A PROJECT REPORT

ON

“WORKING CAPITAL”

In partial fulfillment for the award of the degree of:

Master of Business Administration

DEPARTMENT OF MANAGEMENT STUDIES

BABA GHULAM SHAH BADSHAH UNIVERSITY

RAJOURI (185234)

SUBMITTED BY: UNDER SUPERVISION

SHAHNAWAZ AHMAD PARRAY DR. VINAY KUMAR

MBA (2022-2024) ASSISTANT PROFFESOR

ROLL NO: 12-MBA-2022 SCHOOL OF MANAGEMENT STUDIES

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 CERTIFICATE

This is to certify that Shahnawaz Ahmad Parray S/O Nazir Ahmad Parray student of MBA, ROLL
NO: 12-MBA-2022 is a bonafide student of this institute. He has completed the project report on the
topic "Working Capital” under the supervision of Dr. Vinay Kumar for the fulfillment of requirement
for awarding the degree of Masters of Business Administration.

Dr. Vinay Kumar Ms. Mamta Choudhary

(Supervisor) (H.O.D)

2
3
 DECLARATION

I hereby declare, that the Project Report on the Topic “Working Capital” is completed and submitted
under the guidance and supervision of Dr. Vinay Kumar. It is my original work & preparation of the
project report is based on my personal findings, several visits of the organization, and interaction with
the officials/employees/customers and consultation with the eminent scholars and secondary sources.

SHAHNAWAZ AHMAD PARRAY

4
 Acknowledgement

I express my deep sense of gratitude to my guide Dr. Vinay Kumar for his keen interest and valuable
guidance during the course of this Project. His suggestions benefited me immensely. I am deeply
indebted to the HDFC Bank manager and the staff for providing me the opportunity to undertake this
live project. I am grateful to all the respondents without their cooperation this study would not have
been possible. I am beholden to my family and my friends for their blessings & necessary support.

SHAHNAWAZ AHMAD PARRAY

5
 PREFACE

The project work is specially designed to link the knowledge with the real life situation. This project
is based on Working Capital & the training has been done in HDFC Bank for 1 Month & 10 days.

HDFC Bank is a recognized bank and is an important factor of banking sector in the UT. The project
basically contains all the facilities given by the bank to its customers and what is the satisfaction level
of the customers after using these facilities. Working Capital is individual’s perception of level of
service rendered in reaction to his/her expectations. Sampling plan procedure is used for data
collection and the questionnaire is used for interviewing the respondents. Respondents are the
different customers of HDFC Bank. The data is collected and tabulated according to the respondent’s
response using percentages. It is analyzed further with the help of bar diagrams and pie charts.

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 TABLE OF CONTENTS

Topics Page no.

CHAPTER-1 08
INTRODUCTION

CHAPTER-2 27
RESEARCH METHODOLOGY

CHAPTER-3 32
DATA ANALYSIS
CHAPTER-4
41
SUGGESTIONS

CHAPTER-5 43
CONCLUSSIONS

CHAPTER-6 45
BIBLOGRAPHY

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 CHAPTER _1

INTRODUCTION

ASSESMENT OF WORKING CAPITAL

8
WHAT IS WORKING CAPITAL?

For any activity whether trading or industrial, two types of assets are required- Fixed assets and
current assets.

Fixed assets i.e. land, building, plant and machinery etc. constitute the infrastructure for industrial
activity. These assets remain more or less permanently in the business and are not meant for sale.
Hence, the funds utilized for acquiring these assets remain permanently locked up and are known as
Fixed (or sunk) capital. These long term funds come from the owner’s contributions/banks /directors
/relatives and friends / general public.

Current assets i.e. stock in trade, receivables, debtors etc., are the means of production activity. They
go through the production cycle and are meant for eventual sale. ‘Production cycle’ refers to the
period in which raw materials are processed into finished goods.

Funds required for financing the production cycle and other current assets are called ‘working
capital’. Its main sources are bank borrowing and sundry creditors.

Working capital cycle represents the time span within which, the cash utilized or procuring raw
materials, payment of wages and incurring overheads is reconverted into cash through sales
realization.

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CONCEPT OF WORKING CAPITAL

There are two concepts of working capital viz. quantitative and qualitative. Some people also define
the two concepts as gross concept and net concept. According to quantitative concept, the amount of
working capital refers to ‘total of current assets’. Current assets are considered to be gross working
capital in this concept.

The qualitative concept gives an idea regarding source of financing capital. According to qualitative
concept the amount of working capital refers to “excess of current assets over current liabilities.” L.J.
Guttmann defined working capital as “the portion of a firm’s current assets which are financed from
long–term funds.”

