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UNIVERSITY OF MUMBAI
A PROJECT REPORT ON
WORKING CAPITAL MANAGEMENT
OF BANK OF MAHARASHTRA
PROJECT REPORT SUBMITTED IN PARTIAL
FULFILLMENT OF THE REQUIREMENT FOR
BACHELOR OF COMMERCE (BANKING & INSURANCE)
SUMMITTED BY:
GITANJALI D. PAWAR
B.Com (BANKING AND INSURANCE)
SEMESTER-V
2011-2012
UNDER THE GUIDANCE
KARMVEER BHAURAO PATIL COLLEGE, VASHI
NAVI MUMBAI -400706
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RAYAT SHIKSHAN SANSTHAS
VASHI, NAVI MUMBAI.
CERTIFICATE
This is to certify that GITANJALI DATTARAM PAWAR of T.Y.B.B.I.
Banking &Insurance Semester V has completed his project on
And
submitted a satisfactory report under the guidance of in the partial
fulfilment of B.B.I. course of University of Mumbai in the academic
year2012-2013.
.. .. ..
Project guide Coordinator Principal
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IV
Declaration
I,GITANJALI DATTARAM PAWAR student of KARMAVEER BHAURAO
PATIL COLLEGE, studying in B.B.I. (SEMESTER V ) hereby declare that I
have completed this project report on WORKING CAPITAL MANAGEMENT
OF BANK OF MAHARASTRA And has not been submitted to any other
University or Institute for the award of any degree, diploma etc. The
information is submitted to me is true and original to the best of my
knowledge.
Date Sign..
Place- Vashi, Navi Mumbai.
Name.
(Name & sing of student)
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V
Acknowledgement
On the Event of completion of my project WORKING CAPITAL
MANAGEMENT OF BANK OF MAHARAS. I take the opportunity to express
my deep sense of gratitude towards all those people without whose
guidance, inspiration and timely help, this project would have never seen the
light of day.
Any accomplishment requires the effort of many people and this project is
not different. I find great pleasure in expressing my deepest sense of
gratitude towards my Project guide PROF.YAMINE whose guidance and
inspiration right from the conceptualization to the finishing stages proved to
be very essential and valuable in the completion of the project.
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VI
PREFACE
Banking in rural India still remains a challenge. In India the bank are segregated in
different groups. Each bank branch has its own dedicate target customer. Few of
them work only in rural sector while other in both rural as well as urban. Many even
are only catering in cities. Some are of Indian Origin and some are Foreign Players.
The Reserve bank of India (RBI) showed certain interest to involve more banks to
start business in India villages as part of financial.
Bank of Maharashtra a public sector bank commenced its operation on
September 16, 1935. It has one of the largest networks of branches by any public
sector bank in Maharashtra. It has 46 per cent of its branches in rural areas. The
bank operates through 1500 ATMs with VISA Connection 20 extension counters
in22 states and 2union territories. There are 20000 employments in India. Thenetwork of bank has Spread to all corner of the counter and with pan India
presence; they proudly say that they cater to all the segment of the society the
agriculturists, the corporate, small and Medium Enterprise (SME) individuals and
institution. It s there twelve and a half million clientele whose valuable support and
patronage facilities the success of this well knows institution.
Objective of Study To find out how Working capital as a bank satisfies a customer.
To find out how maximum bank finance is calculate : and
To calculate the net Working Capital.
To present their main activities.
Methodology :The methodology adopted includes scanning the literature and to present and to
present the selected once in four distinct chapter innovative are also an ongoing
process.
This report is based on primary as well secondary data, however primary data
collection was given more important since it is overhearing factor in attitude
studies. Once of most important user of research methodology is that it help in
identify the problem collecting, analyzing the required information data providing
an alternative solution to the problem. It also helps in collection the vital
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information that is required by the top management to assist them for the better
decision making both day today decision and once.
Data Source:
Research is totally on primary data. Secondary data can be used for the reference.
Research has been made by primary data collection, and primary data has been
collected by interacting with various people. The secondary data has been collected
through various journals and websites.
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Sr.no
contents Pg.no
1 introduction
2 Bank of Maharashtra
3 Working capital management
4 Data analysis
5 finding
6 Bibliography
7
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Definition of bank:
It is defined as a financial institution which is engaged in the business of keeping
money for saving and checking account or for exchange or for issuing loans and
credit etc. CHAPTER -I INTRODUCTION TO THE
BANKING Asset of services intended for private customer and characterized
by a higher quality than the services offered to retails customers. Based on the
notion of tailor made services, it aims to offer advice on investment, inheritance
plans and provide active support for general transaction and the resolution of the
storing of deposits and the extending of credit . Basic function may include credit
collection, Issuer of banking notes, Depositor of money and lending loans.
History of Banking in India
Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should
be able to meet new challenge posed by the technology and any other external and
internal factors. For the past three decades India Banking system has several
outstanding achievements to its credit. The most striking is its extensive reach. In
fact, Indian banking system has reached even to the remote corners of the country.
This is one of the main reasons of India`s growth process. The government`s regular
policy for Indian bank since 1969 has paid rich dividends with the nationalisation n
of 14 major private bank of India Not long ago` an account holder had to wait for
hours at the bank counter for getting a draft or for withdrawing his own money.
Today, he has choice gone are days when the most efficient bank transferred
money from branch to other in own days. Now it is simple as instant massing ordials a pizza Money has become the order of the day. The first bank India, though
conservative, was established in 1786. From 1786 rill today. The journey of Indian
Banking system can segregate into three distinct phases.
They are as mentioned below:
Early phase from 1786 to 1969 Indian Bank.
Nationalization of Indian bank and up to 1991 prior to Indian Banking
sector reforms
New phase of Indian Banking system with the advent of Indian financial &
banking sector Reforms after 1991.
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To make this writeup more explanatory, I prefix the scenario as phase I , Phase
I, phase ii , and phase iii.
PhaseI
The General Bank of India was set up the year 1786. Next One come Bank of
Hindustan and Bengal Bank. The East India Company established Bank Of Bengal
(1809) , Bank Of Bombay (1840), and Bank Of Madras (1843) as independent
units and called it presidency Banks. These three Bank Were amalgamated in
1920 and Imperial Bank of India Was established which started as private
shareholder banks, mostly Europeans shareholders.
In 1865 Allahabad Bank Was established and first time exclusively by Indians,
Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between
1906 and 1913, Bank Of India, Central Bank Of India, Bank Of Baroda, Canada Bank,
Indian Bank, and Bank Mysore were set up. Reserve Bank Of India came in 1935.
During the first phase the growth was very slow and banks also experienced
periodic failures between 1913 and 1948. There were approximately 1100, mostly
small. To streamline the functioning and activity of commercial bank the
Government of India came up with the Banking companies Act, 1949 which was
later changed to Banking Regulation Act 1949 as per amending Act of 1965( Act no.
23 of 1965 . Reserve Bank of India was vested with extensive power for the
supervision of Banking in India as the central banking authority
During that day s public has confidence in the banks. As an aftermath deposit
mobilization was slow. Abreast of it the saving bank facility provides by the postal
department was comparatively safer. Moreover, funds were largely given to
traders.
Phase II
This step brought 80% of the banking segment in Indian under Governmentownership Government took major steps in this Indian Banking sector reform after
independence. In 1955, it nationalization Imperial with extensive banking facilities
on a large scale especially, in rural and semi- urban areas. It formed states Bank of
India to act as the principal agent of RBI and the handle banking transaction of the
Union Bank of India was nationalization in 1960 on 19th
July, 1969, major process of
nationalization was carried out. It was the effort of the then prime Minister if India
Mrs India Gandhi 14 major commercial bank in the country were nationalized.
Second phase of nationalization Indian Banking sector Reform was carried out in
19870 with seven more.
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The following are the steps taken by the Government of India to regular Banking
Institutions in the country
1949: Enactment of Banking Regulation Act.
1955: Nationalization of states Bank of India.
1959 : Nationalization of SBI Subsidiaries
1961: Insurance cover extended to deposit.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantees corporation 1975: creation of regional
rural banks.
1980: Nationalization of seven bank with deposit over 200 crore.
