Funds flow analysis

INTRODUCTION :
* SCOPE OF THE STUDY
* OBJECTIVES OF THE STUDY
* METHODOLOGY
* LIMITATIONS OF THE STUDY
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INTRODUCTION
The basic financial statements i.e., the balance sheet and profit and loss
account to income statement of business reveal the net effect of the various
transactions on the operational and financial position of the company. The balance
sheet gives a summitry of the assets and liabilities of an undertaking at a particular
point of time. It reveals the financial status of the company. The assets side of a
balance sheet shows the development of resources of an undertaking while the
liabilities side indicates its obligation, i.e., the manner in which these resources were
obtained. The profit and loss account reflects the results of the business operation for
a period of time. It contains a summary of expenses incurred and the revenue realized
in an accounting period. Both these statements provide the essential basic information
on the financial activities of business, but their usefulness is limited for analysis and
planning purpose.
The balance sheet gives a static view of the resources (liabilities) of business
and used (assets) to which these resources have been put at a certain point of time. It
does not disclose the causes for profit and loss account, in a general way, indicates the
resources provided by undertaking and which do not operate through profit and loss
account. Thus, another statement has to be prepared to show the change in the assets
and liabilities from the end of one period of time to the end of another period of time.
The state is called a statement of changes in financial position or a funds flow
statement.
The funds flow statement is a statement, which shows the movement of
funds and is a report of the financial operations of the business undertaking. It
indicates various means by which funds were obtained during a particular period
anthe ways in which these funds were employed. In simple words, it is a statement of
sources and application of funds.
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MEANING OF THE FINANCIAL STATEMENT
A financial statement is a collection of data organized according to logical
and consistence accounting process .Its purpose is to convey an understanding of
some financial aspects of a business firm. It may show a position at a moment in time,
as in the case of an income statement. Thus the term “Financial statements” generally
refers the statements
i) The position statement or the balance sheet and
ii) The income statement or profit and loss account
These statements are used to convey to management and other interests outsiders the
profitability and financial position of a firm.
NATURE OF THE FINANCIAL STATEMENTS:
The financial statements are prepared on the basis of recorded facts. The
recorded facts are those which can be expressed in monitory terms.
I) RECORDED FACTS: The terms and ‘recorded facts’ refers to the date taken out
from the accounting records. The records are maintained on the basics of actually cost
data.
II) ACCOUNTAING CONVENTIONS: certain accounting conventions are
followed while preparing financial statements. The conventions of valuing inventory
at cost are market price, which ever is lower, is followed.
III) POSTULATES: The accounting makes certain assumptions while making
accounting records. One of these assumptions is that enterprise is treated as a going
concern. The other alternative to this postulate is that the concern is to be liquidated.
Another important assumption is to presume that the value of money will remain the
same in different periods. While remain the same in different periods. While
preparing profit and loss account the revenue is treated in the year in.
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1. BALANCE SHEET:
The American institute of certified public contents defines balance sheet as” A
tabular statement of summary of (Debits and Credits) carried forward after an actual
and constructive closing or books of account and kept accounting to principles of
accounting”.
2. INCOME STATEMENT OR PROFIT&LOSS ACCOUNT:
Income statement is prepared to determine the operational position of the
concern. It is a statement of revenue earned and expenses incurred for earning that
revenue.
3. STATEMENT OF CHANGES IN OWNERS’EQUITY
(RETAINED EARNINGS):
The terms’ owners equity’ refers to the claims of the owners’ of the business
(share holders) against the assets of the firm. It consists of two elements 1) paid up or
share capital,2) retained earnings or reserves and surplus.
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FINANCIAL STATEMENTS
Income
statement
or profit &
loss
Account
Statement
of changes
in owner’s
equity or
retained
earnings
Statement
of changes
in financial
position
Position of
Financial
statement
Funds flow
statement
Cash flow
statement