The excess of current assets over current liabilities is termed as ‘Net working capital’. In this concept
“Net working capital” represents the amount of current assets which would remain if all current
liabilities were paid. Both the concepts of working capital have their own points of importance. “If the
objectives is to measure the size and extent to which current assets are being used, ‘Gross concept’ is
useful; whereas in evaluating the liquidity position of an undertaking ‘Net concept’ becomes pertinent
and preferable.
It is necessary to understand the meaning of current assets and current liabilities for learning the
meaning of working capital, which is already explained earlier in the project report.
Circulating capital – working capital is also known as ‘circulating capital or current capital.’ “The
use of the term circulating capital instead of working capital indicates that its flow is circular in
nature.”

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STRUCTURE OF WORKING CAPITAL
The different elements or components of current assets and current liabilities constitute the structure
of working capital which can be illustrated in the shape of a chart as follows:

Structure of Current Liabilities and Current Assets

Current Liabilities Current Assets

Bank Overdraft Cash and Bank Balance
Inventories:
Creditors Raw-Materials
Work-in-progress
Finished Goods
Outstanding Expenses Spare Parts
Bills Payable Accounts Receivables
Short-term Loans Bills Receivables
Proposed Dividends Accrued Income
Provision for Taxation, etc. Prepaid Expenses
Short-term Investments

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CIRCULATION OF WORKING CAPITAL

At one given time both the current assets and current liabilities exist in the business. The current
assets and current liabilities are flowing round in a business like an electric current. However, “The
working capital plays the same role in the business as the role of heart in human body. Working
capital funds are generated and these funds are circulated in the business. As and when this circulation
stops, the business becomes lifeless. It is because of this reason that the working capital is known as
the circulating capital as it circulates in the business just like blood in the human body.”

The sale of goods may be for cash or credit. In the former case, cash is directly received while in later
case cash is collected from debtors. Funds are also generated from operation and sale of fixed assets.
A portion of profit is used for payment of interest, tax and dividends while remaining is retained in the
business. This cycle continues throughout the life of the business firm.

Fig. depicting ‘Working Capital Cycle’ makes it clear that the amount of cash is obtained mainly from
issue of shares, borrowing and operations. Cash funds are used to purchase fixed assets, raw materials
and used to pay to creditors. The raw materials are processed; wages and overhead expenses are paid
which in result produce finished goods for sale.

CLASSIFICATION OF WORKING CAPITAL

The quantitative concept of Working Capital is known as gross working capital while that under
qualitative concept is known as net working capital.
Working capital can be classified in various ways. The important classifications are as given below:
CONCEPTUAL CLASSIFICATION
There are two concept of working capital viz., quantitative and qualitative. The quantitative concept
takes into account as the current assets while the qualitative concept takes into account the excess of
current assets over current liabilities. Deficit of working capital exists where the amount of current
liabilities exceeds the amount of current assets. The above can be summarized as follows:

(i) Gross Working Capital = Total Current Assets

(ii) Net Working Capital = Excess of Current Assets over Current Liabilities
(iii) Working Capital Deficit = Excess of Current Liabilities over Current Assets.

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 CLASSIFICATION ON THE BASIS OF FINANCIAL REPORTS:

The information of working capital can be collected from Balance Sheet or Profit and Loss
Account; as such the working capital may be classified as follows:

 Cash Working Capital: This is calculated from the information contained in profit and loss
account. This concept of working capital has assumed a great significance in recent years as it shows
the adequacy of cash flow in business. It is based on ‘Operating Cycle Concept’s which is explained
later.
 Balance Sheet Working Capital: The data for Balance Sheet Working Capital is collected
from the balance sheet. On this basis the Working Capital can also be divided in three more types,
viz., gross Working Capital, net Working Capital and Working Capital deficit.

Classification on the Basis of Variability

Gross Working Capital can be divided in two categories viz., (i) permanent or fixed working capital,
and (ii) Temporary, Seasonal or variable working capital. Such type of classification is very important
for hedging decisions.

i. Temporary Working Capital : Temporary Working Capital is also called as fluctuating or

seasonal working capital. This represents additional investment needed during prosperity and

13
 favorable seasons. It increases with the growth of the business. ”Temporary working capital is the
additional assets required to meet the variations in sales above the permanent level.” This can be
calculated as follows:
Temporary Working Capital = Total Current Assets – permanent Current Assets

ii. Permanent Working Capital: It is a part of total current assets which is not changed due to
variation in sales. There is always a minimum level of cash, inventories, and accounts receivables
which is always maintained in the business even if sales are reduced to a minimum. Amount of such
investment is called as permanent working capital. “Permanent Working Capital is the amount of
working capital that persists over time regardless of fluctuations in sales.” This is also called as
regular working capital.
WORKING CAPITAL MANAGEMENT

