A PROJECT REPORT

ON
WORKING CAPITAL MANAGEMENT
AT

IDBI FEDERAL LIFE INSURANCE COMPANY

BY

A.MANASA
HALL TICKET NO: 120617672099

ST.ANN’S P.G. COLLEGE FOR WOMEN

(Affiliated to Osmania University)
Mallapur, Hyderabad
2017-2019

Project submitted in partial fulfilment for the award of Degree of

MASTER OF BUSINESS ADMINISTRATION (MBA)

By
Osmania University, Hyderabad - 500007
 DECLARATION

I hereby declare that the project work entitled “WORKING CAPITAL MANAGEMENT AT
IDBI FEDERAL LIFE INSURANCE COMPANY LIMITED” submitted to the OSMANIA
UNIVERSITY HYDERABAD, is a record of an original work done by me under the guidance of
Dr. Y. Sucharita, St. Ann’s P.G College For Women, Mallapur and this work is submitted in the
partial fulfilment of the requirement for the award of the degree of Master’s of Business
Administration. The results embodied in this report have not been submitted to any other
University or Institute for the award of any degree or diploma.

Place: Mallapur A.MANASA

Date: H.T. No: 120617672099

 Internship Certificate

TO WHOMSOEVER IT MAY CONCERN

This is to certify that Miss A. Manasa of College St. Ann’s PG College Mallapur,
Hyderabad, has undergone Project work titled “A Study on Working Capital Management
at IDBI Federal Life Insurance Company Ltd” in our IDBI Federal Life Insurance
Company Ltd from 15th May 2018 to 30th June 2018.
During the period of her internship program with us, we found her to be hard
working, punctual and committed. We wish her all the best in her future endeavors.

With Best Wishes,

From
IDBI Federal Life Insurance Company Ltd

C. Shanthi
Cluster Manager
IDBI Federal Life Insurance Co Ltd.
 ACKNOWLEDGEMENT

I have taken efforts in this project. However, it would not have been possible without the
kind support and help of many individuals and organizations.

I would like to extend my sincere thanks to all of them.

I thank GOD for guiding me to attain the knowledge and wisdom.

I am highly indebted to IDBI for their guidance and constant supervision as well as for
providing necessary information regarding the project and also for their support in
completing the project.

I would like to express my profound gratitude Sr. Emmy Gracy, Principal, for her
constant encouragement and support.

I express my gratitude to Prof. Dr. Y. Sucharitha, Head Department of Business

Management and internal guide Ms. K. Divya, Assistant Professor, for accepting the
project, making suggestions for the improvement of the project, and for extending
supervision and guidance.

My Father, A. Nageshwar Rao for making me walks on the right path.

Mr. Pradeep and Mrs. Shanthi, who guided me at IDBI.

Mr. P.Y. Giri, Librarian, for providing the books, journals and other required material to
conduct the study.

Mr. Srinivas System Administrator, for providing the technical support for the study.

All the dear faculty members, for their motivation, encouragement, and guidance.

A. MANASA
TABLE OF CONTENTS

CONTENTS PAGE NO

CHAPTER 1 1-7

1.1 INTRODUCTION 1.1

1.2 REVIEW OF LITERATURE
1.4
1.3 NEED
1.4 OBJECTIVES 1.5
1.5 SCOPE 1.6
1.6 RESEARCH METHODOLOGY 1.6
1.7 LIMITATIONS 1.6
1.7
CHAPTER 2 8-21

2.1 INDUSTRY PROFILE 8-16

2.2COMPANY PROFILE 17-21
CHAPTER 3 22-28

3.1 THEORITICAL FRAMEWORK 22-28

CHAPTER 4 29-34

4.1DATA ANALYSIS 29-34

CHAPTER 5 35-37
5.1FINDING 35-37
5.2CONCLUSION
5.3SUGGESTIONS
CHAPTER-I
1.1 INTRODUCTION
1.2 NEED OF THE STUDY
1.3 OBJECTIVES OF THE STUDY
1.4 RESEARCH METHODOLOGY
1.5 SCOPE
1.6 LIMITATIONS
1.1 INTRODUCTION

Working capital management is concerned with the problems arise in attempting to

manage the current assets, the current liabilities and the inter relationship that exist
between them. The term current assets refer to those assets which in ordinary course of
business can be or, will be, turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm. The major current
assets are cash, marketable securities, account receivable and inventory. Current
liabilities are those liabilities which intended at their inception to be paid in ordinary
course of business, within a year, out of the current assets or earnings of the concern. The
basic current liabilities are account payable, bill payable, bank over draft and outstanding
expense. The goal of working capital management is to manage the firm’s current assets
and current liabilities in such way that the satisfactory level of working capital is
mentioned. The current assets should be large enough to cover its current liabilities in
order to ensure a reasonable margin of the safety.

In the words of SHUBIN,” Working capital is the amount of funds necessary to cover the
cost or operating of the enterprise”.

According to GENESTENBERG” circulating capital means current assets of a company

that are changed in the ordinary course of the business from one to another form, as per
example from cash to inventories, inventories to receivables, receivables in to cash”.

Working capital refer to that difference between current assets and current liabilities, it is
excess of current assets over current liabilities.

Working Capital= Current assets- Current Liabilities.

Capital is the money or wealth needed to produce goods and services. All businesses
must have capital in order to purchase assets and maintain their operations. So working
capital is money available to a company for day-to-day operations.

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Working capital is a common measure of a company liquidity, efficiency, and overall
health. It involves the relationship between long term funds and short term funds. Long
term funds are required to create production facilities through purchase of fixed assets
such as plant and machinery, land and buildings, furniture, etc. Short term funds are
required for the purchase of raw materials, payment of wages and other day-to-day
expenses, etc. These funds are known as working capital. In simple words, working
capital refers to that part of the firm’s capital which is required for financing short term or
current assets such as cash, marketable securities, debtor and inventories.

