A THOROUGH REPORT ON FINANCIAL STATEMENT ANALYSIS AND STUDY OF BANK FINANCE FOR WORKING CAPITAL REQUIREMENTS

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SUMMER INTERNSHIP REPORT
On
Financial Statement Analysis
& Study of Bank finance for working capital requirements.
In Kashi Gomti Samyut Gramin Bank.
By
Rajeshwar Ojha
(Enrollment No. -349179)
Under esteemed guidance of
Mr. Aditya Kumar, Chief Manager (Credit Dept.)
Head office, KGSG Bank.
In partial fulfilment of the requirements of award of the two-year
degree programme
Master of Business Administration (Financial Management)
2015-17
By
Banaras Hindu University, Varanasi

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A Project Report
On
“financial statement analysis and
Study of bank finance for working
capital requirement”
By,
RAJESHWAR OJHA

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ACKNOWLEDGEMENT
My internship report is an accumulation of endeavour of many people. I
would like to express my sincere gratitude to everyone who contributed in
some way or the other towards preparation of this summer internship
report and making this study successful.
First of all, I would express my sincere gratitude towards
my executive guide Mr. Aditya Kumar, General Manager (Credit
Dept.) for his valuable guidance, keen interest and encouragement at
various stages of my training period. I express my deep and sincere
gratitude to Mr. D. K. Tiwari, Manager (Credit Dept.). I am deeply
indebted to his whole hearted supervision, guidance, suggestions and very
constructive criticism, which have contributed immensely to the evolution
of my ideas on the project.
I would also like to thank the HR department of KGSG
Bank and my faculty, Faculty of Commerce for giving me an opportunity
to do my summer internship in this eminent organization. The experience
and knowledge gained in KGSG Bank helped me to understand different
aspects of my study. I am grateful to entire team of Credit Department
of KGSG Bank and KGSG Bank for the support and friendly and helpful
environment during the course of this internship.

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aBOut rrB’s and KGsG BanK
Regional Rural Banks (also RRBs) are local level banking
organizations operating in different States of India. Regional Rural Banks were
established under the provisions of an Ordinance passed on September 1975 and
the RRB Act. 1976 to provide sufficient banking and credit facility for agriculture
and other rural sectors. These were set up on the recommendations of The M.
Narasimham Working Group during the tenure of Indira Gandhi's government with
a view to include rural areas into economic mainstream since that time about 70%
of the Indian Population was of Rural Orientation.
The development process of RRBs started on 2 October 1975 with
the forming of the first RRB, the Prathama Bank with authorised capital of Rs. 5
crore at its starting. Also on 2 October 1976 five regional rural banks were set up
with a total authorised capital Rs. 100 crore ($10 Million) which later augmented to
500 crore ($50 Million).
Union Bank of India sponsored 4 RRBs in India of which 3 were
in the state of Uttar Pradesh. These three Banks were Kashi Gramin Bank, Gomti
Gramin Bank and Samyut Kshetriya Gramin Bank. Samyut Kshetriya Gramin Bank,
with its headquarter at Azamgarh was established on January 06, 1976. It covered 4
districts (Azamgarh, Ghazipur, Mau and Ambedkar Nagar) with a network of 168
branches and 5 extension counters. With the onset of Globalization and financial
reforms all over the world, self dependency became the keyword in banking industry.
There were no choices left to Government of India than to consolidate the RRBs. In
this process the government of India embarked upon a process of amalgamation of
RRBs which were adjacently situated and sponsored by the same sponsoring bank.
Due to this process of amalgamation the number of RRBs has reduced from 196 to
83 with 15155 branches which cover 615 districts of the country. 68476 employees
are serving the rural as well as urban mass of the country.
In this process Kashi Gramin Bank, Gomti Gramin Bank and
Samyut Kshetriya Gramin Bank sponsored by Union Bank of India in U.P. were
amalgamated by Government of India on 12th September 2005. Thus came into
existence the Kashi Gomti Samyut Gramin Bank.
On 31st March 2016, the bank with deposits to the tune of
Rs.8498.22 Crore, Advances of Rs.2421.73 Crore, NPA level Rs.266 Crore and
reached various benchmarks like (Social Banking Excellence Award 2015) in rural
banking sector.

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ORGANISATIONAL SETUP & VISION
The Organizational Structure for RRB's varies from branch to
branch and depends upon the nature and size of business done by the branch. The
Head Office of an RRB normally had three to seven departments.
The following is the decision making hierarchy of officials in a Regional Rural
Bank.
 Board of Directors
 Chairman & Managing Director
 General Manager
 Chief Manager/Regional Manager
 Senior Manager
 Manager
 Assistant Manager
Along with other supporting staffs and personnel at branches.
Kashi Gomti Samyut Gramin Bank was established with a objective
"To become the most preferred bank with commitment towards social responsibility
and enhancement of value of all stake holders through customer centric approach by
adopting noble ways of banking, modern technology and good corporate
governance."
- To build a sizeable market shares in each of the chosen areas of business through
effective strategies in terms of pricing, product packaging and promoting the
product in the market.
- To sustain the mission objective through harnessing technology driven banking
and delivery channels.
- To promote confidence and commitment among the staff members to address the
expectations of the customers, efficiently and handle technology banking with ease.
And with complying its commitment the bank achieved the landmark of
converting its 100 percent branches on Core Banking Platform.

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INTRODUCTION
Financial statement analysis is the process of identifying the financial
strengths and weaknesses of the firm and establishing relationship between the items
of the balance sheet and Profit & loss account. Financial ratio analysis is the
calculation and comparison of ratios, which are derived from the information in a
Enterprise’s financial statements. The level and historical trends of these ratios can
be used to make inferences about a company’s financial condition, its operations and
attractiveness as an investment.
Working capital is the fund invested in current assets and is needed for
meeting day to day expenses. It is defined as a organisation’s current assets minus
current liabilities on the date a balance sheet is drawn up. Working capital is said to
be the life-blood of an enterprise. Working capital, therefore, needs to be maintained
at an adequate level. Working capital financing is a specialized area and is designed
to meet the working requirements of a business. The main sources of working capital
financing are trade credit, bank credit, factoring and commercial paper.
Cash Credit (CC) is the most useful and appropriate type of working
capital financing extensively used by all small and big businesses. It is a facility
offered by banks whereby the borrower is sanctioned a particular amount which can
be utilized for making his business payments. The borrower has to make sure that
he does not cross the sanctioned limit. Best part is that the interest is charged to the
extend the money is used and not on the sanctioned amount which motivates him to
keep depositing the amount as soon as possible to save on interest cost. Without a
doubt, this is a cost effective working capital financing. The objective of this study
is to analyse the role of financial statement analysis and the role of bank credit in
financing working capital needs of firms. It also focuses on the guidelines followed
by regional rural banks in India regarding the appraisal process of cash credit with
specific reference to Kashi Gomti Samyut Gramin Bank.