The management of current assets, current liabilities and inter-relationship between them is termed as
working capital management. “Working capital management is concerned with problems that arise in
attempting to manage the current assets, the current liabilities and the inter-relationship that exist
between them.” In practice, “There is usually a distinction made between the investment decisions
concerning current assets and the financing of working capital.”
From the above, the following two aspects of working capital management emerge:
1. To determine the magnitude of current assets or “level of working capital” and
2. To determine the mode of financing or “hedging decisions
SCOPE OF WORKING CAPITAL MANAGEMENT

The management of working capital helps us to maintain the working capital at a satisfactory level by
managing the current assets and current liabilities. It also helps to maintain proper balance between
profitability, risk and liquidity of the business significantly. By managing the working capital, current
liabilities are paid in time. If the firm makes payment to it creditors for raw material in time, it can
have the availability of raw material regularly, which doesn’t t cause any obstacles in production
process. Adequate working capital increases paying capacity of the business but the excess working
capital causes more inventories, increases the possibility of delay in realization of debts. On the other
hand, absence of adequate working capital leads to decrease in return on investment. The goodwill
of the firm is also adversely affected due to the inability to pay current liabilities in time. Hence, the
management of working capital helps to manage all the factors affecting the working capital in the
most profitable manner.

14
 A schematic diagram of the ‘working capital cycle’ is given below:

CALCULATION OF WORKING CAPITAL

The calculation of working capital requirement during the entire project was done as per the following
three methods:

o OPERATING CYCLE METHOD

o NET WORKING CAPITAL METHOD
o ON THE BASIS OF SALES

 Operating Cycle Method

As per the Operating cycle method the working capital requirement is calculated as under:

Debtor days XX
Add:- Inventory days XX
XXX
Less:- creditors days XX
Operating days XX

Operating cycle = 365 = XX

Operating Days
Working capital requirement = Sales = XXX = XX
O/cycle XX

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 Net Working Capital Method
As per the Net Working Capital method the working capital requirement is calculated as under:

Net Working Capital = [Capital + Unsecured Loan + Term Loans– F/Assets –Investments – Loans &
Advances]

Permissible amount is 3 times the net working capital as per above formula.

Working capital Requirement = [Capital + Unsecured Loan + Term Loans – F/Assets – Investments
– Loans & Advances] x 3

 On The Basis Of Sales

Bank can allow a max CC limit of 25% of sales to a manufacturing unit and 15% of sales to a trading
unit.

J&K Bank mostly allows 20% of sales as CC limit to manufacturing units.

So, 20% of sales = 20/100 * Sales

=Rs XXX

So the as per bank policy allowable amount as CC is Rs XXX.

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DETAILED INFORMATION ABOUT ONE OF THE TYPE OF FINANCE AVAILABLE UNDER
WORKING CAPITAL LOAN PROVIDED BY HDFC BANK

Nature of Facility Facility to be extended by way of:

i) Running Account in the form of Secured Overdraft / Cash Credit Facility
ii) Home loan Facility
iii) Product and service Facility

Purpose To facilitate the fund any expense including education ,a wedding ,a trip ,home
renovation , medical expenses , and even to buy a gudget.

Eligibility Sole Proprietorship concern, Partnership firms, and companies.

Min. Business vintage of 3 years
Profitable entity for 2 years

Quantum of finance Maximum Limit under this product shall be 2.00 Crore . For limits exceeding
2.00 Crore, assessment shall be carried out as per the norms / guidelines laid
down in the Bank's credit policy.

Margin on Bank
Guarantee 100% cash margin

Security Assignment of Receivables and hypothecation of raw materials and consumable

stores.

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 INDUSTRY PROFILE

HISTORY

In its formative years, the bank had to encounter several serious problems, particularly around the time of
independence, when out of it total 10 branches, two branches of Muzafarabad and Mirpure fell to the other
side of the line of control (now Pakistan administrated Kashmir) along with cash and other assets in
1947.However state government came to its rescue with the assistance 6.00 Lakh to meet the claim. The
bank steadfastly overcome its difficulties and kept growing. Following the extensionsof central laws to the
state of Jammu & Kashmir, the bank was defined as a government company as per the provisions of the
Indian companies Act 1956. The bank had its first full time chairman in 1971, following the social control
measure in banks. The year in 1971 was the turning point for the bank on conferment of scheduled bank status
and witnessed remarkable progress in all the vital fields of operations. Reserve Bank of India declared the
bank as “A” class bank in 1976.

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 INTRODUCTION TO HDFC BANK

The Housing Development Finance Corporation Limited or HDFC Ltd was among the first financial
institutions in India to receive an “in principle” approval from the Reserve Bank of India (RBI) to set up
a bank in the private sector. This was done as part of RBI’s policy for liberalization of the Indian banking
industry in 1994.

