The document provides an overview of the Indian banking system and Canara Bank. It discusses the history and evolution of banking in India through various phases from 1950s to present day. It describes the key entities that make up the Indian banking structure including the Reserve Bank of India, commercial banks, cooperative banks, and foreign banks. It then profiles Canara Bank, outlining its founding in 1906, growth after nationalization in 1969, expansion across India, and focus on customer service and rural development in line with its founding principles.

1. 1
PART – A
Chapter - 1
INDUSTRY PROFILE
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 challenges posed by the technology and any other external and internal factors
1.1 Definition of Banking According to Banking Regulation
Act-1949
Section 5(b) of the Banking Regulation Act, 1949 defines banking as accepting, for the
purpose of lending or investment, of deposits of money from the public, repayable on
demand or otherwise, and with draw able by cheque, draft and order or otherwise.
1.2 History of Indian Banking Industry
Indian banking system, over the years has gone through various phases after
establishment of Reserve Bank of India in 1935 during the British rule, to function as
Central Bank of the country. Earlier to creation of RBI, the Central Bank functions were
being looked after by the Imperial Bank of India. With the 5-Year Plan having acquired
an importance place after the independence, the Government felt that the private banks
may not extend the kind of co-operation in providing credit support, the economy may
need. It resulted in the creation of Public Sector Bank and later continued through the
process of nationalization. In these 6 decades since independence, banking in India has
evolved through 4 distinct phases:
1.2.1 Foundation Phase:
It can be considered to cover 1950s and 1960s till the nationalization of banks in 1969.
The focus during this period was to lay the foundation for a sound banking system in the
country. As a result the phase witnessed the development of necessary legislative
framework for facilitating re-organization and consolidation of the banking system, for
meeting the requirement of Indian economy. A major development was transformation of

2. 2
Imperial Bank of India into State Bank of India in 1955 and nationalization of 14 major
private banks during 1969.
1.2.2 Expansion Phase:
It had begun in mid 1960s but gained momentum after nationalisation of banks and
continued till 1984. A determined effort was made to make banking facilities available to
the masses. Branch network of the banks was widened at a very fast pace covering the
rural and semi-urban population, which had no access to banking hitherto. Most
importantly, credit flows were guided towards the Priority Sectors. However, this
weakened the lines of supervision and affected the quality of assets of banks and
pressurized their profitability and brought competitive efficiency of the system at low
ebb.
1.2.3 Consolidation Phase:
The phase started in 1985 when a series of policy initiatives were taken by RBI which
saw marked slowdown in the branch expansion. Attention was paid to improving house-
keeping, customer service, credit management, staff productivity and profitability of
banks. Measures were also taken to reduce the structural constraints that obstructed the
growth of money market.
1.2.4 Reforms Phase:
The macro-economic crisis faced by the country in 1991 paved the way for extensive
financial sector reform which brought deregulation of interest rates, more competition,
technological changes, prudential guidelines on asset classification and income
recognition, capital adequacy, autonomy packages etc.,

3. 3
1.3 Structure of Indian Banking System
1.3 Chart shows structure of Indian Banking System
1.3.1 Reserve Bank of India
The origins of the RBI can be traced to 1926, when the Royal Commission on Indian
Currency and Finance – also known as the Hilton – Young Commission- recommended
the creation of a central bank for India to separate the control of currency and credit from
the Government and to augment banking facilities throughout the country. The RBI Act
of 1934 established the Reserve Bank and set in motion a series of actions culminating in
the start of operations in 1935. Since then, the Reserve Bank‟s role and functions have
undergone numerous changes, as the nature of the Indian economy and financial sector
changed.
Starting as a private shareholder‟s bank, the Reserve Bank was nationalized in 1949. It
then assumed the responsibility to meet the aspirations of newly independent country and
its people. The Reserve Bank‟s nationalization aimed at achieving coordination between
the policies of the Government and those of the central bank.
1.3.2 Commercial Banks:
The commercial banking structure in India consists of: Scheduled Commercial Banks and
Unscheduled Commercial Banks
Scheduled Commercial Banks constitute those banks, which have been included in the
Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only
RBI
Scheduled
commercial bank
Scheduled co-
operative banks
Private
sector
banks
Regional
rural banks
Public
sector
banks
Foreign
bank
Scheduled state
co-opertive
banks
Scheduled
urban co-
opertive banks
Nationali-sed
banks
Sbi & its
associates
Old private
bank
New
private
babanks

4. 4
those banks in this schedule, which satisfy the criteria laid down vide section 42 (6) (a) of
the Act. Some Co-operative banks are scheduled commercial banks albeit not all co-
operative banks are. Being a part of the second schedule confers some benefits to the
bank in terms of access to accommodation by RBI during the times of liquidity
constraints. At the same time, however, this status also subjects the bank certain
conditions and obligation towards the reserve regulations of RBI. For the purpose of
assessment of banks, the RBI categorise them as Public Sector Banks, Old Private Sector
Banks, New Private Sector Banks and Foreign Banks.
Commercial banks are banking institutions which accept deposits from the public and
grant short-term and long term loans and advances to their customers. In India, there are
nationalized (public sector) commercial banks as well as private sector banks which are
corporate organizations. The largest commercial bank is the State Bank of India which
was established in 1955 under a special Act. The main source of income of commercial
banks is the difference between the interest they charge on loans and the interest they
allow on deposits. Commercial banks generally grant short-term loans repayable within
one year. But they also meet the mid-term and long-term requirements of business
enterprises. Besides accepting deposits and lending money, commercial banks provide
other services such as issue of bank drafts, traveler‟s cheques and letters of credit,
collection of bills, dividends and interest safe keeping of valuables, transfer of money
from one place to another, payment of insurance premium etc.
1.3.3 State Bank Group (SBI and its Associates)
State Bank Group is India‟s largest banking group with huge assets. State Bank of India is
the India‟s oldest nationalized bank. State Bank of India has over 10000 branches while
its associated banks have an additional 8500 branches. Outside India, SBI has 82 foreign
branches spread over 32 nations. In addition to banking operations, SBI has established 7
subsidiaries: SBI Life, SBI Capital Markets, SBI Factors, SBI Cards, SBICAP Securities
and SBI DFHI.
SBI had its beginnings in June 1806 with setting up of Bank of Calcutta in Calcutta.
Three years down the line it re-established itself as Bank of Bengal, a joint stock of
British India promoted by Bengal Government. Likewise, Bank of Bombay and Bank of
Madras were established in 1840 and 1843 respectively. These 3 banks were
amalgamated to form Imperial Bank of India in1921. During three and a half decades of
existence, Imperial Bank of India was successful in mobilizing deposits, generating

5. 5
investments and disbursement of advances. Imperial Bank thus became an integral part of
India‟s economy.
1.3.4 Public Sector Banks:
Public Sector Banks make up the largest category of banks in Indian banking system.
These banks include the SBI and its associate banks and 18 nationalized banks.
Nationalized banks are governed by the Banking Companies Act 1970 and 1980.
During 1968 the scheme of „socio-control‟ was introduced, which was closely followed
by nationalisation of 14 major banks in 1969 and another 6 in 1980.
Keeping in view the objectives of nationalisation, PSBs undertook expansion of reach and
services. Resultantly the number of branches increased 7 fold (from 8321 to more than
60000 out of which 58% in rural areas) and number of people served per branch office
came down from 65000 in 1969 to 10000. Much of this expansion has taken place in rural
and semi-urban areas. The expansion is significant in terms of geographical distribution.
States neglected by private banks before 1969 have a vast network of Public Sector
Banks. The PSBs including RRBs, account for 93% of bank offices and 87% of banking
system deposits.
1.3.5 Foreign Banks:
Business firms engaged in foreign trade receive and make payment through foreign
currency. In order to facilitate such transactions and also help exporters and importers,
there are banking institutions which primarily engage in transactions involving foreign
exchange. These are known as Foreign Exchange Banks. In India, Export and Import
Bank of India (EXIM Bank) has been set up by the Government to help export and import
trade and other related activities. Such activities are also undertaken by the foreign
exchange division of commercial banks. Exchange banks which are foreign in origin have
their head offices located outside India. They engage in other kinds of banking business
as well, like acceptance of deposits, grant of loans and advances, etc. However, financing
foreign trade remains their field of specialization
1.3.6 Private Sector Banks:
Initially all the banks in India were private banks, which were founded in the pre-
independence era to cater to the banking needs of the people. Later in 1935, the Reserve
Bank of India (RBI) was established and it took over the central banking responsibilities
from the Imperial Bank of India, transferring commercial banking functions completely to
IBI. In 1994, the Reserve Bank of India issued a policy of liberalization to license limited

6. 6
number of private banks, which came to be known as New Generation tech-savvy banks.
Global Trust Bank was the first private bank after liberalization; it was later amalgamated
with Oriental Bank of Commerce (OBC). Then Housing Development Finance
Corporation Limited (HDFC) became the first (still existing) to receive an 'in principle'
approval from the Reserve Bank of India (RBI) to set up a bank in the private sector. At
present, Private Banks in India includes leading banks like ICICI Banks, ING Vysya
Bank, Jammu and Kashmir Bank, Karnataka Bank, Kotak Mahindra Bank, etc.
1.3.7 Regional Rural Banks
Regional Rural Banks (RRBs) form an integral part of the Indian banking system with
focus on service to rural areas. The process of amalgamation of the RRBs was initiated by
Government of India in September 2005 in a phased manner. Prior to the process of
amalgamation, 196 RRBs sponsored by 27 SCBs and one State Cooperative Bank were
operating in the country with a network of 14,484 branches spread over 523 districts as on
March 31, 2005. Consequent upon the amalgamation, the number of RRBs declined to 82
operating in 26 States and in one Union Territory covering 619 districts with a network of
15,475 branches as on March 31, 2010.
1.3.8 Co-operative Banks:
Co-operative Banks in India are established under the provisions of the Co-operative
Societies Act 1912. These are organized on co-operative basis. It was with a view to
provide adequate credit at economical rates of interest to the farmers, that co-operative
credit societies were first, organized in villages for providing financial help to
agriculturist and rural artisans. Co-operatives banks are organized both at primary and
district level. Co-operative Credit Societies (banks) at the primary level or local level are
members of central co-operative banks at the district level. Similarly, at the state level,
there are state co-operative bank, which finance, co-ordinate and control the central co-
operative banks in each state. A co-operative credit society (bank) at the primary level
can be formed by the local people having common interest and common purposes. The
co-operative banks generally grant loans for productive purposes but they can also do so
for other purposes. The rate of interest charged is very moderate.