4. STATEMENT OF FINANCIAL POSITION:
The basic financial position i.e.., the balance sheet and the profit and loss
account are income statement of a business reveals the net effect of the various the
transactions operational and financial position of the company.
A) FUNDS FLOW STATEMENTS:
The Funds flow statements is designed to analyze the changes in the financial
condition of business two periods. The word “Fund” is used to denote working
capital. This statement will show the sources from each the funds are received
and the uses to which these have been put.
B) CASH FLOW STATEMENTS:
A statement of changes in the financial position of a firm on cash basis is called
cash flow statements. It summarizes the causes of changes in cash position of a
business enterprises between dates of two balance sheets This statement is very much
similar to the statement of changes in working capital i.e. Funds flow statements.
SCOPE OF THE STUDY
The magnitude and scope of a project is generally defined by its objectives.
Constrains and methodology that has adapted to analyze the information. However the
scope of the present project is at macro level i.e., the over all performance of the
ICICI Bank.
OBJECTIVES OF THE STUDY
The following are the basic objectives of the present study.
* To identify the sources of Funds of the Bank.
* To know how the funds are being utilized.
* To know the liquidity position of the bank.
* To find out the reasons behind the losses/ profits of the Bank
* To analyze the various short term deposits in different products.
* To analyze the repayment time of the bank in related with the short term.
Loans & Term deposits.
* To suggest a good method of fund allocation
* To analyze the future portfolio for different type of investments based on
market share and timing of getting of revenue.
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METHODOLOGY OF THE STUDY
►The period selected for the study is five years from 2004-2005 to 2008-
2009. The methodology adopted for this study includes Primary data and Secondary
Data.
►More than this personal interviews are conducted with the Finance Manager
and other officials to elicit the necessary information. Interviews are very effective
and they have provided needed information particularly to complete this report
discussions are held to verify the data obtained secondary sources.
PRIMARY DATA
Primary data will be through regular interaction with the officials of ICICI.
Ration relationships will be established basing on the theoretical literature available
from the “Finance” text books and ICICI balance sheets and Profit and Loss A/c’s.
SECONDARY DATA
* Annual reports of the ICICI 2005- 2006 to 2009-2010
* Financial statements of the ICICI.
* Collectively the relevant information for the standard text books and
Financial magazines.
* Required information is collected from lecturers, friends.
LIMITATIONS OF THE STUDY
►The present study is only for 5 of the Bank i.e., from the financial year
(2005- 2006 to 2009-2010).
►The analysis is based on the data which is provided by the Bank i.e.
Annual reports of the Bank.
►The study is based on funds flow statement; liquidity ratios; C-D ratios
And spread analysis for a period of 5 years only.
►Classification of the current and fixed assets / liabilities is based on the
Volatility of the funds.
►Provisions of the Bank are treated as current liability.
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ORGANISATION PROFILE:
A) INDUSTRY PROFILE
B) COMPANY PROFILE
INTRODUCTION OF BANKING
“Bank is an institution whose Debts widely accepted in settlement of other
people’s debts to each other”.
The banking company in India defined the Band , in the companies
Act.1949, as the one “which transacts the business of banking which means the
accepting for the purpose of lending to invests of deposits of money from the public.
The deposits, which repayable on demand, withdrawal by check, draft orders.
TYPES OF BANKING
Several types of banks have come in to existence performing different
specialized functions based upon the functions performed by them; banks may be
classified into different types;
1) COMMERCIAL BANKS:
They are a joint stock bank which acts as different kinds of deposits from
the public and grant short term loans. There main aims Is to provide security of funds
to depositors and make profits for their share holders. As their deposits are mainly for
short periods, they can not lend money for long periods. They mainly finance to
business and trade for short periods to meet their day – to – day transactions. They
may provide finance in the form of cash credits our drafts or loans. They also provide
finance by discounting bills of exchange.
2) INDUSTRIAL BANKS
These banks are also called investment banks. They provide long terms
finance to industries ranging over a few decades. They finance long term projects and
developmental plans. They receives long term projects deposits from the public. They
may also raise funds by the issue of shares debentures. They specialized in the
undertake industrial finance the new issue of shares, debentures and securities of new
enterprises.
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3) AGRICULTURE BANKS
The commercial industrial banks are not able to meet the financial
requirements of agriculture. Agriculture requires both short term and long term
finance. Frames requires short term finance to buy seeds, fertilizers, implements etc.,
4) CO-OPERATIVE BANKS:
The banks are formed to supply credit to members on easy terms. They do not
aim at profit in their operations. They attract depositors from the farmers and promote
thrift by offering slightly higher rates of interests than commercial banks. They
provide credit facility to needy framers and small scale industries.
5) EXCHANGE BANKS:
The specialized in financing the import and export trade of the country. They
purchase bills from exporters and sell them to importers. They provide remittance
facilities and trade information to their clients.
6) SAVINGS BANKS:
These banks collect small and scattered savings of the low and middle income
group people. These banks receive small amounts, deposits and withdrawals are
restricted. Bank offer minimum interest on these deposits.
7) CENTRAL BANK:
The central bank controls the entire banking system in the country. It operates
the currency and credit system in the country. It acts as an agent and adviser to the
government and works in the best interests of the nation with out any profit motive in
ts operations.
Historically, a bank has been a place where depositors could park money and
borrowers could borrow. The typical spread of the bank was raising money through
deposits and leading it to corporate clients. This made the relationship with the retail
consumer rather passive. But with banks recognizing the power of the country’s
middle class, this relationship is becoming very active.
The commercial banking structure in India consists of:
• Scheduled Banks in India
• Unscheduled Banks in India
Scheduled Banks in India constitute those banks which have been included in
the Second Schedule of Reserve Bank of Indian (RBI) Act, 1934. RBI in turn
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includes only those banks in this schedule which softheriria laid down vide section42
(6)(a) of the act.
As on 30th
June, 1999, there were 300 scheduled banks in India having a total
network of 64,918 branches. The scheduled commercial banks in India comprises of
State bank of India and its associates (8), nationalized banks (19), foreign banks (45),
private sector banks (32), co-operative banks and regional rural banks.
“Scheduled banks in India” means the State Bank of India constituted under
the State Bank of India Act, 1955(23 of 1955), a subsidiary bank as defined in the
State Bank of Indian (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding
new bank constituted under section 3 of the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1970 (5 of1970), 223.18lakhs the main sources of the
funds were long-term deposits were
“Under section 3 of the banking companies (acquisition and transfer of
undertakings) act, 1980 (40 of 1980), or any other bank being a bank included in the
second schedule to the reserve bank of Indian act, 1934 (2 of 1934), but does not
include of a co-operative bank”.
“Non-schedule bank in India” means a banking company as in clause (c) of
section 5 of the banking regulation act, 1949 (10 of 1949). Which is not a schedule
bank”
The following are the schedule public sector banks in India:
● State bank of India
● State bank of banker and Jaipur
● State bank of Hyderabad
● State bank of Indore
● State bank of Mysore
● State bank of Patiala
● State bank of Saurashtra
● State bank of Travancore
● Andhra bank
● Allahabad bank
● Bank of Baroda
● Bank of India
● Bank of Maharashtra
● Canara bank
● Central bank
● Central bank of India
● Corporation bank
● Dean Bank
● Indian overseas bank
● Indian Bank
● Oriental Bank of Commerce
● Punjab National Bank
● Punjab State and Sind Bank
● Syndicate Bank of India
● Unit Bank of India
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● UCO Bank
The Following are the scheduled private sector Banks in India:
● Vysya Bank Ltd
● UTI Bank Ltd
● ICICI Banking Corporation Bank Ltd
● Global trust Bank Ltd
● HDFC Bank Ltd
● Bank of Punjab Ltd
● IDBI Bank Ltd
The following are the scheduled foreign banks in India:
● American Express Bank Ltd
● ANZ Gridlays Bank Ple
● Bank of America NT&SA
● Bank of Tokyo Ltd
● Baque National Plc
● Citi Bank N.C
● Deutsche Bank A.G
● Hong Kong and Shanghai Banking Corporation
● Standard Charted Bank
● The Chase Manhattan Bank Ltd
● Dresdner Bank A.G
Current scenario:
The Indian banking sector during the December quarter posted mixed
results. Although this was on expected lines, some of the banks showed a huge
variation. We have tried to understand the trend in the December quarter results. We
have informed four analytic groups to understand the result pattern. These are the
public sector (PSU), public sector ex-SBI, private sector and private sector ex-ICICI
bank. Our universe of banks for the study is as follows:
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Top 10 large Banks in INDIA:
2005
Rank
2004
Rank
Bank
1 1 HDFC
2 7 HSBC
3 3 ANB Amro
4 6 Corporation
bank
5 15 Andhra bank
6 2 City bank NA
7 21 Punjab
national Bank
8 9 Standard
charted
9 13 UTI Bank
10 12 Vysya bank
(Source: KPMG Annual Bank Survey)
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INSURANCE IN INDIA
The insurance sector in India has come a full circle from being on open
competitive market to nationalization and back to a liberalized market again. Tracing
the development in the Indian insurance sector reveals the 360 degree turn witnessed
over a period of almost two centuries.
A BRIEF HISTORY OF THE INSURANCE SECTOR
The business of life insurance in India in its existing from started in India in the
year 1818 with the establishment of the oriental life insurance company in Calcutta.
Some of the important milestones in the life insurance business in India
are:
►1912: The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.
►1928: The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about both life and non – life insurance businesses.
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ICICI BANK
COMPANY PROFILE
ICICI Bank is India’s second –largest bank with total assets of about
fundsflowmgtfinal-170121132730.docRs.1, 676.59 bn (US$ 38.5 bn) at March 31,
2005 and profit after tax of Rs. 20.05 bn (US$ 461 mn) for the year ended March
31,2005 (Rs. 16.37 bn(US $376 mn)in fiscal 2004).
ICICI Bank has a network of about 573 branches and extension counters and
over 2,000 ATMs. ICICI Bank offers a wide range of banking products and financial
services to corporate and retail customers through a variety of delivery channels and
through its specialized subsidiaries and affiliates in the asset management.
ICICI bank set up its international banking group in fiscal 2002 to cater to the
cross border needs of clients and leverage on its domestic banking strengths to offer
products internationally. ICICI bank currently has subsidiaries in the United
Kingdom, Canada and Russia, branches in Singapore and Bahrain and representative
offices in the United States, China, United Arab Emirates, Bangladesh and South
Africa.
ICICI Bank’s equity shares are listed in India on he Bombay Stock Exchange
and the National Stock Exchange of India Limited and it American Depositary
Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).
History:
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian
financial institution, and was it’s wholly – owned subsidiary. ICICI’s shareholding in
ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal
1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000,
ICICI Bank’s acquisition of Bank of Madura Limited in an all – stock amalgamation
in fiscal 2001. And secondary market sale by ICICI to institutional investors in fiscal
2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the world Bank,
the Government of India and representatives of Indian industry.
Objective:
The principal objective was to create a development financial institution for
providing medium-tem and long – term project financing to Indian businesses. In the
1990s, ICICI transformed its business from a development financial institution
offering only project finance to a diversified financial services group offering a wide
variety of products and services, both directly and through a number of subsidiaries
and affiliates like ICICI Bank
In the 1990s, ICICI transformed its business from a development financial
institution offering only project finance to a diversified financial services group
offering a wide variety of products and services, both directly and through a number
of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the firs Indian
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company and the first bank or financial institution from non – Japan Asia to be listed
in the NYSE
Structure:
After consideration of various corporate structuring alternatives in the context
go the emerging competitive scenario in the Indian banking industry, and the move
towards universal banking, the managements of ICICI and ICICI formed the view that
the merger of ICICI Bank would be the optimal strategic alternative for the both
entities, and would create the optimal legal structure for the ICICI Groups universal
banking strategy. The merger would enhance value for ICICI shareholders through the
merged entity access to low-cost deposits, greater opportunities for earning fee-based
income and the ability to participate in the payments systems and provide transaction
banking service. The merger would enhance value for ICICI Bank shareholders
through a large capital base and scale of operations , scam less access to ICICI‘ s
strong corporate relationship built up over five decades, entry into view business
segments, higher market share in various business segments, particularly fee-based
service, and access to the vast talent pool of ICICI and its subsidiaries. In October
2001, the boards of Directors of ICICI retail finance subsidiaries, ICICI personal
financial services limited and ICICI capital service Limited, with ICICI Bank.
ICICI Bank at the present scenario:
India has never had it good before booming economy reflects in the rise of
SENSEX past the 10,000 mark, projections of an 8-plus percent GDP growth, the
revival of manufacturing and rising foreign investments have delivered growth in the
banking sector.
During the recent survey conducted by the KPMG with respect to the India’s top
banks, ICICI bank holds its slot in the list of top banks.
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Top 10 Banks By Growth In Business
BANK %Growth
UTI Bank 53
ICICI Bank 47
ABN Amro 38
State Bank of Indore 34
Allahabad Bank 32
Oriental Bank Of Commerce 32
HDFC Bank 30
Nainital Bank 29
Union Bank Of India 28
State Bank of Mysore 27
(KPMG Annual Survey)
ICICI Bank Executive Director CHANDA KOCHHAR the
royal challenge award in February 2006 for standing 2nd in growth
in Business. She says “Ninety Seven Per cent of request of are
fulfilled with in our promised period”
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TOP 10 BANKS BY GROWTH IN PAT
16
BANK %GROWTH
Centurion 459
BNP Paribas 213
American express Bank 170
HSBC 71
HDFC Bank 31
Indian overseas Bank 27
Punjab national Bank 27
ICICI Bank 22
UTI Bank 20
Union Bank of India 19