The goal of working capital management is to ensure that the firm is able to continue is
operation and that it has sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses. The working capital is an important yardstick to measure
the company operational and financial efficiency. Any company should have a right
amount of cash and lines of credit for its business needs at all times. The funds required
and acquired by a business may be invested in two types of assets:

1. Fixed Assets.

2. Current Assets.

Fixed assets are those which yield the returns in the due course of time. The various
decisions like in which fixed assets funds should be invested and how much should be
invested in the fixed assets etc are in the form of capital budgeting decisions. This can be
said to be fixed capital management. Current assets are required to ensure smooth and
fluent business operations and can be said to be life blood of the business.

Working capital is a financial metric of operating liquidity which describes the amount of
cash tied up in operations and defines the short term condition of a company.

A positive working capital position is required for the continuous running of company
operations, i.e. to pay short term debt obligations and to cover operational expenses. A
company with a negative working capital balance is unable to cover its short term
liabilities with its current assets.

2
The working capital is the life blood and nerve center 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.

The success of a business among others things depends upon the manager in which its
working capital is managed. In the dynamic business setting the composition of working
capital is represented by the difference between the current assets and current liabilities.
The current liabilities show the amounts that need to be paid in the next twelve months.
Current assets show the cash and other assets that are available to settle those current
liabilities.

It is the task of the financial manager to maintain appropriate level of working capital, i.e.
enough current assets to pay off current liabilities, neither excess nor less. Because excess
working capital leads to unproductive use of scarce resources, and in adequate working
capital leads to an interruption in the smooth functioning of the business concern.
Moreover, the management should also pay due attention in exercising proper control
over working capital.

It is crucial to retain right level of working capital. It is one of the most important
functions of corporate management. A business 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 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.

Working capital management is highly important in firms as it is used to generate further

return 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 crises,

3
leading to degradation of company credit, as it cannot respond effectively to temporary
capital requirements.

The working capital ratio, calculated as current assets divided by current liabilities, is
considered a key indicator of a company fundamental financial health since it indicates
the company ability to successfully meet all of its short-term financial obligations.
Although numbers vary by industry, a working capital ratio below 1.0 is generally
indicative of a company having trouble meeting short-term obligations, usually due to
insufficient cash flow. Working capital ratios of 1.2 to 2.0 are considered desirable, but a
ratio higher than 2.0 may indicate a company is not making the most effective use of its
assets to increase revenues.

1.2 REVIEW OF LITERATURE

Dr.VinayKandpal and prof P.C.Kavidayal (2013):A firm’s working capital consists of

its investments in short term assets like cash and bank balance ,inventories,receivable and
short term investments.Working capital management is essential as it might have a direct
impact on liquidity and profitability.The possible implications of working capital
management on profitability and return on investments ofONGC.

Morris Lamberson(1995):The working capital position of small firms responds to

changes in the level of economy activity.The liquidity increased slightly for these firms
during economic expansion with no notifiablechange in liquidity during economic
slowdowns.

Olufemi I.Falope and Olubanjo T.Ajilore(2009):The study aimed to provide empirical

evidence about the effects of working capital management on profitability performance
for a panel made up of a sample of Nigerian quoted non-financial firms for the period.

Gabriel Hawawini,Claude Viallet and Ashok Vora(1986):Working capital is usually

justified by the fact,that they are all closely related to the firm’s operating cycle, that is,
the process of procurement, production and sales.

4
LoannisLazaridis and DimitriosTryfonidis(2016):Managers can create profits for their
companies by handling correctly the cash conversion cycle and keeping each different
component to an optimum level.

Greg Filbeck(2005):Firms are able to reduce financing costs and increase the funds
available for expansion by minimizing the amount of funds tied up in current assets.
Working capital change significantly within industries across time.

Marc Deloof(2003):Trade credit policy and inventory policy are measured by number of
days accounts receivables, accounts payable and inventories and the cash conversion
cycle is used as a comprehensive measure of working capital management.

Abuzar M.AEljelly(2004):The relation between profitability and liquidity as measured

by current ratio and cash gap on a sample of joint stock companies of Saudi Arabia.

1.3 NEED FOR THE STUDY

The need for working capital gross or current assets cannot be over emphasized. As
already observed, the objective of financial decision-making is to maximize the
shareholders wealth. To achieve this, it is necessary to generate enough profits can be
earned will naturally depend upon the magnitude of the sales among other things, but
sales cannot convert in to cash. There is need for working capital in the form of current
assets to deal with the problem arising out of the lack of the immediate realization of cash
against goods sold. Therefore, enough working capital is the necessary to sustain the
activity. Technically this refers to operating or cash cycle. If the company has certain
amount of cash, it will require for purchasing the raw material may be available on credit
basis.

1.4 OBJECTIVES

1. To study the components of working capital at IDBI.

2. To analyze the liquidity position of the company.
3. To examine the efficiency of working capital management at IDBI.

5
1.5 SCOPE

The scope was limited to the operations of the IDBI Federal. The study was confined to
the evolution of last five-year reports. The study focuses on analyzing working capital
management. The information obtained from primary and secondary sources was limited
to IDBI.

1.6 RESEARCH METHODOLOGY

Research methodology is a systematic procedure of collecting information in order to

analyze and verify a phenomenon. Data collection is the term used to describe a process
of preparing and collecting data.

Data collection is important aspects of any type of research study, inaccurate data can
impact the result of the study and ultimately lead to invalid results.

Data collection can be done in two ways:

 Primary data.
 Secondary data.

Primary data:

The data is collected for the first time for any statistical investigation and is used in the
statistical analysis. The primary data is obtained by having personal interviews with the
officials of the company, interacting with the manager and other concerned executives at
the administrative office of the company.

Secondary data:

The data which have been already published or collected and processed by some agency
or person and taken over from them and used by other agency or person for their
statistical work is termed as secondary data.