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FINANCIAL STATEMENT ANALYSIS
Financial analysis means assessment of the sustainability, solidity and
profitability of a trade. Analysis of financial statements is known as financial
analysis. Financial statements (or financial reports) are formal records of the
financial activities of a business, person, or other entity. Financial Statements
articulate about the financial affairs of a business organization in both short and long
term. For a business enterprise, all the relevant financial information, presented in a
structured manner and in a format, which is easy to understand, are called the
financial statements. Financial Statement Analysis is a method of reviewing and
analyzing a company’s accounting reports (financial statements) in order to gauge its
past, present or projected future performance. This process of reviewing the financial
statements allows for better economic decision making.
There are many methods and techniques are used in analysis of
financial statements such as
(i). Comparative statements/Trend Analysis (Comparison is done of current
performance with past figures of the same business concern), which is called
Historical standard.
(ii). External Standards (comparison between two business concerns engaged in
same line of business, with more or less same infrastructure and production
capacities. Comparison can also be made with ‘Industry average’),
iii. Goals/Corporate planning & Policies (Comparing the actual performance with
the budgeted performance, to find out whether actual performance is good, to the
set in goal in the prevailing circumstance.)
(iv). Experience (We have to accept that the information provided in the financial
statements is not an end in itself, as no meaningful conclusions can be inferred
from these statements alone. Therefore banker builds up his own judgment by
appraising schedule of changes in working capital, common size percentages, funds
analysis etc.).

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The comprehensive and up-to-date information is needed to an analyst in risk
assessment and credit evaluation.
Thus, the findings based on ratio analysis have to be studied along
with the funds flow analysis, Cash flow analysis, other financial data such as Notes
to balance sheet, Auditor’s report, Director’s report and other non-financial data
having a bearing on financial events. The ratios may not make conclusion
themselves, however, ratio analysis are of immense use to financial analysts for
making further investigation and in making final decisions. This is because; ratios
provide financial analyst certain yard stick to evaluate the financial condition and
performance of a firm, as ratios reduce large figures to an easily understandable
relationship. Therefore, ratio analysis has gained wide acceptance as a quantitative
technique of financial management. The ‘ratio technique’ is also widely used by
banks and financial institutions all over the world.
Ratio analysis is the most common form of financial analysis. It
provides relative measures of the firm's conditions and performance. Financial
Statement discloses the internal structure of the firm. It indicates the existing
relationship between sales and each income statement account. It shows the mix of
assets that produce income and the mix of the sources of capital, whether by current
or long term debt or by equity funding.
Financial ratios are useful indicators of a firm's performance
and financial situation. Financial ratios can be used to analyze trends and to compare
the firm's financials to those of other firms. Ratio analysis is the calculation and
comparison of ratios which are derived from the information in a company's financial
statements. Financial ratios are usually expressed as a percent or as times per period.
It is defined as the systematic use of ratio to interpret the financial statements so that
the strength and weaknesses of a firm as well as its historical performance and current
financial condition can be determined.

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Ratio Analysis:-
Meaning of ratio:
The term ratio means a simple division of one number
by another. It is measured by the number of times one number is contained by the
other, either integrally or in fraction.
Generally, the ratios are of following three kinds:-
i) Balance sheet ratio: Balance sheet ratios indicate the relationship between
various balance sheet items.
ii) Operating ratio: The operating ratios exhibit the relationship of expense
accounts to income.
iii) Inter-statement ratio: Inter-statement ratios show the relationship of balance
sheet items to income and expenses accounts.
Further ratios can be classified into three broad categories which are as under.
(i) Structural ratios: Examples of structural ratios are Current Ratio, Quick ratio,
proprietary or equity asset ratio, fixed assets to tangible net worth , current debt to
tangible net worth, total debt to tangible net worth, inventory to net working
capital, current debt to inventory etc.
(ii) Profitability ratios: Examples of profitability ratios are ‘Net profit on net
sales’,’ Net profit on tangible Net worth’, ‘Gross profit to net sales’, ‘Net profit to
total sales’ etc.
(iii) Turnover ratios (inter-statement ratios): Examples of Turn over ratios are
Sales to receivables, sales to inventory, Sales to total assets. Turnover ratio is also
known as inter-statement Ratio.
a) Net working capital: It shows how much a firm has its current assets after
deducting all its current liabilities. Mathematically it is given by,
Net working capital= current assets - current liabilities
Positive working capital means the business is able to pay off its short-term
liabilities. A high working capital indicates that the company might be able to
expand its operations.
Negative working capital means that the current business is unable to meet its short
term liabilities with its current assets.

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b) Current ratio: It measures firm ability to pay its debt in a short term notice
(within 12 months). It is a ratio of current assets upon current liabilities.
Current ratio = Current assets / Current liabilities
Current ratio of 2:1 is considered to be acceptable. If current ratio is below 1, then
the company will have problems in paying its bill on time. It has one disadvantage
as it includes inventory which is difficult to liquidate easily so it is not an accurate
measure of liquidity. This ratio indicates credit strength by indicating how much of
current assets are available for meeting each rupee of liability, in the other words,
current ratio measures the solvency and adequacy of working capital in a business.
It also gives the fair idea of over trading. Any rise in the current ratio shows
improved credit strength and fall indicates deteriorating credit strength. Please
remember, higher ratio may be good from the point of view of creditors, in the long
run very high current ratio may affect profitability.
Desirable Current Ratio is 2:1. Generally, acceptable minimum current ratio in
India is 1.33; any persisting trend of less than 1 over a period is a sure indicator of
sickness.
c) Quick ratio: It is a ratio of quick assets (current assets - inventory) upon current
liabilities.
Quick ratio = Quick assets / current liabilities.
Quick ratio should be 1:1. If it is lower than 1:1, it indicates that the firm relies too
much on inventory or other assets to pay its short-term liabilities. The objective is
to know the level of liquidity position to pay off all current liabilities including
Bank Liabilities. The ratio indicates the extent to which current liabilities could be
met without relying upon the sale of stock, which means the size of the liquid assets
that can be readily converted into cash in relation to the total liability. Quick Ratio
should be equal to 1 or more than 1.
d) Cash ratio: It measures the immediate amount of cash available to the firm to
satisfy its short-term liabilities. It is the ratio of cash and marketable securities to
current liabilities.
Cash ratio = (cash + marketable securities) / current liabilities.
Cash ratio of 0.5:1 is preferred. It is the most conservative look at a company’s
liquidity since; it considers only the cash and marketable securities. It is used by
creditors when deciding how much credit; they would be willing to extend to the
company.

