SWATI SAHAY

A

Summer PROJECT REPORT

ON

“WORKING CAPITAL IN ICICI BANK OF INDIA”

In Partial Fulfillment of the Post Graduate Diploma in Management RCMA, Bhubaneswar (Batch- 2010-12)

SUBMITTED TO SUBMITTED BY

FACULTY GUIDE SWATI SAHAY

Mr. R.K.MISHRA REG NO:- 1001247129LECTUER IN FINANCERCMA (BHUBANESWAR)

CORPORATE GUIDE:-Mr.RAJESH SRIVASTAV

(MANAGER IN FINANCE)ICICI Bank, PATNA

Plot No. GD 2/12 & 13, Chakadola Vihar, Chandrasekharpur, Bhubaneswar – 751023, Odisha-India.

1

SWATI SAHAY

PREFACE

MANAGEMENT HAS TWO FACES: ONE IS THEORETICAL AND OTHER ISMANAGEMENT HAS TWO FACES: ONE IS THEORETICAL AND OTHER IS

PRACTICAL ASPECT.THE THEORETICAL ASPECT OF MANAGEMENT ,WEPRACTICAL ASPECT.THE THEORETICAL ASPECT OF MANAGEMENT ,WE

LEARN AT OUR INSTITUTE AND THE PRACTICAL ASPECT IS PROVIDED INLEARN AT OUR INSTITUTE AND THE PRACTICAL ASPECT IS PROVIDED IN

FORM OF SUMMER INTERNSHIP.FORM OF SUMMER INTERNSHIP.

THE MAIN IDEA BEHIND THE INTERNSHIP IS TO BRING A MANAGEMENTTHE MAIN IDEA BEHIND THE INTERNSHIP IS TO BRING A MANAGEMENT

STUDENT TO THE ACTUAL ENVIRONMENT OF THE BUSINESS SCENARIO,STUDENT TO THE ACTUAL ENVIRONMENT OF THE BUSINESS SCENARIO,

SO THAT HE IS ABLE TO JUDGE THE THEORETICAL AND PRACTICALSO THAT HE IS ABLE TO JUDGE THE THEORETICAL AND PRACTICAL

ASPECTS AND KNOW THE DIFFERENCE BETWEEN THE TWO. IT ALSOASPECTS AND KNOW THE DIFFERENCE BETWEEN THE TWO. IT ALSO

HELPS TO HAVE A GLIMPSE OF A CORPORATION IN WAY OF PRACTICALHELPS TO HAVE A GLIMPSE OF A CORPORATION IN WAY OF PRACTICAL

TRAINING BEFORE FINALLY MOVING INTO THE CORPORATE WORLD ANDTRAINING BEFORE FINALLY MOVING INTO THE CORPORATE WORLD AND

PROFESSIONALISM.PROFESSIONALISM.

THE INTERNSHIP AT ICICI BANK LIMITED WAS REALLY A GREATTHE INTERNSHIP AT ICICI BANK LIMITED WAS REALLY A GREAT

OPPORTUNITY FOR ME TO LEARN ABOUT THE CORPORATE WORLD. THEOPPORTUNITY FOR ME TO LEARN ABOUT THE CORPORATE WORLD. THE

STUDY OF WORKING CAPITAL MANAGEMENT IS DIRECTED TOWARDSSTUDY OF WORKING CAPITAL MANAGEMENT IS DIRECTED TOWARDS

REPORTING THE FACTS GATHERED FROM THE SECONDARY DATA. THEREPORTING THE FACTS GATHERED FROM THE SECONDARY DATA. THE

REMAINING PARTS DEALS WITH THE OUTCOME TO COMPLETE THEREMAINING PARTS DEALS WITH THE OUTCOME TO COMPLETE THE

STUDY.STUDY.

I HOPE MY STUDY WILL HELP THE ORGANIZATION TO TAKE PROPERI HOPE MY STUDY WILL HELP THE ORGANIZATION TO TAKE PROPER

MARKETING STRATEGIES TO CONTROL THE OPERATIONS.IF MY STUDYMARKETING STRATEGIES TO CONTROL THE OPERATIONS.IF MY STUDY

CAN HELP PEOPLE TO GO FOR FURTHER RESEARCH IN THIS FIELD THANCAN HELP PEOPLE TO GO FOR FURTHER RESEARCH IN THIS FIELD THAN

MY CHERISH DESIRE WILL BE FULFILLED.IN THIS STUDY, EFFORTS HAVEMY CHERISH DESIRE WILL BE FULFILLED.IN THIS STUDY, EFFORTS HAVE

BEEN MADE TO PREPARE THE REPORTS AS JUDICIALLY ASBEEN MADE TO PREPARE THE REPORTS AS JUDICIALLY AS

POSSIBLE.ERRORS &OMISSION,IF ANY MAY KINDLY BE TAKEN ASPOSSIBLE.ERRORS &OMISSION,IF ANY MAY KINDLY BE TAKEN AS

UNINTENTIONAL & BE PARDONED.UNINTENTIONAL & BE PARDONED.

2

SWATI SAHAY

ACKNOWLWLEDGEMENT

IF WORDS ARE CONSIDERED TO BE SIGNS OF GRATITUDE THEN LETIF WORDS ARE CONSIDERED TO BE SIGNS OF GRATITUDE THEN LET

THESE WORDS CONVEY THE VERY SAME MY SINCERE GRATITUDE TOTHESE WORDS CONVEY THE VERY SAME MY SINCERE GRATITUDE TO

ICICI BANK FOR PROVIDING ME WITH AN OPPORTUNITY TO WORK WITHICICI BANK FOR PROVIDING ME WITH AN OPPORTUNITY TO WORK WITH

BANK AND GIVING NECESSARY DIRECTIONS ON DOING THIS PROJECT TOBANK AND GIVING NECESSARY DIRECTIONS ON DOING THIS PROJECT TO

THE BEST OF MY ABILITIES.THE BEST OF MY ABILITIES.

I AM HIGHLY INDEBTED TOI AM HIGHLY INDEBTED TO  MR. RAJESH SRIVASTAVMR. RAJESH SRIVASTAV, BRANCH, BRANCH

MANAGER, WHO HAS PROVIDED ME WITH THE NECESSARYMANAGER, WHO HAS PROVIDED ME WITH THE NECESSARY

INFORMATION AND ALSO FOR THE SUPPORT EXTENDED OUT TO ME ININFORMATION AND ALSO FOR THE SUPPORT EXTENDED OUT TO ME IN

THE COMPLETION OF THIS REPORT AND HIS VALUABLE SUGGESTIONTHE COMPLETION OF THIS REPORT AND HIS VALUABLE SUGGESTION

AND COMMENTS ON BRINGING OUT THIS REPORT IN THE BEST WAYAND COMMENTS ON BRINGING OUT THIS REPORT IN THE BEST WAY

POSSIBLE.POSSIBLE.

I AM ALSO OBLIGED I AM ALSO OBLIGED DR.PRABIR PALDR.PRABIR PAL (DIRECTOR OF RCMA), (DIRECTOR OF RCMA), DR. SUJATADR. SUJATA

MANGARAJMANGARAJ (DEAN OF M.B.A. DEPARTMENT RCMA) & (DEAN OF M.B.A. DEPARTMENT RCMA) & PROF.PROF.

RAMAKRISHNA MISHRARAMAKRISHNA MISHRA WHO INSPIRED TO GO AHEAD WITH WHO INSPIRED TO GO AHEAD WITH

FULFILLING THE PROJECT REPORT .FULFILLING THE PROJECT REPORT .

I EXPRESS MY GRATITUDE TOWARDS EMPLOYEE OF ICICI BANK, THOSEI EXPRESS MY GRATITUDE TOWARDS EMPLOYEE OF ICICI BANK, THOSE

WHO HAVE HELPED ME DIRECTLY OR INDIRECTLY IN COMPLETING THEWHO HAVE HELPED ME DIRECTLY OR INDIRECTLY IN COMPLETING THE

TRAININGTRAINING

SWATI SAHAYSWATI SAHAY

PGDM (2010-2012)PGDM (2010-2012)

ROLL NO-1001247129ROLL NO-1001247129

3

SWATI SAHAY

CERTIFICATECERTIFICATE

THIS IS TO CERTIFY THAT THE PROJECT ENTITLED “THIS IS TO CERTIFY THAT THE PROJECT ENTITLED “WORKING CAPITALWORKING CAPITAL

MANAGEMENT”MANAGEMENT” OF ICICI BANK OF LIMITED HAS BEEN CARRIED OUT BY OF ICICI BANK OF LIMITED HAS BEEN CARRIED OUT BY

MISS. SWATI SAHAYMISS. SWATI SAHAY HAVING HAVING REGISTRATION NO-1001247129REGISTRATION NO-1001247129 FROM 31ST FROM 31ST

MAY TO 7TH JULY 2011, UNDER MY SUPERVISION IN PARTIALMAY TO 7TH JULY 2011, UNDER MY SUPERVISION IN PARTIAL

FULFILLMENT OF HER PGDM 2010-2012 AT REGIONAL COLLEGE OFFULFILLMENT OF HER PGDM 2010-2012 AT REGIONAL COLLEGE OF

MANAGEMENT (AUTUNOMOUS) ,BHUBANESWAR.MANAGEMENT (AUTUNOMOUS) ,BHUBANESWAR.

I AM SATISFIED WITH HIS SINCERE PERFORMANCE AND STUDYI AM SATISFIED WITH HIS SINCERE PERFORMANCE AND STUDY

CONDUCTED BY HER IN ICICI BANK OF LIMITED.CONDUCTED BY HER IN ICICI BANK OF LIMITED.

I RECOMMEND SUBMITTING THE PROJECT REPORT. I WISH HIM ALLI RECOMMEND SUBMITTING THE PROJECT REPORT. I WISH HIM ALL

SUCCESS IN LIFE.SUCCESS IN LIFE.

THIS IS ALSO CERTIFIED THAT THE PROJECT WORK IS ORIGINAL ANDTHIS IS ALSO CERTIFIED THAT THE PROJECT WORK IS ORIGINAL AND

HAS NOT BEEN SUBMITTED TO ANY OTHER PLACE.HAS NOT BEEN SUBMITTED TO ANY OTHER PLACE.

DATE: DATE:

R.K. MISHRAR.K. MISHRA

FACULTY IN FINANCE FACULTY IN FINANCE

RCMA(BHUBANESWAR)RCMA(BHUBANESWAR)

4

SWATI SAHAY

DECLARATION

I HEREBY DECLARE THAT THE FOLLOWING DOCUMENTED PROJECTI HEREBY DECLARE THAT THE FOLLOWING DOCUMENTED PROJECT

REPORT TITLED “REPORT TITLED “WORKING CAPITAL MANAGEMENT IN BANKINGWORKING CAPITAL MANAGEMENT IN BANKING

SECTORSECTOR" IS AN AUTHENTIC WORK DONE BY ME AS A PART OF MY" IS AN AUTHENTIC WORK DONE BY ME AS A PART OF MY

STUDY ON FINANCE.STUDY ON FINANCE.

I ALSO FURTHER STATE THAT THE PROJECT HAS BEEN PREPARED BY MYI ALSO FURTHER STATE THAT THE PROJECT HAS BEEN PREPARED BY MY

OWN WITH THE SECONDARY DATA PROVIDED IN THE REPORTS OF THEOWN WITH THE SECONDARY DATA PROVIDED IN THE REPORTS OF THE

COMPANY, WHICH WERE ESSENTIAL FOR THE COMPLETION OF THECOMPANY, WHICH WERE ESSENTIAL FOR THE COMPLETION OF THE

PROJECT. THE PROJECT WAS UNDERTAKEN AS A PART OF THE COURSEPROJECT. THE PROJECT WAS UNDERTAKEN AS A PART OF THE COURSE

CURRICULUM OF PGDM PROGRAMME, RCMA,BHUBANESWAR. THIS HASCURRICULUM OF PGDM PROGRAMME, RCMA,BHUBANESWAR. THIS HAS

NOT BEEN SUBMITTED TO ANY OTHER EXAMINATION BODY EARLIER. NOT BEEN SUBMITTED TO ANY OTHER EXAMINATION BODY EARLIER.

SWATI SAHAYSWATI SAHAY

5

SWATI SAHAY

INDEX

CONTENTS PAGE NO.

1. EXECUTIVE SUMMARY ………………………….. ………… 7.

2. INTRODUCTION TO INDUSTRY…………………………… 11.

3. COMPANY PROFILE……………………………………………31.

3.1 PRODUCTS AND SERVICES………………………. 42

3.2 SWOT ANLYSIS……………………………………… 45

3.3 FINANCIAL STATEMENT……………………. ……47

4. REVIEW OF LITERATURE

4.1 WORKING CAPITAL OVERVIEW………………...51

4.2 CASH MANAGEMENT…………………………… 56

5. RATIO ANALYSIS………………………………………………66

6. FINDINGS AND SUGGESSTION ……………………………...78

7. CONCLUSION………………………………………………….. 81

8. BIBILOGRAPHY………………………………..……………….82

6

SWATI SAHAY

EXECUTIVE SUMMARY

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA BANKINDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA BANK

(ICICI) IS THE LEADING PRIVATE BANK IN INDIA. ESTABLISHED IN(ICICI) IS THE LEADING PRIVATE BANK IN INDIA. ESTABLISHED IN

1955(AS INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF1955(AS INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF

INDIA).1994, ICICI ESTABLISHED BANKING CORPORATION AS A BANKINDIA).1994, ICICI ESTABLISHED BANKING CORPORATION AS A BANK

SUBSIDIARY FORMERLY INDUSTRIAL CREDIT AND INVESTMENTSUBSIDIARY FORMERLY INDUSTRIAL CREDIT AND INVESTMENT

CORPORATION OF INDIA. LATER ICICI BANKING CORPORATIONCORPORATION OF INDIA. LATER ICICI BANKING CORPORATION

RENAMED AS ‘ICICI BANK LIMITED’. ICICI BANK’S EQUITY SHARE ISRENAMED AS ‘ICICI BANK LIMITED’. ICICI BANK’S EQUITY SHARE IS

LISTED IN NSE AND BSE, AND ITS AMERICAN DEPOSITORY RECEIPTS ARELISTED IN NSE AND BSE, AND ITS AMERICAN DEPOSITORY RECEIPTS ARE

LISTED IN NEW YORK STOCK EXCHANGE. ICICI BANK’S IS INDIA SECONDLISTED IN NEW YORK STOCK EXCHANGE. ICICI BANK’S IS INDIA SECOND

LARGEST BANK WITH TOTAL ASSETS OF RS. 4,062.34 BILLION (US$ 91LARGEST BANK WITH TOTAL ASSETS OF RS. 4,062.34 BILLION (US$ 91

BILLION) AT MARCH 31, 2011 AND PROFIT AFTER TAX RS. 51.51 BILLIONBILLION) AT MARCH 31, 2011 AND PROFIT AFTER TAX RS. 51.51 BILLION

(US$ 1,155 MILLION) FOR THE YEAR ENDED MARCH 31, 2011. THE BANK(US$ 1,155 MILLION) FOR THE YEAR ENDED MARCH 31, 2011. THE BANK

HAS A NETWORK OF 2,543 BRANCHES AND ABOUT 7,037 ATMS IN INDIA,HAS A NETWORK OF 2,543 BRANCHES AND ABOUT 7,037 ATMS IN INDIA,

AND HAS A PRESENCE IN 19 COUNTRIES, INCLUDING INDIA. ICICI BANKAND HAS A PRESENCE IN 19 COUNTRIES, INCLUDING INDIA. ICICI BANK

IS LARGEST ISSUER OF CREDIT CARD IN INDIA.IS LARGEST ISSUER OF CREDIT CARD IN INDIA.

THE BANK IS EXPANDING RAPIDLY IN OVERSEAS MARKETS. ITTHE BANK IS EXPANDING RAPIDLY IN OVERSEAS MARKETS. IT

HAS OPERATIONS IN THE UK, HONG KONG AND CANADA. IT ACQUIRED AHAS OPERATIONS IN THE UK, HONG KONG AND CANADA. IT ACQUIRED A

SMALL BANK IN RUSSIA RECENTLY. IT HAS TIE-UPS WITH MAJOR BANKSSMALL BANK IN RUSSIA RECENTLY. IT HAS TIE-UPS WITH MAJOR BANKS

IN THE US AND CHINA. THE BANK IS AGGRESSIVELY TARGETING THEIN THE US AND CHINA. THE BANK IS AGGRESSIVELY TARGETING THE

NRI POPULATION FOR EXPANDING ITS BUSINESS. IT ALREADY OFFERSNRI POPULATION FOR EXPANDING ITS BUSINESS. IT ALREADY OFFERS

MONEY TRANSFER FACILITIES TO INDIA FROM MOST MAJOR COUNTRIESMONEY TRANSFER FACILITIES TO INDIA FROM MOST MAJOR COUNTRIES

ACROSS THE GLOBE. ICICI ALONG WITH UTI SETS UP CREDIT RATINGACROSS THE GLOBE. ICICI ALONG WITH UTI SETS UP CREDIT RATING

INFORMATIONINFORMATION SERVICES OF INDIA LIMITED, (CRISIL) INDIA'S FIRSTSERVICES OF INDIA LIMITED, (CRISIL) INDIA'S FIRST

PROFESSIONAL CREDIT RATING AGENCYPROFESSIONAL CREDIT RATING AGENCY

7

SWATI SAHAY

THE WORKING CAPITAL RATIO IS CALCULATED AS:THE WORKING CAPITAL RATIO IS CALCULATED AS:

POSITIVE WORKING CAPITAL MEANS THAT THE COMPANY IS ABLE TOPOSITIVE WORKING CAPITAL MEANS THAT THE COMPANY IS ABLE TO

PAY OFF ITS SHORT-TERM LIABILITIES. NEGATIVE WORKING CAPITALPAY OFF ITS SHORT-TERM LIABILITIES. NEGATIVE WORKING CAPITAL

MEANS THAT A COMPANY CURRENTLY IS UNABLE TO MEET ITS SHORT-MEANS THAT A COMPANY CURRENTLY IS UNABLE TO MEET ITS SHORT-

TERM LIABILITIES WITH ITS CURRENT ASSETS (CASH, ACCOUNTSTERM LIABILITIES WITH ITS CURRENT ASSETS (CASH, ACCOUNTS

RECEIVABLE ANDRECEIVABLE AND INVENTORY).WORKING CAPITAL ALSO GIVESINVENTORY).WORKING CAPITAL ALSO GIVES

INVESTORS AN IDEA OF THE COMPANY’S UNDERLYING OPERATIONALINVESTORS AN IDEA OF THE COMPANY’S UNDERLYING OPERATIONAL

EFFICIENCY. MONEY THAT IS TIED UP IN INVENTORY OR MONEY THATEFFICIENCY. MONEY THAT IS TIED UP IN INVENTORY OR MONEY THAT

CUSTOMERS STILL OWE TO THE COMPANY CANNOT BE USED TO PAYCUSTOMERS STILL OWE TO THE COMPANY CANNOT BE USED TO PAY

OFF ANY OF THE COMPANY’S OBLIGATIONS.OFF ANY OF THE COMPANY’S OBLIGATIONS.

TO MEASURE EFFICIENCY WE HAVE USED RATIO ANALYSIS ASTO MEASURE EFFICIENCY WE HAVE USED RATIO ANALYSIS AS

A TECHNIQUE AND THE MAIN RATIO WE HAVE USED ARE LIQUIDITYA TECHNIQUE AND THE MAIN RATIO WE HAVE USED ARE LIQUIDITY

RATIO AND ACTIVITIES RATIO. ONE MORE TOOL WE HAVE USED ISRATIO AND ACTIVITIES RATIO. ONE MORE TOOL WE HAVE USED IS

CALCULATION OF OPERATING CYCLE WHICH SHOWS HOW EFFECTIVELYCALCULATION OF OPERATING CYCLE WHICH SHOWS HOW EFFECTIVELY

THE FIRM IS USING ITS RESOURCES OR HOW MUCH TIME ITS TAKE TOTHE FIRM IS USING ITS RESOURCES OR HOW MUCH TIME ITS TAKE TO

CONVERT ITS INVESTMENT BACK INTO CASH. CONVERT ITS INVESTMENT BACK INTO CASH.

8

SWATI SAHAY

OBJECTIVE OF STUDY

TO FIND OUT THE EFFICIENCY OF WORKING CPITALTO FIND OUT THE EFFICIENCY OF WORKING CPITAL

MANAGEMENT.MANAGEMENT.

TO HAVE A PRACTICAL EXPERIENCE OF THE FUNCTIONING OF THETO HAVE A PRACTICAL EXPERIENCE OF THE FUNCTIONING OF THE

FINANCE DEPARTMENT OF A BANKING COMPANY.FINANCE DEPARTMENT OF A BANKING COMPANY.

TO STUDY HOW WORKING CAPITAL MANAGEMENT PRACTICES PLAYSTO STUDY HOW WORKING CAPITAL MANAGEMENT PRACTICES PLAYS

AN IMPORTANT ROLE IN SUPPORTING OTHER ACTIVITIES OF ANAN IMPORTANT ROLE IN SUPPORTING OTHER ACTIVITIES OF AN

BANKING INDUSTRY.BANKING INDUSTRY.

TO GAIN FAMILIARITY WITH THE VARIOUS COMPONENTS OF WORKINGTO GAIN FAMILIARITY WITH THE VARIOUS COMPONENTS OF WORKING

CAPITAL IN ICICI BANK OF INDIA.CAPITAL IN ICICI BANK OF INDIA.

TO FIND OUT THE DIFFERENCE BETWEEN THE THEORETICAL ANDTO FIND OUT THE DIFFERENCE BETWEEN THE THEORETICAL AND

PRACTICAL ASPECT OF WORKING CAPITAL MANAGEMENT.PRACTICAL ASPECT OF WORKING CAPITAL MANAGEMENT.

TO STUDY AND COME OUT WITH ANY SOLUTION FOR IMPROVEMENT OFTO STUDY AND COME OUT WITH ANY SOLUTION FOR IMPROVEMENT OF

WORKING CAPITAL MANAGEMENT AT ICICI BANK OF INDIA.WORKING CAPITAL MANAGEMENT AT ICICI BANK OF INDIA.

TO KNOW THE LIQUIDITY POSITION OF THE COMPANY WITH THE HELPTO KNOW THE LIQUIDITY POSITION OF THE COMPANY WITH THE HELP

OF CURRENT RATIO.OF CURRENT RATIO.

9

SWATI SAHAY

METHODOLOGY

THE DATA WHICH I HAVE COLLECTEDFOR MAKING THIS PROJECT ISTHE DATA WHICH I HAVE COLLECTEDFOR MAKING THIS PROJECT IS

COMBINATION OF BOTH PRIMARY AND SECONDARY DATA.COMBINATION OF BOTH PRIMARY AND SECONDARY DATA.

PRIMARY DATA:PRIMARY DATA:

This data had been collected through meetings and interviews with variousThis data had been collected through meetings and interviews with various

managers and employees of the finance department of ICICI Bank Ofmanagers and employees of the finance department of ICICI Bank Of

India. Data are also collected through telephone conversations.India. Data are also collected through telephone conversations.

SECONDARY DATASECONDARY DATA::

Apart from the primary data certain secondary data were required for thisApart from the primary data certain secondary data were required for this

project. Following are the sources of secondary data:-project. Following are the sources of secondary data:-

Annual reportsAnnual reports

Cost & budget reportsCost & budget reports

Creditors reportsCreditors reports

Debtors reportsDebtors reports

Inventory reportsInventory reports

Cash reportsCash reports

10

SWATI SAHAY

INTRODUCTION

INTRODUCTION TO BANKING INDUSTRYINTRODUCTION TO BANKING INDUSTRY

BANKS ARE IN THE BUSINESS OF ACCEPTING DEPOSITS FORBANKS ARE IN THE BUSINESS OF ACCEPTING DEPOSITS FOR

THE PURPOSE OF LENDING. THEY ACT AS FINANCIAL INTERMEDIARIESTHE PURPOSE OF LENDING. THEY ACT AS FINANCIAL INTERMEDIARIES

BETWEEN DEPOSITORS WITH SURPLUS FUNDS AND BORROWERS WHOBETWEEN DEPOSITORS WITH SURPLUS FUNDS AND BORROWERS WHO

ARE IN NEED OF FUNDS. BANKS OCCUPY A PIVOTAL PLACE IN THEARE IN NEED OF FUNDS. BANKS OCCUPY A PIVOTAL PLACE IN THE

PAYMENT SYSTEM FOR GOVERNMENT, BUSINESS AND HOUSEHOLDS.PAYMENT SYSTEM FOR GOVERNMENT, BUSINESS AND HOUSEHOLDS.

THUS, THEY PLAY A VITAL ROLE IN THE ECONOMIC AND FINANCIALTHUS, THEY PLAY A VITAL ROLE IN THE ECONOMIC AND FINANCIAL

LIFE OF COUNTRY. LIFE OF COUNTRY.

THE BANKING SECTOR IN THE COUNTRY HAS UNDERGONE ATHE BANKING SECTOR IN THE COUNTRY HAS UNDERGONE A

METAMORPHIC PERSUADE THE POLICIES OF INTEREST RATEMETAMORPHIC PERSUADE THE POLICIES OF INTEREST RATE

DEREGULATION AND FINANCIAL LIBERALIZATION IN A BID TODEREGULATION AND FINANCIAL LIBERALIZATION IN A BID TO

SUPPLEMENT THE GOVERNMENT POLICIES OF ECONOMICSUPPLEMENT THE GOVERNMENT POLICIES OF ECONOMIC

LIBERALIZATION. THE MOST IMPORTANT CHANGE THAT HASLIBERALIZATION. THE MOST IMPORTANT CHANGE THAT HAS

OVERTAKEN THE NATION’S BANKING INDUSTRY, RELATES TO THE FACTOVERTAKEN THE NATION’S BANKING INDUSTRY, RELATES TO THE FACT

THAT THE COMPETITIVE FORCES ARE SOUGHT TO BE INTRODUCEDTHAT THE COMPETITIVE FORCES ARE SOUGHT TO BE INTRODUCED

CONSCIOUSLY IN THE FINANCIAL SERVICE SECTOR WIDE TO FACILITATECONSCIOUSLY IN THE FINANCIAL SERVICE SECTOR WIDE TO FACILITATE

THE ENTRY OF FOREIGN BANKS AND NEW PRIVATE SECTOR BANKS. THE ENTRY OF FOREIGN BANKS AND NEW PRIVATE SECTOR BANKS.

AFTER THE NATIONALIZATION OF 14 MAJOR COMMERCIALAFTER THE NATIONALIZATION OF 14 MAJOR COMMERCIAL

BANKS IN THE YEAR 1969, NO NEW PRIVATE BANKS WERE LICENSED BYBANKS IN THE YEAR 1969, NO NEW PRIVATE BANKS WERE LICENSED BY

RBI IN THE COUNTRY THOUGH THERE WAS NO LEGAL BANK ON THERBI IN THE COUNTRY THOUGH THERE WAS NO LEGAL BANK ON THE

ENTRY OF PRIVATE SECTOR BANKS. THE NARASIMHAM COMMITTEEENTRY OF PRIVATE SECTOR BANKS. THE NARASIMHAM COMMITTEE

11

SWATI SAHAY

REPORT OF 1991, HAS ENVISAGED A LARGER ROLE FOR PRIVATE SECTORREPORT OF 1991, HAS ENVISAGED A LARGER ROLE FOR PRIVATE SECTOR

BANKS. BANKS.

HISTORICAL OF BANKING IN INDIAHISTORICAL OF BANKING IN INDIA

WITHOUT A SOUND AND EFFECTIVE BANKING SYSTEM, INDIAWITHOUT A SOUND AND EFFECTIVE BANKING SYSTEM, INDIA

CANNOT HAVE A HEALTHY ECONOMY. THE BANKING SYSTEM OF INDIACANNOT HAVE A HEALTHY ECONOMY. THE BANKING SYSTEM OF INDIA

SHOULD NOT ONLY BE HASSLE FREE BUT IT SHOULD BE ABLE TO MEETSHOULD NOT ONLY BE HASSLE FREE BUT IT SHOULD BE ABLE TO MEET

NEW CHALLENGES POSED BY THE TECHNOLOGY AND ANY OTHERNEW CHALLENGES POSED BY THE TECHNOLOGY AND ANY OTHER

EXTERNAL AND INTERNAL FACTORS. . EXTERNAL AND INTERNAL FACTORS. .

FOR THE PAST THREE DECADES INDIA'S BANKING SYSTEM HAS SEVERALFOR THE PAST THREE DECADES INDIA'S BANKING SYSTEM HAS SEVERAL

OUTSTANDING ACHIEVEMENTS TO ITS CREDIT. THE MOST STRIKING ISOUTSTANDING ACHIEVEMENTS TO ITS CREDIT. THE MOST STRIKING IS

ITS EXTENSIVE REACH. IT IS NO LONGER CONFINED TO ONLYITS EXTENSIVE REACH. IT IS NO LONGER CONFINED TO ONLY

METROPOLITANS OR COSMOPOLITANS IN INDIA. IN FACT, INDIANMETROPOLITANS OR COSMOPOLITANS IN INDIA. IN FACT, INDIAN

BANKING SYSTEM HAS REACHED EVEN TO THE REMOTE CORNERS OFBANKING SYSTEM HAS REACHED EVEN TO THE REMOTE CORNERS OF

THE COUNTRY. THIS IS ONE OF THE MAIN REASONS OF INDIA'S GROWTHTHE COUNTRY. THIS IS ONE OF THE MAIN REASONS OF INDIA'S GROWTH

PROCESS.PROCESS.

NOT LONG AGO, AN ACCOUNT HOLDER HAD TO WAIT FOR HOURS ATNOT LONG AGO, AN ACCOUNT HOLDER HAD TO WAIT FOR HOURS AT

THE BANK COUNTERS FOR GETTING A DRAFT OR FOR WITHDRAWINGTHE BANK COUNTERS FOR GETTING A DRAFT OR FOR WITHDRAWING

HIS OWN MONEY. TODAY, HE HAS A CHOICE. GONE ARE DAYS WHEN THEHIS OWN MONEY. TODAY, HE HAS A CHOICE. GONE ARE DAYS WHEN THE

MOST EFFICIENT BANK TRANSFERRED MONEY FROM ONE BRANCH TOMOST EFFICIENT BANK TRANSFERRED MONEY FROM ONE BRANCH TO

OTHER IN TWO DAYS. NOW IT IS SIMPLE AS INSTANT MESSAGING OROTHER IN TWO DAYS. NOW IT IS SIMPLE AS INSTANT MESSAGING OR

DIAL A PIZZA. MONEY HAS BECOME THE ORDER OF THE DAY.DIAL A PIZZA. MONEY HAS BECOME THE ORDER OF THE DAY.

12

SWATI SAHAY

THE FIRST BANK IN INDIA, THOUGH CONSERVATIVE, WAS ESTABLISHEDTHE FIRST BANK IN INDIA, THOUGH CONSERVATIVE, WAS ESTABLISHED

IN 1786. FROM 1786 TILL TODAY, THE JOURNEY OF INDIAN BANKINGIN 1786. FROM 1786 TILL TODAY, THE JOURNEY OF INDIAN BANKING

SYSTEM CAN BE SEGREGATED INTO THREE DISTINCT PHASES. THEY ARESYSTEM CAN BE SEGREGATED INTO THREE DISTINCT PHASES. THEY ARE

AS MENTIONED BELOW: AS MENTIONED BELOW:

EARLY PHASE FROM 1786 TO 1969 OF INDIAN BANKS EARLY PHASE FROM 1786 TO 1969 OF INDIAN BANKS

NATIONALIZATION OF INDIAN BANKS AND UP TO 1991 PRIOR TONATIONALIZATION OF INDIAN BANKS AND UP TO 1991 PRIOR TO

INDIAN INDIAN

BANKING SECTOR REFORMSBANKING SECTOR REFORMS..

PHASE I:PHASE I: . .