6
Secondary data helps researchers to save time. while primary research takes a
considerable amount of time in the form of collecting and analyzing the data, secondary
data offers readymade solutions.

Secondary data was collected mainly from the following sources:

1. Annual reports.
2. References to journals and text books

1.7 LIMITATIONS OF THE STUDY

The following are the limitations of the study:

1. As the study period was short, the complete financial status of the company was
not done.
2. The study has limited scope of gathering information as it is confidential.
3. The study is limited to extent of data and information provided by IDBI.
4. The study has concentrated only on the working capital of the company.
5. The study is confined to IDBI.

7
 CHAPTER – 2

INDUSTRY PROFILE
AND
COMPANY PROFILE
2.1 INDUSTRY PROFILE

INSURANCE

In India, insurance has been mentioned in Manu (Manysmrithi), Yagnavalkya

(Dharmasastra) and kautilya ( Arthasastra).The writings talk in terms of pooling of
resources that could be re-distributed in times of calamities such as fire, floods,
epidemics and famine. This was probably a pre-cursor to modern day insurance.

Insurance is defined as the equitable transfer of the risk of loss, from one entity to
another, in exchange for payment and the payment is called as premium (NCAER).
Insurance is a form of risk management which is used to hedge or cover the risk of a
contingent and uncertain loss. The insurance sector acts as a mobilizer of savings, a
financial intermediary, a promoter of investment activities, a stabilizer of financial
markets and a risk manager in the economy. The insurance industry has immense
amount of untapped potential.

Ancient Indian history has preserved the earliest traces of insurance in the form of
marine trade loans and carriers’ contracts. Insurance in India has evolved over time
heavily drawing from other countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of
the Oriental Life Insurance Company in Calcutta. This Company however failed in
1834. In 1829, the Madras Equitable had begun transacting life insurance business in
the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in
the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental
(1874) and Empire of India (1897) were started in the Bombay Residency. This era,
however, was dominated by foreign insurance offices which did good business in
India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe
Insurance and the Indian offices were up for hard competition from the foreign
companies.

In 1914, the Government of India started publishing returns of Insurance Companies

in India. The Indian Life Assurance Companies Act, 1912 was the first statutory

8
measure to regulate life business. In 1928, the Indian Insurance Companies Act was
enacted to enable the Government to collect statistical information about both life and
non-life business transacted in India by Indian and foreign insurers including
provident insurance societies. In 1938, with a view to protecting the interest of the
Insurance public, the earlier legislation was consolidated and amended by the
Insurance Act, 1938 with comprehensive provisions for effective control over the
activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there
were a large number of insurance companies and the level of competition was high.
There were also allegations of unfair trade practices. The Government of India,
therefore, decided to nationalize insurance business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance
sector and Life Insurance Corporation came into existence in the same year. The LIC
absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245
Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the
Insurance sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west
and the consequent growth of sea-faring trade and commerce in the 17th century. It
came to India as a legacy of British occupation. General Insurance in India has its
roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in
Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This
was the first company to transact all classes of general insurance business.
1957 saw the formation of the General Insurance Council, a wing of the Insurance
Association of India. The General Insurance Council framed a code of conduct for
ensuring fair conduct and sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum
solvency margins. The Tariff Advisory Committee was also set up then.

9
In 1972 with the passing of the General Insurance Business (Nationalisation) Act,
general insurance business was nationalized with effect from 1st January, 1973. 107
insurers were amalgamated and grouped into four companies, namely National
Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental
Insurance Company Ltd and the United India Insurance Company Ltd. The General
Insurance Corporation of India was incorporated as a company in 1971 and it
commence business on January 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly
200 years. The process of re-opening of the sector had begun in the early 1990s
and the last decade and more has seen it been opened up substantially. In 1993, the
Government set up a committee under the chairmanship of RN Malhotra, former
Governor of RBI, to propose recommendations for reforms in the insurance
sector.The objective was to complement the reforms initiated in the financial
sector. The committee submitted its report in 1994 wherein , among other things, it
recommended that the private sector be permitted to enter the insurance industry.
They stated that foreign companies be allowed to enter by floating Indian companies,
preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the

Insurance Regulatory and Development Authority (IRDA) was constituted as an
autonomous body to regulate and develop the insurance industry. The IRDA was
incorporated as a statutory body in April, 2000. The key objectives of the IRDA
include promotion of competition so as to enhance customer satisfaction through
increased consumer choice and lower premiums, while ensuring the financial security
of the insurance market.

The IRDA opened up the market in August 2000 with the invitation for application
for registrations. Foreign companies were allowed ownership of up to 26%. The
Authority has the power to frame regulations under Section 114A of the Insurance
Act, 1938 and has from 2000 onwards framed various regulations ranging from

10
registration of companies for carrying on insurance business to protection of
policyholders’ interests.

In December, 2000, the subsidiaries of the General Insurance Corporation of India

were restructured as independent companies and at the same time GIC was converted
into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries
from GIC in July, 2002.

Today there are 31 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India and 24 life insurance companies operating in the
country.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%.
Together with banking services, insurance services add about 7% to the country’s
GDP. A well-developed and evolved insurance sector is a boon for economic
development as it provides long- term funds for infrastructure development at the
same time strengthening the risk taking ability of the country.

INDIAN INSURANCE INDUSTRY

The insurance industry of India consists of 57 insurance companies of which 24 are in
life insurance business and 33 are non-life insurers. Among the life insurers, Life
Insurance Corporation (LIC) is the sole public sector company. Apart from that,
among the non-life insurers there are six public sector insurers. In addition to these,
there is sole national re-insurer, namely, General Insurance Corporation of India (GIC
Re). Other stakeholders in Indian Insurance market include agents (individual and
corporate), brokers, surveyors and third party administrators servicing health
insurance claims. Government's policy of insuring the uninsured has gradually
pushed insurance penetration in the country and proliferation of insurance schemes.
Gross premiums written in India reached Rs 5.53 trillion (US$ 94.48 billion) in FY18,
with Rs 4.58 trillion (US$ 71.1 billion) from life insurance and Rs 1.51 trillion (US$
23.38 billion) from non-life insurance. Overall insurance penetration (premiums as %
of GDP) in India reached 3.69 per cent in 2017 from 2.71 per cent in 2001.