HDFC Bank was incorporated in August 1994 in the name of HDFC Bank Limited, with its registered
office in Mumbai, India. The bank commenced operations as a Scheduled Commercial Bank in January
1995.

On April 4, 2022 the merger of India’s largest Housing Finance Company, HDFC Limited and the largest
private sector bank in India, HDFC Bank was announced. HDFC Ltd, over the last 45 years has
developed one of the best product offerings making it a leader in the housing finance business. HDFC
Bank enables seamless delivery of home loans as a part of its wide product suite catering to urban, semi
urban and rural India.

As of January 31, 2024, the Bank’s distribution network was at 8,143 branches and 20,688 ATMs / Cash
Recycler Machine ( Cash deposit & withdrawal ) across 3,836 cities / towns. HDFC Ltd.’s distribution
network comprising 737 outlets, which include 214 offices of HDFC Sales Private Limited stands
amalgamated into the Bank’s network. The Bank’s international presence includes branches in 4
countries and 3 representative offices in Dubai, London and Singapore offering Home Loan products to
Non-Resident Indians and Persons of Indian Origin.

HDFC Bank’s mission is to be a world class Indian bank. We have a two-fold objective: first, to be the
preferred provider of banking services for target retail and wholesale customer segments. The second
objective is to achieve healthy growth in profitability, consistent with the bank’s risk appetite.

The bank is committed to maintaining the highest level of ethical standards, professional integrity,
corporate governance and regulatory compliance. HDFC Bank’s business philosophy is based on five
core values: Operational Excellence, Customer Focus, Product Leadership, People and Sustainability.

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 VISION
“To be the premier financial partner in ensuring sustainable housing and living standard.”

MISSION
“Committed to provide financial solutions for sustainable living and assist entrepreneurs in value addition.”

We will be the preferred provider of targeted financial service in our communities based on
strong customer relationships.

BANK'S NEW IDENTITY

The bank has been adding 25-30 per cent new cards every year, Rao said, adding that he hopes the
numbers would be the same even in 2023-24. Asset quality of the country's largest credit card issuer
HDFC Bank continues to be stable even as many of its peers are facing challenges,

OBJECTIVES OF HDFC BANK

i. Banking services for target for retail for wholesale. Maintain ethical standard professional
integrity, corporate governance.
ii. Serving customers and solving their problems.
iii. To provide excellent customer service, achieve sustainable growth and maximize
shareholder value.
iv. Developing of Indian housing industry.
v. Development and growth of profit and main of customer satisfaction

SECURITY PROVIDED BY HDFC BANK

The forms of security either by way of primary security or collateral security is given here under:-

All the banking systems are secured using cutting edge security arrangements, for example firewalls,
intrusion detection systems, intrusion prevention systems, and anti-malware. Some specific security
measures taken by HDFC Bank include:
20
 PIN security: The PIN is generated randomly by the system, then encrypted and stored on the Net
Banking system to facilitate authentication using industry-specified encryption standards. Hence, it is
not accessible to anyone – not even the system administrator.
 Additional authentication: A dual authentication process has been set up for different key
transactions like SMS OTP (one-time password) authentication and debit card PIN authentication.
 Virtual keyboard: Customers have the option of using a virtual keyboard while logging in, which
protects credentials from being compromised by malware such as key loggers.
 Instant-alerts: This service sends instant SMS and email alerts to customers on registering for
different transactions such as deposits and withdrawals, and also for carrying out third-party transfer
transactions.
 There are many more security features, such as a secure web page that uses 128-bit encryption, so
anyone over the internet cannot intercept the communication. It also automatically logs out the
customer after a period to protect against misuse, displays the customer’s last login details, masks
their mobile number so that only the last five digits are displayed, employs a digital certificate
provided by VeriSign, etc.
 HDFC Bank offers an intuitive and interactive mobile banking experience that safeguards your
investments. You can now bank smarter by taking advantage of these safe and secure modern banking
applications.

 If you wish to open an account with HDFC Bank, you can do so right away with their Instant Account
offering. You can instantly open a savings or a salary account from the comfort of your home in four
simple steps. All you need is your mobile number, Aadhaar number and PAN number to open an
account with HDFC Bank. Once you’ve done so, you’ll instantly receive your account number and
Customer ID.
 Your Net Banking and Mobile Banking will be immediately enabled. You can begin transferring your
funds online and make card less withdrawals from ATMs. All this convenience, ease and safety is at
your instant disposal with HDFC Bank Instant Account.