ICICI Bank in News: Chairman Speaks
They say elephants dance. DUNDAPUR VAMAN KAMATH thinks
otherwise. Since leading ICICI bank’s first foray into the retail business five years
ago. Managing Director and CEO Kamath has turned ICICI Bank into the fastest
growing bank in the industry. At Rs.62, 063 corers, the bank has the largest retail
portfolio and is the leader in home and car loans. The most diversified universal ankh,
it boasts more than 15 million customer accounts. 600 branches and a network of
2000 ATM’s across the country. Its life and general insurance subsidiaries have
become the biggest private insurers in just five years. Similarly, ICICI bank’s asset
management business, with a corpus of Rs. 22,600 corer, is among the fastest growing
mutual funds and second only to UTI Mutual fund in terms of size.
In fact, the bank’s growth eminates from every business segment it is in. no wonder,
it turns up as the fastest growing (large) bank on the study of best banks in India.
ICICI bank’s growth be affected by a sudden tightening of liquidity? “Factors driving
the growth in retail are very fundamental like affordability, rising income levels and
the buoyancy in the overall economy.” Says Chanda Kochhar, executive director,
ICICI Bank. Going forward, the bank is also betting big on its international
operations. In just one year of its launch, ICICI Bank became the biggest Indian Bank
in Singapore.. In the UK too, the bank has turned profitable in the first full years of its
operations.
“The last four year have seen dramatic changes, making customer’s convenience
a critical aspect of baking “. No wonder that banks are today emerging as payment
gateways, investment advisors and providers of convenience. So whatever be your
need spending or saving you can get it under a single roof. “Banking is an
evolutionary process, and with more experience, banks will undergo greater change so
as to evolve as transaction partners and advisors to their clients. And quality of
service will be a key fermentation”. KV.KAMATH
ICICI Bank Groups
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CONCEPTUAL FRAME WORK:
18
ICICI Bank Ltd
ICICI Prudential Life Insurance
Company
ICICI Lombard General Insurance
Company
Prudential ICICI AMC & Trust
ICICI Securities
ICICI Venture