11
In FY19 (up to October 2018), premium from new life insurance business increased
3.66 per cent year-on-year to Rs 1.09 trillion (US$ 15.46 billion). In FY19 (up to
October 2018), gross direct premiums of non-life insurers reached Rs 962.05 billion
(US$ 13.71 billion), showing a year-on-year growth rate of 12.40 per cent.

INVESTMENTS AND RECENT DEVELOPMENTS

The following are some of the major investments and developments in the Indian
insurance sector.
As of November 2018, HDFC Ergo is in advanced talks to acquire Apollo Munich
Health Insurance at a valuation of around Rs 2,600 crore (US$ 370.05 million).

• In October 2018, Indian e-commerce major Flipkart entered the insurance

space in partnership with Bajaj Allianz to offer mobile insurance.
• In August 2018, a consortium of West Bridge Capital, billionaire investor Mr
Rakesh Jhunjunwala announced that it would acquire India’s largest health
insurer Star Health and Allied Insurance in a deal estimated at around US$ 1
billion.
• In September 2018, HDFC Ergo launched ‘E@Secure’ a cyber insurance
policy for individuals.
• Insurance sector companies in India raised around Rs 434.3 billion (US$ 6.7
billion) through public issues in 2017.
• In 2017, insurance sector in India saw 10 merger and acquisition (M&A) deals
worth US$ 903 million.
• India's leading bourse Bombay Stock Exchange (BSE) will set up a joint
venture with Ebix Inc. to build a robust insurance distribution network in the
country through a new distribution exchange platform.

GOVERNMENT INITIATIVES
The Government of India has taken a number of initiatives to boost the insurance
industry. Some of them are as follows:
In September 2018, National Health Protection Scheme was launched under
Ayushman Bharat to provide coverage of up to Rs 500,000 (US$ 7,723) to more than

12
100 million vulnerable families. The scheme is expected to increase penetration of
health insurance in India from 34 per cent to 50 per cent.

• Over 47.9 million famers were benefitted under Pradhan Mantri FasalBima
Yojana (PMFBY) in 2017-18.
• The Insurance Regulatory and Development Authority of India (IRDAI) plans
to issue redesigned initial public offering (IPO) guidelines for insurance
companies in India, which are to looking to divest equity through the IPO
route.
• IRDAI has allowed insurers to invest up to 10 per cent in additional tier 1
(AT1) bonds that are issued by banks to augment their tier 1 capital, in order
to expand the pool of eligible investors for the banks.

ROAD AHEAD
The future looks promising for the life insurance industry with several changes in
regulatory framework which will lead to further change in the way the industry
conducts its business and engages with its customers.The overall insurance industry is
expected to reach US$ 280 billion by 2020. Life insurance industry in the country is
expected grow by 12-15 per cent annually for the next three to five
years.Demographic factors such as growing middle class, young insurable population
and growing awareness of the need for protection and retirement planning will
support the growth of Indian life insurance.

INSURANCE SECTOR GROWTH IN INDIA

Post-liberalisation, the insurance industry in India has recorded significant growth.
The Indian insurance industry is expected to grow to US$ 280 billion by FY2020,
owing to the solid economic growth and higher personal disposable incomes in the
country. Overall insurance penetration in India reached 3.69 per cent in 2017 from
2.71 per cent in 2001. Gross premiums written in India reached Rs 5.53 trillion (US$
94.48 billion) in FY18, with Rs 4.58 trillion (US$ 71.1 billion) from life insurance
and Rs 1.51 trillion (US$ 23.38 billion) from non-life insurance.

13
Over FY12–18, premium from new business of life insurance companies in India
have increased at a 14.44 per cent CAGR to reach Rs 1.94 trillion (US$ 30.1 billion)
and non-life insurance premiums (in Rs) increased at a CAGR of 16.65 per cent. In
FY19 (up to October 2018), premium from new life insurance business increased 3.66
per cent year-on-year to Rs 1.09 trillion (US$ 15.46 billion).Life insurance industry in
the country is expected grow 12-15 per cent annually for the next three to five
years.In FY19 (up to October 2018), gross direct premiums of non-life insurers
reached Rs 962.05 billion (US$ 13.71 billion), showing a year-on-year growth rate of
12.40 per cent.
There are 24 life insurance and 33 non-life insurance companies in the Indian market
who compete on price and services to attract customers. There are two reinsurance
companies. The industry has been spurred by product innovation, vibrant distribution
channels, coupled with targeted publicity and promotional campaigns by the insurers.
The market share of private sector companies in the non-life insurance market rose
from 13.12 per cent in FY03 to 50.06 per cent in FY19 (up to October 2018). In life
insurance segment, private players had a market share of 32.12 per cent in new
business in FY19 (up to October 2018).
Government has approved the ordinance to increase Foreign Direct Investment (FDI)
limit in Insurance sector from 26 per cent to 49 per cent which would further help
attract investments in the sector.In 2017, insurance sector in India saw 10 merger and
acquisition (M&A) deals worth US$ 903 million. Enrolments under the Pradhan
Mantri Suraksha Bima Yojana (PMSBY) reached 130.41 million in 2017-18. National
Health Protection Scheme was announced under Budget 2018-19 as a part of
Ayushman Bharat. The scheme will provide insurance cover of up to Rs 500,000
(US$ 7,723) to more than 100 million vulnerable families in India.Going forward,
increasing life expectancy, favourable savings and greater employment in the private
sector is expected to fuel demand for pension plans. Likewise, strong growth in the
automotive industry over the next decade would be a key driver for the motor
insurance market.

