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CHAPTER I

INTRODUCTION OF BANK
Regional Banks in India are integral part of the rural credit structure of the country.
Since the very beginning, when the Regional Banks in India (RRBs) were established in October
2nd, 1975, these banks played a pivotal role in the economic development of the rural India. The
main goal of establishing regional rural banks in India was to provide credit to the rural people
who are not economically strong enough, especially the small and marginal farmers, artisans,
agricultural labors and even small entrepreneurs. Regional Rural Banks in India are an integral
part of the rural credit structure of the country. Since the very beginning, when the Regional
Rural Banks in India (RRBs) were established in October 2 nd 1975, these banks played a pivotal
role in the economic development of the rural India. The main goal of establishing regional rural
banks in India was to provide credit to the rural people who are not economically strong enough,
especially the small and marginal farmers, artisans, agricultural labors, and even small
entrepreneurs.
The Concept and The Brief History
The history of regional rural banks in India dates back to the year 1975. Its the
Narsimham committee that conceptualized the foundation of regional rural banks in India. The
committee felt the need of regionally oriented rural banks that would address the problems and
requirements of the rural people with local feel, yet with the same level of professionalism of
commercial banks. Five regional rural banks were set up on October 2 nd with a total authorized
capital of Rs.1 crore, which later augmented to Rs.5 crores.
There were five commercial banks, viz. Punjab National Bank, State Bank of India, Syndicate
Bank, United Bank of India and United Commercial Bank, which sponsored the regional rural
banks. The equities of rural banks were divided in a proportion of 50:35:15 among the Central
Government, the sponsor bank and the Concerned State Government.
The following years have not been so easy for the regional rural banks in India, as there
were major concern of financial viability. A number of committees were formed to find out
solution. Studies were conducted to find out the factors that influence RRBs performance. The
roles played by the sponsor banks were also analyzed.
FORMATION
The Govt. of India, in July 1975, appointed a working group to study in depth the
problem of devising alternative agencies to provide institutional credit to the rural people in the
context of steps then initiated under the 29 Point Economic Program. The Narsimham
Committee Conceptualized the creation of RRBs in 1975 as a new set of regionally oriented rural
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banks, which would combine the local feel and familiarity of rural problems characteristic of
cooperatives with the professionalism and large resource base of commercial banks. The
Government of India promulgated the Regional Rural Banks Ordinance on 26 th September 1975,
which was later replaced by the Regional Rural Bank Act 1976.
OBJECTIVES
The RRBs have following objectives:
To develop rural economy.
To provide credit for agriculture and allied activities.
To encourage village industries, artisans, carpenters, craftsmen, etc.
To reduce dependence of weaker sections on money-lenders.
To identify a specific and functional gap in the present institutional structure.
To supplement the other institutional agencies in credit delivery to rural areas,
To make backward and tribal areas economically better by opening new branches.
Every RRBs is authorized to carry on to transact the business of
banking as defined in the Banking Regulation Act and may also engage in other business
specified in Section 6(1) of the said Act. In particular, a RRB is farmers and agricultural laborers,
whether individually or in groups, and to cooperative societies, including agricultural marketing
societies, agricultural processing societies, cooperative farming societies, primary agricultural
credit societies or farmers service societies, primary agricultural purposes or agricultural
operations or other related purposes, and granting loans and advances to artisans, small
entrepreneurs and persons of small means engaged in trade, commerce, industry or other
productive activities, within its area its area of operation.
The Reserve Bank of India has brought RRBs under the ambit of priority sector lending on par
with the commercial banks. They have to ensure that forty percent of their advances are
accounted for the priority sector. Within the 40% priority target, 25% should go to weaker
section or 10% of their total advances to go to weaker section.
CAPITAL STURCTURE
Their equity is held by the Central Government, concerned State Government and the Sponsor
Bank in the proportion of 50:15:35. A Regional Rural Bank is jointly owned by the Govt. of
India, the Government of concerned state and public sector bank, which sponsored it. Each bank
carries the banking business within the local limits specified by the Govt. Notification.

ORGANISATIONAL STRUCTURE
The management of a RRB is vested in a nine-member Board of Directors headed by chairman
who is an officer deputed by a sponsor bank but appointed by the Govt. of India. Three directors
to be nominated by the central Government. Two directors to be nominated by the sponsor bank.
The sponsor bank, besides subscribing to the capital and deputing
one of its official as chairman, provides assistance to RRB in several ways as financial
accommodation, deputing managerial and other staff and arranging the recruitment of staff and
their training.
Role of Regional Rural Banks in Economic Development
The importance of the rural banking in the economic development
of a country cannot be overlooked. As Gandhiji said Real India lies in villages and village
economy is the backbone of Indian economy. Without the up liftment of the rural economy as
well as the rural people of our country, the objectives of economic planning cannot be achieved.
In fact, the real growth of Indian economy lied in the emancipation of rural masses from acute
poverty, unemployment, and socio-economic backwardness. Keeping this end in view, various
important plans and programmers of rural development have been conceived and implemented
by the government of India since the commencement of first five-year plan from 1951-56. But an
appraisal of the achievement of these programmers clearly reveals that many programmers failed
to achieve the desired objectives due to the backward economic condition and lack of adequate
finance to the poor people in the rural areas. Hence, bank and other financial institutions are of
vital importance for development of rural economy of a country. The present study is a modest
attempt to make an appraisal of the credit needs of the rural people and the way Regional Rural
meet the same in the state of Arunachal Pradesh. It deals with the performance evaluation of
Arunachal Pradesh. Rural Bank (APRB) for the economic development of the state. Further, an
attempt has also been made to study the growth and performance of Scheduled Commercial
Banks with special emphasis on Regional Rural Banks (RRBs) in India and North-East Region.