THE GENERAL BANK OF INDIA WAS SET UP IN THE YEAR 1786. NEXTTHE GENERAL BANK OF INDIA WAS SET UP IN THE YEAR 1786. NEXT

BANK OF HINDUSTAN AND BENGAL BANK. THE EAST INDIA COMPANYBANK OF HINDUSTAN AND BENGAL BANK. THE EAST INDIA COMPANY

ESTABLISHED BANK OF BENGAL (1809), BANK OF BOMBAY (1840) ANDESTABLISHED BANK OF BENGAL (1809), BANK OF BOMBAY (1840) AND

BANK OF MADRAS (1843) AS INDEPENDENT UNITS AND CALLED ITBANK OF MADRAS (1843) AS INDEPENDENT UNITS AND CALLED IT

PRESIDENCY BANKS. THESE THREE BANKS WERE AMALGAMATED INPRESIDENCY BANKS. THESE THREE BANKS WERE AMALGAMATED IN

1920 AND IMPERIAL BANK OF INDIA WAS ESTABLISHED WHICH STARTED1920 AND IMPERIAL BANK OF INDIA WAS ESTABLISHED WHICH STARTED

AS PRIVATE SHAREHOLDERS BANKS.AS PRIVATE SHAREHOLDERS BANKS.

IN 1865 ALLAHABAD BANK WAS ESTABLISHED AND FIRST TIMEIN 1865 ALLAHABAD BANK WAS ESTABLISHED AND FIRST TIME

EXCLUSIVELY BY INDIANS, PUNJAB NATIONAL BANK LTD. WAS SET UPEXCLUSIVELY BY INDIANS, PUNJAB NATIONAL BANK LTD. WAS SET UP

IN 1894 WITH HEADQUARTERS AT LAHORE. BETWEEN 1906 AND 1913,IN 1894 WITH HEADQUARTERS AT LAHORE. BETWEEN 1906 AND 1913,

BANK OF INDIA, CENTRAL BANK OF INDIA, BANK OF BARODA, CANADABANK OF INDIA, CENTRAL BANK OF INDIA, BANK OF BARODA, CANADA

13

SWATI SAHAY

BANK, INDIAN BANK, AND BANK OF MYSORE WERE SET UP. RESERVEBANK, INDIAN BANK, AND BANK OF MYSORE WERE SET UP. RESERVE

BANK OF INDIA CAME IN 1935.BANK OF INDIA CAME IN 1935.

DURING THE FIRST PHASE THE GROWTH WAS VERY SLOW AND BANKSDURING THE FIRST PHASE THE GROWTH WAS VERY SLOW AND BANKS

ALSO EXPERIENCED PERIODIC FAILURES BETWEEN 1913 AND 1948.ALSO EXPERIENCED PERIODIC FAILURES BETWEEN 1913 AND 1948.

THERE WERE APPROXIMATELY 1100 BANKS, MOSTLY SMALL. THERE WERE APPROXIMATELY 1100 BANKS, MOSTLY SMALL.

PHASE II:PHASE II: . .

GOVERNMENT TOOK MAJOR STEPS IN THIS INDIAN BANKING SECTORGOVERNMENT TOOK MAJOR STEPS IN THIS INDIAN BANKING SECTOR

REFORM AFTER INDEPENDENCE. IN 1955, IT NATIONALIZED IMPERIALREFORM AFTER INDEPENDENCE. IN 1955, IT NATIONALIZED IMPERIAL

BANK OF INDIA WITH EXTENSIVE BANKING FACILITIES ON A LARGEBANK OF INDIA WITH EXTENSIVE BANKING FACILITIES ON A LARGE

SCALE ESPECIALLY IN RURAL AND SEMI-URBAN AREAS. IT FORMEDSCALE ESPECIALLY IN RURAL AND SEMI-URBAN AREAS. IT FORMED

STATE BANK OF INDIA TO ACT AS THE PRINCIPAL AGENT OF RBI AND TOSTATE BANK OF INDIA TO ACT AS THE PRINCIPAL AGENT OF RBI AND TO

HANDLE BANKING TRANSACTIONS OF THE UNION AND STATEHANDLE BANKING TRANSACTIONS OF THE UNION AND STATE

GOVERNMENTS ALL OVER THE COUNTRY. .GOVERNMENTS ALL OVER THE COUNTRY. .

SEVEN BANKS FORMING SUBSIDIARY OF STATE BANK OF INDIA WASSEVEN BANKS FORMING SUBSIDIARY OF STATE BANK OF INDIA WAS

NATIONALIZED IN 1960 ON 19TH JULY, 1969, MAJOR PROCESS OFNATIONALIZED IN 1960 ON 19TH JULY, 1969, MAJOR PROCESS OF

NATIONALIZATION WAS CARRIED OUT. IT WAS THE EFFORT OF THENATIONALIZATION WAS CARRIED OUT. IT WAS THE EFFORT OF THE

THEN PRIME MINISTER OF INDIA, MRS. INDIRA GANDHI. 14 MAJORTHEN PRIME MINISTER OF INDIA, MRS. INDIRA GANDHI. 14 MAJOR

COMMERCIAL BANKS IN THE COUNTRY WERE NATIONALIZED.COMMERCIAL BANKS IN THE COUNTRY WERE NATIONALIZED.

THE FOLLOWING ARE THE STEPS TAKEN BY THE GOVERNMENT OF INDIATHE FOLLOWING ARE THE STEPS TAKEN BY THE GOVERNMENT OF INDIA

TO REGULATE BANKING INSTITUTIONS IN THE COUNTRY:TO REGULATE BANKING INSTITUTIONS IN THE COUNTRY:

14

SWATI SAHAY

1949: ENACTMENT OF BANKING REGULATION ACT. 1949: ENACTMENT OF BANKING REGULATION ACT.

1955: NATIONALIZATION OF STATE BANK OF INDIA. 1955: NATIONALIZATION OF STATE BANK OF INDIA.

1959: NATIONALIZATION OF SBI SUBSIDIARIES. 1959: NATIONALIZATION OF SBI SUBSIDIARIES.

1961: INSURANCE COVER EXTENDED TO DEPOSITS. 1961: INSURANCE COVER EXTENDED TO DEPOSITS.

1969: NATIONALIZATION OF 14 MAJOR BANKS. 1969: NATIONALIZATION OF 14 MAJOR BANKS.

1971: CREATION OF CREDIT GUARANTEE CORPORATION. 1971: CREATION OF CREDIT GUARANTEE CORPORATION.

1975: CREATION OF REGIONAL RURAL BANKS.1975: CREATION OF REGIONAL RURAL BANKS.

1980: NATIONALIZATION OF SEVEN BANKS WITH DEPOSITS OVER 2001980: NATIONALIZATION OF SEVEN BANKS WITH DEPOSITS OVER 200

CRORE. CRORE.

PHASE III:PHASE III: . .

THIS PHASE HAS INTRODUCED MANY MORE PRODUCTS AND FACILITIESTHIS PHASE HAS INTRODUCED MANY MORE PRODUCTS AND FACILITIES

IN THE BANKING SECTOR IN ITS REFORMS MEASURE. IN 1991, UNDER THEIN THE BANKING SECTOR IN ITS REFORMS MEASURE. IN 1991, UNDER THE

CHAIRMANSHIP OF M NARASIMHAM, A COMMITTEE WAS SET UP BY HISCHAIRMANSHIP OF M NARASIMHAM, A COMMITTEE WAS SET UP BY HIS

NAME WHICH WORKED FOR THE LIBERALIZATION OF BANKINGNAME WHICH WORKED FOR THE LIBERALIZATION OF BANKING

PRACTICES.PRACTICES.

THE COUNTRY IS FLOODED WITH FOREIGN BANKS AND THEIR ATMTHE COUNTRY IS FLOODED WITH FOREIGN BANKS AND THEIR ATM

STATIONS. EFFORTS ARE BEING PUT TO GIVE A SATISFACTORY SERVICESTATIONS. EFFORTS ARE BEING PUT TO GIVE A SATISFACTORY SERVICE

TO CUSTOMERS. PHONE BANKING AND NET BANKING IS INTRODUCED.TO CUSTOMERS. PHONE BANKING AND NET BANKING IS INTRODUCED.

THE ENTIRE SYSTEM BECAME MORE CONVENIENT AND SWIFT. TIME ISTHE ENTIRE SYSTEM BECAME MORE CONVENIENT AND SWIFT. TIME IS

GIVEN MORE IMPORTANCE THAN MONEY. .GIVEN MORE IMPORTANCE THAN MONEY. .

15

SWATI SAHAY

THE FINANCIAL SYSTEM OF INDIA HAS SHOWN A GREAT DEAL OFTHE FINANCIAL SYSTEM OF INDIA HAS SHOWN A GREAT DEAL OF

RESILIENCE. IT IS SHELTERED FROM ANY CRISIS TRIGGERED BY ANYRESILIENCE. IT IS SHELTERED FROM ANY CRISIS TRIGGERED BY ANY

EXTERNAL MACROECONOMICS SHOCK AS OTHER EAST ASIANEXTERNAL MACROECONOMICS SHOCK AS OTHER EAST ASIAN

COUNTRIES SUFFERED. THIS IS ALL DUE TO A FLEXIBLE EXCHANGECOUNTRIES SUFFERED. THIS IS ALL DUE TO A FLEXIBLE EXCHANGE

RATE REGIME, THE FOREIGN RESERVES ARE HIGH, THE CAPITALRATE REGIME, THE FOREIGN RESERVES ARE HIGH, THE CAPITAL

ACCOUNT IS NOT YET FULLY CONVERTIBLE, AND BANKS AND THEIRACCOUNT IS NOT YET FULLY CONVERTIBLE, AND BANKS AND THEIR

CUSTOMERS HAVE LIMITED FOREIGN EXCHANGE EXPOSURECUSTOMERS HAVE LIMITED FOREIGN EXCHANGE EXPOSURE..

16

SWATI SAHAY

RESERVE BANK OF INDIA

THE CENTRAL BANK OF THE COUNTRY IS THE RESERVE BANK OF INDIATHE CENTRAL BANK OF THE COUNTRY IS THE RESERVE BANK OF INDIA

(RBI). IT WAS ESTABLISHED IN APRIL 1935 WITH A SHARE CAPITAL OF RS.(RBI). IT WAS ESTABLISHED IN APRIL 1935 WITH A SHARE CAPITAL OF RS.

5 CRORES ON THE BASIS OF THE RECOMMENDATIONS OF THE HILTON5 CRORES ON THE BASIS OF THE RECOMMENDATIONS OF THE HILTON

YOUNG COMMISSION. THE SHARE CAPITAL WAS DIVIDED INTO SHARESYOUNG COMMISSION. THE SHARE CAPITAL WAS DIVIDED INTO SHARES

OF RS. 100 EACH FULLY PAID WHICH WAS ENTIRELY OWNED BY PRIVATEOF RS. 100 EACH FULLY PAID WHICH WAS ENTIRELY OWNED BY PRIVATE

SHAREHOLDERS IN THE BEGINNING. THE GOVERNMENT HELD SHARESSHAREHOLDERS IN THE BEGINNING. THE GOVERNMENT HELD SHARES

OF NOMINAL VALUE OF RS. 2, 20,000. .OF NOMINAL VALUE OF RS. 2, 20,000. .

RESERVE BANK OF INDIA WAS NATIONALIZED IN THE YEAR 1949. THERESERVE BANK OF INDIA WAS NATIONALIZED IN THE YEAR 1949. THE

GENERAL SUPERINTENDENCE AND DIRECTION OF THE BANK ISGENERAL SUPERINTENDENCE AND DIRECTION OF THE BANK IS

ENTRUSTED TO CENTRAL BOARD OF DIRECTORS OF 20 MEMBERS, THEENTRUSTED TO CENTRAL BOARD OF DIRECTORS OF 20 MEMBERS, THE

GOVERNOR AND FOUR DEPUTY GOVERNORS, ONE GOVERNMENTGOVERNOR AND FOUR DEPUTY GOVERNORS, ONE GOVERNMENT

OFFICIAL FROM THE MINISTRY OF FINANCE, TEN NOMINATEDOFFICIAL FROM THE MINISTRY OF FINANCE, TEN NOMINATED

DIRECTORS BY THE GOVERNMENT TO GIVE REPRESENTATION TODIRECTORS BY THE GOVERNMENT TO GIVE REPRESENTATION TO

IMPORTANT ELEMENTS IN THE ECONOMIC LIFE OF THE COUNTRY, ANDIMPORTANT ELEMENTS IN THE ECONOMIC LIFE OF THE COUNTRY, AND

FOUR NOMINATED DIRECTORS BY THE CENTRAL GOVERNMENT TOFOUR NOMINATED DIRECTORS BY THE CENTRAL GOVERNMENT TO

REPRESENT THE FOUR LOCAL BOARDS WITH THE HEADQUARTERS ATREPRESENT THE FOUR LOCAL BOARDS WITH THE HEADQUARTERS AT

MUMBAI, KOLKATA, CHENNAI AND NEW DELHI. LOCAL BOARDSMUMBAI, KOLKATA, CHENNAI AND NEW DELHI. LOCAL BOARDS

CONSIST OF FIVE MEMBERS EACH CENTRAL GOVERNMENT APPOINTEDCONSIST OF FIVE MEMBERS EACH CENTRAL GOVERNMENT APPOINTED

FOR A TERM OF FOUR YEARS TO REPRESENT TERRITORIAL ANDFOR A TERM OF FOUR YEARS TO REPRESENT TERRITORIAL AND

ECONOMIC INTERESTS AND THE INTERESTS OF CO-OPERATIVE ANDECONOMIC INTERESTS AND THE INTERESTS OF CO-OPERATIVE AND

INDIGENOUS BANKS. .INDIGENOUS BANKS. .

THE RESERVE BANK OF INDIA ACT, 1934 WAS COMMENCED ON APRIL 1,THE RESERVE BANK OF INDIA ACT, 1934 WAS COMMENCED ON APRIL 1,

1935. THE ACT, 1934 (II OF 1934) PROVIDES THE STATUTORY BASIS OF THE1935. THE ACT, 1934 (II OF 1934) PROVIDES THE STATUTORY BASIS OF THE

FUNCTIONING OF THE BANK. .FUNCTIONING OF THE BANK. .

THE BANK WAS CONSTITUTED FOR THE NEED OF FOLLOWING: THE BANK WAS CONSTITUTED FOR THE NEED OF FOLLOWING:

1. TO REGULATE THE ISSUE OF BANKNOTES 1. TO REGULATE THE ISSUE OF BANKNOTES

17

SWATI SAHAY

2. TO MAINTAIN RESERVES WITH A VIEW TO SECURING MONETARY2. TO MAINTAIN RESERVES WITH A VIEW TO SECURING MONETARY

STABILITY AND STABILITY AND

3. TO OPERATE THE CREDIT AND CURRENCY SYSTEM OF THE COUNTRY3. TO OPERATE THE CREDIT AND CURRENCY SYSTEM OF THE COUNTRY

TO ITS ADVANTAGE. TO ITS ADVANTAGE.

FUNCTIONS OF RESERVE BANK OF INDIAFUNCTIONS OF RESERVE BANK OF INDIA

THE RESERVE BANK OF INDIA ACT OF 1934 ENTRUST ALL THETHE RESERVE BANK OF INDIA ACT OF 1934 ENTRUST ALL THE

IMPORTANT FUNCTIONS OF A CENTRAL BANK,THE RESERVE BANK OFIMPORTANT FUNCTIONS OF A CENTRAL BANK,THE RESERVE BANK OF

INDIA. INDIA.

BANK OF ISSUE:BANK OF ISSUE: . .

UNDER SECTION 22 OF THE RESERVE BANK OF INDIA ACT, THE UNDER SECTION 22 OF THE RESERVE BANK OF INDIA ACT, THE

BANK HAS THE SOLE RIGHT TO ISSUE BANK NOTES OF ALLBANK HAS THE SOLE RIGHT TO ISSUE BANK NOTES OF ALL

DENOMINATIONS. THE DISTRIBUTION OF ONE RUPEE NOTES AND COINSDENOMINATIONS. THE DISTRIBUTION OF ONE RUPEE NOTES AND COINS

AND SMALL COINS ALL OVER THE COUNTRY IS UNDERTAKEN BY THEAND SMALL COINS ALL OVER THE COUNTRY IS UNDERTAKEN BY THE

RESERVE BANK AS AGENT OF THE GOVERNMENT. THE RESERVE BANKRESERVE BANK AS AGENT OF THE GOVERNMENT. THE RESERVE BANK

HAS A SEPARATE ISSUE DEPARTMENT WHICH IS ENTRUSTED WITH THEHAS A SEPARATE ISSUE DEPARTMENT WHICH IS ENTRUSTED WITH THE

ISSUE OF CURRENCY NOTES. THE ASSETS AND LIABILITIES OF THE ISSUEISSUE OF CURRENCY NOTES. THE ASSETS AND LIABILITIES OF THE ISSUE

DEPARTMENT ARE KEPT SEPARATE FROM THOSE OF THE BANKINGDEPARTMENT ARE KEPT SEPARATE FROM THOSE OF THE BANKING

DEPARTMENT. DEPARTMENT.

18

SWATI SAHAY

BANKER TO GOVERNMENTBANKER TO GOVERNMENT:: . .

THE SECOND IMPORTANT FUNCTION OF THE RESERVE BANK OF THE SECOND IMPORTANT FUNCTION OF THE RESERVE BANK OF

INDIA IS TO ACT AS GOVERNMENT BANKER, AGENT AND ADVISER. THEINDIA IS TO ACT AS GOVERNMENT BANKER, AGENT AND ADVISER. THE

RESERVE BANK IS AGENT OF CENTRAL GOVERNMENT AND OF ALLRESERVE BANK IS AGENT OF CENTRAL GOVERNMENT AND OF ALL

STATE GOVERNMENTS IN INDIA EXCEPTING THAT OF JAMMU ANDSTATE GOVERNMENTS IN INDIA EXCEPTING THAT OF JAMMU AND

KASHMIR. THE RESERVE BANK HAS THE OBLIGATION TO TRANSACTKASHMIR. THE RESERVE BANK HAS THE OBLIGATION TO TRANSACT

GOVERNMENT BUSINESS, VIA. TO KEEP THE CASH BALANCES ASGOVERNMENT BUSINESS, VIA. TO KEEP THE CASH BALANCES AS

DEPOSITS FREE OF INTEREST, TO RECEIVE AND TO MAKE PAYMENTS ONDEPOSITS FREE OF INTEREST, TO RECEIVE AND TO MAKE PAYMENTS ON

BEHALF OF THE GOVERNMENT AND TO CARRY OUT THEIR EXCHANGEBEHALF OF THE GOVERNMENT AND TO CARRY OUT THEIR EXCHANGE

REMITTANCES AND OTHER BANKING OPERATIONS. THE RESERVE BANKREMITTANCES AND OTHER BANKING OPERATIONS. THE RESERVE BANK

OF INDIA HELPS THE GOVERNMENT - BOTH THE UNION AND THE STATESOF INDIA HELPS THE GOVERNMENT - BOTH THE UNION AND THE STATES

TO FLOAT NEW LOANS AND TO MANAGE PUBLIC DEBT. IT ACTS ASTO FLOAT NEW LOANS AND TO MANAGE PUBLIC DEBT. IT ACTS AS

ADVISER TO THE GOVERNMENT ON ALL MONETARY AND BANKINGADVISER TO THE GOVERNMENT ON ALL MONETARY AND BANKING

MATTERS.MATTERS.

BANKERS' BANK AND LENDER OF THE LAST RESORTBANKERS' BANK AND LENDER OF THE LAST RESORT

THE RESERVE BANK OF INDIA ACTS AS THE BANKERS' BANK. THE RESERVE BANK OF INDIA ACTS AS THE BANKERS' BANK.

ACCORDING TO THE PROVISIONS OF THE BANKING COMPANIES ACT OFACCORDING TO THE PROVISIONS OF THE BANKING COMPANIES ACT OF

1949, EVERY SCHEDULED BANK WAS REQUIRED TO MAINTAIN WITH THE1949, EVERY SCHEDULED BANK WAS REQUIRED TO MAINTAIN WITH THE

RESERVE BANK A CASH BALANCE EQUIVALENT TO 5% OF ITS DEMANDRESERVE BANK A CASH BALANCE EQUIVALENT TO 5% OF ITS DEMAND

LIABILITIES AND 2 PER CENT OF ITS TIME LIABILITIES IN INDIA.LIABILITIES AND 2 PER CENT OF ITS TIME LIABILITIES IN INDIA.

THE SCHEDULED BANKS CAN BORROW FROM THE RESERVE BANK OFTHE SCHEDULED BANKS CAN BORROW FROM THE RESERVE BANK OF

INDIA ON THE BASIS OF ELIGIBLE SECURITIES OR GET FINANCIALINDIA ON THE BASIS OF ELIGIBLE SECURITIES OR GET FINANCIAL

19

SWATI SAHAY

ACCOMMODATION IN TIMES OF NEED OR STRINGENCY BYACCOMMODATION IN TIMES OF NEED OR STRINGENCY BY

REDISCOUNTING BILLS OF EXCHANGE. SINCE COMMERCIAL BANKS CANREDISCOUNTING BILLS OF EXCHANGE. SINCE COMMERCIAL BANKS CAN

ALWAYS EXPECT THE RESERVE BANK OF INDIA TO COME TO THEIR HELPALWAYS EXPECT THE RESERVE BANK OF INDIA TO COME TO THEIR HELP

IN TIMES OF BANKING CRISIS THE RESERVE BANK BECOMES NOT ONLYIN TIMES OF BANKING CRISIS THE RESERVE BANK BECOMES NOT ONLY

THE BANKER'S BANK BUT ALSO THE LENDER OF THE LAST RESORT.THE BANKER'S BANK BUT ALSO THE LENDER OF THE LAST RESORT.

CONTROLLER OF CREDITCONTROLLER OF CREDIT. . . .

THE RESERVE BANK OF INDIA IS THE CONTROLLER OF CREDIT I.E. IT HASTHE RESERVE BANK OF INDIA IS THE CONTROLLER OF CREDIT I.E. IT HAS

THE POWER TO INFLUENCE THE VOLUME OF CREDIT CREATED BYTHE POWER TO INFLUENCE THE VOLUME OF CREDIT CREATED BY

BANKS IN INDIA. IT CAN DO SO THROUGH CHANGING THE BANK RATEBANKS IN INDIA. IT CAN DO SO THROUGH CHANGING THE BANK RATE

OR THROUGH OPEN MARKET OPERATIONS. ACCORDING TO THEOR THROUGH OPEN MARKET OPERATIONS. ACCORDING TO THE

BANKING REGULATION ACT OF 1949, THE RESERVE BANK OF INDIA CANBANKING REGULATION ACT OF 1949, THE RESERVE BANK OF INDIA CAN

ASK ANY PARTICULAR BANK OR THE WHOLE BANKING SYSTEM NOT TOASK ANY PARTICULAR BANK OR THE WHOLE BANKING SYSTEM NOT TO

LEND TO PARTICULAR GROUPS OR PERSONS ON THE BASIS OF CERTAINLEND TO PARTICULAR GROUPS OR PERSONS ON THE BASIS OF CERTAIN

TYPES OF SECURITIES. AS SUPREME BANKING AUTHORITY IN THETYPES OF SECURITIES. AS SUPREME BANKING AUTHORITY IN THE

COUNTRY, THE RESERVE BANK OF INDIA, THEREFORE, HAS THECOUNTRY, THE RESERVE BANK OF INDIA, THEREFORE, HAS THE

FOLLOWING POWERS: FOLLOWING POWERS:

(A) IT HOLDS THE CASH RESERVES OF ALL THE SCHEDULED BANKS. (A) IT HOLDS THE CASH RESERVES OF ALL THE SCHEDULED BANKS.

(B) IT CONTROLS THE CREDIT OPERATIONS OF BANKS THROUGH(B) IT CONTROLS THE CREDIT OPERATIONS OF BANKS THROUGH

QUANTITATIVE AND QUALITATIVE CONTROLS. . QUANTITATIVE AND QUALITATIVE CONTROLS. .

(C) IT CONTROLS THE BANKING SYSTEM THROUGH THE SYSTEM OF(C) IT CONTROLS THE BANKING SYSTEM THROUGH THE SYSTEM OF

LICENSING, INSPECTION AND CALLING FOR INFORMATION. . LICENSING, INSPECTION AND CALLING FOR INFORMATION. .

20

SWATI SAHAY

(D) IT ACTS AS THE LENDER OF THE LAST RESORT BY PROVIDING(D) IT ACTS AS THE LENDER OF THE LAST RESORT BY PROVIDING

REDISCOUNT FACILITIES TO SCHEDULED BANKS.REDISCOUNT FACILITIES TO SCHEDULED BANKS.

CUSTODIAN OF FOREIGN RESERVESCUSTODIAN OF FOREIGN RESERVES: :

THE RESERVE BANK OF INDIA HAS THE RESPONSIBILITY TO MAINTAINTHE RESERVE BANK OF INDIA HAS THE RESPONSIBILITY TO MAINTAIN

THE OFFICIAL RATE OF EXCHANGE. ACCORDING TO THE RESERVE BANKTHE OFFICIAL RATE OF EXCHANGE. ACCORDING TO THE RESERVE BANK

OF INDIA ACT OF 1934, THE BANK WAS REQUIRED TO BUY AND SELL ATOF INDIA ACT OF 1934, THE BANK WAS REQUIRED TO BUY AND SELL AT

FIXED RATES ANY AMOUNT OF STERLING IN LOTS OF NOT LESS THANFIXED RATES ANY AMOUNT OF STERLING IN LOTS OF NOT LESS THAN

RS. 10,000. THE RATE OF EXCHANGE FIXED WAS RE. 1 = SH. 6D. SINCE 1935RS. 10,000. THE RATE OF EXCHANGE FIXED WAS RE. 1 = SH. 6D. SINCE 1935

THE BANK WAS ABLE TO MAINTAIN THE EXCHANGE RATE FIXED ATTHE BANK WAS ABLE TO MAINTAIN THE EXCHANGE RATE FIXED AT

LSH.6D. THOUGH THERE WERE PERIODS OF EXTREME PRESSURE INLSH.6D. THOUGH THERE WERE PERIODS OF EXTREME PRESSURE IN

FAVOUR OF OR AGAINST THE RUPEE.FAVOUR OF OR AGAINST THE RUPEE. AFTER INDIA BECAME A MEMBERAFTER INDIA BECAME A MEMBER

OF THE INTERNATIONAL MONETARY FUND IN 1946, THE RESERVE BANKOF THE INTERNATIONAL MONETARY FUND IN 1946, THE RESERVE BANK

HAS THE RESPONSIBILITY OF MAINTAINING FIXED EXCHANGE RATESHAS THE RESPONSIBILITY OF MAINTAINING FIXED EXCHANGE RATES

WITH ALL OTHER MEMBER +COUNTRIES OF THE I.M.F.BESIDESWITH ALL OTHER MEMBER +COUNTRIES OF THE I.M.F.BESIDES

MAINTAINING THE RATE OF EXCHANGE OF THE RUPEE, THE RESERVEMAINTAINING THE RATE OF EXCHANGE OF THE RUPEE, THE RESERVE

BANK HAS TO ACT AS THE CUSTODIAN OF INDIA'S RESERVE OFBANK HAS TO ACT AS THE CUSTODIAN OF INDIA'S RESERVE OF

INTERNATIONAL CURRENCIES. INTERNATIONAL CURRENCIES.

SUPERVISORY FUNCTIONS:SUPERVISORY FUNCTIONS: . .

IN ADDITION TO ITS TRADITIONAL CENTRAL BANKING FUNCTIONS, THEIN ADDITION TO ITS TRADITIONAL CENTRAL BANKING FUNCTIONS, THE

21

SWATI SAHAY

RESERVE BANK HAS CERTAIN NON-MONETARY FUNCTIONS OF THERESERVE BANK HAS CERTAIN NON-MONETARY FUNCTIONS OF THE

NATURE OF SUPERVISION OF BANKS AND PROMOTION OF SOUNDNATURE OF SUPERVISION OF BANKS AND PROMOTION OF SOUND

BANKING IN INDIA. THE RESERVE BANK ACT, 1934, AND THE BANKINGBANKING IN INDIA. THE RESERVE BANK ACT, 1934, AND THE BANKING

REGULATION ACT, 1949 HAVE GIVEN THE RBI WIDE POWERS OFREGULATION ACT, 1949 HAVE GIVEN THE RBI WIDE POWERS OF

SUPERVISION AND CONTROL OVER COMMERCIAL AND CO-OPERATIVESUPERVISION AND CONTROL OVER COMMERCIAL AND CO-OPERATIVE

BANKS, RELATING TO LICENSING AND ESTABLISHMENTS, BRANCHBANKS, RELATING TO LICENSING AND ESTABLISHMENTS, BRANCH

EXPANSION, LIQUIDITY OF THEIR ASSETS, MANAGEMENT AND METHODSEXPANSION, LIQUIDITY OF THEIR ASSETS, MANAGEMENT AND METHODS

OF WORKING, AMALGAMATION, RECONSTRUCTION, AND LIQUIDATION.OF WORKING, AMALGAMATION, RECONSTRUCTION, AND LIQUIDATION.

THE RBI IS AUTHORIZED TO CARRY OUT PERIODICAL INSPECTIONS OFTHE RBI IS AUTHORIZED TO CARRY OUT PERIODICAL INSPECTIONS OF

THE BANKS AND TO CALL FOR RETURNS AND NECESSARY INFORMATIONTHE BANKS AND TO CALL FOR RETURNS AND NECESSARY INFORMATION

FROM THEM. FROM THEM.

THE NATIONALIZATION OF 14 MAJOR INDIAN SCHEDULED BANKS INTHE NATIONALIZATION OF 14 MAJOR INDIAN SCHEDULED BANKS IN

JULY 1969 HAS IMPOSED NEW RESPONSIBILITIES ON THE RBI FORJULY 1969 HAS IMPOSED NEW RESPONSIBILITIES ON THE RBI FOR

DIRECTING THE GROWTH OF BANKING AND CREDIT POLICIES TOWARDSDIRECTING THE GROWTH OF BANKING AND CREDIT POLICIES TOWARDS

MORE RAPID DEVELOPMENT OF THE ECONOMY AND REALIZATION OFMORE RAPID DEVELOPMENT OF THE ECONOMY AND REALIZATION OF

CERTAIN DESIRED SOCIAL OBJECTIVES.CERTAIN DESIRED SOCIAL OBJECTIVES.

22

SWATI SAHAY

PROMOTIONAL FUNCTIONS:PROMOTIONAL FUNCTIONS: . .

THE BANK NOW PERFORMS A VARIETY OF DEVELOPMENTAL ANDTHE BANK NOW PERFORMS A VARIETY OF DEVELOPMENTAL AND

PROMOTIONAL FUNCTIONS, WHICH, AT ONE TIME, WERE REGARDED ASPROMOTIONAL FUNCTIONS, WHICH, AT ONE TIME, WERE REGARDED AS

OUTSIDE THE NORMAL SCOPE OF CENTRAL BANKING. THE RESERVEOUTSIDE THE NORMAL SCOPE OF CENTRAL BANKING. THE RESERVE

BANK WAS ASKED TO PROMOTE BANKING HABIT, EXTEND BANKINGBANK WAS ASKED TO PROMOTE BANKING HABIT, EXTEND BANKING

FACILITIES TO RURAL AND SEMI-URBAN AREAS, AND ESTABLISH ANDFACILITIES TO RURAL AND SEMI-URBAN AREAS, AND ESTABLISH AND

PROMOTE NEW SPECIALIZED FINANCING AGENCIES. IT SET UP THEPROMOTE NEW SPECIALIZED FINANCING AGENCIES. IT SET UP THE

DEPOSIT INSURANCE CORPORATION IN 1962, THE UNIT TRUST OF INDIADEPOSIT INSURANCE CORPORATION IN 1962, THE UNIT TRUST OF INDIA

IN 1964, THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ALSO IN 1964,IN 1964, THE INDUSTRIAL DEVELOPMENT BANK OF INDIA ALSO IN 1964,

THE AGRICULTURAL REFINANCE CORPORATION OF INDIA IN 1963 ANDTHE AGRICULTURAL REFINANCE CORPORATION OF INDIA IN 1963 AND

THE INDUSTRIAL RECONSTRUCTION CORPORATION OF INDIA IN 1972.THE INDUSTRIAL RECONSTRUCTION CORPORATION OF INDIA IN 1972.

THESE INSTITUTIONS WERE SET UP DIRECTLY OR INDIRECTLY BY THETHESE INSTITUTIONS WERE SET UP DIRECTLY OR INDIRECTLY BY THE

RESERVE BANK TO PROMOTE SAVING HABIT AND TO MOBILIZERESERVE BANK TO PROMOTE SAVING HABIT AND TO MOBILIZE

SAVINGS, AND TO PROVIDE INDUSTRIAL FINANCE AS WELL ASSAVINGS, AND TO PROVIDE INDUSTRIAL FINANCE AS WELL AS

AGRICULTURAL FINANCE. THE RBI HAS SET UP THE AGRICULTURALAGRICULTURAL FINANCE. THE RBI HAS SET UP THE AGRICULTURAL

REFINANCE AND DEVELOPMENT CORPORATION TO PROVIDE LONG-REFINANCE AND DEVELOPMENT CORPORATION TO PROVIDE LONG-

TERM FINANCE TO FARMERSTERM FINANCE TO FARMERS.