A. FUNDS MANAGEMENT
B. SOURCES AND APPLICATION OF FUNDS
C. APPROACHES TO BANK FUNDS
MANAGEMENT
FUNDS MANAGEMENT
Theoretical Concepts:
Management may be defined as optimum utilization of available resources
keeping in view the overall objectives of the firm. Here fund management is nothing
but, utilization of available funds at optimum level with a view to achieve the overall
objectives of the organization. This includes mobilizing or rising of funds from
different available sources and investing or allocating these funds in an efficient way,
which yields the optimum returns, so that the firm can achieve its overall objectives.
MEANING OF FUNDS
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According to the international Accounting standard No. 7, the term Fund
generally refers to cash and cash equivalents, or to working capital, of these, the last
definition of the term (i.e., working capital) is by far the most common definition of
fund.
There are also two concepts of working capital – Gross concept and Net
concept. Gross working capital refers to the firm’s investment in current assets. Net
working capital means, excess of current assets over current liabilities. It is in the later
sense in which the term funds is generally used.
According to the American Institute of Certified public Accounts (AICPA), the
meaning of two terms current assets and current liabilities are as follows;
CURRENT ASSETS:
The term current asset’s includes assets, which acquired with the intention
of converting them into cash during the normal business operations of the firm.
CURRENT LIABILITIES:
The term current liabilities is used principally to designate such
obligations whose liquidation is reasonably expected to require the use of assets
classified as current assets in the same balance sheet or creating of other current
liabilities or those expected to be satisfied with in a relatively short period of time
usually one year (AICPA).
FUNDS FLOW:
The term flow means change, and therefore, the term Flow of funds means
change in Funds or change in working capital. In other words, any increase or
decrease in working capital means Glow of funds.
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In business several transactions take place. Some of these transactions
increase the fund while others decrease the funds. Some may not take any change in
funds position. In case a transaction results in increase of funds, it will be termed as a
source funds In the same way, decrease of funds would result as an application or use
of funds.
THERE WILLBE FLOW OF FUNDS OF A TRANSACTION
INVOLVES:
• Current assets and fixed assets (e.g. Purchase of building for cash).
• Current assets and capital (e.g. Issue of shares for cash )
• Current assets and fixed liabilities (e.g. Redemption of long term borrowings
in cash).
• Current Liabilities and fixed liabilities (e.g. Creditors paid off in debentures)
• Current Liabilities and fixed liabilities (e.g. Creditors paid off in debentures)
• Current Liabilities and capital (eg.Creditors paid off in shares).
• Current Liabilities and fixed assets (e.g. Buildings transferred to creditors in
satisfaction of their claims).
SOURCES AND APPLICATION OF FUNDS
SOURCES OF FUNDS:
The sources of funds can both internal as well as external.
*INTERNAL SOURCES
Funds from business operations are the only internal sources of funds. This
can be arrived by deducting the non – operating expenses (e.g. Depreciation) and
adding the non -operating incomes (e.g. Profit from sale of fixed asset).
*EXTERNAL SOURCES
These funds include
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FUNDS FROM LONG-TERM LOANS:
Long term loans such as debentures, borrowing from financial institutions
will increase the working capital and therefore there will be flow of funds. However,
if the dentures have been issued in consideration of some fixed assets, there will be no
flow.
SALE OF FIXED ASSETS:
Sale of land, buildings, and long-term investments will result in generation of
funds.
INCREASE IN SHARE CAPITAL:
Issue of shares for cash or for any other current asset result in increase in
working capital.
THE FLOW OF FUNDS CAN BE BETTER EXPLAINED
WITH THE FOLLOWING
DIAGRAM
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Flow of funds No flow of funds
APPLICATION OF FUNDS:
The used to which funds are put are called application funds. Following are
some of the purposes for which, funds may be used.
PURCHASE OF FIXED ASSETS:
Purchase of fixed assets such as land, plant, machinery, long-term
investments etc., and result in decrease of current assets with out any decrease in
current assets without any decrease in current liabilities. Hence there will be a flow of
funds.
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Current Assets
Cash in hand and Bank
Marketable securities
Accounts receivables Etc.,
Current Liabilities
Bank O.D.
Out standing exp.
Accounts payable etc
Fixed Assets
Land and buildings plant &
Machinery and Long-term
investments Etc.,
Fixed Liabilities
Share Capital Reserve and
surplus Debentures and ling-
term loans etc.,