Balance Sheet of Axis Bank

------------------- in Rs. Cr. -------------------

Mar '07
4

Mar '08

Mar '09

Mar '10

Mar '11

12 mths

12 mths

12 mths

281.63
281.63
0.00
0.00
3,120.58
0.00
3,402.21
58,785.60
5,195.60
63,981.20
5,873.80
73,257.21
Mar '07

357.71
357.71
2.19
0.00
8,410.79
0.00
8,770.69
87,626.22
5,624.04
93,250.26
7,556.90
109,577.85
Mar '08

359.01
359.01
1.21
0.00
9,854.58
0.00
10,214.80
117,374.11
10,185.48
127,559.59
9,947.67
147,722.06
Mar '09

12 mths

12 mths

12 mths

Assets
Cash & Balances with RBI

4,661.03

7,305.66

9,419.21

9,473.88 13,886.16

Balance with Banks, Money at Call

2,257.27

5,198.58

5,597.69

5,732.56

Advances
Investments
Gross Block
Accumulated Depreciation
Net Block
Capital Work In Progress
Other Assets
Total Assets

36,876.48
26,897.16
1,098.93
450.55
648.38
24.82
1,892.07
73,257.21

59,661.14
33,705.10
1,384.70
590.33
794.37
128.48
2,784.51
109,577.84

81,556.77
46,330.35
1,741.86
726.45
1,015.41
57.48
3,745.15
147,722.06

104,343.12142,407.83
55,974.82 71,991.62
2,107.98 3,426.49
942.79 1,176.03
1,165.19 2,250.46
57.24
22.69
3,901.06 4,632.12
180,647.87242,713.37

Contingent Liabilities
Bills for collection
Book Value (Rs)

55,993.04
11,751.83
120.80

78,028.44
16,569.95
245.13

104,428.39
29,906.04
284.50

296,125.58429,069.63
35,756.32 57,400.80
395.99
462.77

Capital and Liabilities:


Total Share Capital
Equity Share Capital
Share Application Money
Preference Share Capital
Reserves
Revaluation Reserves
Net Worth
Deposits
Borrowings
Total Debt
Other Liabilities & Provisions
Total Liabilities

12 mths

12 mths

405.17
410.55
405.17
410.55
0.17
0.00
0.00
0.00
15,639.27 18,588.28
0.00
0.00
16,044.61 18,998.83
141,300.22189,237.80
17,169.55 26,267.88
158,469.77215,505.68
6,133.46 8,208.86
180,647.84242,713.37
Mar '10 Mar '11
12 mths

12 mths

7,522.49

CHAPTER II
COMPANY PROFILE
Banking in India originated in the last decade of the 18 th century. The oldest bank in
existence in India is the State Bank of India , a government owned bank that traces its
origins back to June 1806 and that is the largest commercial bank in the country. Central banking
is the responsibility of the Reserve Bank of India, which in 1935 formally took over these
responsibilities from the Imperial Bank of India, relegating it to commercial banking functions.
After Indias independence in 1947 the Reserve Bank of India was nationalized and given
broader powers. In 1969 the government nationalized the 14 largest commercial banks, and again
6 next in 1980.
EARLY HISTORY
Banking in India originated in the last decades of the 18 th century. The first banks were

The

General Bank of India which started in 1786, and The Bank of Hindustan, both of which are
now defunct. The oldest bank in existence in India is the State Bank of India, which originated
in Calcutta in JUNE 1806, which almost immediately became the Bank of Bengal. This was one
of the three presidency bank, the other two being the Bank of Bombay and the Bank of
Madras, all three of which were established under charters from the British East
India Company. For many years the Presidency banks acted as quasi-central banks, as did their
successors.
The three banks merged in 1925 to form the Imperial Bank of India, which upon Indias
independence, became the State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a
consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and
still functioning today, is the oldest Joint Stock bank in India.

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It was not the first though. That honour belongs to the Bank of Upper India, which was
established in 1863, and which survived until 1913, when it failed, with some of its assets and
liabilities being transferred to the Alliance Bank of Shimla
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire
d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862;
branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in
Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the
British Empire, and so became a banking centre.
The first entirely Indian joint stock bank was the Oudh Commercial Bank,
Established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank,
established in Lahore in 1895, which has survived to the present and is now one of the largest
banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a relative period
of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial
and other infrastructure had improved. Indians had established small banks, most of which
served particular ethnic and religious communities.
NATIONALISATION
The next significant milestone in Indian Banking happened in the late 1960s when the Indira
Gandhi government nationalized, on 19th July, 1969, 14 major commercial Indian banks,
followed by nationalization of 6 more commercial Indian banks in 1980. The stated reason for
the nationalization was more control of credit delivery. After this, until the 1990s, the
nationalized banks grew at a leisurely pace of around 4%-also called as the Hindu growth of
the Indian economy.
To understand the Indian banking sector more easily a diagram is shown regarding the name of
the bank, its numbers shown in

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BACKGROUND
Axis Bank was the first of the new private banks to have begun operations in 1994, after the
Government of India allowed new private banks to be established. The Bank was promoted
jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life
Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and
other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India
Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance
Company Ltd.

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The Bank today is capitalized to the extent of Rs. 359.44 corers with the public holding (other
than promoters) at 57.74%.
The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. The
Bank has a very wide network of more than 838 branches and
Extension Counters (as on 31st May 2009). The Bank has a network of over 3674 ATMs (as on
31st May 2009) providing 24 hrs a day banking convenience to its
customers. This is one of the largest ATM networks in the country.
The Bank has strengths in both retail and corporate banking and is committed to adopting the
best industry practices internationally in order to achieve excellence.
MISSION AND VALUES
Mission of Axis Bank
Customer Service and Product Innovation tuned to diverse needs of individual and
corporate clientele.
Continuous technology up gradation while maintaining human values.
Progressive globalization and achieving international standards.
Efficiency and effectiveness built on ethical practices.
Core Values of Axis Bank
Customer Satisfaction through
Providing quality service effectively and efficiently
"Smile, it enhances your face value" is a service quality stressed on
Periodic Customer Service Audits
Maximisation of Stakeholder value
Success through Teamwork, Integrity and People.

