A PROJECT REPORT ON

“A STUDY ON WORKING CAPITAL MANAGEMENT OF PUBLIC SECTOR BANKS”

SUBMITTED TO

UNIVERSITY OF MUMBAI FOR PARTIAL COMPLETION OF THE DEGREE

BACHELOR OF COMMERCE (ACCOUNTING AND FINANCE)

SEMESTER VI (2022-2023)
By

MOHAMMAD AFFAN MOHAMMAD RAFI SHAIKH

ROLL NO: - 17
Under the guidance of

PROF. SANIYA RAFIQUE NACHAN

DAAR-UL-REHMAT TRUST'S
A.E. KALSEKAR DEGREE COLLEGE
ARTS, COMMERCE, AND SCIENCE
(AFFILIATED TO UNIVERSITY OF MUMBAI)
KAUSA-MUMBRA DIST: THANE
ACCREDITED WITH B++ GRADE BY NAAC

March 2022-2023
 A PROJECT REPORT ON
“A STUDY ON WORKING CAPITAL MANAGEMENT OF PUBLIC SECTOR BANKS”
SUBMITTED TO

UNIVERSITY OF MUMBAI FOR PARTIAL COMPLETION OF THE DEGREE

BACHELOR OF COMMERCE (ACCOUNTING AND FINANCE)

SEMESTER VI (2022-2023)
By

MOHAMMAD AFFAN MOHAMMAD RAFI SHAIKH

ROLL NO: - 17
Under the guidance of

PROF. SANIYA RAFIQUE NACHAN

DAAR-UL-REHMAT TRUST'S
A.E. KALSEKAR DEGREE COLLEGE
ARTS, COMMERCE, AND SCIENCE
(AFFILIATED TO UNIVERSITY OF MUMBAI)
KAUSA-MUMBRA DIST: THANE
ACCREDITED WITH B++ GRADE BY NAAC

March 2022-2023
 DECLARATION

I the undersigned MR. MOHAMMAD AFFAN MOHAMMAD RAFI SHAIKH here by, declare
that the work embodied in this project work titled “A STUDY ON WORKING CAPITAL
MANAGEMENT OF PUBLIC SECTOR BANKS” forms my own contribution to the research
work carried out under the Guidance of PROF. SANIYA RAFIQUE NACHAN is a result of my
own research work and has not been previously submitted to any other University for any
other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous work of others, it has been clearly indicated
as such and included in the bibliography.

I, hereby further declare that all information in this document has been obtained and
presented in accordance with academics’ rules and ethical conduct.

MR. MOHAMMAD AFFAN MOHAMMAD RAFI SHAIKH

Signature

Certified by:

PROF. SANIYA RAFIQUE NACHAN

Signature
 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions
in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me the chance to do
this project.

I would like to thank my Principal, Dr. Sajid Hundekar for providing the necessary facilities
required for completion of this project.

I take this opportunity to thank our Coordinator Dr. Zahid Husain Ansari for his

moral support and guidance.

I would also like to express my sincere gratitude towards my project guide PROF. SANIYA
RAFIQUE NACHAN whose guidance and care made the project successful.

I would like to thank the College Library, for having provided various reference books and
magazines related to my project.

Lastly, I would like to thank each and every person who directly and indirectly helped me in
the completion of the project especially my parents and peers who supported me
throughout my project.
SR.NO CONTENT PAGE.NO

- EXECUTIVE SUMMARY -
1 1.1 INTRODUCTION 1
1.2 MEANING AND DEFINATION 2
1.3 CLASSIFICATION OF WORKING CAPITAL 3
1.4 FACTORS INFLUENCING WORKING CAPITAL NEEDS: - 4-7
1.5TECHNIQUES FOR ASSESSMENT OF WORKING CAPITAL 8-10
REQUIREMENTS: -
1.6 MANAMAGEMENT OF DIFFERENT COMPONENTS OF WORKING 11-13
CAPITAL:
1.7 RATIO ANALYSIS 14-34
1.8 BANK PROFILE
A) BANK OF MAHARASHTRA 35-39
B) STATE BANK OF INDIA

2 2.1 RESEARCH AND METHODOLOGY 48

2.2 OBJECTIVE OF STUDY 48
2.3 SCOPE AND LIMITATION OF STUDY 48-49
3 LITERATURE REVIEW. 50
4 DATA ANALYSIS AND INTERPREATATION

4.1 PRIMARY DATA. 52-62

4.2 SECONDARY DATA 63-76
BANK OF MAHARASHTRA (BALANCE SHEET AND PROFIT & LOSS 77-84
STATEMENT OF FROM 2019-2021)
STATE BANK OF INDIA (BALANCE SHEET AND PROFIT & LOSS 85-90
STATEMENT OF FROM 2019-2021)
5 5.1 FINDINGS 91
5.2 CONCLUSION 92
BIBLIOGRAPHY 93-94
 EXECUTIVE SUMMARY

I have great pleasure in presenting my project to the Mumbai University, as my topic is

“A study on working capital management of public sector bank “I have made

sincere efforts to make this project informative and I am sure it would justify the same.

Basic knowledge about working capital and concept related to it Working capital
management refers to the administration of all aspects of current assets, namely cash,
marketable securities, debtors and stock (inventories) and current liabilities. The financial
manager must determine levels and composition of current assets. He must see that right
sources are tapped to finance current assets, and that current liabilities are paid in time.
There are many aspects of working capital management, which make it an important
function of the financial manager:

• Time: working capital management requires much of the financial manager’s time.

• Investment: working capital represents a large portion of the total investments in assets.
• Significance: working capital management has great significance for all firms but it is very
critical for small firms.

• Growth: the need for working capital is directly related to the firm’s growth.

Investment in current assets represents a very significant portion of the total investment in
assets. Working capital management is critical for all firms. A small firm may not have much
investment in fixed assets, but it has to invest to in current assets. Small firms in India face a
severe problem of collecting their debtors.

Banks have their own policies to assess the working capital of the firm to finance them with
the shortage. Bank of Maharashtra and State Bank of India (SBI) adopts certain method for
financing their customer’s working capital requirements. There are certain
recommendations from the committees for the banks to finance the working capital needs
of their clients. It may, thus, be concluded that all precautions should be taken for the
effective and efficient management of working capital. The finance manager should pay
regular attention to the levels of current assets and the financing of current asset
 Chapter 1

1.1 Introduction

The concept of working capital was originally to ensure that obligations could be met in case
the firm went into liquidation. Holding sufficient short-term assets guaranteed that the firm
would be able to satisfy short-term creditors in the event of liquidation. Thus, the main
objective was to control business in a way that short-term assets matched short-term
liabilities.16 In practice, a one-year period was used to distinguish between the short and
long terms.

Working capital means the funds which are required to meet the daily transactions of the
business. In other words, it refers to that part of the firm’s capital which is required for
financing current assets such as cash, marketable securities, debtors and inventories. Thus,
working capital is very significant facet of financial management. Every business concern
should have adequate working capital to run its operations smoothly. It should have neither
excess working capital nor inadequate working capital because both of these have adverse
effects on firm’s profitability and liquidity positions. Therefore, business concerns should
maintain adequate working capital.

The basic objective of working capital is to manage the firm’s current assets and current
Liabilities in such a way that that a satisfactory level of working capital is maintained.
Working capital policies have a great effect on a firm’s liquidity and profitability. Therefore,
the working capital should be managed in such a way which will ensure higher profitability
and proper liquidity to the Business concern.

The significance of working capital management is to ensure that the organization

maintains a ‘good fit’ with the changing environment and strives to build the capability to
cope with challenges.

1
 1.2 MEANING AND DEFINATION

Working capital of a firm may be different as the amount by

which its current assets exceed its current liabilities. Working capital management is
concerned with the problem that arises attempting to manage current assets, current
liabilities and the interrelationship that exists between them. The current assets to those
assets, which in the ordinary course of the business can be, or will be, turned into cash
within 1 year without disrupting the operations of the firm. The major current assets are
cash marketable securities account receivable and inventories. Current liabilities are those
liabilities, which are intended at their inception to be payee in the ordinary course of
business with in the year, out of current assets or earning of the concern. The basic current
liabilities are account payable, bills payable, bank overdraft and outstanding expenses.

The goal of working capital management is to manage the firm’s

current assets and current liabilities in such a way that the satisfactory level of the working
capital is maintained. The Interaction between the current assets and current liabilities is
the main theme of the theory of the working capital management. The important elements
of working capital includes inventory management, cash management, credit and collection
policy and short-term borrowings whereas long-term financial analysis is primarily
concerned with strategic planning, working capital management is primarily concerned with
day-to-day operations making shore, production lines out stop as firms run out of the raw
material and thus preventing the slowing down of the process. Obviously without good
working capital management no firm can be efficient and profitable.

“Working Capital is the Life-Blood and Controlling Nerve Centre of a business” The
working capital management precisely refers to management of current assets. A firm’s
working capital consists of its investment in current assets, which include short-term
assets such as:

• ➢ Cash and bank balance,

• ➢ Inventories,

• ➢ Receivables (including debtors and bills),

• ➢ Marketable securities.

2
WORKING CAPITAL = CURRENT ASSEST – CURRENT LIABILITIES

Working capital is commonly defined as the difference between current assets and current
liabilities

1.3 CLASSIFICATION OF WORKING CAPITAL

The type, kinds of a thing are depending upon the different utilization of working capital. It
prominently works in the direction of performing different functions in different situation
and in the context of divergent variables. Following are some important types of working
capital. Working capital can be classified as follows:

• ➢ On the basis of time

• ➢ On the basis of concept

3
Working Capital and Types of Working Capital

1) ON THE BASIS OF CONCEPT

A) GROSS WORKING CAPITAL:

It refers to firm's investment in current assets. Current assets are the assets, which can be
converted into cash with in a financial year. For instance, liquid cash, inventory, account
receivables, marketable securities and short-term investments are a few examples of gross
working capital. The gross working capital points to the need of arranging funds to finance
current assets.

B) NET WORKING CAPITAL:

It refers to the difference between current assets and current liabilities. Net working capital
can be positive or negative. A positive net working capital will arise when current assets
exceed current liabilities. And vice-versa for negative net working capital. Net working
capital is a qualitative concept. It indicates the liquidity position of the firm and suggests the
extent to which working capital needs may be financed by permanent sources of funds. Net
working capital also covers the question of judicious mix of long-term and short-term funds
for financing current assets.

4
 2) ON THE BASIS OF CONCEPT

A) PERMANENT / FIXED WORKING CAPITAL:

There is always a minimum level of working capital, which is continuously required by a firm
in order to maintain its activities. Every firm must have a minimum

of cash, stock and other current assets, this minimum level of current assets, which must be
maintained by any firm all the times, is known as permanent working capital for that firm.
This amount of working capital is constantly and regularly required in the same way as fixed
assets are required. So, it may also be called fixed working capital.