7. 7
1.4 Returns on Assets and Return on Equity of SCBs – Bank
Group-wise:
Return on assets = Net Profits / Average Total Assets
Return on equity = Net Profits / Average Total Equity
Bank Group / Year Return on Assets
2009-10 2010-11
Return on Equity
2009-10 2010-11
Public Sector Banks 0.97 1.02 17.47 17.94
Private Sector Banks 1.28 1.13 11.94 11.38
Foreign Banks 1.26 1.99 7.35 13.75
All Scheduled
Commercial Banks
1.05 1.13 14.31 15.44
1.4 Table showing return on assets and return on equity of Scheduled Commercial Banks

8. 8
Chapter - 2
CANARA BANK PROFILE
a) Background and inception of the Canara Bank
Widely known for customer centricity, Canara Bank was founded by, Sri. Late. A. Subba
Rao Pai, a great visionary and philanthropist, inn July 1906, at Mangalore, then a small
port in Karnataka. The bank has gone through the various phases of its growth trajectory
over hundred years of its existence. Growth of Canara Bank is phenomenal, especially
after nationalization in the year 1969, attaining the status of a national level player, in
terms of geographical reach and clientele segments. Eighties was characterized by
business diversification for the Bank. In June 2006, the Bank completed a century of
operation in the Indian banking industry. The eventful journey of the Bank has been
characterized by several milestones. Today, Canara Bank occupies a premier position in
the comity of Indian banks. With an unbroken record of profits since its inception, Canara
Bank has several first to its credit. These include:
Launching the Inter-City ATM Network
Obtaining ISO Certification for a Branch
Articulation of `Good Banking‟ – Bank‟s Citizen Charter
Commissioning of Exclusive Mahila Banking Branch
Launching of Exclusive Subsidiary for IT Consultancy
Issuing Credit Card for farmers
Providing Agricultural Consultancy Services
Over the years, the Bank has been scaling up its market position to emerge as a major
`Financial Conglomerate’ with as many as nine subsidiaries/sponsored institutions/joint
ventures in India and abroad. As at June 2011, the Bank has further expanded its domestic
presence, with 3057 branches spread across all geographical segments. Keeping customer
convenience at the forefront, the Bank provides a wide array of alternative delivery
channels that include over 2000 ATMs – one of the highest among the nationalized
banks-covering 732 Centres, 2681 branches providing Internet and Mobile Banking
(IMB) services and 2091 branches offering `Anywhere Banking‟ Services. Under the
advanced payment and settlement system, all branches of the Bank have been enabled to

9. 9
offer Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer
(NEFT) facilities.
Not just in commercial banking, the Bank has also carved a distinctive mark, in various
corporate social responsibilities, namely, serving national priorities, promoting rural
development, enhancing rural self-employment through several training institutes and
spearheading financial inclusion objective. Promoting an inclusive growth strategy, which
has been formed as the basic plank of national policy agenda today, is in fact deeply
rooted in the Bank‟s founding principles. “A good bank is not only the financial heart
of the community, but also one with an obligation of helping in every possible
manner to improve the economic conditions of the common people”. These insightful
words of bank‟s founder continue to resonate even today in serving society with a
purpose. The growth story of Canara Bank in its first century was due, among others, to
the continued patronage of its valued customers, stakeholders, committed staff and
uncanny leadership ability demonstrated by its leaders at the helm of affairs. They
strongly believe that the next century is going to be equally rewarding and eventful not
only in service of the nation but also in helping the Bank emerge as a “Global Bank with
Best Practices”. This justifiable belief is founded on strong fundamentals, customer
centricity, enlightened leadership and a family like work culture.
Logo
Parent Company Government of India
Category Bank
Sector Banking and finance
Tagline/ Slogan
Together we can; It's easy to change for those who you
love
USP Strong founding principles
Segment Commercial and Personal Banking

10. 10
Target Group Rural and urban middle class group
Positioning Complete Banking and financial solutions
Founding principles of the Canara Bank
1. To spread education among all to sub-serve the first principle
2. To inculcate the habit of thrift and savings
3. To transform the financial institution not only as the financial heart of the community
but also social heart as well
4. To assist the needy
5. To work with sense of service and dedication
6. To develop a concern for fellow human being and sensitivity to the surroundings with a
view to make changes/remove hardships and sufferings
Sound founding principles, enlightened leadership, unique work culture and remarkable
adaptability to changing banking environment have enabled Canara Bank to be a
Frontline Banking Institution of Global Standards.
Work culture
Work culture where family concept is practiced among the employees
Receptivity to new ideas
Opportunities for experimentation
Facilities which supports growth
Record cordial industrial relations
HRD initiatives
Subsidiaries
1. Canara Robeco Asset Management Company Limited
2. Canbank Financial Services Limited
3. Canara Bank Securities Limited
4. Canbank Computer Services Limited
5. Can Fin Homes Limited
6. Canbank Factors Limited

11. 11
7. Canbank Venture Capital Fund Limited
b) Nature of business carried:
Canara Bank is a no.1 Public Sector Bank in India which was providing all the services of
a modern bank to its customers. It accepts deposits from the customers provide loans and
advances to the needy people. It also provides for the remittance of funds, and some other
facilities. It will also carry various activities like D-mat, securitization, etc.
c) Vision, Mission and Quality Policy:
Vision Statement:
“To emerge as a „Best Practices Bank‟ by pursuing global benchmarks in profitability,
operational efficiency, asset quality, risk management and expanding the global reach”.
Mission Statement:
The Mission statement of any organization generally represents its long terms goals and
strategies. Every organization must have its own mission, which describes present
business scope of the organization. The mission statement of Canara Bank is as follows:
To provide quality banking services with enhanced customer orientation, higher value
creation for stakeholders and to continue as a responsive corporate social citizen by
effectively blending commercial pursuits with social banking.
Quality policy:
Our customers will be treated fairly at all times
Complaints raised by our customers will be dealt with courtesy and in time
Our customers will be fully informed of avenues to escalate their
complaints/grievances within the organization and their rights to alternative
remedy, if they are not fully satisfied with the response of the bank to their
complaints
Our Bank will treat all complaints efficiently and fairly as they can damage the
Bank's reputation and business if handled otherwise.
Our employees will work in good faith and without prejudice to the interests of
the customer.

12. 12
d) Products / Services Profile:
Canara Bank provides a broad range of customized products and services suitable for all
kinds of market, trade and perceived requirements, be it business or personal. It deals in
personalized banking, business banking, money transfer, internet banking and insurance
services. The facilities include borrowing facilities, deposits, optimum returns on surplus
funds and helping with smooth overseas transactions.
As a part of personalized banking, Canara Bank provides services for high earning
deposits, simple & convenient loans, life insurance, money transfer, utility bill payments
and thus, efficiently keeps a track of your finances. As a part of its business banking, the
bank provides with working capital finance, term loans and infrastructure finance, to let
business expand smoothly. The Internet banking facility of Canara Bank, it is a 24X7,
completely free and friendly internet banking solution to all problems.
Product profile of Canara bank
Technical Products
ATM Facility
Facilities available at ATMs: Balance Enquiry, Cash Withdrawal, Mini Statements with
last 10 Transactions, PIN Change, Mobile Top-up, Kingfisher Airline Ticket Booking,
Cheque Deposit and Visa Money Transfer
ATM can be accessed for the above services through Visa Electron Debit cards issued by
the bank. Cardholders can also avail the services of balance enquiry and cash withdrawal
in other bank ATMs.
Ineligible Accounts: Joint Accounts where operational condition is jointly; illiterate
persons (except biometric ATMs), blind persons, minor (except for cards issued to
students), accounts operated on power of attorney, accounts under garnishee/attachment
order.
Fees for availing the service of other Bank ATMs:
Balance enquiry: Nil
Cash withdrawal: Rs.20/- per transaction.
ATM sharing arrangement:
Gives access to over 30000 ATMs across the country
Cash withdrawal and Balance enquiry can be done
Railway E-ticketing through NET/KIOSK

13. 13
e) Area of operation:
The area of operation is spread all over India. It has its branches in all states and union
territories. Today, Canara Bank has presence with 3057 branches and over 2000 ATMs
catering of all segments of an ever growing clientele base of over 37.5 million. It has six
extension counters, eight regional offices, one international division, one data centre, five
service branches, two currency chests, and spread over all States and union territories.
f) Ownership Pattern as on March, 2010
HOLDING Number of Shares Percentage
GOVERNMENT 300,000,000 73.17
PUBLIC 110,000,000 86.83
TOTAL 410,000,000 100
Table showing ownership pattern
g) Competitors:
For Canara Bank, all the banks both Public Sector and Private Sector are competitors. The
local organization or institutions and the local money lenders are also competitors. The
main competitors are State Bank of India, Syndicate Bank, Vijaya Bank, Corporation
Bank and New Generation Private Sector Banks like ICICI and so on.
h) Infrastructure Facilities:
Bank shall provide the required infrastructure facilities at all the branches. To ensure the
comfort of the customers, adequate space and proper furniture shall be provided in the
branches. Clean drinking water facility to the customers shall be provided in the branch
premises. Pensioners, Senior Citizens, Disabled persons etc., shall be attended on priority
and shall be made comfortable while carrying out banking transactions.
The bank will also provide training centre for Staff members at the delivery point shall be
trained in line with customer service orientation and in technical areas. Innovative ways
of training / delivery ranging from job cards to roving faculty to video conferencing shall
be provided with an objective to improve customer service and satisfaction.

14. 14
i) Achievement /Awards
Achievements
Cash recovery of Rs.750crore achieved during june 2011 quarter which is all time
high for any particular quarter.
On line auction of secured assets introduced and implemented under sarfaesi.
Total No. of Branches / Units risk rated: 3378
No. of Low Risk branches: 2009
% of Low Risk branches: 59.47 %
No. of High Risk branches: 1
Audit / Inspection conducted as per the audit plan and there is no backlog.
The concurrent audit of 494 branches covers 79 % of advances and 53 % of
deposits of the Bank.
Highlights of Priority Sector Performance in last 3 years.
Bank has achieved hat-trick by crossing all mandated, SoI and Internal Targets in
Priority Credit.
Bank has doubled the growth under Agriculture in 2009-10 compared to 2008-09.
The Agriculture disbursement in FY 07-08 was Rs.11443crore while in it in FY
10-11 Rs. 22374Crores, which is almost doubled in a period of 3 years.
Education loan stood at Rs.3503crore, compared to O/s level of Rs.1737crore for
Mar 08 more than doubled in 3 years.
Weaker Sections, SC/ST and Minority advances also more than doubled in 3
years.
Awards
FICCI award for outstanding contribution to rural development
Golden peacock award for best corporate social responsibility
Social and corporate governance award
Amity international business school CSR award
FICCI sedf business world second best corporate citizen award
National master craftsman award

15. 15
Kamaladevi Chattopadhyaya award
The Bank was conferred 4 awards by the Public Relations Council of India
(PRCI), in the following categories
1. Silver Award for Corporate Film ( TV Commercial ) – English
2. Bronze Award for House Journal/Magazine – Languages
3. Bronze Award for Table Calendar
4. Bronze Award for Corporate Advertisement – Single - English
j) Work flow Model:
The primary activities are accepting deposits and lending loans and advances. Accepting
deposit by way of savings, current account, and fixed deposit and recurring deposits.
The collected money will be safeguarded according to regulation of the RBI.
Besides this Canara bank of india must concentrate on stationary control. The stationary
includes application cheque books, challans and some other stationary. It must maintain a
sound control on these to balance the activities and services.
The circle will report to head office in respect of both functional and administrative
matters. The circle shall handle credit proposals into the delegated powers and also handle
other general administration and staff matters (including disciplinary matters) as the
existing circles are doing now. The branches have been provided with adequate
operational flexibility and credit sanctioning power by the policies guidelines spelt out by
head office.
The circle is fixes with targets by the head office in all business parameters. And in term
the circle has fixed the target to branches under its administrative purview. The
Canara Bank was awarded coveted skoch award for financial inclusion on 5.01.2012 at
New Delhi.
The Bank was conferred with National Award - 2011 for excellence in the field of Khadi
and Village Industries - Best Bank, South Zone for PMEGP.
Canara Bank bags Indira Gandhi Rajbhasha shield 2009-10
The Bank has been conferred with the Second Best Bank Award under National Awards
for Excellence in lending to Micro Enterprises for the year 2009-10, by the Ministry of
MSME and Outstanding Performer at National level for implementation of Interest
Subsidy Eligibility Scheme (ISEC) of KVIC in the country for 2009-10.