PROMOTERS

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Axis Bank Ltd. has been promoted by the largest and the best Financial Institution of the country,
UTI. The Bank was set up with a capital of Rs. 115 corers, with UTI contributing Rs. 100 corers,
LIC - Rs. 7.5 corers and GIC and its four subsidiaries contributing Rs. 1.5 corers each.

THE COMPANY AND ITS PRODUCT LINE


Axis Bank Limited (Axis Bank) offers a broad range of retail & corporate banking products and
services in India. The bank was earlier known as UTI Bank Limited.
The company offers several products including accounts, deposits, cards,
credits, advisory services, treasury, mutual funds, cash management, international banking and
transaction services. The bank operates 827 branches and extension counters, as on 31 March
2009. Axis Bank has operations in 29 States and 3 Union Territories in India. The bank has a
network of 3595 ATM machines. Axis Bank is the third largest ATM network provider in India. It
also has branches in China, Hong Kong, Singapore and UAE. The bank is headquartered at
Mumbai in India.

The company reported revenues of (Rupee) INR 108,291.13 million during the
fiscal year ended March 2009, an increase of 54.59% over 2008. The operating
profit of the company was INR 36,801.90 million during the fiscal year 2009, an
increase of 42.35% over 2008. The net profit of the company was INR 18,129.32 million during
the fiscal year 2009, an increase of 71.17% over 2008.
Axis bank offers banking and financial services in India. The companys services and Brands
include the following:
Services:
Personal Banking:
Accounts
Deposits
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Loans
Cards
Investments
Insurance
Payments
Other Services
Corporate Banking:
Accounts
Credit
Capital Market

Treasury
Cash Management Services
Govt Business
NRI services:
Accounts
Deposits
Remittances

COMPETITORS OF AXIS BANK LIMITED

Central bank of India


Corporation bank
HDFC bank limited
ICICI bank limited
State bank of India
Union bank of India
Bank of Baroda

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BOARD OF DIRECTORS

The members of board are :


Smt. Shikha Sharma

Managing Director & CEO

Shri N.C. Singhal

Director

Shri. J.R. Varma

Director

Dr. R.H. Patil

Director

Smt. Rama Bijapurkar

Director

Shri R.B.L. Vaish

Director

Shri M.V. Subbiah

Director

Shri Ramesh Ramanathan

Director

Shri K. N. Prithviraj

Director

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CHAPTER III
METHODOLOGY AND MODEL OF RESEARCH
STATEMENT OF THE PROBLEM
Banks are the main financial sources to the public. They are the providers and
mobilizes of the finance from the public. But they are facing different problems such as
dissatisfaction of customer regarding banking services, improper cash management financial
performance and the like. Among these problems faced by RRBs Cash management is very
important technique to be adopted in any bank. Hence, this study concentrates on cash flow
analysis of AXIS BANK HANUMAN TEKDI BRANCH HYD.
OBJECTIVES OF STUDY
The main intension of this study is to analyze the financial position of the AXIS BANK
HANUMAN TEKDI BRANCH HYD. The following are the main objectives for the study:

To measure the profitability and liquidity position in the organization.


To evaluate the cash position of the bank through cash flow analysis.
To analyze total cash deposits, loan syndication position of the bank
To elicit the sources of cash income and cash payments.

NEED FOR THE STUDY


It is the common obligation to every financial institution to know its strengths and
weaknesses. Though the company has several departments, the under researched area is finance.
But there is less number of studies have been conducted on the cash flow analysis in AXIS
BANK HANUMAN TEKDI BRANCH HYD. A.P. So, the study is needed to help the bank for
its smooth financial transactions with effectively.
RESEARCH METHODOLOGY AND DESIGN
There are Some Important branches in Andhra Pradesh one in hyderabad, one in
Prakasham District, one in Kurnool district, one in Ananthapur district, one in Nellore district.
The Head Office located in Hyderabad, district and it has various branches through out the
district. Among all these branches, the selected branch is AXIS BANK MAIN BRANCH . is
located in HYDERABAD in Andhra Pradesh. The executives and financial department officials
are enquired for the purpose of the study. The study is mainly based on the analytical research
design. This largely interprets the already available information.
DATA SOURCES
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The data for the present study is collected through primary and secondary sources.
Secondary data is obtained from annual reports of the company and primary data was collected
by interacting financial executives of The Company.
Primary Data
The primary data of this study was colleted by consulting the accounting officer,
financial Executives of that bank.
Secondary Data
The study is mainly based on the sources of secondary data. The secondary data for
this study was collected from the published sources i.e., annual reports and
WWW.APGBANK.COM
SCOPE OF THE STUDY
The present study is confined to only AXIS BANK HANUMAN TEKDI BRANCH
HYD. The study is limited to cash flow analysis and it has been analyzed by taking the
information related to both the present and past data into consideration with reference to the
performance of the bank.
PERIOD OF STUDY
TOOLS FOR THE STUDY
The data relating to the performance of he AXIS BANK HANUMAN TEKDI
BRANCH HYD. from different activities that is operating activities, investing activities and
financing activities have been carefully analyzed and also cash flow statement, column and bar
charts.
LIMITATIONS OF STUDY
The major limitations of the study are:

Due to constraint of time, the researcher unable to collect detailed analysis of the
financial data.
There are differences in collected data as of data collected from different secondary
sources.
Finance is also an important constraint for the detailed analysis.

