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    I

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    II

    UNIVERSITY OF MUMBAI

    A PROJECT REPORT ON

    WORKING CAPITAL MANAGEMENT

    OF BANK OF MAHARASHTRA

    PROJECT REPORT SUBMITTED IN PARTIAL

    FULFILLMENT OF THE REQUIREMENT FOR

    BACHELOR OF COMMERCE (BANKING & INSURANCE)

    SUMMITTED BY:

    GITANJALI D. PAWAR

    B.Com (BANKING AND INSURANCE)

    SEMESTER-V

    2011-2012

    UNDER THE GUIDANCE

    KARMVEER BHAURAO PATIL COLLEGE, VASHI

    NAVI MUMBAI -400706

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    III

    RAYAT SHIKSHAN SANSTHAS

    VASHI, NAVI MUMBAI.

    CERTIFICATE

    This is to certify that GITANJALI DATTARAM PAWAR of T.Y.B.B.I.

    Banking &Insurance Semester V has completed his project on

    And

    submitted a satisfactory report under the guidance of in the partial

    fulfilment of B.B.I. course of University of Mumbai in the academic

    year2012-2013.

    .. .. ..

    Project guide Coordinator Principal

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    IV

    Declaration

    I,GITANJALI DATTARAM PAWAR student of KARMAVEER BHAURAO

    PATIL COLLEGE, studying in B.B.I. (SEMESTER V ) hereby declare that I

    have completed this project report on WORKING CAPITAL MANAGEMENT

    OF BANK OF MAHARASTRA And has not been submitted to any other

    University or Institute for the award of any degree, diploma etc. The

    information is submitted to me is true and original to the best of my

    knowledge.

    Date Sign..

    Place- Vashi, Navi Mumbai.

    Name.

    (Name & sing of student)

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    V

    Acknowledgement

    On the Event of completion of my project WORKING CAPITAL

    MANAGEMENT OF BANK OF MAHARAS. I take the opportunity to express

    my deep sense of gratitude towards all those people without whose

    guidance, inspiration and timely help, this project would have never seen the

    light of day.

    Any accomplishment requires the effort of many people and this project is

    not different. I find great pleasure in expressing my deepest sense of

    gratitude towards my Project guide PROF.YAMINE whose guidance and

    inspiration right from the conceptualization to the finishing stages proved to

    be very essential and valuable in the completion of the project.

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    VI

    PREFACE

    Banking in rural India still remains a challenge. In India the bank are segregated in

    different groups. Each bank branch has its own dedicate target customer. Few of

    them work only in rural sector while other in both rural as well as urban. Many even

    are only catering in cities. Some are of Indian Origin and some are Foreign Players.

    The Reserve bank of India (RBI) showed certain interest to involve more banks to

    start business in India villages as part of financial.

    Bank of Maharashtra a public sector bank commenced its operation on

    September 16, 1935. It has one of the largest networks of branches by any public

    sector bank in Maharashtra. It has 46 per cent of its branches in rural areas. The

    bank operates through 1500 ATMs with VISA Connection 20 extension counters

    in22 states and 2union territories. There are 20000 employments in India. Thenetwork of bank has Spread to all corner of the counter and with pan India

    presence; they proudly say that they cater to all the segment of the society the

    agriculturists, the corporate, small and Medium Enterprise (SME) individuals and

    institution. It s there twelve and a half million clientele whose valuable support and

    patronage facilities the success of this well knows institution.

    Objective of Study To find out how Working capital as a bank satisfies a customer.

    To find out how maximum bank finance is calculate : and

    To calculate the net Working Capital.

    To present their main activities.

    Methodology :The methodology adopted includes scanning the literature and to present and to

    present the selected once in four distinct chapter innovative are also an ongoing

    process.

    This report is based on primary as well secondary data, however primary data

    collection was given more important since it is overhearing factor in attitude

    studies. Once of most important user of research methodology is that it help in

    identify the problem collecting, analyzing the required information data providing

    an alternative solution to the problem. It also helps in collection the vital

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    VII

    information that is required by the top management to assist them for the better

    decision making both day today decision and once.

    Data Source:

    Research is totally on primary data. Secondary data can be used for the reference.

    Research has been made by primary data collection, and primary data has been

    collected by interacting with various people. The secondary data has been collected

    through various journals and websites.