16. 16
performance will be reviewed periodically at various forums. Circle office before
distributing target to the branches. They should consider the size of the branches.
The service units like accounts section and currency chest attached to their base branches
and would continue to function under the same circle as the base branch circle will report
of both functional and administrative matters. Circle shall handle credit proposal up to the
delegated powers and also handle other general administration and staff matters
(including disciplinary matters). With this the bank will be broadly moving into a three-
tier system of administration of operation.
k) Future growth and prospects:
Canara Bank is gearing up for future growth on the back of consistent contribution from
its core business. The bank is taking adequate steps to improve its credit/deposit ratio
which would in turn drive its core earnings. Canara Bank would rise to the occasion and
serve the interest of banking industry as well as humanitarian interests of the large
populace of this country, particularly, the interests of marginalized segments of the
society like Dalits, tribal, women, children and other backward classes in the expected
measure in the critical years ahead.
The Bank has positioned itself as a professionally managed Bank with presence in all
major financial and growth centers, aimed at providing value added services to various
segments of the market ranging from individuals, firms, corporate to financial institutions
and banks. The bank has already taken up corporate agency for distribution of life
insurance and general insurance products and proposes to market units of mutual fund
and gilts. Bank has also entered into agreement with M/s. Western Union Money Transfer
for money transfer of customers from overseas location. The bank is planning to bring
more number of branches under centralized network and launch new products and
delivery channels like debit cards, demat services, internet banking, etc.
Corporate Governance:
Corporate governance is the set of processes, customs, policies, laws, and institutions
affecting the way a corporation (or company) is directed, administered or controlled.
Corporate governance also includes the relationships among the many stakeholders
involved and the goals for which the corporation is governed. The principal stakeholders

17. 17
are the shareholders, the board of directors, executives, employees, customers, creditors,
suppliers and the community at large.
Corporate Governance is the application of the best management practices, compliance of
law and adherence to ethical standards to achieve the Banks objective of enhancing
shareholders value keeping in mind the interest of all stakeholders.
The Basic philosophy of Corporate Governance in the Bank is the application of the best
management practices that provide stability and growth to the enterprise, transparency,
accountability, disclosures and value creation. Bank believes that good governance
practices ultimately secure the goal of turning the Bank into a value driven organization.

18. 18
Chapter - 3
Mc KENSY’S 7’S FRAME WORK
Origin of the 7’s framework:
The 7‟s framework was first mentioned in “The art of Japanese Management” by Tom
Peter and Robert Watin Man in 1981. The 7s framework of Mc Kensy‟s is a management
model that describes 7 factors to organize a company in a holistic and effective way.
Together these factors determine the way in which a corporation operates. Management
should take into account all 7 of these factors to be sure of successful implementation of a
strategy for large or small organization. They are all interdependent so if you fail to pay
proper attention to one of them, this may affect all other as well. On top of that, the
relative importance of each factor may vary over time.

19. 19
Chart showing Mc Kensy‟s 7‟s framework
3.1 Strategy:
The business strategy of Canara Bank is to provide financial solutions to major segments
of its customer base, namely retail and corporate. Separate business groups have been set
up to ensure a more focused approach in satisfying the diversified customer segments.
The whole bank has carried out the transformation strategy and kept in line with the plan
to promote reform and development.
The Canara Bank establishes high quality and provides excellent service to deposit
customers and also help to increase customer confidence in the Banking system. It will
promote good Banking practices by setting out the minimum standards. It will give
information in respect of various activities relating to customer service, rights of
customers etc.
3.2 Structure:
Structure is an addition to the organizational tool kit. It is comparable with the super –
structure of an organization, which indicates to why extent the activities are specialized
and the ways in which the organizational tasks are interchanged and coordinated.

20. 20
The three important functions are:
Relationships
Culture
Business
So organizational structure means lines of authority, supervisory relationships, grouping
of employees and operational work flow of the company. A number of vital factors of
success, including workplace culture and operational efficiency, are directly influenced
by organizational structure. An effective and well-designed structure is important to the
success of any business.
Structure at the Regional Office Level:
Registered and Head Office
Regional Office
(Deputy / Assistant
General Manager)
Shimog
a
MysoreMumbaiMangaloreHubliDelhiChennaiBangalore
BranchesBranchesBranchesBranchesBranchesBranchesBranchesBranches

21. 21
Chart showing structure of canara bank at regional office level
Structure at Management Level:
Chairman & Managing Director: Shri. S Raman
Executive Director: Smt. Archana s. Bhargava
Executive Director: Shri. Ashok Kumar Gupta
Director representing Government of India: Dr. Thomas Mathew
Director representing Reserve Bank of India: Smt. Meena Hemachandra
Workmen Employee Director: Shri. G.V. Sambasiva Rao
Office Employee Director: Shri. G.V. Manimaran
Part -time Non-Official Director: Shri. Khalid Luqman Bilgrami
Part -time Non-Official Director: Shri. Pankaj Gopalji Thacker
Part -time Non-Official Director: Shri. Sutanu Sinha
Director Representing Shareholders: Shri. P.V. Maiya
Shareholder Director: Shri. Sunil Guptha
3.3 System:
Rules, Regulations and procedures constitute „systems‟ in the 7-S frame work, which
complement the banking structure. In Canara Bank the systems may called the
„infrastructure‟ and include sub-systems relating to production planning and control, cost
accounting procedures, capital budgeting, performance evaluation, etc.
The Canara bank will use:
Computer System
Training System
Risk Management System
Asset Liability System and
Control System.
3.4 Staff:
The bank inducts young recruits into the mainstream of activities and the manner in
which they manage their careers as the new entrants develop into managers. Canara Bank

22. 22
provides much desired for their well-defined career growth. Careers in Canara Bank are
fulfilling and enable the employed person to serve the nation in a unique way.
3.5 Skills:
The Canara Bank will use their skills for carry on the business of banking in all its
branches and departments including the borrowing or raising or taking up of money, the
discounting, buying and selling of and dealing in Government securities, bills of
exchange, hundies, promissory notes and other negotiable and transferable instruments
and securities, the granting and issuing of letters of credit and circular notes etc.
3.6 Shared Values:
To take or acquire the whole or any part of any business similar to that this Bank or any
business which this Bank is authorized to carry on and such other business which is
capable of being conducted to the benefit directly or indirectly of this Bank. The success
of the bank is built upon sacrifices and services of its founders and successive Boards of
Directors and staff of the Bank. Canara Bank There is three concerns that affect the banks'
performance critically and sometimes dramatically. These are customer retention, cost
pressure and increased competition. The bank will protect human rights of the people by
adopting customer-centric services, cost reduction and product differentiation.
3.7 Style:
Style is another variable, which may determine the effectiveness of original change
effort. The style of a company becomes evident through the patterns of action of the top
management team over a period of time, the emphasis laid on aspects of business,
reporting relationships, and aspects of organizational culture. In bank there are two types
of style:
1. Leadership style
2. Organization culture
Leadership style:
Leadership style is the manner and approach of providing direction, implementing plans,
and motivating people. Under this style leaders tell their employees what they have to do
and how they done it, without getting the advice of their superiors. Some of the

23. 23
appropriate conditions are required when we have all the information to solve the
problem

24. 24
Chapter - 4
SWOT ANALYSIS OF CANARA BANK
4.1 Strengths
The "Strengths" portion of the bank‟s SWOT analysis is a list of the internal operational
elements where the bank is succeeding or excelling. These elements need to refer to
features the bank can control and has a direct power to change.
1. Innovative schemes
2. Technologically advanced
3. Articulation of good banking
4. Leadership in Karnataka state
5.Comfortable capital and reserve levels
6. Canara bank has employed over 44,000 people
7. Canara bank made a partnership with United Nations Environment Programme
(UNEP) to initiate a successful solar loan programme
8. Geographical reach and market penetration have expanded.
9. Wide range of customer base and well trained staff members
10. The Canara Bank Ltd., have clean, strong and transparent balance sheet relative to
other banks in comparable economies in its region.
11. The Canara Bank record-high annual returns, diversified investment portfolio
offerings.
4.2 Weaknesses
The "Weaknesses" element of the banks SWOT analysis is a list of the internal
operational elements the banking industry needs to improve upon. These elements need to
refer to features the bank can control and has a direct power to change.
1. Inadequate Publicity
2. Low International presence
4. Lack of fundamental institutional skill.
5. Less house hold servicing

25. 25
4.3 Opportunities
The "Opportunities" part of the bank‟s SWOT analysis is a list of the external
environmental elements the banking industry can potentially take advantage of in the near
future or long-term. These external environmental elements should not reflect the internal
components of the industry, but rather the factors or features outside the industry‟s
control.
1. Rural and social banking
2. Agriculture based consultancy
3. The rural economy accounts for more than two-third of India‟s population.
4. “New high-risk investment vehicles” increased risk.
5.Government support to boost capital strength
4.4 Threats:
The "Threats" component of the bank‟s SWOT analysis is a list of the external
environmental elements that can potentially harm the banking industry. These external
environmental elements do not reflect the internal components of the industry, but the
factors or features outside the industry‟s control.
1. Economic crisis
2. Highly competitive environment
3. Changing govt and RBI policies
4. Increased banking regulations
5. Larger capital gains taxes.
6. Threat from existing players in the market.
7. Declining exports likely to subdue trade financing demand in India
8. Intensifying competition likely to check growth opportunities

26. 26
Chapter 5
ANALYSIS OF FINANCIAL STATEMENTS
The focus of financial analysis is on key figures in the financial statements and the
significant relationship that exists between them. The analysis of financial statements is a
process of evaluating the relationship between component parts of financial statements to
obtain a better understanding of the Bank‟s position and performance.
In Comparative Financial Statement (CFS), two or more Balance Sheet and/ or the
Income Statement (IS) of a firm are presented simultaneously in columnar form. The
financial data for two or more years are placed and presented in adjacent columns and
thereby the financial data is provided a times perspective in order to facilitate periodic
comparison. The preparation of the CFS is based on the premise that a statement covering
a period of a number of years is more meaningful and significant than for a single year
only, and that the financial statement for one period represent only 1 phase of the long
and continuous history of the firm. The CFS can be prepared for both the BS and the IS.
5.1 Comparative Balance Sheet (CBS)
The CBS shows the different assets and liabilities of the Bank on different dates to make
comparisons of absolute balances and also of changes if any, from one date to another.
The CBS may be helpful in analysing and evaluating the financial position of the bank
over a period of years.

27. 27
Rs.in Crores
Particulars 2008-09 2009-10
Increase/
Decrease
(amount)
Increase/
Decrease
(percentage)
SOURCES OF FUNDS
1.Share Capital
Paid up Capital
2.Reservefund
3.Revaluation Reserves
4.Borrowings
5.Deposits
6.Other liabilities
& Provisions
Grand Total
APPLICATIONOF
FUNDS
1.Gross Block
Less: Depreciation
Net Block
2.Investments
3.Cash in hand & bank
4.Loan & advances
5.Other Assets
Grand Total
410.00
9,629.61
2,168.16
7,056.61
186,892.51
13,488.91
219,645.80
4,440.07
1,510.61
2,929.46
57,776.90
16659.78
138,219.40
4,060.26
219,645.80
410.00
12,129.11
2,132.68
8,440.56
234,651.44
6,977.30
264,741.09
4,480.37
1,620.99
2,859.38
69,676.95
19653.21
169,334.63
3,216.92
264,741.09
-
2499.5
(35.48)
1383.95
47758.93
(6511.61)
45095.29
40.3
110.38
(70.08)
11900.05
2993.43
31115.23
(843.34)
45095.29
-
25.96
(1.64)
19.61
25.55
(48.27)
20.53
0.91
7.31
(2.39)
20.59
17.97
22.51
(20.77)
20.53