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CHAPTER IV
CASH FLOW STATEMENT ANALYSIS
INTRODUCTION
An analysis of cash flow of a concern during a specified period, presented in the form of a
statement can be for the past or can be a projection for the past or can be projection for the
future. The cash flow of the concern in the near future, say for a period of six months or in year,
can be prepared based on the past trends and expectations of the concern regarding factors that
would affect its cash receipts and cash payments. Such an estimate of future cash flows is better
termed cash budget. Cash flow statement generally refers to the statement showing the receipts
and payment or cash during the period covered by two consecutive balance sheet.
Cash flow analysis enables the management to plan and co-ordinate the financial
operations of the enterprise, an furnish the basis for evaluating financing policies. It provides a
barometer for ensuring the profitability of the business, and makes financing problems of the
business much more manageable.
CASH FLOW MANAGEMENT
Cash flow management is the process of monitoring, analyzing, and adjusting businesss
cash flows. The most important aspect of cash flow management is avoiding extended cash
shortages, caused by a time gap between cash inflows and outflows. Firm cannot stay in business
if it is not able to pay its bills on time. Therefore, a cash flow analysis is required on as regular
basis so that so that it can take the necessary steps to meet cash flow problems. Today, even in
the large business organizations cash is mot as readily available as it was before, so companies
are looking into ways to gain better visibility into future cash flows and to monitor it for better
planning. There is a growing need for companies to forecast more accurately because in addition
to tightened cash flow, there is an increasing need for timely forecasts as market conditions have
become volatile. One of the best way to manage cash in the business is to fully understand cash
flow patterns. These helps a firm in avoiding cash deficiencies as well as excessive idle cash
balances. Moreover, cash flow analysis is needed:
To ensure that the cash balance always remains above the desired minimum level
To predict when cash levels will rose sufficiently above the minimum level to
facilitate investment of idle balances.
GEORGE PHILIPATOS is of the view that, in its generic sense, a cash flow is the
receipt and the payment of amount of money and that it implies more than our accrual
or a financial obligation, hence cash flow is a movement of cash which is a real one. L
Leon Simons observes that cash flow is frequently and erroneously assumed to include
only current operations.
CASH FLOW CONCEPTS

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In its simplest form, cash flow is the movement of money in and out of the
business uses cash to generate goods or services for the sale to its customers, collects
the cash from the sales, and then completes this cycle all over again.
CASH INFLOWS
Cash Inflows are the movement of money into the business. Inflows are most
likely from the sale of goods or services to the customers. If credit extended to its
customers, then an inflow occurs as the firm collects on the customers accounts.
Normally the main sourced of cash inflows to a business are receipts from sales,
increases in bank loans, proceeds if share issues and asset disposals, and other income
such as interest earned.
CASH OUTFLOWS
Cash Outflows are the movement of money out of the business. Outflows are
generally the result of paying expenses. If the business involves reselling goods, then its
largest outflow is of the purchases of raw materials and other components needed for
the manufacturing of the final product. Salaries and wages to staff, purchasing fixed
assets, and paying accounts payable are also cash outflows.
NET CASH FLOWS
Net Cash Flow is the difference between the inflows and outflows within a
given period. A projected cumulative positive net cash flow over several period
highlights the capacity of a business to generate surplus cash and, in the same manner, a
cumulative negative cash flow indicates he amount of additional cash required to
sustain the business.
FREE CASH FLOWS
Some financial analysts give much importance to concept of cash flow called Free
Cash Flow. The cash is considered free if it can be used for any desirable purpose. The
large is the amount, the more a firm has flexibility and investment strength because it
can use the money immediately to take advantage of an opportunity. The accumulation
of free cash comes from free cash flows which are calculated as cash flow from
operations, less capital expenditure for ongoing production needs and payment of
dividends. Free cash may be accumulating in liquidity but it is not intended to be used
for financing working capital requirement. Instead, it is used for long-term purposes
such as capital budgeting expenditure on asset, mergers, acquisitions etc.
DEFINITIONS:
The following are used in this statement with the meaning specified:
Cash comprises cash on hand and demand deposits with banks
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Cash equivalents are short-term highly liquid investments, that are readily
convertible into know amounts of cash and which are subject to an insignificant
risk of changes in value.
Cash flows are inflows and outflows of cash and cash equivalents.
Operating activities are the principal revenue-producing activities of the
enterprise and other activities and are not investing or financing activities.
Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents.
Financing activities are activities that result in changes in the size and
composition of the owners capital (including preference share capital in the
case of a company) and borrowings of the enterprise.

CLASSIFICATION OF CASH FLOWS


The model prescribed in AS-3, Cash Flow Statement, classifies cash flow into three
categories cash flow from operating activities, cash flow from investing activities, cash flow
from financing activity.
CASH FLOW FROM OPERATING ACTIVITIES
The statement provides information about the cash generated from a companys
primary operating activities. A companys operating activities services. Operating activities that
generate cash inflow include customer other operating cash receipts. Operating activities that
create cash outflows include payments to suppliers, payment to employees, interest payments,
payment of income taxes and other operating cash payments.
CASH FLOWS FROM INVESTING ACTIVITIES
This area lists all the cash used or provided by the purchase on sale of income
producing assets. Investing activities include giving loans and advances, collection from those
loans and advances, buying and selling and buying and selling securities not classifies as cash
equivalents. Cash inflows generated by investing activities include sales of fixed assets such as
property, plant, equipments, sale of debt/equity instruments and the collection of loans.
CASH FLOWS FROM FINANCING ACTIVITIES
This section measures the flow of cash between a firm and its owners and creditors.
Financing activities include borrowing and repaying funds from suppliers of funds, a return on
their investments. The return on investment is provided in the form of dividends and interest. If
the firm uses debt or equity to expand its operations, it is disclosed in the financing activities.
Also, if the firm uses cash to retire debt, it appears in the statement. Negative numbers can mean
the company is servicing debt bur can also mean the company is making dividend payments and
share buyback, which is good news for investors.