After the nationalization of bank the branches of the public sector bank India rose
to approximately 800% in deposit and advance took a huge jump by 11000%
Banking in the sub shine of Government ownership gave the public implicit faith
and immense confidence about the sustainability of this institution.
Phase III
This phase has introduced many more produce and facilities in the banking sector in
its reforms measure. In the chairmanship of M Narasimham , a committee was set
up his name which worked for the liberation of banking practices. The country is
flooded with foreign banks and their ATM stations. Efforts are being put to give asatisfactory service to customer Phone banking and net banking is introduction.
The entire system becomes more convenient and swift. Time is given more
important than money.
The financial system of India has shown a great deal of resilience. It is sheltered
from any crisis triggered by any external macroeconomic shock as other East Asian
Countries suffered. This is all due too flexible exchange rate regime, the foreign
their reserves are high the capital account is not yet fully convertible and banks
and own benefits customer have limitation in operating in India. Each has theirown dedicated target market. Few of them only work in rural sector while others in
both rural as well as urban. Many even only catering in cities. Some are Indian
origin and some are foreign players.
Current Situation of banking
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In 2010 banking in India is generally fairly mature in terms mature in terms of
supply ,product range and reach-even though reach in rural India still remains a
challenges for the private sector and foreign banks. In terms of quality of assets and
capital adequacy. Indian bank are considered to have clean, strong and transparent
balance sheets relative to other banks in comparable economic in region. Thereserve bank of India is an autonomous body,
With minimum pressure from the government. The stated policy of bank on Indian
rupees is to manage volatility but without any fixed exchange rate and this has
mostly been true. With the growth in Indian economy expected to be strong for
quite some time-especially in its services sector the demand for banking services.
Especially retail banking, mortgagees and investment services are expected to be
strong. One many also expect M & as, takeovers, and assets sales.
Banks in India
In India the banks are being segregated in different groups. Each group has their
own benefit and limitation in operation in India each has their own dedicated target
market. Many even are only catering in cities. Some are of Indian origin and some
are foreign players.
The banks and its relation with the costumers, their modes of operation, the names
of the under different groups and other such useful information are talked about.
One more section has been taken note of is the upcoming foreign banks in India.
The RBI had shown certain interest to involve more of foreign banks than the
exiting one recently. This step has paved a way for few more foreign banks to start
business in India
How does bank earn?
There are only three sources for earning
Interest Income: - It is largely generated from loans.
Trading profit:- It is generated through the increase in the value of the
bonds
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Fee Income:- It is generated through sale of structured produce and
derivatives remittance / merchant banking / consultancy
Service / force advice/ guarantees/LICs/ cash management / treasury
Management / distributing third party produce.
Banking service in India
With years, banks are also adding services to their customer. The Indian banking
industry is passing through a phases of customer market. The customers have
more choices in choosing their banks. A competition has been establish within
the banks operating by banks have become easier and convenient the pasty
days are witness to an hour wait before withdrawing cash from account or acheque from north of the country being cleared in one month in the south . This
section of banking deals with the latest discovery in the banking instruments
along with the polished version of their old systems
Bank account
Bank account the most common and first service of the banking sectors. There
are different types of bank account in Indian banking sector. The bank accounts
are as follows:
Bank saving Account Bank saving account can be opened for eligible
person / persons and certain organization / agencies (as advise by Bank of
India (RBI) from to time)
Bank current account - Bank current accountant be opened by individuals /
partnership firms / private and Public Limited Companies / HUFs / Specified
Association / Trusts, etc.
Bank term Deposits AccountBank Term Deposits Account can be opened
by Individuals / partnership firms / Private and Public Limited Companies /
HUFs / specified Association / societies / Trusts, etc.
Bank account onlineWith the advancement of technology. The major
banks in public and private sectors have facilitated their customer to open
bank account online. Bank account online is registered through a PC with an
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internet connection. The advent of bank account online has saved both the
cost of operation for banks as well as the time taken in opening an account.
Plastic money
Credit cards
Credit cards in India area gaining ground. A number of bank in India are
encouraging people to use credits card. The concept of credit card was used
in 1950 with the launch of charge cards. The concept of credit card was
used In 1950 with the launch of charge cards in USA by magnetic strip in
1970. Credit cards in India become popular with the introduction of foreign
banks in the country. Credit cards are financial instruments of foreign banks
in the country. Credit are Financial instruments, with can be used more
than once to borrow money. Or busy product and services on credit.Basically banks, retail stores and other business issue these.
Debit cards
Debit cards also know as check cards look like credit cards or ATM cards
(automated teller machine card). It operates like cash or a person check is a
different formal credit card is a way to pay later, where as debit card is a
way at pay now. When we use a debit card, our money is quickly
deducted from the bank account. Debit cards are accepted at many
locations, including grocery stores, retails stores gasoline station, and
restaurants. Its an alternative to carrying a check book or cash. With debit
card , we use our own money and not the issuers money . In India almost
all the banks issue debit card to its account holder
Loans
Bank in India with the way of development have become easy to apply in
loan market .
The Following loans are given by almost all the banks in the country
Personal loan
Car loan and Auto loan
Loan against shares
Home loan
Education loan or Student loan
Financial and Banking Sector Reforms
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The last decade witnessed the maturity of India Financial markets since 1991; every
government of India took Major steps in reforming the financial sector of the
country.
The important achievements in the following field are discussed under separate
heads:
Financial markets
Regulators
The banking system
Non-banking finance companies
The capital market
Mutual funds
Over all approach to reforms
Deregulation of banking system
Capital market development
Consolidation imperative
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Challenges facing Banking industry in
India
The banking industry in India is undergoing a major transaction due to
change economic one after other has a ripple effect on a bank trying tograduate from completely regulated sellers market to completed
deregulated customers market.
Deregulation
This continuous deregulation has made the Banking market extremely
competitive with greater autonomy, operational flexibility, and decontrolled
interest rate and liberalized norms for foreign exchange. The deregulation of
the industry coupled with decontrol in interest rates has led to entry of a
number of player in the banking industry. At the same number of
competitors battling for the same pie.
New rules:
As a result, the market place has been redefined with new rules of the
game. Banks are transaction to universal banking, adding new channel with
lucrative pricing and freebee to offer. Nature fall out this has lied to a series
of innovative product offering catering to varies customer segments,
specifically retail credit.
Efficiency:
This in thrum has made it necessary to look for efficiencies in the business. Banks
need to access low cost funds and simultaneously improves the efficiency. The
banks are facing pricing pressure, squeeze on spread and have to give thrust on
retail assets.
Diffused Customer Loyalty.
This will definitely impact customer preferences, as they are bound to react to the
value added offerings. Customers have become demanding and loyalties are
loyalties are diffused. There are multiple choices: the wallet is redacted per bank
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with demand on flexibility and customized .Given the relatively low switching costs.
Customer retention calls for customizes services and hassle free, flawless service
delivery.
Competency Gap
Placing the right skill at the right place will determine success. The competency gap
need to be addressed simultaneously otherwise there will be missed opportunities.
The forces of people will be on doing work but not providing solutions, on
escalating problems rather than solving them and on disposing customers instead
customers instead of using the opportunity to cross sell.
How banks cope with the challenges
Leading players in the industry have embarked on a series of strategic and tactical
initiatives to sustain leadership. The major initiative includes.
Investing in state of the art technology as the back bane of to ensure
reliable service deliver.
Leveraging the branch network and sales structure to mobilize low costcurrent and saving deposits.
Marketing aggressive forays in the retail advances segment of home and
personal loans.
Implementing organization wide initiative involving people, process and
technology on fess based and the cost transaction.
Focusing on fee based income to compensate for squeezed spared, (i.e.
.CMS, trade services.
Innovating products to capture customer mind share to being with and
later the wallet share.
Improving the asset quality as per Basel II norms.