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e) Return on Assets (ROA): It measures how efficient firm assets in generating
profit.
ROA= (Net income / Average total assets) × 100.
It is expressed in percentage. Higher the ROA, more money the company is earning
on its assets. A low ROA shows inefficient use of company’s assets.
f) Operating profit margin: It measures firm pricing strategy and operating
efficiency.
Operating profit= (Operating profit / net sales) × 100
It is expressed in percentage. A high operating profit margin indicates the company
is earning per rupee of sales.
g) Net profit margin: It measures how efficient a firm is and how well it controls
its costs.
Net profit margin = (net profit / net sales) × 100
It is expressed in percentage. Higher the net profit margin, more effective the firm
is in converting revenue into actual profit.
h) Return on Equity (ROE): It shows how much profit the company is generating
with the money invested by common shareholders.
ROE = (Net income / Average shareholder equity) × 100
Where,
Average shareholder equity = (shareholder equity at the beginning of year +
shareholder equity at the end of year) / 2
ROE is expressed in percentage. A high ROE is preferred for a high dividend to the
shareholder. ROE depends upon the capital invested in the company. If more
capital investment is there in the company less will be ROE.

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i) Gross profit margin: It measures company’s manufacturing and distribution
efficiency during the production process.
Gross profit margin = (gross profit / net sales) × 100
Gross profit= net sales - cost of goods sold.
Gross profit margin is expressed in percentage. Higher gross profit margin indicates
that the company is able to control its production cost.
Low gross profit margin indicates that the company is unable to control its
production cost.
j) Return on Investments (ROI): A performance quantity used to estimate the
proficiency of an investment or to relate the proficiency of a number of dissimilar
investments.
Return on Investments = (Net profits before tax / Shareholders equity) × 100
It is expressed in percentage. Higher the ROI, more money the company is earning
on its shareholder’s equity. A low ROA shows inefficient use of shareholder’s
equity.
k) Return on Capital employed (ROCE): ROCE compares incomes with capital
financed in the company. It is similar to ROA, but takes into interpretation sources
of financing. It is used to show the value the trade gains from its assets and
liabilities.
ROCE = (net operating profit after tax / capital employed) × 100
Capital employed= Total assets + Current liabilities
Or
Capital employed= Fixed assets + Working capital
Higher ROCE is expected.
l) Return on Long term funds: It tells the amount of money gained by a trade of
an organization from its long term investments.
Return on Long term funds = (EBIT / net sales) × 100
(EBIT- Earnings before interest and taxes)
Higher return on long term funds is expected.

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m) Debt ratio: It is used to determine the overall level of financial risk a company
and its shareholders face due to debt of the company.
Debt ratio= Total liabilities / Total assets
Debt ratio lies between 0 to1. Higher value indicates more risk to company and it
will be difficult to obtain loans for new projects or expansion of any project.
A low value indicates the company is less dependent on the money borrowed from
or owed to others and the company has a strong equity position.
n) Debt-Equity ratio: It indicates how much amount of equity and debt the
company is spending to finance its assets. A portion of a company’s financial
position is calculated by dividing its total liabilities to shareholder’s equity.
Debt-Equity ratio= Total liabilities / shareholder equity
Debt-Equity ratio 1.0 means half of the assets of a firm are financed by debts and
half by shareholder’s equity. Lower value of Debt-Equity ratio indicates less risk to
the firm.
o) Capitalization ratio: It measures the debt component of a company’s
capitalization (i.e. the sum of long term debt and shareholder equity) to support
firm operations and growth.
Capitalization ratio= Long-term debt / (long term debt + shareholders’ equity)
Low value indicates the company is in less debt.
p) Fixed asset turnover ratio: It is a rough measure of productivity of a
company’s fixed assets with respect to general sales. It shows how well a company
has turned its assets into revenue as well as how efficiently a company converts its
sales into cash and increase shareholder value.
Fixed Asset turnover= Sales / Fixed Assets
Higher the ratio, higher is the turnover of the company.
q) Total asset turnover ratio: The total asset turnover signifies the amount of
income generated by a business as an outcome of its assets.
Total asset turnover = Net Sales / Total Assets
Higher the ratio, higher is the turnover of the company.

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r) Interest coverage ratio: It is used to determine how easily a company can pay
interest expenses on outstanding debt.
Interest coverage ratio= EBIT / Interest.
Lower the ratio, more the company is burdened by debt expenses. When a
company’s interest coverage ratio is only 1.5 or lower, its ability to meet interest
expenses may be questionable.
s) Inventory Turnover ratio: The ratio shows how many times a firm's inventory
is sold and substituted done over a period.
Inventory Turnover ratio = Cost of Goods sold / Average Inventory
A low turnover implies poor sales and therefore excess inventory. A high ratio
shows either good sale. High inventory levels are unhealthy because they represent
an investment with a rate of return of zero. It also opens the company up to trouble
should prices begin to fall.
t) Days Working Capital:
An accounting and finance term used to describe how many days it will take for a
company to convert its working capital into revenue.
Days Working Capital = (Average working Capital / Annual Sales Revenue) × 365
The faster a company does this, the better.
Common Size Analysis :-
The term "trend analysis" refers to the concept of collecting information
and attempting to spot a pattern, or trend, in the information. In some fields of study,
the term "trend analysis" has more formally-defined meanings. Although trend
analysis is often used to predict future events, it could be used to estimate uncertain
events in the past. Financial statement information is used by both external and
internal users, including investors, creditors, managers, and executives. These users
must analyze the information in order to make business decisions, so understanding
financial statements is of great importance. Several methods of performing financial
statement analysis exist. I will discuss two of these methods: horizontal analysis and
vertical analysis.

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Horizontal Analysis:
Methods of financial statement analysis generally involve
comparing certain information. The horizontal analysis compares specific items over
a number of accounting periods. For example, accounts payable may be compared
over a period of months within a fiscal year, or revenue may be compared over a
period of several years. It is a procedure in fundamental analysis in which an analyst
compares ratios or line items in a company's financial statements over a certain
period of time. The analyst will use his or her discretion when choosing a particular
timeline; however, the decision is often based on the investing time horizon under
consideration.
Vertical Analysis:
It is a method of financial statement analysis in which each entry for
each of the three major categories of accounts (assets, liabilities and equities) in a
balance sheet is represented as a proportion of the total account. The main advantages
of analyzing a balance sheet in this manner are that the balance sheets of businesses
of all sizes can easily be compared. It also makes it easy to see relative annual
changes in one business. When using vertical analysis, the analyst calculates each
item on a single financial statement as a percentage of a total. The term vertical
analysis applies because each year's figures are listed vertically on a financial
statement. The total used by the analyst on the income statement is net sales revenue,
while on the balance sheet it is total assets. This approach to financial statement
analysis, also known as component percentages, produces common-size financial
statements. Common-size balance sheets and income statements can be more easily
compared, whether across the years for a single company or across different
companies.

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Comparisons:
Financial trend analysis is an applied, practical approach for monitoring the
financial condition of any company through the use of financial indicators. I shall
use technique to compare previous three-year period data and observes how they
change. This would permit an assessment of the current financial condition.
Trend Analysis:
A firm's present ratio is compared with its past and expected future ratios
to determine whether the company's financial condition is improving or deteriorating
over time. Trend analysis studies the financial history of a firm for comparison. By
looking at the trend of a particular ratio, one sees whether the ratio is falling, rising,
or remaining relatively constant. This helps to detect problems or observe good
management.