The permanent or fixed working capital is of two kinds:

(a) Regular working capital:

It is the minimum amount of liquid capital required to keep up the circulation of the capital
from cash to inventories to receivables and back again to cash. This would include a
sufficient amount of cash to maintain reasonable quantities of raw materials for processing
into finished goods to ensure quick delivery etc.

(b) Reserve margin or cushion working capital:

It is extra capital required to meet unforeseen contingencies that may arise in future. These
contingencies may crop up on account of rise in prices, business depression, strikes, lock-
outs, fires and unexpected competition. It is needed over and above the regular working
capital requirements.

B) TEMPORARY / VARIABLE WORKING CAPITAL:

Any amount over and above the permanent level of working capital is temporary,
fluctuating or variable working capital. The position of the required working capital is
needed to meet fluctuations in demand consequent upon changes in production and sales
as a result of seasonal changes. The permanent level is constant while the temporary
working capital is fluctuating increasing and decreasing in accordance with seasonal
demands as shown in the figure.

5
In the case of an expanding firm, the permanent working capital line may not be horizontal.
This is because the demand for permanent current assets might be increasing (or
decreasing) to support a rising level of activity. In that case line would be rising.

(a) Seasonal working capital:

It refers to liquid capital needed during the particular season. According to Gerstenberg,
“Beyond initial and regular working capital, most businesses will require at stated
intervals a large amount of current assets to fill the demands of the seasonal busy
periods”.

During the season, the business enterprises have to push up purchase of raw
materials (sugarcane by sugar mills, wool by Woollen mills) and employ more people to
convert them into finished goods and thus require large amount of working capital.

(b) Special working capital:

It is that part of the variable capital which is needed for financing special
operations such as the organization of special campaigns for increasing sales through
advertisement or other sale promotion activities for conducting research experiments or
execution of special orders of Government that will have to be financed by additional
working capital.

It is undesirable to bring regular working capital into business on a short-

term basis because a creditor can seriously handicap the business by refusing to
continue lending permanently. Its recourse is to curtail operations unless another lender
can be found. Variable capital requirement can, however be financed out of short-term
loans from banks or inviting public deposits.

6
1.4 FACTORS INFLUENCING WORKING CAPITAL NEEDS: -

1. Nature of Business: - The amount of working capital is basically related to the nature
and volume of the business. In concerns, where the cost of raw materials to be used in
the manufacture of a product is very large in proportion to its total cost of manufacture
the requirements of working capital will be very large.

2. Size of Business Unit: - Size of the business unit is also a determining factor in
estimating the total amount of working capital. The general principle in this regard is
that the bigger the size the larger will be the amount of working capital required as
because the larger business units are required to maintain big inventories for the flow
of the business.

7
3. Seasonal Variations: - Strong seasonal movements create certain special problems of
working capital in controlling the internal financial swings. A great many companies
have to carry on seasonal business such as sugar mills, oil mills or woollen mills etc.

4. Time Consumed in Manufacture: - The average time taken in the process of

manufacture is also
an important factor in determining the amount of working capital. The longer the
period of manufacture the large the investor required

5. Turnover of Circulating Capital: - Turnover means the ratio of annual gross sales to
average working assets. In simple words, it means the speed with which circulating
capital completes its rounds or the number of times the amount invested.

6. Conversion of Current Assets into Cash: - The need of having cash in hand to meet the
day-to-day requirements payment of wages and salaries rent rates has an important
bearing in deciding the adequate amount of working capital.

7. Growth and Expansion of Business: - Growing concerns require more working capital
than those that are static. It is logical to expect larger amount of working capital in a
growing concern to meet its growing needs of funds for its expansion programmers
though it varies with economic condition and corporate practices.

8. Business Cycle Fluctuations: - Business cycle affects the requirement of working capital.
At times when the prices are going up and up and boom conditions prevail the tendency
management is to pile up a big stock of raw materials and to maintain a big stock of
finished goods with an expectation to earn more profits.

9. Profit Margin and Profit Appropriation: - Some firms enjoy a dominant position in the
market due to quality product or good marketing management or monopoly power in
the market and therefore earn a high profit margin. On the other hand, form facing
tough competition earn low margin of profit.

10. Dividend policy: - There is a well-established relationship between dividend and

working capital in companies where conservation dividend policy is followed. The
changes in working capital position bring a about an adjustment in dividend policy. With
a view to maintain and established dividend policy is the management before declaring
a dividend gives due consideration to its effects on cash and cash requirements

8
11. Terms of Purchase and Sales: -The working capital requirements of a company depends
on its terms of purchase and sales:
a) If it makes a purchase on credit and sells on a cash basis, then it requires less working
capital.
b) Conversely, if it buys with cash and sells on credit, then it will need more working
capital.

12. Cash Requirements: -A company needs cash for paying salaries, rent, taxes, so on. If the
company's cash needs are high, then it requires more working capital. In other words,
higher the cash requirement, greater will be the working capital required and vice versa.

13. Other Factors: - Additional factors influencing working capital requirements:

a. Transport facilities
b. Changes in price level
c. The credit standing of the company

9
1.5TECHNIQUES FOR ASSESSMENT OF WORKING CAPITAL REQUIREMENTS: -

1. ESTIMATION OF COMPONENTS OF WORKING CAPITAL METHOD: -

a) Since working capital is the excess of current assets over current liabilities,
an assessment of the working capital requirements can be made by
estimating the amounts of different constituents of working capital e.g.,
inventories, accounts receivable, cash, accounts payable, etc.

2. PERCENT OF SALES APPROACH: -

a) This is a traditional and simple method of estimating working capital
requirements.
b) According to this method, on the basis of past experience between sales and
working capital requirements, a ratio can be determined for estimating the
working capital requirements in future.

3. OPERATING CYCLE APPROACH: -

a. According to this approach, the requirements of working capital depend
upon the operating cycle of the business.
b. The operating cycle begins with the acquisition of raw materials and ends
with the collection of receivables

10
c. It may be broadly classified into the following

The duration of the operating cycle for the purpose of estimating working capital
requirements is equivalent to the sum of the durations of each of these stages less the
credit period allowed by the suppliers of the firm.

Symbolically the duration of the working capital cycle can be put as follows:
O=R+W+F+D-C
Where
O=Duration of operating cycle;
R=Raw materials and stores storage period;
W=Work-in-progress period;
F=Finished stock storage period;
D=Debtor's collection period;
C=Creditor's payment period.
Each of the components of the operating cycle can be calculated as follows: -
R= Average stock of raw materials and stores
Average raw materials and stores consumptions per day

W= Average work-in-progress inventory

Average cost of production per day

11
D= Average book debts
Average credit sales per day

C= Average trade creditors

Average credit purchases per day

After computing the period of one operating cycle, the total number of
operating cycles that can be computed during a year can be computed by dividing 365 days
with number of operating days in a cycle. The total expenditure in the year when year when
divided by the number of operating cycles in a year will give the average amount of the
working capital requirement.

12
1.6 MANAMAGEMENT OF DIFFERENT COMPONENTS OF WORKING CAPITAL:

Working capital management involves management of different components of working

capital such as cash, inventories, accounts receivable, creditors, etc.

MANAGEMENT OF CASH

It is the duty of the finance manager to provide adequate cash to all segments of
the organization. He also has to ensure that no funds are blocked in idle cash since this will
involve cost in terms of interest to the business. A sound cash management scheme,
therefore, maintains the balance between the twin objectives of liquidity and cost.

Meaning

The term “cash” with reference to cash management is used in two senses. In a
narrower sense it includes coins, currency notes, cheques, bank drafts held by a firm with it
and the demand deposits held by it in banks. In a broader sense it also includes “near-cash
assets” such as, marketable securities and time deposits with banks. Such securities or
deposits can immediately be sold or converted into cash if the circumstances require. The
term cash management is generally used for management of both cash and near cash assets

MOTIVES FOR HOLDING CASH

A distinguishing feature of cash as an asset, irrespective of the firm in
which it is held, is that it does not earn any substantial return for the business. In spite of
this fact cash is held by the firm with following motives.

1. Transaction motive
A firm enters into a variety of business transactions resulting in both inflows and
outflows. In order to meet the business obligation in such a situation, it is necessary to
maintain adequate cash balance. Thus, cash balance is kept by the firms with the
motive of meeting routine business payments.

2. Precautionary motive
A firm keeps cash balance to meet unexpected cash needs arising out of
unexpected contingencies such as floods, strikes, presentment of bills for payment
earlier than the expected date, unexpected slowing down of collection of accounts

13
 receivable, sharp increase in prices of raw materials, etc. The more is the possibility of
such contingencies more is the cash kept by the firm for meeting them.

3. Speculative motive
A firm also keeps cash balance to take advantage of unexpected opportunities,
typically outside the normal course of the business. Such motive is, therefore, of purely
a speculative nature.
For example, A firm may like to take advantage of an opportunity of
purchasing raw materials at the reduced price on payment of immediate cash or delay
purchase of raw materials in anticipation of decline in prices.

4. Compensation motive
Banks provide certain services to their clients free of charge. They, therefore, usually
require clients to keep a minimum cash balance with them, which help them to earn
interest and thus compensate them for the free services so provided.
Business firms normally do not enter into speculative activities and
therefore, out of the four motives of holding cash balances, the two most important
motives are the compensation motive

OBJECTIVES OF CASH
There are two basic objectives of cash management:

1. To meet the cash disbursement needs as per the payment schedule;

2. To minimize the amount locked up as cash balances.

1. Meeting cash disbursements

The first basic objective of cash management is to meet the payments Schedule.
In other words, the firm should have sufficient cash to meet the various requirements of the
firm at different periods of times. The business has to make payment for purchase of raw
materials, wages, taxes, purchases of plant, etc. The business activity may come to a
grinding halt if the payment schedule is not maintained. Cash has, therefore, been aptly

14
described as the “oil to lubricate the ever-turning wheels of the business, without it the
process grinds to a stop.”

2. Minimizing funds locked up as cash balances

The second basic objective of cash management is to minimize the amount locked
up as cash balances. In the process of minimizing the cash balances, the finance manager is
confronted with two conflicting aspects. A higher cash balance ensures proper payment
with all its advantages. But this will result in a large balance of cash remaining idle. Low level
of cash balance may result in failure of the firm to meet the payment schedule.

The finance manager should, therefore, try to have an optimum amount of cash
balance keeping the above facts in view.

CASH MANAGEMENT –BASIC PROBLEMS

Cash management involves the following four basic problems:
1. Controlling levels of cash
2. Controlling inflows of cash
3. Controlling outflows of cash
4. Optimum investment of surplus cash

1. Controlling levels of cash

One of the basic objectives of cash management is to minimize the

level of cash balance with the firm. This objective is sought to be achieved by means of
the following: -

I. Preparing cash budget

II. Providing for unpredictable discrepancies:
III. Consideration of short cost
IV. Availability of other sources of funds

2. Controlling inflows of cash

15
 Having prepared the cash budget, the finance manager should also ensure that
there is no significant deviation between the projected cash inflows and the
projected cash outflows. This requires controlling of both inflows as well as outflows
of cash. Speedier collection of cash can be made possible by adoption of the
following techniques, which have been found to be quite useful and effective.
i. Concentration Banking.
ii. Lock-box system.