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CHAPTER- ll
BANK OF
MAHARASTRA
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CHAPTER-ll
BANK OF MAHARASTRABank of Maharashtra a public sector bank commenced its operation on
September 16, 1935. It has one of the largest networks of branch by anypublic sector bank in Maharashtra. It has 46 per cent of its branches in rural
areas. The bank operates through 1500 ATMs with VISA connectivity, 20
extension counters in 22 states and 2 union territories. There are 20000
employed in India. The network of bank has spread to all corner of the
country and with pan India presence they proudly say that they carter to all
the segment of the society the agriculture the corporate, small and medium
Enterprises (SME) individual and institutions. It s there twelve and a half
million clientele whose valuable support and patronage facilities the
successes of this well know institution. As the banking industry is
undergoing rapid transformation and infusion of Maharashtra is no
expectation of high quality service , the bank have ban adopting latest
technology to render cost effective and customer- friendly products and
services without losing its personal Touch.
The bank has also tied up with National Financial Switch (NFS) having
membership of 30 banks and MITR having membership have of 6 bank to
enable the bank card holder to access the ATMs of these member banks .
The Bank has rolled out 694 branches under core banking solution. The
business covered under CBS braches is 86% . The Bank has soft launch
multiple delivery channels like Internet Banking, Phone Banking and Mobile
Banking. Real Time Gross Settlement (NEFT) is also made available at these
604 branches. For Bank assurance, the bank has toed up to with United
India Insurance Co. Ltd for general insurance Corporate of India for life
insurance. The bank also enter into corporate agency agreement with
Export Credit and Guarantees Corporate of India Ltd for sale of export credit
insurance product The bank has tied up with 15 leading mutual fund for
distribution of various schemes of mutual funds .The bank has a tie up with
Western Union Money Transfer for foreign inward remittance we hope you
will find their website quite useful not only to get the details relating to our
various product and up dated feature of all product and services of the
bank and can share the developments relating to the bank from time to
time.
The Three stages of bank from time to
time
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The Birth
Registered on 16th
September 1935 with an authorizes capital of Rs. 10.00
lack and commenced business on 8th
; February 1936.
The childhoodKnown as a common mans bank since inception, its initial help to small unitgiven birth too many of todays industrial houses. After nationalization
in1969 the bank expanded rapidly. It now has 1332 branches (as of 31st
January 2007) all over India. The Bank has the largest network of branches
by any public sector bank in the stare of Maharashtra.
The Adult
The bank has fine tuned its services to cater the needs of the common man
and incorporate the latest technology in banking offering a variety of
services.
Banks Philosophy: - Technology with personal touch
The Pillar: - Institution symbolizing strength
The Divas: - Branch are symbolizing services.
The 3 M s
Symbolizing
Mobilization Of Money
Modernization of Methods and
Motivation of Staff
Their Aims
The Bank wishes to cater to all types of needs of the entire family in whole
country. Its dream is One Bank, Maharashtra Bank
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The Autonomy the Bank autonomous status in1998.It helps in giving more
and more services with simplified procedures without intervention of the
Government.
Banks social Aspect
The bank excels in social Banking, Overlooking the profit: it has a good share
of priority sector lending having 46% of its branches in rural Ares.
Other Attributes
Banks it the convener of state Bankers committee
Bank has a MOU with EXIM bank for co-financing of project exports
Bank offers Depository services and Demat Facilities in Mumbai.
Banks has captured 97.68% of its total business through computerization.
Products Profile
The Bank offers personal banking. Cash management retail loans and other
financial services. These include car loans two wheeler loans. Personal
loans, retail trade finance. Global banking, lending to priority sector and
small scale sector, foreign exchange and export finance, corporate loans
and equipment loans.
Deposit Products:
1. Mahabank family
banking card
2.Mahabanks Yuva
Yojana
3.Mahabank Loc
Bichat Yojana
4.Quartarly interest
deposit scheme(QIDS)
5. Maxine Deposit
scheme
6. Floating rate
Deposit scheme
7. Saving Deposit 8. cumulative Deposit
scheme(CDR)
9. Recurring Deposit
scheme
10. Megabank Unit
Deposit scheme
11. sulabh jams yojana
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Credit Facilities:Terms loans , overdrafts of credit , Guarantees and many mares such products are
include in the credit basket . Recognizing individual customer needs Banks of
Maharashtra has identified customer segments for the individual we have finance
schemes that your dreams into reality.
Education loans For Agriculturists For Corporate
For Entrepreneurs For Exporters For Individuals
For Professional Housing Finance Scheme Mahabank Andhra
Scheme
Mahabank Consumer
Loan Scheme
Mahabank Gold Card
Scheme For Exporters
Mahabank Vehicle Loan
Scheme
Mahabank Realty
Finance
Mahabank Salary Gain
Scheme
Mahabank Vehicle
Loan Scheme
Personal Loans Maha deep Solar
Home Systems
Banking Services Bank Of
Maharashtra.
ATM
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Megabank visa debit card gives you the freedom to access your saving at any visa
accredited merchant Establish or ATM. This card allows you to purchase goods at
retail outlet and withdraw cash from ATMs in India and abroad. Direct on line debit
to your account. Round the clock cash withdrawal facility up to Rs 20000/- No
joining fees, completely safe and secure.
Credit cards:-
The INDIA CERD is affiliated to master card International and is acceptable at
thousands of member establishment spread all over India and Nepal where Master
Card logo is displayed. It provides safety and convenience while traveling and
shopping. It is an ideal companion. The card is issued for2 year with nominal
membership fees and automatic renewal facility. The CREDIY CARD holder can
enroll family member as add on member at confessional fee. Free air travelinsurance up to Rs. 2.00 lacks & accident insurance cover (group insurance) up to
Rs. 1.00 lack is available cash withdraw able facility up to Rs. 5,000/- on two
occasions in insurance premium of medical policy of national insurance company
limited .It insurance you against any fraudulent usage on your lost/stolen card. One
time free credit card has been issued to customer having deposit above one lack &
Housing Loan Account holder.
Add on service:-
Bill Pay:-
They have lunch An Electronic Bill presentment and payment services presently in
pune and Mumbai known as maha Bill Pay in association with India Ideas . Com
better known as Bill Desk Company.
Gist of the Scheme
The customer , who wisher to make payment utility payment like Electricity ,
Telephone Bill, etc. should apply through the branch and get registered under the
scheme . The Bill Desk Company for easy identification will provide each customer
with unique registration number. Bill Desk Company would accordingly obtain the
bill details of the register customer from the utility provider like MSEB , BSNL etc.
the list of customer with bill details whose bill have fallen due for payment , will be
sent to the branch, on receipt of the payment list would debit the account of the
customer concerned accordingly.
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BANCS:- (Banks ATM Network and Customer
services)
BANS (Banks ATM Network and Customer Services) is a consortium of member
banks with one settlement bank; it currently has member banks with eight more to
join the met work shortly. Member bank BANCE: BANCS would ATMS of member
banks-banks of Bahrain & Kuwait, Greater Bombay co-op bank. Centurion bank ,
central bank of India UTI banks, Punjab & Sind bank , IDBI Bank ,Ltd, Ranker Bank
ltd and SBI commercial & International Bank , cosmos Bank , Air corporation
Employee co-op Bank , Sara swat Bank through Nearly eight more banks are
expected to joined those band wages Bank of India will de the settlement bank are
BANCE network ISC is supporting the network of member Banks through a mix of
VSATs INDN and leased line as / well as latest technology of CDMA and GPRS from
various Infrastructure provider for the ATMs.
Banc assurance
With the commitment to customer convenience the bank has up has tied with
insurance companies so that customer can avail of insurance services at the
branches They are the corporate agent of the life insurance corporation in India for
distribution of their life insurances company Both our insurance partner as a result
of our banc assurance tie ups this is another for the our customer in their banking
relationship with us
Distribution of Mutual Funds
Bank of Maharashtra is always looking to value to the relationship which customer
have with them. For the convenience of their customer, they are to provide a cost
of financial services under one roof .The Bank has tied up with Franklin Templeton
mutual fund for distribution of their products through their branches.
Techno products
Banking and you can avail these facilities from your place using Internet Bank of
Maharashtra is offering the following services through Internet connectivity, its
banking made available at your doorsteps.
Accounting Balance Enquiry
Transaction History/Statement of Account
View of Account details for all types of account
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Mini statements
Cheque Status Enquiry
Cheque book Queries
E-Payment of Taxes
Loans and Schemes of banks
MAHA BANK FINANCINE TO TRADE AND
SERVICES SCHEME WITH 100% COLLATERAL
Objective
To extend easy flow of finance to eligible applicants banked by as adequate
collateral security. Without Insisting upon insisting upon the stock, receivable
statement for audited for audited balance sheet.