PAYMENT OF DIVIDENDS:
Payment of dividends results in decrease of a fixed liability and therefore, it
affects funds.
PAYMENT OF FIXED LIABILITY:
Payment of long-term liability, results in reduction of working capital and
hence it is taken as an application of fund.
SOURCES AND EMPLOYMENT OF BANK FUNDS PAID – UP
CAPITAL ANS RESERVES
The paid-up capital and cash reserved of a commercial bank constitute by far
the most dependable source of bank liquidity. The paid-up capital comprises of the
cash amount contributed in cash by public on their shares to the bank. The paid – up
capital is less than authorized capital and it is either equal to or less than the
subscribed capital. Authorized capital is the maximum, which a bank can issue for
public subscription under its Memorandum of Association. Generally, the board of
Directors of a bank does not issue the entire authorized capital for subscribed by the
public. If the entire subscribed capital is not paid-up capital. A part of the subscribed
capital may be paid subsequently, when asked by the board of Directors. The among
which is subject to call is known as the Reserve Liability.
For the sake of safety, a commercial bank keeps a reserves fund, which is
created out of the undistributed profits every year. The bank draws upon the resources
of its reserved funds in periods of losses. In India, every commercial bank is legally
required to set apart of its profit for the resave fund, until the fund becomes equal to
its paid-up capital. Besides, commercial banks also maintain secret reserves, for bad
and doubtful debts and depositor equalization fund crated out of profits.
The paid-up capital and reserves of bank provide protection to the depositors of a
bank, when it faces the danger of liquidation. To the extent, these funds represent the
owned funds of the bank, it is this source of bank liquidity upon which the bank fails
in times of financial crisis when its capacity to meet its financial commitments toward
is depositors is impaired. Infect, the ability of a commercial bank to withstand
successfully any crisis of confidence of its depositors in its credit worthiness depends
largely upon the size of its paid-up capital and cash reserved that are available to it as
a cushion to absorb any shock it might receive at the hands of its scared depositors.
Low paid – up capital and meager cash reserves and a bank ill go together.
DEPOSITS:
Next to the paid – up capital and cash reserves, the other most importance
sources of supply of commercial bank liquidity is the deposits which banks receive
from their depositors comprising of individuals, corporate form of business enterprise,
firms and other including educational institutions, local bodies and government. The
depositors of a bank are drawn from all walks of life residing in the urban, Semi urban
and rural areas of the country pursuing allsorts of conceivable vocations, so much
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important are the single source of bank liquidity supply that banks often engage in
keen competition for deposits mobilization because the capacity to mobilize deposits.
But for the large funds, which banks receive as deposits their investment and lending
activities would have been on considerably smaller scale than these, in fact, are.
Bulk of the total earnings of commercial banks in derived in the form of interest
income derived from loans and advances made by the banks to trade, industry and
other borrowers and the interest earned from investments made in the government and
other securities. The extent to which banks can grant loans to their constituents
depends in the amount of liquidity they command and deposits are the single largest
source of the composite supply of their total liquidity.
OTHER LIABILITIES:
A part form the paid up capital, cash reserves and deposits, the other
principal components of the liabilities portfolio of banks are the borrowings, which
the commercial banks make from the central bank is barometer of the degree of the
borrower – lender relationship which exists between the banks and the central bank
and consequently of the dependence of the former upon the latter in the country. This
relationship is very significant in the matter of enabling then central bank to exercise
an effective control over the credit creation activities of the banks in the economy.
The degree to which the member banks depends for financial accommodation on the
central bank is a measure of the degree of effectiveness of the latter in influencing the
lending or credit – creating activities of the former and consequently of the
effectiveness of central banks monetary and credit policy in achieving the desired
economic goals. In India, the banks borrow from the Reserve bank of India and the
sum borrowed varies depending upon the busy stock season and the liquidity position
of the banks.
ASSET PORTFOLIO
Having briefly discussed the main sources of supply of funds of banks. Let us
now very briefly discuss the uses to which these funds are it by the banks. The most
profitable activity of banks consists of lending surplus cash either by way of making
loans or granting overdraft facilities of their customers. While banks are anxious to
utilize their funds in such a manner so as to optimizes their net income from the use of
these Responsible bank personnel bank manager and other, Who look after the
manner of utilization of the surplus funds have always to remember the hard fact that
the ownership of such funds as they have acquired (barring paid up capital and
reserves ) vests in the depositors whose autonomous decision to with draw their
deposits as and when they please(subject to certain bank rules which they have agreed
to abide by) have to a scrupulously respected by refunding then their deposits
promptly on demand the acquired funds to their owners or persons named by them.
A part from cash in hand, cash balances held with the central bank
and balances held with the other banks which, constitute the first defense for banks as
these can be acquired immediately without any cost, the other asset ranking next to
cash money at call and short –notice comprising of short-term loans callable at very
short notice. As money at call convertible into cash without notice, it commands on
25

attribute of high liquidity ranking next to cash. It earns a very low rate of interest for
the bank. So also is the case with money callable at short notice. However, since
compared with money at call it is relatively less liquid the yield is slightly higher.
Money at call and short notice constitutes a larger money markets compared with
those countries which have developed money markets compared with those whose
money markets are either not developed or not properly functioning. Such is the
situation in most developing countries.
A part from cash in hand and balances with the central bank balances with
the central bank, balances with other banks and call and short notice, the two principal
items of the asset portfolio of banks are the advances or bank credit and investment
made in government securities includes the treasury bills, which have 91 days, in
India, banks make investments both in the central government and state governments
securities of differing maturities.
APPROACHES TO FUNDS MANAGEMENT OF BANKS
There are now two broad or general approaches to the bank fund
utilization. These are the pooled- funds approach and the asset allocation approach.
The pooled – funds approach is based upon the belief that the commercial banks
employ their funds in creating different types of assets assorted assets comprising of
different land, securities, of supply of their funds . Where most of the commercial
bank are derived from a single sourced approach works our satisfactorily. For
instance, in the past when bulk of the commercial bank funds constitutes the demand
deposits it was need less of differentiate between the different sources of supply of
bank funds .But now a days, it is argued by the critics off this approach, when the
deposit –mix of commercial banks has radically changed and keeps in continuously
changing under the impact of dynamics of growth, the pooled funds approach is
absolute and is detrimental top the realization of optimum yield from bank funds as it
ties liquidity to total deposits among which can do without maintaining the same high
ratio of liquidity which they might consider essential to maintain against the demand
deposits deposit. Consequently, the pooled- funds approaches, which take no notice of
the changing pattern of the total deposit – mix of commercial banks, is faulty and lead
to in efficient conduct of banks asset portfolio management.
The Asset – allocation approach to which has been developed in recent
years, stresses that the investments made in different types of Assets have to be
directly related to the different sources.
From which funds are derived by the bank thus, the fundamental criteria
which must be followed in allocated funds for acquiring different sources of applying
of funds determine the appropriate maturity of the assets acquired through funds
utilizations. For instance, while relatively stable funds, Like fixed deposits and paid –
up capital, could be used to buy along dated high-yield for giving securities, demand
deposits, saving deposits, which are most volatile, could be used to acquire relatively
liquid assets like cash or money at all call and short notice on which little or of no
return is made by the banks.
26