28. 28
Rs.in Crores
Particulars 2009-10 2010-11
Increase/
Decrease
(amount)
Increase/
Decrease
(percentage)
SOURCES OF FUNDS
1.Share Capital
Paid up Capital
2.Reservefund
3.Revaluation Reserves
4.Borrowings
5.Deposits
6.Other liabilities
& Provisions
Grand Total
APPLICATION OF
FUNDS
1.Gross Block
Less: Depreciation
Net Block
2.Investments
5.Cash in hand & bank
6.Loan & advances
9.Other Assets
Grand Total
410.00
12,129.11
2,132.68
8,440.56
234,651.44
6,977.30
264,741.09
4,480.37
1,620.99
2,859.38
69,676.95
19653.21
169,334.63
3,216.92
264,741.09
443.00
17498.46
2098.36
14261.65
293972.65
7804.64
336078.76
4686.15
1841.74
2844.41
83699.92
30708.11
212467.17
6359.15
336078.76
33
5369.5
(34.32)
5821.09
59321.21
827.34
71337.67
205.78
220.75
14.97
14022.97
11054.9
43132.54
3142.23
71337.67
8.05
44.27
(1.61)
68.97
25.28
11.86
26.95
4.59
13.62
0.52
20.13
56.25
25.47
97.68
26.95
Interpretation
Share Capital
Paid up share capital was increased to Rs. 33crores in the year 2010-11 i.e. Rs. 410crores
to Rs. 433crores because of high investment in operational activities of bank. Earlier it
was stable i.e., Rs. 410crores

29. 29
Current assets
Cash in hand & bank increases to 56.25% from 17.97% thus increasing the current assets
and also had maintained a healthy amount as loans & advances for the smooth running of
day to day transaction
Net fixed assets
The net fixed assets increased to Rs.14.97crore in the year2010-11 when compared to
2009-10. In the year 2009-10 it was decreased by (70.08%). This is due to increased
investment in fixed assets
Investments
There is a change in investments while comparing the previous year and with the current
year. The investments increased to 14022.97crores in 2010-11 when compared to 2009-10.
In the year 2009-10 it had decreased.
Current liabilities
Current liabilities include current liabilities and provisions. Current liabilities and
provisions Increased by Rs.827.34 in 2010-11 when compared to 2009-10. In the year
2009-10 current liabilities have decreased to (6511.61) since the decrease in current assets
is more than decrease in current liabilities, therefore the net working capital has
decreased.
Borrowings & Depositors
In liabilities side borrowings increased to Rs. 14261.65 i.e., about 68.97% in 2011 &
deposits as increased to Rs.293972.65 i.e., about 25.28% in 2010-11 when compared to
2009-10.
Reserve Fund and Revaluation Reserve
The Reserve Fund has increased to Rs.5369.5 i.e., about 44.27% in 2010-11 and
Revaluation Reserve decreased to Rs.34.32 i.e., about (1.61) as compared to 2009-10.
Other assets
Other assets of bank show a very fluctuating trend because in the year 2009-10 it was
drastically decreased i.e. Rs. 3216.92crores from 4060.26crores in the year 2008-09, but
in the year 2010-11 it takes up to Rs. 6359.15crores this is because of increased in
receivables.

30. 30
Chapter-6
LEARNING EXPERIENCE
In plant training is really useful to know how classroom theories are applied in the
corporate organization. Every organization before carrying out any task has to perform
managerial functions such as planning, organizing, controlling, and directing besides
useful functions like wages and salary administration. In the banks also, the top
management and the planning department have to plan about the new deposits and
lending policies, recruitment and training of new staff members. They have to plan about
risk management especially credit risks. Besides this banks should also plan for branch-
networks adopting new technologies.
The organization set up in the banks is usually – Head Office, Regional office and Branch
office to organize the entire activities of the bank. Head Office should be monitoring all
the regional offices and in turn regional offices should monitor all the branch offices.
Thus the working performance of the bank is entirely in the hands of a branch manager.
Controlling the activities of the bank are very essential, otherwise planned activity will
not reach its destination. The top management and the planning department should review
and evaluate their plans from time to time to see that it is in the right track.
Directing is very essential for the smooth work of business. There should be clear cut
information regarding who should direct whom. Organization Structure at head office
level, regional level, branch level department level should be defined very clearly.
In addition to that they provide various services which add to their revenue and customer
relationship. Banks involve into a variety of services like selling insurance, and mutual
fund products of other companies and they help the customers in the payment of electric
and telephone bills, as they already have a large customer base for which they give. The
entire picture of banks providing help has changed too, they are doing their duty by
serving the customers, who are the reason for their very existence of the banks revolve
around the customers by providing competitive services.
Technology has evolved a lot over a period of year. It plays a major role in customer
service; customer prefers advanced but simple technology which would make their life
more comfortable and faster. Karnataka Bank has adopted CBS – Finacle and has many
ATM networks to provide quality Services to customers.

31. 31

32. 32
PART – B
Chapter – 1
GENERAL INTRODUCTION TO WORKING
CAPITAL
1.1 Introduction to the study
A study on Working capital management practiced in Canara Bank at Circle Office,
Mangalore. Working capital Management is one of the most important aspects of
financial management. It forms a major function of the finance manager and accountant.
Its effective provision can do much to ensure the success of a business, while its
inefficient management can lead not only to loss of profit but also to the ultimate
downfall of what otherwise might be considered as a promising concern. Much has been
rightly made of the long term planning of capital projects. But the cost to industry due to
inadequate planning in the use of working capital is immeasurable. Thus a study of
working capital management is major importance to internal and external analysis
because of its close relationship with the current day to day operations of a business.
1.1.1 Meaning of Working Capital Management
Working Capital represents the money that is required for purchase/stocking of raw
materials, payment of salary, wages, power charges etc, and also for financing the interval
between the supply of goods and the receipt of goods and the receipt of payment
thereafter.
Working Capital Management is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and inter relationship that exists between
them. The term current assets refer to those assets which in the ordinary course of
business can be, or will be, converted into cash within one year without undergoing a
diminution in value and without disrupting the operations of the firm. Current liabilities
are those liabilities which are intended at their inception, to be paid in the ordinary course
of business, within a year out of the current assets or earnings of the concern.

33. 33
It has been rightly said, working capital management has been looked upon as the driving
seat of a finance manager. Constant management is required to maintain appropriate level
in the various working capital accounts.
1.1.2 Importance of working capital Management:
The importance of working capital in any industrial concern needs no emphasis. The
management of working capital is perhaps more important than the management of profit
under the presence of deflationary conditions. This requires greatest attention and efforts
of the finance manager. The finance manager should be vigilant as the treatment of
different components of working capital such as cash; receivables and inventory require
special attention. It throws a challenge to the finance manager while exercising his skill
and judgment for handling the complicated issues in this regard. Therefore working
capital management has been looked upon as the driving seat of finance manager.
1.1.3 Types of Working Capital
The working capital can be classified into two types on the basis of time;
1. Permanent working capital.
2. Temporary or variable working capital.
Permanent Working Capital
Permanent working capital is the minimum amount of current assets, which is needed to
conduct the business even during the dullest season of the years. It is the amount of fund-
required to produce the good and services, which is necessary to satisfy the demand at
particular point. Permanent working capital has following characteristics.
It is a classified on the basis of time factor.
Its size increases with the growth of business operation.
It constantly changes from one asset to another and continuous to remain in the
business process.
Temporary or variable working capital
Variable working capital is the amount of additional current assets required for a short
period, the capital required to meet the seasonal needs of a firm is called seasonal
working capital. Variable working capital has following characteristics.
It is particularly suited to a business of a seasonal or cyclical nature.

34. 34
It is not always gainfully employed
Though it may change one asset to another as permanent working capital does.
While temporary working capital is fluctuating sometimes increasing and sometimes
decreasing. However the permanent working capital line need not be horizontal if the
firm‟s requirement for permanent capital is increasing or decreasing over a period. For a
growing firm has difference between permanent and temporary working capital.
1.1.4 Adequacy of Working Capital
A firm must have adequate working, i.e. as much as needed by the firm. It should neither
be excessive nor inadequate. Both situations are dangerous. Excessive working capital
means the firm does not have sufficient fund for running operations which ultimately
result in production inter perceptions and lowering down the profitability.
1.1.5 Capital required for manufacturing and service industries
For running an industry or a concern, two types of capital are required viz., fixed capital
and working capital. Fixed capital is utilized for acquiring the fixed assets such as land,
building, plant and machinery etc., and to meet capital expenditure connected with the
setting up of the industry or concern. But by themselves, these fixed assets would not
produce/earn anything. They have to be run / worked for production. This requires
enough liquid sources, viz., working capital to keep the wheels moving.
The following are the Components of Working Capital
1. Raw Materials
2. Work in Progress
3. Finished Goods
4. Debtors
5. Creditors
1.1.6 Working capital cycle
It begins with cash; cash will be used for procurement of raw material. The firm has to
maintain raw material of suitable volume always.

35. 35
During the period of operation the raw material will be converted into work in progress.
The value and quantum of work in progress depends on the conversion period and the
cost of conversion.
Once the work in progress is converted into finished goods, it will be held by the
company till the point of sale which requires funding.
In business practice, generally the payment for suppliers is not made immediately on
purchase. The time period allowed for payment is called Credit Period.
Operating Cycle or Working Capital Cycle
A simple working capital cycle diagram
The process involved in the utilization of working capital is cyclic one. What is at one
stage a raw materials gets converted into goods-in-process in the next stage and then into
finished goods, then book debts and then cash again back to the stage of raw materials. In
respect of trading concerns, operating cycle represents the period involved from the time
the goods and services are purchased and the same are sold and realized. In the case of
manufacturing concerns, it is the time involved in the purchasing of raw materials,
converting them into finished goods and the same are finally sold and proceeds are
realized.
The total working capital requirements for Industrial Units will depend upon the blocking
period of assets and the operation of the cycle. Then, the stocking of the raw materials
CASH
RAW
MATERIALS
WORK IN
PROGRESS
FINISHED
GOODS
DEBTORS

36. 36
may be equivalent to one or three months raw materials consumption for most industries,
but say nil for a sugar mill.
As regards the operating cycle, the duration of each stage of process cycle is first decided
upon having regard to the function it is supposed to perform. The conversion of raw
materials into finished goods depends upon the technical requirements and manufacturing
facilities available. Similarly, the turnover of finished products and their transformation
into book debts, bills or cash could be related to factors like delivery schedule, business
customs and competition. Thus, the working capital cycle of a manufacturing activity
shouts with the acquisition of raw materials and ends with realization of cash for finished
goods.
The cycle is long in some cases and short in others, depending upon the nature of
business. Cycle is fast in consumer goods industries and slow in capital goods industries.
Cycle is short in case of perishable such as food articles, beverages, fruits, fish, eggs, etc.
The cycle is long in case of tobacco, distilling, timber, steel etc. Seasonal industries like
umbrella, wooden fabrics, fans, refrigerators, require higher stock in some months and
bare minimum in remaining months.
During the cycle, funds are blocked in various stages of current assets, viz., cash itself,
inventory and receivables. These require finance, finance involves costs. Quicker the
cycle more is the turnover normally and longer the cycle, the less is the turnover.
Stagnation in any area affects turnover and profitability.
1.1.7 Working Capital Management
Management of working capital means the management of current assets, current
liabilities and net working capital.
Current Liabilities
Current liabilities are short-term liabilities which are repayable within a year. They are
normally raised for meeting the working capital needs and to acquire Current Assets.
Current Liabilities are the main source of finance for working capital and are normally
identified with the operating cycle of the business. Current liabilities consist of:
Bank borrowings for working capital
Unsecured loans, Inter Corporate Deposits etc.
Sundry Creditors- Trade

37. 37
Term Loan- Installment repayable within a period of 1 year, other Current
Liabilities and provisions.
Current Assets
They are not fixed assets. They are also called convertible assets, liquid or floating assets.
They change their form every now and then and ultimately are converted into cash.
Current Assets in the form of finished goods are meant for sale and converts into cash in a
period not exceeding 1 year. They indicate short-term deployment of funds and form
gross working capital.
The following are the components of current assets:
a. Cash
b. Stock in trade consisting of raw material, stock in progress, finished goods, stores,
packing materials.
c. Book Debts.
d. Other Loans and Advances etc.
The quantum and period, for which each current asset is held, should be reasonable and
related to the requirement. Any asset held in excess, burdens with unnecessary interest
and costs on such borrowings.
1.1.8 Working Capital: Methods of Assessment at Canara
Bank Circle Office Mangalore for loan proposal:
The assessment of working capital requirement of borrower shall generally be made
under any one of the following 3 methods.
A. Turnover Method
B. MPBF Method
C. Cash Budget System
A. Turnover Method
The genesis of the turnover method is traced to the P R Nayak Committee
Recommendations which was again reviewed by the Vaz Committee. Under this method,
the working capital limit shall be computed at 20% of the projected gross sales turnover
accepted by the bank. In case of SSI borrowers seeking/enjoying fund based working
capital facilities up to 500Lacs shall be accessed on the basis of turnover method of
MPBF system at the option of the borrower concerned.