 

23

SWATI SAHAY

FACTS FILES OF BANK IN INDIAFACTS FILES OF BANK IN INDIA

THE FIRST, OLDEST, LARGEST, THE BIGGEST ALL SUCHTHE FIRST, OLDEST, LARGEST, THE BIGGEST ALL SUCH

INFORMATION IN THIS SECTION:INFORMATION IN THIS SECTION:

THE FIRST BANK IN INDIA TO BETHE FIRST BANK IN INDIA TO BE GIVEN A ISO CERTIFICATIONGIVEN A ISO CERTIFICATION

CANARACANARA BANKBANK

THE FIRST BANK IN NORTHERN INDIATHE FIRST BANK IN NORTHERN INDIA TO GET ISO CERTIFICATION FORTO GET ISO CERTIFICATION FOR THEIR SELECTED BRANCHESTHEIR SELECTED BRANCHES

PUNJAB ANDPUNJAB AND SIND BANKSIND BANK

THE FIRST INDIAN BANK TO BE HAVETHE FIRST INDIAN BANK TO BE HAVE STARTED SOLELY WITH THE INDIANSTARTED SOLELY WITH THE INDIAN CAPITALCAPITAL

PUNJABPUNJAB NATIONALNATIONAL BANKBANK

THE FIRST AMONG PRIVATE SECTORTHE FIRST AMONG PRIVATE SECTOR BANK IN KERALA TO BECOME ABANK IN KERALA TO BECOME A SCHEDULED BANK IN 1946 UNDERSCHEDULED BANK IN 1946 UNDER THE RBI ACT1946.THE RBI ACT1946.

SOUTHSOUTH INDIANINDIAN BANKBANK

INDIA’S OLDEST, LARGEST AND MOSTINDIA’S OLDEST, LARGEST AND MOST SUCCESSFUL COMMERCIAL BANK,SUCCESSFUL COMMERCIAL BANK, OFFERING THE WIDEST POSSIBLEOFFERING THE WIDEST POSSIBLE RANGE OF DOMESTIC,RANGE OF DOMESTIC, INTERNATIONAL,AND NRI PRODUCTSINTERNATIONAL,AND NRI PRODUCTS AND SERVICES THROUGH ITS VASTAND SERVICES THROUGH ITS VAST NETWORK IN INDIA AND OVERSEAS.NETWORK IN INDIA AND OVERSEAS.

STATE BANKSTATE BANK OF INDIA.OF INDIA.

THE OLDEST PUBLIC SECTOR BANKTHE OLDEST PUBLIC SECTOR BANK IN INDIA HAVING BRANCHES ALLIN INDIA HAVING BRANCHES ALL OVER THE INDIA. AND SERVING THEOVER THE INDIA. AND SERVING THE CUSTOMERS FROM THE LAST 132 YRS.CUSTOMERS FROM THE LAST 132 YRS.

ALLABAHADALLABAHAD BANK OFBANK OF INDIAINDIA

24

SWATI SAHAY

Public Sector Banks in India:

AMONG THE PUBLIC SECTOR BANKS IN INDIA, UNITED BANK OF INDIA ISAMONG THE PUBLIC SECTOR BANKS IN INDIA, UNITED BANK OF INDIA IS

ONE OF THE 14 MAJOR BANKS WHICH WERE NATIONALIZED ON JULY 19,ONE OF THE 14 MAJOR BANKS WHICH WERE NATIONALIZED ON JULY 19,

1969. ITS PREDECESSOR, IN THE PUBLIC SECTOR BANKS, THE UNITED1969. ITS PREDECESSOR, IN THE PUBLIC SECTOR BANKS, THE UNITED

BANK OF INDIA LTD., WAS FORMED IN 1950 WITH THE AMALGAMATIONBANK OF INDIA LTD., WAS FORMED IN 1950 WITH THE AMALGAMATION

OF FOUR BANKS VIZ. CAMILLA BANKING CORPORATION LTD. (1914),OF FOUR BANKS VIZ. CAMILLA BANKING CORPORATION LTD. (1914),

BENGAL CENTRAL BANK LTD. (1918), COMILLA UNION BANK LTD. (1922)BENGAL CENTRAL BANK LTD. (1918), COMILLA UNION BANK LTD. (1922)

AND HOOGHLY BANK LTD. (1932).AND HOOGHLY BANK LTD. (1932).

THE FOLLOWING ARE THE LIST OF PUBLIC SECTOR BANKS IN INDIA THE FOLLOWING ARE THE LIST OF PUBLIC SECTOR BANKS IN INDIA

ALLAHABAD BANKALLAHABAD BANK

ANDHRA BANKANDHRA BANK

BANK OF BARODA BANK OF BARODA

BANK OF INDIABANK OF INDIA

BANK OF MAHARASTRA BANK OF MAHARASTRA

CANARA BANKCANARA BANK

CENTRAL BANK OF INDIACENTRAL BANK OF INDIA

CORPORATION BANKCORPORATION BANK

Dena Bank

25

SWATI SAHAY

LIST OF STATE BANK OF INDIA AND ITS SUBSIDIARY, A PUBLIC SECTORLIST OF STATE BANK OF INDIA AND ITS SUBSIDIARY, A PUBLIC SECTOR

BANKS BANKS

STATE BANK OF INDIASTATE BANK OF INDIA

STATE BANK OF BIKANER & JAIPURSTATE BANK OF BIKANER & JAIPUR

STATE BANK OF HYDERABAD STATE BANK OF HYDERABAD

STATE BANK OF INDORE STATE BANK OF INDORE

STATE BANK OF MYSORE STATE BANK OF MYSORE

STATE BANK OF SAURASTRA STATE BANK OF SAURASTRA

STATE BANK OF TRAVANCORE STATE BANK OF TRAVANCORE

PRIVATE SECTOR BANKS IN INDIA:PRIVATE SECTOR BANKS IN INDIA:

PRIVATE BANKING IN INDIA WAS PRACTICED SINCE THE BEGINING OFPRIVATE BANKING IN INDIA WAS PRACTICED SINCE THE BEGINING OF

BANKING SYSTEM IN INDIA. THE FIRST PRIVATE BANK IN INDIA TO BEBANKING SYSTEM IN INDIA. THE FIRST PRIVATE BANK IN INDIA TO BE

SET UP IN PRIVATE SECTOR BANKS IN INDIA WAS INDUSIND BANK. IT ISSET UP IN PRIVATE SECTOR BANKS IN INDIA WAS INDUSIND BANK. IT IS

ONE OF THE FASTEST GROWING BANK PRIVATE SECTOR BANKS IN INDIA.ONE OF THE FASTEST GROWING BANK PRIVATE SECTOR BANKS IN INDIA.

IDBI RANKS THE TENTH LARGEST DEVELOPMENT BANK IN THE WORLDIDBI RANKS THE TENTH LARGEST DEVELOPMENT BANK IN THE WORLD

AS PRIVATE BANKS IN INDIA AND HAS PROMOTED WORLD CLASSAS PRIVATE BANKS IN INDIA AND HAS PROMOTED WORLD CLASS

INSTITUTIONS IN INDIA. .INSTITUTIONS IN INDIA. .

LIST OF PRIVATE BANKS IN INDIA LIST OF PRIVATE BANKS IN INDIA

DHANALAKSHMI BANK DHANALAKSHMI BANK

DEVELOPMENT CREDIT BANK DEVELOPMENT CREDIT BANK

FEDERAL BANK FEDERAL BANK

HDFC BANKHDFC BANK

ICICI BANKICICI BANK

IDBI BANKIDBI BANK

INDUSIND BANK INDUSIND BANK

26

SWATI SAHAY

CO-OPERATIVE BANKS IN INDIACO-OPERATIVE BANKS IN INDIA::

THE CO OPERATIVE BANKS IN INDIA STARTEDTHE CO OPERATIVE BANKS IN INDIA STARTED

FUNCTIONING ALMOST 100 YEARS AGO. THE COOPERATIVE BANK IS ANFUNCTIONING ALMOST 100 YEARS AGO. THE COOPERATIVE BANK IS AN

IMPORTANT CONSTITUENT OF THE INDIAN FINANCIAL SYSTEM,IMPORTANT CONSTITUENT OF THE INDIAN FINANCIAL SYSTEM,

JUDGING BY THE ROLE ASSIGNED TO CO OPERATIVE, THEJUDGING BY THE ROLE ASSIGNED TO CO OPERATIVE, THE

EXPECTATIONS THE CO OPERATIVE IS SUPPOSED TO FULFILL, THEIREXPECTATIONS THE CO OPERATIVE IS SUPPOSED TO FULFILL, THEIR

NUMBER, AND THE NUMBER OF OFFICES THE COOPERATIVE BANKNUMBER, AND THE NUMBER OF OFFICES THE COOPERATIVE BANK

OPERATE. THOUGH THE CO OPERATIVE MOVEMENT ORIGINATED IN THEOPERATE. THOUGH THE CO OPERATIVE MOVEMENT ORIGINATED IN THE

WEST, BUT THE IMPORTANCE OF SUCH BANKS HAVE ASSUMED IN INDIAWEST, BUT THE IMPORTANCE OF SUCH BANKS HAVE ASSUMED IN INDIA

IS RARELY PARALLELED ANYWHERE ELSE IN THE WORLD.IS RARELY PARALLELED ANYWHERE ELSE IN THE WORLD.

THE COOPERATIVE BANKS IN INDIA PLAY AN IMPORTANT ROLE EVENTHE COOPERATIVE BANKS IN INDIA PLAY AN IMPORTANT ROLE EVEN

TODAY IN RURAL FINANCING. THE BUSINESSES OF COOPERATIVE BANKTODAY IN RURAL FINANCING. THE BUSINESSES OF COOPERATIVE BANK

IN THE URBAN AREAS ALSO HAS INCREASED PHENOMENALLY ININ THE URBAN AREAS ALSO HAS INCREASED PHENOMENALLY IN

RECENT YEARS DUE TO THE SHARP INCREASE IN THE NUMBER OFRECENT YEARS DUE TO THE SHARP INCREASE IN THE NUMBER OF

PRIMARY CO-OPERATIVE BANKS. CO OPERATIVE BANKS IN INDIA AREPRIMARY CO-OPERATIVE BANKS. CO OPERATIVE BANKS IN INDIA ARE

REGISTERED UNDER THE CO-OPERATIVE SOCIETIES ACT. THEREGISTERED UNDER THE CO-OPERATIVE SOCIETIES ACT. THE

COOPERATIVE BANK IS ALSO REGULATED BY THE RBI. THEY ARECOOPERATIVE BANK IS ALSO REGULATED BY THE RBI. THEY ARE

GOVERNED BY THE BANKING REGULATIONS ACT 1949 AND BANKINGGOVERNED BY THE BANKING REGULATIONS ACT 1949 AND BANKING

LAWS (CO-OPERATIVE SOCIETIES) ACT, 1965. LAWS (CO-OPERATIVE SOCIETIES) ACT, 1965.

REGIONAL RURAL BANKS IN INDIA:REGIONAL RURAL BANKS IN INDIA:

RURAL BANKING IN INDIA STARTED SINCE THERURAL BANKING IN INDIA STARTED SINCE THE

ESTABLISHMENT OF BANKING SECTOR IN INDIA. RURAL BANKS INESTABLISHMENT OF BANKING SECTOR IN INDIA. RURAL BANKS IN

THOSE DAYS MAINLY FOCUSED UPON THE AGRO SECTOR. REGIONALTHOSE DAYS MAINLY FOCUSED UPON THE AGRO SECTOR. REGIONAL

RURAL BANKS IN INDIA PENETRATED EVERY CORNER OF THE COUNTRYRURAL BANKS IN INDIA PENETRATED EVERY CORNER OF THE COUNTRY

AND EXTENDED A HELPING HAND IN THE GROWTH PROCESS OF THEAND EXTENDED A HELPING HAND IN THE GROWTH PROCESS OF THE

COUNTRY.COUNTRY.

SBI HAS 30 REGIONAL RURAL BANKS IN INDIA KNOWN AS RRBS. THESBI HAS 30 REGIONAL RURAL BANKS IN INDIA KNOWN AS RRBS. THE

RURAL BANKS OF SBI ARE SPREAD IN 13 STATES EXTENDING FROMRURAL BANKS OF SBI ARE SPREAD IN 13 STATES EXTENDING FROM

27

SWATI SAHAY

KASHMIR TO KARNATAKA AND HIMACHAL PRADESH TO NORTH EAST.KASHMIR TO KARNATAKA AND HIMACHAL PRADESH TO NORTH EAST.

THE TOTAL NUMBER OF SBIS REGIONAL RURAL BANKS IN INDIATHE TOTAL NUMBER OF SBIS REGIONAL RURAL BANKS IN INDIA

BRANCHES IS 2349 (16%). TILL DATE IN RURAL BANKING IN INDIA, THEREBRANCHES IS 2349 (16%). TILL DATE IN RURAL BANKING IN INDIA, THERE

ARE 14,475 RURAL BANKS IN THE COUNTRY OF WHICH 2126 (91%) AREARE 14,475 RURAL BANKS IN THE COUNTRY OF WHICH 2126 (91%) ARE

LOCATED IN REMOTE RURAL AREAS. LOCATED IN REMOTE RURAL AREAS.

NABARD NABARD

NATIONAL BANK FOR AGRICULTURE AND RURAL NATIONAL BANK FOR AGRICULTURE AND RURAL

DEVELOPMENT (NABARD) IS A DEVELOPMENT BANK IN THE SECTOR OFDEVELOPMENT (NABARD) IS A DEVELOPMENT BANK IN THE SECTOR OF

REGIONAL RURAL BANKS IN INDIA. IT PROVIDES AND REGULATESREGIONAL RURAL BANKS IN INDIA. IT PROVIDES AND REGULATES

CREDIT AND GIVES SERVICE FOR THE PROMOTION AND DEVELOPMENTCREDIT AND GIVES SERVICE FOR THE PROMOTION AND DEVELOPMENT

OF RURAL SECTORS MAINLY AGRICULTURE, SMALL SCALE INDUSTRIES,OF RURAL SECTORS MAINLY AGRICULTURE, SMALL SCALE INDUSTRIES,

COTTAGE AND VILLAGE INDUSTRIES, HANDICRAFTS. IT ALSO FINANCESCOTTAGE AND VILLAGE INDUSTRIES, HANDICRAFTS. IT ALSO FINANCES

RURAL CRAFTS AND OTHER ALLIED RURAL ECONOMIC ACTIVITIES TORURAL CRAFTS AND OTHER ALLIED RURAL ECONOMIC ACTIVITIES TO

PROMOTE INTEGRATED RURAL DEVELOPMENT. IT HELPS IN SECURINGPROMOTE INTEGRATED RURAL DEVELOPMENT. IT HELPS IN SECURING

RURAL PROSPERITY AND ITS CONNECTED MATTERS.RURAL PROSPERITY AND ITS CONNECTED MATTERS.

FOREIGN BANKS IN INDIA:FOREIGN BANKS IN INDIA:

FOREIGN BANKS IN INDIA ALWAYS BROUGHT ANFOREIGN BANKS IN INDIA ALWAYS BROUGHT AN

EXPLANATION ABOUT THE PROMPT SERVICES TO CUSTOMERS. AFTEREXPLANATION ABOUT THE PROMPT SERVICES TO CUSTOMERS. AFTER

THE SET UP FOREIGN BANKS IN INDIA, THE BANKING SECTOR IN INDIATHE SET UP FOREIGN BANKS IN INDIA, THE BANKING SECTOR IN INDIA

ALSO BECOME COMPETITIVE AND ACCURATIVE.NEW RULESALSO BECOME COMPETITIVE AND ACCURATIVE.NEW RULES

ANNOUNCED BY THE RESERVE BANK OF INDIA FOR THE FOREIGNANNOUNCED BY THE RESERVE BANK OF INDIA FOR THE FOREIGN

BANKS IN INDIA IN THIS BUDGET HAS PUT UP GREAT HOPES AMONGBANKS IN INDIA IN THIS BUDGET HAS PUT UP GREAT HOPES AMONG

FOREIGN BANKS WHICH ALLOWS THEM TO GROW UNFETTERED. FOREIGN BANKS WHICH ALLOWS THEM TO GROW UNFETTERED.

NOW FOREIGN BANKS IN INDIA ARE PERMITTED TO SET UPNOW FOREIGN BANKS IN INDIA ARE PERMITTED TO SET UP

LOCAL SUBSIDIARIES. THE POLICY CONVEYS THAT FOREIGN BANKS INLOCAL SUBSIDIARIES. THE POLICY CONVEYS THAT FOREIGN BANKS IN

INDIA MAY NOT ACQUIRE INDIAN ONES (EXCEPT FOR WEAK BANKSINDIA MAY NOT ACQUIRE INDIAN ONES (EXCEPT FOR WEAK BANKS

28

SWATI SAHAY

IDENTIFIED BY THE RBI, ON ITS TERMS) AND THEIR INDIANIDENTIFIED BY THE RBI, ON ITS TERMS) AND THEIR INDIAN

SUBSIDIARIES WILL NOT BE ABLE TO OPEN BRANCHES FREELY.SUBSIDIARIES WILL NOT BE ABLE TO OPEN BRANCHES FREELY.

..

LIST OF FOREIGN BANKS IN INDIA LIST OF FOREIGN BANKS IN INDIA

ABU DHABI COMMERCIAL BANK ABU DHABI COMMERCIAL BANK

ANZ GRINDLAYS BANK ANZ GRINDLAYS BANK

BANK OF AMERICA BANK OF AMERICA

CITI BANKCITI BANK

CHINA TRUST COMMERCIAL BANK CHINA TRUST COMMERCIAL BANK

HSBCHSBC

STANDARD CHARTERED BANKSTANDARD CHARTERED BANK

ABN-AMRO BANKABN-AMRO BANK

DEUTSCHE BANK DEUTSCHE BANK

JPMORGAN CHASE BANK JPMORGAN CHASE BANK

INDIAN BANKING INDUSTRYINDIAN BANKING INDUSTRY

CURRENT SCENARIO: . CURRENT SCENARIO: .

THE GROWTH IN THE INDIAN BANKING INDUSTRY HAS THE GROWTH IN THE INDIAN BANKING INDUSTRY HAS

BEEN MORE QUALITATIVE THAN QUANTITATIVE AND IT IS EXPECTEDBEEN MORE QUALITATIVE THAN QUANTITATIVE AND IT IS EXPECTED

TO REMAIN THE SAME IN THE COMING YEARS. BASED ON THETO REMAIN THE SAME IN THE COMING YEARS. BASED ON THE

PROJECTIONS MADE IN THE "INDIA VISION 2020" PREPARED BY THEPROJECTIONS MADE IN THE "INDIA VISION 2020" PREPARED BY THE

PLANNING COMMISSION AND THE DRAFT 10TH PLAN, THE REPORTPLANNING COMMISSION AND THE DRAFT 10TH PLAN, THE REPORT

FORECASTS THAT THE PACE OF EXPANSION IN THE BALANCE-SHEETS OFFORECASTS THAT THE PACE OF EXPANSION IN THE BALANCE-SHEETS OF

BANKS IS LIKELY TO DECELERATE.BANKS IS LIKELY TO DECELERATE.  

THE TOTAL ASSETS OF ALL SCHEDULED COMMERCIAL BANKS BY END-THE TOTAL ASSETS OF ALL SCHEDULED COMMERCIAL BANKS BY END-

MARCH 2010 IS ESTIMATED ATMARCH 2010 IS ESTIMATED AT  `40,90,000 CRORES. THAT WILL COMPRISE`40,90,000 CRORES. THAT WILL COMPRISE

ABOUT 65 PER CENT OF GDP AT CURRENT MARKET PRICES ASABOUT 65 PER CENT OF GDP AT CURRENT MARKET PRICES AS

COMPARED TO 67 PER CENT IN 2002-03. BANK ASSETS ARE EXPECTED TOCOMPARED TO 67 PER CENT IN 2002-03. BANK ASSETS ARE EXPECTED TO

29

SWATI SAHAY

GROW AT AN ANNUAL COMPOSITE RATE OF 13.4 PER CENT DURING THEGROW AT AN ANNUAL COMPOSITE RATE OF 13.4 PER CENT DURING THE

REST OF THE DECADE AS AGAINST THE GROWTH RATE OF 16.7 PER CENTREST OF THE DECADE AS AGAINST THE GROWTH RATE OF 16.7 PER CENT

THAT EXISTED BETWEEN 1994-95 AND 2002-03. IT IS EXPECTED THATTHAT EXISTED BETWEEN 1994-95 AND 2002-03. IT IS EXPECTED THAT

THERE WILL BE LARGE ADDITIONS TO THE CAPITAL BASE ANDTHERE WILL BE LARGE ADDITIONS TO THE CAPITAL BASE AND

RESERVES ON THE LIABILITY SIDE.RESERVES ON THE LIABILITY SIDE.

THE INDIAN BANKING INDUSTRY CAN BE CATEGORIZED INTO NON-THE INDIAN BANKING INDUSTRY CAN BE CATEGORIZED INTO NON-

SCHEDULED BANKS AND SCHEDULED BANKS. SCHEDULED BANKSSCHEDULED BANKS AND SCHEDULED BANKS. SCHEDULED BANKS

CONSTITUTE OF COMMERCIAL BANKS AND CO-OPERATIVE BANKS.CONSTITUTE OF COMMERCIAL BANKS AND CO-OPERATIVE BANKS.

THERE ARE ABOUT 67,000 BRANCHES OF SCHEDULED BANKS SPREADTHERE ARE ABOUT 67,000 BRANCHES OF SCHEDULED BANKS SPREAD

ACROSS INDIA. AS FAR AS THE PRESENT SCENARIO IS CONCERNED THEACROSS INDIA. AS FAR AS THE PRESENT SCENARIO IS CONCERNED THE

BANKING INDUSTRY IN INDIA IS GOING THROUGH A TRANSITIONALBANKING INDUSTRY IN INDIA IS GOING THROUGH A TRANSITIONAL

PHASE.PHASE.  

THE PUBLIC SECTOR BANKS(PSBS), WHICH ARE THE BASE OF THETHE PUBLIC SECTOR BANKS(PSBS), WHICH ARE THE BASE OF THE

BANKING SECTOR IN INDIA ACCOUNT FOR MORE THAN 78 PER CENT OFBANKING SECTOR IN INDIA ACCOUNT FOR MORE THAN 78 PER CENT OF

THE TOTAL BANKING INDUSTRY ASSETS. UNFORTUNATELY THEY ARETHE TOTAL BANKING INDUSTRY ASSETS. UNFORTUNATELY THEY ARE

BURDENED WITH EXCESSIVE NON PERFORMING ASSETS (NPAS),BURDENED WITH EXCESSIVE NON PERFORMING ASSETS (NPAS),

MASSIVE MANPOWER AND LACK OF MODERN TECHNOLOGY. ON THEMASSIVE MANPOWER AND LACK OF MODERN TECHNOLOGY. ON THE

OTHER HAND THE PRIVATE SECTOR BANKS ARE MAKING TREMENDOUSOTHER HAND THE PRIVATE SECTOR BANKS ARE MAKING TREMENDOUS

PROGRESS. THEY ARE LEADERS IN INTERNET BANKING, MOBILEPROGRESS. THEY ARE LEADERS IN INTERNET BANKING, MOBILE

BANKING, PHONE BANKING, ATMS. AS FAR AS FOREIGN BANKS AREBANKING, PHONE BANKING, ATMS. AS FAR AS FOREIGN BANKS ARE

CONCERNED THEY ARE LIKELY TO SUCCEED IN THE INDIAN BANKINGCONCERNED THEY ARE LIKELY TO SUCCEED IN THE INDIAN BANKING

INDUSTRY.INDUSTRY.

30

SWATI SAHAY

COMPANY PROFILECOMPANY PROFILE

ICICI BANKICICI BANK: :

ICICI BANK (FORMERLY INDUSTRIAL CREDIT ANDICICI BANK (FORMERLY INDUSTRIAL CREDIT AND

INVESTMENT CORPORATION OF INDIA) IS INDIA'S SECOND LARGESTINVESTMENT CORPORATION OF INDIA) IS INDIA'S SECOND LARGEST

31

SWATI SAHAY

PRIVATE BANK OF COUNTRY. ICICI BANK HAS TOTAL ASSETS OF ABOUTPRIVATE BANK OF COUNTRY. ICICI BANK HAS TOTAL ASSETS OF ABOUT

RS.20.05BN (END-MAR 2005), A NETWORK OF OVER 2529 BRANCHES, 22RS.20.05BN (END-MAR 2005), A NETWORK OF OVER 2529 BRANCHES, 22

REGIONAL OFFICES,AND 49 REGIONAL PROCESSING CENTRES, ABOUTREGIONAL OFFICES,AND 49 REGIONAL PROCESSING CENTRES, ABOUT

6102 ATM(AT THE END OF SEPTEMBER)AND 24 MILLION CUSTOMERS.6102 ATM(AT THE END OF SEPTEMBER)AND 24 MILLION CUSTOMERS.

ICICI BANK OFFERS A WIDE RANGE OF BANKING PRODUCTS ANDICICI BANK OFFERS A WIDE RANGE OF BANKING PRODUCTS AND

FINANCIAL SERVICES TO CORPORATE AND RETAIL CUSTOMERSFINANCIAL SERVICES TO CORPORATE AND RETAIL CUSTOMERS

THROUGH A VARIETY OF DELIVERY CHANNELS AND THROUGH ITSTHROUGH A VARIETY OF DELIVERY CHANNELS AND THROUGH ITS

SPECIALIZED SUBSIDIARIES AND AFFILIATES IN THE AREAS OFSPECIALIZED SUBSIDIARIES AND AFFILIATES IN THE AREAS OF

INVESTMENT BANKING, LIFE AND NON-LIFE INSURANCE, VENTUREINVESTMENT BANKING, LIFE AND NON-LIFE INSURANCE, VENTURE

CAPITAL AND ASSET MANAGEMENT CAPITAL AND ASSET MANAGEMENT

ICICI BANK'S EQUITY SHARES ARE LISTED IN INDIA ON STOCKICICI BANK'S EQUITY SHARES ARE LISTED IN INDIA ON STOCK

EXCHANGES AT EXCHANGES AT KOLKATAKOLKATA AND AND VADODARAVADODARA, THE STOCK EXCHANGE,, THE STOCK EXCHANGE,

MUMBAIMUMBAI AND THE NATIONAL STOCK EXCHANGE OF INDIA LIMITED AND AND THE NATIONAL STOCK EXCHANGE OF INDIA LIMITED AND

ITS ITS ADRSADRS ARE LISTED ON THE NEW YORK STOCK EXCHANGE (NYSE). ARE LISTED ON THE NEW YORK STOCK EXCHANGE (NYSE).

FORMATION:FORMATION:

THE THE WORLD BANKWORLD BANK, THE , THE GOVERNMENT OF INDIAGOVERNMENT OF INDIA AND AND

REPRESENTATIVES OF INDIAN INDUSTRY FORM ICICI LIMITED AS AREPRESENTATIVES OF INDIAN INDUSTRY FORM ICICI LIMITED AS A

DEVELOPMENT FINANCE INSTITUTION TO PROVIDE MEDIUM-TERM ANDDEVELOPMENT FINANCE INSTITUTION TO PROVIDE MEDIUM-TERM AND

LONG-TERM PROJECT FINANCING TO INDIAN BUSINESSES IN LONG-TERM PROJECT FINANCING TO INDIAN BUSINESSES IN 19551955. .

19941994 , ICICI ESTABLISHES ICICI BANK AS A SUBSIDIARY. , ICICI ESTABLISHES ICICI BANK AS A SUBSIDIARY.

19991999 , ICICI BECOMES THE FIRST INDIAN COMPANY AND THE FIRST, ICICI BECOMES THE FIRST INDIAN COMPANY AND THE FIRST

BANK OR FINANCIAL INSTITUTION FROM NON-JAPAN ASIA TO LIST ONBANK OR FINANCIAL INSTITUTION FROM NON-JAPAN ASIA TO LIST ON

THE THE NYSENYSE. .

20012001 , ICICI ACQUIRED , ICICI ACQUIRED BANK OF MADURAIBANK OF MADURAI (EST. (EST. 19431943). ). BANK OFBANK OF

MADURAIMADURAI WAS A WAS A CHETTIARCHETTIAR BANK, AND HAD ACQUIRED BANK, AND HAD ACQUIRED CHETTINADCHETTINAD

MERCANTILE BANKMERCANTILE BANK (EST. (EST. 19331933) AND ) AND ILLANJI BANKILLANJI BANK (ESTABLISHED (ESTABLISHED 19041904))

IN THE IN THE 1960S1960S. .

20022002 ,THE BOARDS OF DIRECTORS OF ICICI AND ICICI BANK APPROVE ,THE BOARDS OF DIRECTORS OF ICICI AND ICICI BANK APPROVE

THE MERGER OF ICICI, THE MERGER OF ICICI, ICICI PERSONAL FINANCIAL SERVICES LIMITEDICICI PERSONAL FINANCIAL SERVICES LIMITED

32

SWATI SAHAY

AND AND ICICI CAPITAL SERVICES LIMITEDICICI CAPITAL SERVICES LIMITED, WITH ICICI BANK. AFTER, WITH ICICI BANK. AFTER

RECEIVING ALL NECESSARY REGULATORY APPROVALS, ICICIRECEIVING ALL NECESSARY REGULATORY APPROVALS, ICICI

INTEGRATES THE GROUP'S FINANCING AND BANKING OPERATIONS,INTEGRATES THE GROUP'S FINANCING AND BANKING OPERATIONS,

BOTH WHOLESALE AND RETAIL, INTO A SINGLE ENTITY.BOTH WHOLESALE AND RETAIL, INTO A SINGLE ENTITY.

IN 2008, FOLLOWING THE IN 2008, FOLLOWING THE 2008 FINANCIAL CRISIS2008 FINANCIAL CRISIS, CUSTOMERS, CUSTOMERS

RUSHED TO ATM'S AND BRANCHES IN SOME LOCATIONS DUE TORUSHED TO ATM'S AND BRANCHES IN SOME LOCATIONS DUE TO

RUMORS OF ADVERSE FINANCIAL POSITION OF ICICI BANK. THERUMORS OF ADVERSE FINANCIAL POSITION OF ICICI BANK. THE

RESERVE BANK OF INDIA ISSUED A CLARIFICATION ON THE FINANCIALRESERVE BANK OF INDIA ISSUED A CLARIFICATION ON THE FINANCIAL

STRENGTH OF ICICI BANK TO DISPEL THE RUMORS.STRENGTH OF ICICI BANK TO DISPEL THE RUMORS.

INTERNATIONAL EXPANSIONINTERNATIONAL EXPANSION

2002, ICICI ESTABLISHES REPRESENTATIVE OFFICES IN NY AND2002, ICICI ESTABLISHES REPRESENTATIVE OFFICES IN NY AND

LONDONLONDON. .

20032003 , ICICI OPENS SUBSIDIARIES IN , ICICI OPENS SUBSIDIARIES IN CANADACANADA AND THE AND THE UNITEDUNITED

KINGDOMKINGDOM (UK), AND IN THE UK IT ESTABLISHES ALLIANCE WITH (UK), AND IN THE UK IT ESTABLISHES ALLIANCE WITH

LLOYDS TSBLLOYDS TSB. IT ALSO OPENS AN OFFSHORE BANKING UNIT (OBU) IN. IT ALSO OPENS AN OFFSHORE BANKING UNIT (OBU) IN

SINGAPORESINGAPORE AND REPRESENTATIVE OFFICES IN AND REPRESENTATIVE OFFICES IN DUBAIDUBAI AND AND SHANGHAISHANGHAI. .

20042004 , ICICI OPENS A REP OFFICE IN , ICICI OPENS A REP OFFICE IN BANGLADESHBANGLADESH TO TAP THE TO TAP THE

EXTENSIVE TRADE BETWEEN THAT COUNTRY, INDIA AND SOUTHEXTENSIVE TRADE BETWEEN THAT COUNTRY, INDIA AND SOUTH

AFRICA. AFRICA.