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WORKING CAPITAL requirements
Any enterprise whether industrial, trading or other acquires two types of
assets to run its business as has already been emphasized time and again. It requires
fixed assets which are necessary for carrying on the production/business such as land
and buildings, plant and machinery, furniture and fixtures etc. For a going concern
these assets are of permanent nature and are not to be sold. The other types of assets
required for day to day working of a unit are known as current assets which are
floating in nature and keep changing during the course of business. It is these 'current
assets' which are generally referred to as 'working capital'. Working capital is that
portion of a firm’s capital which is employed in short term operations. It represents
those funds which are required to manage day-to-day business operations.
There are two concepts of working capital: Gross and Net. Current
assets represent Gross Working Capital. The excess of current assets over current
liabilities is Net Working Capital (NWC) or alternatively the portion of current
assets financed with long-term funds is known as Net Working Capital.
Current assets consist of all stocks including finished goods, work in
progress, raw material, cash, marketable securities, accounts receivables, inventories,
short term investments, etc. These assets can be converted into cash within an
accounting year. Current liabilities represent the total amount of short term debt
which must be settled within one year. The basic current liabilities are creditors, bills
payable, bank overdraft, outstanding expenses, short term loans, etc. The goal of
working capital management is to manage a firm’s current assets and liabilities in
such a way that a satisfactory level of NWC is maintained.
After determining the level of working capital a firm has to decide how
it is to be financed. The need for financing arises mainly because the investment in
working capital / current assets typically fluctuates during the year. Working capital
finance is required to meet the costs involved during the operating cycle or business
cycle. Operating cycle is the period involved from the time raw materials are
purchased to the time they are converted into finished goods and the same are finally
sold and realized. The need for current assets arises because of operating cycle. The
operating cycle is a continuous process and therefore the need for current assets is
felt constantly. Each and every current asset is nothing but blockage of funds.
Therefore, these current assets need to be financed which is done through Working
Capital Financing.

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There is always a minimum level of current assets or working capital
which is continuously required by the firm to carry on its business operations. This
minimum level of current assets is known as permanent or fixed working capital. It
is permanent in the same way as the firm’s fixed assets are. This portion of working
capital has to be financed by permanent sources of funds such as; share capital,
reserves, debentures and other forms of long term borrowings. The extra working
capital needed to support the changing production and sales is called fluctuating or
variable or temporary working capital. This has to be financed on short term basis.
The main sources for financing this portion are Trade credit, Bank credit (Cash credit
/ Overdraft), Term loans, Factoring and Commercial paper.
Committee’s Recommendation (Set-up by RBI):
The following points highlight the seven committees involved in financing working
capital by banks, i.e,
1. Dehejia Committee,
2. Tandon Committee,
3. Chore Committee,
4. Marathe Committee,
5. Chakravarty Committee,
6. Kannan Committee,
7. Nayak Committee.
1. Dehejia Committee Report:
National Credit Council constituted a committee under the chairmanship of Shri V.T.
Dehejia in 1968 to ‘determine the extent to which credit needs of industry and trade
are likely to be inflated and how such trends could be checked’ and to go into
establishing some norms for lending operations by commercial banks.

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The committee was of the opinion that there was also a tendency to divert short-term
credit for long-term assets. Although committee was of the opinion that it was
difficult to evolve norms for lending to industrial concerns, the committee
recommended that the banks should finance industry on the basis of a study of
borrower’s total operations rather than security basis alone.
The Committee further recommended that the total credit requirements of the
borrower should be segregated into ‘Hard Core’ and ‘Short-term’ component.
The ‘Hard Core’ component which should represent the minimum level of
inventories which the industry was required to hold for maintaining a given level of
production should be put on a formal term loan basis and subject to repayment
schedule. The committee was also of the opinion that generally a customer should be
required to confine his dealings to one bank only.
2.Tandon Committee Report:
Reserve Bank of India set up a committee under the chairmanship of Shri P.L.
Tandon in July 1974. The terms of reference of the Committee were:
(1) To suggest guidelines for commercial banks to follow up and supervise credit
from the point of view of ensuring proper end use of funds and keeping a watch on
the safety of advances;
(2) To suggest the type of operational data and other information that may be
obtained by banks periodically from the borrowers and by the Reserve Bank of India
from the leading banks;
(3) To make suggestions for prescribing inventory norms for the different industries,
both in the private and public sectors and indicate the broad criteria for deviating
from these norms ;

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(4) To make recommendations regarding resources for financing the minimum
working capital requirements;
(5) To suggest criteria regarding satisfactory capital structure and sound financial
basis in relation to borrowings;
(6) To make recommendations as to whether the existing pattern of financing
working capital requirements by cash credit/overdraft system etc., requires to be
modified, if so, to suggest suitable modifications.
The committee was of the opinion that:
(i) Bank credit is extended on the amount of security available and not according to
the level of operations of the customer,
(ii) Bank credit instead of being taken as a supplementary to other sources of finance
is treated as the first source of finance.
Although the Committee recommended the continuation of the existing cash credit
system, it suggested certain modifications so as to control the bank finance. The
banks should get the information regarding the operational plans of the customer in
advance so as to carry a realistic appraisal of such plans and the banks should also
know the end-use of bank credit so that the finances are used only for purposes for
which they are lent.
The recommendations of the committee regarding lending norms have been
suggested under three alternatives. According to the first method, the borrower will
have to contribute a minimum of 25% of the working capital gap from long-term
funds, i.e., owned funds and term borrowing; this will give a minimum current ratio
of 1.17: 1.

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Under the second method the borrower will have to provide a minimum of 25% of
the total current assets from long-term funds; this will give a minimum current ratio
of 1.33: 1. In the third method, the borrower’s contribution from long-term funds will
be to the extent of the entire core current assets and a minimum of 25% of the balance
current assets, thus strengthening the current ratio further.
Example:
Total current assets required Rs. 40,000
Current liabilities other than bank borrowings Rs. 10,000
Core current assets Rs. 5,000
1st
Method
Total current assets required Rs. 40,000
Less Current Liabilities Rs. 10,000
Working Capital Gap Rs. 30,000
Less 25% from long-term sources Rs. 7,500
Maximum Permissible Bank Finance Rs. 22,500
2nd
Method
Current Assets required Rs. 40,000
Less 25% provided for long term funds Rs. 10,000
Rs. 30,000
Less Current liabilities Rs. 10,000
Maximum Permissible Bank Finance Rs. 20,000
3rd
Method
Current Assets Rs. 40,000
Less Core Current Assets Rs. 5,000
Rs. 35,000
Less 25% to be provided from long-term funds Rs. 8,750
Rs. 26,250
Less Current Liabilities Rs. 10,000
Maximum Permissible Bank Finance Rs. 16,250

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3. Chore Committee Report:
The Reserve Bank of India in March, 1979 appointed another committee under the
chairmanship of Shri K.B. Chore to review the working of cash credit system in
recent years with particular reference to the gap between sanctioned limits and the
extent of their utilization and also to suggest alternative type of credit facilities which
should ensure greater credit discipline.
The important recommendations of the Committee are as follows:
(i) The banks should obtain quarterly statements in the prescribed format from all
borrowers having working capital credit limits of Rs 50 lacs and above.
(ii) The banks should undertake a periodical review of limits of Rs 10 lacs and above.
(iii) The banks should not bifurcate cash credit accounts into demand loan and cash
credit components.
(iv) If a borrower does not submit the quarterly returns in time the banks may charge
penal interest of one per cent on the total amount outstanding for the period of default.
(v) Banks should discourage sanction of temporary limits by charging additional one
per cent interest over the normal rate on these limits.
(vi) The banks should fix separate credit limits for peak level and non-peak level,
wherever possible.
(vii) Banks should take steps to convert cash credit limits into bill limits for financing
sales.