38. 38
The turnover method shall be applied for sanction of fund based working capital limits to
the non SSI borrowers requiring working capital facilities up to 200Lacs from the
banking system.
This system shall be made applicable to traders, merchants, exporters who are not having
a predetermined manufacturing trading cycle. However, even such borrowers can opt for
MPBF system, if the same is more suitable for assessing the working capital needs and is
advantageous to them.
Under this method, branches/offices shall ensure maintenance of a minimum margin on
the projected annual sales turnover. In the words, 25% of the estimated gross 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 net working
capital is more, the same shall be rationed for assessing the extent of bank finance and
lower limits can be considered.
In the case of new units, branches should ensure that the projections made are realistic by
analyzing the installed capacity, availability of infrastructural facilities, marketability of
the product and performance of similar units in the industry, background of the promoter
etc., and such other factors relevant to a particular unit.
The projected turnover output value is the „Gross Sales‟ which will include excise duty
also. In the case of traders, while bank finance could be assessed at 20% of the projected
turnover, the actual withdrawals should be allowed on the basis of drawing power
determined after deducting unpaid stocks.
B. Maximum Permissible Bank Finance (MPBF) System:
Assessment of working capital limits of over 2Crore for non SSI borrowers or over
5Crore for non SSI borrowers, as the case may be, but up to 25Crore shall be assessed
based on the MPBF system. For limits of over 25Crore, credit facilities may be assessed
on the basis of MPBF system or cash budget system at the option of the borrower. A
uniform classification of current assets/current liabilities shall be adopted. The assessment
of credit requirement of the party shall be made based on the total study of the borrower‟s
business operations vis-a-vis the production/processing cycle of the industry, which shall
represent a reasonable build-up of current assets for being supported by the bank finance.

39. 39
Based on Kannan Committee recommendations, RBI has allowed freedom to the banks to
direct the holding levels of various components of current assets for financial support to
ensure efficient functioning of the unit.
The norms relating to level of inventory as advised by RBI shall continue to serve as
historic reference level. However, the levels of inventory and receivables shall be based
on industry trend and closely related to market developments. Projected level of inventory
and receivables shall be examined in relation to the past trend and based on the inter-firm
comparisons. The existing norms are only indicative level of inventory and borrowers
specific operational needs to hold projected level of inventory and reasonability thereof,
ability to absorb the cost of carrying such inventory and comparison of the other similar
units in the industry shall be relied upon to decide the required and acceptable level for
being supported by the bank.
C. Cash Budget System
A cash budget statement depicts the projected movement of cash and bank balances at a
future period. It shows the expected inflow and outflow of cash deficit and surplus in
generation of cash.
Structure of Cash Flow Statement: The cash flow statement shows the movement of
cash and bank balances during a certain period, the reason for increase (+) or decrease (-)
in the bank borrowings, the level of cash holding between two intervals of time. The cash
flow statement is a historical statement that depicts the flow of cash in the system.
The statement covers most of the details needed for assessment of the financial needs of
the borrower. The statement of cash flow is made more meaningful and useful for
assessment of working capital by grouping the cash flows under 3 heads viz., Operating,
Investing and Financing. The principal cash flows arising out of the above 3 main groups
are described below:
i. Operating Activities
These activities involve producing and delivering goods and providing services. Cash
inflows from operating activities include receipts from customers for sale of goods and
services including receipts from collection of debtors. Cash outflows from operating
activities include payments to employees for services, payment to suppliers of goods,
payments to Governments for taxes and duties and services etc.

40. 40
ii. Investing Activities
These activities involve extending and recovering loans and acquiring and disposing of
debt and equity instruments and fixed assets. Cash inflow from investing activities
include receipts from loan collections, receipts from sales of debt and equity instruments
of other enterprises and receipts from sale of fixed assets. Cash outflows from investing
activities include disbursement of loans, payments to acquire debt and equity instruments
of other enterprises and payments (including advances and down payments) to acquire
fixed assets.
iii. Financing Activities
These activities involve obtaining resources from owners and providing them with a
return on and return of their investment, borrowings and repaying amounts borrowed and
obtaining and paying for other resources obtained from creditors on long term credit.
Cash inflows from financing activities include proceeds from issuing equity instruments,
debentures, mortgages, bills and from other long and short term borrowings. Cash
outflows from financing activities are payments of dividends, repayments of amounts
borrowed and principal payments to creditors who have extended long term credit.
In the case of borrowers whose credit limits are to be assessed on the basis of cash budget
system, the branches shall obtain the following data from the borrower along with
applications.
a. Cash Flow Statement
b. Projected Balance Sheet and Profitability Statement
c. Credit Monitoring Assets Data
Assessment of the limit under the cash budget system is done by arriving at the deficit
between cash inflow and cash outflow during a period of time.
In addition to the Cash Budget System, the branches shall obtain following additional
information to scrutinize the cash budget statement.
Credit Sales during the Year, Credit Purchases during the Year, Opening Stock of the
Finished Goods, Closing Stock of the Finished Goods, Receivables outstanding at the
beginning, Receivables outstanding at the end, Creditors outstanding at the beginning and
Creditors outstanding at the end

41. 41
Illustrative Examples:
Case1: ABC Pvt. Ltd. is a Mangalore based Private Limited company engaged in marine
food processing and marketing. The issues to be dealt with, while assessing the working
capital requirement of the company are analyzed in the following paragraphs
Marine Food Industry Profile
Nature of the Business:
The seafood business produces food for consumption by end consumers: retail, food
service (restaurant), and institutional. The demands and tastes of these end consumers
drive the entire industry. The seafood industry competes with other protein producers,
including red and white meat and poultry, on a local, national, and international level. In
short, the industry must emphasize the food component of the term seafood and must
think globally.
Industry Elements
Production, processing, and distribution are the three phases common to the food
business.
The seafood industry produces processes, and markets fish and shellfish into intermediate
or finished food products for consumers. The industry involves several linkages or phases
of activity between the natural resource in its marine environment and the final products
available to consumers.
Production – Fish and shellfish are harvested using a variety of nets, hooks and lines,
traps, diving techniques, or other gear. In addition, they are cultured from birth through
rearing and feeding to market size.
Processing – Raw fish and shellfish reach commercial processors via delivery by sea to
processing plants, custom unloading at transshipment points, and trucking. Processors
transform the raw material into a variety of live, fresh whole, frozen whole, fillet, steak,
smoked, canned, roe, and other products.
Karnataka has got a long coastline of 300 kms, 27000 sq km of continental shelf area &
87000 sq km of exclusive economic zone. The resource potential is estimated at `4.25
lakhs ton p.a.
It is proposed to procure the fish from the following landing centres.
1. Goa

42. 42
2. Uttar Kannada – Karwar, Kumta, Murudeshwar, Bhatkal.
3. Udupi – Gangolli, Malpe.
4. Dakshina Kannada – Mangalore.
5. Kerala – Kasargod, Kochin.
The proprietor was having close contact with the boat owners and fish traders located in
the various landing sites indicated above.
The fish availability is restricted to the August to April in each year. Thus the unit will be
undertaking the process only during the above months. However, the marketing will be
done throughout the year as at the end of the landing period, adequate quantity of product
are stored in the cold storage to effect the sale in the non seasonal period.
The unit will mainly concentrate in the export of the following variation of fishes.
S.No. Variety Name of the country to Export
1. Mackerel Gulf, Singapore, Malaysia
2. Tuna Singapore, Malaysia
3. Cuttle fish, Squid European countries & Gulf.
4. Prawns Japan & USA
5. Ribbon fish China
6. Seer fish China, Gulf, Singapore
7. Sardine China, Gulf.
Manufacturing Process
Processing:
Fish is a highly perishable item. It has become imperative to process scientifically for
batter shelf life.
The following 2 process lines are adopted for preservation & value addition.
a) Canning
b) Freezing
The concern will be engaged in freezing process.
The fish are procured from the various fish landing centers. They are packed in the
plastic crates, iced and transported by the refrigerated vans to the factory site. They are
first stored in chilled room. They are thoroughly washed & graded according to sizes like
Biggest, Bigger, Medium, Small & tiny sizes. They are the transferred to processing hall.
Some of the fishes like Mackerel are straight away frozen as it is. In certain other types of

43. 43
fish, beheaded, fins are removed & gutted. They are again washed to remove the blood
and any other material. The fishes are packed is consumer pack. They are taken to
freezers for freezing.
Fish contains around 75% by weight –water. The process of freezing converts most of the
water in to ice. During the freezing process, the temperature of fish is lowered to (-) 30`C.
Mr. X Pvt. Ltd. is a company which is going to establish in Marine Food Industry. It is
like a Greenfield Project because here everything starts from the scrap but not the
improvisation of the existing unit.
Working Capital Assessment
Criteria 1: Turnover Method
The projected Turnover for next 2 years of is as under:
Financial Year 2012 2013
Operating Income 161.82 169.91
Operating Cost
Purchase 118.38 124.30
Power 8.09 8.50
Salary 4.85 5.10
Incentives 2.96 3.11
Others 12.95 13.59
Total Operating Cost 147.23 154.60
Operating Profit 14.59 15.31
Administration Expenses 7.00 7.35
Total Overhead 7.00 7.35
EBIDT 7.59 7.96
Interest on Working Capital Loan 0.78 0.80
Interest on Term Loan 0.83 0.69
Depreciation 1.91 1.63
Preliminary Expenses W/O
PBT 4.06 4.85
Tax 0.81 0.97
NET PROFIT 3.25 3.88

44. 44
The MPBF under Turnover method is worked out as under:
Assessment
Year 2012 2013
Projected Turnover 147.23 154.60
Working Capital Gap ( 25% of the above) 36.81 38.65
MPBF ( 80% of the above) 29.45 30.92
Margin ( 20% of the gap) 7.36 7.73
Case 2: MPBF Method
Annual Consumption / Expenditure for first year
Rs. in lakhs
Raw Fish 2642.21
Packing & Handling Materials 61.03
Wages 208.05
Power 166.44
Other Manufacturing Expenses 12.48
Administration Expenses 90.61
Interest 106.55
Holding Period (Days)
Raw Fish 0.5
Packing & Handling Materials 14
Work in Progress 0.5
Finished Goods 14
Collection Period 28
Gross Working Capital Cycle 57
Payment period 6
Net Working Capital Cycle 51

45. 45
Assessment of working capital under MPBF method
Rs.in lakhs
Raw Material 3.62
Packing Materials 2.34
Work In Progress 4.23
Finished Goods 118.53
Debtors 244.01
Gross Working Capital 372.73
Less: Creditors 43.43
Working Capital Gap 329.30
Weighted Average Margin (%) 25
Promoter’s Contribution 82.33
MPBF 246.98
The actual requirement of the borrower is 329.30Crores, of which 25% will be met by the
Borrower as margin and remaining 75% will be provided by the bank in normal course.
Thus under the MPBF System, the bank would provide 246.98Crores as working capital
finance and remaining 82.33lakhs will be met by the firm from its long term sources.
Case 3: Cash budget system:
The details of furnished by the firm are as under:
a) Opening Stock – 550 MT