21
 PRE SANCTION PROCESS:
Obtain Loan Application

When a customer required loan he is required to complete application form and submit the same to the
bank also the borrower has to be submit the required information along with the application form. The
information, which is generally required to be submitted by the borrower along with the loan
application, is under:
· Audited balance sheets and profit and loss accounts for the previous three year (in case borrower
already in the business)
· Estimated balance sheet for current year.
· Projected balance sheet for next year.
· Profile for promoters/directors, senior management personnel of the company.
· In case the amount of loan required by borrower is 50 Lakh and above he should be submit the
CMA Report.
Appraisal & Recommendation, Assessment & Sanctioning

 Examine for preliminary appraisal

 RBI guidelines. Policies

 Prudential exposure norms and bank lending policy

 Industry exposure restriction and related risk factors.

 Compliance regarding transfer of borrowers accounts from one bank to another bank.

 Government regulation / legislation impact on the industry.

 Acceptability of the promoter and applicant status with regards to other unit to industries.

 Arrive at the preliminary decision.

 Examine/analysis /assessment

 Financial statement (in the prescribed forms) refers figure WC cycle & BS assessment thumb rules.

 Financial ratio & Dividend policy.

 Depreciation method
22
 Revaluation of fixed assets.

 Records of defaults (Tax, dues etc.)

 Pending suits having financial implication (Customs, excise etc.)

 Qualifications to balance sheet auditors remarks etc.

 Trend in sales and profitability and estimates /projection of sales.

 Production capacities and utilization: past & projected production efficiency and cost.

 Estimated working capital gap W.R.T acceptable buildup of inventory/receivables/other current assets

and bank borrowing patterns.

 Assess MPBF –determine facilities required

 Management quality, competence, track records

 Company’s structure and system

 Market shares of the units under comparison.

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POST SANCTION PROCESS

Supervision and Follow Up

Sanction credit limit of working capital requirement after proper assessment of proposal is alone not
sufficient. Close supervision and follow up are equally essential for safety of bank credit and to ensure
utilization of fund lend. A timely action is possible only close supervision and followed up by using
following techniques.

 Monthly stock statement

 Inspection of stock
 Scrutiny of operation in the account
 Quarterly/half quarterly statements.
 Under information system
 Annual audited report

Credit Monitoring Arrangement

Consequent upon the withdrawal of requirement of prior authorization under the erstwhile credit
authorization scheme (CAS) and introduction of a system of post sanction scrutiny under credit
monitoring arrangement (CMA) the database forms have been recognized as CMA database. The
revised forms for CMA database as drawn up by the sub-committee of committee of directions have
come into use from 1st April 1991.
The existing forms prescribed for specified industries continue to remain in force. With a view to
imparting uniformity to the appraisal system, database from all borrowers including SSI units
enjoying working capital limits of Rs. 50 Lakh and more from the banking system should be obtained.
The revised sets of forms have been separately prescribed for industrial borrowers and
traders/merchant exporters. The details of forms are as under: -

Form 1:- Particulars Of The Existing/Proposed Limit From The Banking System.

Form 2: - Operating Statement.

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It contains data relating to gross sales, net sales, cost of raw material, power and fuel, etc. It gives the
operating profit and the net profit figures.

Form 3: - Analysis Of Balance Sheet.

It is complete analysis of various items of last year balance sheet; current years estimate and
following years projection are given in this form.

Form 4: - Comparative Statement Of Current Asset And Liabilities.

Details of various items of current asset and current liabilities are given. The figures in this form must
tally with those in Form III.

Form 5: - Computation Of Maximum Permissible Bank Finance For Working Capital.

The calculation of MPBF is done in this form to obtain the fund based credit limits to be granted to
the borrower.

Form 6: - Fund Flow Statement

It provides the details of fund flow from long term sources and uses to indicate whether they are
sufficient to meet the borrower’s long term requirements.

CREDIT RATING MODEL

The various risk faced by any company may be broadly classified as follows:
Industry Risk: It covers the industry characteristic, compensation, financial data etc.

Company/ business risk: It considers the market position, operating efficiency of the company etc.

Project risk: It includes the project cost, project implementation risk, post project implementation
etc.

Management risk: It covers the track record of the company, their attitude towards risk,
Propensity for group transaction, corporate governance etc.

Financial risk: financial risk includes the quality of financial statements, ability of the company to
raise capital, cash flow adequacy etc.

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SECURITY NEEDED BY BANKS

Banks need some security from the borrowers against the credit facilities extended to them to avoid
any kind of losses. Securities can be created in various ways. Banks provide credit on the basis of the
following modes of security from the borrowers.

Hypothecation: under this mode of security, the banks provide credit to borrowers against the
security of movable property, usually inventory of goods. The goods hypothecated, however, continue
to be in possession of the owner of the goods i.e. the borrower. The rights of the banks depend upon
the terms of the contract between borrowers and the lender. Although the bank does not have the
physical possession of the goods, it has the legal right to sell the goods to realize the outstanding
loans.
Hypothecation facility is normally not available to new borrowers.