Purpose.
The purpose of credit facility under the scheme shall be working capital as well as
long term requirements, The basic security and consideration would be collateral,
i.e. landed property, Paper security.
Eligibility:
Trade or business man, professional engaged is trading or services activity. The
business activity should be lawful with potential to service and repay such extended
facility.
Proof of activity:
The applicant enterprise must be in possession of registration/ licensed, as
applicable under local low, example.
Shop establishment act
Sales tax registration
Drug license for retail trade
Ration and civil supplies
License to deal in petroleum products etc.
Any other relevant regulatory
Support of collateral security:
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The business enterprise should extend collateral security, the by way of
equitable mortgage of property, pledge of papers security like our banks
deposit receipts NSC ,KVP ,LIC ,RBI ,relief bands.
Nature of Facility:
The nature of facility could be any of following or combination of both.
Term Loan:
Purchase/renovation of shops/go downs
Interiors such as furniture/ fixtures, equipments such A.C., P.C. or
any other equipment which is necessary for business promotion.
Advance money/ permanent deposit required to be kept with
supplies or manufacturers.
Purchase of vehicle for transport of goods.
Payment of advance rent is respect of rented premises.
Construction/payment of hire charges for warehouse.
The sanction of term loan shall also be subject to satisfactory DSCR.
Working Capital (WC) needs may be considered
Method:
Turn over method will be applied and the credit limit will be 20% of the annual
Project turnover. The basis for acceptability of projection will be actual turnover and
growth rate archived during the previous year.
The acceptable level of turnover will be decided on the basis of sales tax/income tax
return for the last two there years. The financial data will be called for to ascertain
that there are no adverse features and to verify financial indicators such as net
worth, the sales turnover, current ration etc.
In respect of borrowers requiring fund based facilities about Rs 2 corer, the projected
working capital In these case also attempts will be made to additionally cover the
facility by collateral security to the extent of 100% or more available, we may
consider further relaxations in norms as under.
Acceptable current ratio up to 1.25:1
Acceptable Debt-Equity ratio up to 4:1
Margin on term loan, if available will be 20% in bank favors.
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Quantum:
The maximum quantum of credit facility shall be as per area of
operation of that activity shall be on following manner:
Location of unit Rural Semi urban &
urban
Metro
Ceiling for CC &
term put together
5.00 lakhs 15.00 lakhs 30.00 lakhs
Sub ceiling for TL 2.50 lakhs 5.00 lakhs 10.00 lakhs
The quantum of finance is subject to availability of the collateral cover with
minimum mentioned below. An area wise ceiling, including sub ceiling for TL, shall
be observed.
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Security :
I. Primary primary security shall be hypothecation of stocks in
trade wherever available book debt receivables also will be
accepted.
II. Collaterals The finance will necessarily be secured against
collateral security will be
a. Mortgage of landed properties. The valuation there of
should be of latest date or maximum one year old by bank/
government approved value
b. Term deposit of our bank
c. NSCs ,KVPs ,RBI Bonds eligible for creation of charge in favor
of Bank
d. LIC policies, surrender value of the same be reckoned as
collateral securities.
In respect of mortgage of immovable property taken as collateral security,
search report. Verification of title deeds, possession of original document of title
deeds by the borrowers mortgagibility of the property on the basis of clear.
Marketable and unencumbered title of the borrower. Should be ascertaining at theper-sanction stage itself.
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Security Verification
Since the finance is provided under the scheme on liberal terms. It is necessary to
verify the securities charged to the bank at least once in quarter and report there of
should be kept on record. In respect of facilities above Rs. 50 lack their normalproducer for verification of securities by external CAs on half yearly basis will apply.
In respect of documentation also, for facilities beyond Rs 50 lakhs , verification by
low officers/Advocate on the panel should be immediately rectified.
The valuation of such collateral securities has to be necessarily done through
approved valuer each year. In case there is any deterioration in the value of the
property, proportionate curtailment in the limit should be done immediately.
Repayment Period :Term loan- repayment period for term loan will depend on the quantum of
the loan and repaying capacity of the borrower. However the maximum
repayment period for term loan shall not exceed 5years including
moratorium period, if any.
Working capital limit- the facility shall be reviewed annually based on
internal operational data, availability of the balance sheet be additional
advantage.
Processing fees-processing charge shall be @0.50% of the credit limit, but
minimum is Rs100/-
Education loan scheme:
Purpose:
For studies in IndiaFor studies abroad
Eligibility:
You should be an Indian National
You should have secured admission to professional /
Technical courses through entrance test / selection
Process.
You should have, secured admission to foreign university/ institutions
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Amount:
For studies in India: Rs. 10.00 lac
For studies abroad: Rs. 20.00 lac
Margin:
There is no margin up to Rs.4.00 lac.
For loan above Rs. 4.00 lac.
For studies in India: 5%
For studies abroad: 15%
Security:
No security required up to Rs.4.00 lac loan.
Above Rs. 4.00 lack securities are required to be furnished as under
Either singly or in combinations-
o Government securities, public sector bonds.
o Units of UTI, Shares (as per our approved list from time to time),
Debentures.
o L.I.C. Policies
o NSCs/ KVPs, Bank own depositso Mortgage of land and building
The eligible securities are as above. However terms apply.
Value of collateral security after providing requisite margin, as stated above should
be equal to the quantum of finance.
Repayment by EMI
You get a repayment holiday of one year completion of the course selected or 6
months after getting a job (after which your repayment will start)
The loan is then to be repaid in 5 years after commencement of repayment.
Processing Fee
Nil
Expenses Considered
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Tuition fees, hostel expenses, purchase of books / equipments / instrument etc,
Travel expenses for studies abroad & other essential expenses
Courses Eligible
Studies in India
School education including plus 2 stages of CBES& state Education Board.
Graduation courses/college universities approved UGC.
B.A.B.Com, B.Sc. etc.
Post graduation courses
Professional Courses, Engineering, Medical, Agriculture , Veterinary, Law,
dental, Management Computer etc.
Computer certificate courses of reputed institutes accredited to Dept. of
Electronics or institutes affiliated to university.
Courses offered in India by reputed foreign universities.
Courses like ICWA, CA, CFA etc.
Courses conducted by IIM, IIT, IISC , XLRI , NIFT etc.
Evening Courses of approved institutes recognized by State/ Central Govt.
Other courses leading to diploma / degree etc. conducted by colleges/
universities approved by UGC/Govt./AICTE/ICMR etc.
Studies abroad
Graduation : For job oriented professional/ technical courses offered by
reputed universities
Post graduation: MCA, MBA, MS etc.
Courses conducted by CIMA- London, CPA in USA etc.
Documents to be furnished
Proof of being an Indian national i.e. School Leaving Certificate. Letter confirming selection through Entrance Test
Letter confirming admission to foreign university / institution
Brochure of the educational institution stating the amount of fees charge
Housing Loan:
Purpose
To provide housing finance to public in general for the following purpose For construction of new house / flat.
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For outright purchase of houses /flat (new or old)
Far repairs/ renovation of the existing house / flat
Home Conversion Loan.
Land purchase Loan.
Bridge Loan.
Stamp Duty Loan.
Refinance Loan Scheme.
Take over of housing loan from other bank/ institution
Additional loan on account of escalation of cost / for expansion etc.
Eligibility:
Salaried persons, professionals / Businessmen having sufficient disposable
income to meet the repayment. The employment should be in state/ Central
Govt., public or private Sector Companies, Establishment of repute. The
sanctioning authority should be satisfied about repaying capacity of
employee
Farmers having minimum five acres of irrigated land holding.
Non Resident Indian are also eligible for the loan.
Age Criteria:
Minimum : 21 years
Maximum 50 year in case of salaried persons.
55year for applicants other i.e. Business , professional etc.
Quantum of Loan: For Salaried Class
Equal to 50 times of monthly gross salary or 60 times of net monthly salary
whichever is higher or
85% of the cost of house / flat to be purchased / constructed
(Including registration and other essential charge i.e. Electricity Deposit,
Mortgage charge etc.) Loan eligibility will be minimum amount of (a) and (b)
above.