3. Control over cash flows

An effective control over cash outflows or disbursements also helps a firm in
conserving cash and reducing financial requirements. However, there is a basic
difference between the underlying objective of exercising control over cash inflows
and cash outflows. In case of the former, the objective is the maximum acceleration
of collections while in the case of latter, it is to slow down the disbursements as
much as possible. The combination of fast collections and slow disbursements will
result in maximum availability of funds.
It can be of the following types: -
i. Billing float
ii. Capital float
iii. Cheque processing float
iv. Bank processing float

4. Investing surplus cash

I. Determination of the amount of surplus cash

II. Determination of the channels of investments.

16
CASH MANAGEMENT MODELS
Several types of cash management models have been recently designed to help in
determining optimum cash balance. These models are interesting and are beginning to be
used in practice.

Two of such models are given below:

1. BAUMOL MODEL: -
This model was suggested by William J Baumol. It is similar to one used for
determination of economic order quantity.

According to this model, optimum cash level is that level of cash where the carrying costs
and transactions costs are the minimum.

CARRYING COSTS

This refers to the cost of holding cash, namely, the interest foregone on marketable
securities. They may also be termed as opportunity cost of keeping cash balance.

TRANSACTION COSTS

This refers to the cost involved in getting the marketable securities converted into
cash. This happens when the firm falls short of cash and to sell the securities resulting in
clerical, brokerage, registration and other costs.

There is an inverse relationship between the two costs. When one increases, the
other decreases, the other decreases. Hence, optimum cash level will be at that point where
these two costs are equal.

The formula for determining optimum cash balance can be put as follows:

C= 2U x P
S
Where

• C = Optimum cash balance

• U = Annual (or monthly) cash disbursements
• P = Fixed costs per transaction
• S = Opportunity cost of one rupee p.a. (p.m.)

17
 2. MILLER ORR-MODEL
Baumol model is not suitable in those circumstances when the demand for cash
is not steady and cannot be known in advance.
Miller-Orr model helps in determining the optimum level of cash in such
circumstances. It deals with cash management problem under the assumption of
stochastic or random cash flows by laying down control limits for cash balances.
These limits consist of an upper limit (h), lower limit (o) and return point (z). When
cash balance reaches the upper limit, a transfer of cash equal to “h-z” is affected to
marketable securities. When it touches the lower limit, a transfer equal to “z-o” from
marketable securities to cash is made. No transaction between cash to marketable
securities and marketable securities to cash is made during the period when the cash
balance stays between the high and low limits.
The model is illustrated in the form of the following chart:

The above chart shows that when cash balances reach the upper limit, an account equal to “h-z” is
invested in the marketable securities and cash balance comes

down to “z” level. When cash balance touches the lower limit marketable securities of the
value of “z-o” are sold and the cash balance again goes up to ‘z’ level.

The upper limit and lower limit are set on the basis of opportunity cost of holding
cash; degree of likely fluctuation in cash balances and the fixed costs associated with
securities transactions.

18
MANAGEMENT OF INVENTORIES

Inventories are good held for eventual sale by a firm. Inventories are thus one of
the major elements, which help the firm in obtaining the desired level of sales.

Kinds of inventories

Inventories can be classified into three categories.

(i) Raw materials: These are goods, which have not yet been committed to production
in a manufacturing firm. They may consist of basic raw materials or finished
components.
(ii) Work-in-progress: This includes those materials, which have been committed to
production process but have not yet been completed.
(iii) Finished goods:
These are completed products awaiting sale. They are the final output of
the production process in a manufacturing firm. In case of wholesalers and retailers,
they are generally referred to as merchandise inventory.
The levels of the above three kinds of inventories differ depending upon
the nature of the business.

19
 BENEFITS OF HOLDING INVENTORIES
Holding of inventories helps a firm in separating the process of
purchasing, producing and selling. In case a firm does not hold sufficient stock of
raw materials, finished goods, etc., the purchasing would take place only when the
firm receives the order from a customer. It may result in delay in executing the
order because of

difficulties in obtaining/ procuring raw materials, finished goods, etc. thus inventories
provide cushion so that the purchasing, production and sales functions can proceed at
optimum speed.

The specific benefits of holding inventories can be put as follows:

(i) Avoiding losses of sales: -

If a firm maintains adequate inventories, it can avoid losses on account of

losing the customers for non-supply of goods in time.

(ii) Reducing ordering cost: -

The variable cost associated with individual orders, e.g., typing, checking,
approving and mailing the order, etc., can be reduced if a firm places a few large orders
than numerous small orders.

(iii) Achieving efficient production runs: -

Maintenance of large inventories helps a firm in reducing the set-up cost

associated with each production run.

20
RISKS AND COST ASSOCIATED WITH INVENTORIES

Holding of inventories exposes the firm to a number of risks and costs. Risk of
holding inventories can be put as follows:

(i) Price decline

This may be due to increase in the market supply of the product,

introduction of a new competitive product, price cutting by the competitors, etc.

(ii) Product deterioration

This may due to holding a product for too long a period or improper
storage conditions.

(iii) Obsolescence

This may be due to change in customers taste, new production technique,

improvements in the product design, specifications, etc.

The costs of holding inventories are as follows:

a) Materials cost

This includes the cost of purchasing the goods, transportation and handling charges less any
discount allowed by the supplier of the goods.

b) Ordering cost

This includes the variable cost associated with placing an order for the goods. The fewer the
orders, the lower will be the ordering costs for the firm.

c) Carrying cost

This includes the expenses for storing the goods. It comprises storage costs, insurance costs,
spoilage costs, cost of funds tied up in inventories, etc.

21
MANAGEMENT OF INVENTORY

Inventories often constitute a major element of the total working

capital and hence it has been correctly observed, “Good inventory management is good
financial management”.

Inventory management covers a large number of issues including

fixation of minimum and maximum levels; determining the size of the inventory to be
carried; deciding about the issue price policy; setting up receipt and inspection
procedure; determining the economic order quantity; providing proper storage facilities,
keeping check on obsolescence and setting up effective information system with regard
to the inventories.

However, management inventories involve two basic problems:

(i) Maintaining a sufficiently large size of inventory for efficient and smooth
production and sales operations;
(ii) Maintaining a minimum investment in inventories to minimize the direct-indirect
costs associated with holding inventories to maximize the profitability.

The objective of inventory management is, therefore, to determine and maintain the
optimum level of investment in inventories, which help in achieving the following
objectives:

(i) Ensuring a continuous supply of materials to production department facilitating

uninterrupted production
(ii) Maintaining sufficient stock of raw material in periods of short supply.
(iii) Maintaining sufficient stock of finished goods for smooth sales operation
(iv) Minimizing the carrying costs.

(v) Keeping investment in inventories at the optimum level.

22
 TECHNIQUES OF INVENTORY MANAGEMENT

Effective inventory requires an effective control over inventories. Inventory control refers
to a system which ensures supply of required quantity and quality of inventories at the
required time and the same time prevent unnecessary investment in inventories.

The techniques of inventory control/ management are as follows:

1. Determination of Economic Order Quantity (EOQ)

Determination of the quantity for which the order should be placed is one of the
important problems concerned with efficient inventory management. Economic
Order Quantity refers to the size of the order, which gives maximum economy in
purchasing any item of raw material or finished product.
It is fixed mainly taking into account the following costs.

(i) Ordering costs:

It is the cost of placing an order and securing the supplies. It varies

from time to time depending upon the number of orders placed and the number of
items ordered. The more frequently the orders are placed, and fewer the quantities
purchased on each order, the greater will be the ordering costs and vice versa.

(ii) Inventory carrying cost:

It is the cost of keeping items in stock. It includes interest on investment,

obsolescence losses, store-keeping cost, insurance premium, etc. The larger the value
of inventory, the higher will be the inventory carrying cost and vice versa

Formula: Q = 2U x P

23
Where

• Q = Economic Ordering Quantity

• U = Quantity (units) purchased in a year (month)
• P = Cost of placing an order
• S = Annual (monthly) cost of storage of one unit.

Determination of optimum production quantity

The EOQ model can be extended to production runs to determine the optimum
production quantity.

The two costs involved in this process are:

(i) Set up costs;

(ii) Inventory carrying cost.
The set-up cost is of the nature of fixed cost and is to be incurred at the time of
commencement of each production run. Larger the size of the production run, lower
will be the set-up cost per unit. However, the carrying cost will increase with
increase in the size of the production run.
Thus, there is an inverse relationship between the set-up cost and inventory
carrying cost. The optimum production size is at that level where the total of the
set-up cost and the inventory carrying cost is the minimum.
In other words, at this level the two costs will be equal.
The formula for EOQ can also be used for determining the optimum production
quantity as given below:

E= 2U x P
S

Where

• E = Optimum production quantity

• U = Annual (monthly) output
• P = Set-up cost for each production run
• S = Cost of carrying inventory per annum (per month)

24
 MANAGEMENT OF ACCOUNTS RECEIVABLES
Accounts receivables (also properly termed as receivables) constitute a
significant portion of the total current assets of the business next after inventories. They are
a direct consequence of “trade credit” which has become an essential marketing tool in
modern business.

When a firm sells goods for cash, payments are received immediately
and, therefore, no receivables are credited. However, when a firm sells goods or services on
credit, the payments are postponed to future dates and receivables are created. Usually, the
credit sales are made on open account, which means that, no, formal acknowledgements of
debt obligations are taken from the buyers. The only documents evidencing the same are a
purchase order, shipping invoice or even a billing statement. The policy of open account
sales facilities business transactions and reduces to a great extent the paper work required
in connection with credit sales.

Meaning of receivables

Receivables are assets accounts representing amounts owed to the firm as a result
of sale of goods / services in the ordinary course of business.

They, therefore, represent the claims of a firm against its customers and are
carried to the “assets side” of the balance sheet under titles such as accounts receivables,
customer receivables or book debts. They are, as stated earlier, the result of extension of
credit facility to then customers a reasonable period of time in which they can pay for the
goods purchased by them.

Purpose of receivables

Accounts receivables are created because of credited sales. Hence the purpose of
receivables is directly connected with the objectives of making credited sales.