DATA ANALYSIS AND INTERPRETATION:
MANAGEMENT OF FUNDS
IN
ICICI BANK
27

STATEMENT OF SOURCE AND APPLICATION OF FUNDS FOR
FOR THE YEAR OF 2005-2006
(SOURCE:ANNUAL REPORTS OF ICICI)
28
Particular Amount (lacs)
(Total source  Total application)
77.71

INTERPRETATION
The above table shows that the sources and used of the funds during the period of
2005-06. It shows the total source of the funds during the year were Rs.716.13 Lac.
The funds are mainly from the long term deposits Rs.675.12Lac and increase in share
capital that Rs.9.00 Lac.
The application of funds in this year was Rs.638042 Lac. They are mainly
from long term advances Rs. 201.06 Lac and investment in bonds Rs.435.02 Lac.
During these the bank acquired from it business Rs. 25.01 Lac.
ADJUSTED PROFIT AND LOSS ACCOUNT
FOR THE YEAR 2005-2006
(Rs. In lakhs)
Dr. Cr.
Particular Amount Particular Amount
To Balance B/F
To Depreciation
To Reserve
46.56
5.50
6.42
By Balance C/F
By funds from
business
33.47
25.01
58.48 58.48
29

SCHEDULE OF CHANGES IN WORKING CAPITAL
Particular 2005 2004
Increase
in
working
capital
Decrease
in working
capital
CURRENT ASSETS
Cash in hand
Balance with bank
Short term advances
Interest receivables
Other current assets
CURRENT LIBILITIES
Short term deposits
Interest payable
creditors
Other current liabilities
Decrease in working
capital
65.01
70.27
90.26
25.11
29.57
220.87
90.60
6.96
0.96
69.56
36.76
202.68
24.12
23.36
120.21
187.28
4.26
1.09
-
33.51
-
0.99
6.21
-
96.68
-
-
83.07
4.55
-
112.42
-
-
100.66
-
2.7
0.13
220.46 220.46
INTERPRETATION:
30

The above table shows that the schedule of changes in working capital from
the year of 2005-2006. It shows the working capital was decrease Rs. 83.07 Lac. The
current assets were some what increase Rs.6.21 Lac and short advance are also
decrease Rs. 112.42 Lac. The current liabilities the short term deposits increase Rs.
100.66 Lac and the creditors was increase Rs.2.7 Lac. The other current liabilities was
increased Rs. 0.13 Lac.
Statement of source and Application of Funds for the
Year of 2006-2007
(Source: Annual report of ICICI)
Interpretation:-
31
particulars Amount
Sources of funds
Increase in share capital
Sale of fixes Assets
Funds from Business
TOTAL
Application of funds
Increase in investment
Long term Loans
Term Deposit
TOTAL
Decrease in working capital
(total sources – total Application)
5.23
4.71
45.62
55.56
42.77
40.62
39.90
123.29
67.73

The above table shows that the sources and used of the funds during the
period of 2006-2007. It shows the total sources of the funds during the year were
Rs.55.56sac the funds are mainly from the share capital Rs.5.23 lack. Fixes assets
Rs.4.71 lack.
The application of the funds in this year Ts. 123.29lac. The funds are
mainly coming in to Increase in Investment Rs.42.77Lac. Term loans Rs.40.62 and
term deposits Rs.39.90 lack.
ADJUSTED PROFIT AND LOSS ACCOUNT
Particulars Amount particulars Amount
To Balance B/F
To Depreciation
81.40
10.78
By Balance
By Funds from business
46.06
46.12
92.18 92.18
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE
YEAR OF 2006-2007
32

Interpretation:
The above table shows that the schedule of changes in working capital
from the year of 2006-2007. It shows the working capital increase Rs.40.23lak, the
33
Particular 2006 2005
Increase
in
working
capital
Decrease
in
working
capital
CURRENT ASSETS
Cash in hand
Balance with bank
Short term advances
Interest receivable
CURRENT LIBILITIES
Short term advances
Interest payable
Creditors
( Increase in working capital)
81.84
52.78
125.68
20.09
24.06
225.06
50.10
26.92
1.26
65.01
70.27
90.26
25.11
29.57
220.87
90.60
6.96
0.96
16.83
-
35.42
-
-
-
40.50
-
-
-
17.54
-
5.02
5.51
4.19
-
19.96
0.3
40.23
92.75 92.75

current assets decrease 5.51lak, short term advances increase Rs.35.42. the interest
receivable Rs.5.02lak.
The current liabilities the short – term deposits increase Ts. 4.19lak,
Interest payable decrease Ts.40.50lak, creditors increase Rs. 19.96 lack and other
current liabilities increase Rs.0.3lak
34

STATEMENT OF SOURCE AND APPLICATION OF FUNDS
(Source: annual report on ICICI)
35
Particulars Amount
Sources of funds
Sale of fixes assets
Funds from business
TOTAL
Total application of funds
Increase in investment
Long – term loans
Term – deposits
TOTAL
( Total source – total application)
8.26
8.72
59.64
59.64
20.04
70.06
20.90
111.00
51.36

Interpretation:
The above table shows that the source and used off the funds during the
period of 2007-08. It show the total source of the funds during the year was Rs.59.64.
the funds are mainly from share capital Rs. 8.26lsk,the sale of field assets Rs. 8.72
lack and funds from business Rs. 42.66 rack.
The total Application of the funds isRs.111.00 lack .the funds are
mainly coming in to increase in investment Rs. 20.04lac. Long –term loans
Rs.70.06lac and term – deposits are 20.90 lack,
ADJUSTED THE PROFIT AND LOSS ACCOUNT
particulars Rs/- Particulars
Rs/-
To Balances B/F
To Reserves
86.97
38.09
By Balance C/F
By Depreciation
By Funds from business
81.4
1.0
42.66
125.06125.06
36