For Individual in Business/ profession or self-
employment.
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Equal to average annual income of last 3 year X 4 times to be worked out as
eligibility for quantum of loan. For example, if the average income of a
businessman/ professional is around Rs. 5.00 lakhs (to be ascertained from
source such as Balance sheet, Income tax return etc.) then the loan
quantum in such would be Rs. 5.00 lakhs multiple by 4 times which worksout to Rs. 20.00 lakhs- or 85% of the cost of the house / flat to be purchased
/ constructed.
Loan eligibility will be minimum amount of (a) and (b) above
In Case of individual business man or professionals, the income may be ascertained
from different sources as (1) Balance sheet, (2) Income tax return etc.
Before considering the sources, consistency of income is insured. For the
businessmen carrying proprietary concern and professional / self employed person,
the term total income would mean Net Profit Depreciation. However repayment
obligation on account of term liabilities should be taken into consideration while
deciding the quantum of loan and EMI.
For Farmers
For finalizing quantum of loan , net annual income may be considered .(i.e.4 time of
average net income of last three years) The branches may cross check the gross &
Net Annual Income of the application with reference to the land holding , cropping
pattern . sugar factory bill/ cotton bills/ Agriculture produce Marketing committeeBill etc.
Income Of Spouse And Other Relatives:
The income of son , daughter , sister & brother along with the spouse to be taken
for deciding the quantum of loan and repayment capacity provide the property is in
the name of all joined member or their guarantee is obtained .
Maximum Amount:
For Purchase / Construction of House Property : No maximum limit for
Metro and Urban areas .In respect of semi- Urban & Rural area, the amount
of loan should not exceed Rs. 15.00 lakhs.
For repair & renovation the amount of loan shall not exceed Rs. 5.00 in all
the areas ( i.e. Rural/Semi-Urban/Urban/Metropolitan)
Margin
For purchase / Construction Of New House Property: Minimum 15% For Purchase/ Construction Of Old House Property: Minimum25%
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For repair and Renovations : Minimum 25%
Repayment
Maximum repayment period shall be-
For purchase of new / old house / flat 240 months
For repair & renovation 60 months
For extension of house 120 months
Repayment will be by equated monthly installment (EMI)
Repayment will start one month after disbursement which ever is earlier
In case of farmer borrower repayment may be fixed annually or six monthly
in accordance with cropping pattern harvesting time. Income from allied
activities etc.
Depending upon the option exercised by the borrower, interest for the
moratorium period be got repaid as and when applied or capacity and
suitable EMI be given.
In case of salaried person, the repayment would be maximum up to date of
retirement. In case the installment are proposed to be continued from the
monthly pension , in such case the amount equal to loan balance at the time
of retirement should be kept in term of deposit from a terminal benefits /
other sources under lien.
Total deduction inclusive of proposed repayment installment should not
exceed 65% of annual gross income.
In order to ensure that on regular repayment of EMI , loan account shouldbe closed at the term of the term of the loan , it is decided to introduce the
uniform procedure in respect of repayment linked to EMI , which is provide
at annexure-I You are request to strictly adhere to the procedure.
Security
Loan amount up to Rs. 25,000/- One acceptable guarantor having sufficient
income/ net worth.
Loan amount above to Rs. 25,000/- Simple (Registered)/ equitable
mortgage of house property to be purchase and guarantee of the spouse.
In case house property cannot be mortgaged for some reasons , NSC,FDR(
of our bank) , Government security such acceptable security equal to
quantum of loan , security In the from of share should not be accepted
In case where the income of the spouse / other relatives is reckoned for
determining quantum of loan and repaying capacity and is not co owner
of the house , the spouse / relatives to be taken as additional guarantor to
the housing loan.
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Processing Fee
Up to Rs. 5 lakh : Rs 1000/-
Above Rs. 5 lakh and to Rs. 15 lakh : 2500/-
Above Rs. 15lakh : 5000/-
Consumer loan :
Purpose
For purchase of consumer durable including computers.
Eligibility
i. Salaried person, permanent in service / professional / businessman having
minimum income Rs. 1.00 lakh p.a.
ii. Age of Applicant:
Minimum 21 years.
Maximum- 60 years at loan maturity.
iii. Minimum Employment ;
For services person:Minimum 3 years employment and minimum 2 years in the current
organization.
For other L: He / she must be in the business / professional for at least 3
years.
Amount loan
for salaried employees10 times of gross monthly emolument
For professionals / businessmen
100% of gross average annual income as per last three incomes
Tax returns
Maximum loan amount Rs.1.00 lakh.
Margin
15%
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Security
1. Hypothecation of assets purchased
2. One guarantor acceptable to the bank
Repayment
Maximum up to 60months
Processing/ services charges
1% subject to the minimum Rs.500/-
Courses eligible
Studies in India
School education including plus 2 stages of CBES & state education
boards.
Graduation courses/ colleges under universities approved by UGC.
B.A. B.com. B.sc. etc.
Professional courses, engineering, medical, agriculture, veterinary,
law, dental, management completer etc
Computer certificate courses of reputed institution accredited to
dept. of electronic or institution affiliated to university.
Courses like ICWA, CA, CFA ECT.
Courses offered in India by reputed foreign universities.
Courses conducted by IIM, IIT, IISC, XLRI, NIFT etc.
Evening courses of approved institutes recognized by recognized by
state / central govt.
Other courses leading to diploma / degree etc. Conducted by
colleges/ universities approved by UGC/ government/ AICTE/ ICMR
etc
Studies abroad
Graduation For job oriental professional/ technical courses offered
by reputed universities.
Post graduation MCA, MBA, MS etc.
Courses conducted by CIMA- London, CPA in USA etc.
Documents to be furnished
Proof of being an Indian national I.e. School leaving certificate.
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Letter confirming selection through Entrance Test.
Letter confirming admission to foreign university/ institutions.
Brochure of the educational institution stating the amount of fees
charged.
Housing Loan
Purpose
To provide housing finance to public in general for the following
purposes
For construction of new house/ flat.
For outright purchase of house / flat (new or old)
For repairs/ renovation of the existing house/ flat. Home conversion loan.
Bridge loan.
Stamp duty loan.
Refinance loan scheme.
Takeover of housing loan from other bank/ institution.
Additional loan on account of escalation of cost/ for expansion
etc.
Eligibility
Salaried persons, professional / Businessmen having
sufficient disposable income to meet the repayment. The
repayment. The employment should be in state / central
Govt., public or private Sector Companies, Establishment of
repute. The sanctioning authority should be satisfied about
repaying capacity of employee.
Farmer having minimum five acres of irrigated land holding
Non Resident Indian are also eligible for the loan
Age Criteria :
Minimum : 21 Years
Maximum : 50 Years in case of salaried persons
55 Years for application other i.e. Business, professionals
etc.
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INTEREST RATE OF BANK OF MAHARASTRA
General institution on application of interest
The interest rate charge on loan / advance credit or any other
financial accommodation granted or discount sance bills shall
be in accordance with the directives on interest on advance with
the directives on interest rate on advance issued by RBI from
time to time.
The BPLR, whenever application, is uniformity application to all
branches of the bank.
The effect of revision of interest rate shall be application on all
the existing advance from the effective date of the revised
interest rate. This is not application in case of advance
sanctioned fixed rate of interest.
Interest at the specified rate shall be charge at monthly rests
from April
The term loan and the working capital facilities shall be clubbed
together for the purpose of determining the size of the advance
also the applicable rate of interest is not determined on the size
of the advance.
Whatever application the rate of interest is to be charged as per
credit rating of the borrower accounts 5.
Unless specified in the individual sanction term, the quoting of
the rate of the interest to the borrower shall always be
expressed as so many percentage points above banks BPLR the
case may be. Prohibition on offering Zero percentage interest finance scheme
for consumer durables.
Instruction on charging interest at monthly rests
Shall not be applicable to agriculture advance and
Bank shall continue to following the exiting practice
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Of charging compounding of interest on agriculture. Advance linked to crop
seasons.
Interest application for the non performing asset account which is notsuit field or decreed debts.