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CASH FLOW STATEMENT


In a business in a perfect world there is no time gap between a cash inflow and a cash
outflow. But in real world, cash outflows and inflows occur at different times, and never actually
occur together. Usually, cash inflows lag behind the cash outflows, leaving the business short of
cash. This shortage is termed as cash flow gap. The cash flow gap represents and excessive
outflow of cash that may not be covered by a cash inflow for a definite period of time say a few
weeks, few months, or even few years. Managing the cash flow allows a firm to bridge the cash
flow gap. It does this by examining the different items that affect the cash flow of the business.
The cash flow statement provides information regarding a companys cash receipts and
cash payments. The statement complements the profit & Loss Account and Balance Sheet. Over
the life of a company, total net profits or income and net cash inflow will equal.
All companies provide the cash flow statements as part of their financial statements,
but cash flow can also be calculated net income plus depreciation and other non-cash items.
A company not generating the same amount of cash as competitors is bound to lose
out when there are difficult times. Short-term liquidity can also be achieved by deferring
payments of current obligations; however, companys ability to generate cash flow through the
deferred payments of current liabilities will be exhausted. This statement is useful for decision
making because it provides relevant and reliable information for predicting future cash flows.
The cash flow statement is an important analytical tool that the trade creditor, can
use to determine if a customer is able to generate sufficient cash to meet its trade obligations.
Using the cash flow statement in the credit analysis process can help to users evaluate a
customers solvency, liquidity position, and its financial flexibility?
In the cash flow statement, cash receipts and payments are classifies as operating,
investing and financing activities. The cash flow statement explains the change during
the period in cash and cash equivalents. Cash equivalents are short-term, highly liquid
investments that are readily convertible to cash. The cash flow statement must
summarize the cash flows so that net cash provided or used by each of the three types of
activities is reported. Beginning and ending cash must be reconciled based on the net
effect of these activities.
STEPS IN PREPARATION OF CASH FLOW STATEMENT
Before preparing cash flow statement, first of all, the following three steps have
to be completed
Determining cash flows from operations or operating activities
Determining cash flows from investing activities.
Determining cash flows from financing activities.
Cash from operation
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The profit and loss account focuses on net income determination from operating activities.
However, it does not show cash inflow and outflow relating to operating activities because the
profit and loss account is prepared on accrual basis. In preparing profit and loss account,
revenues are recorded even though cash for them has not been received. Similarly, expenses are
recorded even though they may not been paid. Therefore, to find cash flows from operations, one
need to convert accrual basis income statement figures to cash basis making adjustments. By
way of adjustments, earned revenues will be converted into cash received from sales or
customers and incurred expenses will be converted into cash expended, i.e., expenses actually
pain to cash.

Reporting Cash Flows from Operating Activities:


An enterprise should report cash flows from operating activities using either:
Direct method: the direct method, whereby major classes of gross cash receipts and
gross cash payments are disclosed; or
Indirect method: The indirect method, whereby net profit or loss is adjusted for the
effects of transaction of non-cash nature, any deferrals or accruals of past or future
operating cash receipts or payments and item of income or expenses associated with
investing or financing cash flows.
The direct method provides information which may be useful in estimating future cash flows and
which is not available under the indirect method and is, therefore, considered more appropriate
than the indirect method. Under the direct method, information about major classes of gross cash
receipts and gross cash payments may be obtained either:

From the accounting records of the enterprise; or


By adjusting sales, cost of sale (interest and similar income expenses and similar
charges for a financial enterprise) and other items in the statement of profit and loss
for:
Changes during the period in inventories and operating receivable and payable.
Other non-cash items and
Other items for which the cash effects are investing or financing cash flows
Under the indirect method, the net cash flow from operating activities is determined by adjusting
net profit or loss for the effects of:
Changes during the period inventories and operating receivable and payables;
Non-cash items such as depreciation, provisions, deferred taxes, and unrealized foreign
exchanges gains and losses and
All other items for which the cash effects are investing or financing cash flows.
Alternatively, the net cash flow from operating activities may be presented under the indirect
method by showing the operating revenues and expenses, excluding non-cash items disclosed in
the statement of profit and loss and changes during the period in inventories and operating
receivables and payables.

23

Investing Activities:
The separate disclosure of cash flows arising from investing activities is important because
the cash flows represent the extent to which expenditures have been made for resources intended
to generate future income and cash flows. Example of cash flows arising from investing are:
Cash payments to acquire fixed assets (including intangible). These payments include
those relating to capitalized research and development cost and self-constructed fixed
assets.
Cash receipts from disposal of fixed assets.
Cash payments to acquire share. Warrants or debt instruments of other enterprises and
interests in joint ventures.
Cash receipts from disposal of shares, warrants or debt instruments of other enterprises
and interests in joint ventures.
Cash advances and loans made to third parties.
Cash receipts from the repayment to advances and loans made to third parties.
Cash payments for futures contracts, forward contracts and swap contracts except when
the contracts are held for dealing or trading purposes or the payment are classified as
financing activities and
Cash receipts from futures contracts, forward contracts, option contract, swap contracts
except when the contracts are held for dealing or trading purposes, or the receipts are
classified as financing activities.
When a contract is accounted for as a hedge of an identifiable position, the cash flows of the
contract are classified in the same manner as the cash flows of the position being hedged.