Mortgage: It is the transfer of a legal / equitable interest in specific immovable property for
securing the payment of debt. It is the conveyance of interest in the mortgaged property. This interest
terminated as soon as the debt is paid. Mortgages are taken as an additional security for working
capital credit by banks.

Pledge: The goods which are offered as security are transferred to the physical possession of the
lender. An essential prerequisite of pledge is that the goods are in the custody of the bank. Pledge
creates some kind of liability for the bank in the sense that ‘Reasonable care’ means care, which a
prudent person would take to protect his property.
In case of non-payment by the borrower, the bank has the right to sell the goods.

Lien: The term lien refers to the right of a party to retained goods belonging to other party until a
debt due to him is paid. Lien can be of two types viz.
 Particular lien i.e. A right to retain goods until a claim pertaining to these goods are fully
paid, and
 General lien, which is applied till all dues of the claimant are paid. Banks usually enjoyed
general lien.

26
 CHAPTER_2
Research methodology

OBJECTIVES OF THE STUDY

1. To assess and evaluate the working capital briefly.

2. To evaluate the liquidity position of the bank.
3. To assess the profitability of the bank year after year
4. To measure how far assets of bank have been utilized to increase the sales.
5. To know the Sources of working capital provided by the bank.
6. To compare lending rates of HDFC bank with SBI.

27
OBJECTIVES OF THE STUDY

7. To assess and evaluate the working capital briefly.

8. To evaluate the liquidity position of the bank.
9. To assess the profitability of the bank year after year
10. To measure how far assets of bank have been utilized to increase the sales.
11. To know the Sources of working capital provided by the bank.
12. To compare lending rates of HDFC bank with SBI.

28
RESEARCH METHODOLOGY

Research Methodology is a systematic method of finding solutions to problems. It is essentially an

investigation, a recording and an analysis of evidence for the purpose of gaining knowledge.
Success or failure of any project entirely depends upon methodology adopted by the researcher.
Methodologies basically use different methods of research systematically and scientifically.
Objectives of the study, its research design, its sampling design, coding and editing methods,
presentations and analysis of the data together with interpretation of the data are essential part of
research methodology.

Research Type  Analytical

 Quantitative
Source of Data  Primary
 Secondary
Sample Unit  Business units applying for loan

Analysis Tool used  Financial Statements

RESEARCH DESIGN

Analytical
This is analytical research area where we analyses information with cause and its effects relationship.
This analysis leads to the study of the assessment of working capital and drawing conclusions of
whether to lend money to the institution for working capital requirement based on the various
parameters which I try to make it easy to understand with the help of case studies at the end.
Also if the money is lend then there is reality the norms are not always perfect and hence it is essential
to priorities stringent parameters and secondary parameters.

29
 Quantitative
This is Quantitative research type of research also, relates to aspects that can be quantified or can be
expressed in terms of quantity. It involves the measurement of quantity or amount. The various
available statistical and econometric methods are adopted for analysis in such research.

DATA COLLECTION
Data collection is an essential part of every project. Success or failure of any project entirely depends
on the way of collection of data. The data in this research were collected from the following two
ways.

Primary Data
 Observation, Discussion with the Project coordinator.
 The company profile, annual reports have been obtained from HDFC Bank.

Secondary Data
Secondary data relating to the procedure of assessment of working capital finance, old sanction
proposals, RBI guidelines, HDFC Bank norms etc. have been sourced from reference books.

RESEARCH SAMPLE
Different types of cases representing different situations which a bank generally faces while financing
the working capital to those who require these funds.

ANALYTICAL TOOLS USED

Since this is the analytical as well as quantitative type of research so the tools and techniques which
are used in this project are Financial Statements, Performance reports, Illustrations.

30
LIMITATIONS OF THE STUDY

 Time limit of 45 days was not enough to study the financial statement of the bank
 Annexure were not provided to me of financial statements.
 Financial data was provided to me of the year 2022 which was not the recent data.
 Financial statements of HDFC bank are made by very many high professionals with
theirstandards so analysis of those statements was very tough time.
 Support from staff of HDFC bank was not so good because they have very busy schedule.
 My lack of experience in the field of research creates so many problems during the
study.

31
 Chapter_3

DATA ANALYSIS

32
 DATA ANALYSIS AND DISCUSSIONS

RATIO ANALYSIS

Ratio Analysis is a very important tool of financial analysis. It is the process of establishing the
significant relationship between the items of financial statements to provide meaningful understanding
of the performance and financial position of a firm. Ratios are classified as under:-

 Liquidity Ratios.
 Activity Ratios.
 Leverage Ratios.
 Profitability Ratios.