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INSURANCE PENETRATION IN INDIA
The share of insurance premiums in India’s gross domestic product (called insurance
penetration) saw a marginal increase to 3.69 percent in FY18 from 3.49 percent a year
ago. According to the Swiss Re sigma report, insurance density or premium per
person stood at $73 for FY18 versus $59.7 in the previous year.

Among segments, life insurance penetration rose slightly from 2.72 percent in FY17
to 2.76 percent in FY18. Non-life penetration was at 0.93 percent in FY18 compared
to 0.77 percent a year ago.

This is, however, much lower than the global average. The world average for
insurance penetration is 6.13 percent while world average insurance density is $650.
While the government schemes have aided a growth in the insurance penetration and
density, India’s numbers are much lower than the Asian average too.

“In India, growth was still impacted by the November 2016 demonetisation, real
estate regulation, and goods and services tax reforms. Consequently, private
consumption growth was a little weaker than expected, and private investment was
also sluggish, but government investments accelerated in the final quarter of the year,
providing momentum into 2018,” the report said.

In FY15, India’s insurance penetration was at a 10-year low of 3.3 percent, down
from 3.9 percent in FY14. This was the lowest since 2005-06 when the penetration
dropped to 3.14 percent.

Insurance premium started to see a gradual decline from FY10 onward after a
continuous surge since the financial year 1999. Later, from FY16, the country started
catching up with global peers and the penetration levels started to see an uptick. In
FY10, India had the highest ever rate of insurance penetration at 5.2 percent.

In absolute terms, there was a growth in emerging Asia´s life insurance sector with
premiums rising 18 percent in 2017 supported by broad-based gains in most markets.

15
The sigma report also said the strong equity market performance over the year
increased the attractiveness of investment-linked products.

In India, life premiums grew by 8 percent year-on-year (YoY) to $73,240 million in

FY18 driven by strong immediate annuity sales and group business. On the non-life
front, the country benefitted from a strong crop insurance growth, showing a rise of
16.7 percent YoY to $24,674 million in FY18.

INSURANCE GROWTH DRIVERS IN INDIA

The demand for insurance products is likely to increase due to the exponential growth
of household savings, purchasing power, the middle class and the country’s working
population. The growth drivers are:

• Growing of the financial industry as a whole.

• Growth of life and non-life industry.

• Promoting innovation and removing inefficiency.

• Competition and orderly growth.

• Growth of specific insurance segments such as motor insurance.

• Emerging trends.

• Multi-distribution i.e. increasing penetration through new models of

distribution such as the internet, direct and telemarketing and NGOs.

• Product innovation i.e. increased levels of customization through product

innovation.

• Claims management i.e. timely and efficient management of claims to prevent

delays which can increase the claims cost.

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 • Profitable growth i.e. expanding product range, developing innovative
products and expanding distribution channels.

2.2 COMPANY PROFILE

IDBI Federal Life Insurance Co Ltd. is a joint- venture of IDBI Bank, Federal
Bank and Ageas. In this venture, IDBI Bank owns 48% equity while Federal Bank
and Ageas own 26% equity each. Having started in March 2008, in just five
months of inception, IDBI Federal became one of the fastest growing new
insurance companies by garnering Rs.100 Cr in premiums. The company offers its
services through a vast nationwide network 2,308 partner bank branches of IDBI
Bank and Federal Bank in addition to sizeable network of advisors and
partners.IDBI Federal Life Insurance Headquarter is in Mumbai.It has 60 branches
with over 1900 employees.

IDBI BANK LTD

IDBI Bank Ltd. continues to be, since its inception, India’s premier industrial
development bank. It came into being as on July 01, 1964 to support India’s industrial
backbone. Today, it is amongst India’s foremost commercial banks, with a wide range
of innovative products and services, serving retail and corporate customers in all
corners of the country from 1717 branches and 3000 ATMs. The Bank offers its
customers an extensive range of diversified services including project finance, term
lending, working capital facilities, lease finance, venture capital, loan syndication,
corporate advisory services and legal and technical advisory services to its corporate
clients as well as mortgages and personal loans to its retail clients. As part of its
development activities, IDBI Bank has been instrumental in sponsoring the
development of key institutions involved in India’s financial sector – National Stock
Exchange of India Limited (NSE) and National Securities Depository Ltd, SHCIL

17
(Stock Holding Corporation of India Ltd), CARE (Credit Analysis and Research
Ltd).

FEDERAL BANK

Federal Bank is one of India’s leading private sector banks, with a dominant
presence in the state of Kerala. It has a strong network of over 1,247 branches and
1,485 ATMs spread across India. The bank provides over four million retail
customers with a wide variety of financial products. Federal Bank is one of the first
large Indian banks to have an entirely automated and interconnected branch network.
In addition to interconnected branches and ATMs, the Bank has a wide range of
services like Internet Banking, Mobile Banking, Tele Banking, Any Where Banking,
debit cards, online bill payment and call centre facilities to offer round the clock
banking convenience to its customers. The Bank has been a pioneer in providing
innovative technological solutions to its customers and the Bank has won several
awards and recommendations.

AGEAS

Ageas is an international insurance group with a heritage spanning 190 years. Ranked
among the top 20 insurance companies in Europe, Ageas has chosen to concentrate its
business activities in Europe and Asia, which together make up the largest share of
the global insurance market. These are grouped around four segments: Belgium,
United Kingdom, Continental Europe and Asia and served through a combination of
wholly owned subsidiaries and partnerships with strong financial institutions and key

18
distributors around the world. Ageas operates successful partnerships in Belgium, the
UK, Luxembourg, Italy, Portugal, Turkey, China, Malaysia, India and Thailand and
has subsidiaries in France, Hong Kong and the UK. Ageas is the market leader in
Belgium for individual life and employee benefits, as well as a leading Non-Life
player through AG Insurance. In the UK, Ageas is the sixth largest Non-Life insurer
with a number 3 position in cars insured and has a strong presence in the over 50’s
market. Ageas employs more than 13,000 people in the consolidated entities and over
30,000 in the non-consolidated partnerships and has annual inflows of more than EUR
23 billion.