46. 46
b.)The procurement projected for next 12 months is as under:
Month Procurement Released
October 250 199
November 80 208
December 440 167
January 171 250
February 315 80
March 101 440
April 285 171
May 642 315
June 341 101
July 95 285
August 126 142
September 465 341
October 445 95
November 304 126
December 212 465
c) Other Details are as under
Market Price of food / MT - `19000
Interest Charged to Pledger – 15%
Commission – 1%
Margin – 25%

47. 47
Assessment
The working capital requirement for the firm is assessed as under
Stock Register of the ABC Co. Pvt. ltd is as follows for the years 2011 and 2012:
Month Opening
Stock in
MT
Procurement
in MT
Release Closing
Stock in
MT
Value of
Closing
Stock ` in
Lakhs
October
2011
550 250 199 601 114.2
November
2011
601 80 208 473 89.87
December
2011
473 440 167 746 142
January
2012
746 171 250 667 126.73
February
2012
667 315 80 902 171.38
March 2012 902 101 440 563 106.97
April 2012 563 285 171 677 128.6
May 2012 677 642 315 1004 190.8
June 2012 1004 341 101 1244 236.36
July 2012 1244 95 285 1054 200.26
August
2012
1054 126 142 1038 197
September
2012
1038 465 341 1163 220.78
October
2012
1162 445 95 1512 287.3
November
2012
1512 304 126 1690 321.1
December
2012
1690 212 465 1437 273

48. 48
Assessment of working capital under Cash Budget System as under:
Jan Feb Ma
r
Ap
r
Ma
y
Jun
e
Jul
y
Au
g
Sep
t
Oct No
v
Dec
Receipts
Amount
received by
Pledge
Release
35.
63
11.
4
62.
7
24.
37
44.
89
14.
39
40.
61
20.
24
48.
59
13.
54
17.
96
66.
26
Interest 1.3
4
0.4
3
2.3
5
0.9
1
1.6
8
0.5
4
1.5
2
0.7
6
1.8
2
0.5
1
0.6
7
2.4
8
Commissio
n
Received
0.3
6
0.1
1
0.6
3
0.2
4
0.4
5
0.1
4
0.4
1
0.2
0
0.4
9
0.1
4
0.1
8
0.6
6
Other
Receipts
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
Total
Receipts
37.
32
11.
94
65.
68
25.
52
47.
02
15.
08
42.
54
21.
2
50.
9
14.
18
18.
81
69.
41
Payments
Payment
for Pledgers
24.
37
44.
89
14.
39
40.
61
91.
49
48.
59
13.
54
17.
96
66.
26
63.
41
43.
32
30.
21
Salary 0.4
8
0.4
8
0.4
8
0.4
8
0.4
8
0.4
8
0.4
8
0.4
8
0.4
8
0.4
8
0.4
8
0.4
8
Bank Loan
Interest
(13%)
0.4
3
0.4
3
0.4
3
0.4
3
0.4
3
0.4
3
0.4
3
0.4
3
0.4
3
0.4
3
0.4
3
0.4
3
Other
Expenses
0.1
6
0.1
6
0.1
6
0.1
6
0.1
6
0.1
6
0.1
6
0.1
6
0.1
6
0.1
6
0.1
6
0.1
6
Total
Payments
25.
44
45.
96
15.
47
41.
69
92.
56
49.
67
14.
61
19.
03
67.
34
64.
49
44.
39
31.
28
Surplus/De
ficit per
Month
11.
88
-
34.
02
50.
21
-
16.
16
-
45.
54
-
34.
59
27.
93
2.1
7
-
16.
44
-
50.
31
-
25.
59
38.
13
Margin 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

49. 49
5 5 5 5 5 5 5 5 5 5 5 5
Bank
Loan(OD
Sec)
0.0
0
25.
51
0.0
0
12.
12
34.
15
25.
94
0.0
0
0.0
0
12.
33
37.
73
19.
19
0.0
0
We may observe that the deficit varies from month to month and even for some months
there is surplus. The deficit is maximum for the month of October 2011. The peak deficit
shall be used as base for assessing the working capital requirement.
The peak deficit is `50.31 lakhs and the working capital limit shall be 75% of the above.
It may be noted that the stocks are in the custody of the borrower. Hence Cash Credit
limit is not possible. The firm is entitled to overdraft (OD) limit which is secured.
1.2 Statement of the Problem
The entire study is done to know the “Working Capital Management at Canara Bank”.
The study is conducted at Mangalore Circle Office. The study is not confined to
Mangalore circle office. It is the study of whole Canara Bank operations with particular
reference to “Working Capital Management”.
Working capital management being an integral part of overall corporate management it is
one of the powerful tools of financial performance analysis.
.
1.3 Objectives of the study:
To know about the three criteria (turn over method, MPBF method and cash
budget method) which are used to evaluate the working capital loan proposal
To understand the financial performance of the Canara Bank
To know the financial strategies adopted by the Canara Bank
To compare the present and previous year‟s performance of Canara Bank
To study the liquidity, profitability position of bank through ratio analysis for the
last 5 years.

50. 50
1.4 Scope of the study:
The study covers all the components of working capital. The study of working capital
management is limited to canara Bank and there is no comparison with another Bank.
1.5 Methodology
Data collection
The study is undertaken by using both primary and secondary sources.
Primary Sources:
Only the bank officials of advance section are considered as respondents. So the response
of those officials is much relevant than the response of other branch officials.
Secondary sources:
The major source of data for this project was collected from certain projects handled by
Circle Office, Mangalore, Canara Bank Manuals, Profit and loss accounts, balance sheet
and some information collected through the internet.
1.6 Limitations of the study
Time constraint was one of the main limitations of the study because it is difficult
to study fully working capital method followed by the bank within only 8 weeks,
in-spite of that I also tried my level best to cover maximum portion of subject of
study.
The study was done using the information contained in the Canara Bank‟s
working capital manual.
The limitation of ratio analysis is itself a limitation in achieving the set objective
Information is partially based on secondary data and hence authenticity of the
study can be visualized and is measurable

51. 51
Chapter 2
ANALYSIS OF FINANCIAL RATIOS
The financial statements analysis is largely a study on relationship among the various
financial factors in a business as disclosed by a single set of statements and a study of the
trend of this factor as shown in a series of statements. There is no doubt that financial
statements contain a large number of accounting data or figures. So, to make the finance
statements meaningful to a common man, the financial statements have to be analyzed
and interpreted.
The analysis of working capital management helps to ascertain the liquidity position of
the Bank i.e. the ability of the Bank to repay its current liabilities out of its current assets.
Ratio analysis is the most commonly used techniques, which deals particularly with each
and every aspects of working capital management. Ratio analysis provides guides and
clues particularly in sporting trends towards better or proper performance, and its finding
out significant deviation for any average or relatively applicable standards.
In the technique, for each aspect of analysis certain ratios are computed and then results
are compared with the standard or average.
Importance of ratio analysis
The inter relationship that exists among the different items appeared in the financial statement, are
revealed by accounting ratios. Ratio analysis of firm‟s financial statements is of interest to
number of parties. The importance of ratio analysis is discussed below:
Aids to measure general efficiency
Aids to measure financial solvency
Aids to forecasting and planning
Facilitate decision making
Aids in correlative action
Aids in intra firm comparison
Act as a good communication
Evaluation of efficiency

52. 52
2.1 Analysis of gross working capital of Canara bank
Gross working capital refers to the Bank‟s investment in current asset. Therefore it is
nothing but total of current assets. The gross working capital is evaluated by finding out
the ratio of each component of current assets with the total asset. These ratios indicate in
which component of current assets excess funds and to what extend efforts can be made
to design suitable strategies and policies to release such funds for better elsewhere.
Components of gross working capital:
i) Cash and bank
ii) Sundry debtors
iii) Loans and advances
iv) Inventory
The components of gross working capital carry a great importance in the study of
working capital management because slight change in the above item will bring a change
in the value of gross working capital. In above component cash and inventories play a
very important role. Because cash is the sun liquid equipment where as inventories is
considered as a barriers of liquidity so, is the amount of inventories is increasing year by
year. That will create a problem in liquidity of the firm whereas; more cash will be
favorable for the firm. The increase or decrease in the above components of gross
working capital is shown below.
Gross working capital = cash in hand + cash at bank + loans & advances
Table 2.1 showing changes in Gross working capital for last Five year.
Year GWC Changes (Rs) Changes%
2007-08 125116.08 10236.46 8.18
2008-09 154879.18 29763.10 19.16
2009-10 188987.84 34108.66 18.05
2010-11 243175.28 54187.44 22.28

53. 53
Chart 2.1: Showing ratio of gross working capital changes
From the above graph we can arrive at a conclusion that the Bank had maintained
sufficient working capital for smooth running of the business. We can find an increase in
the gross working capital from the year 2007 to the year 2011.
2.2 Cash and Bank to Gross working capital
Table 2.2 showing ratio of cash and bank balance with gross working capital
Year Cash & Bank Gross working
capital
Ratio (%)
2006-07 16373.93 114879.62 14.25
2007-08 17878.04 125116.08 14.29
2008-09 16659.78 154879.18 10.76
2009-10 19653.21 188987.84 10.40
2010-11 30708.11 243175.28 12.63
Chart 2.2: Showing ratio of cash and bank balance with gross working capital
114879.62 125116.08
154879.18
188987.84
243175.28
0
50000
100000
150000
200000
250000
300000
2006-07 2007-08 2008-09 2009-10 2010-11
Gross Working Capital
GWC

54. 54
From the above graph we can draw a conclusion that, in the early years the Bank had
maintained a good cash and bank balance wherein it could easily clear off its liabilities.
But were years passed bit decreased in balance. In the last year, since the Bank is doing
well in business we can assume that the balances might increase in the upcoming years.
2.3 Loans and advances to gross working capital ratio
Table 2.3: Showing ratio b/w loans and advances to gross working capital.
Year Loans &advances Gross working
capital
Ratio (%)
2006-07 98,505.69 114879.62 85.75
2007-08 107,238.04 125116.08 85.71
2008-09 138,219.40 154879.18 89.24
2009-10 169,334.63 188987.84 89.60
2010-11 212467.17 243175.28 87.37
Chart 2.3: Showing ratio b/w loans and advances to gross working capital.
14.25 14.29
10.76 10.4
12.63
0
2
4
6
8
10
12
14
16
2006-07 2007-08 2008-09 2009-10 2010-11
Cash & Bank to GWC
Cash & Bank to GWC

55. 55
From the above graph I conclude that the portion of loans and advances in the gross
working capital was more and it shows a high liquidity position of the bank. Here ratio
remains more or less same over the years but shows a huge increase in the years 2009-10.
2.4 Net working capital
Net working capital is nothing but the difference b/w current asset and current liabilities.
When current liabilities increases the working capital decreases. A high working capital is
not good for a company because it deficits the excessive blocking up of capital in
inventories and debtors. This will lead to reduce profitability.
Net working capital= current assets – current liabilities
Table 2.4: showing the changes in net working capital
Year Net working capital
2006-07 103228.37
2007-08 111677.53
2008-09 141390.27
2009-10 182010.54
2010-11 235370.64
85.75 85.71
89.24 89.6
87.37
83
84
85
86
87
88
89
90
2006-07 2007-08 2008-09 2009-10 2010-11
Loans & Advances to GWC Ratio
Loans & Advances to GWC
Ratio