Financial ratio analysis is a useful tool for users of financial statement. It has following advantages:

ADVANTAGES

1. It simplifies the financial statements.

2. It helps in comparing companies of different size with each other.
3. It helps in trend analysis which involves comparing a single company over a period.
4. It highlights important information in simple form quickly. A user can judge a company by just
looking at few numbers instead of reading the whole financial statements.

LIMITATIONS
Despite usefulness, financial ratio analysis has some disadvantages. Some key demerits of financial
ratio analysis are:

1. Different companies operate in different industries each having different environmental conditions
such as regulation, market structure, etc. Such factors are so significant that a comparison of two
companies from different industries might be misleading.

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2. Financial accounting information is affected by estimates and assumptions. Accounting standards
allow different accounting policies, which impairs comparability and hence ratio analysis is less
useful in such situations.
3. Ratio analysis explains relationships between past information while users are more concerned about
current and future information.

BENCH MARK OF KEY FINANCIAL RATIOS IN HDFC BANK:

Financial ratios are the only tools and not an end in credit appraisal process. They are means to an end
and the only pass guiding signals. Analysis of a combination of critical financial ratios can help in
proper decision making. They are also practical constraints in evolving industry wise benchmarks for
key financial indicators.

Some important ratios are used during analysis of the financial statement by the banks to ascertain the
credit worthiness of the borrowers are described as under:

CALCULATION OF RATIOS

1. Current Ratio: - Current ratio is calculated by current assets upon current liabilities. It
measures short term paying ability of the firm.

Year 2023 2022 2021

Current Assets 94813.74 87465.29 83749.34

Current Liabilities 5414.05 3389.99 2670.81

Current Ratio 17.51 25.80 31.35

Significance: - An ideal current ratio is 2:1. This ratio is used for short term paying ability of the firm.
Approximate of 1 of current ratio the creditors will be able to get their payment in full.

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 2. Quick Ratio: - This ratio is also known as liquid ratio. It measures short term paying
ability by measuring short term liquidity. It is calculated by current assets(-) minus
inventory upon by current liabilities.

Year 2023 2022 2021

Liquid Assets 94813.74 87465.29 83749.34

Current Assets 5414.05 3389.99 2670.81

Liquid Ratio 17.51 25.80 31.35

Significance: - This ratio is able to payment for its creditors. This ideal figure is 1.

3. Gross profit ratio: - Gross profit ratio indicates the efficiency of the production or
operation of trading. It expresses relation between gross profit and net sales.

G.P. Ratio= Gross profit/net sales* 100

Year 2023 2022 2021

Gross Profit 774.45 958.21 1149.49

Net Sales 53934.51 60294.39 70869.57

G.P.R 14.3% 15.8% 16.2%

Significance:- This ratio indicates the degree to which the selling price of goods per unit may decline
without resulting in losses from operations to the firm. If there is continuous increment in gross profit
ratio then it means the selling price of goods is increasing day by day.

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 4. Net Profit Ratio: - Net profit ratio indicates efficiency of P&L A/C of the firm. It
intends relation between net profit and net sales.

Net Profit Ratio= N.P. /Net sales*100

Year 2023 2022 2021

Net Profit 243.49 512.38 615.2

Net Sales 53934.51 60294.39 70869.57

N.P.R 7.5% 8.4% 8.6%

Significance: - Net profit ratio indicates net margin on sales. This margin is continuously increasing
year to year.

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 5. Fixed assets Turnover Ratio: - It indicates the investment in fixed assets has been
judicious or not. It calculated by the following formula;

FATOR = Net sales /Net fixed assets

Net fixed assets = Fixed assets – depreciation

Year 2023 2022 2021

Net Sales 53934.51 60294.39 70869.57

Net Fixed Assets 1,994,1.43 3,937,7.02 1,920,0.15

FATOR 2.7 Times 1.53 Times 3.69 Times

Significance: - It indicates the extent to which the investment in fixed assets contributes towards
sales. It compared with the previous period, it indicates whether the investment in fixed assets has
been judicious or not.

6. Working capital Turnover Ratio: Working capital ratio is talking about

utilization of working capital for the firm. Working capital turnover ratios express the
relation between net sales and working capital. It is calculate by the following formula;

WCTOR = Net Sales/Working capital

{Working capital = Current assets – current liabilities}

Year 2023 2022 2021

Net Sales 53934.51 60294.39 70869.57

Working Capital 37371.65 42343.9 50116.52

WCTOR 1.44 Times 1.42 Times 1.41 Times

Significance: - Working capital turnover ratios express the relation between net sales and working
capital. The ratio of the bank is decreasing year after year

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 7. Total assets turnover ratio: - Total assets turnover ratio intends to the total assets to
total turnover. It indicates to efficiency of total assets and total turnover. This ratio is very
important for estimate the position of the firm. This ratio is calculated by the following
formula;