25
The objectives of credited sales are as follows:

(i) Achieving growth in sales:

If a firm sells goods on credit, it will generally be in a
position to sell more goods than if it insisted on immediate cash payments. This
is because many customers are either not prepared or not in a position to pay
cash when they purchase the goods.
(ii) Increasing profits:
Increase in sales results in higher profits for the firm not only
because of increase in the volume of sales but also because of the firm charging a
higher margin of profit on credit sales as compared to cash sales.
(iii) Meeting competition:
A firm may have to resort to granting of credit facilities to its
customers because of similar facilities being granted by the competing firms to
avoid the loss of sales from customers who would buy elsewhere if they did not
receive the expected output.
The overall objective of committing funds to accounts
receivables is to generate a large flow of operating revenue and hence profit
than what would be achieved in the absence of no such commitment.

Costs of maintaining receivables

The costs with respect to maintenance of receivables can be identified as follows:

1. Capital costs:
Maintenance of accounts receivables results in blocking of the
firm’s financial resources in them. This is because there is a time lag between the
sale of goods to customers and the payments by them. The firm has, therefore,
to arrange for additional funds top meet its own obligations, such as payment to
employees, suppliers of raw materials, etc., while waiting for payments from its
customers.

26
2. Administrative costs:

The firm has to incur additional administrative costs for maintaining accounts receivable
in the form of salaries to the staff kept for maintaining accounting records relating to
customers, cost of conducting investigation regarding potential credit customers to
determine their creditworthiness, etc.

3. Collection costs:

The firm has to incur costs for collecting the payments from its credit customers.
Sometimes, additional steps may have to be taken to recover money from defaulting
customers.

4. Defaulting costs:

Sometimes after making all serious efforts to collect money from defaulting customers,
the firm may not be able to recover the over dues because of the inability of the
customers. Such debts are treated as bad debts and have to be written off since they
cannot be realized.

Factors affecting the size of receivables

The size of the receivable is determined by a number of factors. Some of the important factors
are as follows:

(1) Level of sales:

This is the most important factor in determining the size of accounts receivable.
Generally, in the same industry, a firm having a large volume of sales will be having a
larger level of receivables as compared to a firm with a small volume of sales. Sales
level can also be used for forecasting change in accounts receivable.
(2) Credited policies:

The term credit policy refers to those decision variables that influence the amount of
trade credit, i.e., the investment in receivables. These variables include the quantity of
trade accounts to be accepted, the length of the credit period to be extended, the cash
discount to be given and any special terms to be offered depending upon particular
circumstances of the firm and the customer. A firm’s credit policy, as a matter

27
of fact, determines the amount of risk the firm is willing to undertake in its sales activities. If
a firm has a lenient or a relatively liberal credit policy, it will experience a higher level of
receivables as compared to a firm with a more rigid or stringent credit policy.

This is because of two reasons:

(i) A lenient credit policy encourages even the financially strong customers to make
delays in payments resulting in increasing the size of the accounts receivables;
(ii) Lenient credit policy will result in greater defaults in payments by financially
weak customers thus resulting in increasing the size of receivables.

(3) Terms of trade:

The size of the receivables is also affected by terms of trade (or credit terms) offered
by the firm.
The two important components of the credit terms are:
(i) Credit period;
(ii) Cash discount.

i. Credit period:

The term credit period refers to the time duration for which credit is extended to the
customers. It is generally expressed in terms of “net days”. For example, If a firm’s credit
terms are “net 15”, it means the customers are expected to pay within 15 days from the
date of credit sale.

ii. Cash discount:

Most firms offer cash discount to their customers for encouraging them to pay their dues
before the expiry of the credit period. The terms of the cash discounts indicate the rate of
discount as well as the period for which the discount has been offered.

28
 MANAGEMENT OF ACCOUNT PAYABLE

Management of accounts payable is as much important as management of

accounts receivable. There is a basic difference between the approaches to be adopted by
the finance manager in the two cases. Whereas the underlying objective in case of accounts
receivable is to maximize the acceleration of the collection process, the objective in case of
accounts payable is to slow down the payments process as much as possible. But it should
be noted that the delay in payment of accounts payable may result in saving of some
interest costs but it can prove very costly to the firm in the form of loss credit in the market.

The finance manager has, therefore, to ensure that the payments after
obtaining the best credit terms possible.

OVERTRADING AND UNDERTRADING

The concepts of overtrading and under trading are intimately connected

with the networking capable position of the business. To be more precise they are
connected with the cash position of the business.

OVERTRADING:

Overtrading means an attempt to maintain or expand scale of operations of

the business with insufficient cash resources. Normally, concerns having overtrading have a
high turnover ratio and a low current ratio. In a situation like this, the company is not in a
position to maintain proper stocks of materials, finished goods, etc., and has to depend on
the mercy of the suppliers to supply them goods at the right time. It may also not be able to
extend credit to its customers, besides making delay in payment to the creditors.
Overtrading has been amply described as “overblowing the balloon”. Causes of overtrading.

The following may be the causes of over-trading:

(i) Depletion of working capital:

Depletion of working capital ultimately results in
depletion of cash resources. Cash resources of the company may get depleted by
premature repayment of long-term

29
loans, excessive drawings, dividend payments, purchase of fixed assets and excessive net
trading losses, etc.

(ii) Faulty financial policy:

Faulty financial policy can result in shortage of cash and overtrading in several ways:

(a) Using working capital for purchase of fixed assets.

(b) Attempting to expand the volume of the business without raising the
necessary resources, etc.

(iii) Over-expansion:
In national emergencies like war, natural calamities, etc., a firm may be
required to produce goods on a larger scale. Government may pressurize the
Manufacturers to increase the volume of production without providing for
adequate finances. Such pressure results in over-expansion of the business ignoring
the elementary rules of sound finance.

(iv) Inflation and rising prices: Inflation and rising prices make renewals and
replacements of assets costlier. The wages and material costs also rise. The
manufacturer, therefore, needs more money even to maintain the existing level of
activity.

(v) Excessive taxation: Heavy taxes result in depletion of cash resources at a scale
higher than what is justified. The cash position is further strained on account of
efforts of the company to maintain reasonable dividend rates for their
shareholders.

30
 CONSEQUENCES OF OVERTRADING
i. This is one of the most dangerous consequences of overtrading. Non-payments of
wages in time create a feeling of uncertainty, insecurity and dissatisfaction in all
ranks of the labour. Non-payments of taxes in time may result in bringing down the
reputation of the company considerably in the business and government circles.
a. Costly purchases:
ii. The company has to pay more for its purchases on account of its inability to have
proper bargaining, bulk buying and selecting proper source of supplying quality
materials.
a. Reduction in sales:
iii. The company may have to suffer in terms of sales because the pressure for cash
requirements may force it to offer liberal cash discounts to debtors for prompt
payments, as well as selling goods at throwaway prices.
a. Difficulties in making payments:
iv. The shortage of cash will force the company to persuade its creditors to extend
credit facilities to it. Worry, anxiety and fear will be the management’s constant
companions.

SYMPTOMS AND REMEDIES FOR OVERTRADING

The situation of overtrading should be remedied at the earliest possible opportunity, i.e., as
soon as its first symptoms are visible. The symptoms can be put as follows:

(a) A higher increase in the number of creditors as compared to debtors. This is because of
firms’ inability to pay its creditors in time and exercising of undue pressure on debtors for
payments;

(b) Increased bank borrowing with corresponding increase in inventories; The cure for
overtrading is easier to prescribe but difficult to follow. The cure is simplereduce the
business or increase finance. Both are difficult.

31
UNDERTRADING:

It is the reverse of overtrading. It means improper and underutilization of funds lying at the
disposal of the undertaking. The basic cause of under trading is, therefore, underutilization
of the firm’s resources. Such underutilization may be due any one or more of the following
causes:

➢ Conservative policies followed by the management;

➢ non-availability or shortage of basic facilities necessary for production such as, raw
materials, power, labour, etc.;

➢ General depression in the market resulting in fall in the demand of company’s products;

The symptoms of under trading are the following:

i. A very high current ratio.

ii. Low turnover ratios.
iii. An increase in working capital turnover (working capital/ sales) ratio.

Consequences of under trading

The following are the consequences of under trading:

I. The profits of the firm show a declining trend resulting in a lower return on capital
employed (ROI) in the business.
II. The value of the shares of the company on the stock exchange starts falling on
account of lower profitability;
III. There is loss to the reputation of the firm on account of lower profitability and
creation of impression in the minds of investors that the management is inefficient.

REMEDIES FOR UNDERTRADING

The condition of under trading is set in because of underutilization of the firm’s
resources. The situation can, therefore, be remedied by the management by
adopting a more dynamic and result-oriented approach. The firm may go for
diversification and undertaking new profitable jobs, projects, etc., resulting in a
better and efficient utilization of the firm’s resources

32
ROLE OF FINANCIAL MANAGER IN WORKING CAPITAL MANAGEMENT:

1. Working capital management requires must of the finance manager time as it

represent a large Position of investment is assets.
2. Working capital management requires much of the finance management time as it
represent larger position of investment in assets.
3. Action should be taken to curtail unnecessary investment in current assets.
4. All precautions should be taken for the effective and efficient management of
working capital.
5. Larger firms have to manage their current assets and current liabilities very carefully
and should see that the work should be done properly in order to achieve
predetermined organization goals.
6. The financial manager should pay special attention to the managements of current
assets on continuing basis.

33
1.7 RATIO ANALYSIS

Meaning of Ratio: -

A ratio is simple arithmetical expression of the relationship of one number to another. It

may be defined as the indicated quotient of two mathematical expressions. According to
Accountant’s Handbook by Wixom, Kell and Bedford, “a ratio is an expression of the
quantitative relationship between two numbers”.

Ratio Analysis: -

Ratio analysis is the process of determining and presenting the relationship of Items and
group of items in the statements. According to Batty J. Management Accounting “Ratio can
assist management in its basic functions of forecasting, planning coordination, control and
communication”. Ratio may be expressed in the following three ways:

1. Pure Ratio or Simple Ratio: -

It is expressed by the simple division of one number by another. For example, if the
current assets of a business are Rs. 200000 and its current liabilities are Rs. 100000, the
ratio of ‘Current assets to current liabilities’ will be 2:1.

2. ‘Rate’ or ‘so Many Times: -

In this type, it is calculated how many times a figure is, in comparison to another figure.
For example, if a firm’s credit sales during the year are Rs. 200000

3. Percentage: - In this type, the relation between two figures is expressed in

hundredth.
For Example, if a firm’s capital is Rs.1000000 and its profit is Rs.200000 the ratio of
profit capital, in Term of percentage, is 200000/1000000*100 = 20%.

TYPES OF RATIOS

1) CURRENT RATIO:

Current Ratio may be defined as the relationship between current assets and current
liabilities. This ratio is also known as working capital ratio, is a measure of general

34
 liquidity and is most widely used to make the analysis of a short-term financial position
or liquidity of a firm.

It is calculated by dividing total current assets by total of the current liabilities

2) QUICK RATIO:
Quick ratio is a ratio of assets to quick liabilities. Quick assets are assets that can be
converted into cash very quickly without much loss. Quick liabilities one liabilities,
which have to be necessarily paid within one year.