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    VIII

    Sr.no

    contents Pg.no

    1 introduction

    2 Bank of Maharashtra

    3 Working capital management

    4 Data analysis

    5 finding

    6 Bibliography

    7

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    IX

    Definition of bank:

    It is defined as a financial institution which is engaged in the business of keeping

    money for saving and checking account or for exchange or for issuing loans and

    credit etc. CHAPTER -I INTRODUCTION TO THE

    BANKING Asset of services intended for private customer and characterized

    by a higher quality than the services offered to retails customers. Based on the

    notion of tailor made services, it aims to offer advice on investment, inheritance

    plans and provide active support for general transaction and the resolution of the

    storing of deposits and the extending of credit . Basic function may include credit

    collection, Issuer of banking notes, Depositor of money and lending loans.

    History of Banking in India

    Without a sound and effective banking system in India it cannot have a healthy

    economy. The banking system of India should not only be hassle free but it should

    be able to meet new challenge posed by the technology and any other external and

    internal factors. For the past three decades India Banking system has several

    outstanding achievements to its credit. The most striking is its extensive reach. In

    fact, Indian banking system has reached even to the remote corners of the country.

    This is one of the main reasons of India`s growth process. The government`s regular

    policy for Indian bank since 1969 has paid rich dividends with the nationalisation n

    of 14 major private bank of India Not long ago` an account holder had to wait for

    hours at the bank counter for getting a draft or for withdrawing his own money.

    Today, he has choice gone are days when the most efficient bank transferred

    money from branch to other in own days. Now it is simple as instant massing ordials a pizza Money has become the order of the day. The first bank India, though

    conservative, was established in 1786. From 1786 rill today. The journey of Indian

    Banking system can segregate into three distinct phases.

    They are as mentioned below:

    Early phase from 1786 to 1969 Indian Bank.

    Nationalization of Indian bank and up to 1991 prior to Indian Banking

    sector reforms

    New phase of Indian Banking system with the advent of Indian financial &

    banking sector Reforms after 1991.

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    X

    To make this writeup more explanatory, I prefix the scenario as phase I , Phase

    I, phase ii , and phase iii.

    PhaseI

    The General Bank of India was set up the year 1786. Next One come Bank of

    Hindustan and Bengal Bank. The East India Company established Bank Of Bengal

    (1809) , Bank Of Bombay (1840), and Bank Of Madras (1843) as independent

    units and called it presidency Banks. These three Bank Were amalgamated in

    1920 and Imperial Bank of India Was established which started as private

    shareholder banks, mostly Europeans shareholders.

    In 1865 Allahabad Bank Was established and first time exclusively by Indians,

    Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between

    1906 and 1913, Bank Of India, Central Bank Of India, Bank Of Baroda, Canada Bank,

    Indian Bank, and Bank Mysore were set up. Reserve Bank Of India came in 1935.

    During the first phase the growth was very slow and banks also experienced

    periodic failures between 1913 and 1948. There were approximately 1100, mostly

    small. To streamline the functioning and activity of commercial bank the

    Government of India came up with the Banking companies Act, 1949 which was

    later changed to Banking Regulation Act 1949 as per amending Act of 1965( Act no.

    23 of 1965 . Reserve Bank of India was vested with extensive power for the

    supervision of Banking in India as the central banking authority

    During that day s public has confidence in the banks. As an aftermath deposit

    mobilization was slow. Abreast of it the saving bank facility provides by the postal

    department was comparatively safer. Moreover, funds were largely given to

    traders.

    Phase II

    This step brought 80% of the banking segment in Indian under Governmentownership Government took major steps in this Indian Banking sector reform after

    independence. In 1955, it nationalization Imperial with extensive banking facilities

    on a large scale especially, in rural and semi- urban areas. It formed states Bank of

    India to act as the principal agent of RBI and the handle banking transaction of the

    Union Bank of India was nationalization in 1960 on 19th

    July, 1969, major process of

    nationalization was carried out. It was the effort of the then prime Minister if India

    Mrs India Gandhi 14 major commercial bank in the country were nationalized.

    Second phase of nationalization Indian Banking sector Reform was carried out in

    19870 with seven more.

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    XI

    The following are the steps taken by the Government of India to regular Banking

    Institutions in the country

    1949: Enactment of Banking Regulation Act.

    1955: Nationalization of states Bank of India.

    1959 : Nationalization of SBI Subsidiaries

    1961: Insurance cover extended to deposit.

    1969: Nationalization of 14 major banks.

    1971: Creation of credit guarantees corporation 1975: creation of regional

    rural banks.

    1980: Nationalization of seven bank with deposit over 200 crore.

    After the nationalization of bank the branches of the public sector bank India rose

    to approximately 800% in deposit and advance took a huge jump by 11000%

    Banking in the sub shine of Government ownership gave the public implicit faith

    and immense confidence about the sustainability of this institution.