Financing Activities:
The separate disclosure of cash flow arising from financing activities is important because
it is useful in predicting claims on future cash flows by providers of funds to enterprise.
Examples of cash flows arising from financing activities are:

Cash proceeds from issuing shares or other similarly instruments;


Cash proceeds from issuing debentures, loans, notes, bonds, and other short of longterm borrowings, and cash repayments of amounts borrowed

USES OF CASH FLOW STATEMENT


A cash flow statement is an important financial tool for management efficient short-term
financial planning. It enables the management to plan and co-ordinate the financial operation of
the concern and furnish the basis for evaluating financing policies. It helps the management in
making the financing problems of the business much more manageable. The following are the
uses of cash flow analysis.

24

Helpful in efficient cash management: It is very helpful in understanding the cash


position of a firm. Since cash is the basis for carrying on business operations, the cash
flow statement is very useful in evaluating the current cash position.
Planning of Programmes: The repayment of loans, replacement of assets and other such
programmes can be planned on its basis.
Helpful in short-term financial decisions: The cash flow statement is helpful in making
short term financial decisions relating to liquidity, and the ways and means position of the
firm.
Useful of Capital budgeting: Cash flow statement is also useful for making appraisal of
different capital investment projects in order to determine their viability and profitability.
Useful as a control device: It helps the management to understand the past behavior of
the cash cycle, and to control the uses of cash in future. A comparison of the projected
cash flow statement helps to management in appraising the inflows and outflows of cash
according to the plan and taking the necessary remedial measures.
Useful to outsiders: Cash flow statement the short-term solvency of a business concern
as well as its capacity to meet its short-term obligation.

LIMITATIONS OF THE CASH FLOW STATEMENT


Cash flow statement has its limitations too. For example, cash flow does not reveal the
profit earned or lost during a particular period. Cash flow also does not indicate the overall
financial health of the company. Though, the statement of cash flow gives a good indication of
what the company is doing with its cash and from where cash is being generated, but these do
not directly reflect true financial condition. The cash flow statements does not account for
liabilities and assets, which are recorded in the balance sheet. Accounts receivable and accounts
payable, each of which can be very large for a company, are also not reflected in the cash flow
statement. In other words, it is a compressed version of the companys cashbook that includes a
few other items, like the financing section, which tells the amount of money the company sent or
collected from the repurchase or sale of stock, the amount of issuance or retirement of debt, and
the amount the company paid out in dividends. In conclusion, interpreting the cash statement is
not a very easy and simple task. Analyzing the cash flow together with the other statement gives
a glimpse into the short-term financial position of company.

CLASSIFIED CASH FLOW STATEMENT:


The cash flow statements are classified into three classes.

Cash flow from operating activities.


Cash flow from investing activities.
Cash flow from financing activities.
25

Thought this format calls for more details. It provides useful information on how cash
flows have been influenced by different kinds of decisions. Given the greater
informational content of such a format, the discussion paper on cash flow statement
prepared by the accounting principles board of the institute of chartered accountants of
India recommends this format. Incidentally the listed companies must include a cash
flow statement prepared according to the format suggested in the discussion paper in
their annual reports.
Format of a cash flow statement
Cash flow statement
For the year ending on.. Balance as on 1-1-2000
---------------------------------------------------------------------Cash balance

Bank balance
..
Add: Sources of cash
Issue of shares
.
Raising of long term loans
..
Sale of fixed assets
.
Short-term operations:
Cash from operations
.
Profit as per profit and loss account
.
Add/less: Adjusted for non-cash items

Add: increase in current liabilities

Decrease in current assets

Less: increase in current assets


..
Decrease in current assets
..
Total cash available
..
Less: application of cash:
Redemption of redeemable preference shares
.. ..
Redemption of long term loans
..
Purchase of fixed assets
.
Decrease in deferred payment liabilities
..
Cash outflow on account of operation
..
Tax paid
..
Dividend paid
..
Decrease in unsecured loans, deposits etc

Total applications

Closing balance
Cash balance
Bank balance

....

26

*it should tally with the bank balance as shown (1)-(2)

27

CHAPTER V
DATA ANALYSIS AND IMPLEMENTATION
NET CASH FLOW
The total cash flow can be calculated by adding operating, investing and financing
activities of the bank.
Total cash flow = operating + financing + investing activities
The total cash flow is being described in the table per the period of 5 years from 20112007

TOTAL NET CASH FLOW


Mar-11

Mar-10

Mar-09

Mar-08

Mar-07

Net cashflowoperating
activity

11,425.07

28.87

10,551.63

5,960.45

5,295.53

Net cash used


in investing
activity

-13,985.33

-5,122.98

-9,741.96

-4,702.52

-3,655.58

Net cash used


in fin. activity

8,769.69

5,304.07

1,692.32

4,325.79

1,637.01

28

NET CASH FLOW-OPERATING ACTIVITY

Interpretation:
This can be calculated by taking total operating, investing and financial activities. This
shows that in the year 2010 the total cash flow will be increased from Rs.1271529 to
Rs.4090303. This shows that the bank had spent fewer amounts for expense.

TOTAL OPERATING ACTIVITIES:


The total operating activities can be calculated by taking the values of
increased/decreased in assets and liabilities.
This can be shown in the table for the period of 5 years from 2007-2011.
29

TOTAL OPERATING ACTIVITY

Total Liabilities

Total Assets

Total Income

Mar-11

73,257.21

73,257.21

155838.03

Mar-10

109,577.85

109,577.84

137323.64

Mar-09

147,722.06

147,722.06

88008.04

TOTAL OPERATING ACTIVITY

Interpretation
There can be calculated by taking net profit minus increase/decrease assets and liabilities. This
shows that in the years 2008 and 2010, negative values will occur. For this purpose, there is a
mutual increase and decrease
30

in assets and liabilities.