It should ensure that in respect of NPA account, the interest is
calculated as per revised interest rate structure. But not charged to the
account.
The calculation of product and interest amount so arrived at should
noted on the ledger every months / quarter / half year as application
without fail for updating and knowing the full interest liability at any
point of time .
In case decreed account the interest has to be calculate as per the
terms of decree.
Benchmarks prime lending rate of bank:
The BPLR is 13.25% from feb-2008: earlier BPLR was 11.25% from 2006 to
2007.
Interest rate on advance as per credit ratings.
Working Capital Limit with / without term loan
component
Rating Market out of 100 Interest rate
MB-1 93-100 BPLR-2.00%
MB-2 86-92 BPLR-1.50%
MB-3 81-92 BPLR-1.005%
MB-4 76-80 BPLR-0.75%
MB-5 71-75 BPLR-0.25%
MB-6 66-70 BPLR+0.25%
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MB-7 65-75 BPLR+0.75%
Loan without any Working Capital Component (term
loans Rs. 5.00 lakh)
Ratings Market out of 70 Interest rate
MBT-1 66-70 BPLR-1.50%
MBT-2 61-65 BPLR-1.00%
MBT-3 56-60 BPLR-0.50
MBT-4 51-55 BPLR+0.25
MBT-5 Below 49 BPLR+0.75%
The size wise rate of interest applicable for the new
SME.
Size of advance Rate of Interest
Up to Rs. 50000/- BPLR-2.50%
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Above 50000/-to 2.00 lakhs BPLR-2.00%
Above 2.00 lakhs / to 25 lakhs BPLR-0.75%
Above 25 lakhs to 1.00crore BPLR
Above 1.00 crore BPLR+1.00%
Housing loans floating interest rate for loans:
Tenor Sanctioned loan amount
up to 20.00 lakhs
Sanctioned loan amount
Above 20.00 lakhs
Up to and inclusive 10
year
BPLR- 3.50 % BPLR 3.25 %
Above 5 year up to and
inclusive 10 year
BPLR 3.25 % BPLR 2.75 %
Above 10 year but below
20 year
BPLR 3.00 % BPLR 2.50 %
Rate of Interest for repair and renovation is BPLR
3.25 %
Fixed rate of interest for housing
particular Up to 5 years Above 5 year lass 10 year
Sanctioned loan up to 20lakh 10.50 % 11.00 %
Above 20.00 lakh 10.75 % 11.50 %
Consumer loans:
Particular Interest rates
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Consumer loan BPLR
Loan for 2 wheelers BPLR 1.50 %
Loans for 4 wheelers BPLR 1.50 %
Maha bank Education Loan :
Slab loan amount Exiting rate Revised from 11.02.2008
Up to and inclusive of Rs
4.00 years
BPLR 0.75% BPLR 1.25%
Above 4.00 lakhs BPLR BPLR 0.50 %
Discount for woman borrower basis point.
Under maha bank family card scheme ( 100 basis point discount)
Financing of trade and service :
Size of advance cash credit / WC / limit /
term loan.
Rate of Interest
Up to lakhs BPLR
More than 5 lakh and less than 25 lakh BPLR + 1.50 %
Above 25 lakhs BPLR + 2.50 %
Interest rate on agriculture advance :
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Cash credit / WC limits Rate of Interest
25000 up to BPLR 3.00 %
Above 25000 & up to 1 lakh BPLR 2.50 %
Interest rate on the categories of advances
TOD in CA BPLR + 4.00 %
EOD S granted for WC limits 2% over the rate of interest applicable
for the WC facility of borrower
DRI loans 4%
Loan against lack manual deposit 10%
Advance to firm engaged in leasing &
hire purchase activity
BPLR + 4.00 %
Advance to promoter & builders BPLR + 4.00 %
Interest rate on export credit
Category ( per shipment
credit )
Rate of Interest ( past ) Rate of Interest ( revised
)
Up to 180 days 8.00 % 7.50 %
Beyond 180 days up to
270 days
10.50 % 10.00%
Beyond 270 day up to
360 days - BPLR + 4.00 %
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Beyond 360 days till
liquidation of advance
- 7.50 %
Against incentives
receivable from GOVT
Conversed ECGC
8.00 % 10.00 %
Beyond 90
days up to 6
months from
date of
shipment
10.50 % 10.00 %
Highlight of the bank
Issued
Subordinated bonds of Rs. 170 crore in August 1999, Rs. 50 crore in
Feb.2001 and Rs. 100 crore in January 2002 to augment Tier II capital. The
bank holds Tire II capital of Rs. 619.20 crore.
During February march 2004, the bank come with its Initial Public Offer of10 crore share of Rs. 10 each at a premium of Rs. 13 amounting to Rs. 230
crore,.
Total business more than Rs. 43900 crore of which total deposit more than
Rs. 26900 crore and gross advance more than Rs. 17,000 crore as at 31st
March 2006.
Branch network comprises of 1300 branch and 32 extent ion
Specialized
Branches :
o Overseas branches2o Industrial Finance branches -2
o S.S.I. branches
o Agro High Tech branches 4
25 FEX centers with total turnover (Merchant + Interbank) of more than
Rs.1.18, 600 crore.
Toll free telephone at 10 major Metro centers. Tele banking and remote
access facility at 83 and 41 branches respectively.
Implemented Money Management Scheme (MMS) from Sep 2000 for
speedy collection of cheques.
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Credit Card and Kinas Credit Card facility available. More than 1, 39,000
Kinas credit card issued.
Lending to priority sector was 42.71% , which is more than stipulated norms
of 40%
Finance to various non-traditional activities through self help group (SHGS)that have proved to be effective instrument for woman empowerment.
Establishment Mahabank Self Employment Training Institute (MSETI) at
Hadapsar, pune under the aegis of MARDEF in coordination with NABARD
and Maharashtra State Government in December 2001. The institute has
opened new centers at Aurangabad & Nagpur in 2003 2004.
Loans for housing, which is a national priority, were to the tune of Rs.
2576.13 crore as of March 2006.
Sponsored three Regional Rural Bank in Maharashtra.
Convener for state Level Banker committee for Maharashtra
Assuming responsibility of lead Banker in 6 districts i.e. pune, Nasik, Satara,
Thane, Aurangabad, and jalna District of Maharashtra state. Establish Rural
Development Centers at Hadapsar and bigram in Maharashtra.
Established two trust especially for rural development
Mahabank Agriculture Research & Rural Development Founding
(MARDDEF)
For strengthening MIS and creating comprehensive database of all advance
accounts, credit Monitoring and administrative system (CREAM) wereintroduction successfully.
Establishment joint venture banking E-infrastructure company Magic E-
company Ltd
Floating subsidiary company The Maharashtra Executor & Trustee
Company Ltd. (METCO) which undertakes Trustee Business Property
Management and Tax Consultancy as well.
Assuming responsibility of town official language Implementation committee
(TOLIC) at Mumbai: pune & solapur . Bank is convener of TOLIC in pune and
Mumbai: Ministry of Home Affairs, Government of India awarded Third prize to
TOLIC Mumbai. Various TOLIC awarded to Akola, Jabalpur, Chandigarh, Kolhapur,
Kolkata, and Bangalore.
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CHAPTERIIIWORKING
CAPITAL
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MANAGEMENT
CHAPTERIII
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WORKING CAPITAL MANAGEMENT
Learning Objective:
To study major forms of working capital finance provide by the banks To note down basic principles of bank financing -5C s
To know the recommendation made by Tendon committees
To Learn about Credit authorization scheme Bank Credit (Working Capital
Finance by commercial Banks
Working Capital Financing by Banks:
It is well known fact the working capital financing by the commercial bank (as also,
of late, by other institution like HDFC, etc,) still contribute a major portion of such
financing. Accordingly, the assessment and disbursement of working capital loan by
bank (and the other financing institution) have exclusively been discussed.
Whenever all the three method of assessing the working capital requirement.
1) Projected balance sheets
2) cash bought method
3) project yearly turn over.