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4. Marathe Committee Report:
The Reserve Bank of India, in 1982, appointed a committee under the chairmanship
of Marathe to review the working of Credit Authorisation Scheme (CAS) and suggest
measures for giving meaningful directions to the credit management function of the
Reserve Bank. The recommendations of the committee have been accepted by the
Reserve Bank of India with minor modifications.
The principal recommendations of the Marathe Committee include:
(i) The committee has declared the Third Method of Lending as suggested by the
Tandon Committee to be dropped. Hence, in future, the banks would provide credit
for working capital according to the Second Method of Lending.
(ii) The committee has suggested the introduction of the ‘Fast Track Scheme’ to
improve the quality of credit appraisal in banks. It recommended that commercial
banks can release without prior approval of the Reserve Bank 50% of the additional
credit required by the borrowers (75% in case of export oriented manufacturing units)
where the following requirements are fulfilled:
(a) The estimates/projections in regard to production, sales, chargeable current assets,
other current assets, current liabilities other than bank borrowings, and net working
capital are reasonable in terms of the past trends and assumptions regarding most
likely trends during the future projected period.
(b) The classification of assets and liabilities as ‘current’ and ‘non-current’ is in
conformity with the guidelines issued by the Reserve Bank of India.
(c) The projected current ratio is not below 1.33 : 1.

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(d) The borrower has been submitting quarterly information and operating statements
(Form I, II and III) for the past six months within the prescribed time and undertakes
to do the same in future also.
(e) The borrower undertakes to submit to the bank his annual account regularly and
promptly, further, the bank is required to review the borrower’s facilities at least once
in a year even if the borrower does not need enhancement in credit facilities.
5. Chakravarty Committee Report:
The Reserve Bank of India appointed another committee under the chairmanship of
Sukhamoy Chakravarty to review the working of the monetary system of India. The
committee submitted its report in April, 1985.
The committee made two major recommendations in regard to the working
capital finance:
(i) Penal Interest for Delayed Payments:
The committee has suggested that the government must insist that all public sector
units, large private sector units and government departments must include penal
interest payment clause in their contracts for payments delayed beyond a specified
period. The penal interest may be fixed at 2 per cent higher than the minimum lending
rate of the supplier’s bank.
(ii) Classification of Credit Limit Under Three Different Heads:
The committee further suggested that the total credit limit to be sanctioned to a
borrower should be considered under three different heads:
(1) Cash Credit I to include supplies to government,

25. 25 | P a g e
(2) Cash Credit II to cover special circumstances, and
(3) Normal Working Capital Limit to cover the balance credit facilities.
The interest rates proposed for the three heads are also different. Basic lending rate
of the bank should be charged to Cash Credit II, and the Normal Working Capital
Limit be charged as below:
(a) For Cash Credit Portion: Maximum prevailing lending rate of the bank.
(b) For Bill Finance Portion: 2% below the basic lending rate of the bank.
(c) For Loan Portion: The rate may vary between the minimum and maximum
lending rate of the bank.
6. Kannan Committee Report:
In view of the ongoing liberalization in the financial sector,
the Indian Banks Association (IBA) constituted a committee headed by Shri K.
Kannan, Chairman and Managing Director of Bank of Baroda to examine all the
aspects of working capital finance including assessment of maximum permissible
bank finance (MPBF). The Committee submitted its report on 25th February, 1997.
It recommended that the arithmetical rigidities imposed by
Tandon Committee (and reinforced by Chore Committee) in the form of MPBF
computation so far been in practice, should be scrapped. The Committee further
recommended that freedom to each bank be given in regard to evolving its own
system of working capital finance for a faster credit delivery so as to serve various
borrowers more effectively.

26. 26 | P a g e
It also suggested that line of credit system (LCS), as prevalent in many advanced
countries, should replace the existing system of assessment/fixation of sub-limits
within total working capital requirements.
The Committee proposed to shift emphasis from the Liquidity Level Lending
(Security Based Lending) to the Cash Deficit Lending called Desirable Bank Finance
(DBF). Some of the recommendations of the committee have already been accepted
by the Reserve Bank of India with suitable modifications.
The important measures adopted by RBI in this respect are given below:
(i) Assessment of working capital finance based on the concept of MPBF, as
recommended by Tandon Committee, has been withdrawn. The banks have been
given full freedom to evolve an appropriate system for assessing working capital
needs of the borrowers within the guidelines and norms already prescribed by
Reserve Bank of India.
(ii) The turnover method may continue to be used as a tool to assess the requirements
of small borrowers. For small scale and tiny industries, this method of assessment
has been extended upto total credit limits of Rs 2 crore as against existing limit of 1
crore.
(iii) Banks may now adopt Cash Budgeting System for assessing the working capital
finance in respect of large borrowers.
(iv) The banks have also been allowed to retain the present method of MPBF with
necessary modification or any other system as they deem fit.
(v) Banks should lay down transparent policy and guidelines for credit dispensation
in respect of each broad category of economic activity.