Total investing activities:


This can be calculated by taking the difference between the cash inflow and outflow.
Investing activity = Cash Inflow Cash Outflow

Total Investing Activity

YEAR
ENDED
2007
2008
2009
2010
2011

CASH
CASH
IN
OUT
CASH FROM INVESTING
FLOW FLOW
ACTIVITY
11,425.07
-13,985.33
8,769.69
28.87
-5,122.98
5,304.07
10,551.63
-9,741.96
1,692.32
5,960.45
-4,702.52
4,325.79
5,295.53
-3,655.58
1,637.01

TOTAL INVESTING ACTIVITIES

31

Interpretation:
This can be calculated by taking Cash inflow and Cash Outflow. This shows that the bank
has spent fewer amounts for purchasing the assets, so there is a decrease in 2009-10 when
compared to 2007-08.
Total Financing Activities
In this activities can be calculated by taking the financial activity.
This can be show in the table for the year 2006-2010.
Total financing activities
Net financial
income

BORROWINGS
2009

171696

876969

2010

155199

530407

2011

562404

169232

32

Interpretation:
This graph shows that the bank borrowing position. This shows that the bank had decreased to
money from others. So the position is good in the bank.

Net profit:
The net profit can be calculated by taking total income and total expenses.
Net profit = Total income Total expenses
Total income = Interest expended + other expenses
NET PROFIT
TOTAL
TOTAL
NET
INCOME EXPENSES PROFIT
2009 155838.03
151781.7
4056.33
2010 137323.64 109468.85 18153.58
2011 88008.04
71545.25
10710.29

Interpretation:
This can be calculated by taking total income and total expended.
This shows that the bank can earn more profit in 2008 and 2010. This shows that the bank can
spend more expenses in that years and the profit position will be decreased.
33

APPENDICES

34

For the year end


(31/3/2010)

Particulars
CASH FLOW FROM OPERATING ACTIVITIES
Interest Earned during the year
Other income
Less:
Interest paid during the year on deposits, borrowings etc.,
Operating Expenses including Provision & Contingencies
NET PROFIT
Add:
Depreciation on Fixed Assets
Depreciation adjusted on leased assets
Provisions & Contingencies
I
CASH PROFIT GENERATED FROM OPERATIONS
(Prior to changes in operating Assets & Liabilities
II CASH FLOW FROM OPERATING ASSETS & LIABILITIES
Increase/(Decrease) in Liabilities
Deposits
Other Liabilities and Provisions
(Increase)/Decrease in assets
Advances
Investments
Other Assets
Total of II
A. NET CASH FLOW FROM OPERATING ACTIVITIES(I+II)
B. CASH FLOW FROM INVESTING ACTIVITIES
Sale/Disposal of Fixed Assets

1337

Purchase of Fixed Assets

-49892

B.

NET CASH FLOW FROM INVESTING ACTIVITIES

-48555

C.

CASH FLOW FROM FINANCING ACTIVITIES

3175171
310780
1607363
973680
20605
925513

4442850
1310379
-5901723
-741844
-332390
-1222728
297215

Share Capital
Share premium
Other Reserves & Surplus
Borrowings

1617299

Amount paid off on redemption of sub-ordinate debt


Amount raised through fresh issue of Sub-ordinated Debt
Dividend paid: Previous year dividend, paid during the current year

35

C.

NET CASH FLOW FROM FINANCING ACTIVITIES

1617299

TOTAL CASH FLOW DURING THE YEAR (A+B+C)

1271529

Increase/(Decrease) in Cash flow


I

Cash and Cash Equivalents at the Beginning of the year


C) Cash and Balances with the RBI

1680083

D) Balances with Banks and Money at Call and Short Notice

2522384

Total I
II

4202467

CASH AND CSH EQUIVALENTS AT THE END OF THE YEAR


C) Cash and Balances with RBI

2407030

D) Balance with Banks and Money at Call Short Notice

3066966

Total II

5473996

TOTAL CASH FLOW DURING THE YEAR


Increase / (Decrease) in Cash flow (II I)

1271529

BALANCE SHEET AS AT 31.03.2010


Particulars BALANCE
(Amount in 000s)
Capital and Liabilities
Share capital
Reserve and surplus
Deposits
Borrowing
Other liabilities and provision

(Amount in 000s)

SHEET 2008-09

2009-10

423426
4191468
23678077
5935922
1419557

423426
5096376
28120927
7553221
2729936

Total
35648450
Assets
Cash and Balance with RBIs
1680083
Balance with banks and money at call
and short notices
2522384
Investments
6020381
Net advances
23471434
Fixed assets
52032
Other assets
1902116

43923886

Total

43923886

35648450
36

240730
3066966
6762225
29373177
79982
2234506

Contingent liabilities

103999

155023

Profit and Loss Account


Particulars

2008-09

2009-10

Income
Interest Earned
Other income

2808486
259653

3175171
310780

Total

3485951

3068139

Expenditure
Interest expended
Operating Expenses
Provision and Contingencies
Profit

1150059
985922
56044

1607363
950101
23578

876114

904909

3485951

3068139

Total

37

STATEMENT OF CASH FLOW


Particulars

For the year


(3/31/2010)

CASH FLOW FROM OPERATING ACTIVITIES


Interest Earned during the year

3876666

Other income

322676

Less:
Interest paid during the year on deposits, borrowings etc.,

2224977

Operating Expenses including Provision & Contingencies

1214811

NET PROFIT

759554

Add:
Depreciation on Fixed Assets

29354

Depreciation adjusted on leased assets

Provisions & Contingencies

-250000

CASH PROFIT GENERATED FROM OPERATIONS

538908

(Prior to changes in operating Assets & Liabilities

38

ended

II

CASH FLOW FROM OPERATING ASSETS & LIABILITIES


Increase/(Decrease) in Liabilities
Deposits

2256149

Other Liabilities and Provisions

-1025393

(Increase)/Decrease in assets
Advances

-1067158

Investments

-630611

Other Assets

740446

Total of II

273433

A.