COMPANY’S VISION, MISSION AND VALUES

VISION

Our vision to “Go further” is underpinned by our strong legacy, having being perform
by a three way joint venture among leading entities.

MISSION

Reaching out to customers through empowered and engaged employees and

distributors, facilitated by cutting-edge technology right-selling and seamless service
to meet their evolving needs.

PURPOSE

Empowering you to create the life and life style of your choice.

OUR VALUES

• Passion
• Integrity
• Execution
• Ambition
• Transparency

OUR GUIDING PRINCIPLES

• Think Different

19
 • Display Ownership
• Be solution focused
• Be agile
• Embrace openness

OUR MILESTONES

• MOU between Federal Bank and Fortis took place on November 2006.
• On 19th December 2007 the company got licensed and this day is also known
as Foundation day.
• In March 2008 the company sold its first Policy.
• In August 2008 the company became the fastest in reaching 100cr premium
collection.
• In March 2010 the AUM crossed 1000cr.
• In August 2010 IDBI Fortis was changed to IDBI Federal.
• In November 2012 IDBI federal got its Master Brand Status.
• In March 2013 it attained its Break Even and declared a profit of 9.2 cr.
• In March 2014 it earned a profit of 80cr.
• In March 2015 it earned a profit of 155cr.
• In March 2016 the AUM was 4893 cr.
• During 2015-16 the company collected a premium of 1240crs.
• During 2016-17 the company collected a premium of 1574crs.
• It has 13th month persistency i.e. 74% best in the industry.
• The solvency ratio is 472% against the minimum regulatory of 15%.
• Achieved its gold award.
• Introduced “Good to Great” in 2015-16.
• Introduced “Go Further” in 2016-17.

20
 PRODUCTS OFFERED BY IDBI

PRODUCTS

ULIP
TRADITIONAL PRODUCTS(non
PRODUCTS traditional
products)

Wealthsurance
Lifesurance childsurance Incomesurance Growth and
Feature

AWARDS

• Top 10 Most Trusted Life Insurance brands of India in the Economic times
brand equity survey.
• Life Insurance company of the year 2017 at the India Insurance Summit and
awards.
• Insurance company of the year 2017 at Assocham Insurance Excellence
Awards.
• Life Insurance company of the year- Medium and Small (Private sector) at the
Fintelekt Insurance awards 2017.
• Neons OOH conference award for “The angry babies campaign”.
• Gold award for the annual report 2015-2016 in the Insurance category in
League of Communications Professionals (LACP) awards 2015.
• Fintelekt Insurance awards 2017 conferred with an award for Bancassurance
Leader of the year.

21
CHAPTER-II

3.1 THEORITICAL FRAMEWORK

3.2 REVIEW OF LITERATURE

3.1 WORKING CAPITAL MANAGEMENT

MEANING: According to Genestenberg, circulating capital means current assets of a

company that are changed in the ordinary course of business from one form to another
form, as per example from cash to inventories, inventories to receivables, receivables in
to cash.

In simple words, working capital refers to that part of the firm’s capital which is required
for financing short term or current assets such as cash, marketable securities, debtors and
inventories. Funds, thus, invested in current asset 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.

WORKING CAPITAL RATIOS

LIQUIDITY RATIO:

Liquidity ratios are also termed as short-term solvency ratios. The term liquidity means
the extent of quick convertibility of assets in to money for paying obligation of short-term
nature. Accordingly, liquidity ratios are useful in obtaining an indication of a firm’s
ability to meet its current liabilities, but it does not reveal how effectively the cash
resources can be managed. To measure the liquidity of a firm, the following ratios are
commonly used.

 Current Ratio
 Quick Ratio
 Absolute Liquid Ratio

Current ratio:

Current ratio establishes the relationship between current assets and current liabilities. It
attempts to measure the ability of a firm to meet its current obligations. The two basic
components of this ratio are current assets and current liabilities. A current asset normally

22
means assets which can be easily converted into cash within a years’ time. On the other
hand, current liabilities represent those liabilities which are payable within a year.

Current Assets
Current Ratio = ------------------------
Current Liabilities

Quick ratio:

Quick ratio also termed as acid test or liquid ratio. It is supplementary to the current ratio.
The acid test ratio is a more severe and stringent test of a firm’s ability to pay its short-
term obligation as and when they become due. Quick ratio establishes the relationship
between the quick assets and current liabilities.

Quick Assets
Quick Ratio = -------------------------
Quick Liabilities
Quick Assets = Current assets – Stock – Prepaid expenses
Quick Liabilities = Current Liabilities – Bank Overdraft – Cash Credits

Absolute liquid ratio:

Absolute Liquid Ratio is also called as cash position ratio or overdue liability ratio. This
ratio established the relationship between the absolute liquid assets and current liabilities.
Absolute liquid assets include cash in hand cash at bank and marketable securities or
temporary investments.

Absolute Liquid Assets

Absolute Liquid Ratio = --------------------------------
Current Liabilities

23
WORKING CAPITAL TURNOVER RATIO

Working capital turnover is a ratio which measures how efficiently a company is using its
working capital to support a given level of sales. Also referred to as net sales to working
capital, it shows the relationship between the funds used to finance a company's
operations and the revenues a company generates as a result.

Sales
Working Capital Turnover Ratio = --------------------------
Net Working Capital

CURRENT ASSET TURNOVER RATIO

An activity ratio measuring firm’s ability of generating sales through its current assets
(cash, inventory, accounts receivable, etc.). It can be calculated by dividing the firm's net
sales by its average current assets, and it shows the number of turns made by the current
assets of the enterprise.