    Phase III

    This phase has introduced many more produce and facilities in the banking sector in

    its reforms measure. In the chairmanship of M Narasimham , a committee was set

    up his name which worked for the liberation of banking practices. The country is

    flooded with foreign banks and their ATM stations. Efforts are being put to give asatisfactory service to customer Phone banking and net banking is introduction.

    The entire system becomes more convenient and swift. Time is given more

    important than money.

    The financial system of India has shown a great deal of resilience. It is sheltered

    from any crisis triggered by any external macroeconomic shock as other East Asian

    Countries suffered. This is all due too flexible exchange rate regime, the foreign

    their reserves are high the capital account is not yet fully convertible and banks

    and own benefits customer have limitation in operating in India. Each has theirown dedicated target market. Few of them only work in rural sector while others in

    both rural as well as urban. Many even only catering in cities. Some are Indian

    origin and some are foreign players.

    Current Situation of banking

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    XII

    In 2010 banking in India is generally fairly mature in terms mature in terms of

    supply ,product range and reach-even though reach in rural India still remains a

    challenges for the private sector and foreign banks. In terms of quality of assets and

    capital adequacy. Indian bank are considered to have clean, strong and transparent

    balance sheets relative to other banks in comparable economic in region. Thereserve bank of India is an autonomous body,

    With minimum pressure from the government. The stated policy of bank on Indian

    rupees is to manage volatility but without any fixed exchange rate and this has

    mostly been true. With the growth in Indian economy expected to be strong for

    quite some time-especially in its services sector the demand for banking services.

    Especially retail banking, mortgagees and investment services are expected to be

    strong. One many also expect M & as, takeovers, and assets sales.

    Banks in India

    In India the banks are being segregated in different groups. Each group has their

    own benefit and limitation in operation in India each has their own dedicated target

    market. Many even are only catering in cities. Some are of Indian origin and some

    are foreign players.

    The banks and its relation with the costumers, their modes of operation, the names

    of the under different groups and other such useful information are talked about.

    One more section has been taken note of is the upcoming foreign banks in India.

    The RBI had shown certain interest to involve more of foreign banks than the

    exiting one recently. This step has paved a way for few more foreign banks to start

    business in India

    How does bank earn?

    There are only three sources for earning

    Interest Income: - It is largely generated from loans.

    Trading profit:- It is generated through the increase in the value of the

    bonds

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    XIII

    Fee Income:- It is generated through sale of structured produce and

    derivatives remittance / merchant banking / consultancy

    Service / force advice/ guarantees/LICs/ cash management / treasury

    Management / distributing third party produce.

    Banking service in India

    With years, banks are also adding services to their customer. The Indian banking

    industry is passing through a phases of customer market. The customers have

    more choices in choosing their banks. A competition has been establish within

    the banks operating by banks have become easier and convenient the pasty

    days are witness to an hour wait before withdrawing cash from account or acheque from north of the country being cleared in one month in the south . This

    section of banking deals with the latest discovery in the banking instruments

    along with the polished version of their old systems

    Bank account

    Bank account the most common and first service of the banking sectors. There

    are different types of bank account in Indian banking sector. The bank accounts

    are as follows:

    Bank saving Account Bank saving account can be opened for eligible

    person / persons and certain organization / agencies (as advise by Bank of

    India (RBI) from to time)

    Bank current account - Bank current accountant be opened by individuals /

    partnership firms / private and Public Limited Companies / HUFs / Specified

    Association / Trusts, etc.

    Bank term Deposits AccountBank Term Deposits Account can be opened

    by Individuals / partnership firms / Private and Public Limited Companies /

    HUFs / specified Association / societies / Trusts, etc.

    Bank account onlineWith the advancement of technology. The major

    banks in public and private sectors have facilitated their customer to open

    bank account online. Bank account online is registered through a PC with an

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    XIV

    internet connection. The advent of bank account online has saved both the

    cost of operation for banks as well as the time taken in opening an account.

    Plastic money

    Credit cards

    Credit cards in India area gaining ground. A number of bank in India are

    encouraging people to use credits card. The concept of credit card was used

    in 1950 with the launch of charge cards. The concept of credit card was

    used In 1950 with the launch of charge cards in USA by magnetic strip in

    1970. Credit cards in India become popular with the introduction of foreign

    banks in the country. Credit cards are financial instruments of foreign banks

    in the country. Credit are Financial instruments, with can be used more

    than once to borrow money. Or busy product and services on credit.Basically banks, retail stores and other business issue these.