56. 56
Chart 2 4: showing the changes in Net working capital
The Net working capital shows an increasing trend throughout this period of study.
Because of increased investment in current assets to maintain sound net working capital
to meet its liabilities. In the year 2006-07 it was 103228.37 but it increased to 235370.64
in the 2010-11. Excess of current asset over current liabilities is called as net working
capital.
2.5 Current ratio
The current ratio is the calculating by dividing current asset by liabilities. The current
ratio measures the firm short-term solvency. Generally the ratio varies from company to
company. Ratio of 2:1 may be considered being satisfactory for industrial and
commercial business concern. It is expressed as;
Current ratio= Current asset / current liabilities.
Table 2.5: Showing current ratio
Year Current asset Current liabilities Current Ratio
2006-07 114879.62 11,651.25 9.86
2007-08 125116.08 13,438.55 9.31
2008-09 154879.18 13,488.91 11.48
2009-10 188987.84 6,977.30 27.09
2010-11 243175.28 7804.64 31.16
103228.37 111677.53
141390.27
182010.54
235370.64
0
50000
100000
150000
200000
250000
2006-07 2007-08 2008-09 2009-10 2010-11
Net Working Capital
Net Working Capital

57. 57
Chart 2.5: showing current ratio
From the graph it is evident that the current ratio of Bank is as per the required standards
i.e. 2:1 which indicates the sound liquidity position. There was a slight downfall in the
value of increase in current assets in the year 2007-08 and after the fall the bank managed
to raise the level of current assets in the later years. From this I conclude that the bank has
sufficient current assets to clear off the current liabilities
2.6 Liquidity/acid test/quick ratio
The ratio is similar to the current ratio concept that it exclude inventory from the
numerators of the ratio. Among the current asset inventory is generally the least liquid
asset as it needs more times to conversion this other asset. The term liquid asset refers to
current asset, which can be converted is to cash immediately or at a short notice. It is
computes as follows.
9.86 9.31
11.48
27.09
31.16
0
5
10
15
20
25
30
35
2006-07 2007-08 2008-09 2009-10 2010-11
Current Ratio
Current Ratio

58. 58
Quick / liquid ratio = quick asset / quick liability
Table 2.6: showing liquid ratio
Year Quick asset Quick liabilities Quick Ratio
2005-06 114879.62 11,651.25 9.86
2006-07 125116.08 13,438.55 9.31
2007-08 154879.18 13,488.91 11.48
2008-09 188987.84 6,977.30 27.09
2009-10 243175.28 7804.64 31.16
Chart2.6: Showing quick ratio
It is clear from the above table that the quick ratio is above the required standard of 1:1
throughout period of study. Here the quick assets are continuously increased from the
year 2006-07, but the portion of increment varies from year to year. I conclude that the
liquidity position of the Bank is sound. Because its quick liabilities are decreased in later
years and we can assume that it continues in the future years.
2.7 Absolute Liquid / Super quick ratio
It is the ratio of absolute liquid assets include cash in hand, cash at bank and short term
investment. (Loans & advances)
Absolute liquid ratio = liquid assets / current liabilities
9.86 9.31
11.48
27.09
31.16
0
5
10
15
20
25
30
35
2006-07 2007-08 2008-09 2009-10 2010-11
Quick Ratio
Quick Ratio

59. 59
Table 2.7: showing absolute liquid ratio
Year Absolute liquid
asset
Current liabilities Absolute liquid
Ratio
2006-07 16373.93 11,651.25 1.41
2007-08 17878.04 13,438.55 1.33
2008-09 16659.78 13,488.91 1.24
2009-10 19653.21 6,977.30 2.82
2010-11 30708.11 7804.64 3.93
chart 2.7: showing absolute liquid ratio
The absolute liquid ratio is fluctuating throughout the study period. In the year 2008-09
the absolute liquid ratio reaches to minimum of 1.24%. But in the present year it reaches
to 3.93% which is so high as compared to all previous years. This is mainly due to
increasing cash position, by observing the ratio; it is clear that the Bank is having better
liquidity position.
2.8 Current asset turnover ratio
Current asset turnover ratio between current assets and turnover of sales; this indicates
the contribution of current asset to sales. There is no standard current asset turnover
ratio. High current assets turnover ratio is an indication of better utilization of current
1.41 1.33 1.24
2.82
3.93
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2006-07 2007-08 2008-09 2009-10 2010-11
Absolute liquid Ratio
Absolute liquid Ratio

60. 60
assets. It is expressed as:
Net sales or sales turnover is the total amount sold within a stipulated time period, usually
12 months. Sales turnover is usually expressed in monetary terms but can also be in
total units of stock or products sold. In bank bank turn over means total deposit (debit
amount) and total withdrawal (credit amount) in a specific period of a time. Generally bank
turn over will be based on the deposit amount and loans sanctioned
Current asset turnover = Net sales / current assets
Table 2.8: showing current asset turnover ratio
Year Net sales Current asset CAT ratio
2006-07 11,364.56 114879.62 0.10
2007-08 14,200.73 125116.08 0.11
2008-09 17,119.06 154879.18 0.11
2009-10 18,751.96 188987.84 0.10
2010-11 23,064.02 243175.28 0.10
Graph 8: showing current asset turnover
The current asset turnover ratio shows a minimum in the year 2006-07 i.e. 0.1%. After
that it increases to 0.11% in the year 2007-08 and 2008-09 and later in the year 2009-10 it
again decreased and continues. Low current asset turnover ratio suggests the current
assets are not being effectively.
0.1
0.11 0.11
0.1 0.1
0.094
0.096
0.098
0.1
0.102
0.104
0.106
0.108
0.11
0.112
2006-07 2007-08 2008-09 2009-10 2010-11
Current Assets Turnover ratio
CAT ratio

61. 61
2.9 Net working capital turnover ratio
This ratio indicates whether or not working capital has been effectively utilized in making
sales. The method used to measure this effectiveness of net working capital is to divide
the net sales by net working capital. The improvement in the utilization of net working
capital is accessed by examining the behavior of net working capital turnover ratio over a
period of time. A very high turnover of working capital indicated that working capital is
in sufficient for the given volume of business. It is computed as follows.
Net working capital turnover ratio = net sales / Net working capital
Table 2.9: showing networking capital turnover ratio
Year Net sales NWC NWC turnover ratio
2006-07 11,364.56 103228.37 0.11
2007-08 14,200.73 111677.53 0.13
2008-09 17,119.06 141390.27 0.12
2009-10 18,751.96 182010.54 0.10
2010-11 23,064.02 235370.64 0.10
Graph 9: showing networking capital turnover ratio
The above graph exhibits that in the year 2009-10 and 2010-11 networking capital
turnover ratio has decreased compared to the previous year, but the ratio‟s showed
satisfactory results. The ratios are decreased because this turnover of the Bank is
increasing
0.11
0.13 0.12
0.1 0.1
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
2006-07 2007-08 2008-09 2009-10 2010-11
Net Working Capital turnover ratio
NWC turnover ratio

62. 62
2.10 Working capital to total assets ratio
It is the ratio of working capital to total assets. It expressed as,
Working capital to total asset = Net working capital / total assets
Table 2.10: showing working capital to total assets
Year NWC Total assets NWC to TA ratio
2006-07 103228.37 165,961.03 0.62
2007-08 111677.53 180,528.69 0.62
2008-09 141390.27 219,645.80 0.64
2009-10 182010.54 264,741.09 0.69
2010-11 235370.64 336078.76 0.70
Graph no.10: showing net working capital to total assets
Here the working capital to total assets ratio was consistent in 2006-07 and 2007-08 than
it is in increasing rate from 2008-09. Here the networking capital of the Bank increases
along with the total asset.
2.11 Current asset to total assets ratio
Current asset to total assets ratio is ratio between current assets. It shows that out of total
assets how much percentage the current assets have. There is no ideal ratio. It is
calculated as,
0.62 0.62
0.64
0.69
0.7
0.58
0.6
0.62
0.64
0.66
0.68
0.7
0.72
2006-07 2007-08 2008-09 2009-10 2010-11
Working Capital to Total Assets Ratio
NWC to TA ratio

63. 63
Current assets to total assets ratio = current assets/ total assets
Table 11: showing current assets to total asset.
Year Current asset Total asset CA to TA ratio
2006-07 114879.62 165,961.03 0.69
2007-08 125116.08 180,528.69 0.69
2008-09 154879.18 219,645.80 0.71
2009-10 188987.84 264,741.09 0.71
2010-11 243175.28 336078.76 0.72
Table 11: showing current assets to total asset.
The high current ratio shows that the bank is primarily engaged in trading activities and
does not have heavy investment in fixed assets. The Bank makes huge investment in
current assets than fixed assets or in long-term investment because to meet the day to day
requirement of the Bank is much important.
2.12 Cash to sales ratio
The cash turnover ratio denotes the circulation as utilizations of cash during the period of
time. It shows the number of times the average cash balance of firm turnover during the
year. It is computed as;
Cash to sales ratio = cash/sales
0.69 0.69
0.71 0.71
0.72
0.675
0.68
0.685
0.69
0.695
0.7
0.705
0.71
0.715
0.72
0.725
2006-07 2007-08 2008-09 2009-10 2010-11
Current Assets to Total Assets ratio
CA to TA ratio

64. 64
Table 2.12: Showing cash to sales ratio
Year Cash Net Sales Cash to sales ratio
2006-07 16373.93 11,364.56 1.44
2007-08 17878.04 14,200.73 1.26
2008-09 16659.78 17,119.06 0.97
2009-10 19653.21 18,751.96 1.05
2010-11 30708.11 23,064.02 1.33
Graph 12: Showing cash to sales ratio
The cash to sales ratio will shows how the percentage of cash balance held in the Bank.
The table shows that the cash to sales ratio is in fluctuating throughout the period of
study. It is higher in the year 2006-07 and in the 2010-11 & 2008-09 there is less cash
because increase in expenses of the Bank and repayment of loans and advances of the
Bank.
2.13 Cash to current liabilities ratio
This is a ratio between cash to current liabilities. It is expressed as,
Cash to Current liabilities ratio = cash/Current liability
1.44
1.26
0.97 1.05
1.33
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2006-07 2007-08 2008-09 2009-10 2010-11
Cash to sales ratio
Cash to sales ratio

65. 65
Table 2.13: showing cash to current liabilities ratio
Year Cash Current liabilities Cash to CL ratio
2006-07 16373.93 11,651.25 1.41
2007-08 17878.04 13,438.55 1.33
2008-09 16659.78 13,488.91 1.24
2009-10 19653.21 6,977.30 2.82
2010-11 30708.11 7804.64 3.93
Graph 13: showing cash to sales ratio
Table showed a fluctuating a trend in all the 5 years. But in the current year it is
increased. In the year 2007-08 & 2008-09 it has been very low, due to large amounts of
current obligations and such balance. The cash to sales ratio in 2008-09 is lower because
off increase in expenses and then onwards the cash to current liabilities ratio increases.
That means Bank has sufficient cash to meet its current liabilities.
2.14 Cash turnover ratio
The cash turnover ratio denotes circulations of cash balance of firms and turnover during
the years
Cash turnover ratio = Net sales/Average cash balance
1.41 1.33 1.24
2.82
3.93
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2006-07 2007-08 2008-09 2009-10 2010-11
Cash to Current Liabilities ratio
Cash to CL ratio
Give explanation to sales

66. 66
Table 2.14: showing cash to current liability ratio
Year Net sales Cash Cash turnover ratio
2006-07 11,364.56 16373.93 0.69
2007-08 14,200.73 17878.04 0.79
2008-09 17,119.06 16659.78 1.03
2009-10 18,751.96 19653.21 0.95
2010-11 23,064.02 30708.11 0.75
Graph 14: Showing cash to current liability ratio
From the above table it is clear that the cash turnover ratio is very high compared to the
standard ratio of 10:1 for two years. This indicates that the cash resources of the Bank are
utilized very effectively. That means bank gets immediately sales receipt or within a
credit period sanctioned to the debtors
2.15 Return on Total Assets:
Return on total asset ratio is the ratio of net profit to total resources or total assets. Return,
here, means net profit after taxes, i.e., final net profit. Total resources or total asset means
all realizable assets, including intangible assets, if they are realizable.
The ratio is, usually, expressed as a percentage. It is calculated as follows:
0.69
0.79
1.03
0.95
0.75
0
0.2
0.4
0.6
0.8
1
1.2
2006-07 2007-08 2008-09 2009-10 2010-11
Cash turnover ratio
Cash turnover ratio