Net Sales
Current Asset Turnover Ratio = -----------------------
Current Assets

The values may vary between businesses and industries, and the normative value is
absent. However, higher current asset turnover comparing to competitors would indicate
a high intensity of the current assets usage. The increasing trend of this ratio is a good
sign because this means that the company is working on the consistent improvement of
its policies in inventory, accounts receivable, cash and other current assets management.
In fact, increasing current asset turnover leads to the decrease of the financial resources
amount, needed for the company's operations maintenance. This means that bigger part of

24
the financial resources can be used for current operations intensification or making
investments. The decrease of the current assets turnover indicates the firm's increasing
need of sources of finance. If the access to sources of finance is limited, this will cause
the increase of the company's financial expenses.

There are two concepts of working capital:

1) Gross Working Capital refers to the firms investments in current assets. Current assets
are the assets which can be converted into cash within an accounting year and include
cash, short term securities, debtors, bills receivable and stock.

2) Net Working Capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders which are expected to mature
for payment within an accounting year and include creditors, bills payable and
outstanding expenses.Net working capital can be positive or negative. A positive net
working capital will arise when current assets exceed current liabilities. A negative net
working capital occurs when current liabilities are in excess of current assets.

NEED FOR WORKING CAPITAL

The need for working capital to run the day-to-day business activities cannot be
emphasized. We will hardly find a business firm which does not require any amount of
working capital. Indeed, firms differ in their requirements of the working capital.

We know that a firm should aim at maximizing the wealth of its shareholders. In its
Endeavour to do so, a firm should earn sufficient return from its operations. Earnings a
steady amount of profit require successful sales activity. The firm has to invest enough
funds in current assets for generating sales. Current assets are needed because sales do
not convert into cash instantaneously. There is always an operating cycle involved in the
conversion of sales into cash.

25
OBJECTIVES OF WORKING CAPITAL MANAGEMENT

The primary objective of working capital management is to ensure that sufficient cash is
available to:

1. Meet day to day cash flows needs.

2. Pay wages and salary when they fall due.
3. Pay government taxation and providers of capital dividends.
4. Ensure the long-term survival of the business entity.

USES OF WORKING CAPITAL

Working capital is used to finance the following:

1. Construction, renovation or improvements to the leasehold.

2. To put furniture, fixtures, machinery or equipment.
3. For day to day operations of the business and payroll.

IMPORTANCE OF WORKING CAPITAL

Working capital is a vital part of a business and can provide the following advantages to a
business.

HIGHER RETURN ON CAPITAL

Firms with lower working capital will post a higher return on capital so shareholders will
benefit from a higher return for every dollar invested in the business.

IMPROVED CREDIT PROFILE AND SOLVENCY

The ability to meet short term obligations is a pre-requisite to long-term solvency and
often a good indication of counterparty credit. Adequate working capital management
will allow a business to pay on time its short-term obligations which could include raw
materials, salaries, and other operating expenses.

26
HIGHER PROFITABILITY

According to a research conducted by Tauringana and Adjapong Afrifa, the management

of account payables and receivables is an important driver of small business profitability,

HIGHER LIQUIDITY

A large amount of cash can be tied up in working capital, so a company managing it

efficiently could benefit from additional liquidity and be less dependent on external
financing. This is especially important for smaller business as they typically have a
limited access to external funding sources. Also, small businesses often pay their bills in
cash from earnings so an efficient working capital management will allow a business to
better allocate its resources and improve its cash management.

INCREASED BUSINESS VALUE

Firms with more efficient working capital management will generate more free cash
flows which will result in a higher business valuation and enterprise value.

FAVORABLE FINANCING CONDITIONS

A firm with a good relationship with its trade partners and paying its supplier on time will
benefit from favorable financing terms such as discount payments from its suppliers and
banking partners.

UNINTERRUPTED PRODUCTION

A firm paying its suppliers on time will also benefit from a regular flow of raw materials,
ensuring that the production remains uninterrupted and clients receive their goods on
time.

ABILITY TO FACE SHOCKS AND PEAK DEMAND

27
An efficient working capital management will help a firm to survive through a crisis or
ramp up production in case of an unexpectedly large order.

COMPETITIVE ADVANTAGE

Firms with an efficient supply chain will often be able to sell their products at a discount
versus similar firms with inefficient sourcing.

ADVANTAGES AND DISADVANTAGES OF WORKING CAPITAL

Advantages of working capital are follows:

1. Helps in maintaining goodwill of the firm.

2. Helps the firm in getting regular return on investment.

Disadvantages of working capital are follows:

1. It leads to excessive debtors.

2. Spare funds are of no use and earn no profit.

28
 CHAPTER 4

DATA ANALYSIS & INTERPRETATION

4.1 DATA ANALYSIS :

TABLE-1:

LIQUIDITY POSITION OF IDBI:

Year Current Assets(Rs) Current Liabilities(Rs) Working Capital

2013-2014 2920941 1596856 1324085
2014-2015 3436895 2072070 1364825
2015-2016 3946889 2133915 1812974
2016-2017 5222595 2982962 2239633
2017-2018 6288773 3820571 2468202

Interpretation:

From the above data, IDBI is having 1324085 working capital whereas it increased to
1364825 in the year 2014-15 and raises to 1812974 in the year 2015-16.In the year 2016-
17 the working capital is 2239633 and it raised to 2468202 in the year 2017-18.

29
CURRENT RATIO TABLE:

Year Current Assets Current Liabilities Ratio

2013-2014 2920941 1596856 1.829182
2014-2015 3436895 2072070 1.658677
2015-2016 3946889 2133915 1.849599
2016-2017 5222595 2982962 1.750808
2017-2018 6288773 3820571 1.64603

GRAPH:

CURRENT RATIO
1.9
1.849599914
1.85 1.829182469

1.8
1.750808425
1.75
RATIO

1.7 1.658677072 1.646029612

1.65
1.6
1.55
1.5
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation

From the above data, IDBI is having 1.83 current ratio whereas it decreased to 1.66 in the
year 2014-15 and raises to 1.85 in the year 2015-16.In the year 2016-17 the current ratio
is 1.75 and it decreased to 1.64 in the year 2017-18.