27. 27 | P a g e
(vi) The RBI’s instructions relating to directed credit, quantitative limits on lending
and prohibitions of credit shall continue to be in force. The present reporting system
to RBI under the Credit Monitoring Arrangement (CMA) shall also continue in force.
7: Nayak Committee Recommendations (Turnover method):
As per Nayak Committee recommendation, 25% of Projected
Annual Turnover (PAT) is to be financed as working capital requirement. Of
which, 20% of PAT is to be financed by bank borrowing and 5% of pat to be
financed by borrower’s margin.
a)For SSI units:
SSI units having working capital limits of up to Rs. 5 crore from the
banking system are to be provided WC Finance computed on the basis of 20
percent of their projected
annual turnover.
b)For Technology and Software Industry:
Technology and Software Industry units with working capital limits
of up to Rs. 2 crore, assessment may be made at 20 percent of the projected
turnover.
Example:
If projected sales turn-over is - Rs.10,00, 000.00
Then, working capital gap is 25% of turnover - Rs. 2,50,000.00
Minimum permissible Bank Finance should be 20% of turnover - Rs. 2,00,000.00
Margin money from the borrower should be 5% of Rs.100000.00 - Rs. 50,000.00

28. 28 | P a g e
Methods of working Capital Assessment:-
Banks in India have evolved their own method of lending as they
have been given free hand by the Central Bank (that is RBI) to decide their own
lending methods. Normally banks use the turnover method (which is also called as
Nayak Committee norms) for assessment of working capital limits up to Rs.2 crore
(Rs.7.50 Crore for SME).
The other two traditional methods of assessment of working
capital limits are MPBF (Maximum Permissible Bank Finance) or Cash Budget
Method depending upon requirements of the customers. The level of limit for each
type of facilities under MPBF method will depend upon on the nature of current
assets less suitable margin, within the overall permissible bank finance. RBI, from
time to time, prescribes norms for working capital to be financed by banks.
In July 1974, the study group headed by Shri. P.L.Tandon, has
framed guidelines for working capital finance by banks. The recommendations
made by above study group are known as Tandon Committee recommendations.
Out of three methods for assessment of working capital limits proposed by Tandon
Committee, RBI has accepted method I and method II, which are explained below.
As per Tandon’s -I method (also called as ‘first method’) of lending the borrower
has to arrange 25% of Working Capital Gap (WCG) as margin.
Illustration :
Let us take an example of a company which has Total Current Assets
(TCA) of Rs.100.00 and Other Current Liabilities (OCL) i.e. (without working
capital facilities from the bank) is Rs.20.00.

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Now we will compute the Maximum Permissible Bank Finance (MPBF) under
method-I.
TCA=100 and OCL =20,
WCG is (TCA-OCL) =100-20=80 -Let us call it as (A)
25% of WCG = 80×25÷100= 20 - Let us call it as (B)
(i.e. Minimum Net Working Capital)
In this case, Maximum Permissible Bank Finance (MPBF) = (A)-(B) = 80-20 = 60
Therefore, MPBF from Bank under the first method is Rs.60 if Total Current Asset
is Rs.100
Current Ratio in first method:
Since Total Current Liabilities (including Bank
finance) would be Rs.80 against Total Current Assets of Rs.100, the minimum
Current Ratio under method–I would be 100:80 i.e minimum Current Ratio is
1.25:1.
Tandon’s-II method (also called as ‘second method’):
In this method of lending the borrower
has to arrange 25% of Total Current Assets (TCA) as margin.
Illustration :
Let us again take an example of TCA of a company is Rs.100.00 and
OCL is Rs.20.00 .We shall now calculate the MPBF under 2nd method.
WCG = CA-CL=100-20 = 80 - Let us call it as (x)
25% of TCA= 100×25÷100 = 25 -Let us call it as (y)

30. 30 | P a g e
The MBPF under second method is (x)-(y) = 80-25=55
MPBF, from Bank under the second method, is Rs.55 when Total Current Asset is
Rs.100 and working capital gap is 80.
Current Ratio in second method:
Since Total Current Liabilities would be (20+55)=75
against Total Current Assets of Rs.100, the minimum Current Ratio under
method–II would be 1.33:1.
The Chore committee (headed by Shri.K.B.Chore), appointed
by RBI in April 1979 recommended that all borrowers except sick units having
working capital of Rs.50 lacs and over from the banking system must be placed
under method-II which gives current ratio of 1.33:1. Although the lower cut-off
limit for method II is changed from time to time as per RBI guidance, the
benchmark current ratio of 1.33:1 under this method remains unchanged.
Relaxation to this condition is available to export oriented units; products
manufactured by MSME units wherein banks may apply the first method.
Turnover method (Nayak Committee norms):
Under turnover method, the aggregate fund-based working capital limits are
computed on the basis of Minimum of 20% of their projected annual turnover. The
borrower has to bring the margin of 5% of the annual turnover of such borrowers as
margin money.
Example:
If projected sales turn-over is - Rs.100, 000.00
Then, working capital gap is 25% of turnover - Rs. 25000.00
Minimum permissible Bank Finance should be 20% of turnover - Rs. 20,000.00
Margin money from the borrower should be 5% of Rs.100000.00 - Rs. 5000.00

31. 31 | P a g e
Cash Budget method:
The pattern of financing the peak cash deficit(s) is followed for
industries dealing in seasonal products like sugar and tea, construction activities,
film industries, order based activities etc. In the above type of industries, the
requirement of finance may be peak during some calendar months whereas the
realizations of sale proceeds take place at a length of time. Therefore, under Cash
budget method, the bank finance is sanctioned based on projected monthly cash
flows estimated by the borrower and approved by the bank. The current ratio for
this kind of facility is normally 1.33: 1 (1.25:1 for MSE) as a benchmark. Some
Banks consider lower ratio on the case-to-case basis depending upon components
and quality of current assets and current liabilities.
Important things to note in assessment of working capital assessment:
1.The time period taken for holding raw materials, work-in-process, finished goods
and the collection of receivables is of great interest in evaluating working capital.
2.In the assessment of financial statements bankers should examine whether the
borrower is capable of achieving the projection made by him.
3.Bankers also have to look into following consideration for arriving assumptions
of future production and sales. (a)Past trends in production/sales, (b) the extent of
installed and available production capacities, (c) Availability of raw materials,
labour, power supply, etc., (d) competitive strength of the borrower, (e) Pricing
policy of the management, (f)Research, renovation, and development, (g)Economic
factors like demand for the product, import restriction etc.,
4.The Profitability ratios are arrived to compare with the past trend and similar
types of units in the same business. The profit ratios help bankers to assess the
ability of the enterprise to earn profit from the sales, ‘Return on Equity’,

32. 32 | P a g e
Return on Total Assets, ‘Accounts Receivable turnover, and test of the
management’s pricing policy compared to others in the business.
5.It is necessary that limit utilization is properly reflected by transactions, stock
statements and turn- over of the sanctioned limits before considering limits based
on projections. Total purchase/ sales reflected in balance-sheet should match with
the turnover of debits/credits in the current/CC account for the full year (Period of
balance sheet). If any disparities are noticed by the appraising officer, enquiries
should be made and the reply from the borrower should be convincing. Many a
times, transactions routed through some other channel/bank will come to the notice
of the bankers through above type of counter verifications.
A bank is a business organization which deals in money
i.e. lending and borrowing of money. They perform all types of functions like
accepting deposits, advancing loans, credit creation and agency functions. Besides
these usual functions, one of the most important functions of banks is to finance
working capital requirement of firms. Working capital advances forms major part of
advance portfolio of banks. In determining working capital requirements of a firm,
the bank takes into account its sales and production plans and desirable level of
current assets. The liquidity of a business firm is measured by its ability to satisfy
short-term obligations as they become due. The three measures of a firm’s overall
liquidity are
(i) Current ratio,
(ii) Acid-test ratio and
(iii) Net Working Capital.