20052005 ,ICICI ACQUIRES INVESTITSIONNO-KREDITNY BANK (IKB), A,ICICI ACQUIRES INVESTITSIONNO-KREDITNY BANK (IKB), A

RUSSIA BANK WITH ABOUT US$4MN IN ASSETS, HEAD OFFICE INRUSSIA BANK WITH ABOUT US$4MN IN ASSETS, HEAD OFFICE IN

BALABANOVO IN THE KALUGA REGION, AND WITH A BRANCH INBALABANOVO IN THE KALUGA REGION, AND WITH A BRANCH IN

MOSCOW. ICICI BANK OFFERS A HIGH-INTEREST (5.4% GROSS) INTERNETMOSCOW. ICICI BANK OFFERS A HIGH-INTEREST (5.4% GROSS) INTERNET

SAVINGS ACCOUNT TO UK CUSTOMERSSAVINGS ACCOUNT TO UK CUSTOMERS

ABOUT ICICI BANKABOUT ICICI BANK

ICICI BANK IS ARGUABLY THE MOST AGGRESSIVE BANK IN THEICICI BANK IS ARGUABLY THE MOST AGGRESSIVE BANK IN THE

COUNTRY AND CAN RIGHTFULLY CLAIM CREDIT FOR THE SPREAD OFCOUNTRY AND CAN RIGHTFULLY CLAIM CREDIT FOR THE SPREAD OF

RETAIL FINANCING IN THE COUNTRY. FORMED BY THE REVERSERETAIL FINANCING IN THE COUNTRY. FORMED BY THE REVERSE

MERGER OF FORMER ICICI WITH ITS BANKING SUBSIDIARY, THE BANKMERGER OF FORMER ICICI WITH ITS BANKING SUBSIDIARY, THE BANK

33

SWATI SAHAY

HAS BEEN HIGHLY FOCUSED ON EXPANDING ITS RETAIL PORTFOLIOHAS BEEN HIGHLY FOCUSED ON EXPANDING ITS RETAIL PORTFOLIO

WHICH IT BELIEVES WOULD BE THE MAJOR GROWTH DRIVER INWHICH IT BELIEVES WOULD BE THE MAJOR GROWTH DRIVER IN

FUTURE.FUTURE.

THE BANK HAD TO OVERCOME SEVERAL LEGACY ISSUES AFTER THETHE BANK HAD TO OVERCOME SEVERAL LEGACY ISSUES AFTER THE

MERGER WITH ICICI. THE ERSTWHILE FINANCIAL INSTITUTION HADMERGER WITH ICICI. THE ERSTWHILE FINANCIAL INSTITUTION HAD

STOCKPILE OF BAD LOANS IN ITS BOOKS, A RESULT OF LIBERALSTOCKPILE OF BAD LOANS IN ITS BOOKS, A RESULT OF LIBERAL

FINANCING TO LARGE INDUSTRIAL PROJECTS LIKE STEEL UNITS IN THEFINANCING TO LARGE INDUSTRIAL PROJECTS LIKE STEEL UNITS IN THE

'90S. TO ITS CREDIT, THE BANK HAS SUCCESSFULLY CLEANED ITS'90S. TO ITS CREDIT, THE BANK HAS SUCCESSFULLY CLEANED ITS

BALANCE SHEET AND NET BAD LOANS AS A PERCENTAGE OFBALANCE SHEET AND NET BAD LOANS AS A PERCENTAGE OF

ADVANCES HAVE GONE DOWN SIGNIFICANTLY.ADVANCES HAVE GONE DOWN SIGNIFICANTLY.

BESIDES THE WELL ESTABLISHED CORPORATE BANKING DIVISION,BESIDES THE WELL ESTABLISHED CORPORATE BANKING DIVISION,

ICICI BANK HAS THE LARGEST MARKET SHARE AMONG ALL BANKS INICICI BANK HAS THE LARGEST MARKET SHARE AMONG ALL BANKS IN

RETAIL OR CONSUMER FINANCING. ITS GROWTH RATE IN HOME LOANSRETAIL OR CONSUMER FINANCING. ITS GROWTH RATE IN HOME LOANS

EXCEEDS MORE ESTABLISHED HDFC AND ITS TOTAL HOME LOANEXCEEDS MORE ESTABLISHED HDFC AND ITS TOTAL HOME LOAN

PORTFOLIO WOULD GO PAST HDFC IN A FEW YEARS AT CURRENTPORTFOLIO WOULD GO PAST HDFC IN A FEW YEARS AT CURRENT

GROWTH RATES.GROWTH RATES.

ICICI BANK IS THE LARGEST ISSUER OF CREDIT CARDS IN THEICICI BANK IS THE LARGEST ISSUER OF CREDIT CARDS IN THE

COUNTRY. IT WAS THE FIRST BANK TO OFFER A WIDE NETWORK OFCOUNTRY. IT WAS THE FIRST BANK TO OFFER A WIDE NETWORK OF

ATM'S AND HAD THE LARGEST NETWORK OF ATM'S TILL RECENTLY,ATM'S AND HAD THE LARGEST NETWORK OF ATM'S TILL RECENTLY,

BEFORE SBI CAUGHT UP WITH IT.BEFORE SBI CAUGHT UP WITH IT.

THE BANK IS EXPANDING RAPIDLY IN OVERSEAS MARKETS. IT HASTHE BANK IS EXPANDING RAPIDLY IN OVERSEAS MARKETS. IT HAS

OPERATIONS IN THE UK, HONG KONG AND CANADA. IT ACQUIRED AOPERATIONS IN THE UK, HONG KONG AND CANADA. IT ACQUIRED A

SMALL BANK IN RUSSIA RECENTLY. IT HAS TIE-UPS WITH MAJOR BANKSSMALL BANK IN RUSSIA RECENTLY. IT HAS TIE-UPS WITH MAJOR BANKS

IN THE US AND CHINA. THE BANK IS AGGRESSIVELY TARGETING THEIN THE US AND CHINA. THE BANK IS AGGRESSIVELY TARGETING THE

NRI POPULATION FOR EXPANDING ITS BUSINESS. IT ALREADY OFFERSNRI POPULATION FOR EXPANDING ITS BUSINESS. IT ALREADY OFFERS

MONEY TRANSFER FACILITIES TO INDIA FROM MOST MAJOR COUNTRIESMONEY TRANSFER FACILITIES TO INDIA FROM MOST MAJOR COUNTRIES

ACROSS THE GLOBE.ACROSS THE GLOBE.

FOR THE OVERSEAS MARKETS, ICICI HAS A UNIQUE STRATEGY. THEFOR THE OVERSEAS MARKETS, ICICI HAS A UNIQUE STRATEGY. THE

BANK HAS SUCCESSFULLY REDUCED OPERATING COSTS BY DOING ALLBANK HAS SUCCESSFULLY REDUCED OPERATING COSTS BY DOING ALL

PROCESSING AND BACK OFFICE WORK IN INDIA. IT MAINTAINS ONLY APROCESSING AND BACK OFFICE WORK IN INDIA. IT MAINTAINS ONLY A

34

SWATI SAHAY

FRONT OFFICE CUSTOMER INTERFACE IN OVERSEAS LOCATIONS. THESEFRONT OFFICE CUSTOMER INTERFACE IN OVERSEAS LOCATIONS. THESE

COST SAVINGS HELP THE BANK TO OFFER HIGHER RATES ON DEPOSITS.COST SAVINGS HELP THE BANK TO OFFER HIGHER RATES ON DEPOSITS.

HISTORY OF ICICIHISTORY OF ICICI

19551955: THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF: THE INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF

INDIA LIMITED (ICICI) INCORPORATED AT THE INITIATIVE OF THEINDIA LIMITED (ICICI) INCORPORATED AT THE INITIATIVE OF THE

WORLD BANK, THE GOVERNMENT OF INDIA AND REPRESENTATIVES OFWORLD BANK, THE GOVERNMENT OF INDIA AND REPRESENTATIVES OF

INDIAN INDUSTRY, WITH THE OBJECTIVE OF CREATING AINDIAN INDUSTRY, WITH THE OBJECTIVE OF CREATING A

DEVELOPMENT FINANCIAL INSTITUTION FOR PROVIDING MEDIUM-TERMDEVELOPMENT FINANCIAL INSTITUTION FOR PROVIDING MEDIUM-TERM

AND LONG-TERM PROJECT FINANCING TO INDIAN BUSINESSES.AND LONG-TERM PROJECT FINANCING TO INDIAN BUSINESSES.

MR.A.RAMASWAMI MUDALIAR ELECTED AS THE FIRST CHAIRMAN OFMR.A.RAMASWAMI MUDALIAR ELECTED AS THE FIRST CHAIRMAN OF

ICICI LIMITEDICICI LIMITED

1956:1956: ICICI DECLARED ITS FIRST DIVIDEND AT 3.5%. ICICI DECLARED ITS FIRST DIVIDEND AT 3.5%.

19581958: MR.G.L.MEHTA WAS APPOINTED THE 2ND CHAIRMAN OF ICICI: MR.G.L.MEHTA WAS APPOINTED THE 2ND CHAIRMAN OF ICICI

LTD.LTD.

19601960: ICICI BUILDING AT 163, BACK BAY RECLAMATION WAS: ICICI BUILDING AT 163, BACK BAY RECLAMATION WAS

INAUGURATED.INAUGURATED.

19611961: THE FIRST WEST GERMAN LOAN OF DM 5 MILLION FROM: THE FIRST WEST GERMAN LOAN OF DM 5 MILLION FROM

KREDIANSTALT WAS OBTAINED BY ICICI.KREDIANSTALT WAS OBTAINED BY ICICI.

19671967: ICICI MADE ITS FIRST DEBENTURE ISSUE FOR RS.6 CRORE, WHICH: ICICI MADE ITS FIRST DEBENTURE ISSUE FOR RS.6 CRORE, WHICH

WAS OVERSUBSCRIBED.WAS OVERSUBSCRIBED.

1969:1969: FIRST TWO REGIONAL OFFICES IN CALCUTTA AND MADRAS FIRST TWO REGIONAL OFFICES IN CALCUTTA AND MADRAS

WERE OPENED.WERE OPENED.

19721972: MR. H. T. PARIKH APPOINTED AS THE THIRD CHAIRMAN OF ICICI.: MR. H. T. PARIKH APPOINTED AS THE THIRD CHAIRMAN OF ICICI.

19771977: ICICI SPONSORS THE FORMATION OF HOUSING DEVELOPMENT: ICICI SPONSORS THE FORMATION OF HOUSING DEVELOPMENT

FINANCE CORPORATION. MANAGED ITS FIRST EQUITY PUBLIC ISSUEFINANCE CORPORATION. MANAGED ITS FIRST EQUITY PUBLIC ISSUE

19781978: MR. JAMES RAJ APPOINTED AS THE FOURTH CHAIRMAN OF ICICI.: MR. JAMES RAJ APPOINTED AS THE FOURTH CHAIRMAN OF ICICI.

19791979: MR.SIDDHARTH MEHTA APPOINTED AS THE FIFTH CHAIRMAN OF: MR.SIDDHARTH MEHTA APPOINTED AS THE FIFTH CHAIRMAN OF

35

SWATI SAHAY

ICICI.ICICI.

19821982: BECOMES THE FIRST EVER INDIAN BORROWER TO RAISE: BECOMES THE FIRST EVER INDIAN BORROWER TO RAISE

EUROPEAN CURRENCY UNITS.EUROPEAN CURRENCY UNITS.

19841984: MR. S. NADKARNI APPOINTED AS THE SIXTH CHAIRMAN OF ICICI.: MR. S. NADKARNI APPOINTED AS THE SIXTH CHAIRMAN OF ICICI.

19851985: MR.N.VAGHUL APPOINTED AS THE SEVENTH CHAIRMAN AND: MR.N.VAGHUL APPOINTED AS THE SEVENTH CHAIRMAN AND

MANAGING DIRECTOR OF ICICI.MANAGING DIRECTOR OF ICICI.

19861986: ICICI FIRST INDIAN INSTITUTION TO RECEIVE ADB LOANS. FIRST: ICICI FIRST INDIAN INSTITUTION TO RECEIVE ADB LOANS. FIRST

PUBLIC ISSUE BY AN INDIAN ENTITY IN THE SWISS CAPITAL MARKETS.PUBLIC ISSUE BY AN INDIAN ENTITY IN THE SWISS CAPITAL MARKETS.

ICICI ALONG WITH UTI SETS UP CREDIT RATING INFORMATIONICICI ALONG WITH UTI SETS UP CREDIT RATING INFORMATION

SERVICES OF INDIA LIMITED, (CRISIL) INDIA'S FIRST PROFESSIONALSERVICES OF INDIA LIMITED, (CRISIL) INDIA'S FIRST PROFESSIONAL

CREDIT RATING AGENCY.CREDIT RATING AGENCY.

THE CORPORATION MADE A PUBLIC ISSUE OF SWISS FRANC 75THE CORPORATION MADE A PUBLIC ISSUE OF SWISS FRANC 75

MILLION IN SWITZERLAND, THE FIRST PUBLIC ISSUE BY ANY INDIANMILLION IN SWITZERLAND, THE FIRST PUBLIC ISSUE BY ANY INDIAN

EQUITY IN THE SWISS CAPITAL MARKET.EQUITY IN THE SWISS CAPITAL MARKET.

19871987: ICICI SIGNED A LOAN AGREEMENT FOR STERLING POUND 10: ICICI SIGNED A LOAN AGREEMENT FOR STERLING POUND 10

MILLION WITH COMMONWEALTH DEVELOPMENT CORPORATION (CDC),MILLION WITH COMMONWEALTH DEVELOPMENT CORPORATION (CDC),

THE FIRST LOAN BY CDC FOR FINANCING PROJECTS IN INDIA.THE FIRST LOAN BY CDC FOR FINANCING PROJECTS IN INDIA.

1988: 1988: ICICI PROMOTES TDICI - INDIA'S FIRST VENTURE CAPITAL ICICI PROMOTES TDICI - INDIA'S FIRST VENTURE CAPITAL

COMPANY.COMPANY.

19931993: ICICI SETS-UP ICICI SECURITIES AND FINANCE COMPANY LIMITED: ICICI SETS-UP ICICI SECURITIES AND FINANCE COMPANY LIMITED

IN JOINT VENTURE WITH J. P. MORGAN. ICICI SETS UP ICICI ASSETIN JOINT VENTURE WITH J. P. MORGAN. ICICI SETS UP ICICI ASSET

MANAGEMENT COMPANY.MANAGEMENT COMPANY.

1994:1994: ICICI SETS UP ICICI BANK. ICICI SETS UP ICICI BANK.

1996:1996: ICICI BECOMES THE FIRST COMPANY IN THE INDIAN FINANCIAL ICICI BECOMES THE FIRST COMPANY IN THE INDIAN FINANCIAL

SECTOR TO RAISE GDR.SECTOR TO RAISE GDR.

MR.K.V.KAMATH APPOINTED THE MANAGING DIRECTOR ANDMR.K.V.KAMATH APPOINTED THE MANAGING DIRECTOR AND

CEO OF ICICI LTDCEO OF ICICI LTD

36

SWATI SAHAY

19971997: ICICI WAS THE FIRST INTERMEDIARY TO MOVE AWAY FROM: ICICI WAS THE FIRST INTERMEDIARY TO MOVE AWAY FROM

SINGLE PRIME RATE TO THREE-TIER PRIME RATES STRUCTURE ANDSINGLE PRIME RATE TO THREE-TIER PRIME RATES STRUCTURE AND

INTRODUCED YIELD-CURVE BASED PRICING.INTRODUCED YIELD-CURVE BASED PRICING.

THE NAME "THE INDUSTRIAL CREDIT AND INVESTMENTTHE NAME "THE INDUSTRIAL CREDIT AND INVESTMENT

CORPORATION OF INDIA LIMITED” WAS CHANGED TO "ICICI LIMITED".CORPORATION OF INDIA LIMITED” WAS CHANGED TO "ICICI LIMITED".

19981998: INTRODUCED THE NEW LOGO SYMBOLIZING A COMMON: INTRODUCED THE NEW LOGO SYMBOLIZING A COMMON

CORPORATE IDENTITY FOR THE ICICI GROUP.CORPORATE IDENTITY FOR THE ICICI GROUP.

19991999: ICICI LAUNCHES RETAIL FINANCE - CAR LOANS, HOUSE LOANS: ICICI LAUNCHES RETAIL FINANCE - CAR LOANS, HOUSE LOANS

AND LOANS FOR CONSUMER DURABLES.AND LOANS FOR CONSUMER DURABLES.

ICICI BECOMES THE FIRST INDIAN COMPANY TO LIST ON THEICICI BECOMES THE FIRST INDIAN COMPANY TO LIST ON THE

NYSE THROUGH AN ISSUE OF AMERICAN DEPOSITARY SHARES.NYSE THROUGH AN ISSUE OF AMERICAN DEPOSITARY SHARES.

20002000: ICICI BANK BECOMES THE FIRST COMMERCIAL BANK FROM INDIA: ICICI BANK BECOMES THE FIRST COMMERCIAL BANK FROM INDIA

TO LIST ITS STOCK ON NYSE. ICICI BANK ANNOUNCES MERGER WITHTO LIST ITS STOCK ON NYSE. ICICI BANK ANNOUNCES MERGER WITH

BANK OF MADURA.BANK OF MADURA.

20012001: THE BOARDS OF ICICI LTD AND ICICI BANK APPROVED THE: THE BOARDS OF ICICI LTD AND ICICI BANK APPROVED THE

MERGER OF ICICI WITH ICICI BANK.MERGER OF ICICI WITH ICICI BANK.

20022002: MOODY’S' ASSIGN HIGHER THAN SOVEREIGN RATING TO ICICI.: MOODY’S' ASSIGN HIGHER THAN SOVEREIGN RATING TO ICICI.

2003:2003: THE FIRST INTEGRATED CURRENCY MANAGEMENT CENTRE THE FIRST INTEGRATED CURRENCY MANAGEMENT CENTRE

LAUNCHED IN PUNE. ICICI BANK ANNOUNCED THE SETTING UP OF ITSLAUNCHED IN PUNE. ICICI BANK ANNOUNCED THE SETTING UP OF ITS

FIRST EVER OFFSHORE BRANCH IN SINGAPORE.ICICI BANK BECAME THEFIRST EVER OFFSHORE BRANCH IN SINGAPORE.ICICI BANK BECAME THE

MARKET LEADER IN RETAIL CREDIT IN INDIA.MARKET LEADER IN RETAIL CREDIT IN INDIA.

2004:2004:MOBILE BANKING SERVICE IN INDIA LAUNCHED IN ASSOCIATIONMOBILE BANKING SERVICE IN INDIA LAUNCHED IN ASSOCIATION

WITH RELAINCE INFOOCOM KISSAN LOANCARD AND INNOVATIVE , LOWWITH RELAINCE INFOOCOM KISSAN LOANCARD AND INNOVATIVE , LOW

COST ATMS UN RURAL INDIA LAUNCHED. COST ATMS UN RURAL INDIA LAUNCHED.

OVERVIEW OVERVIEW

37

SWATI SAHAY

ICICI BANK IS INDIA'S SECOND-LARGEST BANK. ICICI BANK HAS AICICI BANK IS INDIA'S SECOND-LARGEST BANK. ICICI BANK HAS A

NETWORK OF ABOUT RS. 4,062.34 BILLION (US$ 91 BILLION) AT MARCHNETWORK OF ABOUT RS. 4,062.34 BILLION (US$ 91 BILLION) AT MARCH

31, 2011 AND PROFIT AFTER TAX RS. 51.51 BILLION (US$ 1,155 MILLION)31, 2011 AND PROFIT AFTER TAX RS. 51.51 BILLION (US$ 1,155 MILLION)

FOR THE YEAR ENDED MARCH 31, 2011. THE BANK HAS A NETWORK OFFOR THE YEAR ENDED MARCH 31, 2011. THE BANK HAS A NETWORK OF

2,543 BRANCHES AND ABOUT 7,037 ATMS IN INDIA, AND HAS A PRESENCE2,543 BRANCHES AND ABOUT 7,037 ATMS IN INDIA, AND HAS A PRESENCE

IN 19 COUNTRIES, INCLUDING INDIA.ICICI BANK OFFERS A WIDE RANGEIN 19 COUNTRIES, INCLUDING INDIA.ICICI BANK OFFERS A WIDE RANGE

OF BANKING PRODUCTS AND FINANCIAL SERVICES TO CORPORATE ANDOF BANKING PRODUCTS AND FINANCIAL SERVICES TO CORPORATE AND

RETAIL CUSTOMERS THROUGH A VARIETY OF DELIVERY CHANNELSRETAIL CUSTOMERS THROUGH A VARIETY OF DELIVERY CHANNELS

AND THROUGH ITS SPECIALIZED SUBSIDIARIES. ICICI BANK SET UP ITSAND THROUGH ITS SPECIALIZED SUBSIDIARIES. ICICI BANK SET UP ITS

INTERNATIONAL BANKING GROUP IN FISCAL 2002 TO CATER TO THEINTERNATIONAL BANKING GROUP IN FISCAL 2002 TO CATER TO THE

CROSS BORDER NEEDS OF CLIENTS AND LEVERAGE ON ITS DOMESTICCROSS BORDER NEEDS OF CLIENTS AND LEVERAGE ON ITS DOMESTIC

BANKING STRENGTHS TO OFFER PRODUCTS INTERNATIONALLY. ICICIBANKING STRENGTHS TO OFFER PRODUCTS INTERNATIONALLY. ICICI

BANK CURRENTLY HAS SUBSIDIARIES IN THE UNITED KINGDOM,BANK CURRENTLY HAS SUBSIDIARIES IN THE UNITED KINGDOM,

CANADA AND RUSSIA, BRANCHES IN SINGAPORE AND BAHRAIN ANDCANADA AND RUSSIA, BRANCHES IN SINGAPORE AND BAHRAIN AND

REPRESENTATIVE OFFICES IN THE UNITED STATES, CHINA, UNITEDREPRESENTATIVE OFFICES IN THE UNITED STATES, CHINA, UNITED

ARAB EMIRATES, BANGLADESH AND SOUTH AFRICA.ARAB EMIRATES, BANGLADESH AND SOUTH AFRICA.

ICICI BANK'S EQUITY SHARES ARE LISTED IN INDIA ON THE BOMBAYICICI BANK'S EQUITY SHARES ARE LISTED IN INDIA ON THE BOMBAY

STOCK EXCHANGE AND THE NATIONAL STOCK EXCHANGE OF INDIASTOCK EXCHANGE AND THE NATIONAL STOCK EXCHANGE OF INDIA

LIMITED AND ITS AMERICAN DEPOSITARY RECEIPTS (ADRS) ARE LISTEDLIMITED AND ITS AMERICAN DEPOSITARY RECEIPTS (ADRS) ARE LISTED

ON THE NEW YORK STOCK EXCHANGE (NYSE).ON THE NEW YORK STOCK EXCHANGE (NYSE).

AT SEPTEMBER 20, 2005, ICICI BANK, WITH FREE FLOAT MARKETAT SEPTEMBER 20, 2005, ICICI BANK, WITH FREE FLOAT MARKET

CAPITALIZATION OF ABOUT RS. 400.00 BILLION (US$ 9.00 BILLION)CAPITALIZATION OF ABOUT RS. 400.00 BILLION (US$ 9.00 BILLION)

RANKED THIRD AMONGST ALL THE COMPANIES LISTED ON THE INDIANRANKED THIRD AMONGST ALL THE COMPANIES LISTED ON THE INDIAN

STOCK EXCHANGES.STOCK EXCHANGES.

ICICI'S SHAREHOLDING IN ICICI BANK WAS REDUCED TO 46% THROUGHICICI'S SHAREHOLDING IN ICICI BANK WAS REDUCED TO 46% THROUGH

A PUBLIC OFFERING OF SHARES IN INDIA IN FISCAL 1998, AN EQUITYA PUBLIC OFFERING OF SHARES IN INDIA IN FISCAL 1998, AN EQUITY

OFFERING IN THE FORM OF ADRS LISTED ON THE NYSE IN FISCAL 2000,OFFERING IN THE FORM OF ADRS LISTED ON THE NYSE IN FISCAL 2000,

ICICI BANK'S ACQUISITION OF BANK OF MADURA LIMITED IN AN ALL-ICICI BANK'S ACQUISITION OF BANK OF MADURA LIMITED IN AN ALL-

STOCK AMALGAMATION IN FISCAL 2001, AND SECONDARY MARKETSTOCK AMALGAMATION IN FISCAL 2001, AND SECONDARY MARKET

SALES BY ICICI TO INSTITUTIONAL INVESTORS IN FISCAL 2001 ANDSALES BY ICICI TO INSTITUTIONAL INVESTORS IN FISCAL 2001 AND

38

SWATI SAHAY

FISCAL 2002. ICICI WAS FORMED IN 1955 AT THE INITIATIVE OF THEFISCAL 2002. ICICI WAS FORMED IN 1955 AT THE INITIATIVE OF THE

WORLD BANK, THE GOVERNMENT OF INDIA AND REPRESENTATIVES OFWORLD BANK, THE GOVERNMENT OF INDIA AND REPRESENTATIVES OF

INDIAN INDUSTRY. INDIAN INDUSTRY.

THE PRINCIPAL OBJECTIVE WAS TO CREATE A DEVELOPMENTTHE PRINCIPAL OBJECTIVE WAS TO CREATE A DEVELOPMENT

FINANCIAL INSTITUTION FOR PROVIDING MEDIUM-TERM AND LONG-FINANCIAL INSTITUTION FOR PROVIDING MEDIUM-TERM AND LONG-

TERM PROJECT FINANCING TO INDIAN BUSINESSES. IN THE 1990S, ICICITERM PROJECT FINANCING TO INDIAN BUSINESSES. IN THE 1990S, ICICI

TRANSFORMED ITS BUSINESS FROM A DEVELOPMENT FINANCIALTRANSFORMED ITS BUSINESS FROM A DEVELOPMENT FINANCIAL

INSTITUTION OFFERING ONLY PROJECT FINANCE TO A DIVERSIFIEDINSTITUTION OFFERING ONLY PROJECT FINANCE TO A DIVERSIFIED

FINANCIAL SERVICES GROUP OFFERING A WIDE VARIETY OF PRODUCTSFINANCIAL SERVICES GROUP OFFERING A WIDE VARIETY OF PRODUCTS

AND SERVICES, BOTH DIRECTLY AND THROUGH A NUMBER OFAND SERVICES, BOTH DIRECTLY AND THROUGH A NUMBER OF

SUBSIDIARIES AND AFFILIATES LIKE ICICI BANK. IN 1999, ICICI BECOMESUBSIDIARIES AND AFFILIATES LIKE ICICI BANK. IN 1999, ICICI BECOME

THE FIRST INDIAN COMPANY AND THE FIRST BANK OR FINANCIALTHE FIRST INDIAN COMPANY AND THE FIRST BANK OR FINANCIAL

INSTITUTION FROM NON-JAPAN ASIA TO BE LISTED ON THE NYSEINSTITUTION FROM NON-JAPAN ASIA TO BE LISTED ON THE NYSE. .

MAJOR COMPETITORSMAJOR COMPETITORS

HDFCHDFC

AXIS BANKAXIS BANK

HSBC BANKHSBC BANK

SBI BANKSBI BANK

BANK OF INDIABANK OF INDIA

CITI BANKCITI BANK

BANK OF AMERICABANK OF AMERICA

DETUSCHE BANKDETUSCHE BANK

ABN-AMRO BANKABN-AMRO BANK

BANK OF INDIABANK OF INDIA

DEUTCHE BANKDEUTCHE BANK

39

SWATI SAHAY

UNION BANK OF INDIAUNION BANK OF INDIA

YES BANKYES BANK

UCO BANK OF INDIAUCO BANK OF INDIA

JAMMU AND KASHMIR BANKJAMMU AND KASHMIR BANK

BANK OF MAHRASHTRABANK OF MAHRASHTRA

ALLAHABAD BANKALLAHABAD BANK

BOARDS OF MEMBERS:BOARDS OF MEMBERS:

MS CHANDA KOCCHAR- MANAGING DIRECTOR ANDCHIEF EXECUTIVEMS CHANDA KOCCHAR- MANAGING DIRECTOR ANDCHIEF EXECUTIVE

OFFICER.OFFICER.

MR. N.S. KANNAN – EXEUTIVE DIRECTOR AND CFOMR. N.S. KANNAN – EXEUTIVE DIRECTOR AND CFO

MR.K RAMKUMAR – EXEUTIVE DIRECTORMR.K RAMKUMAR – EXEUTIVE DIRECTOR

MR. RAJIV SABHARWAL – EXECUTIVE DIRECTORMR. RAJIV SABHARWAL – EXECUTIVE DIRECTOR

AWARDS AND RECOGNISTION AWARDS AND RECOGNISTION

FOR SECOND YEAR IN A ROW, ICICI BANK WAS AWARDED THE "MOSTFOR SECOND YEAR IN A ROW, ICICI BANK WAS AWARDED THE "MOST

TECH-FRIENDLY BANK", BY BUSINESSWORLDTECH-FRIENDLY BANK", BY BUSINESSWORLD

MR. N. VAGHUL, FORMER CHAIRMAN, ICICI BANK, RECEIVED THEMR. N. VAGHUL, FORMER CHAIRMAN, ICICI BANK, RECEIVED THE

"LIFETIME ACHIEVEMENT AWARD", BY BUSINESSWORLD"LIFETIME ACHIEVEMENT AWARD", BY BUSINESSWORLD

MS. CHANDA KOCHHAR, MANAGING DIRECTOR & CEO WAS RANKEDMS. CHANDA KOCHHAR, MANAGING DIRECTOR & CEO WAS RANKED

10TH IN THE LIST OF "TOP 50 WOMEN IN WORLD BUSINESS 2011", BY10TH IN THE LIST OF "TOP 50 WOMEN IN WORLD BUSINESS 2011", BY

FINANCIAL TIMESFINANCIAL TIMES

40

SWATI SAHAY

MS. CHANDA KOCHHAR, MANAGING DIRECTOR & CEO TOPS THE LISTMS. CHANDA KOCHHAR, MANAGING DIRECTOR & CEO TOPS THE LIST

OF "INDIA'S 50 MOST POWERFUL BUSINESSWOMEN ", BY FORTUNEOF "INDIA'S 50 MOST POWERFUL BUSINESSWOMEN ", BY FORTUNE

INDIAINDIA

ICICI BANK WAS RANKED 2ND IN THE BANKING SECTOR AND 10TH INICICI BANK WAS RANKED 2ND IN THE BANKING SECTOR AND 10TH IN

THE OVERALL "BT 500 INDIA'S MOST VALUABLE COMPANIES", BYTHE OVERALL "BT 500 INDIA'S MOST VALUABLE COMPANIES", BY

BUSINESS TODAYBUSINESS TODAY

FOR THE SECOND CONSECUTIVE YEAR, ICICI BANK WAS RANKEDFOR THE SECOND CONSECUTIVE YEAR, ICICI BANK WAS RANKED

SECOND IN THE "INDIA'S 50 BIGGEST FINANCIAL COMPANIES" , IN THESECOND IN THE "INDIA'S 50 BIGGEST FINANCIAL COMPANIES" , IN THE

BW REAL 500 BY BUSINESSWORLDBW REAL 500 BY BUSINESSWORLD

MS.CHANDA KOCHHAR, MANAGING DIRECTOR & CEO WASMS.CHANDA KOCHHAR, MANAGING DIRECTOR & CEO WAS

CONFERRED WITH "WOMEN OF POWER" AWARD, BY THE ASIANCONFERRED WITH "WOMEN OF POWER" AWARD, BY THE ASIAN

BUSINESS LEADERSHIP FORUM (ABLF)BUSINESS LEADERSHIP FORUM (ABLF)

MS.CHANDA KOCHHAR, MANAGING DIRECTOR & CEO, WAS THE FIRSTMS.CHANDA KOCHHAR, MANAGING DIRECTOR & CEO, WAS THE FIRST

WOMAN TO BE NAMED AS THE "BUSINESS LEADER OF THE YEAR", BYWOMAN TO BE NAMED AS THE "BUSINESS LEADER OF THE YEAR", BY

THE ECONOMIC TIMESTHE ECONOMIC TIMES

MS.CHANDA KOCHHAR, MANAGING DIRECTOR & CEO WAS RANKED 5THMS.CHANDA KOCHHAR, MANAGING DIRECTOR & CEO WAS RANKED 5TH

IN THE INTERNATIONAL LIST OF "50 MOST POWERFUL WOMEN ININ THE INTERNATIONAL LIST OF "50 MOST POWERFUL WOMEN IN

BUSINESS", BY FORTUNE. SHE WAS RANKED 10TH IN 2010.BUSINESS", BY FORTUNE. SHE WAS RANKED 10TH IN 2010.