The acid test ratio is a measure of liquidity designed to overcome of firm’s ability to convert
its current assets quickly into cash in order to meet its current liabilities. Thus, it is measure
of quick or acid liquidity.

Quick Assets = Current Assets – (Inventory + Prepaid Expenses)

3) CASH RATIO (SUPER QUICK RATIO):

Definition
Total dollar value of cash and marketable securities divided by current liabilities. For
a bank this is the cash held by the bank as a proportion of deposits in the bank. The
cash ratio measures the extent to which a corporation or other entity can quickly
liquidate assets and cover short-term liabilities, and therefore is of interest to short-
term creditors also called liquidity ratio or cash asset ratio.

35
4) WORKING CAPITAL TURNOVER RATIO:

Working capital of a concern is directly related to sales. The working capital is taken as:

Working capital = Current assets – Current Liabilities

The working capital turnover ratio indicates the velocity of the utilization of net
working capital

5) DEBTORS TURNOVER RATIO

Definition:
Debtor’s turnover ratio indicates the velocity of debt collection of a firm. In
simple words it indicates the number of times average debtors (receivable) are
turned over during a year.
Formula of Debtors Turnover Ratio:
Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors
The two basic components of the ratio are net credit annual sales and average
trade debtors. The trade debtors for the purpose of this ratio include the amount of
Trade Debtors & Bills Receivables. The average receivables are found by adding the
opening receivables and closing balance of receivables and dividing the total by two.
It should be noted that provision for bad and doubtful debts should not be
deducted since this may give an impression that some number of Receivables has
been collected. But when the information about opening and closing balances of
trade debtors and credit sales is not available, then the debtor’s turnover ratio can

36
 be calculated by dividing the total sales by the balance of debtors (inclusive of bills
receivables) given. And formula can be written as follows.
Debtors Turnover Ratio = Total Sales / Debtors

6) STOCK TURNOVER/INVENTORY TURNOVER RATIO:

DEFINITION:
Stock turnover ratio and inventory turnover ratio are the same. This ratio is a
relationship between the cost of goods sold during a particular period of time and
the cost of average inventory during a particular period. It is expressed in number of
times. Stock turnover ratio/Inventory turnover ratio indicates the number of times
the stock has been turned over during the period and evaluates the efficiency with
which a firm is able to manage its inventory. This ratio indicates whether investment
in stock is within proper limit or not.

Formula of Stock Turnover/Inventory Turnover Ratio

The ratio is calculated by dividing the cost of goods sold by the amount of average stock at
cost.

Generally, the cost of goods sold may not be known from the published financial
statements. In such circumstances, the inventory turnover ratio may be calculated by
dividing net sales by average inventory at cost. If average inventory at cost is not known
then inventory at selling price may be taken as the denominator and where the opening
inventory is also not known the Closing inventory figure may be taken as the average
inventory.

(a) Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost
(b) [Inventory Turnover Ratio = Net Sales / Average Inventory at Cost]
(c) [Inventory Turnover Ratio = Net Sales / Average inventory at Selling Price]
(d) [Inventory Turnover Ratio = Net Sales / Inventory]

37
THE DANGERS OF EXCESSIVE WORKING CAPITAL

1. It results in unnecessary accumulation of inventories thus chances of inventory

mishandling waste theft and losses increases.
2. It is an indication of defective credit policy and slack collection period. Consequently,
higher incidence of bad debts results, which adversely affect degenerated into
management co placement, which degenerated into managerial inefficient.
3. Excessive working capital makes management complacent, which degenerates into
managerial efficiency.
4. Tendencies of accumulating inventories to make speculation profits grow this may tend
to make dividend policy liberal and difficult to cope with in future when the firm is
unable to make speculative profits.

INADEQUATE WORKING CAPTIAL

a. It stages growth and become difficult for the firm to undertaken profitable projects
for no availability of working capital funds.
b. It becomes difficult to implement operating plans and achieve the firms profit target.
c. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day
commitments
d. Fixed assets are not efficiently utilized for the lack of working capital funds thus the
firm’s profitability would deteriorate. 5. Paucity of working capital funds renders the
firm unable to avail attractive credit opportunities etc. 6. The firm losses its
reputation when it is not in position to honour its short-term obligation as result the
firm faces tight credit terms

38
 1.8 BANK PROFILE

INTRODUCTION

PROFILE: BANK OF MAHARASHTRA

THE BIRTH

Registered on 16th Sept 1935 with an authorized capital of Rs 10.00 lakh and commenced
business on 8th Feb 1936.

THE CHILD

Known as a common man’s bank since inception, its initial helps to small units
have given birth. Too many of today's industrial houses. After nationalization in 1969, the
bank expanded rapidly. It now has 1276 branches (as of 31st March 2004) all over India. The
Bank has the largest network of branches by any public sector bank in the state of
Maharashtra.

THE ADULT

The bank has fine-tuned its services to cater to the needs of the common man and
incorporated the latest technology in banking offering a variety of services.

BANKS PHILOSOPHY

Technology with personal touch.

THE 3M’S SYMBOLIZING

• ➢ Mobilization of Money

• ➢ Modernization of Methods and

• ➢ Motivation of Staff

39
BANK’S AIMS

The bank wishes to cater to all types of needs of the entire family, in the whole country. Its
dream is "One Family, One Bank, Maharashtra Bank".

THE AUTONOMY

The Bank attained autonomous status in 1998. It helps in giving more and more services
with simplified procedures without intervention of Government.

BANKS SOCIAL ASPECTS

The bank excels in Social Banking, overlooking the profit aspect; it has a good share of
Priority sector lending having 46% of its branches in rural areas.

HISTORY

Bank of Maharashtra (BoM) was registered on September 16, 1935 with a capital of Rs10
Lakh. Today it has the largest network of 1,375 branches than any other public sector banks
in Maharashtra. It has a network of 345 ATMs.

It offers depository services and demat facilities at 131 branches. 38% of its branches are
located in rural areas. BoM has tie up LIC of India and United India Insurance Company.

BUSINESS

PERSONAL BANKING

BoM offers several products and services in personal banking such as deposits,
savings, personal loans, educational loans, RTGS, demat services, credit cards, etc.

NRI BANKING

It also offers products and services to NRI clients such as FCNR accounts,
remittance services, etc. The PSU bank also offers services to agricultural and SME sectors.

40
PRODUCT AND SERVICES OF THE BANK

ATM Services, Credit Card, DEMAT Services, Bank assurance, Distribution of Mutual Funds,
Western Union Money Transfer facility, Capital Market Application (ASBA) ASBA PLUS,
Executors and Trustee Services, Maha bill Pay, RTGS/NEFT, MAHAeTRADE (On line Share
Trading Facility), Mahabank Swasthya Yojna, Maha Suraksha Yojana, E Payment Taxes, New
Pension Scheme, Govt Business, Maha–Double Deposit Scheme and Door Step Banking.

MILESTONES

2010 100% CBS of branches achieved Total Business crossed Rs One lakh crore.
Opened 76 branches in the Platinum Year taking the total to 1506.
2011 First SHG Branch opened in Pune. Bank sponsored Maharashtra Garmin Bank
achieved 100% CBS in record 77 days.
2012 Hon’ble Union Finance Minister Shri P Chidambaram inaugurates the Bank’s
1624th branch at Rajgambiram on 25.08.2012. Sept 2012: Bank’s total
business crossed Rs.1, 50,000 cr and reached the level of Rs. 1, 51,320 crores.
2013 Rupay card launch by Sonia Gandhi in Delhi 50 branches opened on 15th
August 2013 total business cross Rs.2.00 lakh crore
2015 26 new branches; Branch network reaches 1889 launched “Maha mobile”-
Mobile Banking application IOS 27001: 2013 certification for its data Centre,
DR Centre, PMO & HO-IT

2016 Bank crossed milestone figure of Rs 2.50 Lakh core implemented

“MAHASECURE”
2017 Bank opened specialized Branches for increasing Retail, agriculture & MSME
portfolio
2018 A special stressed Assets management vertical (SAMV) established. A
dedicated Housing Finance Branch opened in Pune
2019 Bank launched on various social media platform like Facebook, twitter,
LinkedIn, YouTube and Instagram & Pinterest
2020 Door step Banking Services

2021 Bank crossed milestone business figure of Rs. 3.00 lakh crore Total number of
branches crossed 2000 landmark. Digital lending platforms for home, car, and
personal loans. Fintech tie-up for online MSME lending WhatsApp Banking
launched for convenient banking Housing finance branches opened across
major metro cities.

41
Bank Profile

SBI (STATE BANK OF INDIA)

THE BIRTH

An act was accordingly passed in Parliament in May 1955 and the State Bank of India was
constituted on 1 July 1955.

THE CHILDHOOD

The bank descends from the Bank of Calcutta, founded in 1806 via the Imperial Bank of
India, making it the oldest commercial bank in the Indian Subcontinent. The Bank of Madras
merged into the other two presidency banks in British India, the Bank of Calcutta and the
Bank of Bombay, to form the Imperial Bank of India, which in turn became the State Bank of
India in 1955.

THE ADULT

The bank has fine-tuned its services to cater to the needs of the common man and
incorporated the latest technology in banking offering a variety of services.

VALUES

“To emerge as leading company offering a comprehension range of banking & finance
products at competitive prices, ensuring high standards customer satisfaction and world
class operating efficiency there by becoming a model banking sector in India in the post
liberalization period”

• We will always be honest, transparent and ethical.

• We will respect are customers and fellow associates.
• We will be knowledge driven.

42
• We will learn and we will share or learning.
• We will take the easy way out.

• We will do everything we can, to contribute to the work in.

• We will nature pride in India.

BANK PHILOSPHY

Our goal is to be recognized for our commitment to listen to our clients and provide
personalized solutions. We will provide rewarding opportunities for our team members,
respect for diversity and culture, and value to our stakeholders and the communities we
serve.

THE 3’MS SYMBOLIZING

• ➢ Mobilization of Money
• ➢ Modernization of Methods and
• ➢ Motivation of Staff.

BANKS AIMS

i. To act in accordance with the broad economic policies of the government;

ii. To encourage and mobilize savings by opening branches in rural and semi-urban
areas and to promote rural credit;
iii. To establish government partnership in the provision of cooperative credit;
iv. To extend financial help for the establishment of licensed warehouses and
cooperative marketing societies;
v. To provide financial help to the small scale and cottage industries
vi. To provide remittance facilities to the banking institutions.

The State Bank of India acts as an agent of the Reserve Bank in all those places
where the latter does not have its branches.

THE AUTONOMY
It is a government-owned corporation with its headquarters in Mumbai,
Maharashtra.

BANK SOCIAL ASPECTS

The bank excels in Social Banking, overlooking the profit aspect; it has a good share
of Priority sector lending having 46% of its branches in rural areas.