67. 67
Net profit after tax*100
Total assets
Table 2.15: Showing return on total assets
Year NPAT Total Assets Ratio
2006-07 1,420.81 165,961.03 0.86
2007-08 1,565.01 180,528.69 0.87
2008-09 2,072.42 219,645.80 0.94
2009-10 3,021.43 264,741.09 1.14
2010-11 4,025.89 336078.76 1.20
Graph 15 showing return on total assets
The inclusion of interest is conceptually sound because total assets have been financed
from the “pool” of funds supplied by the creditors and the owners. The objective of
computing the „return on total assets‟ is to find out how effectively the funds pooled
together have been used. Hence, it will be proper to include the interest on computing the
return on total assets.
2.16 Fixed assets turnover ratio:
0.86 0.87 0.94
1.14 1.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2006-07 2007-08 2008-09 2009-10 2010-11
Return on Total Assets
Return on Total Assets

68. 68
This ratio indicates the extent to which the investment in fixed assets contributes towards
sales period it indicates whether the investment in fixed assets has been judicious or not.
The ratio is calculated as follows:
Net sales
Fixed assets (net)
Table 2.16: Showing net sales to fixed assets
Year Net sales Fixed Assets Ratio
2006-07 11,364.56 2,861.35 3.97 times
2007-08 14,200.73 2,916.87 4.87 times
2008-09 17,119.06 2,929.46 5.84 times
2009-10 18,751.96 2,859.38 6.56 times
2010-11 23,064.02 2844.41 8.11 times
Graph 16: fixed assets turnover ratio
There has been continuously increase in fixed assets turnover ratio through absolute
figures of sales have gone up. It means variation in the investment in fixed assets has not
brought assets commensurate gain to the bank.
2.17 Gross Profit Margin Ratio:
3.97
4.87
5.84
6.56
8.11
0
1
2
3
4
5
6
7
8
9
2006-07 2007-08 2008-09 2009-10 2010-11
Ratio

69. 69
This ratio is the percentage of sales dollars left after subtracting the cost of goods sold
from net sales. It measures the percentage of sales dollars remaining (after obtaining or
manufacturing the goods sold) available to pay the overhead expenses of the Bank. The
Gross Margin Ratio is calculated as follows:
Gross Profit
Gross Margin Ratio = _______________
Net Sales
(Gross Profit = Net Sales - Cost of Goods Sold)
Table 2.17 shows the Gross Profit Margin of the canara bank:
Year Net sales Gross profit Ratio
2006-07 11,364.56 9,118.45 0.80
2007-08 14,200.73 12,777.34 0.90
2008-09 17,119.06 14,810.38 0.87
2009-10 18,751.96 16,712.08 0.89
2010-11 23,064.02 20,141.54 0.87
Graph 17: showing gross profit margin ratio
The operating profit margin is fluctuating in period of study. during in the year 2006-07 it
was very low i.e. 80% (0.8) and immediate next year it reaches to 90% (0.9) it was high
gross profit margin to the bank. But in the year it decreased to 87% (0.87) that is because
0.8
0.9
0.87
0.89
0.87
0.74
0.76
0.78
0.8
0.82
0.84
0.86
0.88
0.9
0.92
2006-07 2007-08 2008-09 2009-10 2010-11
Gross profit margin ratio
Gross profit margin ratio

70. 70
of increase in the high cost of operational activities and inefficient utilization of current as
well as fixed assets.
2.18 Net Profit Margin Ratio:
This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold
and all expenses, except income taxes. It is calculated before income tax because tax rates
and tax liabilities vary from Bank to Bank for a wide variety of reasons. The Net Profit
Margin Ratio is calculated as follows:
Net Profit
Net Profit Margin Ratio = _____________________
Net Sales
Table 2.18shows the Net Profit Margin of the canara bank:
Year Net sales Net profit Ratio
2006-07 11,364.56 1,420.81 0.13
2007-08 14,200.73 1,565.01 0.11
2008-09 17,119.06 3,021.43 0.18
2009-10 18,751.96 3,021.43 0.16
2010-11 23,064.02 4,025.89 0.17
0.13
0.11
0.18
0.16 0.17
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0.2
2006-07 2007-08 2008-09 2009-10 2010-11
Net profit margin ratio
net profit margin ratio

71. 71
The Net Profit Ratio of Canara bank is higher in 2008-09 is 18% (0.18) and in the year
2007-08 lower it is 11% (0.11) so the net profit ratio is satisfactory. Bank is having an
advantageous position and economic condition is good. Therefore we can say that the net
profit ratio is fair enough to the bank.

72. 72
Chapter 3
Findings and Suggestions
Findings
Analysis of gross working capital showed an increased trend during the period of
study. The growth rate shows fluctuating due to the changes in the investment in
current assets.
The net working capital showed an increasing trend during the period of study.
Because of high liquidity position of the bank
The current asset proportion in total asset is high.
Loans and advances proportion in gross working capital or current assets is high.
Working capital turnover ratio is satisfactory which indicates the efficiency of the
management in utilizing working capital properly.
Arriving at working capital gap which is very important for the calculation of
working capital appraisal, it is calculated as the difference between total current
assets and the creditors for purchases and expenses.
The profitability profit ratio shows that the profitability of the bank has
satisfactorily increasing. The evidence for that, increase in gross profit ratio from
80% in the year 2007 to 87% in the year 2011. And increase in net profit ratio
from 13% in the year 2007 to 17% in the year 2011.
Continuously increment in the fixed assets turnover ratio over a period of study
i.e., 3.97times to 8.11times.
Current ratio of Bank is as per the required standards i.e. 2:1 and quick ratio is
above the required standard of 1:1 throughout the study period
Canara bank has 105 years of glorious performance and an uninterrupted profit
records, serving generation around the globe.
In June 2006, the Bank completed a century of operation in the Indian banking
industry.
The guidelines given by the regulatory authority RBI to evaluate working capital
loan proposal where which method should be used by the banks in different
circumstances.
Limitations of MPBF System
It represents the position of the firm on a particular date.

73. 73
No tuned to peak assessment.
Not applicable for service industry practically.
In present scenario, most of the working capital limits is in the form of Working
Capital Demand Loan (WCDL) only some portion is given as the cash credit
component.
The fluctuating profitability of Canara bank is result of two sets of factors those
responsible for declining interest income for bank on the one side and those
responsible for increasing cost of banking operational activities.
Suggestions
The Bank is performing well and its transactions are increasing over the years. But still
the following is the suggestion if considered will prove to be beneficial to the Bank.
The Bank should regularize the cash flow by making cash forecast by means of a
projected cash flow statement.
Excess cash should be invested in short term securities.
The bank can increase working capital by clearing its debt, which results avoiding
interest to be paid on it. This is only way to get things going smoothly for the
bank.
To adopt new information technology for better and extended customer
convenience as well as faster decision making.
It is suggested that the lending policy will be reviewed and revised from time to
time in order to suit the changing environmental demands and to incorporate the
changing strategic options of the bank.

74. 74
Conclusions
The study of working capital management in Canara Bank is done to know how
efficiently the working capital is managed. The turnover of current assets employed by
Bank efficiently used its working capital funds, which happens to most important factor
for the running of business enterprise with normal profits.
The basic object of working capital management is to have a balanced liquidity position.
The Bank has a good working capital during all the year of its operation. This indicates
the Bank has good liquidity position. This is also made clear by the current assets ratio,
which is greater than in all the years. It means that the investment in current assets is
more sufficient to meet its obligations by maintaining liquidity position of the business.
Standard ratio i.e. 1:1
The main problem of the Bank is a stiff computation from other Banks like Vijaya Bank,
Syndicate bank and Corporation Bank etc in day to day transaction. As a result it enforced
to incur heavy expenses on granting short term loans and advances.
A Bank can increase its profitability through proper management of working capital and
needs again better management will lead to lower investment cost and higher profits.
Working capital management is the measure of judging Bank‟s profitability. Today
working capital management plays an important role in the management of business.
Hence the Bank should spend a great deal of time in managing current assets and current
liabilities.
Thus, the study of CANARA BANK should analyze the problem in working capital
management and try to reach out some conclusion, so as to reduce the high investment in
working capital.

75. 75
Annexure of Canara Bank
Balance sheet
-------------Rs. In Crores-----------------
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Capital and
Liabilities:
Total Share
Capital
443.00 410.00 410.00 410.00 410.00
Reserves 17,498.46 12,129.11 9,629.61 7,885.63 7,701.11
Revaluation
Reserves
2,098.36 2,132.68 2,168.16 2,204.86 2,242.87
Deposits 293,972.65 234,651.44 186,892.51 154,072.42 142,381.45
Borrowings 14,261.65 8,440.56 7,056.61 2,517.23 1,574.35
Other
Liabilities &
Provisions
7,804.64 6,977.30 13,488.91 13,438.55 11,651.25
Total
Liabilities 336,078.76 264,741.09 219,645.80 180,528.69 165,961.03
Assets
Cash &
Balances
with RBI
22,014.79 15,719.46 10,036.79 13,364.79 9,095.19
Balance with
Banks,
Money at
Call
8,693.32 3,933.75 6,622.99 4,513.25 7,278.74
Advances 212,467.17 169,334.63 138,219.40 107,238.04 98,505.69
Investments 83,699.92 69,676.95 57,776.90 49,811.57 45,225.54
Gross Block 4,686.15 4,480.37 4,440.07 4,254.33 4,056.39

76. 76
Profit and loss accounts
-------------- Rs. In Crores--------------
Less:
Accumulated
Depreciation
1,841.74 1,620.99 1,510.61 1,337.46 1,195.04
Net Block 2,844.41 2,859.38 2,929.46 2,916.87 2,861.35
Other Assets 6,359.15 3,216.92 4,060.26 2,684.17 2,994.53
Total Assets 336,078.76 264,741.09 219,645.80 180,528.69 165,961.04
Contingent
Liabilities
111,805.73 110,627.02 136,851.39 95,710.87 52,150.75
Bills for
collection
29,041.74 21,206.47 25,757.73 25,299.63 15,660.41
Book Value
(Rs)
405.00 305.83 244.87 202.33 197.83
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Income
Interest Earned 23,064.01 18,751.96 17,119.05 14,200.74 11,364.56
Other Income 2,826.98 3,000.82 2,427.10 2,308.31 1,511.80
Total income 25890.99 21752.78 19546.15 16509.05 12876.36
Expenditure
Interest
expended
15,240.74 13,071.43 12,401.25 10,662.94 7,337.73
Add:
Employee Cost
2,954.84 2,193.70 1,877.15 1,661.28 1,609.29
Selling and
Admin Expen
1,817.82 2,164.65 1,540.27 1,491.09 957.77

77. 77
Depreciation 151.36 155.13 173.64 169.97 148.18
Miscellaneous
Expenses
1,700.34 1,146.44 1,481.42 958.76 1,402.58
Less:
Provisions &
Contingencies
1,203.87 756.13 1,107.24 614.80 1,094.56
Operating
Expenses
5,420.49 4,903.79 3,965.24 3,666.30 3,023.26
Add:
Provisions &
Contingencies
1,203.87 756.13 1,107.24 614.80 1,094.56
Total
Expenses 21,865.10 18,731.35 17,473.73 14,944.04 11,455.55
Net Profit for
the Year
(total income
– total
expenses)
4,025.89 3,021.43 2,072.42 1,565.01 1,420.81

78. 78
Bibliography
References:
M Y Khan and P K Jain, Financial Management, Tata McGraw-Hill Pvt. Ltd, 5th
Edition 2007, pp 6.1-6.41.
Web Site:
www.canarabank.com
www.moneycontrol.com