ICICI BANK TOPS THE LIST OF "MOST TRUSTED PRIVATE SECTOR BANK"ICICI BANK TOPS THE LIST OF "MOST TRUSTED PRIVATE SECTOR BANK"

AND RANKS 10TH IN THE LIST OF "INDIA'S MOST TRUSTED SERVICEAND RANKS 10TH IN THE LIST OF "INDIA'S MOST TRUSTED SERVICE

BRANDS" BY BRAND EQUITY, MOST TRUSTED BRANDS 2011BRANDS" BY BRAND EQUITY, MOST TRUSTED BRANDS 2011

MS. CHANDA KOCHHAR, MANAGING DIRECTOR & CEO, WAS NAMEDMS. CHANDA KOCHHAR, MANAGING DIRECTOR & CEO, WAS NAMED

AMONG THE 50 MOST INFLUENTIAL IN GLOBAL FINANCE BYAMONG THE 50 MOST INFLUENTIAL IN GLOBAL FINANCE BY

BLOOMBERG MARKETS MAGAZINEBLOOMBERG MARKETS MAGAZINE

MS. CHANDA KOCHHAR, MANAGING DIRECTOR & CEO, WAS RANKEDMS. CHANDA KOCHHAR, MANAGING DIRECTOR & CEO, WAS RANKED

43RD IN THE FORBES LIST OF MOST POWERFUL WOMAN IN THE WORLD43RD IN THE FORBES LIST OF MOST POWERFUL WOMAN IN THE WORLD

ICICI BANK RECEIVED THE BEST MANPOWER EFFICIENT AWARDICICI BANK RECEIVED THE BEST MANPOWER EFFICIENT AWARD

AMONGST PRIVATE SECTOR BANKS BY FICCI – IBAAMONGST PRIVATE SECTOR BANKS BY FICCI – IBA

41

SWATI SAHAY

ICICI BANK WON THE BEST LOCAL BANK – GOLD BY TRADE ANDICICI BANK WON THE BEST LOCAL BANK – GOLD BY TRADE AND

FORFAITING AWARDS, UKFORFAITING AWARDS, UK

ICICI BANK RANKED SECOND IN THE FINANCIAL SERVICES SECTOR INICICI BANK RANKED SECOND IN THE FINANCIAL SERVICES SECTOR IN

BUSINESSWORLD'S,"MOST RESPECTED COMPANY AWARDS 2011"BUSINESSWORLD'S,"MOST RESPECTED COMPANY AWARDS 2011"

ICICI BANK HAS WON THE "BANKING TECHNOLOGY AWARDS 2010" ATICICI BANK HAS WON THE "BANKING TECHNOLOGY AWARDS 2010" AT THE INDIAN BANKS ASSOCIATION IN THE FOLLOWING CATEGORIES:THE INDIAN BANKS ASSOCIATION IN THE FOLLOWING CATEGORIES:

OO "BEST FINANCIAL INCLUSION INITIATIVE" (FIRST PRIZE)"BEST FINANCIAL INCLUSION INITIATIVE" (FIRST PRIZE)

OO "BEST ONLINE BANK" ( RUNNER UP)"BEST ONLINE BANK" ( RUNNER UP)

OO "BEST USE OF BUSINESS INTELLIGENCE" ( RUNNER UP)"BEST USE OF BUSINESS INTELLIGENCE" ( RUNNER UP)

OO "TECHNOLOGY BANK OF THE YEAR" ( RUNNER UP)"TECHNOLOGY BANK OF THE YEAR" ( RUNNER UP)

PRODUCTS AND SERVICES

THE BANK PROVIDES A WIDE RANGE OF BANKING PRODUCTS ANDTHE BANK PROVIDES A WIDE RANGE OF BANKING PRODUCTS AND

FINANCIAL SERVICES TO ITS RETAIL AND CORPORATE CUSTOMERS. ICICIFINANCIAL SERVICES TO ITS RETAIL AND CORPORATE CUSTOMERS. ICICI

BANK PRODUCTS AND SERVICES INCLUDE PERSONAL BANKING, NRIBANK PRODUCTS AND SERVICES INCLUDE PERSONAL BANKING, NRI

BANKING, BUSINESS BANKING, AND OTHER FINANCIAL SERVICES.BANKING, BUSINESS BANKING, AND OTHER FINANCIAL SERVICES.

ICICI BANK PRODUCTS & SERVICESICICI BANK PRODUCTS & SERVICES

PERSONAL BANKINGPERSONAL BANKING

DEPOSITS:-DEPOSITS:-

ICICI BANK PROVIDES THE FOLLOWING DEPOSITS:ICICI BANK PROVIDES THE FOLLOWING DEPOSITS:

SAVINGS ACCOUNTSAVINGS ACCOUNT

ADVANTAGE DEPOSITADVANTAGE DEPOSIT

FIXED DEPOSITSFIXED DEPOSITS

SECURITY DEPOSITSSECURITY DEPOSITS

RECURRING DEPOSITSRECURRING DEPOSITS

42

SWATI SAHAY

TAX-SAVER FIXED DEPOSITTAX-SAVER FIXED DEPOSIT

SPECIAL SAVINGS ACCOUNTSPECIAL SAVINGS ACCOUNT

LIFE PLUS SENIOR CITIZENS SAVINGS ACCOUNTLIFE PLUS SENIOR CITIZENS SAVINGS ACCOUNT

YOUNG STARS SAVINGS ACCOUNTYOUNG STARS SAVINGS ACCOUNT

SALARY ACCOUNTSALARY ACCOUNT

ADVANTAGE WOMAN SAVINGS ACCOUNTADVANTAGE WOMAN SAVINGS ACCOUNT

EEFC ACCOUNTEEFC ACCOUNT

RESIDENT FOREIGN CURRENCY (DOMESTIC) ACCOUNTRESIDENT FOREIGN CURRENCY (DOMESTIC) ACCOUNT

CHILD EDUCATION PLANCHILD EDUCATION PLAN

BANK@CAMPUSBANK@CAMPUS

PRIVILEGE BANKINGPRIVILEGE BANKING

FAMILY BANKINGFAMILY BANKING

RURAL SAVINGS ACCOUNTRURAL SAVINGS ACCOUNT

PEOPLE’S SAVINGS ACCOUNTPEOPLE’S SAVINGS ACCOUNT

SELF HELP GROUP ACCOUNTSSELF HELP GROUP ACCOUNTS

OUTWARD REMITTANCEOUTWARD REMITTANCE

FREEDOM SAVINGS ACCOUNTFREEDOM SAVINGS ACCOUNT

LOANSLOANS

ICICI BANK OFFERS THE FOLLOWING LOAN FACILITIES:ICICI BANK OFFERS THE FOLLOWING LOAN FACILITIES:

HOME LOANSHOME LOANS

PERSONAL LOANSPERSONAL LOANS

TWO WHEELER LOANSTWO WHEELER LOANS

CAR LOANSCAR LOANS

COMMERCIAL VEHICLE LOANSCOMMERCIAL VEHICLE LOANS

PRE-APPROVED LOANSPRE-APPROVED LOANS

LOAN AGAINST PROPERTYLOAN AGAINST PROPERTY

LOANS AGAINST SECURITIESLOANS AGAINST SECURITIES

LOAN AGAINST GOLD ORNAMENTSLOAN AGAINST GOLD ORNAMENTS

CARDSCARDS

43

SWATI SAHAY

ICICI BANK OFFERS VARIOUS CARDS SUCH AS:ICICI BANK OFFERS VARIOUS CARDS SUCH AS:

CREDIT CARDSCREDIT CARDS

DEBIT CARDSDEBIT CARDS

CONSUMER CARDSCONSUMER CARDS

COMMERCIAL CARDSCOMMERCIAL CARDS

TRAVEL CARDSTRAVEL CARDS

CORPORATE CARDSCORPORATE CARDS

PREPAID CARDSPREPAID CARDS

BUSINESS CARDSBUSINESS CARDS

PURCHASE CARDSPURCHASE CARDS

DISTRIBUTION CARDSDISTRIBUTION CARDS

MERCHANT SERVICESMERCHANT SERVICES

INVESTMENTSINVESTMENTS

ICICI BANK OFFERS THE FOLLOWING RANGE OF INVESTMENTICICI BANK OFFERS THE FOLLOWING RANGE OF INVESTMENT PRODUCTS:PRODUCTS:

ICICI BANK TAX SAVING BONDSICICI BANK TAX SAVING BONDS

MUTUAL FUNDSMUTUAL FUNDS

SENIOR CITIZENS SAVINGS SCHEMESENIOR CITIZENS SAVINGS SCHEME

GOVERNMENT OF INDIA BONDSGOVERNMENT OF INDIA BONDS

FOREIGN EXCHANGE SERVICESFOREIGN EXCHANGE SERVICES

INITIAL PUBLIC OFFERS (IPO) BY CORPORATESINITIAL PUBLIC OFFERS (IPO) BY CORPORATES

ICICI BANK PURE GOLDICICI BANK PURE GOLD

INSURANCEINSURANCE

ICICI BANK OFFERS VARIOUS TYPES OF INSURANCE SUCH AS:ICICI BANK OFFERS VARIOUS TYPES OF INSURANCE SUCH AS:

HOME INSURANCEHOME INSURANCE

HEALTH INSURANCEHEALTH INSURANCE

44

SWATI SAHAY

HEALTH ADVANTAGE PLUSHEALTH ADVANTAGE PLUS

FAMILY FLOATERFAMILY FLOATER

STUDENT MEDICAL INSURANCESTUDENT MEDICAL INSURANCE

PERSONAL ACCIDENTPERSONAL ACCIDENT

TWO WHEELER INSURANCETWO WHEELER INSURANCE

TRAVEL INSURANCETRAVEL INSURANCE

INDIVIDUAL OVERSEAS TRAVEL INSURANCEINDIVIDUAL OVERSEAS TRAVEL INSURANCE

ICICI PRU LIFESTATE RPICICI PRU LIFESTATE RP

MOTOR INSURANCEMOTOR INSURANCE

CAR INSURANCECAR INSURANCE

LIFE INSURANCELIFE INSURANCE

NRI BANKINGNRI BANKING

NRIS GET BENEFIT FROM THE FOLLOWING SERVICES:NRIS GET BENEFIT FROM THE FOLLOWING SERVICES:

MONEY TRANSFERMONEY TRANSFER

BANK ACCOUNTSBANK ACCOUNTS

INVESTMENTSINVESTMENTS

PROPERTY SOLUTIONSPROPERTY SOLUTIONS

INSURANCEINSURANCE

LOANS AGAINST FDLOANS AGAINST FD

BUSINESS BANKINGBUSINESS BANKING

CORPORATE NET BANKINGCORPORATE NET BANKING

CASH MANAGEMENTCASH MANAGEMENT

ONLINE TAXESONLINE TAXES

TRADE SERVICESTRADE SERVICES

CUSTODIAL SERVICESCUSTODIAL SERVICES

FXONLINEFXONLINE

SME SERVICESSME SERVICES

45

SWATI SAHAY

SWOT ANALYSIS:SWOT ANALYSIS:

STRENGTHSTRENGTH

OO ICICI BANK HAS TODAY EMERGED AS SECOND LARGEST BANK IN INDIAICICI BANK HAS TODAY EMERGED AS SECOND LARGEST BANK IN INDIA AND IS AMONG THE TOP 250 BANKS IN THE WORLD WITHIN THE DECADEAND IS AMONG THE TOP 250 BANKS IN THE WORLD WITHIN THE DECADE OF ITS OPERATION.OF ITS OPERATION.

OO ICICI BANK OFFER WIDE RANGE OF PRODUCTS AND SERVICES FROMICICI BANK OFFER WIDE RANGE OF PRODUCTS AND SERVICES FROM BANKING ACTIVITIES TO GENERAL INSURANCE.BANKING ACTIVITIES TO GENERAL INSURANCE.

OO ICICI BANK HAS EXPANDED ITS MARKET CAPITALISATION THROUGHICICI BANK HAS EXPANDED ITS MARKET CAPITALISATION THROUGH ENLISTMENT NOT ONLY IN BSE AND NSE, BUT ALSO IN BECOMING THEENLISTMENT NOT ONLY IN BSE AND NSE, BUT ALSO IN BECOMING THE FIRST NON-JAPENSE ASIAN BANK TO GET ENLISTED IN NYSE.FIRST NON-JAPENSE ASIAN BANK TO GET ENLISTED IN NYSE.

WEAKNESSWEAKNESS

OO IIT PRIMARLY TARGETS UPPER ,MIDDLE CLASS OF THE SOCIETY,T PRIMARLY TARGETS UPPER ,MIDDLE CLASS OF THE SOCIETY, THEREBY LOSING THE BUSINESS OPPORTUNTIES CONCENTRATED ATTHEREBY LOSING THE BUSINESS OPPORTUNTIES CONCENTRATED AT MIDDLE AND BOTTOM SECTIONS OF THE ECONOMICAL PYRAMID.MIDDLE AND BOTTOM SECTIONS OF THE ECONOMICAL PYRAMID.

OO ICICI LEVIES HIGHER SERVICESCHARGE FOR VARIOUS TRANSCATIONSICICI LEVIES HIGHER SERVICESCHARGE FOR VARIOUS TRANSCATIONS MAKING IT EXPENSIVETO AFFORD BY THE MAJOR SECTIONS OF THEMAKING IT EXPENSIVETO AFFORD BY THE MAJOR SECTIONS OF THE SOCIETY.SOCIETY.

OPPORTUNTIESOPPORTUNTIES

OO BRANCH EXPANSION FOR RAPID GROWTHBRANCH EXPANSION FOR RAPID GROWTH

OO IMPROVE SHAREHOLDERS RETURNIMPROVE SHAREHOLDERS RETURN

46

SWATI SAHAY

OO BROADENING OF THE DEMOGRAPHIC BASEBROADENING OF THE DEMOGRAPHIC BASE

OO GROWTH IN GENERAL INSURANCE INDUSTRY WILL HELP IN INCREASINGGROWTH IN GENERAL INSURANCE INDUSTRY WILL HELP IN INCREASING THE MARKET SHARE OF ICICI BANK.THE MARKET SHARE OF ICICI BANK.

THREATSTHREATS

OO CCOMPETIVE PRODUCTSAND OFFERS FROM IDBI AND HDFCOMPETIVE PRODUCTSAND OFFERS FROM IDBI AND HDFC

OO MORE AND MORE BANKING COMING IN THE PRIVATE AND PUBLICMORE AND MORE BANKING COMING IN THE PRIVATE AND PUBLIC SECTOR WITH ONLINE BANKING SYSTEM.SECTOR WITH ONLINE BANKING SYSTEM.

OO GLOBAL AND DOMESTIC ECONOMIC SLOW DOWNCOULD AFFECTGLOBAL AND DOMESTIC ECONOMIC SLOW DOWNCOULD AFFECT FINANCIAL PERFORMANCE OF ICICI.FINANCIAL PERFORMANCE OF ICICI.

FINANCIAL STATEMENTFINANCIAL STATEMENT

Profit & Loss Account for the year ended 31st Dec, 2011

Current Year

31 Dec 11

(In Laces)

Previous Year

31

Dec 10

(In Laces)

Income

Sales 903.92 1134.22

Other Income 34.09 25.32

47

SWATI SAHAY

987.04 1159.54

Expenditure

Materials Consumed 621.23 738.73

Personnel Expenses 104.58 87.33

Mfg Other expenses 172.48 166.27

Dep / Amortisation 34.38 30.01

Financial Charges 30.57 26.72

Excise duty 120.04 130.87

Mis Expenditure W/off 20.28 18.33

1224.32 1198.26

Loss for the year before extra ordinary

items and prior period adjustments

(116.88) (38.72)

Extra ordinary items:

Expenses on abandoned project W/off -- --

Assets W/off -- --

Pension liability -- 5.14

Prior period adjustments -- 0.30

48

SWATI SAHAY

Loss after prior pd. Exp. & extra-ord.

Items.

(116.88) (44.16)

Loss b/f from early years (368.39) (324.23)

Less: Amt. Adjusted against Cap.

Reduction300

(68.39) ---

Loss: c/f to B/S (185.27) (368.39)

Balance Sheet as at 31 Dec 2010

Sources Of Funds 31 Dec 11 31 Dec 10.

Shareholders Fund

Capital 434.20 734.20

Reserves & Surplus 21.00 21.00

455.20 755.20

Loan Funds

Secured loans 360.46 198.09

Unsecured loans -- 0.04

49

SWATI SAHAY

Application of Funds

Fixed Assets

Gross Block 530.59 520.94

Less: Dep. 153.55 125.09

Net Block 377.04 395.85

Capital work in progress inc. capital

advances.

3.25 1.58

380.29 397.43

Investments 0.10 0.10

Current assets, Loans & Advances

Inventories 146.36 93.87

Sundry Debtors 114.71 123.22

Cash & Bank Balances 5.63 10.64

Other current Assets. 21.66 20.14

Loans & Advances 44.39 47.06

Less: Current liabilities & Provisions

Liabilities 116.07 137.02

50

SWATI SAHAY

Provisions 14.11 15.73

Net Current Assets 130.18 152.75

Misc. Expenditure 47.43 45.23

Profit & Loss A/c 185.27 368.39

Total: 815.66 953.33

WORKING CAPITAL MANAGEMENT

REVIEW OF LITERATURE

WORKING CAPITAL MANAGEMENT IS THE MANAGEMENT OF ASSETSWORKING CAPITAL MANAGEMENT IS THE MANAGEMENT OF ASSETS

THAT ARE CURRENT IN NATURE. CURRENT ASSETS, BY ACCOUNTINGTHAT ARE CURRENT IN NATURE. CURRENT ASSETS, BY ACCOUNTING

DEFINITION ARE THE ASSETS NORMALLY CONVERTED IN TO CASH IN ADEFINITION ARE THE ASSETS NORMALLY CONVERTED IN TO CASH IN A

PERIOD OF ONE YEAR. HENCE WORKING CAPITAL MANAGEMENT CAN BEPERIOD OF ONE YEAR. HENCE WORKING CAPITAL MANAGEMENT CAN BE

CONSIDERED AS THE MANAGEMENT OF CASH, MARKET SECURITIESCONSIDERED AS THE MANAGEMENT OF CASH, MARKET SECURITIES

RECEIVABLE, INVENTORIES AND CURRENT LIABILITIES. IN FACT, THERECEIVABLE, INVENTORIES AND CURRENT LIABILITIES. IN FACT, THE

MANAGEMENT OF CURRENT ASSETS IS SIMILAR TO THAT OF FIXEDMANAGEMENT OF CURRENT ASSETS IS SIMILAR TO THAT OF FIXED

ASSETS IN THE SENSE THAT IS BOTH IN CASES THE FIRM ANALYSESASSETS IN THE SENSE THAT IS BOTH IN CASES THE FIRM ANALYSES

THEIR EFFECT ON ITS PROFITABILITY AND RISK FACTORS, HENCE THEYTHEIR EFFECT ON ITS PROFITABILITY AND RISK FACTORS, HENCE THEY

DIFFER ON THREE MAJOR ASPECTS:DIFFER ON THREE MAJOR ASPECTS:

1. 1. IN MANAGING FIXED ASSETS, TIME IS AN IMPORTANT FACTORIN MANAGING FIXED ASSETS, TIME IS AN IMPORTANT FACTOR

DISCOUNTING AND COMPOUNDING ASPECTS OF TIME PLAY ANDISCOUNTING AND COMPOUNDING ASPECTS OF TIME PLAY AN

IMPORTANT ROLE IN CAPITAL BUDGETING AND A MINOR PART IN THEIMPORTANT ROLE IN CAPITAL BUDGETING AND A MINOR PART IN THE

51

SWATI SAHAY

MANAGEMENT OF CURRENT ASSETS.MANAGEMENT OF CURRENT ASSETS.

2.2. THE LARGE HOLDINGS OF CURRENT ASSETS, ESPECIALLY CASH, MAYTHE LARGE HOLDINGS OF CURRENT ASSETS, ESPECIALLY CASH, MAY

STRENGTHEN THE FIRM’S LIQUIDITY POSITION, BUT IS BOUND TOSTRENGTHEN THE FIRM’S LIQUIDITY POSITION, BUT IS BOUND TO

REDUCE PROFITABILITY OF THE FIRM AS IDEAL CAR YIELD NOTHING.REDUCE PROFITABILITY OF THE FIRM AS IDEAL CAR YIELD NOTHING.

3. 3. THE LEVEL OF FIXED ASSETS AS WELL AS CURRENT ASSETS DEPENDSTHE LEVEL OF FIXED ASSETS AS WELL AS CURRENT ASSETS DEPENDS

UPON THE EXPECTED SALES, BUT IT IS ONLY CURRENT ASSETS THATUPON THE EXPECTED SALES, BUT IT IS ONLY CURRENT ASSETS THAT

ADD FLUCTUATION IN THE SHORT RUN TO A BUSINESS.ADD FLUCTUATION IN THE SHORT RUN TO A BUSINESS.

TO UNDERSTAND WORKING CAPITAL BETTER WE SHOULD HAVE BASICTO UNDERSTAND WORKING CAPITAL BETTER WE SHOULD HAVE BASIC

KNOWLEDGE ABOUT THE VARIOUS ASPECTS OF WORKING CAPITAL. TOKNOWLEDGE ABOUT THE VARIOUS ASPECTS OF WORKING CAPITAL. TO

START WITH, THERE ARE TWO CONCEPTS OF WORKING CAPITAL:START WITH, THERE ARE TWO CONCEPTS OF WORKING CAPITAL:

GROSS WORKING CAPITALGROSS WORKING CAPITAL

NET WORKING CAPITALNET WORKING CAPITAL

GROSS WORKING CAPITALGROSS WORKING CAPITAL: GROSS WORKING CAPITAL, WHICH IS ALSO: GROSS WORKING CAPITAL, WHICH IS ALSO

SIMPLY KNOWN AS WORKING CAPITAL, REFERS TO THE FIRM’SSIMPLY KNOWN AS WORKING CAPITAL, REFERS TO THE FIRM’S

INVESTMENT IN CURRENT ASSETS: ANOTHER ASPECT OF GROSSINVESTMENT IN CURRENT ASSETS: ANOTHER ASPECT OF GROSS

WORKING CAPITAL POINTS OUT THE NEED OF ARRANGING FUNDS TOWORKING CAPITAL POINTS OUT THE NEED OF ARRANGING FUNDS TO

FINANCE THE CURRENT ASSETS. THE GROSS WORKING CAPITALFINANCE THE CURRENT ASSETS. THE GROSS WORKING CAPITAL

CONCEPT FOCUSES ATTENTION ON TWO ASPECTS OF CURRENT ASSETSCONCEPT FOCUSES ATTENTION ON TWO ASPECTS OF CURRENT ASSETS

MANAGEMENT, FIRSTLY OPTIMUM INVESTMENT IN CURRENT ASSETSMANAGEMENT, FIRSTLY OPTIMUM INVESTMENT IN CURRENT ASSETS

AND SECONDLY IN FINANCING THE CURRENT ASSETS. THESE TWOAND SECONDLY IN FINANCING THE CURRENT ASSETS. THESE TWO

ASPECTS WILL HELP IN REMAINING AWAY FROM THE TWO DANGERASPECTS WILL HELP IN REMAINING AWAY FROM THE TWO DANGER

POINTS OF EXCESSIVE OR INADEQUATE INVESTMENT IN CURRENTPOINTS OF EXCESSIVE OR INADEQUATE INVESTMENT IN CURRENT

ASSETS. WHENEVER A NEED OF WORKING CAPITAL FUNDS ARISES DUEASSETS. WHENEVER A NEED OF WORKING CAPITAL FUNDS ARISES DUE

TO INCREASE IN LEVEL OF BUSINESS ACTIVITY OR FOR ANY OTHERTO INCREASE IN LEVEL OF BUSINESS ACTIVITY OR FOR ANY OTHER

REASON THE ARRANGEMENT SHOULD BE MADE QUICKLY, ANDREASON THE ARRANGEMENT SHOULD BE MADE QUICKLY, AND

SIMILARLY IF SOME SURPLUSES ARE AVAILABLE, THEY SHOULD NOT BESIMILARLY IF SOME SURPLUSES ARE AVAILABLE, THEY SHOULD NOT BE

ALLOWED TO LIE IDEAL BUT SHOULD BE PUT TO SOME EFFECTIVE USE. ALLOWED TO LIE IDEAL BUT SHOULD BE PUT TO SOME EFFECTIVE USE.

NET WORKING CAPITAL:NET WORKING CAPITAL: THE TERM NET WORKING CAPITAL REFERS TO THE TERM NET WORKING CAPITAL REFERS TO

THE DIFFERENCE BETWEEN THE CURRENT ASSETS AND CURRENTTHE DIFFERENCE BETWEEN THE CURRENT ASSETS AND CURRENT

LIABILITIES. NET WORKING CAPITAL CAN BE POSITIVE AS WELL ASLIABILITIES. NET WORKING CAPITAL CAN BE POSITIVE AS WELL AS

NEGATIVE. POSITIVE WORKING CAPITAL REFERS TO THE SITUATIONNEGATIVE. POSITIVE WORKING CAPITAL REFERS TO THE SITUATION

52

SWATI SAHAY

WHERE CURRENT ASSETS EXCEED CURRENT LIABILITIES AND NEGATIVEWHERE CURRENT ASSETS EXCEED CURRENT LIABILITIES AND NEGATIVE

WORKING CAPITAL REFERS TO THE SITUATION WHERE CURRENTWORKING CAPITAL REFERS TO THE SITUATION WHERE CURRENT

LIABILITIES EXCEED CURRENT ASSETS. THE NET WORKING CAPITALLIABILITIES EXCEED CURRENT ASSETS. THE NET WORKING CAPITAL

HELPS IN COMPARING THE LIQUIDITY OF THE SAME FIRM OVER TIME.HELPS IN COMPARING THE LIQUIDITY OF THE SAME FIRM OVER TIME.

FOR PURPOSES OF THE WORKING CAPITAL MANAGEMENT, THEREFOREFOR PURPOSES OF THE WORKING CAPITAL MANAGEMENT, THEREFORE

WORKING CAPITAL CAN BE SAID TO MEASURE THE LIQUIDITY OF THEWORKING CAPITAL CAN BE SAID TO MEASURE THE LIQUIDITY OF THE

FIRM. IN OTHER WORDS, THE GOAL OF WORKING CAPITALFIRM. IN OTHER WORDS, THE GOAL OF WORKING CAPITAL

MANAGEMENT IS TO MANAGE THE CURRENT ASSETS AND LIABILITIESMANAGEMENT IS TO MANAGE THE CURRENT ASSETS AND LIABILITIES

IN SUCH A WAY THAT A ACCEPTABLE LEVEL OF NET WORKING CAPITALIN SUCH A WAY THAT A ACCEPTABLE LEVEL OF NET WORKING CAPITAL

IS MAINTAINED.IS MAINTAINED.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT: IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

MANAGEMENT OF WORKING CAPITAL IS VERY MUCH IMPORTANT FORMANAGEMENT OF WORKING CAPITAL IS VERY MUCH IMPORTANT FOR

THE SUCCESS OF THE BUSINESS. IT HAS BEEN EMPHASIZED THAT ATHE SUCCESS OF THE BUSINESS. IT HAS BEEN EMPHASIZED THAT A

BUSINESS SHOULD MAINTAIN SOUND WORKING CAPITAL POSITION ANDBUSINESS SHOULD MAINTAIN SOUND WORKING CAPITAL POSITION AND

ALSO THAT THERE SHOULD NOT BE AN EXCESSIVE LEVEL OFALSO THAT THERE SHOULD NOT BE AN EXCESSIVE LEVEL OF

INVESTMENT IN THE WORKING CAPITAL COMPONENTS. AS POINTED OUTINVESTMENT IN THE WORKING CAPITAL COMPONENTS. AS POINTED OUT

BY RALPH KENNEDY AND STEWART MC MULLER, “THE INADEQUACY ORBY RALPH KENNEDY AND STEWART MC MULLER, “THE INADEQUACY OR

MISS-MANAGEMENT OF WORKING CAPITAL IS ONE OF A FEW LEADINGMISS-MANAGEMENT OF WORKING CAPITAL IS ONE OF A FEW LEADING

CAUSES OF BUSINESS FAILURE.CAUSES OF BUSINESS FAILURE.

CURRENT ASSETS, IN FACT, ACCOUNT FOR A VERY LARGE PORTION OFCURRENT ASSETS, IN FACT, ACCOUNT FOR A VERY LARGE PORTION OF

THE TOTAL INVESTMENT OF THE FIRM.THE TOTAL INVESTMENT OF THE FIRM.

Current assets as percentage of Total assets

YEAR PERCENTAGE

2009 31%

2010 26%

2011 35%

53

SWATI SAHAY

IT CAN BE VISUALIZED FROM THE TABLE THAT IN THE FIRST YEAR OFIT CAN BE VISUALIZED FROM THE TABLE THAT IN THE FIRST YEAR OF

OUR STUDY I.E. 2009 IT WAS 31% WHICH WAS REDUCED TO 26% IN THEOUR STUDY I.E. 2009 IT WAS 31% WHICH WAS REDUCED TO 26% IN THE

NEXT YEAR AND IN 2010 IT IS 35% SHOWS FLUCTUATING TREND.NEXT YEAR AND IN 2010 IT IS 35% SHOWS FLUCTUATING TREND.

DETERMINANTS OF WORKING CAPITAL:DETERMINANTS OF WORKING CAPITAL:

THERE IS NO SPECIFIC METHOD TO DETERMINE WORKING CAPITALTHERE IS NO SPECIFIC METHOD TO DETERMINE WORKING CAPITAL REQUIREMENT FOR A BUSINESS. THERE ARE A NUMBER OF FACTORSREQUIREMENT FOR A BUSINESS. THERE ARE A NUMBER OF FACTORS AFFECTING THE WORKING CAPITAL REQUIREMENT. THESE FACTORSAFFECTING THE WORKING CAPITAL REQUIREMENT. THESE FACTORS HAVE DIFFERENT IMPORTANCE IN DIFFERENT BUSINESSES AND ATHAVE DIFFERENT IMPORTANCE IN DIFFERENT BUSINESSES AND AT DIFFERENT TIMES. SO A THOROUGH ANALYSIS OF ALL THESE FACTORSDIFFERENT TIMES. SO A THOROUGH ANALYSIS OF ALL THESE FACTORS SHOULD BE MADE BEFORE TRYING TO ESTIMATE THE AMOUNT OFSHOULD BE MADE BEFORE TRYING TO ESTIMATE THE AMOUNT OF WORKING CAPITAL NEEDED. SOME OF THE DIFFERENT FACTORS AREWORKING CAPITAL NEEDED. SOME OF THE DIFFERENT FACTORS ARE MENTIONED HERE BELOW:-MENTIONED HERE BELOW:-

NATURE OF BUSINESS:NATURE OF BUSINESS: NATURE OF BUSINESS IS AN IMPORTANT FACTOR NATURE OF BUSINESS IS AN IMPORTANT FACTOR

IN DETERMINING THE WORKING CAPITAL REQUIREMENTS. THERE AREIN DETERMINING THE WORKING CAPITAL REQUIREMENTS. THERE ARE

SOME BUSINESSES WHICH REQUIRE A VERY NOMINAL AMOUNT TO BESOME BUSINESSES WHICH REQUIRE A VERY NOMINAL AMOUNT TO BE

INVESTED IN FIXED ASSETS BUT A LARGE CHUNK OF THE TOTALINVESTED IN FIXED ASSETS BUT A LARGE CHUNK OF THE TOTAL

INVESTMENT IS IN THE FORM OF WORKING CAPITAL. THEREINVESTMENT IS IN THE FORM OF WORKING CAPITAL. THERE

BUSINESSES, FOR EXAMPLE, ARE OF THE TRADING AND FINANCINGBUSINESSES, FOR EXAMPLE, ARE OF THE TRADING AND FINANCING

TYPE. THERE ARE BUSINESSES WHICH REQUIRE LARGE INVESTMENT INTYPE. THERE ARE BUSINESSES WHICH REQUIRE LARGE INVESTMENT IN

FIXED ASSETS AND NORMAL INVESTMENT IN THE FORM OF WORKINGFIXED ASSETS AND NORMAL INVESTMENT IN THE FORM OF WORKING

54

SWATI SAHAY

CAPITAL.CAPITAL.