33. 33 | P a g e
FUNCTIONING OF REGIONAL RURAL BANKS:
Regional Rural Banks (RRBs) are expected to play a vital role in
taking banking to the rural masses, making available credit to weaker sections of
society, mobilising and channelizing rural savings towards productive activities and
in generating employment opportunities in rural areas.
During last two years RRBs have been provided greater
flexibility in operations. A process of mergers of all RRBs of the same sponsor
bank in the same state has been effected. After consolidation, the RRBs emerged as
biggest local bank for playing crucial role for rural development.
Micro & Small Enterprises (MSEs) Finance:
Definition of MSME:
As per new definition Direct Finance to small enterprises shall include all
loan given to micro & small (manufacturing) enterprises engaged in manufacture
/production, processing or preservation of goods, and Micro & Small (Services)
Enterprises engaged in providing or rendering of services. The Micro & Small
(Services) Enterprises shall include Small Road & Water Transport Operators,
Retail Trade, Small Business, Professional & Self Employed persons, and all other
services enterprises.
Definition of Indirect Finance
Indirect finance to Small Enterprises shall include finance to any person providing
inputs to or marketing the outputs of artisan’s village & cottage industries,
handlooms and to cooperatives of producers in this sector.
Manufacturing Units:
Now the manufacturing units will be classified into Small & Micro
(Manufacturing) Enterprises as per definition given below –

34. 34 | P a g e
Micro (Manufacturing) Enterprises : Where the investment cost of plant &
machinery of the project will be maximum up to Rs.25 lacs only.
Small (Manufacturing) Enterprises : Where the investment cost of plant &
machinery of the project will be maximum above Rs.25 lacs but maximum up to
Rs. 5 crores
Services Units:
The old sectors of, PSE, RTO etc. will now be classified as Small &Micro
(Services) Enterprises as per definition mentioned below -
Micro (Services) Enterprises : Where the investment cost of equipment will be
maximum up to Rs.10 lacs only.
Small (Services) Enterprises: Where the investment cost of equipment will be
more than Rs.10 lacs but maximum up to Rs. 2 crores only.
Credit allocation to Small Scale Enterprises:
Micro & Small Enterprises (MSEs) will continue to be a part of
Priority Sector lending. Out of total finance to MSEs 60% should be allocated to
Micro and remaining 40% to Small Enterprises.
Concerted efforts shall be made to further improve flow of credit to
Micro & Small Scale Enterprises. With this end in view, Bank has participated in
the Credit Guarantee Fund Trust for Small Scale Enterprises set up by SIDBI and
Govt. of India. The scheme covers Micro & Small Scale Enterprises (Micro &
SSD) with limits upto Rs. 100.00 lacs where neither collateral security nor third
party guarantee is obtained.

35. 35 | P a g e
Turn Around Time:
Since MSEs have top priority therefore Micro & Small Enterprises
(MSEs) credit proposal should be disposed off within 7 days to 14 days depending
upon Delegated Authority from Branch to Regional/Head office. This is a very
significant point that must be taken under consideration while loan sanctioning and
disbursement.
MSME:
MSMEs have been playing a pivotal role in country's overall economic growth and
have achieved steady progress over the last couple of years. MSMEs provide
employment to more than 29 million people through 12.8 million units and
contributed more than 15% of India's GDP in FY, 2007. Moreover, MSMEs
account for around 95% of the industrial units and contribute around 40% of
country's industrial output. They are the stepping stones for entrepreneurship
development, innovation and risk taking behaviour.
The enactment of Micro, Small & Medium Enterprises Development
(MSMED) Act, 2006 was a landmark initiative taken by Govt. of India to enable
MSMEs competitive strength, address the issues & challenges and reap the benefits
of global markets.
Credit Flow to Women Entrepreneurs:
To improve the performance of accelerating credit flow to women for
upliftment and economic development our endeavour is to reach 20% of total credit
of Bank. While extending finance to SHG, special attention is to be given to
women SHG. For this purpose the bank has associated with Rajiv Gandhi Mahila
Vikas Pariyojna as a pilot project in few branches which is joint venture of
RGMVP, NABARD & Bank.

36. 36 | P a g e
Financial Inclusion:
As per directives & Monetary policy Statement of May 2011 of RBI, Financial
Inclusion Contained the opening of Rural Brick and Mortar branches, deployment
of business correspondents(BCs) & business facilitators(BFs),coverage of villages
having population over 2000,as also other unbanked villages with population below
2000 through branches/BCs/other models, opening of No-frill accounts, issuance of
kisan credit card, general credit cards and other specific products designed by the
Bank to cater to the financially excluded segments.
Bank has set up "FINANCIAL INCLUSION" department to have a
specific focus on inclusive growth for the underprivileged category of beneficiaries/
customers in underserved / marginally served Urban and Rural environments
through banking services. Bank has included the opening of No-frill accounts,
issuance of kisan credit card, General Credit Cards, Group insurance on small
premium amount, Loans for Solar Equipment (under Jawahar Lal Nehru National
Solar Mission), lending through JLGs/SHGs. and engaging the Vikas Mitra at
branches.
METHODS OF ASSESSMENT IN KGSG BANK:
Assessment of Working Capital Requirements:
The Working Capital Assessment depends upon the level of
business, segment of the borrower, prevailing guidelines of RBI, Trade & Industry
practice prevailing and other objective factors. The Assessment shall be based on
total study of the borrowers’ business operations, the processing and production
cycle of Industry, Financial & Managerial capability of the borrowers and other
parameters relating to the unit and the Industry.

37. 37 | P a g e
The Assessment of the Working Capital of the borrower can be
under anyone of the following methods:
1. Turnover Method [Loans up to Rs. 01 crore]
a). This process as per Nayak Committee recommendations will be used for loans
up to Rs. One crore.
b). The Working Capital limit shall be computed at 20% of the projected sales
turnover accepted by the Bank.
c). In the case of SSI borrowers seeking/enjoying fund based working capital
facilities, the limits shall be assessed on the basis of turnover method.
d). In case of non-SSI borrowers requiring working capital facilities upto Rs.100
lacs from the Banking system the turnover method shall be applied for sanction of
fund based working capital limits
e). This system shall be made applicable to traders, merchants, exporters who are
not having pre-determined manufacturing /trading cycle.
f). Under the turnover method, branches /offices shall ensure maintenance of a
minimum margin on the projected annual sales turnover. In other words, 25% of
the estimated sales turnover value shall be computed as working capital
requirement, of which, at least 4/5th (20%) shall be provided by the Bank and the
balance 1/5th (5%) shall be by way of promoter’s contribution towards margin
money. However, if the available NWC is more, the same shall be reckoned for
assessing the extent of bank finance and lower limits are to be considered.
2. Flexible Bank Finance: [Loans over Rs. 01 crore]
a). Flexible Bank Finance Method is extension of Permissible Bank Finance
Method with customer friendly approach in as much as the scope of Current Assets