Bank credit is the primary institution source of working capital finance in India . The
following are the different aspects of source of finance:-
I. Application and Processing
II. Sanction and term of condition
III. Forms of bank finance
IV. Nature of security
V. Margin amount
Application and processing
A Customer seeking an advance is required to submit an appropriate application
form there are different types of application from for different categories of
advance. The information furnished in the application covers, inter alia, the
following:-
a. The name and address of the borrowers and his established
b. The detail of the borrowers business
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c. The nature and amount of security offered
The application from has to be supported by various ancillary statement like the
financial statement and financial projection of the firm. The application is processedby the branch manager or his filed staff. This primarily involved an examination of
the following factors:-
a. Ability , integrity and experience of the borrower in the particular business
b. General prospects of the borrowers business
c. Purpose of advance
d. Required of the borrower and its reasonableness
e. Adequacy of security
f. Provision of security
g. Period of repayment
Sanction, term and condition
Once the application is duly processed, it is put up for sanction to the appropriate
authority. The sanctioning powers of various officials like Branch Manager,
Regional Manager, and General Manager are defined by virtue of the position
they occupy.
If the sanction is given appropriate authority along with the sanction of advance the
bank specifies the term and condition application to the advance. These usually
cover the following:-
a. The amount of loan or the maximum limit of the advanceb. The nature of the advance
c. The period for which the advance will be valid
d. The rate of interest application to the advance
e. The security to be charged
f. The insurance of the security
g. The detail of collateral security
h. The margin to be maintained
i. Other restriction or obligation on the part of borrower
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It is a common banking practice to incorporate important terms and condition on a
stamped security document to be executed by the borrower. This help the bank to
create the required charge on the security offered and also obligation the borrower
to observe the stimulated term and condition.
Form of Bank finance
A firm can draw funds from its bank within the maximum credit limit sanction. It
can draw fund in the following forms:-
a. Loan
b. Cash Credit
c. Overdraftd. Purchasing and discounting of bill
e. Letter of Credit
Loan:
When a bank make an advance in lump sum against some security it is
called a loan commercial bank generally provide short term loan up to one
year for meeting working capital requirement. The term loans may beeither medium term or long term. In case of a loan a specified amount
sanctioned by the sanctioned by the bank to the customer. The entire loan
amount is paid to the borrower either in cash or credit to his account .The
borrower is require to pay interest on the entire amount of the loan from
the date of the sanction .A loan may be repayable in lump sum or
installment .Interest on loan is calculate at quarterly rest and where
repayment are stipulate in installments, the interest is calculated quarterly
rest on the reduced balance.
Cash Credit:
A cash credit is an arrangement by which a bank allows his customer to
borrower money up to certain limit against some tangible securities or
guarantees. The interest is charge on the daily balance and not on the
entire amount of the account. Hence it is the most favorite mode of borrow
ring by industrial and commercial concerns.
Overdrafts:
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Overdraft means an agreement with a bank by which current account holder is
allowed to withdraw more than the balance to his credit up to a certain limit.
The interest is charge on daily overdrawn balance. The main different between
cash credit and overdraft is that overdraft allowed for a short period and is a
temporary accommodation whereas the cash credit is allowed for a longer
period. Overdraft can be clean overdraft partly secured or fully secured.
Purchasing and discounting of bill :
In this case a bank lends without any collateral security .the seller draws a bill of
exchange on the buyer of goods on credit. Such a bill may be either a clean bill
or a documentary bill which is accompanied by document of title to goods such
as railway receipts. The bank purchases the bills payable on demand and credits
the customers accounts with the amount of bill less discount. At the maturity
of the bills. Bank presents the bill to its acceptor for payment. In case the bill
discounted is dishoard by non-payment. The bank recovers the full amount of
the bill from the costumer along with expenses in that connection.
Letter Of Credit
A letter of credit is an arrangement whereby a bank helps its customer to obtain
credit from its (customers) suppliers. When a bank opens a letter of credit in
favor of its customer for some specific purchases, the bank undertakes theresponsibility to honor the obligation of its customer, should the customer fail
to do so. To illustrate, suppose a bank assumes the opens a letter of credit in
favor of A for some purchases that A plans make a payment to from B. If doses
not make a payment to B within the credit period offered by B, the bank
assumes the liability of A for the purchases covered by the letter to A when a
bank opens a letter of credits in favor of A. It is clear from the preceding
discussion that under a letter of credit arrangement the credit is provided by
the supplier but the risk is assumed by the bank which open the letter of credit.
Hence, this indicates from of financing as against overdraft, cash credit. Loans
and bill purchasing/ discounting which are direct from of financing. In directfinancing the bank assumer risk as well as provides financing.
4. Security
Banks generally do not provide working capital finance without adequate
security. The following are the modes of security which a bank may require.
Hypothecation:
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Under hypothecation the borrower is provided with working capital finance by
the bank against the security of movable property, inventories. The borrower
does not transfer the property to the bank; he remains in the possession of
property made available as security for the debt. Thus hypothecation is a charge
against property for an amount of debt where against property for amount of
debt where neither ownership nor possession is passed to the credit. Banks
generally grant credit hypothecation only to first class customer with highest
integrity. They do not usually grant hypothecation facility to new borrower.
Pledge:
Under this arrangement, the borrower is requiring to transfer the physical
possession of the property offered as a security to the bank obtain credit. The
bank has a right of lien and can retain possession of the goods pledge unless
payment of the principle , interest and any other expresses is made In case of
default , bank any either.
Sue the borrower for the amount due,
Sue for the sales of good pledge
After giving due notice , sell the goods
Mortgage :
a. Mortgage is the transfer of a legal or equitable interest in a specific
immovable property for the payment of a debt. In case of mortgage, the
possession of the property may remain with the borrower, with the lender
getting the full legal title. The transfer of interest is called the mortgage, the
transferee is called the mortgage, and the instrument of transfer is called
the mortgage deed .The credit granted against immovable property has
some difficulties. They are not self liquidating. Also there are difficulties in
property ascertain the title and the assessing the value of the property.
There is limited marketability, and therefore, security may obtain be difficult
to realize. Also, without the court decree the property can not be sold.
Usually for working capital finance the mode of security is either
hypothecation is pledge Mortgage may be taken as additional security.
Lien:
Lien means right of the lender to remain property belonging to the borrower unit
he repays credit .It can be either a particular lien or general lien. Particular lien is a
right to retain property until the claim associated with the property is fully paid
.General lien, on the other hand, is application till dues of the paid .Bank usuallyenjoy general lien.
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Margin Account:
Bank do not provide 100% finance .They insist that the customer should bring a
portion of the required finance from other sources. This portion is known a marginaccount. How is the margin account established? Whole is no fixed formula for
determine the margin account the following guideline is broadly observed: The
margin is kept lowest for raw material and highest for account receivable
Basic Principle of Bank Financing-5Cs
The traditional approach to credit analysis credit calls for assessing a prospective
customer in term of the 5Cs of credit
Character:The willingness of the customer to honor his obligation. It reflects integrity,
a moral attribute that is consideration very important by credit manager.
Capacity:The ability the customer to meet credit obligation from the operating cash
flows.
Capital:The financing reserve of the customer if the customer has difficulty in
meeting his credit obligation from the operation cash flow. The focus shiftto its capital.
Collateral:The security offered by the customer in the form of pledged assets.
Condition:The general economic conditional that after the customer A firm may rely
on the following sources to obtain information on the 5Cs
Financial Statement:Provide useful insight in to the creditworthiness of the customer Ration such
as current ratio , acid , debt -equity ratio, BIT to total assets ratio return on
equity.
Bank references:to ensure higher degree of can dour, thecustomers banker may be approached indirectly through the bank of the
firm granting credit.
Experience of the firm: if the firm had previous dealing with thecostumer, then is worth how prompt has the customer been in making
payments? How will has the customer honored his word in the past?
Where the customer is being approached for the first time, the impression
of the companys sale personal is useful.
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Prices and yield on securities: Higher the prices
multiple and lower the yield on bonds other being equal, lower
will be the credit list.
For the sake of simplicity, only 3cs namely character, capital and
capital are considered. For judging a customer on thesedimensions, the credit analyst may use quantitative measures
and qualitative assessment.