43
HISTROY
The roots of State Bank of India lie in the first decade of the 19th century when the
Bank of Calcutta later renamed the Bank of Bengal, was established on 2 June 1806.
The Bank of Bengal was one of three Presidency banks, the other two being the
Bank of Bombay (Incorporated on 15 April 1840) and the Bank of Madras
(Incorporated on 1 July 1843). All three Presidency banks were incorporated as joint
stock companies and were the result of royal charters. These three banks received
the exclusive right to issue paper currency till 1861 when, with the Paper Currency
Act, the right was taken over by the Government of India. The Presidency banks
amalgamated on 27 January 1921, and the re-organized banking entity took as its
name Imperial Bank of India. The Imperial Bank of India remained a joint-stock
company but without Government participation.
Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank
of India, which is India's central bank, acquired a controlling interest in the Imperial
Bank of India. On 1 July 1955, the Imperial Bank of India became the State Bank of
India. In 2008, the Government of India acquired the Reserve Bank of India's stake in
SBI so as to remove any conflict of interest because the RBI is the country's banking
regulatory authority.

BUSINESS
PERSONAL BANKING
SBI offers several products and services in personal banking such as
deposits, savings, personal loans, educational loans, RTGS, demat services, credit
cards, etc.

NRI BANKING
It also offers products and services to NRI clients such as FCNR
accounts, remittance services, etc. The PSU bank also offers services to agricultural
and SME sectors.

PRODUCT AND SERVICES OF THE BANK

Payments/transfer, funds transfer, intra-bank transfer, RTGS/NEFT, Credit Card
(VISA), IMPS Payments, NRI EZ Trade Funds Transfer, E-TDR/ e-STDR under income
Tax savings scheme, SBI Flexi Deposit, E-Annuity Deposit scheme, ERecurring deposit
scheme, smart card, gift card, smart pay-out card, stare bank EZ pay

44
card, State bank archiver card, state bank virtual card, VISA travel foreign travel
card, MasterCard foreign travel card, state bank collects, bill payment, NPS
contribution, Power Jyoti free collection (PUL) Loans against share, Apply SBI credit
card

2010 -State bank of India, with a debit card base of over 70 million,
comprising SBI Cash plus, SBI gold Debit card and SBI YUVA card, has
added chip and PIN-Based platinum Debit Card to its bouquet on
march 26.
State Bank of India (SBI) has signed a pact with unique identification
authority of India (UIDAI) to work as a registrar for the UID
registration of residents. It has become the first Bank to take up
registration work for the UIDAI projects. As a registrar, SBI will
capture through empanelled enrolment agencies, the biometrics
characters such as finger prints, iris and so on and send the
information to UIDAI.

-State Bank of India (SBI) has come up with an exclusive branch in

Hyderabad, for their ultra-high net worth individual (HNIs) which is
by far is first of its kind in the country.

-State Bank of India acquired State Bank of Indore.

-SBI- joint Venture agreement with state general Reserve Fund
(SGRF), sultanate of Oman.

-State Bank of India has consortium of Elavon incorporation, USA and

VISA international, USA as its joint venture (JV) partner for merchant
acquiring business.

- State Bank of India launched a special concessional banking scheme

for the Air Force personnel.

- State Bank of India launched a special concessional banking scheme

for the Air Force personnel.
2011 -Witnessed a joint venture between the nation’s largest lender, State
bank of India and the telecom lead, Bharti Airtel with an aim to
provide the banking services amongst the unbanked population of
the country.

- SBI - Acquisition of SBICI Bank Experian Credit Information Company

of India Private Limited, the first CICRA licensed credit bureau in India
on September 23, 2011said it has signed a membership agreement

45
 with State Bank of India (SBI), the largest consumer lender in India to
contribute data to Experian’s credit bureau and enhance the
effectiveness of company’s range of products and services.

2012 -State Bank of India signed a Preliminary Non-Binding Memorandum

of Understanding with Russian Direct Investment Fund (RDIF), to
facilitate advancing bilateral economic cooperation and trade Russia
and India aimed at exploring investment opportunities in both the
countries.

-India’s largest public sector lender, State Bank of India (SBI) has
entered into an agreement with STARAGRI warehousing LTD
(STARAGRI), India’s leading agree-service & solution provider, for
warehousing Receipt Financing and collateral Management Services.

-SBI launched virtual debit cards to check online fraud and promote
ecommerce.

- SBI, ICICI Bank leading m-banking revolution in India. With the

advent of smartphones and 3G services, the Mobile Banking (m-
Banking) services have been fast catching up with Indian customers
for conducting balance inquiries, account transactions, utility
payments, and other banking activities using a mobile handset

2013 -India’s leading public sector lender the state Bank of India (SBI) is
stepping up efforts to expand its presence in the world’s second
biggest economy with leader set to launch its second branch in
China.

-SBI inaugurates 2nd branch in Tianjin and China SBI introduces smart
pre-paid card for students, blue collar workers.

-AMW motors collaborates with SBI to finance sale of vehicles.

2014 -State Bank of India launches new digital online and self-services
banking solution with support from Accenture.

-State Bank of India unveils 6 digital branches.

-SBI launches tech learning Centre’s (TLCs) for customers.

-State Bank of India has splits its face value from Rs 10/- to 1.

2015 -State Bank of India has launched a RUPAY platinum debit card in
association with national payment corporation of India (NPCI).

-SBI builds foundation for group CSR activities.

46
 -SBI partner with amazon

-SBI entered into a MOU with PayPal, an American online money

transfer services provider firms, for facilitating crossborder
transactions. -SBI launched an initiative to provide doorstep services
and expedite home loans application process
2016 -SBI opens first Branch in South Korea.

-SBI launches new home loan plan for executives.

-SBI cuts home loan interest rate to 9.45%.

-GOVT asks SBI to merge five associates Banks.

-SBI launches Visa.

-SBI launches debit card-less instant money transfer facility.

-SBI get deposits of RS. 83,702cr in five days following the

Government’s decision to demonetize the old RS 500 and 1,000
notes, reported PTI.

-SBI in talks with Microsoft to push digital banking in rural areas.

2017 -SBI Acquired State Bank of Travancore, State Bank of Patiala, State
Bank of Hyderabad, State Bank of Bikaner & Jaipur, State Bank of
Mysore.

-SBI acquired Bhartiya Mahila Bank (BMB).

-SBI, BPCL launch co-branded credit card.

47
 CHAPTER 2.

2.1 REASEARCH AND METHODOLY

• ➢ This project requires a detailed understanding of the concept – “Working Capital
Management”. Therefore, firstly we need to have a clear idea of what is working
capital. How it is managed, what are the different ways in which the financing of
working capital is done in the Accountancy?
• ➢ The management of working capital involves managing inventories, accounts
receivable and payable and cash. Therefore, one also needs to have a sound
knowledge about cash management, inventory management and receivables
management.
• ➢ Then comes the financing of working capital requirement, i.e., how the working
capital is financed, what are the various sources through which it is done.
• ➢ In the end, suggestions and recommendations on ways for better management
and control of working capital are provided.

2.2 Objective of the study

Working capital management is very important in modern business. The
analysis of working capital is also very useful for short-term management of funds.
The following are objective of study:

To make Items wise analysis of the elements or component of working

capital to identify the items responsible for change in working capital. To analysis of the
effects of liquidity on profitability.

The main purpose of our study is to render a better understanding of the

concept “Working Capital Management”.

2.3 Scope and limitation of the study.

1) Through this project I would study the various methods of the working capital
management.

2) The project will be a learning of planning and financing working capital.

3) The project would also be an effective tool for credit policies of the companies

48
4) This will show different methods of holding inventory and dealing with cash and
receivables.

4) This will show the liquidity position of the company and also how do they maintain a
particular liquidity position.

5) The data used in this study have been given commercial Manager. As per the requirement
and necessary some data are grouped and sub grouped.

2.4 Significance of Working Capital Management

➢ Cash Discount:
If a proper cash balance is maintained, the business can avail the advantage of cash
discount by paying cash for the purchase of raw materials and merchandise. It will
result in reducing the cost of production.

➢ It creates a Feeling of Security and Confidence:

The proprietor or officials or management of a concern are quite carefree, if they
have proper working capital arrangements because they need not worry for the
payment of business expenditure or creditors.

➢ Exploitation of Good Opportunity:

In case of adequacy of capital in a concern, good opportunities can be exploited e.g.,
company may make off-season purchases resulting in substantial savings or it can
fetch big supply orders resulting in good profits.

49
 CHAPTER 3
LITERATURE REVIEW

Working capital management of the company plays an important role in the finance position
of the company of the firm. The 3 components of the working capital management are the
cash management receivables management and inventory management. If the finance
manager maintains these three components of working capital management properly
means the priority can get dramatic improvement in their sales volume and additionally in
the business. The literature reveals that the working capital management shows impact on
the profitability and liquidity of the organization. Particularly in this organization current
assets are higher than the current liabilities. Thus, working capital flows into the
organization is incredibly effective, however the surplus amount invested in the working
capital indicates the unskillfulness of the financial management within the organization.

1. Verma (1989) – study examined the working capital management in Tata iron and steel
company ltd, Indian iron and steel company and steel authority of India ltd. during the
period of 1978-1979 to 1985-1986 there are using various financial and statistical
techniques finally concluded the three-firm use of bank borrowings to finance the working
capital requirement.

2. Rakove and N. chintarao (1991)-the study focuses few public enterprises belongs to
manufacturing sector in Karnataka.in that evaluating the working capital efficiency of
business enterprises. The study revalued that investment upon working capital is highest to
compare the total investment as well as working capital planning and control was found to
be disorderly and effectively hence. The urgent need to full focus on working capital
management.

3. Majumdar (1992) - in this research analysed the pattern of financing the corporate
working capital in India. There are 20 companies analysed for that 10 company’s private
sector and another 10 companies are public sector. For the period of 1981 to 1990.this
study used various financial and statistical techniques. Finally concluded that share of
working capital finance is from borrowings and effect of cost on the selection of sources of
working capital is not at all significant finally the result of shows that

50
statistically there is a significant inverse relationship between liquidity and profitability of
companies.

4. Refuse, Maynard (1996)-the study proposed enhancing working capital by getting

creditors was an effective strategy. The survey depends upon private business and small
business trade association stated that on an average the debtors account was paid more
than 50 days beyond the agreed due date. the survey also revealed that the responsibility of
such control rests with the finance managers.

5. Vijay Kumar and A. Venkatachalam (1996) – the study focuses Tamil Nādu Sugar
Corporation for the period of 1985-86 to 1993-94. That indicate the corporation has
maintain moderate level of working capital.in that long term funds have been used for
meeting short term liability and excess liability. This period of study to as affected the
profitability.

6. Beaumont and bargeman (1997)-this study said in this researcher in a company give a
good financial decision the working capital is important component. The optimal working
capital management through reached a trade of between profitability and liquidity. the
study aims to provide empirical evidence about the effect of working capital management
on the profitability of mall scale industries.