38. 38 | P a g e
is made broad based and for evaluating projected liquidity, acceptable level of
Current Ratio is taken at 1.17:1 against benchmark level of 1.33:1.
b). Under this system, an uniform classification of Current Assets and Current
Liabilities shall be adopted on the terms given in separate data format.
c). The assessment of credit requirement of a party shall be made based on the
projected study of the borrowers business operations vis-à-vis the production/
processing cycle of the Industry.
d). The projected level of inventory and receivables shall be examined in relation to
the past trend, market developments and Industry trend.
3. Cash Budget Method:
a). Cash Budget Method may be adopted in case of specific Industries/ Seasonal
activities such as Software Development, Construction Industry, Film Industry,
Sugar and Fertiliser Industry etc.
b). In these cases, required finance is arrived at from the projected cash flows and
not from the projected values of assets and liabilities. However, besides the cash
flow, other aspects like the borrower’s projected profitability, liquidity, gearing,
funds flow are also to be ascertained.
Borrower Standards:
-The financial strength of the borrower client shall be adequate, in relation to the
project size/volume of operations proposed to be undertaken and risks involved
therein.
-Though it is very difficult to evolve industry-wise bench marks for Current and
Debt Equity Ratio (DER), Profitability Ratios and Debt Service Coverage Ratio
(DSCR) or any other specific ratios, in general Current ratio of 1.17 and above,

39. 39 | P a g e
DER <2.00: 1, Total outside liabilities to Net worth Ratio of < 4.00 : 1 and DSCR
of 1.50 : 1 will be considered as reasonable requirement for any new application.
Relaxation may however be considered by the Chairman on merits of the case.
-In case of SSI the Nayak Committee recommendations shall be followed (Turn
Over method)
-At the time of Project Financing Bank will follow the followings :
1. Promoters bring their entire contribution upfront before the Bank starts dibursing
its commitments.
2. Promoter bring certain percentage of their equity (40-50%) upfront and balance
is brought in stages.
3. Promoters agree, ab initio, that they will bring in equity funds proportionately as
the Bank finance the debt portion. Since this method has greater equity funding risk
therefore it should be ensure that the infusion of equity / fund by promoters should
be such that the stipulated level of DER is maintained at all times. RBI has advised
to adopt funding sequences so that possibility of equity funding by banks is
obviated.
4. In respect of SSE and capital intensive industries, relaxation in DER would be
considered. However relaxation of DER shall be considered on case to case basis
which proper justification.
Working Capital Accounts are to be renewed at periodical intervals depending
upon the rating of the borrowers. Timely review/renewal of the account is vital as a
thorough analysis of the account is made at the time of such exercise and it will
enable the bank to take suitable steps at the right time.

40. 40 | P a g e
Non-renewal/review of the account also results in the account falling under the
stressed category and this should be avoided. Hence, review/renewal of the account
has to take place on or before due date.
Further, at the time of review/renew, a mention has to be made in the proposal as to
how many times the account was reported in EAS/SMA and for what reasons. The
sanctioning authority has to take into consideration this important aspect while
exercising his authority for review / renewal/ enhancement.

41. 41 | P a g e
CONCLUSION
Financial Statement Analysis is a method used by interested parties such as investors,
creditors, and management to evaluate the past, current, and projected conditions and
performance of the firm. In the current picture where financial volatility is endemic
and financial intuition is becoming popular, when it comes to investing, the sound
analysis of financial statements is one of the most important elements in the
fundamental analysis process.
At the same time, the massive amount of numbers in a company's
financial statements can be bewildering and intimidating to many investors.
However, through financial ratio analysis, one can easily present them in a
summarizing form easily understandable to both the management and interested
investors. It is required by law that all private and public limited companies must
prepare the financial statements like, income statement, balance sheet and cash flow
statement of the particular accounting period. The management and financial analyst
of the company analyse the financial statements for making any further financial and
administrative decisions for the betterment of the company.
Thus, it is clear that financial statement analysis is presenting the
complex data contained in the financial statement in simple and understandable form,
to classify the items in convenient and rational groups, to know the capability,
strength, solvency and trend of the organisation.
Arrangement of working capital financing forms a major part of
the regular activities of a firm. It is a very crucial activity and requires continuous
attention because working capital is the capital required by a firm to sustain its day
to day operations. Without appropriate and sufficient working capital financing, a
firm may get into troubles. Insufficient working capital may result into non-
payment of certain dues on time. Inappropriate mode of financing would result in
loss of interest which directly hits the profits of the firm.

42. 42 | P a g e
From a banker’s perspective, we can say that bank credit occupies an
important place in financing working capital requirements of industries. Working
capital financing is a specialized line of business and largely dominated by
commercial banks. Generally, the bank finance for meeting working capital needs
is easily available to firms. But it has been always difficult to determine the norms
for an adequate quantum of bank credit required by an industry for working capital
purpose. Various committees have been set up for examining the working capital
financing by banks and to recommend norms for and to regulate bank credit.
Besides this from time to time, Reserve Bank of India has been issuing guidelines
and directives to the banks to strengthen the procedures and norms for working
capital financing.
Kashi Gomti Samyut Gramin Bank is playing a significant role
by providing necessary working capital assistance to businesses including MSME
units and rural areas including SSI’s in a hassle-free manner.
Government of India is attaching great importance to MSME sector
and taking various policy measures to enhance the flow of credit to this sector.
Further research work on working capital finance to MSME sector can open up
many dimensions for researchers.

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SUGGESTIONS
-Whether you’re a middle-market bank or a financial institution of a different size,
banking compliance is a huge cost you can’t afford to ignore, but you also can’t
afford to stay with the current model of continually adding to your in-house
Compliance, Risk & Audit Department. Instead, you need to incorporate your
compliance and risk management requirements into your workflow improvements.
-Create a culture of continuous improvement at your bank so that every employee
is prepared and motivated to maintain the cost savings of your initial efforts.
-Strategically use mobile technology, such as remote deposit capture technology, to
retain long-time customers, even when those account holders have relocated
outside your community. When using social media, capitalize on its local business
strengths (like location deals, targeted ads and local reviews) to keep customers
engaged.
-Although the deposits are showing an increasing trend of around 11.5 %, but
recent statistics shows that there is a difference of Rs.16 crore in NPA level (actual
and targeted), so that must be also taken into consideration, and various measures
should be taken to reduce it.
-Working Capital analysis must be performed taking proper consideration of turn
around time as loan sanctioning and disbursement must be done according to it.
-Working Capital should be given only as per requirement and within maximum
permissible bank finance.
-Ratios must be analysed as per the benchmark; practical and real situation of it
must be thoroughly analysed.

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BIBLIOGRAPHY
1.www.kgsgbank.co.in
2.www.wikipedia.com
3.www.rbi.org.in
4.Pratibimb magazine published by KGSG Bank quarterly.
5.Data provided by Bank.
6.Financial Management By I.M. Pandey.