Tendon committee report
Like many other activities of the banks, method and quantum of short-term
finance that can be granted to a corporate was mandated by the Reserve
Bank of India till 1994.this control was exercised on the lines suggested bythe recommendations of a study group headed by shree parkash tandon.
The study group headed by shri prakash tendon, the then chairman of
Punjab national bank, was constituted by the RBI in July 1974 with eminent
personalities drawn from leading banks, financial institution and wide cross-
section of the industry with a view to study to study the entire gamut of
Banks finance for working capital and suggest ways for optimum utilization
of bank credit. This was the first elaborate attempt by the central bank to
organize the bank credit. The report of this group is widely known as
tendon.commity report. Most banks in India even today continue to look at
the needs of the corporate in the light of methodology recommended by
group.
As per the recommendation of tendon committee. The corporate should be
discourage from accumulating too much of stocks of current assets and
should move towards very lean inventories and receivable levels. The
committee even suggested the maximum levels. The Committee, even
suggest the maximum levels of Raw Material, stock in process and finished
goods which a corporate operating in an industry should be allowed to
accumulated these levels were terms as inventory and receivable norms
Depending on the size of credit required, the funding of these current assets
of the corporate could be met by one of the following methods:
First Methods Of Lending :Banks can work out the working capital gap , i.e. total current assets less
current liabilities other than bank borrowing ( Called Maximum Permission
Bank Finance or MPBF and finance a maximum of 75 per cent of the gap ;
the balance to come out of long term funds , i.e. owed funds and term
borrowing . This approach was considered suitable only for very small
borrower i.e. where the required of credit were less than Rs. 10 lacs.
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Second Method Of lending :Under this method , it was though that the borrower should provide for a
minimum of 25% of total current assets out of long term funds i.e. owned
plus term borrowing .A certain level of credit for purchase and other
current liabilities will be available to fund the build up of current assets andthe bank will provide the balance (MPBF) . Consequently, total current
liabilities inclusive of bank borrowing could needs of all borrower enjoying
fund based credit facilities of more than Rs. 10 lacs should be appraisals
under this methods.
Third Method Of Lending :Under this method, the borrower contribution from long term funds, will
be to the extent of the entire CORE CURRENT ASSETS, Which has been
defined by the study Group represented the absolute minimum level of raw
materials , process stock finished goods and store which are in the pipelineto ensure continuity of production and minimum of 25% of the balance
current assets should be financed out of the long term funds plus term
borrowing .
Other major recommendations of the committee were:
No slip back in current ratio, normally
Classification guidelines for current assets and current liabilities
Identification system, which was modification by Chore Committee
Recommendation. Bifurcation of limit into loan and demand component
Nayak Committees:
Considering the contribution of the SSI to the overall industries
production export and employees and also recognizing the need to give
fillip to this sector , a special package of measure was devised by RBI
(during April 1993) to ensure adequate and timely credit to this sector
while doing so the recommendation of the PR nayak committee were
taken into account Examination of bank finance profit of working
capital to the small scale sector by the committee has revealed that this
sector as a whole received a level of working capital which was only
8.1% of the its output .The village industries and the smaller tiny
industries among then could get working capital finance to the Bank
have been advices to give preference to village industries , tiny
industries and other small scale unit in that order while meeting the
credit requirement of small scale sector.
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The bank should step up the credit flow to meet the
legitimate requirement of the SSI sector in full during the 8th
5- year plan. For this purposed the bank should draw up
annual credit budget for the SSI sector on a bottom up
basis. Each branch of the banks should prepare an annualbudget in respect of working capital required of all SSIs
before the commencement of the year. Such budgeting
should cover.
a)Functioning units which already have borrowing limits with the
branch
b)New unit whose proposals are under appraisal andc)Sick units under nursing and also sick unit found viable after
discussion / feedback received from the borrowing units.
The budget should take into account, among other relevant aspects,
normal sale growth price during the past yearn, anticipate spurt in
business etc.
It is desirable that a single financial agency meets both therequirement of the working capital and term credit for small
scale units. The single window scheme of SIDBI enables the
same agency SFC or commercial bank, as the case may be to
provide term loan and working capital requirement up to Rs.
10 lacs .The banks have been advised to adopt this
approach.
At present norms for inventory and received are application
to all units enjoying aggregate fund based working capital
credit limits of Rs. 10 lacs and above from the banking
system. Unit enjoying limit of Rs. 10 lacs and above but up to
Rs.10 lac are subject to the 1st
method of lending.
Henceforth for the credit requirement of village industries,
tiny industries and other SSI units having aggregate fund-
based working capital credit limit up to Rs. 50 lac
(subsequently raised to Rs. 1 crore and Rs. 200 lac during
April 1997, to Rs400 lac during August 1998 and future to Rs.
500 lac during May 1999) from the banking system, thenorm for inventories and receivables and also the 1st
method
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of lending will not apply . Instead such units may be provide
working capital limits computed on the basis of a minimum
of 20% of their project annual turnover for as well as exiting
units.
Bank point Of view :
Working capital to sales ratios: Sales / working
capital
This ratio is compute by dividing working capital by sales. This ratio helps to
measure the efficiency of the utilization of net working capital. It signifies that
for amount of sales, a relative amount of working capital is needed. If any
increase in sales is contemplated, working capital should be adequate and
thus, this ratio helps management to maintain the adequate levels of working
capital.
Inventory Ratio : Sale / Inventory
This ratio indicate the effectiveness and efficiency of the of the inventory
management. The ratio shows how speedily the inventory is turned into
account receivable through sales .The lower the inventory to sales ratio ,
the more efficiently is said to be managed and vice-versa.
Current assets Turnover Ratio : Sales / Current Assets
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The ratio indicate the efficiency in which current assets turn into sales. A
lower current assets to sales ratio implies by large a more efficient use of
fund . Thus , a high turnover rate indicates reduced lock- up fund in current
assets . An analysis of this ratio over a period of time reflects working
capital management of a firm.
Current Ratio : current Assets / Current liabilities
This ratio indicates the extent of the soundness of the current financial
position of an undertaking and the degree of safety provide to the creditor.
The higher the current ratio the larger amount of rupees available pert
rupee of current liability , the more the firms ability to meet current
obligation and the greater safety of fund of short term creditor . Currentassets are those assets which can be converted into cash within a year
current liability and provide are those liability that are payable within a
year A current ratio of 2:1 indicates a high solvents position. A current ratio
of 1:33:1 is considered by bank as minimum acceptable level for providing
working capital finance The constituents of the current assets are as
important as the current assets themselves for evaluation of companys
solvency Position
Structural Health Ratios :
Current Assets to total Net Assets = Net Assets /Current Assets
This ratio explains the relationship between current assets and total
investment in assts. A business enterprise should use in current assets
and economically because it is out of the assets that profit accrues. A
business will end up in losses if there is any lack in management the
assets to the advantage of business Investment in fixed being inelastic
in nature, there is no elbow room to make amends in this in fixed and its
impact on profitability remains minimal.
Composition of Current assets
An analysis of current assets components enable one to examinee in
which component the working capital funds are locked up. A large tie-
up of funds in inventories effects profitability of the business adversely
owing to carry over costs. In addition losses are likely to occur by way
of depreciation, decay, obsolescence, evaporation and so on, receivable
instituting another component of current assets. If the major portions of
current assets are made up of cash alones. The profitability will because
cash is a non-earning asset. If the portion of cash balance is excessive,
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then it can be said that managements is not efficient to employs the
surplus cash.
Debtors Turnover Ratio: = Sales/Debtors=365
This ratio shows the exteT. Thus, it is an indicative of efficiency of tradecredit management. The lower the debtors to sales ratios, the better the
trade credit management and the better the quality (liquidity) of
debtors. The lower debtors mean prompt payments by customers. An
excessively long collections period, on the other hand, indicates a very
liberal, ineffective and inefficient credit and collections policy.
Average collection period (in days) =Debtor/sales=365
Average collection period, which measures how long in takes to collect
amounts from debits. The actual collection period can be comparedwith the stated credit terms of the company. If it is longs than those
terms. Then this indicates some insufficient in the procedures for
collecting debits.
Bad debts to sales= Bad Debts/sales
This ratio indications the efficiency of the control procedures of the
company. The actual ratio
Recommended