values of all the years for the group of banks is showing good position (greater than 1). But it does not mean that most of the banks performed well through out the period. Rather, all the banks except state bank of Travancore were not satisfactory. In my study period no bank has shown steady improving state of efficiency in managing working capital. Fluctuation was a common trend for all the banks.
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July 21, 2010
In the case of achieving the target level (all the banks average) of efficiency by the banks, State Bank of Patiala was the most successful bank followed by State bank of Indore, Saurashtra, Hydrabad, Travancore, Mysore and Bikaner and Jaipur. Observing banks beta values, suggestion can be given to all the banks except state bank of Patiala and Indore to take necessary steps in order to improve their efficiency in managing working capital. Again, a further study can be conducted to find the problems of the individual banks in managing working capital efficiently.
The project undertaken has helped a lot in gaining knowledge of the Credit Policy and working capital Management in Nationalized Bank with special reference to State Bank Of India. Credit Policy and Credit Risk Policy of the Bank has become very vital in the smooth operation of the banking activities. Working capital of the Bank provides the framework to determine (a) whether or not to extend credit to a customer and (b) how much credit to extend. The Project work has certainly enriched the knowledge about the effective management of Working capital and Working capital Management in banking sector. Working capital Management is a vast subject and it is very difficult to cover all the aspects within a short period. However, every effort has been made to cover most of the important aspects, which have a direct bearing on improving the financial performance of Banking Industry. To sum up, it would not be out of way to mention here that the State Bank Of India has given special inputs on Credit Policy and Working capital management. In pursuance of the instructions and guidelines issued by the Reserve Bank of India, the State bank Of India is granting and expanding credit to all sectors. The concerted efforts put in by the Management and Staff of State Bank Of India has helped the Bank in achieving remarkable progress in almost all the important parameters.
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The Bank is marching ahead in the direction of achieving the Number-1 position in the Banking. This group comprises of the State Bank of India and its seven subsidiaries viz., State Bank of Patiala, State Bank of Hyderabad, State Bank of Travancore, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Saurashtra, State Bank of India State Bank of India (SBI) is the largest bank in India. If one measures by the number of branch offices and employees, SBI is the largest bank in the world. Established in 1806as Bank of Bengal it is the oldest commercial bank in the Indian subcontinent. SBI provides various domestic, international and NRI products and services, through its vast network in India and overseas. With an asset base of $126 billion and its reach, it is a regional banking behemoth. The government nationalized the bank in1955, with the Reserve bank of India taking a 60% ownership stake. In recent years the bank has focused on two priorities, 1), reducing its huge staff through Golden handshakeschemes known as the Voluntary Retirement Scheme, which saw many of its best and brightest defect to the private sector, and 2), computerizing its operations. Credit Risk Management in State Bank Of India The State Bank of India traces its roots to the first decade of19th century, when the Bank of culcutta, later renamed theBank of bengal, was established on 2 jun 1806. The government amalgamatted Bank of Bengal and two other Presidency banks, namely, the Bank of Bombay and the bank of Madras, and named the reorganized banking entity the Imperial Bank of India. All these Presidency banks were incorporated ascompanies, and were the result of theroyal charters. The Imperial Bank of India continued to remain a joint stock company. Until the establishment of a central bank in India the Imperial Bank and its early predecessors served as the nation's central bank printing currency. The State Bank of India Act 1955, enacted by the parliament of India, authorized the Reserve Bank of India, which is the central Banking Organisationof India, to acquire a controlling interest in the Imperial Bank of India, which was renamed the State Bank of India on30th April 1955. In recent years, the bank has sought to expand its overseas operations by buying foreign banks. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating and
July 21, 2010
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various other rankings. According to the Forbes 2000 listing it tops all Indian companies.
July 21, 2010
BIBILIOGRAPHY
www. sharekhan.com www.indiainfoline.com www.sbi.co.in www.investopedia.com www..wikepedia.com I.M.PANDEY KHAN AND JAIN S.M.D MAHESWARI www.studyatfinance.com www.financeprinciples.com www.mbaguys.com http://www.ece.cmu.edu/~koopman/essays/abstract.html FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT
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http://www.rpi.edu/dept/llc/writecenter/web/abstracts.html>acce ssed 2 February 2004 http://discuss.itacumens.com/index.php/topic,52179.0/prev_nex t,prev.html#new http://wiki.answers.com/Q/Bangalore_population_as_on_august _2009 http://www.ifad.org/gender/tools/hfs/anthropometry/ant_3.htm https://www.mysavingsatwork.com/atwork/1080912163747/110 0788684437/1127740752644.htm
July 21, 2010
QUESTIONNAIRE
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Dear Sir/ Madam,
July 21, 2010
As part of my MBA curriculum, I, Prakash Kumar Sharma, is conducting a market research regarding the working capital management on SBI for which I need your personal views regarding the net working capital in shape of a questionnaire designed by me. The data being collected are solely for academic purpose. I request you to kindly extend your co-operation.
1) Name:
2) Profession:
3) Age group :( plz tick)
A)18-30 yrs. B)31-40 yrs. C)41-50 yrs. D)51-60 yrs.
4) How do you manage the working capital?
5) How much current Assets do you have?
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July 21, 2010
6) How do you distribute the current assets ?
7) How much current liabilities do you have?
8) In which area do you distribute the current liabilities?
9) Can you give me the net working capital of last four years?
10) Why in the year 2007 the working capital is in the good level?
11) Why in the year 2008 it was increased so much?
12) Why in the year 2009 net working capital is decreased more than half?
13) How in the year 2010 SBI is able to manage the net working capital?
THANKS
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July 21, 2010
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Report On Working Capital Management of Sbi P Sharma 2

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REPORT ON WORKING CAPITAL MANAGEMENT OF SBI

July 21, 2010

A REPORT ON Working Capital Management in STATE BANK OF INDIA

MASTER OF BUSINESS ADMINISTRATION (MBA) PROGRAMME OFFERED BY

PUNJAB TECHNICAL UNIVERSITY

SUBMITTED TO:PROF. S. PRAKASH

BY:- PRAKASH KUMAR SHARMA

ROLL NO. :- O F I N T E R N A T I O N A L I N S T I T U T E 36 B U S I N E S S S T U D I E S Page 1 SEC:- B (S09)