NET CASH FLOW FROM OPERATING ACTIVITIES(I+II)

812341

B.

CASH FLOW FROM INVESTING ACTIVITIES

Sale/Disposal of Fixed Assets

2261

Purchase of Fixed Assets

-57375

B.

NET CASH FLOW FROM INVESTING ACTIVITIES

-55114

C.

CASH FLOW FROM FINANCING ACTIVITIES


Share Capital
Share premium
Other Reserves & Surplus
Borrowings

365274

Amount paid off on redemption of sub-ordinate debt


Amount raised through fresh issue of Sub-ordinate Debt
Dividend paid: Previous year dividend, paid during the current year
C.

NET CASH FLOW FROM FINANCING ACTIVITIES

365274

TOTAL CASH FLOW DURING THE YEAR (A+B+C)

1122501

Increase/(Decrease) in Cash flow


I

Cash and Cash Equivalents at the Beginning of the year


C) Cash and Balances with the RBI

2407030
39

D) Balances with Banks and Money at Call and Short Notice

3066966

Total I
II

5473996

CASH AND CSH EQUIVALENTS AT THE END OF THE YEAR


C) Cash and Balances with RBI

1872135

D) Balance with Banks and Money at Call Short Notice

4724362

Total II

6596497

TOTAL CASH FLOW DURING THE YEAR


Increase / (Decrease) in Cash flow (II I)

1122501

BALANCE SHEET AS AT 31.03.2010

(Amount in 000s)

Particulars
2009-10
Capital and Liabilities
Share capital
423426
Reserve and surplus
5096376
Deposits
28120927
Borrowing
7553221
Other liabilities and provision
2729936
Total
43923886
Assets
Cash and Balance with RBIs
240730
Balance with banks and money at
call and short notices
3066966
Investments
6762225
Net advances
29373177
Fixed assets
79982
Other assets
2234506
Total
43923886
Contingent liabilities
155023

40

2010-11
423426
6672809
35173369
11808394
1725141
55803139
2511725
8175075
8926999
35052791
95390
1041159
55803139
116768

Profit and Loss Account


Particulars
Income
Interest Earned
Other income
Total
Expenditure
Interest expended
Operating Expenses
Provision
Contingencies
Profit
Total

2009-10

2010-11

3175171
310780
3068139

4463958
412900
4876858

1607363
950101
and 23578

2442690
1165992
201297

904909
3068139

2148449
4876858

41

STATEMENT OF CASH FLOW


Cash flow
Mar ' 11

Mar ' 10

Mar ' 09

Mar ' 08

Mar ' 07

Profit before tax

5,135.66

3,851.36

2,785.19

1,646.27

996.24

Net cashflow-operating activity

11,425.07

28.87

10,551.63

5,960.45

5,295.53

Net cash used in investing activity

-13,985.33

-5,122.98

-9,741.96

-4,702.52

-3,655.58

Netcash used in fin. activity

8,769.69

5,304.07

1,692.32

4,325.79

1,637.01

Net inc/dec in cash and equivlnt

6,204.75

189.54

2,512.66

5,585.94

3,276.46

Cash and equivalnt begin of year

15,203.91

15,016.90

12,504.24

6,918.31

3,641.84

42

Mar ' 11
Cash and equivalnt end of year

21,408.66

Mar ' 10
15,206.44

CHAPTER VI

43

Mar ' 09
15,016.90

Mar ' 08
12,504.24

Mar ' 07
6,918.31

FINDINGS
The major findings and conclusions of the study are:

Of the bank Income is increased from Rs.34,85,951 to Rs.41,99,342 thousands. So, the
maintenance is good in the bank.
Interest on deposits and borrowings and other expenses also increased from 2008-09 to
2009-10 Rs.25,81,043 to Rs.34,39,788 thousands. So, it pays more interest to the
depositors.
Net profit of bank is increased in the study period that is Rs.20,605 to Rs.29,354
thousands
Investment is also decreased from year to year i.e., Rs.7,41,844 to Rs.6,30,611 thousands.
Advances also decreased from Rs.59,01,723 to Rs.10,67,158 thousands.
Total cash flow from operating activities is Rs.12,22,728 to Rs.2,73,433.
The bank can purchase the fixed asset and they are increased from Rs.49, 892 to
Rs.57,375 crores and the sale of asset will be increased from Rs.1,337 to Rs.2,265
thousands so the investing activity will be increased from previous year to current year.
Financing activities will be maintained in a good way that is Rs.16, 17,299 to Rs.3,65,274
thousands.
The maintenance of cash and balance with RBI from opening and ending of the year will
be good. So, the maintenance of cash from opening and closing is increased from
Rs.42,02,467 to Rs.54,72,996 in 2008-09 and Rs.5,47,399 to Rs.65,95,497 in 2009-10.

SUGGESTIONS
The following are the suggestions suggested for the smooth running of the bank:

The bank should try to reduce the expenses on purchasing the fixed assets because it
decreases the profit.
The bank shall increase the investment position by issuing shares and debenture and
the bonds of the MNCs.
The bank has to implement online technology and various services to their customer.
The bank has to provide more agriculture and small business loans to all sectors of
the society as to increase the employment of the pupil.
The bank expanded their branches more and more in the district particularly and in
India in general.

44