SIZE OF BUSINESS: SIZE OF BUSINESS: IT IS ANOTHER IMPORTANT FACTOR INIT IS ANOTHER IMPORTANT FACTOR IN

DETERMINING THE WORKING CAPITAL REQUIREMENTS OF A BUSINESS.DETERMINING THE WORKING CAPITAL REQUIREMENTS OF A BUSINESS.

SIZE IS USUALLY MEASURED IN TERMS OF SCALE OF OPERATING CYCLE.SIZE IS USUALLY MEASURED IN TERMS OF SCALE OF OPERATING CYCLE.

THE AMOUNT OF WORKING CAPITAL NEEDED IS DIRECTLYTHE AMOUNT OF WORKING CAPITAL NEEDED IS DIRECTLY

PROPORTIONAL TO THE SCALE OF OPERATING CYCLE I.E. THE LARGERPROPORTIONAL TO THE SCALE OF OPERATING CYCLE I.E. THE LARGER

THE SCALE OF OPERATING CYCLE THE LARGE WILL BE THE AMOUNTTHE SCALE OF OPERATING CYCLE THE LARGE WILL BE THE AMOUNT

WORKING CAPITAL AND VICE VERSA.WORKING CAPITAL AND VICE VERSA.

BUSINESS FLUCTUATIONSBUSINESS FLUCTUATIONS: MOST BUSINESS EXPERIENCE CYCLICAL: MOST BUSINESS EXPERIENCE CYCLICAL

AND SEASONAL FLUCTUATIONS IN DEMAND FOR THEIR GOODS ANDAND SEASONAL FLUCTUATIONS IN DEMAND FOR THEIR GOODS AND

SERVICES. THESE FLUCTUATIONS AFFECT THE BUSINESS WITH RESPECTSERVICES. THESE FLUCTUATIONS AFFECT THE BUSINESS WITH RESPECT

TO WORKING CAPITAL BECAUSE DURING THE TIME OF BOOM, DUE TOTO WORKING CAPITAL BECAUSE DURING THE TIME OF BOOM, DUE TO

AN INCREASE IN BUSINESS ACTIVITY THE AMOUNT OF WORKINGAN INCREASE IN BUSINESS ACTIVITY THE AMOUNT OF WORKING

CAPITAL REQUIREMENT INCREASES AND THE REVERSE IS TRUE IN THECAPITAL REQUIREMENT INCREASES AND THE REVERSE IS TRUE IN THE

CASE OF RECESSION. FINANCIAL ARRANGEMENT FOR SEASONALCASE OF RECESSION. FINANCIAL ARRANGEMENT FOR SEASONAL

WORKING CAPITAL REQUIREMENTS ARE TO BE MADE IN ADVANCE.WORKING CAPITAL REQUIREMENTS ARE TO BE MADE IN ADVANCE.

PRODUCTION POLICY: PRODUCTION POLICY: AS STATED ABOVE, EVERY BUSINESS HAS TOAS STATED ABOVE, EVERY BUSINESS HAS TO

COPE WITH DIFFERENT TYPES OF FLUCTUATIONS. HENCE IT IS BUTCOPE WITH DIFFERENT TYPES OF FLUCTUATIONS. HENCE IT IS BUT

OBVIOUS THAT PRODUCTION POLICY HAS TO BE PLANNED WELL INOBVIOUS THAT PRODUCTION POLICY HAS TO BE PLANNED WELL IN

ADVANCE WITH RESPECT TO FLUCTUATION. NO TWO COMPANIES CANADVANCE WITH RESPECT TO FLUCTUATION. NO TWO COMPANIES CAN

HAVE SIMILAR PRODUCTION POLICY IN ALL RESPECTS BECAUSE ITHAVE SIMILAR PRODUCTION POLICY IN ALL RESPECTS BECAUSE IT

DEPENDS UPON THE CIRCUMSTANCES OF AN INDIVIDUAL COMPANY.DEPENDS UPON THE CIRCUMSTANCES OF AN INDIVIDUAL COMPANY.

FIRM’S CREDIT POLICY:FIRM’S CREDIT POLICY: THE CREDIT POLICY OF A FIRM AFFECTS THE CREDIT POLICY OF A FIRM AFFECTS

WORKING CAPITAL BY INFLUENCING THE LEVEL OF BOOK DEBTS. THEWORKING CAPITAL BY INFLUENCING THE LEVEL OF BOOK DEBTS. THE

CREDIT TERM IS FAIRLY CONSTANT IN AN INDUSTRY BUT INDIVIDUALSCREDIT TERM IS FAIRLY CONSTANT IN AN INDUSTRY BUT INDIVIDUALS

ALSO HAVE THEIR ROLE IN FRAMING THEIR CREDIT POLICY. A LIBERALALSO HAVE THEIR ROLE IN FRAMING THEIR CREDIT POLICY. A LIBERAL

CREDIT POLICY WILL LEAD TO MORE AMOUNT BEING COMMITTED TOCREDIT POLICY WILL LEAD TO MORE AMOUNT BEING COMMITTED TO

WORKING CAPITAL REQUIREMENTS WHEREAS A STERN CREDIT POLICYWORKING CAPITAL REQUIREMENTS WHEREAS A STERN CREDIT POLICY

MAY DECREASE THE AMOUNT OF WORKING CAPITAL REQUIREMENTMAY DECREASE THE AMOUNT OF WORKING CAPITAL REQUIREMENT

55

SWATI SAHAY

APPRECIABLY BUT THE REPERCUSSIONS OF THE TWO ARE NOT SIMPLE.APPRECIABLY BUT THE REPERCUSSIONS OF THE TWO ARE NOT SIMPLE.

HENCE A FIRM SHOULD ALWAYS FRAME A RATIONAL CREDIT POLICYHENCE A FIRM SHOULD ALWAYS FRAME A RATIONAL CREDIT POLICY

BASED ON THE CREDIT WORTHINESS OF THE CUSTOMER. BASED ON THE CREDIT WORTHINESS OF THE CUSTOMER.

AVAILABILITY OF CREDITAVAILABILITY OF CREDIT: THE TERMS ON WHICH A COMPANY IS ABLE: THE TERMS ON WHICH A COMPANY IS ABLE

TO AVAIL CREDIT FROM ITS SUPPLIERS OF GOODS AND DEVICESTO AVAIL CREDIT FROM ITS SUPPLIERS OF GOODS AND DEVICES

CREDIT/ALSO AFFECTS THE WORKING CAPITAL REQUIREMENT. IF ACREDIT/ALSO AFFECTS THE WORKING CAPITAL REQUIREMENT. IF A

COMPANY IN A POSITION TO GET CREDIT ON LIBERAL TERMS AND IN ACOMPANY IN A POSITION TO GET CREDIT ON LIBERAL TERMS AND IN A

SHORT SPAN OF TIME THEN IT WILL BE IN A POSITION TO WORK WITHSHORT SPAN OF TIME THEN IT WILL BE IN A POSITION TO WORK WITH

LESS AMOUNT OF WORKING CAPITAL. HENCE THE AMOUNT OFLESS AMOUNT OF WORKING CAPITAL. HENCE THE AMOUNT OF

WORKING CAPITAL NEEDED WILL DEPEND UPON THE TERMS A FIRM ISWORKING CAPITAL NEEDED WILL DEPEND UPON THE TERMS A FIRM IS

GRANTED CREDIT BY ITS CREDITORS.GRANTED CREDIT BY ITS CREDITORS.

GROWTH AND EXPANSION ACTIVITIESGROWTH AND EXPANSION ACTIVITIES: THE WORKING CAPITAL NEEDS: THE WORKING CAPITAL NEEDS

OF A FIRM INCREASES AS IT GROWS IN TERM OF SALE OR FIXED ASSETS.OF A FIRM INCREASES AS IT GROWS IN TERM OF SALE OR FIXED ASSETS.

THERE IS NO PRECISE WAY TO DETERMINE THE RELATION BETWEENTHERE IS NO PRECISE WAY TO DETERMINE THE RELATION BETWEEN

THE AMOUNT OF SALES AND WORKING CAPITAL REQUIREMENT BUTTHE AMOUNT OF SALES AND WORKING CAPITAL REQUIREMENT BUT

ONE THING IS SURE THAT AN INCREASE IN SALES NEVER PRECEDES THEONE THING IS SURE THAT AN INCREASE IN SALES NEVER PRECEDES THE

INCREASE IN WORKING CAPITAL BUT IT IS ALWAYS THE OTHER WAYINCREASE IN WORKING CAPITAL BUT IT IS ALWAYS THE OTHER WAY

ROUND. SO IN CASE OF GROWTH OR EXPANSION THE ASPECT OFROUND. SO IN CASE OF GROWTH OR EXPANSION THE ASPECT OF

WORKING CAPITAL NEEDS TO BE PLANNED IN ADVANCE.WORKING CAPITAL NEEDS TO BE PLANNED IN ADVANCE.

PRICE LEVEL CHANGES:PRICE LEVEL CHANGES: GENERALLY INCREASE IN PRICE LEVEL GENERALLY INCREASE IN PRICE LEVEL

MAKES THE COMMODITIES DEARER.HENCE WITH INCREASE IN PRICEMAKES THE COMMODITIES DEARER.HENCE WITH INCREASE IN PRICE

LEVEL THE WORKING CAPITAL REQUIREMENTS ALSO INCREASES. THELEVEL THE WORKING CAPITAL REQUIREMENTS ALSO INCREASES. THE

COMPANIES WHICH ARE IN A POSITION TO ALTER THE PRICE OF THESECOMPANIES WHICH ARE IN A POSITION TO ALTER THE PRICE OF THESE

COMMODITIES IN ACCORDANCE WITH THE PRICE LEVEL CHANGES WILLCOMMODITIES IN ACCORDANCE WITH THE PRICE LEVEL CHANGES WILL

FACE FEWER PROBLEMS AS COMPARED TO OTHERS. THE CHANGES INFACE FEWER PROBLEMS AS COMPARED TO OTHERS. THE CHANGES IN

PRICE LEVEL MAY NOT AFFECT ALL THE FIRMS IN SAME WAY. THEPRICE LEVEL MAY NOT AFFECT ALL THE FIRMS IN SAME WAY. THE

REACTIONS OF ALL FIRMS WITH REGARDS TO PRICE LEVEL CHANGESREACTIONS OF ALL FIRMS WITH REGARDS TO PRICE LEVEL CHANGES

WILL BE DIFFERENT FROM ONE OTHER..WILL BE DIFFERENT FROM ONE OTHER..

56

SWATI SAHAY

WORKING CAPITAL - OVERALL VIEW

CASH MANAGEMENT

CASH IS THE IMPORTANT CURRENT ASSET FOR THE OPERATIONS OF THECASH IS THE IMPORTANT CURRENT ASSET FOR THE OPERATIONS OF THE

BUSINESS. CASH IS THE BASIC INPUT NEEDED TO KEEP THE BUSINESSBUSINESS. CASH IS THE BASIC INPUT NEEDED TO KEEP THE BUSINESS

RUNNING ON A CONTINUOUS BASIS. IT IS ALSO THE ULTIMATE OUTPUTRUNNING ON A CONTINUOUS BASIS. IT IS ALSO THE ULTIMATE OUTPUT

EXPECTED TO BE REALIZED BY SELLING THE SERVICE OR PRODUCTEXPECTED TO BE REALIZED BY SELLING THE SERVICE OR PRODUCT

MANUFACTURED BY THE FIRM. THE FIRM SHOULD KEEP SUFFICIENTMANUFACTURED BY THE FIRM. THE FIRM SHOULD KEEP SUFFICIENT

CASH, NEITHER MORE NOR LESS. CASH SHORTAGE WILL DISRUPT THECASH, NEITHER MORE NOR LESS. CASH SHORTAGE WILL DISRUPT THE

FIRM’S OPERATIONS WHILE EXCESSIVE CASH WILL SIMPLY REMAINFIRM’S OPERATIONS WHILE EXCESSIVE CASH WILL SIMPLY REMAIN

IDLE, WITHOUT CONTRIBUTING ANYTHING TOWARDS THE FIRM’SIDLE, WITHOUT CONTRIBUTING ANYTHING TOWARDS THE FIRM’S

PROFITABILITY. THUS A MAJOR FUNCTION OF THE FINANCIAL MANAGERPROFITABILITY. THUS A MAJOR FUNCTION OF THE FINANCIAL MANAGER

IS TO MAINTAIN A SOUND CASH POSITION.IS TO MAINTAIN A SOUND CASH POSITION.

CASH IS THE MONEY WHICH A FIRM CAN DISBURSE IMMEDIATELYCASH IS THE MONEY WHICH A FIRM CAN DISBURSE IMMEDIATELY

WITHOUT ANY RESTRICTION THE TERM CASH INCLUDES CURRENCYWITHOUT ANY RESTRICTION THE TERM CASH INCLUDES CURRENCY

AND CHEQUES HELD BY THE FIRM AND BALANCES IN ITS BANKAND CHEQUES HELD BY THE FIRM AND BALANCES IN ITS BANK

ACCOUNTS. SOMETIMES NEAR CASH ITEMS, SUCH AS MARKETABLEACCOUNTS. SOMETIMES NEAR CASH ITEMS, SUCH AS MARKETABLE

SECURITIES OR BANK TIME DEPOSITS ARE ALSO INCLUDED IN CASH. THESECURITIES OR BANK TIME DEPOSITS ARE ALSO INCLUDED IN CASH. THE

BASIC CHARACTERISTICS OF NEAR CASH ASSETS ARE THAT THEY CANBASIC CHARACTERISTICS OF NEAR CASH ASSETS ARE THAT THEY CAN

READILY BE CONVERTED INTO CASH. CASH MANAGEMENT ISREADILY BE CONVERTED INTO CASH. CASH MANAGEMENT IS

CONCERNED WITH MANAGING OF:CONCERNED WITH MANAGING OF:

I) I) CASH FLOWS IN AND OUT OF THE FIRMCASH FLOWS IN AND OUT OF THE FIRM

II) II) CASH FLOWS WITHIN THE FIRMCASH FLOWS WITHIN THE FIRM

III) III) CASH BALANCES HELD BY THE FIRM AT A POINT OF TIME BYCASH BALANCES HELD BY THE FIRM AT A POINT OF TIME BY

FINANCING DEFICIT OR INVESTING SURPLUS CASH. FINANCING DEFICIT OR INVESTING SURPLUS CASH.

SALES GENERATE CASH WHICH HAS TO BE DISBURSED OUT. THESALES GENERATE CASH WHICH HAS TO BE DISBURSED OUT. THE

SURPLUS CASH HAS TO BE INVESTED WHILE DEFICIT CASH HAS TO BESURPLUS CASH HAS TO BE INVESTED WHILE DEFICIT CASH HAS TO BE

BORROWED. CASH MANAGEMENT SEEKS TO ACCOMPLISH THIS CYCLEBORROWED. CASH MANAGEMENT SEEKS TO ACCOMPLISH THIS CYCLE

AT A MINIMUM COST. AT THE SAME TIME IT ALSO SEEKS TO ACHIEVEAT A MINIMUM COST. AT THE SAME TIME IT ALSO SEEKS TO ACHIEVE

LIQUIDITY AND CONTROL. THEREFORE THE AIM OF CASH MANAGEMENTLIQUIDITY AND CONTROL. THEREFORE THE AIM OF CASH MANAGEMENT

IS TO MAINTAIN ADEQUATE CONTROL OVER CASH POSITION TO KEEPIS TO MAINTAIN ADEQUATE CONTROL OVER CASH POSITION TO KEEP

FIRM SUFFICIENTLY LIQUID AND TO USE EXCESS CASH IN SOMEFIRM SUFFICIENTLY LIQUID AND TO USE EXCESS CASH IN SOME

PROFITABLE WAY.PROFITABLE WAY.

THE CASH MANAGEMENT IS ALSO IMPORTANT BECAUSE IT IS DIFFICULTTHE CASH MANAGEMENT IS ALSO IMPORTANT BECAUSE IT IS DIFFICULT

57

SWATI SAHAY

TO PREDICT CASH FLOWS ACCURATELY, PARTICULARLY THE INFLOWSTO PREDICT CASH FLOWS ACCURATELY, PARTICULARLY THE INFLOWS

AND THAT THERE IS NO PERFECT COINCIDENCE BETWEEN THE INFLOWSAND THAT THERE IS NO PERFECT COINCIDENCE BETWEEN THE INFLOWS

AND OUTFLOWS OF THE CASH. DURING SOME PERIODS CASH OUTFLOWSAND OUTFLOWS OF THE CASH. DURING SOME PERIODS CASH OUTFLOWS

WILL EXCEED CASH INFLOWS BECAUSE PAYMENT FOR TAXES,WILL EXCEED CASH INFLOWS BECAUSE PAYMENT FOR TAXES,

DIVIDENDS OR SEASONAL INVENTORY ETC., BUILD UP. ON THE OTHERDIVIDENDS OR SEASONAL INVENTORY ETC., BUILD UP. ON THE OTHER

HAND CASH INFLOWS WILL BE MORE THAN CASH PAYMENT BECAUSEHAND CASH INFLOWS WILL BE MORE THAN CASH PAYMENT BECAUSE

THERE MAY BE LARGE CASH SALES AND MORE DEBTORS’ REALIZATIONTHERE MAY BE LARGE CASH SALES AND MORE DEBTORS’ REALIZATION

AT ANY POINT OF TIME. CASH MANAGEMENT IS ALSO IMPORTANTAT ANY POINT OF TIME. CASH MANAGEMENT IS ALSO IMPORTANT

BECAUSE CASH CONSTITUTES THE SMALLEST PORTION OF THEBECAUSE CASH CONSTITUTES THE SMALLEST PORTION OF THE

CURRENT ASSETS, YET MANAGEMENT’S CONSIDERABLE TIME ISCURRENT ASSETS, YET MANAGEMENT’S CONSIDERABLE TIME IS

DEVOTED IN MANAGING IT. AN OBVIOUS AIM OF THE FIRM NOW-A-DAYSDEVOTED IN MANAGING IT. AN OBVIOUS AIM OF THE FIRM NOW-A-DAYS

IS TO MANAGE ITS CASH AFFAIRS IN SUCH A WAY AS TO KEEP CASHIS TO MANAGE ITS CASH AFFAIRS IN SUCH A WAY AS TO KEEP CASH

BALANCE AT A MINIMUM LEVEL AND TO INVEST THE SURPLUS CASHBALANCE AT A MINIMUM LEVEL AND TO INVEST THE SURPLUS CASH

FUNDS IN PROFITABLE OPPORTUNITIES. IN ORDER TO RESOLVE THEFUNDS IN PROFITABLE OPPORTUNITIES. IN ORDER TO RESOLVE THE

UNCERTAINTY ABOUT CASH FLOW PREDICTION AND LACK OFUNCERTAINTY ABOUT CASH FLOW PREDICTION AND LACK OF

SYNCHRONIZATION BETWEEN CASH RECEIPTS AND PAYMENTS, THESYNCHRONIZATION BETWEEN CASH RECEIPTS AND PAYMENTS, THE

FIRM SHOULD DEVELOP APPROPRIATE STRATEGIES REGARDING THEFIRM SHOULD DEVELOP APPROPRIATE STRATEGIES REGARDING THE

FOLLOWING FOUR FACETS OF CASH MANAGEMENT.FOLLOWING FOUR FACETS OF CASH MANAGEMENT.

1. CASH PLANNINGCASH PLANNING: - CASH INFLOWS AND CASH OUTFLOWS SHOULD: - CASH INFLOWS AND CASH OUTFLOWS SHOULD

BE PLANNED TO PROJECT CASH SURPLUS OR DEFICIT FOR EACH PERIODBE PLANNED TO PROJECT CASH SURPLUS OR DEFICIT FOR EACH PERIOD

OF THE PLANNING PERIOD. CASH BUDGET SHOULD PREPARED FOR THISOF THE PLANNING PERIOD. CASH BUDGET SHOULD PREPARED FOR THIS

PURPOSE. PURPOSE.

2.2. MANAGINGMANAGING THE CASH FLOWSTHE CASH FLOWS: - THE FLOW OF CASH SHOULD BE: - THE FLOW OF CASH SHOULD BE

58

SWATI SAHAY

PROPERLY MANAGED. THE CASH INFLOWS SHOULD BE ACCELERATEDPROPERLY MANAGED. THE CASH INFLOWS SHOULD BE ACCELERATED

WHILE, AS FAR AS POSSIBLE DECELERATING THE CASH OUTFLOWS.WHILE, AS FAR AS POSSIBLE DECELERATING THE CASH OUTFLOWS.

33. . OPTIMUM CASH LEVELOPTIMUM CASH LEVEL: - THE FIRM SHOULD DECIDE ABOUT THE: - THE FIRM SHOULD DECIDE ABOUT THE

APPROPRIATE LEVEL OF CASH BALANCES. THE COST OF EXCESS CASHAPPROPRIATE LEVEL OF CASH BALANCES. THE COST OF EXCESS CASH

AND DANGER OF CASH DEFICIENCY SHOULD BE MATCHED TOAND DANGER OF CASH DEFICIENCY SHOULD BE MATCHED TO

DETERMINE THE OPTIMUM LEVEL OF CASH BALANCES.DETERMINE THE OPTIMUM LEVEL OF CASH BALANCES.

4. 4. INVESTING SURPLUS CASHINVESTING SURPLUS CASH: - THE SURPLUS CASH BALANCE SHOULD: - THE SURPLUS CASH BALANCE SHOULD

BE PROPERLY INVESTED TO EARN PROFITS. THE FIRM SHOULD DECIDEBE PROPERLY INVESTED TO EARN PROFITS. THE FIRM SHOULD DECIDE

ABOUT THE DIVISION OF SUCH CASH BALANCE BETWEEN BANKABOUT THE DIVISION OF SUCH CASH BALANCE BETWEEN BANK

DEPOSITS,DEPOSITS, MARKETABLE SECURITIES AND INTER CORPORATE LENDING.MARKETABLE SECURITIES AND INTER CORPORATE LENDING.

THE IDEAL CASH MANAGEMENT SYSTEM WILL DEPEND ON THE FIRM’STHE IDEAL CASH MANAGEMENT SYSTEM WILL DEPEND ON THE FIRM’S

PRODUCTS, ORGANIZATION STRUCTURE, COMPETITION, CULTURE ANDPRODUCTS, ORGANIZATION STRUCTURE, COMPETITION, CULTURE AND

OPTIONS AVAILABLE. THE TASK IS COMPLEX AND DECISION TAKEN CANOPTIONS AVAILABLE. THE TASK IS COMPLEX AND DECISION TAKEN CAN

AFFECT IMPORTANT AREAS OF THE FIRM.AFFECT IMPORTANT AREAS OF THE FIRM.

Functions of Cash Management:

CASH MANAGEMENT FUNCTIONS ARE INTIMATELY, INTERRELATED ANDCASH MANAGEMENT FUNCTIONS ARE INTIMATELY, INTERRELATED AND

INTERTWINED LINKAGE AMONG DIFFERENT CASH MANAGEMENTINTERTWINED LINKAGE AMONG DIFFERENT CASH MANAGEMENT

FUNCTIONS HAVE LED TO THE ADOPTION OF THE FOLLOWING METHODSFUNCTIONS HAVE LED TO THE ADOPTION OF THE FOLLOWING METHODS

FOR EFFICIENT CASH MANAGEMENT:FOR EFFICIENT CASH MANAGEMENT:

USE OF TECHNIQUES OF CASH MOBILIZATION TO REDUCE OPERATINGUSE OF TECHNIQUES OF CASH MOBILIZATION TO REDUCE OPERATING

REQUIREMENT OF CASHREQUIREMENT OF CASH

MAJOR EFFORTS TO INCREASE THE PRECISION AND RELIABILITY OFMAJOR EFFORTS TO INCREASE THE PRECISION AND RELIABILITY OF

CASH FORECASTING.CASH FORECASTING.

MAXIMUM EFFORT TO DEFINE AND QUANTIFY THE LIQUIDITY RESERVEMAXIMUM EFFORT TO DEFINE AND QUANTIFY THE LIQUIDITY RESERVE

NEEDS OF THE FIRM.NEEDS OF THE FIRM.

59

SWATI SAHAY

DEVELOPMENT OF EXPLICIT ALTERNATIVE SOURCES OF LIQUIDITYDEVELOPMENT OF EXPLICIT ALTERNATIVE SOURCES OF LIQUIDITY

AGGRESSIVE SEARCH FOR RELATIVELY MORE PRODUCTIVE USES FORAGGRESSIVE SEARCH FOR RELATIVELY MORE PRODUCTIVE USES FOR

SURPLUS MONEY ASSETS.SURPLUS MONEY ASSETS.

THE ABOVE APPROACHES INVOLVE THE FOLLOWING ACTIONS WHICH ATHE ABOVE APPROACHES INVOLVE THE FOLLOWING ACTIONS WHICH A

FINANCE MANAGER HAS TO PERFORM.FINANCE MANAGER HAS TO PERFORM.

1. TO FORECAST CASH INFLOWS AND OUTFLOWS1. TO FORECAST CASH INFLOWS AND OUTFLOWS

2. TO PLAN CASH REQUIREMENTS 2. TO PLAN CASH REQUIREMENTS

3. TO DETERMINE THE SAFETY LEVEL FOR CASH.3. TO DETERMINE THE SAFETY LEVEL FOR CASH.

4. TO MONITOR SAFETY LEVEL FOR CASH4. TO MONITOR SAFETY LEVEL FOR CASH

5. TO LOCATE THE NEEDED FUNDS5. TO LOCATE THE NEEDED FUNDS

6. TO REGULATE CASH INFLOWS6. TO REGULATE CASH INFLOWS

7. TO REGULATE CASH OUTFLOWS7. TO REGULATE CASH OUTFLOWS

8. TO DETERMINE CRITERIA FOR INVESTMENT OF EXCESS CASH8. TO DETERMINE CRITERIA FOR INVESTMENT OF EXCESS CASH

9. TO AVAIL BANKING FACILITIES AND MAINTAIN GOOD RELATIONS9. TO AVAIL BANKING FACILITIES AND MAINTAIN GOOD RELATIONS

WITH BANKERSWITH BANKERS

MOTIVES FOR HOLDING CASH:MOTIVES FOR HOLDING CASH:

THERE ARE FOUR PRIMARY MOTIVES FOR MAINTAINING CASHTHERE ARE FOUR PRIMARY MOTIVES FOR MAINTAINING CASH

BALANCES:BALANCES:

1. TRANSACTION MOTIVE1. TRANSACTION MOTIVE

2 .PRECAUTIONARY MOTIVE2 .PRECAUTIONARY MOTIVE

3. SPECULATIVE MOTIVE3. SPECULATIVE MOTIVE

4. COMPENSATING MOTIVE4. COMPENSATING MOTIVE

1. TRANSACTION MOTIVETRANSACTION MOTIVE: - THE TRANSACTION MOTIVE REFERS TO: - THE TRANSACTION MOTIVE REFERS TO

THE HOLDING OF CASH TO MEET ANTICIPATED OBLIGATIONS WHOSETHE HOLDING OF CASH TO MEET ANTICIPATED OBLIGATIONS WHOSE

TIMING IS NOT PERFECTLY SYNCHRONISED WITH CASH RECEIPTS. IF THETIMING IS NOT PERFECTLY SYNCHRONISED WITH CASH RECEIPTS. IF THE

RECEIPTS OF CASH AND ITS DISBURSEMENTS COULD EXACTLYRECEIPTS OF CASH AND ITS DISBURSEMENTS COULD EXACTLY

COINCIDE IN THE NORMAL COURSE OF OPERATIONS, A FIRM WOULDCOINCIDE IN THE NORMAL COURSE OF OPERATIONS, A FIRM WOULD

NOT NEED CASH FOR TRANSACTION PURPOSES. ALTHOUGH A MAJORNOT NEED CASH FOR TRANSACTION PURPOSES. ALTHOUGH A MAJOR

PART OF TRANSACTION BALANCES ARE HELD IN CASH, A PART MAYPART OF TRANSACTION BALANCES ARE HELD IN CASH, A PART MAY

60

SWATI SAHAY

ALSO BE IN SUCH MARKETABLE SECURITIES WHOSE MATURITYALSO BE IN SUCH MARKETABLE SECURITIES WHOSE MATURITY

CONFORMS TO THE TIMING OF THE ANTICIPATED PAYMENTS.CONFORMS TO THE TIMING OF THE ANTICIPATED PAYMENTS.

2. 2. PRECAUTIONARY MOTIVE:PRECAUTIONARY MOTIVE: - PRECAUTIONARY MOTIVE OF HOLDING - PRECAUTIONARY MOTIVE OF HOLDING

CASH IMPLIES THE NEED TO HOLD CASH TO MEET UNPREDICTABLECASH IMPLIES THE NEED TO HOLD CASH TO MEET UNPREDICTABLE

OBLIGATIONS AND THE CASH BALANCE HELD IN RESERVE FOR SUCHOBLIGATIONS AND THE CASH BALANCE HELD IN RESERVE FOR SUCH

RANDOM AND UNFORESEEN FLUCTUATIONS IN CASH FLOWS ARERANDOM AND UNFORESEEN FLUCTUATIONS IN CASH FLOWS ARE

CALLED AS PRECAUTIONARY BALANCES. THUS, PRECAUTIONARY CASHCALLED AS PRECAUTIONARY BALANCES. THUS, PRECAUTIONARY CASH

BALANCE SERVES TO PROVIDE A CUSHION TO MEET UNEXPECTEDBALANCE SERVES TO PROVIDE A CUSHION TO MEET UNEXPECTED

CONTINGENCIES. THE UNEXPECTED CASH NEEDS AT SHORT NOTICECONTINGENCIES. THE UNEXPECTED CASH NEEDS AT SHORT NOTICE

MAY BE THE RESULT OF VARIOUS REASONS AS: UNEXPECTEDMAY BE THE RESULT OF VARIOUS REASONS AS: UNEXPECTED

SLOWDOWN IN COLLECTION OF ACCOUNTS RECEIVABLE,SLOWDOWN IN COLLECTION OF ACCOUNTS RECEIVABLE,

CANCELLATIONS OF SOME PURCHASE ORDERS, SHARP INCREASE INCANCELLATIONS OF SOME PURCHASE ORDERS, SHARP INCREASE IN

COST OF RAW MATERIALS ETC. THE MORE UNPREDICTABLE THE CASHCOST OF RAW MATERIALS ETC. THE MORE UNPREDICTABLE THE CASH

FLOWS, THE LARGER THE NEED FOR SUCH BALANCES. ANOTHERFLOWS, THE LARGER THE NEED FOR SUCH BALANCES. ANOTHER

FACTOR WHICH HAS A BEARING ON THE LEVEL OF PRECAUTIONARYFACTOR WHICH HAS A BEARING ON THE LEVEL OF PRECAUTIONARY

BALANCES IS THE AVAILABILITY OF SHORT TERM CREDIT.BALANCES IS THE AVAILABILITY OF SHORT TERM CREDIT.

PRECAUTIONARY CASH BALANCES ARE USUALLY HELD IN THE FORM OFPRECAUTIONARY CASH BALANCES ARE USUALLY HELD IN THE FORM OF

MARKETABLE SECURITIES SO THAT THEY EARN A RETURN.MARKETABLE SECURITIES SO THAT THEY EARN A RETURN.

3. 3. SPECULATIVE MOTIVESPECULATIVE MOTIVE: - IT REFERS TO THE DESIRE OF A FIRM TO: - IT REFERS TO THE DESIRE OF A FIRM TO

TAKE ADVANTAGE OF OPPORTUNITIES WHICH PRESENT THEMSELVESTAKE ADVANTAGE OF OPPORTUNITIES WHICH PRESENT THEMSELVES

AT UNEXPECTED MOVEMENTS AND WHICH ARE TYPICALLY OUTSIDEAT UNEXPECTED MOVEMENTS AND WHICH ARE TYPICALLY OUTSIDE

THE NORMAL COURSE OF BUSINESS. THE SPECULATIVE MOTIVETHE NORMAL COURSE OF BUSINESS. THE SPECULATIVE MOTIVE

REPRESENTS A POSITIVE AND AGGRESSIVE APPROACH. FIRMS AIM TOREPRESENTS A POSITIVE AND AGGRESSIVE APPROACH. FIRMS AIM TO

EXPLOIT PROFITABLE OPPORTUNITIES AND KEEP CASH IN RESERVE TOEXPLOIT PROFITABLE OPPORTUNITIES AND KEEP CASH IN RESERVE TO

DO SO. THE SPECULATIVE MOTIVE HELPS TO TAKE ADVANTAGE OF:DO SO. THE SPECULATIVE MOTIVE HELPS TO TAKE ADVANTAGE OF:

OPPORTUNITY TO PURCHASE RAW MATERIALS AT A REDUCED PRICE ONOPPORTUNITY TO PURCHASE RAW MATERIALS AT A REDUCED PRICE ON

PAYMENT OF IMMEDIATE CASH; CHANCE TO SPECULATE ON INTERESTPAYMENT OF IMMEDIATE CASH; CHANCE TO SPECULATE ON INTEREST

RATE MOVEMENTS BY BUYING SECURITIES WHEN INTEREST RATES ARERATE MOVEMENTS BY BUYING SECURITIES WHEN INTEREST RATES ARE

EXPECTED TO DECLINE; DELAY PURCHASES OF RAW MATERIALS ON THEEXPECTED TO DECLINE; DELAY PURCHASES OF RAW MATERIALS ON THE

ANTICIPATION OF DECLINE IN PRICES; ETC.ANTICIPATION OF DECLINE IN PRICES; ETC.