37
particulars 2007 2006
Increase
in
working
capital
Decrease in
working
capital
Current Assets
Cash on Hand
Balance with Bank
Short term advances
Interest receivable
Current liabilities
Short term deposits
Interest payable
Creditors
106.24
130.27
132.68
30.90
24.06
270.96
45.66
30.92
2.22
81.84
52.73
125.68
20.09
24.06
225.06
50.10
26.92
1.26
24.40
77.54
7.00
10.81
-
-
4.44
-
-
-
-
-
-
-
45.9
-
4.00
0.96
73.33
124.19 124.19

INTERPRETATION:
The above table shows that the schedule of changes in working capital for
the year of 2007-2008. It shows the working capital decrease Rs. 73.33lad.In the
current assets cash in land was somewhat increase Rs. 24.40lac.Balance with the bank
increase Rs.77.54 lad, Interest Revisable on Rs. 10.81 lack, and the other current
assets are Both years is same.
The current liabilities the short term deposits are decrease Rs.45.9 lad,
Interest payable Increase Rs.4.44lac.creditors decrease Rs. 4 lack other current
liabilities are decrease Rs.0.96 lack.
38

STATEMENT OF SOURCE AND APPLICATION OF
FUNDS FOR THE YEAR 2008-09
39
Particulars Amount
Sources of funds
Long term deposits
Sale of fixes assets
Funds from business
TOTAL
Applications of funds
Increase in Investment
Long – term loans
TOTAL
Decrease in working capital(total sources – applications)
250.44
15.26
5.22
66.27
337.19
42.30
220.42
226.72
110.47

Interpretation:-
The above table shows that the sources and application of the funds
during the period of 2008-2009.It shows the total sources of the funds Rs. 337.19lacd.
the funds are mainly from the long – term deposits Rs .250.44lack, Increase in share
capital Rs 15.26 lack ,sale of fixed assets Rs. 5.22 lack, Funds from business
Rs.66.27lsck.
The total applications of the funds are Rs.226.72lack. The applications
are mainly increase in investment Rs.42.30lack, and long-term loans Rs.220.42lack It
shows the decrease in working capital Rs.110.47lack.
ADJUSTED PROFIT AND LOSS ACCOUNT FORTHE
YEAR OF 2008-09
particulars Amount particulars Amount
To Balance B/F
To Reserve
65.07
90.20
By Balance C/F
By depreciation
By Funds from Business
86.97
2.03
66.27
155.27 155.27
40

Particulars 2008 2007
Increase
in
working
capital
Decrease
in working
capital
Current assets
Cash on hand
Balance in Bank
Short-Term advances
Interest receivable
Interest on loan
Current liabilities
Short-Term deposits
Interest payable
Creditors
Decrease in working
capital
100.27
90.22
127.22
42.19
3021.02
44.28
302.02
30.06
40.02
4.66
106.24
130.27
132.68
30.90
2050.28
24.06
270.96
45.66
30.92
2.22
-
-
-
11.29
970.74
20.22
-
15.6
-
-
5.97
40.05
5.46
-
-
-
31.06
-
9.1
2.44
923.77
1017.85 1017.85
41

INTREPREATION:
The above shows that the schedule of changes in working capital in the year
of 2008-09.It shows the working capital in decrease Rs.923.77lac .In the current
assets ,the cash on hand was decreased Rs.5.97lac,short term advances decreased
Rs.5.46lac,intreast receivable was increased Rs.11.29lac, interest on loan
increasers.970.74
The current liabilities the short term deposits are increased Rs.31.06lac,
interest payable was decreased Rs.15.6lac, creditors increase Rs.901lac, other current
liabilities are increased Rs.2.44lac. (Any the total statement the work capital was
decreased Rs.923.477Lac)
STATEMENT OF SOURCES AND APPLICATIONS
FUNDS FOR THE YEAR 2009-10
Particulars Amount
SOURCE OF FUNDS
Long term depositors
Sale of fixed assets
Funds from business
Total
Applications of Funds
Increase in Investments
Long term loans
Total
(Decrease in working capital)
142.08
13.02
5.09
62.99
223.18
40.26
150.92
191.18
32.00
(Source of Annual reports of ICICI)
42

INTREPRETATION:
The above table shows that that source and applications of the funds during the
year of 2009-10.It shows the total sources of the funds Rs.223.18lac.The funds are
mainly from the long term depositors Rs.142.08lac, Increase in share capital Rs.
13.02lacm Funds from business Rs.62.99lac.
The total application of funds are Rs.191.18lac, the application are mainly
Increase in Investment Rs.40.26las, long-term loans Rs.150.92lac. Totally the
statement shows the decrease in working capital Rs.32.00lac.
ADJUSTED PROFIT AND LOSS ACCCOUNT FOR
THE YEAR OF 2009-10
Particulars Amount particulars Amount
To Balance B/F
To Reserve
33.66
97.82
By Balance C/F
By Depreciation
By funds from business
65.07
3.42
62.99
131.48 131.48
43

SCHEDULES OF CHANGES IN WORKING CAPITAL FOR
THE YEAR 2009-2010
44
Particulars 2009 2008
Increase in
working
capital
Decrease
in
working
capital
Current assets
Cash on hand
Balance in bank
Short-term advances
Interest receivable
Interest on loan
Current liabilities
Short – term deposits
Interest payable
Creditors
121.56
110.11
132.02
30.66
3027.01
46.28
100.27
90.22
127.22
42.19
3021.02
44.28
21.29
19.89
4.8
-
5.99
-
116.26
6.16
-
-
-
-
-
11.53
-
2.00
-
-
5
1.44
154.42
174.39 174.39

CREDIT DEPOSIT RATIO ANALYSIS
The credit –deposit – ratio[C-D Ratio] provides and Indication of the Extent
of credit deployment for every unit of resource raised through deposits.
Credit Extends
C-D Ratio = X 100
Deposits Raised
Interpretation:
The credit extended for the years 2005-06, 2006-07, 2007 – 08, 2008 – 09,
2009 - 10 is follows 67%, 80%, 77%, 66%, and 88%.
45
Year Credit Extended Deposits Raises
C-D
Ratio
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
1027.21
1327.22
1262.72
1186.13
1472.45
1532.61
1656.72
1642.89
1794.34
1672.34
67%
80%
77%
66%
88%