7. Kazmi Azar and Mohd. Amir khan (1999)-the study define working capital analysis some
used various tools like cash, management of account receivables and management of
inventory. The study only for short term period there may comparison based on the
international financial sector.so the study gets some importance of working capital enjoy
full of profit in competitive industry

51
 CHAPTER 4 DATA ANALYSIS AND INTERPRETATION
4.1 PRIMARY DATA

The above asked question is regarding the age groups of the audience, following is the
percentage cut-down
• 87.8% of the respondents are from the age group of 20 to 30

Gender Bifurcation is as follows

• 59.1% respondents are male

• 40% respondents are female
• remaining are others

52
The above question is regarding the bank preference of respondents.

• 59.1% of the respondents prefer State Bank of India

• 26.1% of the respondents prefer Bank of Maharashtra

The above question is regarding the methods to determine working capital requirements.
Following is the percentage cut-down of different available options selected.

• 33.9% respondents selected Over all budgeting method

• 29.6% respondents selected Cash forecasting
• 14.8% respondents selected Other
• 21.7% respondents selected Any mathematical/statistical method
Hence, most of the respondents believe Operating Cycle is the core method

53
The above question is regarding the span of time between calculation of 2 working capital of
Banks.

• 39.1% respondents selected Monthly

• 22.6% respondents selected Quarterly
• 20% respondents selected Yearly
• 18.3% respondents selected Weekly
Hence, most of the respondents believe Working Capital of Banks is calculated Monthly

The above question is regarding the important role played by working capital to increase
one or more of the following

• 37.7% respondents believe it increases Both (profitability & Liquidity)

• 36% respondents believe it increases profitability
• 26.3% respondents believe it increases Liquidity

54
Hence, most of the people selected Both ((profitability & Liquidity)

The above question is regarding the component used for optimization of working capital.

• 48.7% respondents selected All of These

• 23.5% respondents selected Managing Cash
• 14.8% respondents selected Managing Bills receivable and payable
• 13% respondents selected Managing Debtors and Creditors
Hence, most of the respondent believe every component in the option is important

The above question is regarding the consequences of poor working capital.

• 45.2% respondent believe Both (Over Capitalization and Trading) will happen
• 33.9% respondent believe Over Capitalization will take place
• 20.9% respondent believe Over Trading will take place

Hence, most of the respondent had gone both ways

55
The above question is regarding the sources of working capital, following is the percentage
cut-down

• 45.6% people believe All of the above given options are suitable sources of working
capital
• 28.1% people believe Loans and Advances from commercial bank is best source of
working capital
• 15.8% people believe Trade Credit is best, to use as a source of working capital

Among the respondents 115 people have witnessed excess working capital situations. They
have used different ways to utilize the surplus properly which are as follows

• 32.2% people have use temporary investment method

• 27% people invested in long term securities
• 25.2% people utilized the amount for repayment of their debts
• 15.7% people invested in fixed assests
Hence, most people selected temporary investment as best way to utilize excess working
capital

56
Above Question is regarding the help provided by good working capital.

• 37.7% people think Good Working Capital will help All of the given option
• 26.3% people think it will help managers to take financial responsibility
• 21.9% people think it will help to earn interest or will reduce interest payments
• 14% people think managers to measure performances

The above question is regarding the relationship between efficiency and profitability

• 48.7% respondent agree with the given statement

• 51.3% respondent don’t agree with the given statement
Hence, more than half people agree with the above statement regarding relationship

57
The above question is regarding the negative relationship between liquidity and
profitability.
Among 115 respondents

• 67.5% selected Yes

• 32.5% selected No
Hence, most of them selected YES

The above question is regarding the objective of working capital management

• 41.7% respondents selected liquidity and profitability

• 32.2% respondents selected efficient use of current assets
• 13.9% respondents selected others
• 12.2% respondents selected 12.2% Confer strictly to Govt regulations
Hence, most of the respondents selected liquidation and profitability

58
The above question is regarding reviewing working capital norms.

• 39.% respondents selected Monthly

• 33.9% respondents selected Quarterly
• 27% respondents selected Yearly
Hence, All the options selected are closer to each other

The above question is regarding management of working capital by maintaining optimum

level of its components

• 80.9% respondents agree with the given statement

• 19.1% respondents disagree with the given statement
Hence, most of the respondents agree with the given statement

59
The above question is regarding the major forms of financing working capital requirements.

• 22.6% respondents selected Cash Credit

• 20.9% respondents selected Current Liability
• 17.4% respondents selected Working Capital Loan from government
• 14.8% respondents selected Deferred Credit
• 12.2% respondents selected Equity long term loans
• 12.2% respondents selected Any Others
Hence most of the respondents selected Cash Credit

The Above is regarding the condition for good working capital management, i.e Current
assets are able to pay current liabilities. Following is the percantage breakdown regarding
yes or No for the above statement

• 80% selected Yes

• 20% selected No
Hence, more than 2/3 of the respondents agree with the given statement

60
The Above is regarding following any of the given ratios as working capital norm

• 28.7% respondents selected Current asset to fixed asset

• 27.8% respondents selected Current asset to current liability
• 23.5% respondents selected Net working Capital to total assets
• 20% respondents selected Net working capital to Net work

The Above is regarding negative impact on profitablity if large amount of cash is invested in
working capital

• 68.7% respondents selected Yes

• 31.3% respondents selected No
Hence, most of the respondents agree with the given statement

61
The above question is regarding shortage of working capital. Following is the percantage
break down of respondents.

• 63.5% respondents selected Yes

• 36.5% respondents selected No
Hence most of the respondents had experienced shortage of funds

The above question is connected with Qno.19, asking about the core reason of working
capital shortage. Following is the percentage bifurcation of different options selected.

• 34.8% respondents selected Price fluctuations as a core reason

• 20.9% respondents selected Shortfall in receipts from sale proceeds as a core reason
• 19.1% respondents selected Decrease in credit period for purchase of raw material
• 15.7% respondents selected Payment withheld by clients
• 9.6% respondents selected increase in duty on inventory holding
Hence, most of the respondents consider price fluctuation as core reason

62
 4.2 SECONDARY DATA
STATEMENT OF WORKING CAPITAL MANAGEMENT BANK OF MAHARASHTRA

PARTICULARS 2021

CURRENT ASSETS
12,941.73
1. Cash & bank balance
170,516.81
2. Advances
11,532.47
3. Other assets

194,991.01
TOTAL CURRENT ASSETS

CURRENT LIABILITIES

1. Deposits 178,244.37

2. Other liabilities. 6,287.46

TOTAL CURRENT LIBILITIES. 184,531.83

NET WORKING CAPITAL 10,459.18

63
STATEMENT OF WORKING CAPITAL MANAGEMENT OF BANK OF
MAHARASHTRA

PARTICULARS 2020

CURRENT ASSETS

1. Cash & bank balance 10,353.68

2. Advances 144,612.5

3. Other assets 12,131.52

TOTAL CURRENT ASSETS

167,097.7

CURRENT LIABILITIES

3. Deposits 153,736.43

4. Other liabilities. 4,375.47

TOTAL CURRENT LIBILITIES. 158,111.9

NET WORKING CAPITAL

8,985.8

64
STATEMENT OF WORKING CAPITAL MANAGEMENT OF BANK OF
MAHARASHTRA
PARTICULARS 2019

CURRENT ASSETS

1. Cash & bank balance 9,154.91

2. Advances 142,363.26

3. Other assets 11,241.84

TOTAL CURRENT ASSETS

162,760.01

CURRENT LIABILITIES
150,799.26
1. Deposits
7,996.83
2. Other liabilities.

TOTAL CURRENT LIBILITIES. 158,796.09

NET WORKING CAPITAL 3,963.92

65
 STATEMENT OF WORKING CAPITAL FOR 2019-2021
YEAR CURRENT CURRENT WORKING NET WORKING
ASSETS LIABILITIES CAPITAL CAPITAL

2019 162,760.01 158,796.09 3,963.92

2020 167,097.7 158,111.9 8,985.8 5,021.88

2021 194,991.01 184,53.83 10,459.18 1,473.38

INTERPRETATION:

• In the period of 2018-2019 In the period of 2018-2019 the networking capital is negative
because the current assets are low then current liabilities

• In the period of 2019-2020 the networking capital increased by 5,021.88.

• In the period of 2020-2021 the networking capital increased by 1,473.38.

COMPARISION OF INCREASE AND DECREASE OF WORKING CAPITAL

YEAR NETWORKING CAPITAL INCREASE/DECREASE

2019 -
2020 5,021.88
2021 1,473.38

INTERPRETATION:
• For the periods 2018-2019 there is no increase and decrease
• For the periods 2019-2020 and 2020-201 there is an increase in working capital leads to
major investments in fixed assets as well as capital expenditure

66
1. CALCULATION OF CURRENT RATIO
PRINCIPLE 2019 2020 2021

Current Ratio =

162,760.01 167,097.7 194,991.01

Current Assets
158,796.09 158,111.9 184,531.83
Current Liabilities

=1.02 =1.06 =1.06

INTERPRETATION:
• Variance of current ratio in the year 2018-2019 shows that increase in current assets.
And decrease in current liabilities.
• For the year 2019-2020 the current ratio has increase in current assets and decrease
in current liabilities.
• For the year of 2020-2021 the current ratio has increase in current assets and
decrease in current liabilities.
• The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and
2020-2021 the current ratio is above 1 hence it indicates that the firm has
maintaining sufficient current assets to meet current liabilities.

67
2. CALCULATION OF QUICK RATIO
PRINCIPLE 2019 2020 2021

Quick Ratio =

9,154.91 10,353.68 12,941.73

Liquid Assets 158,799.26 158,111.9 184,531.83
Liquid Liabilities
=0.06 =0.07 =0.07

INTERPRETATION:
• Variance of Quick ratio in the year 2018-2019 shows that is decrease in liquid assets an
increase in liquid liabilities.
• For the year 2019-2020 the Quick ratio has been declined due to increase in liquid
liabilities and decrease in liquid assets.
• And for the year 2020-2021 the quick ratio has been declined due to increase in liquid
liabilities and decrease in liquid assets.
• The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and 2020-2021
the Quick ratio is below 1 hence it indicates that the firm has not maintaining sufficient
liquid assets to meet liquid liabilities.

68
3. CALCULATION OF CASH RATIO
PRINCIPLE 2019 2020 2021

Cash Ratio =

9,154.91 10,353.68 12,941.73

Cash and Bank 158,799.26 158,111.9 184,531.83
Balance
Liquid Liabilities =0.06 =0.07 =0.07

INTERPRETATION:
• Variance of cash ratio in the year 2018-2019 shows that decrease in cash and bank
balance and increase in current liabilities when compare to 2019-2020 figure

• For the year 2020-2021 the Cash ratio has been declined due to increase in current
liabilities and decrease in cash and bank balance.