4. 4. COMPENSATION MOTIVECOMPENSATION MOTIVE: - YET ANOTHER MOTIVE TO HOLD CASH: - YET ANOTHER MOTIVE TO HOLD CASH

BALANCES IS TO COMPENSATE BANKS FOR PROVIDING CERTAINBALANCES IS TO COMPENSATE BANKS FOR PROVIDING CERTAIN

SERVICES AND LOANS. BANKS PROVIDE A VARIETY OF SERVICES TOSERVICES AND LOANS. BANKS PROVIDE A VARIETY OF SERVICES TO

BUSINESS FIRMS, SUCH AS CLEARANCES OF CHEQUES, SUPPLY OFBUSINESS FIRMS, SUCH AS CLEARANCES OF CHEQUES, SUPPLY OF

CREDIT INFORMATION, TRANSFER OF FUNDS, ETC. WHILE FOR SOME OFCREDIT INFORMATION, TRANSFER OF FUNDS, ETC. WHILE FOR SOME OF

61

SWATI SAHAY

THE SERVICES BANKS CHARGE A COMMISSION OF FEE FOR OTHERSTHE SERVICES BANKS CHARGE A COMMISSION OF FEE FOR OTHERS

THEY SEEK INDIRECT COMPENSATION. USUALLY CLIENTS ARETHEY SEEK INDIRECT COMPENSATION. USUALLY CLIENTS ARE

REQUIRED TO MAINTAIN A MINIMUM BALANCE OF CASH AT THE BANK.REQUIRED TO MAINTAIN A MINIMUM BALANCE OF CASH AT THE BANK.

SINCE THIS BALANCE CAN NOT BE UTILIZED BY THE FIRMS FORSINCE THIS BALANCE CAN NOT BE UTILIZED BY THE FIRMS FOR

TRANSACTION PURPOSES, THE BANK THEMSELVES CAN USE THETRANSACTION PURPOSES, THE BANK THEMSELVES CAN USE THE

AMOUNT FOR SERVICES RENDERED. TO BE COMPENSATED FOR THEIRAMOUNT FOR SERVICES RENDERED. TO BE COMPENSATED FOR THEIR

SERVICES INDIRECTLY IN THIS FORM, THEY REQUIRE THE CLIENTS TOSERVICES INDIRECTLY IN THIS FORM, THEY REQUIRE THE CLIENTS TO

ALWAYS KEEP A BANK BALANCE SUFFICIENT TO EARN A RETURNALWAYS KEEP A BANK BALANCE SUFFICIENT TO EARN A RETURN

EQUAL TO THE COST OF SERVICES. SUCH BALANCES AREEQUAL TO THE COST OF SERVICES. SUCH BALANCES ARE

COMPENSATING BALANCES. COMPENSATING BALANCES ARE ALSOCOMPENSATING BALANCES. COMPENSATING BALANCES ARE ALSO

REQUIRED BY SOME LOAN AGREEMENTS BETWEEN A BANK AND ITSREQUIRED BY SOME LOAN AGREEMENTS BETWEEN A BANK AND ITS

CUSTOMER.CUSTOMER.

CASH MANAGEMENT: OBJECTIVESCASH MANAGEMENT: OBJECTIVES

THE BASIC OBJECTIVE OF CASH MANAGEMENT IS TWOFOLD:THE BASIC OBJECTIVE OF CASH MANAGEMENT IS TWOFOLD:

(A) TO MEET THE CASH DISBURSEMENT NEEDS (PAYMENT SCHEDULE); (A) TO MEET THE CASH DISBURSEMENT NEEDS (PAYMENT SCHEDULE);

(B) TO MINIMIZE FUNDS COMMITTED TO CASH BALANCES. THESE ARE(B) TO MINIMIZE FUNDS COMMITTED TO CASH BALANCES. THESE ARE

CONFLICTING AND MUTUALLY CONTRADICTORY AND THE TASK OFCONFLICTING AND MUTUALLY CONTRADICTORY AND THE TASK OF

CASH MANAGEMENT IS TO RECONCILE THEM.CASH MANAGEMENT IS TO RECONCILE THEM.

MEETING THE PAYMENTS SCHEDULE: A BASIC OBJECTIVE OF THE CASHMEETING THE PAYMENTS SCHEDULE: A BASIC OBJECTIVE OF THE CASH

MANAGEMENT IS TO MEET THE PAYMENT SCHEDULE, I.E. TO HAVEMANAGEMENT IS TO MEET THE PAYMENT SCHEDULE, I.E. TO HAVE

SUFFICIENT CASH TO MEET THE CASH DISBURSEMENT NEEDS OF THESUFFICIENT CASH TO MEET THE CASH DISBURSEMENT NEEDS OF THE

FIRM. THE IMPORTANCE OF SUFFICIENT CASH TO MEET THE PAYMENTFIRM. THE IMPORTANCE OF SUFFICIENT CASH TO MEET THE PAYMENT

SCHEDULE CAN HARDLY BE OVER EMPHASIZED. THE ADVANTAGES OFSCHEDULE CAN HARDLY BE OVER EMPHASIZED. THE ADVANTAGES OF

ADEQUATE CASH ARE : (I) IT PREVENTS INSOLVENCY OR BANKRUPTCYADEQUATE CASH ARE : (I) IT PREVENTS INSOLVENCY OR BANKRUPTCY

ARISING OUT OF THE INABILITY OF THE FIRM TO MEET ITSARISING OUT OF THE INABILITY OF THE FIRM TO MEET ITS

OBLIGATIONS; (II) THE RELATIONSHIP WITH THE BANK IS NOTOBLIGATIONS; (II) THE RELATIONSHIP WITH THE BANK IS NOT

STRAINED; (III) IT HELPS IN FOSTERING GOOD RELATIONS WITH TRADESTRAINED; (III) IT HELPS IN FOSTERING GOOD RELATIONS WITH TRADE

CREDITORS AND SUPPLIERS OF RAW MATERIALS, AS PROMPT PAYMENTCREDITORS AND SUPPLIERS OF RAW MATERIALS, AS PROMPT PAYMENT

MAY ALSO HELP THEIR CASH MANAGEMENT; (V) IT LEADS TO A STRONGMAY ALSO HELP THEIR CASH MANAGEMENT; (V) IT LEADS TO A STRONG

CREDIT RATING WHICH ENABLES THE FIRM TO PURCHASE GOODS ONCREDIT RATING WHICH ENABLES THE FIRM TO PURCHASE GOODS ON

FAVORABLE TERMS AND TO MAINTAIN ITS LINE OF CREDIT WITH BANKSFAVORABLE TERMS AND TO MAINTAIN ITS LINE OF CREDIT WITH BANKS

AND OTHER SOURCES OF CREDIT; (VI) TO TAKE ADVANTAGE OFAND OTHER SOURCES OF CREDIT; (VI) TO TAKE ADVANTAGE OF

FAVORABLE BUSINESS OPPORTUNITIES THAT MAY BE AVAILABLEFAVORABLE BUSINESS OPPORTUNITIES THAT MAY BE AVAILABLE

PERIODICALLY; AND (VI) FINALLY THE FIRM CAN MEET UNANTICIPATEDPERIODICALLY; AND (VI) FINALLY THE FIRM CAN MEET UNANTICIPATED

62

SWATI SAHAY

CASH EXPENDITURE WITH A MINIMUM OF STRAIN DURINGCASH EXPENDITURE WITH A MINIMUM OF STRAIN DURING

EMERGENCIES, SUCH AS STRIKES , FIRES OR A NEW MARKETINGEMERGENCIES, SUCH AS STRIKES , FIRES OR A NEW MARKETING

CAMPAIGN BY COMPETITORS.CAMPAIGN BY COMPETITORS.

MINIMIZING FUNDS COMMITTED TO CASH BALANCES: THE SECONDMINIMIZING FUNDS COMMITTED TO CASH BALANCES: THE SECOND

OBJECTIVE OF CASH MANAGEMENT IS TO MINIMIZE CASH BALANCES. INOBJECTIVE OF CASH MANAGEMENT IS TO MINIMIZE CASH BALANCES. IN

MINIMIZING CASH BALANCES TWO CONFLICTING ASPECTS HAVE TO BEMINIMIZING CASH BALANCES TWO CONFLICTING ASPECTS HAVE TO BE

RECONCILED. A HIGH LEVEL OF CASH BALANCE WILL, ENSURE PROMPTRECONCILED. A HIGH LEVEL OF CASH BALANCE WILL, ENSURE PROMPT

PAYMENT TOGETHER WITH ALL THE ADVANTAGES, BUT IT ALSOPAYMENT TOGETHER WITH ALL THE ADVANTAGES, BUT IT ALSO

IMPLIES THAT LARGE FUNDS WILL REMAIN IDLE ULTIMATELY RESULTSIMPLIES THAT LARGE FUNDS WILL REMAIN IDLE ULTIMATELY RESULTS

LESS TO THE EXPECTED. A LOW LEVEL OF CASH BALANCES, ON THELESS TO THE EXPECTED. A LOW LEVEL OF CASH BALANCES, ON THE

OTHER HAND, MAY MEAN FAILURE TO MEET THE PAYMENT SCHEDULEOTHER HAND, MAY MEAN FAILURE TO MEET THE PAYMENT SCHEDULE

THAT AIM OF CASH MANAGEMENT SHOULD BE TO HAVE AN OPTIMALTHAT AIM OF CASH MANAGEMENT SHOULD BE TO HAVE AN OPTIMAL

AMOUNT OF CASH BALANCESAMOUNT OF CASH BALANCES

CASH MANAGEMENT TECHNIQUES & PROCESSESCASH MANAGEMENT TECHNIQUES & PROCESSES

THE FOLLOWING ARE THE BASIC CASH MANAGEMENT TECHNIQUES ANDTHE FOLLOWING ARE THE BASIC CASH MANAGEMENT TECHNIQUES AND

PROCESS WHICH ARE HELPFUL IN BETTER CASH MANAGEMENT:PROCESS WHICH ARE HELPFUL IN BETTER CASH MANAGEMENT:

SPEEDY CASH COLLECTIONSPEEDY CASH COLLECTION: IN MANAGING CASH EFFICIENTLY THE: IN MANAGING CASH EFFICIENTLY THE

CASH IN FLOW PROCESS CAN BE ACCELERATED THROUGH SYSTEMATICCASH IN FLOW PROCESS CAN BE ACCELERATED THROUGH SYSTEMATIC

PLANNING AND REFINED TECHNIQUES. THESE ARE TWO BROADPLANNING AND REFINED TECHNIQUES. THESE ARE TWO BROAD

APPROACHES TO DO THIS WHICH ARE NARRATED AS UNDER:APPROACHES TO DO THIS WHICH ARE NARRATED AS UNDER:

PROMPT PAYMENT BY CUSTOMER: ONE WAY TO ENSURE PROMPTPROMPT PAYMENT BY CUSTOMER: ONE WAY TO ENSURE PROMPT

PAYMENT BY CUSTOMER IS PROMPT BILLING WITH CLEARLY DEFINEDPAYMENT BY CUSTOMER IS PROMPT BILLING WITH CLEARLY DEFINED

CREDIT POLICY. ANOTHER AND MORE IMPORTANT TECHNIQUE TOCREDIT POLICY. ANOTHER AND MORE IMPORTANT TECHNIQUE TO

ENCOURAGE PROMPT PAYMENT THE BY CUSTOMER IS THE PRACTICE OFENCOURAGE PROMPT PAYMENT THE BY CUSTOMER IS THE PRACTICE OF

OFFERING TRADE DISCOUNT/CASH DISCOUNT.OFFERING TRADE DISCOUNT/CASH DISCOUNT.

EARLY CONVERSION OF PAYMENT INTO CASHEARLY CONVERSION OF PAYMENT INTO CASH: ONCE THE CUSTOMER: ONCE THE CUSTOMER

HAS MAKES THE PAYMENT BY WRITING ITS CHEQUES IN FAVOR OF THEHAS MAKES THE PAYMENT BY WRITING ITS CHEQUES IN FAVOR OF THE

FIRM, THE COLLECTION CAN BE EXPEDITED BY PROMPT ENCASHMENTFIRM, THE COLLECTION CAN BE EXPEDITED BY PROMPT ENCASHMENT

OF THE CHEQUE. IT WILL BE RECALLED THAT THERE IS A LACKOF THE CHEQUE. IT WILL BE RECALLED THAT THERE IS A LACK

BETWEEN THE TIME AND CHEQUE IS PREPARED AND MAILED BY THEBETWEEN THE TIME AND CHEQUE IS PREPARED AND MAILED BY THE

CUSTOMER AND THE TIME FUNDS ARE INCLUDED IN THE CASHCUSTOMER AND THE TIME FUNDS ARE INCLUDED IN THE CASH

RESERVOIR OF THE FIRM.RESERVOIR OF THE FIRM.

CONCENTRATION BANKINGCONCENTRATION BANKING: IN THIS SYSTEM OF DECENTRALIZED: IN THIS SYSTEM OF DECENTRALIZED

COLLECTION OF ACCOUNTS RECEIVABLE, LARGE FIRMS WHICH HAVE ACOLLECTION OF ACCOUNTS RECEIVABLE, LARGE FIRMS WHICH HAVE A

63

SWATI SAHAY

LARGE NO. OF BRANCHES AT DIFFERENT PLACES, SELECT SOME OFLARGE NO. OF BRANCHES AT DIFFERENT PLACES, SELECT SOME OF

THESE WHICH ARE STRATEGICALLY LOCATED AS COLLECTION CENTERSTHESE WHICH ARE STRATEGICALLY LOCATED AS COLLECTION CENTERS

FOR RECEIVING PAYMENT FOR CUSTOMERS. INSTEAD OF ALL THEFOR RECEIVING PAYMENT FOR CUSTOMERS. INSTEAD OF ALL THE

PAYMENTS BEING COLLECTED AT THE HEAD OFFICE OF THE FIRM, THEPAYMENTS BEING COLLECTED AT THE HEAD OFFICE OF THE FIRM, THE

CHEQUES FOR A CERTAIN GEOGRAPHICAL AREAS ARE COLLECTED AT ACHEQUES FOR A CERTAIN GEOGRAPHICAL AREAS ARE COLLECTED AT A

SPECIFIED LOCAL COLLECTION CENTERS. UNDER THIS ARRANGEMENTSPECIFIED LOCAL COLLECTION CENTERS. UNDER THIS ARRANGEMENT

THE CUSTOMERS ARE REQUIRED TO SEND THEIR PAYMENTS AT LOCALTHE CUSTOMERS ARE REQUIRED TO SEND THEIR PAYMENTS AT LOCAL

COLLECTION CENTER COVERING THE AREA IN WHICH THEY LIVE ANDCOLLECTION CENTER COVERING THE AREA IN WHICH THEY LIVE AND

THESE ARE DEPOSITED IN THE LOCAL ACCOUNT OF CONCERNEDTHESE ARE DEPOSITED IN THE LOCAL ACCOUNT OF CONCERNED

COLLECTION, AFTER MEETING LOCAL EXPENSES, IF ANY. FUNDSCOLLECTION, AFTER MEETING LOCAL EXPENSES, IF ANY. FUNDS

BEYOND A PREDETERMINED MINIMUM ARE TRANSFERRED DAILY TO ABEYOND A PREDETERMINED MINIMUM ARE TRANSFERRED DAILY TO A

CENTRAL OR DISBURSING OR CONCENTRATION BANK OR ACCOUNT. ACENTRAL OR DISBURSING OR CONCENTRATION BANK OR ACCOUNT. A

CONCENTRATION BANKING IS ONE WITH WHICH THE FIRM HAS A MAJORCONCENTRATION BANKING IS ONE WITH WHICH THE FIRM HAS A MAJOR

ACCOUNT USUALLY A DISBURSEMENT ACCOUNT. HENCE THISACCOUNT USUALLY A DISBURSEMENT ACCOUNT. HENCE THIS

ARRANGEMENT IS REFERRED TO AS CONCENTRATION BANKING.ARRANGEMENT IS REFERRED TO AS CONCENTRATION BANKING.

LOCK-BOX SYSTEMLOCK-BOX SYSTEM: THE CONCENTRATION BANKING ARRANGEMENT IS: THE CONCENTRATION BANKING ARRANGEMENT IS

INSTRUMENTAL IN REDUCING THE TIME INVOLVED IN MAILING ANDINSTRUMENTAL IN REDUCING THE TIME INVOLVED IN MAILING AND

COLLECTION. BUT WITH THIS SYSTEM OF COLLECTION OF ACCOUNTSCOLLECTION. BUT WITH THIS SYSTEM OF COLLECTION OF ACCOUNTS

RECEIVABLE, PROCESSING FOR PURPOSES OF INTERNAL ACCOUNTING ISRECEIVABLE, PROCESSING FOR PURPOSES OF INTERNAL ACCOUNTING IS

INVOLVED I.E. SOMETIME IN ELAPSES BEFORE A CHEQUE IS DEPOSITEDINVOLVED I.E. SOMETIME IN ELAPSES BEFORE A CHEQUE IS DEPOSITED

BY THE LOCAL COLLECTION CENTER IN ITS ACCOUNT. THE LOCK-BOXBY THE LOCAL COLLECTION CENTER IN ITS ACCOUNT. THE LOCK-BOX

SYSTEM TAKES CARE OF THIS KIND OF PROBLEMS, APART FROMSYSTEM TAKES CARE OF THIS KIND OF PROBLEMS, APART FROM

EFFECTING ECONOMY IN MAILING AND CLEARANCE TIMES. UNDER THISEFFECTING ECONOMY IN MAILING AND CLEARANCE TIMES. UNDER THIS

ARRANGEMENT, FIRMS HIRE A POST OFFICE BOX AT IMPORTANTARRANGEMENT, FIRMS HIRE A POST OFFICE BOX AT IMPORTANT

COLLECTION CENTERS. THE CUSTOMERS ARE REQUIRED TO REMITCOLLECTION CENTERS. THE CUSTOMERS ARE REQUIRED TO REMIT

PAYMENTS TO LOCK-BOX.PAYMENTS TO LOCK-BOX.

SLOWING DISBURSEMENTSSLOWING DISBURSEMENTS: A BASIC STRATEGY OF CASH: A BASIC STRATEGY OF CASH

MANAGEMENT IS TO DELAY PAYMENTS AS LONG AS POSSIBLE WITHOUTMANAGEMENT IS TO DELAY PAYMENTS AS LONG AS POSSIBLE WITHOUT

IMPAIRING THE CREDIT RATING/STANDING OF THE FIRM. IN FACT, SLOWIMPAIRING THE CREDIT RATING/STANDING OF THE FIRM. IN FACT, SLOW

DISBURSEMENT REPRESENTS A SOURCE OF FUNDS REQUIRING NODISBURSEMENT REPRESENTS A SOURCE OF FUNDS REQUIRING NO

INTEREST PAYMENTS. THERE ARE SEVERAL TECHNIQUES TO DELAYINTEREST PAYMENTS. THERE ARE SEVERAL TECHNIQUES TO DELAY

PAYMENT OF ACCOUNTS PAYABLE NAMELY (1) AVOIDANCE OF EARLYPAYMENT OF ACCOUNTS PAYABLE NAMELY (1) AVOIDANCE OF EARLY

PAYMENTS; (2) CENTRALIZED DISBURSEMENTS; (3) FLOATS; (4)PAYMENTS; (2) CENTRALIZED DISBURSEMENTS; (3) FLOATS; (4)

ACCRUALS.ACCRUALS.

AVOIDANCE OF EARLY PAYMENTS:AVOIDANCE OF EARLY PAYMENTS: ONE WAY TO DELAY PAYMENTS IS ONE WAY TO DELAY PAYMENTS IS

64

SWATI SAHAY

TO AVOID EARLY PAYMENTS. ACCORDING TO THE TERMS OF CREDIT, ATO AVOID EARLY PAYMENTS. ACCORDING TO THE TERMS OF CREDIT, A

FIRM IS REQUIRED TO MAKE A PAYMENT WITHIN A STIPULATED PERIOD.FIRM IS REQUIRED TO MAKE A PAYMENT WITHIN A STIPULATED PERIOD.

IT ENTITLES A FIRM TO CASH DISCOUNTS. IF HOWEVER PAYMENTS AREIT ENTITLES A FIRM TO CASH DISCOUNTS. IF HOWEVER PAYMENTS ARE

DELAYED BEYOND THE DUE DATE, THE CREDIT STANDING MAY BEDELAYED BEYOND THE DUE DATE, THE CREDIT STANDING MAY BE

ADVERSELY AFFECTED SO THAT THE FIRMS WOULD FIND IT DIFFICULTADVERSELY AFFECTED SO THAT THE FIRMS WOULD FIND IT DIFFICULT

TO SECURE TRADE CREDIT LATER. BUT IF THE FIRM PAYS ITS ACCOUNTSTO SECURE TRADE CREDIT LATER. BUT IF THE FIRM PAYS ITS ACCOUNTS

PAYABLE BEFORE THE DUE DATE IT HAS NO SPECIAL ADVANTAGE. THUSPAYABLE BEFORE THE DUE DATE IT HAS NO SPECIAL ADVANTAGE. THUS

A FIRM WOULD BE WELL ADVISED NOT TO MAKE PAYMENTS EARLY I.E.A FIRM WOULD BE WELL ADVISED NOT TO MAKE PAYMENTS EARLY I.E.

BEFORE THE DUE DATE.BEFORE THE DUE DATE.

CENTRALIZED DISBURSEMENTSCENTRALIZED DISBURSEMENTS: ANOTHER METHOD TO SLOW DOWN: ANOTHER METHOD TO SLOW DOWN

DISBURSEMENTS IS TO HAVE CENTRALIZED DISBURSEMENTS. ALL THEDISBURSEMENTS IS TO HAVE CENTRALIZED DISBURSEMENTS. ALL THE

PAYMENTS SHOULD BE MADE BY THE HEAD OFFICE FROM APAYMENTS SHOULD BE MADE BY THE HEAD OFFICE FROM A

CENTRALIZED DISBURSEMENT ACCOUNT. SUCH AN ARRANGEMENTCENTRALIZED DISBURSEMENT ACCOUNT. SUCH AN ARRANGEMENT

WOULD ENABLE A FIRM TO DELAY PAYMENTS AND CONSERVE CASHWOULD ENABLE A FIRM TO DELAY PAYMENTS AND CONSERVE CASH

FOR SEVERAL REASONS. FIRSTLY IT INVOLVES INCREASE IN THEFOR SEVERAL REASONS. FIRSTLY IT INVOLVES INCREASE IN THE

TRANSIT TIME. TRANSIT TIME.

FLOATFLOAT: A VERY IMPORTANT TECHNIQUE OF SLOW DISBURSEMENTS IS: A VERY IMPORTANT TECHNIQUE OF SLOW DISBURSEMENTS IS

FLOAT. THE TERM FLOAT REFERS TO AMOUNT OF MONEY TIED UP INFLOAT. THE TERM FLOAT REFERS TO AMOUNT OF MONEY TIED UP IN

THE CHEQUE THAT HAVE BEEN WRITTEN, BUT HAVE YET TO BETHE CHEQUE THAT HAVE BEEN WRITTEN, BUT HAVE YET TO BE

COLLECTED AND ENCASHED. ALTERNATIVELY, FLOAT REPRESENTS THECOLLECTED AND ENCASHED. ALTERNATIVELY, FLOAT REPRESENTS THE

DIFFERENCE BETWEEN THE BANK BALANCE AND BOOK BALANCE OFDIFFERENCE BETWEEN THE BANK BALANCE AND BOOK BALANCE OF

CASH OF A FIRM. THE DIFFERENCE BETWEEN THE BALANCE AS SHOWNCASH OF A FIRM. THE DIFFERENCE BETWEEN THE BALANCE AS SHOWN

IN THE FIRM’S RECORD AND THE ACTUAL BANK BALANCE IS DUE TOIN THE FIRM’S RECORD AND THE ACTUAL BANK BALANCE IS DUE TO

TRANSIT AND PROCESSING DELAYS. TRANSIT AND PROCESSING DELAYS.

ACCRUALSACCRUALS: FINALLY, A POTENTIAL TOOL FOR STRETCHING ACCOUNTS: FINALLY, A POTENTIAL TOOL FOR STRETCHING ACCOUNTS

PAYABLE IS ACCRUALS WHICH ARE DEFINED AS CURRENT LIABILITIESPAYABLE IS ACCRUALS WHICH ARE DEFINED AS CURRENT LIABILITIES

THAT REPRESENT A SERVICE OR GOODS RECEIVED BY A FIRM BUT NOTTHAT REPRESENT A SERVICE OR GOODS RECEIVED BY A FIRM BUT NOT

YET PAID FOR. FOR INSTANCE, PAYROLL, I.E., REMUNERATION TOYET PAID FOR. FOR INSTANCE, PAYROLL, I.E., REMUNERATION TO

EMPLOYEES, WHO RENDER SERVICES IN ADVANCE AND RECEIVEEMPLOYEES, WHO RENDER SERVICES IN ADVANCE AND RECEIVE

PAYMENT LATER. PAYMENT LATER.

CIRCULATION SYSTEM OF WORKING CAPITALCIRCULATION SYSTEM OF WORKING CAPITAL

IN THE BEGINNING THE FUNDS ARE OBTAINED BY ISSUING SHARES,IN THE BEGINNING THE FUNDS ARE OBTAINED BY ISSUING SHARES,

OFTEN SUPPLEMENTED BY LONG TERM BORROWINGS. MUCH OF THESEOFTEN SUPPLEMENTED BY LONG TERM BORROWINGS. MUCH OF THESE

65

SWATI SAHAY

COLLECTED FUNDS ARE USED IN PURCHASING FIXED ASSETS ANDCOLLECTED FUNDS ARE USED IN PURCHASING FIXED ASSETS AND

REMAINING FUNDS ARE USED FOR DAY TO DAY OPERATION AS PAY FORREMAINING FUNDS ARE USED FOR DAY TO DAY OPERATION AS PAY FOR

RAW MATERIAL, WAGES OVERHEAD EXPENSES. AFTER THIS FINISHEDRAW MATERIAL, WAGES OVERHEAD EXPENSES. AFTER THIS FINISHED

GOODS ARE READY FOR SALE AND BY SELLING THE FINISHED GOODSGOODS ARE READY FOR SALE AND BY SELLING THE FINISHED GOODS

EITHER ACCOUNT RECEIVABLE ARE CREATED AND CASH IS RECEIVED.EITHER ACCOUNT RECEIVABLE ARE CREATED AND CASH IS RECEIVED.

IN THIS PROCESS PROFIT IS EARNED. THIS ACCOUNT OF PROFIT IS USEDIN THIS PROCESS PROFIT IS EARNED. THIS ACCOUNT OF PROFIT IS USED

FOR PAYING TAXES, DIVIDEND AND THE BALANCE IS PLOUGHED IN THEFOR PAYING TAXES, DIVIDEND AND THE BALANCE IS PLOUGHED IN THE

BUSINESS.BUSINESS.

WORKING CAPITAL IS CONSIDERED TO EFFICIENTLY CIRCULATE WHENWORKING CAPITAL IS CONSIDERED TO EFFICIENTLY CIRCULATE WHEN

IT TURNS OVER QUICKLY. AS CIRCULATION INCREASES, THEIT TURNS OVER QUICKLY. AS CIRCULATION INCREASES, THE

INVESTMENT IN CURRENT ASSETS WILL DECREASE. CURRENT ASSETSINVESTMENT IN CURRENT ASSETS WILL DECREASE. CURRENT ASSETS

TURNOVER RATIO SPEAKS ABOUT THE EFFICIENCY OF ICICI BANK INTURNOVER RATIO SPEAKS ABOUT THE EFFICIENCY OF ICICI BANK IN

THE UTILIZATION OF CURRENT ASSETS. FAST TURNOVER CURRENTTHE UTILIZATION OF CURRENT ASSETS. FAST TURNOVER CURRENT

ASSETS RESULTS IN A BETTER RATE ON INVESTMENT.ASSETS RESULTS IN A BETTER RATE ON INVESTMENT.

TABLE SHOWING CURRENT ASSETS TURNOVER RATIOTABLE SHOWING CURRENT ASSETS TURNOVER RATIO

Year Ratio (in times)

2009 1.78

20010 2.98

2011 1.98

66

SWATI SAHAY

Average: 2.24

ICICI BANK OF INDIA

RATIO ANALYSIS:

RATIO ANALYSIS

LIQUIDITY RATIO:

LIQUIDITY RATIO SHOWS THE FIRM’S SHORT TERM SOLVENCY AND ITSLIQUIDITY RATIO SHOWS THE FIRM’S SHORT TERM SOLVENCY AND ITS ABILITY TO PAY OFF THE LIABILITIES. IT HAS BEEN DEVISED TO KEEP AABILITY TO PAY OFF THE LIABILITIES. IT HAS BEEN DEVISED TO KEEP A TRACK OF THEIR FIRM’S EXPOSURE THE RISK THAT IT WILL NOT BETRACK OF THEIR FIRM’S EXPOSURE THE RISK THAT IT WILL NOT BE ABLE TO MEET ITS SHORT TERM OBLIGATIONS. IT PROVIDES A QUICKABLE TO MEET ITS SHORT TERM OBLIGATIONS. IT PROVIDES A QUICK MEASURE OF LIABILITY OF THE FIRM BY ESTABLISHING AMEASURE OF LIABILITY OF THE FIRM BY ESTABLISHING A RELATIONSHIP BETWEEN ITS CURRENT ASSETS AND ITS CURRENTRELATIONSHIP BETWEEN ITS CURRENT ASSETS AND ITS CURRENT LIABILITIES.LIABILITIES.

SOME OF THE LIQUIDITY RATIO:SOME OF THE LIQUIDITY RATIO:

A)A) CURRENT RATIO CURRENT RATIO::

THE CURRENT RATIO GIVES THE MARGIN BY WHICH THE VALUE OF THETHE CURRENT RATIO GIVES THE MARGIN BY WHICH THE VALUE OF THE CURRENT ASSETS MAY GO DOWN WITHOUT CREATING AND PAYMENTSCURRENT ASSETS MAY GO DOWN WITHOUT CREATING AND PAYMENTS THE FIRMS. THE TOTAL CURRENT ASSETS INCLUDE PREPAID EXPENSESTHE FIRMS. THE TOTAL CURRENT ASSETS INCLUDE PREPAID EXPENSES AND SHORT TERM INVESTMENTS. WHEREAS THE CURRENT LIABILITYAND SHORT TERM INVESTMENTS. WHEREAS THE CURRENT LIABILITY INCLUDES ALL TYPES OF LIABILITY WHICH WILL MATURE FORINCLUDES ALL TYPES OF LIABILITY WHICH WILL MATURE FOR PAYMENTS WITHIN A PERIOD OF ONE YEAR E.G. BANK OVERDRAFT,PAYMENTS WITHIN A PERIOD OF ONE YEAR E.G. BANK OVERDRAFT, BILLS PAYABLE, TRADE CREDITOR, OUTSTANDING ETC. THE CURRENTBILLS PAYABLE, TRADE CREDITOR, OUTSTANDING ETC. THE CURRENT RATIO THROW LIGHT ON THE FIRMS ABILITY TO PAY ITS CURRENTSRATIO THROW LIGHT ON THE FIRMS ABILITY TO PAY ITS CURRENTS LIABILITIES OUT OF ITS CURRENTS ASSETS.LIABILITIES OUT OF ITS CURRENTS ASSETS.