GRAPHICAL REPRESENTATION
1. Growth of Deposits and Advances
0
200
400
600
800
1000
1200
1400
1600
1800
2000
DEPOSITS
LOANS AND ADVANCES
INTREPRETATION:
46
YEAR DEPOSITS
LOANS AND
ADVANCES
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
1742.19
1764.26
1642.94
1666.62
1786.49
1294.65
1364.26
1096.73
1146.43
1225.27

The graph showing the Growth in deposits, which is requires and loans
and advances, which are granted there is tremendous growth in the getting of deposits
and providing loan and advances.
In the 2005-06 deposits. Loans and advances were Rs. 1742.19
and 1294.65, and 2006-07 deposits, loans and advances were
Rs.1764.26 and 1364.26 the 2007-08 Deposits, loans and
advances were Rs.1642.94 and 1096.73 The 2008–09 deposits,
loans and advances were rs.1666.62 and 1146.43, the 2009-10
deposits, loans and advances were 1786.49 and 1225.
2. NET PROFIT
47
YEAR NET PROFIT
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
35.56
38.49
43.62
54.27
78.20

0
10
20
30
40
50
60
70
80
90
NET PROFIT
NET …
Interpretation:
The graph indicating the growth in net profit 2003- 04 to 2007 -08. The
result of the net profit are very glad some, the following result achieved by the bank.
48

In 2005-06 Rs.35.56lakhs, 2006-07 Rs, 38.49, 2007-08Rs45.62, 2008-09
Rs54.27, 2009-10 Rs.78.20
The net profits for all year are good.
According to the result of audited reports are showing excellent. So that
the bank is growing day by day.
3. WORKING CAPITAL
YEAR
CHANGE IN
WORKING CAPITAL
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
1915.00
1955.98
1842.68
1956.99
2090.27
Interpretation:
The graph is Indicating the growth in working capital from 2005-06 to 2009-10.
The result of working capital is very glad some. The bank is achieves the following
result. In 2005–06 Rs.1915.00, 2006-07 Rs.1955.98, 2007–08 Rs. 1842.68, 2008-09
Rs.1956.99, 2009-10 Rs.2090.27
49

FINDINGS AND SUGGESTIONS:
FINDINGS
• In the year 2005-06, the total sources of the funds were Rs.716.13lakhs.the
main source of the funds was long term deposits rs.675.12lakhs, the funds from
business were Rs.25.01lakhs total application of the funds in the year 2005-06 was
Rs.638.42lakhs, the main application component was long-term advances
s.201.06lakhs and Increase In Investment Rs.435.02lakhs.
• In the year of 2006-07 the total source of the funds were an Rs 55.56lakhs.The main
source of the funds was increase in share capital Rs.5.23lakhs, Fixed assets
rs.4.71lakhs and funds from business Rs.45.62lakhs. The total application of the funds
were Rs.123.29lakhs, the main application of funds are investment Rs.42.77lakhs,
long-term loans Rs.40.62lakhs,and term deposits were Rs.39.90lakhs.
• In the year 2007-08 the total sources of the funds were Rs.59.64lakhs.The main
sources of the funds were increase in share capital Rs.8.26lakhs, Fixed assets
Rs.8.72lakhs.and funds from business were Rs 42.66lakhs. The total application of the
funds was Rs.111.00lakhs the main application funds are investment Rs.20.04 lakhs,
long-term were Rs.70.06lakhswere Rs.220.42lakhs.
.In the year 2008-09 the total sources of the funds were Rs.337.19lakhs.the main
sources of the funds were long – term deposits were Rs.250.44 lakhs, Increase in
share capital Rs.15.26 lakhs, fixed assets were Rs.5.22 lakhs, and funds from the
business were rs.66.27lakhs. The total applications of the funds were Rs 226.72lakhs,
the application of funds mainly coming from investment Rs.42.30lakhs.and long –tem
bases on the annual reports of the bank during period 2004-05 to 2008-09 the funds
flow has down according to the above statement, the following conclusions can be
down, term deposits Rs.20.90 lakhs.
In the year of 2009-10.The total sources of the funds were Rs.142.08 lakhs
share capital were Rs.13.02lakhs and funds from business were Rs.62.99lakhs the
total application of the funds were Rs.191.18lakhs, the main application of the funds
were increase in investment were Rs.40.26lakhs and long-term were Rs.150.92lakhs.
These are the findings in physical form and now the bank should analyze the
investment criteria in different products like long-term loans and purchasing of fixed
50

assets, term deposits which will give greater return in short and also advances for long
term. the above figures show the repayment timing also, based on this the portfolio
should change.
SUGGESTIONS
• The bank has to follow the asset allocation approach to bank fund
utilization, which says that the investment made in different types
of assets have to be directly related to the different sources from
which funds are deriving by banks.
• The bank was mostly affected by the financial crises in the
international and local market because of this they lost lot of
customers by drawing their deposits in bulk. According to this the
bank should remember that it should strengthen its operations
globally & nationally.
• The bank raises its funds from many sources viz., term deposits.
Long term borrowing and through capital but these sources were
not employed to the extent required sometimes, much fund were
kept idle stocks in the from of cash and other liquid assets to
increase the returns and those idle assets earn nothing and also has
to consider the liquidity position.
• It is suggested that the bank should raise the funds to the extent
required or It should invest in all the available long term funds at
a higher rate if return is made in short term.
• Liquidity is mostly concerned to the banks because they should be
in a position to repay all it deposits at any time. So it has to
maintain total liquidity regardless of the purposes to meet in such
liquidity so it has to maintain good liquidity ratio.
• Business expansion is a good method to increase their assets for
long term & short term by this the bank can increase physical
strength & also the man power by giving opportunities in different
fields
51

BIBILIOGRAPHY
R.K. Sharma Shashi K. Guptha ----- Management Accounting
P.V. Varshney ---- Banking Law and practices
S.N. Maheshwari ---- Financial Management
Web sites:
WWW.ICICIBANK.COM
WWW.RBI.ORG.COM
52

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