• The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and 2020-2021
the cash ratio is below 1 hence it indicates that the firm has not maintaining sufficient cash
and bank balances to meet current liabilities

69
STATEMENT OF WORKING CAPITAL MANAGEMENT OF STATE BANK OF INDIA
[SBI].
PARTICULARS 2021

CURRENT ASSETS

4. Cash & bank balance 343,038.71

5. Advances 3801203

6. Other assets 351768.68

TOTAL CURRENT ASSETS

44,96,010.39

CURRENT LIABILITIES
4,098,574.78
5. Deposits
181,979.66
6. Other liabilities.

4,280,554.44
TOTAL CURRENT LIBILITIES.

NET WORKING CAPITAL 251,455.95

70
STATEMENT OF WORKING CAPITAL MANAGEMENT OF STATE BANK OF INDIA
[SBI].
PARTICULARS 2020

CURRENT ASSETS

1. Cash & bank balance 251,097.01

2. Advances 3,372,244.08

3. Other assets 289,613.55

TOTAL CURRENT ASSETS

3,912,954.64

CURRENT LIABILITIES
3,556,276.38
1. Deposits
163,110.10
2. Other liabilities.

TOTAL CURRENT LIBILITIES.

3,719,386.48

NET WORKING CAPITAL

193,568.16

71
STATEMENT OF WORKING CAPITAL MANAGEMENT OF STATE BANK OF INDIA
[SBI].
PARTICULARS 2019

CURRENT ASSETS

4. Cash & bank balance 222,490.11

5. Advances 3,152,898,87

6. Other assets 266,327.70

TOTAL CURRENT ASSETS 3,641,716.68

CURRENT LIABILITIES

3. Deposits 3,314,403.13

4. Other liabilities. 145,597.30

TOTAL CURRENT LIBILITIES.

3,460,000.43

NET WORKING CAPITAL

181,7017.51

72
 STATEMENT OF WORKING CAPITAL 2019-2021
YEAR CURRENT CURRENT WORKING NET
ASSETS LIABILITIES CAPITAL WORKING
CAPITAL

increase decrease

2019 3641716.68 3460000.43 1817017.51 - -

2020 3912954.64 3719386.48 193568.16 57887.79

2021 4496010.39 42870554.44 251455.95 57887.79

INTERPRETATION:
• In the period of 2018-2019 the networking capital is negative because the current assets
are low then current liabilities

• In the period of 2019-2020 the networking capital decreases due to fall in current assets
and the networking capital decreases by 1623449.35

• In the period of 2020-2021 the networking capital increased by 57887.79 COMPARISION

OF INCREASE AND DECREASE OF WORKING CAPITAL

YEAR NETWORKING CAPITAL

INCREASE/DECREASE
2019 -

2020 -1,623,449.35

2021 57,887.79

INTERPRETATION:
• For the periods 2018-2019 and 2019-2020 the net working capital is decreased due to
lower investments in acquisition of fixed assets and making less payments to the payables

• For the periods 2020-2021 increase in working capital leads to major investments in fixed
assets as well as capital expenditure.

73
1. CALCULATION OF CURRENT RATIO

PRINCIPLE 2019 2020 2021

Current Ratio =

3641716.68 3912954.64 4496010.39

Current Assets 346000.43 3719386.48 4280554.44
Current Liabilities
=1.05 =1.05 =1.05

INTERPRETATION:
• Variance of current ratio in the year 2018-2019 shows that increase in
current assets. And decrease in current liabilities.
• For the year 2019-2020 the current ratio has increase in current assets and
decrease in current liabilities. • For the year of 2020-2021 the current ratio
has increase in current assets and decrease in current liabilities.
• The above ratio clearly indicates that for the period 2018-2019, 2019-2020
and 2020-2021 the current ratio is above 1 hence it indicates that the firm
has maintaining sufficient current assets to meet current liabilities.

74
2. CALCULATION OF QUICK RATIO

PRINCIPLE 2019 2020 2021

Quick Ratio =

222,490.11 251,097.01 343,038.71

Liquid Assets 3,460,000.430 3,719,386.48 4,280,554.44
Liquid Liabilities
=0.06 =0.06 =0.08

INTERPRETATION:
• Variance of Quick ratio in the year 2018-2019 shows that is decrease in liquid
assets an increase in liquid liabilities.
• For the year 2019-2020 the Quick ratio has been declined due to increase in
liquid liabilities and decrease in liquid assets.
• And for the year 2020-2021 the quick ratio has been declined due to increase in
liquid liabilities and decrease in liquid assets.

• The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and
2020-2021 the Quick ratio is below 1 hence it indicates that the firm has not
maintaining sufficient liquid assets to meet liquid liabilities.

75
3. CALCULATION OF CASH RATIO

PRINCIPLE 2019 2020 2021

Cash Ratio =

1029007.50 1405371.00 402575757.00

Cash and Bank 410822460.04 466068051.58 585616088.81
Balance
Liquid Liabilities =0.02 =0.003 =0.69

INTERPRETATION:

Variance of cash ratio in the year 2018-2019 shows that decrease in cash and bank
balance and increase in current liabilities when compare to 2019-2020 figure

• For the year 2020-2021 the Cash ratio has been declined due to increase in
current liabilities and decrease in cash and bank balance.
• The above ratio clearly indicates that for the period 2018-2019, 2019-2020 and
2020-2021 the cash ratio is below 1 hence it indicates that the firm has not
maintaining sufficient cash and bank balances to meet current liabilities

76
➢ BALANCE SHEET of BANK OF MAHARASHTRA on 31st March 2022

77
➢ PROFIT AND LOSS STATEMENT 31st March 2022

78
➢ BALANCE SHEET of BANK OF MAHARASHTRA on 31st March 2021

79
➢ PROFIT AND LOSS STATEMENT 31st March 2021

80
➢ BALANCE SHEET of BANK OF MAHARASHTRA on 31st March 2020

81
➢ PROFIT AND LOSS STATEMENT 31st March 2020

82
➢ BALANCE SHEET of BANK OF MAHARASHTRA on 31st March 2019

83
➢ PROFIT AND LOSS STATEMENT 31st March 2019

84
➢ BALANCE SHEET of STATE BANK OF INDIA on 31st March 2021

85
➢ PROFIT AND LOSS STATEMENT 31st March 2021

86
➢ BALANCE SHEET of STATE BANK OF INDIA on 31st March 2021

87
➢ PROFIT AND LOSS STATEMENT 31st March 2021

88
➢ BALANCE SHEET of STATE BANK OF INDIA on 31st March 2021

89
➢ PROFIT AND LOSS STATEMENT 31st March 2021

90
 5.1 CHAPTER 5
FINDINGS
• In bank of Maharashtra there is a drastic improvement in profit from the year2019 -2020
& 2020-2020 where the profit is almost doubled. And in State Bank of India there is and
decrease in the profit in2019-2020. And in 2020- 2021 there is an improvement in the profit.
This indicates the good financial soundness of the banks.

• The depositors are depositing amount and that amount from deposits are liabilities for
the bank which increase the liabilities of the bank.

• The banks current assets are at present the cash and bank balance and balance with
banks & liabilities are deposits and other bills payables.

• It is obvious that as the net profit i.e., profit before tax is increased the tax paid are also
shown an increasing trend.

• In Bank of Maharashtra and State Bank of India the working capital for every year has
increased.

• This shows that more of cash transactions have taken place and cash if available in excess
is the least productive asset.

• Comparison of increase and decrease of working capital in Bank of Maharashtra has

shown that in 2019 -2020 and 2020-2021 has been increase. Comparison of increase and
decrease of working capital in State Bank of India has shown that there is an decreased in
2019-2020 and increase in 2020-2021

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 5.2 CONCLUSIONS
The basic objective of working capital management is to minimize cost to the
firm whether managing cash, receivables (Sunday debtors) or inventory or miscellaneous
current assets, minimize risk to the company on receivables, ensure just level of inventory
to operate full level of capacity with minimum inventory. It also implies that as far as
possible miscellaneous current assets should be utilized for banks operations. In other
words, the working capital management should aim to optimize production and sales with
minimum risk and cost.

The cash management is very faulty as a result of which cash ratio to total
current assets in bank of Maharashtra. With the above general observations one can draw
number of conclusions about the economic health of the banking industry and various
aspects of working capital.

Working capital management is becoming an increasingly important part of

successful business management, and in many instances, poor management of working
capital can make or break a business. An initiative to reduce working capital can provide
companies with a well-needed one-off cash injection but more importantly, there are
several continuous benefits of improved working capital management. Whereas most
companies that initiate a working capital optimization project achieve the one-off cash
benefit, only those that fully understand the complexity of working capital management and
the interdependencies between different business functions are likely to see the long-term
gains.

Successful working capital management requires a holistic approach and

integrated effort throughout the entire value chain, and it should therefore be part of the
long-term corporate strategy. In our view, the key is therefore to design and implement a
cash focused corporate culture which encourages a sustained effort to maintain the lower
working capital levels. A company that is successful in doing so can most likely significantly
improve its bottom line and strengthen its overall market position. Clearly, a sustained
working capital improvement can play a significant part in business success, and those
companies that are willing to invest both time and effort in working capital management
may well become front-runners in an increasingly competitive world of business.

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 Cash Management
One of the most important areas in the day-to-day management of the firms deals with the
management of working capital, which is defined as all the short-term assets used in daily
operations. This consists primarily of cash, marketable securities, accounts receivable and
inventory. The balances in these accounts can be highly volatile as they respond very quickly
to changes in the firm’s operating environment.

In a financial sense, the term cash refers to all money items and sources that are
immediately available to help in paying firms bills. On the balance sheet, cash assets include
deposits in financial institutions and cash equivalent in money market funds or marketable
securities. All highly liquid short-term securities are treated as cash. Most government and
corporate securities are treated as cash because they may be liquidated through a
telephone call.

Accounts Receivable Management

Accounts receivable represent the amount due from customers (book debts) as a result of
selling goods on credit. The three characteristics of receivables the element of risk,
economic value, and futurity explain the basis and the need for efficient management of
receivables.

Inventory Management

For purpose of our study, the term inventory comprises raw material, work-in-process,
finished goods and stores and spares. But for the bank the inventory is the service may be in
the form of fixed deposits, current deposit and saving deposits .the management of 3
deposits are inventory for the bank. .

Inventory management is concerned with the determination of optimal level of investment

for each component of inventory and the inventory as a whole, the efficient use of the
components, and the operation of an effective control and review mechanism.

In inventory decisions management has to take into consideration factors like inventory
carrying costs, ordering costs, costs of stock-outs, the rate of return on the investment, and
the cost of capital.

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 BIBLIOGRAPHY
www.statisticslaerd.com
https://www.academia.edu
https://www.slideshare.net
https://bankofmaharashtra.in/annual-reports
https://sbi.co.in/web/corporate-governance/annual-report

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