THE CURRENT RATIO IS COMPARED WITH THE STANDARD RATIO OFTHE CURRENT RATIO IS COMPARED WITH THE STANDARD RATIO OF TWO TIMES FOR 2: 1 TWO TIMES FOR 2: 1

67

SWATI SAHAY

B) B) QUICK RATIO / ACID TEST RATIO / LIQUID RATIOQUICK RATIO / ACID TEST RATIO / LIQUID RATIO::

THIS RATIO ESTABLISHES RELATIONSHIP BETWEEN QUICK CURRENTTHIS RATIO ESTABLISHES RELATIONSHIP BETWEEN QUICK CURRENT ASSETS AND CURRENT LIABILITIES. A CURRENT ASSETS IS CONSIDEREDASSETS AND CURRENT LIABILITIES. A CURRENT ASSETS IS CONSIDERED TO BE LIQUID IF IT I CONVERTIBLE INTO CASH WITHOUT LOSS OF TIMETO BE LIQUID IF IT I CONVERTIBLE INTO CASH WITHOUT LOSS OF TIME AND VALUE. THEREFOREAND VALUE. THEREFORE

LIQUID ASSETS = CURRENTS ASSETS – (INVENTORY + PREPAIDLIQUID ASSETS = CURRENTS ASSETS – (INVENTORY + PREPAID EXPENSES)EXPENSES)

THE INVENTORY IS SINGLED OUT OF THE TOTAL CURRENT ASSETS ASTHE INVENTORY IS SINGLED OUT OF THE TOTAL CURRENT ASSETS AS THE INVENTORY IS CONSIDERED TO BE THE POTENTIAL ILLIQUID. THETHE INVENTORY IS CONSIDERED TO BE THE POTENTIAL ILLIQUID. THE REASON FOR KEEPING INVENTORY OUT IS THAT IT MAY BECOMEREASON FOR KEEPING INVENTORY OUT IS THAT IT MAY BECOME ABSOLUTE, UN SALEABLE OR OUT OF FASHION AND ALWAYS REQUIRESABSOLUTE, UN SALEABLE OR OUT OF FASHION AND ALWAYS REQUIRES TIME FOR REALIZING INTO CASH. GENERALLY A QUICK RATIO OF 1:1 ISTIME FOR REALIZING INTO CASH. GENERALLY A QUICK RATIO OF 1:1 IS CONSIDERED TO BE SATISFACTORY BECAUSE THIS MEAN THAT THECONSIDERED TO BE SATISFACTORY BECAUSE THIS MEAN THAT THE QUICK ASSETS OF THE FIRM ARE JUST EQUAL TO THE QUICK LIABILITYQUICK ASSETS OF THE FIRM ARE JUST EQUAL TO THE QUICK LIABILITY AND THERE HAS NOT BEEN SEEN TO BE A POSSIBILITY OF DEFAULT INAND THERE HAS NOT BEEN SEEN TO BE A POSSIBILITY OF DEFAULT IN PAYMENTS BY THE FIRM.PAYMENTS BY THE FIRM.

C) C) NET WORKING CAPITAL RATIONET WORKING CAPITAL RATIO::

IT INDICATES THE FIRMS’ POTENTIAL RESERVOIR OF FUND.IT INDICATES THE FIRMS’ POTENTIAL RESERVOIR OF FUND.

NET WORKING CAPITAL RATIO= NET WORKING CAPITAL/ NET ASSETSNET WORKING CAPITAL RATIO= NET WORKING CAPITAL/ NET ASSETS

ACTIVITY / TURNOVER / PERFORMANCE RATIO:ACTIVITY / TURNOVER / PERFORMANCE RATIO:

IT IS MEASURE OF MOVEMENT AND THUS INDICATES AS TO HOWIT IS MEASURE OF MOVEMENT AND THUS INDICATES AS TO HOW FREQUENTLY AN ACCOUNT HAS MOVED OVER DURING A PERIOD. ITFREQUENTLY AN ACCOUNT HAS MOVED OVER DURING A PERIOD. IT SHOWS AS TO HOW EFFICIENTLY AND EFFECTIVELY THE ASSETS OF THESHOWS AS TO HOW EFFICIENTLY AND EFFECTIVELY THE ASSETS OF THE FIRM ARE BEING UTILIZED. THESE RATIOS ARE USUALLY CALCULATEDFIRM ARE BEING UTILIZED. THESE RATIOS ARE USUALLY CALCULATED WITH REFERENCES TO SALES / COST OF GOODS SOLD AND ITSWITH REFERENCES TO SALES / COST OF GOODS SOLD AND ITS EXPRESSED IN TERMS OF RATE OR TIMES.EXPRESSED IN TERMS OF RATE OR TIMES.

A) WORKING CAPITAL TURNOVER RATIOA) WORKING CAPITAL TURNOVER RATIO::

THE WCT RATIO STUDIES THE VELOCITY OR UTILIZATION OF THETHE WCT RATIO STUDIES THE VELOCITY OR UTILIZATION OF THE WORKING CAPITAL OF THE FIRM DURING A YEAR. THE WC HERE REFERSWORKING CAPITAL OF THE FIRM DURING A YEAR. THE WC HERE REFERS TO THE NET WORKING CAPITAL WHICH IS EQUAL TO THE TOTALTO THE NET WORKING CAPITAL WHICH IS EQUAL TO THE TOTAL CURRENT ASSETS LESS TOTAL CURRENT LIABILITIES.CURRENT ASSETS LESS TOTAL CURRENT LIABILITIES.

68

SWATI SAHAY

THE HIGHER THE WCT RATIO THE LOWER IS THE INVESTMENT IN THETHE HIGHER THE WCT RATIO THE LOWER IS THE INVESTMENT IN THE WORKING CAPITAL AND HIGHER WOULD BE THE PROFITABILITY. A HIGHWORKING CAPITAL AND HIGHER WOULD BE THE PROFITABILITY. A HIGH WCT RATIO REFLECTS THE BETTER UTILIZATION OF THE WC OF THEWCT RATIO REFLECTS THE BETTER UTILIZATION OF THE WC OF THE FIRM. HOWEVER, A HIGH WCT RATIO IMPLIES A LOW NET WORKINGFIRM. HOWEVER, A HIGH WCT RATIO IMPLIES A LOW NET WORKING CAPITAL IN RELATION TO THE SALES VOLUME AND THEREFORE IMPLIESCAPITAL IN RELATION TO THE SALES VOLUME AND THEREFORE IMPLIES OVER TRADING BY THE FIRM IN RELATION TO ITS NET WC.OVER TRADING BY THE FIRM IN RELATION TO ITS NET WC.

B) FIXED ASSETS TURNOVER RATIO:B) FIXED ASSETS TURNOVER RATIO:

THIS RATIO SHOWS THE CONTRIBUTION OF AVERAGE FIXED ASSETS TOTHIS RATIO SHOWS THE CONTRIBUTION OF AVERAGE FIXED ASSETS TO NET SALES. HIGHER THE RATIO BETTER WILL BE THE SALES PER UNIT OFNET SALES. HIGHER THE RATIO BETTER WILL BE THE SALES PER UNIT OF FIXED ASSETS.FIXED ASSETS.

FA TURNOVER RATIO = (NET SALES) / AVERAGE FIXED ASSETS FA TURNOVER RATIO = (NET SALES) / AVERAGE FIXED ASSETS

C) CAPITAL TURNOVER RATIOC) CAPITAL TURNOVER RATIO::

CAPITAL TURNOVER RATIO = (NET SALES) / AVERAGE CAPITALCAPITAL TURNOVER RATIO = (NET SALES) / AVERAGE CAPITAL EMPLOYED.EMPLOYED.

Ratios useful to analyze working capital management

(A) EFFICIENCY RATIOS(A) EFFICIENCY RATIOS 200200

99

201201

00

201201

11

IDEAL IDEAL

RATIORATIO

1. WORKING CAPITAL 1. WORKING CAPITAL

TURNOVER (TIMES)TURNOVER (TIMES)

4.844.84 10.10.

2323

5.75.7

11

--

2. CURRENT ASSETS 2. CURRENT ASSETS

TURNOVER (TIMES)TURNOVER (TIMES)

1.781.78 2.92.9

88

1.91.9

77

--

69

SWATI SAHAY

3. INVENTORY 3. INVENTORY

TURNOVER (TIMES)TURNOVER (TIMES)

9.499.49 9.29.2

00

7.87.8

88

--

(B) LIQUIDITY RATIO(B) LIQUIDITY RATIO

1. CURRENT RATIO1. CURRENT RATIO 2.122.12 1.81.8

00

2.42.4

11

2.02.0

2.ACIDTESTRATIO2.ACIDTESTRATIO 1.151.15 0.90.9

88

1.01.0

33

1.01.0

3. CASH RATIO3. CASH RATIO 0.570.57 0.00.0

88

0.00.0

55

0.50.5

Current ratio and quick ratio

YEARYEAR CURRENT RATIOCURRENT RATIO QUICK RATIOQUICK RATIO

20092009 2.122.12 1.511.51

20102010 1.801.80 0.970.97

20112011 2.412.41 1.031.03

70

SWATI SAHAY

(C) STRUCTURAL HEALTH OF WORKING CAPITAL(C) STRUCTURAL HEALTH OF WORKING CAPITAL

RATIO/YEARRATIO/YEAR 20092009 20102010 20112011

1. CA 1. CA 0.310.31 0.260.26 0.350.35

2. CL2. CL 0.150.15 0.140.14 0.140.14

3. CASH TO CA3. CASH TO CA 0.270.27 .04.04 0.020.02

4. RECEIVABLES TO CA4. RECEIVABLES TO CA 0.270.27 0.500.50 0.400.40

5. LOANS AND ADVANCES TO5. LOANS AND ADVANCES TO CACA

0.150.15 0.190.19 0.150.15

6. INVENTORY TO CA6. INVENTORY TO CA 0.420.42 0.380.38 0.500.50

7. RM TO INVENTORY7. RM TO INVENTORY 0.440.44 0.460.46 0.300.30

8. STOCK SPARES TO8. STOCK SPARES TO INVENTORYINVENTORY

0.120.12 0.140.14 0.110.11

9. WIP TO INVENTORY9. WIP TO INVENTORY 0.060.06 0.080.08 0.030.03

10. FINISHED GOODS TO10. FINISHED GOODS TO INVENTORYINVENTORY

0.380.38 0.320.32 0.560.56

71

SWATI SAHAY

INTERPRETATION (RATIO ANALYSIS)INTERPRETATION (RATIO ANALYSIS)

THE UTILIZATION RATE OF NET WORKING CAPITAL AS DEPICTED BYTHE UTILIZATION RATE OF NET WORKING CAPITAL AS DEPICTED BY WORKING CAPITAL TURNOVER RATIO IS FLUCTUATING DURING THEWORKING CAPITAL TURNOVER RATIO IS FLUCTUATING DURING THE PERIOD. IT SHOWS THAT WORKING CAPITAL HAS NOT BEENPERIOD. IT SHOWS THAT WORKING CAPITAL HAS NOT BEEN EFFECTIVELY USED OVER THE PERIOD OF YEARS EXCEPT IN THE YEAREFFECTIVELY USED OVER THE PERIOD OF YEARS EXCEPT IN THE YEAR 2006.2006.

AS SHOWN BY CURRENT ASSETS TURNOVER RATIO, THE UTILIZATION OFAS SHOWN BY CURRENT ASSETS TURNOVER RATIO, THE UTILIZATION OF CURRENT ASSETS IN TERMS OF SALES HAS SHOWN A DECREASINGCURRENT ASSETS IN TERMS OF SALES HAS SHOWN A DECREASING TREND WHICH SHOWS THAT CURRENT ASSETS HAS BEEN EFFECTIVELYTREND WHICH SHOWS THAT CURRENT ASSETS HAS BEEN EFFECTIVELY USED TO ACHIEVE SALES.USED TO ACHIEVE SALES.

AGAIN IF WE LOOK AT THE EFFICIENCY WITH WHICH INDIVIDUALAGAIN IF WE LOOK AT THE EFFICIENCY WITH WHICH INDIVIDUAL ELEMENTS OF WORKING CAPITAL HAVE BEEN UTILIZED, THE PICTUREELEMENTS OF WORKING CAPITAL HAVE BEEN UTILIZED, THE PICTURE OF INVENTORY TURNOVER IS NOT VERY BRIGHT.OF INVENTORY TURNOVER IS NOT VERY BRIGHT.

RECEIVABLES TURNOVER ALSO SHOWS A DECLINING TREND.RECEIVABLES TURNOVER ALSO SHOWS A DECLINING TREND. GENERALLY SUCH A SITUATION DOES NOT SUIT THE COMPANY.GENERALLY SUCH A SITUATION DOES NOT SUIT THE COMPANY.

AS WE LOOK AT THE EXTENT OF LIQUIDITY OF WORKING CAPITAL, WEAS WE LOOK AT THE EXTENT OF LIQUIDITY OF WORKING CAPITAL, WE NOTICE THAT THE RATIO SHOWS AN INCREASING TREND. THISNOTICE THAT THE RATIO SHOWS AN INCREASING TREND. THIS INDICATES IMPROVEMENT ON THE LIQUIDITY FRONT.INDICATES IMPROVEMENT ON THE LIQUIDITY FRONT.

IF WE ANALYZE THE STRUCTURAL HEALTH OF WORKING CAPITAL, THEIF WE ANALYZE THE STRUCTURAL HEALTH OF WORKING CAPITAL, THE PROPORTION OF CURRENT ASSETS TO TOTAL ASSETS HAS BEENPROPORTION OF CURRENT ASSETS TO TOTAL ASSETS HAS BEEN APPROPRIATE DURING THIS PERIOD.APPROPRIATE DURING THIS PERIOD.

SUCH A HIGHER PROPORTION OF CURRENT ASSET IN THE ASSETSSUCH A HIGHER PROPORTION OF CURRENT ASSET IN THE ASSETS PORTFOLIO OF ICICI BANK OF INDIA. IS QUITE ACCEPTABLE.PORTFOLIO OF ICICI BANK OF INDIA. IS QUITE ACCEPTABLE.

OUR ANALYSIS ABOVE INDICATES THE AREAS OF CONCERN TOOUR ANALYSIS ABOVE INDICATES THE AREAS OF CONCERN TO MANAGEMENT IN MAKING BEST POSSIBLE USE OF RESOURCES.MANAGEMENT IN MAKING BEST POSSIBLE USE OF RESOURCES. DECREASING EFFICIENCY IN THE USE OF CURRENT ASSETS HINTS OFDECREASING EFFICIENCY IN THE USE OF CURRENT ASSETS HINTS OF THE POSSIBILITY OF PROBLEMS IN WORKING CAPITAL MANAGEMENT.THE POSSIBILITY OF PROBLEMS IN WORKING CAPITAL MANAGEMENT.

ON FURTHER ANALYSIS, INVENTORY CONSTITUTES A MAJORON FURTHER ANALYSIS, INVENTORY CONSTITUTES A MAJOR PROPORTION OF TOTAL CURRENT ASSETS. AMONG ITS VARIOUSPROPORTION OF TOTAL CURRENT ASSETS. AMONG ITS VARIOUS COMPONENTS, RAW MATERIALS, STOCKS, SPARED AND FINISHED GOODSCOMPONENTS, RAW MATERIALS, STOCKS, SPARED AND FINISHED GOODS

72

SWATI SAHAY

IN PARTICULAR NEED FURTHER ANALYSIS AS HERE STAND OUT TO THEIN PARTICULAR NEED FURTHER ANALYSIS AS HERE STAND OUT TO THE PROBLEM AREAS.PROBLEM AREAS.

CASH FLOW STATEMENT (2010-11)CASH FLOW STATEMENT (2010-11)

SOURCESSOURCES AMOUNT AAMOUNT A

( IN LACS)( IN LACS)

APPLICATIOAPPLICATIO

NN

AMOUNT B AMOUNT B

(IN LACS)(IN LACS)

PROCEEDSPROCEEDS

FROMFROM

BORROWINBORROWIN

GSGS

162.37162.37 LOSS FROMLOSS FROM

OPERATIONOPERATION

185.27185.27

SALE OFSALE OF

ASSETSASSETS

27.3427.34 CHANGE INCHANGE IN

CASHCASH

5.015.01

TOTALTOTAL 190.28190.28 190.28190.28

SUMMARY OF CASH FLOW ANALYSISSUMMARY OF CASH FLOW ANALYSIS

A) A) CASH FROM OPERATION TO TOTAL CASH AVAILABLECASH FROM OPERATION TO TOTAL CASH AVAILABLE

= 185.31/190.28 = 97.38%= 185.31/190.28 = 97.38%

B) B) CASH FROM LONG TERM SOURCES TO TOTAL CASH AVAILABLECASH FROM LONG TERM SOURCES TO TOTAL CASH AVAILABLE

= 162.37/190.28 = 85.33%= 162.37/190.28 = 85.33%

C) C) PROCEEDS FROM SALE OF NON-CURRENT ASSETS TO TOTAL CASHPROCEEDS FROM SALE OF NON-CURRENT ASSETS TO TOTAL CASH

= 17 14/19028 = 0.90%= 17 14/19028 = 0.90%

73

SWATI SAHAY

Schedule of Changes in Working Capital

PARTICULARSPARTICULARS AMOUNTAMOUNT

(IN LACS)(IN LACS)

CHANGES IN WORKINGCHANGES IN WORKING

CAPITALCAPITAL

DEC’2010DEC’2010 DEC’20DEC’20

1111

INCREASEINCREASE

(DEBIT)(DEBIT)

DECREADECREA

SESE

(CREDI(CREDI

T)T)

CURRENT ASSETSCURRENT ASSETS

INVENTORIESINVENTORIES 93.8793.87 146.36146.36 52.4852.48 --

SUNDRY DEBTORSSUNDRY DEBTORS 123.22123.22 114.71114.71 -- 8.518.51

CASHCASHANDAND BANKBANK

BALANCESBALANCES

10.6410.64 5.635.63 -- 5.015.01

OTHER CURRENTOTHER CURRENT

ASSETSASSETS

20.1420.14

247.87247.87

21.6621.66

288.36288.36

1.521.52 --

CURRENTCURRENT

LIABILITIESLIABILITIES

137.02137.02 116.07116.07 20.9520.95 --

WORKING CAPITALWORKING CAPITAL

(CA-CL)(CA-CL)

110.85110.85 172.29172.29

INCREASE ININCREASE IN

WORKING CAPITALWORKING CAPITAL

61.4461.44 -- 61.4461.44

74

SWATI SAHAY

172.29172.29 172.29172.29

74.9674.96 74.9674.96

FUND FLOW STATEMENT (2010-11FUND FLOW STATEMENT (2010-11)

SOURCESSOURCES AMOUNT AAMOUNT A

(IN LACS)(IN LACS)

APPLICATIONAPPLICATION AMOUNT BAMOUNT B

(IN LACS)(IN LACS)

INCREASE ININCREASE IN

LOANLOAN

162.37162.37 INCREASE IN WORKINGINCREASE IN WORKING

CAPITALCAPITAL

61.4461.44

SALE OF ASSETSALE OF ASSET 22.9422.94 LOSS FROM OPERATIONLOSS FROM OPERATION 123.87123.87

TOTALTOTAL 185.31185.31 185.31185.31

Average collection period

YEARYEAR DAYSDAYS

20092009 3838

20102010 4040

20112011 4646

75

SWATI SAHAY

Debtor turnover ratio

YEARYEAR DEBTORS TURNOVERDEBTORS TURNOVER RATIORATIO

AVERAGE COLLECTIONAVERAGE COLLECTION PERIOD (IN DAYS)PERIOD (IN DAYS)

20092009 9.499.49 3838

20102010 9.209.20 4040

20112011 7.887.88 4646

SUMMARY OF FUND FLOW ANALYSISSUMMARY OF FUND FLOW ANALYSIS

1.1. INCREASE IN NET WORKING CAPITAL — 61.44INCREASE IN NET WORKING CAPITAL — 61.44

2. 2. FUNDS FROM OPERATIONS TO FINANCE PERMANENT ADDRESS (123.87) FUNDS FROM OPERATIONS TO FINANCE PERMANENT ADDRESS (123.87)

76

SWATI SAHAY

3. 3. RATIO OF FUND FLOW FROM OPERATIONS TO TOTAL FUNDS IN THERATIO OF FUND FLOW FROM OPERATIONS TO TOTAL FUNDS IN THE

BUSINESS (-) 123.87/85.31 = (66.85)BUSINESS (-) 123.87/85.31 = (66.85)

INTERPRETATION (FUND FLOW STATEMENT)INTERPRETATION (FUND FLOW STATEMENT)

1. 1. NETWORKING CAPITAL HAS BEEN INCREASED OVER THE YEARS,NETWORKING CAPITAL HAS BEEN INCREASED OVER THE YEARS,

WHICH HAS INCREASED LIQUIDITYWHICH HAS INCREASED LIQUIDITY

2. 2. COMPANY SHOULD TAKE CORRECTIVE ACTIONS TO COVERT LOSSCOMPANY SHOULD TAKE CORRECTIVE ACTIONS TO COVERT LOSS

FROM OPERATION TO FUNDS FROM OPERATION.FROM OPERATION TO FUNDS FROM OPERATION.

77

SWATI SAHAY

FINDINGS AND SUGGESTIONS

THE BASIC OBJECTIVE FOR WHICH THE STUDY WAS CARRIED OUT HASTHE BASIC OBJECTIVE FOR WHICH THE STUDY WAS CARRIED OUT HAS

BEEN FULFILLED IN THE EARLIER CHAPTER, BASED ON THE OBJECTIVEBEEN FULFILLED IN THE EARLIER CHAPTER, BASED ON THE OBJECTIVE

INTERVIEW SCHEDULE WAS DESIGNED. DATA COLLECTED BASED ONINTERVIEW SCHEDULE WAS DESIGNED. DATA COLLECTED BASED ON

SCHEDULE WAS ANALYZED AND SOME FINDINGS HAVE EMERGED.SCHEDULE WAS ANALYZED AND SOME FINDINGS HAVE EMERGED.

MAJOR FINDINGS OF THE STUDYMAJOR FINDINGS OF THE STUDY

THE BANK CALCULATES WORKING CAPITAL REQUIREMENTS, LOANTHE BANK CALCULATES WORKING CAPITAL REQUIREMENTS, LOAN

REQUIREMENTS,LIQUIDITY RATIO, ACTVITY RATIO,AND FINANCEREQUIREMENTS,LIQUIDITY RATIO, ACTVITY RATIO,AND FINANCE

POSTION RATIO BEFORE SANCTIONINGPOSTION RATIO BEFORE SANCTIONING

THE LEAD TIMES BETWEEN THE APPLICATION AND SANCTIONING OFTHE LEAD TIMES BETWEEN THE APPLICATION AND SANCTIONING OF

LOAN VARIES FROM ONE TO THREE WEEKS.LOAN VARIES FROM ONE TO THREE WEEKS.

THE ICICI BANK ASK FOR THREE YEARS AUDITEDBALANCE SHEET,THE ICICI BANK ASK FOR THREE YEARS AUDITEDBALANCE SHEET,

P/L ACCOUNT,INCOME TAX ASSESMENT FOR THERE EVALUATIONP/L ACCOUNT,INCOME TAX ASSESMENT FOR THERE EVALUATION

PURPOSES.PURPOSES.

IN CASE OF NEW UNIT OF ICICI BANK LOOKS INTO. THE TECHNICALIN CASE OF NEW UNIT OF ICICI BANK LOOKS INTO. THE TECHNICAL

FEASBILITY AS WELL AS ECONOMIC VIABILITY OF THE PROJECT.FEASBILITY AS WELL AS ECONOMIC VIABILITY OF THE PROJECT.

THE NET PROFIT OF THE BANK OF THE IS INCREASED FROM 2010 TOTHE NET PROFIT OF THE BANK OF THE IS INCREASED FROM 2010 TO

011011

THE EXPENDITURE OF THE COMPANY IS GRADUALLY INCREASETHE EXPENDITURE OF THE COMPANY IS GRADUALLY INCREASE

FRONM 2010 TO 2010 WHICH IS BAD SIGN FOR THE COMPANYFRONM 2010 TO 2010 WHICH IS BAD SIGN FOR THE COMPANY

78

SWATI SAHAY

ICICI BANK MUST ADOPT EFFECTIVE CREDIT MANGEMENTICICI BANK MUST ADOPT EFFECTIVE CREDIT MANGEMENT

TECHNIQUES TO MINIMIZES DEFAULTING LOANERS.TECHNIQUES TO MINIMIZES DEFAULTING LOANERS.

THE INCOME OF THE COMPANY IS ALSO INCREASED FROM 2010 TOTHE INCOME OF THE COMPANY IS ALSO INCREASED FROM 2010 TO

2011.2011.

ICICI BANK SHOULD TAKE INTITATIVE TO ACHIEVE THERE FUTUREICICI BANK SHOULD TAKE INTITATIVE TO ACHIEVE THERE FUTURE

PLANS.PLANS.

THE COMPANY CURRENTS ALSO DECREASED FROM 2010 TO 2011.THE COMPANY CURRENTS ALSO DECREASED FROM 2010 TO 2011.

ICICI CURRENT LIABILTIES IN 2010 IS152..24 TO 2011 IS 152.75 WHICH ISICICI CURRENT LIABILTIES IN 2010 IS152..24 TO 2011 IS 152.75 WHICH IS

INCREASED.INCREASED.

RECEVIABLE TURNOVER OF THE COMPANY IS ALSO DECREASING INRECEVIABLE TURNOVER OF THE COMPANY IS ALSO DECREASING IN

TREND WHICH IS NOT SUIT FOR THE COMPANY.TREND WHICH IS NOT SUIT FOR THE COMPANY.

THE RATIO USED FOR ANALYSIS OF LIQUIDITY POSITION IS CURRENTTHE RATIO USED FOR ANALYSIS OF LIQUIDITY POSITION IS CURRENT

RATIO AND QUICK RATIO. THESE RATIOS REVEAL THAT COMPANYRATIO AND QUICK RATIO. THESE RATIOS REVEAL THAT COMPANY

HAS SOUND LIQUIDITY POSITION THROUGHOUT THE PERIOD OFHAS SOUND LIQUIDITY POSITION THROUGHOUT THE PERIOD OF

STUDY. BOTH THE RATIO SHOWS FLUCTUATING TREND WITHINSTUDY. BOTH THE RATIO SHOWS FLUCTUATING TREND WITHIN

REASONABLE LIMIT BUT THESE RATIO ARE HIGHER THANREASONABLE LIMIT BUT THESE RATIO ARE HIGHER THAN

CONVENTIONALLY ACCEPTED NORMS I.E. 2:1 IN CASE OF CURRENTCONVENTIONALLY ACCEPTED NORMS I.E. 2:1 IN CASE OF CURRENT

RATIO & 1:1 IN CASE OF QUICK RATIO, WHICH SHOWSRATIO & 1:1 IN CASE OF QUICK RATIO, WHICH SHOWS

INEFFECTIVENESS OF THE MANAGEMENT IN MANAGINGINEFFECTIVENESS OF THE MANAGEMENT IN MANAGING

CURRENT/QUICK ASSETS IN RELATION TO CURRENT LIABILITIES.CURRENT/QUICK ASSETS IN RELATION TO CURRENT LIABILITIES.

SUGGESTIONSSUGGESTIONS

KEEPING IN VIEW OF DETAILED ANALYSIS OF OUR STUDY AND OURKEEPING IN VIEW OF DETAILED ANALYSIS OF OUR STUDY AND OUR

FINDINGS MENTIONED IN ABOVE PARAGRAPHS, THE FOLLOWINGFINDINGS MENTIONED IN ABOVE PARAGRAPHS, THE FOLLOWING

SUGGESTIONS SHALL BE HELPFUL IN INCREASING THE EFFICIENCY INSUGGESTIONS SHALL BE HELPFUL IN INCREASING THE EFFICIENCY IN

WORKING CAPITAL MANAGEMENT.WORKING CAPITAL MANAGEMENT.

COMPANY SHOULD MAKE A POLICY IN RESPECT OF INVESTMENT OFCOMPANY SHOULD MAKE A POLICY IN RESPECT OF INVESTMENT OF

79

SWATI SAHAY

EXCESS CASH, IF ANY; IN MARKETABLE SECURITIES AND OVERALLEXCESS CASH, IF ANY; IN MARKETABLE SECURITIES AND OVERALL

CASH POLICY SHOULD BE INTRODUCED.CASH POLICY SHOULD BE INTRODUCED.

MANAGEMENT SHOULD DEVELOP A CREDIT POLICY AND PROPERMANAGEMENT SHOULD DEVELOP A CREDIT POLICY AND PROPER

SELF REALIZATION SYSTEM FROM CUSTOMERS SO THAT EFFICIENT ANDSELF REALIZATION SYSTEM FROM CUSTOMERS SO THAT EFFICIENT AND

EFFECTIVE MANAGEMENT OF ACCOUNTS RECEIVABLE CAN BEEFFECTIVE MANAGEMENT OF ACCOUNTS RECEIVABLE CAN BE

ENSURED. THIS WILL SIGNIFICANTLY IMPROVE THE PROFITABILITY ANDENSURED. THIS WILL SIGNIFICANTLY IMPROVE THE PROFITABILITY AND

LIQUIDITY OF THE COMPANY.LIQUIDITY OF THE COMPANY.

PURCHASE POLICY REGARDING RAW MATERIAL, CONSUMABLES,PURCHASE POLICY REGARDING RAW MATERIAL, CONSUMABLES,

AND TOOLS AND PACKING MATERIALS ETC. SHOULD BE INTRODUCEDAND TOOLS AND PACKING MATERIALS ETC. SHOULD BE INTRODUCED

WHICH ULTIMATELY HELPS IN PLANNING OF INVENTORY, AVAILMENTWHICH ULTIMATELY HELPS IN PLANNING OF INVENTORY, AVAILMENT

OF MAXIMUM TRADE CASH DISCOUNT AND AVAILMENT OF MAXIMUMOF MAXIMUM TRADE CASH DISCOUNT AND AVAILMENT OF MAXIMUM

CREDIT PERIOD FROM SUPPLIERS.CREDIT PERIOD FROM SUPPLIERS.

80

SWATI SAHAY

CONCLUSION

FROM THE ABOVE STUDY THE MAJOR FINDINGS ARE OVERALL FINANCEFROM THE ABOVE STUDY THE MAJOR FINDINGS ARE OVERALL FINANCE

POINT OF VIEW, BANKING IS PERFORMING WELL. THIS STUDY INDICATESPOINT OF VIEW, BANKING IS PERFORMING WELL. THIS STUDY INDICATES

THAT IN ORDER TO IMPROVE THE OVER ALL PERFORMANCE OF ICICI BANKTHAT IN ORDER TO IMPROVE THE OVER ALL PERFORMANCE OF ICICI BANK

THE MANGEMENT MUST TAKE ALLPOSSIBLE STEPS,REVIEW AND MODIFYTHE MANGEMENT MUST TAKE ALLPOSSIBLE STEPS,REVIEW AND MODIFY

VARIOUS POLICIES, FINANCIAL TRADING, BY USING SOUND INFORMATIONVARIOUS POLICIES, FINANCIAL TRADING, BY USING SOUND INFORMATION

MANAGEMENT SYSTEM TO ENABLE MANAGEMENT TO HAVE A CONTROLMANAGEMENT SYSTEM TO ENABLE MANAGEMENT TO HAVE A CONTROL

OVER THE VARIOUS OPERATIONS.OVER THE VARIOUS OPERATIONS.

THOUGH THIS STUDY MAY BE ACADEMIC IN NATURE IT MAYTHOUGH THIS STUDY MAY BE ACADEMIC IN NATURE IT MAY

SERVE A STARTING POINTFOR THE MANGERIAL ACTION PLANS TOWARDSSERVE A STARTING POINTFOR THE MANGERIAL ACTION PLANS TOWARDS

ENHANCING NOT ONLY THE OPERATIONAL EFFICENCY BUT ALSO WILLENHANCING NOT ONLY THE OPERATIONAL EFFICENCY BUT ALSO WILL

PROVE A GREAT HELP IN UNDERSTANDING AND DETERMING APPORPRIATEPROVE A GREAT HELP IN UNDERSTANDING AND DETERMING APPORPRIATE

STRATEGIC PLANS TO BRING VARIOUS IMPORTANT FINANICIALRATIO TO THESTRATEGIC PLANS TO BRING VARIOUS IMPORTANT FINANICIALRATIO TO THE

LEVELOF BANK STANDARDS. LEVELOF BANK STANDARDS.

81

SWATI SAHAY

BIBLIOGRAPHY

BOOKS& REFERENCES:

M.Y. khan and P.K. jain, Financial Management I.M. Pandey Financial Management Annual Reports 2010-2011

WEBSITES:

www.sail.co.in

www.google.co.in

www.managementparadise.com

www.icicibank.com

82