TATOR = Total assets/total turnover

Year 2023 2022 2021

376,932,318 327,559,871 425,467,948

Total assets

Turnover 53934.51 60294.39 70869.57

TATOR 69% 54% 60%

Significance:- The Bank’s aggregate business crossed yet another psychological mark and stood at
70,869.57 Crores at the end of the financial year 2021-22. The Bank’s total business increased by `
10,575.18 Crores from the previous year’s figure of 60,294.39 Crores, registering a growth of 17.54%

The above parameters are used for critical analysis of financial position. With the evaluation of each
component, the financial position from different angles is tried to be presented in well and systematic
manner. By critical analysis with the help of different tools, it becomes clear how the financial
manager handles the finance matters in profitable manner in the critical challenging atmosphere, there
commendation are made which would suggest the organization in formulation of a healthy and strong
position financially with proper management system. I sincerely hope, through the evaluation of
various percentage, ratios and comparative analysis, the organization would be able to conquer it’s in
efficiencies and makes the desired changes.

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 COMPARATIVE ANALYSIS OF THE AVERAGE LENDING RATES OF
WORKING CAPITAL LOAN BETWEEN HDFC BANK AND SBI

HDFC SBI % DIFFERENCE

BANK
WORKING 13.33% 15% -1.67%
CAPITAL FACILITY
TERM LOAN 14.375% 14% +0.375%
CASH CREDIT 14.5% 18% -3.50%
LETTER OF CREDIT 10.50% 11% 0.50%

AVERAGE LENDING RATES

RATE OF INTEREST (%)

WCF TERM LOAN CASH CREDIT LC

HDFC 13.33 14.375 14.5 10.5
SBI 15 14 18 11

The analysis shows comparative average lending rates of various types of working capital loan

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provided by HDFC BANK and SBI. From the above analysis we came to know about the following
finding:

1. The average interest rate of working capital facility provided HDFC BANK is quite
comparatively low up to 13.33% as compared to SBI rate of 15%. Thus, having a difference of
1.67% in HDFC BANK
2. While as in case of term loan SBI rate is low against HDFC BANK rate by 0.375%. But
thisdifference is not too much that can be negotiated.
3. In cash credit facility there is a lot of difference between the rate charged by HDFC BANK
that is14.5% and the rate of SBI that is 18% thereby HDFC BANK leading by margin of 3.5%
4. Now in case of letter of credit type of funding that is usually in the form of bills discounting, there
is also not much difference between HDFC BANK and SBI that is 10.5% and 11% respectively

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 Chapter_4

SUGGESTIONS

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 SUGGESTIONS

 Closely monitoring and inspecting the activities and stocks of the borrowers from time to time can
avoid the misuse of working capital.
 While working out the working capital limits, banks must exclude the loans and advances from the
current assets. The assessment should be done mainly stock and the inventory level of borrower.
 Bank must extend working capital finance through non-fund based facilities.
 Another ideal method would be to use LC as the primary source of extending, working capital
clubbed with bill discounting. This would ensure that the credit is put to the right use by the borrower
and repayment is guaranteed to the bank.
 The bank must further secure them by holding a second charge on all the fixed assets of the borrower.
 The time period taken by the banks to sanction the limits should be significantly reduced to allow the
borrowers to make use of the credit when the need is most felt.

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 Chapter_5

CONCLUSIONS

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 CONCLUSIONS

 The requirement of working capital finance is ever increasing.

 Loans and advances formed a major portion of the current assets of the firm because of which the
working capital gap is large.
 The bank prefers to use the second method of lending working capital under the MPBF rather than
evolving their own method.
 In most of the cases, hypothecation and/or mortgage are used to create securities for the banks.
 After doing the assessment of the financial indicators it is up to the judgment of the top management
of the bank to sanction such loan. The very decision could be against the assessment result.
 Bank has their own internal credit rating procedure to rate the clients (Borrowers).
 If the company is with bank from inception stage then they are given preference, as credible and loyal
party over their financial indicators.
 There is a stiff competition to the nationalized banks from the foreign investors as their lending rates
are much lower than nationalized banks.
 Today the foreign investors are very big threat to business and its existence.

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 Chapter_6

BIBLIOGRAPHY

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REFERENCES
During the completion of this project work I have taken references from various sources which
include:
 Annual report of The HDFC Bank ltd.
 Magazines such as Business Economics, Newspaper such as Greater Kashmir, Bank
Dairy, Bank Catalogue, Bank magazine etc.
 Yearly journals of the HDFC Bank Ltd.
 Website of the HDFC bank;

 Circulars of HDFC Bank

 WWW.HDFC BANK

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