30
QUICK RATIO TABLE:

Year Current Assets Current Liabilities Ratio

2013-2014 2920941 1596856 1.829182
2014-2015 3436895 2072070 1.658677
2015-2016 3946889 2133915 1.849599
2016-2017 5222595 2982962 1.750808
2017-2018 6288773 3820571 1.64603

GRAPH:

QUICK RATIO
1.9
1.849599914
1.85 1.829182469

1.8
1.750808425
1.75
RATIO

1.7 1.658677072 1.646029612

1.65
1.6
1.55
1.5
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation

From the above data, IDBI is having 1.83 current ratio whereas it decreased to 1.66 in the
year 2014-15 and raises to 1.85 in the year 2015-16.In the year 2016-17 the current ratio
is 1.75 and it decreased to 1.64 in the year 2017-18.

31
ABSOLUTE LIQUID RATIO TABLE:

Year Absolute Liquid Assets Current Liabilities Ratio

2013-2014 926324 1596856 0.580092
2014-2015 1236932 2072070 0.596955
2015-2016 1074726 2133915 0.50364
2016-2017 1618249 2982962 0.542497
2017-2018 1637837 3820571 0.428689

GRAPH:

ABSOLUTE LIQUID RATIO

0.7
0.580092382 0.596954736
0.6 0.542497357
0.503640492
0.5 0.428689062
0.4
RATIO

0.3

0.2

0.1

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation

From the above data, IDBI is having 0.58 absolute liquid ratio whereas it increased to
0.59 in the year 2014-15 and later it decreased to 0.50 in the year 2015-16.In the year
2016-17 the absolute liquid ratio is 0.54 and it decreased to 0.43 in the year 2017-18.

32
WORKING CAPITAL TURNOVER RATIO TABLE:

Year Sale Working Capital Ratio

2013-2014 1243078 1324085 0.93882
2014-2015 1917848 1364825 1.405197
2015-2016 427821 1812974 0.235977
2016-2017 605386 2239633 0.270306
2017-2018 1084125 2468202 0.439237

GRAPH:

WORKING CAPITAL TURNOVER

1.6
1.405197003
1.4
1.2
1 0.938820393
RATIO

0.8
0.6 0.43923674
0.4 0.23597746 0.270305894
0.2
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation:

From the above data, IDBI is having 0.93 working capital turnover ratio whereas it
increased to 1.40 in the year 2014-15 and decreased to 0.23 in the year 2015-16.In the
year 2016-17 the working capital turnover ratio is 0.27 and it raised to 0.43 in the year
2017-18.

33
CURRENT ASSESTS TURNOVER RATIO TABLE:

Year Sales Current Assets Ratio

2013-2014 1243078 2920941 0.425574
2014-2015 1917848 3436895 0.558018
2015-2016 427821 3946889 0.108394
2016-2017 605386 5222595 0.115917
2017-2018 1084125 6288773 0.172391

GRAPH:

CURRENT ASSESTS TURNOVER RATIO

0.6 0.558017629

0.5
0.425574498
0.4
RATIO

0.3

0.2 0.172390544
0.108394485 0.115916704
0.1

0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR

Interpretation:

From the above data, IDBI is having 0.42 current assets turnover ratio whereas it
increased to 0.55 in the year 2014-15 and decreased to 0.10 in the year 2015-16.In the
year 2016-17 the current assets turnover ratio is 0.11 and it raised to 0.17 in the year
2017-18.

34
CHAPTER-V

5.1 FINDINGS

5.2 SUGGESTIONS

5.3 CONCLUSIONS
5.1 FINDINGS:
1. There is a gradual increase in working capital, but however the current ratio has
shown a fluctuating trend and gradual decrease from 1.8 in 2013-14 to 1.6 in the
year 2017-18.
2. The Absolute liquid ratio, is however satisfactory as the company has maintained
a ratio close to 0.5 in all the years .This indicates that the company has adequate
cash balances but, the others current asset fall short of the required level.
3. The working capital turnover ratio has fallen from 0.9 to 0.2 and recovered to 0.4
in 2017-18.This indicates inefficient case of working capital to generate sales.
4. The current asset turnover ratio has also fallen from 0.4 to 0.17 indicating 1ow
utilization of current assets in generating sales.

35
5.2 CONCLUSION :

The present study titled, “A study on working capital management”, has

considered five ratios i.e, (Current ratio, Quick ratio, Absolute liquid ratio,
Working capital turnover ratio and Current asset turnover ratio) to examine
the impact of ratios on the performance of IDBI, and it was found that the
cash position of IDBI is satisfactory however it should improve its
investments in other current assets.

36
 5.3 SUGGESTIONS:

1. IDBI has to improve its investments in other current assets.

2. Efforts must be made to improve effective utilization of current assets and working
capital to generate sales.

37
BIBLOGRAPHY
BIBLIOGRAPHY:

Reference

Books:

Financial Management: Prasanna Chandra

Financial Management: I.M Pandey

Journals:

Greg Filbeck (2005)

Marc Deloof (2003)

Internet Sources:

https://www.idbifederal.com/

https://www.researchgate.net/publication/261133466_IMPLICATION_OF_WORKING_
CAPITAL_MANAGEMENT_ON_THE_PROFITABILITY_A_CASE_OF_ONGC_LT
D_INDIA

https://www.sciencedirect.com/science/article/pii/S221256711600037X

https://www.emeraldinsight.com/doi/abs/10.1108/19355181199500015

https://scialert.net/fulltextmobile/?doi=rjbm.2009.73.84

https://mpra.ub.uni-muenchen.de/44894/1/MPRA_paper_44894.pdf

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=931591