    Debit cards

    Debit cards also know as check cards look like credit cards or ATM cards

    (automated teller machine card). It operates like cash or a person check is a

    different formal credit card is a way to pay later, where as debit card is a

    way at pay now. When we use a debit card, our money is quickly

    deducted from the bank account. Debit cards are accepted at many

    locations, including grocery stores, retails stores gasoline station, and

    restaurants. Its an alternative to carrying a check book or cash. With debit

    card , we use our own money and not the issuers money . In India almost

    all the banks issue debit card to its account holder

    Loans

    Bank in India with the way of development have become easy to apply in

    loan market .

    The Following loans are given by almost all the banks in the country

    Personal loan

    Car loan and Auto loan

    Loan against shares

    Home loan

    Education loan or Student loan

    Financial and Banking Sector Reforms

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    XV

    The last decade witnessed the maturity of India Financial markets since 1991; every

    government of India took Major steps in reforming the financial sector of the

    country.

    The important achievements in the following field are discussed under separate

    heads:

    Financial markets

    Regulators

    The banking system

    Non-banking finance companies

    The capital market

    Mutual funds

    Over all approach to reforms

    Deregulation of banking system

    Capital market development

    Consolidation imperative

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    XVI

    Challenges facing Banking industry in

    India

    The banking industry in India is undergoing a major transaction due to

    change economic one after other has a ripple effect on a bank trying tograduate from completely regulated sellers market to completed

    deregulated customers market.

    Deregulation

    This continuous deregulation has made the Banking market extremely

    competitive with greater autonomy, operational flexibility, and decontrolled

    interest rate and liberalized norms for foreign exchange. The deregulation of

    the industry coupled with decontrol in interest rates has led to entry of a

    number of player in the banking industry. At the same number of

    competitors battling for the same pie.

    New rules:

    As a result, the market place has been redefined with new rules of the

    game. Banks are transaction to universal banking, adding new channel with

    lucrative pricing and freebee to offer. Nature fall out this has lied to a series

    of innovative product offering catering to varies customer segments,

    specifically retail credit.

    Efficiency:

    This in thrum has made it necessary to look for efficiencies in the business. Banks

    need to access low cost funds and simultaneously improves the efficiency. The

    banks are facing pricing pressure, squeeze on spread and have to give thrust on

    retail assets.

    Diffused Customer Loyalty.

    This will definitely impact customer preferences, as they are bound to react to the

    value added offerings. Customers have become demanding and loyalties are

    loyalties are diffused. There are multiple choices: the wallet is redacted per bank

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    XVII

    with demand on flexibility and customized .Given the relatively low switching costs.

    Customer retention calls for customizes services and hassle free, flawless service

    delivery.

    Competency Gap

    Placing the right skill at the right place will determine success. The competency gap

    need to be addressed simultaneously otherwise there will be missed opportunities.

    The forces of people will be on doing work but not providing solutions, on

    escalating problems rather than solving them and on disposing customers instead

    customers instead of using the opportunity to cross sell.

    How banks cope with the challenges

    Leading players in the industry have embarked on a series of strategic and tactical

    initiatives to sustain leadership. The major initiative includes.

    Investing in state of the art technology as the back bane of to ensure

    reliable service deliver.

    Leveraging the branch network and sales structure to mobilize low costcurrent and saving deposits.

    Marketing aggressive forays in the retail advances segment of home and

    personal loans.

    Implementing organization wide initiative involving people, process and

    technology on fess based and the cost transaction.

    Focusing on fee based income to compensate for squeezed spared, (i.e.

    .CMS, trade services.

    Innovating products to capture customer mind share to being with and

    later the wallet share.

    Improving the asset quality as per Basel II norms.

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    CHAPTER- ll

    BANK OF

    MAHARASTRA

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    CHAPTER-ll

    BANK OF MAHARASTRABank of Maharashtra a public sector bank commenced its operation on

    September 16, 1935. It has one of the largest networks of branch by anypublic sector bank in Maharashtra. It has 46 per cent of its branches in rural

    areas. The bank operates through 1500 ATMs with VISA connectivity, 20

    extension counters in 22 states and 2 union territories. There are 20000

    employed in India. The network of bank has spread to all corner of the

    country and with pan India presence they proudly say that they carter to all

    the segment of the society the agriculture the corporate, small and medium

    Enterprises (SME) individual and institutions. It s there twelve and a half

    million clientele whose valuable support and patronage facilities the

    successes of this well know institution. As the banking industry is

    undergoing rapid transformation and infusion of Maharashtra is no

    expectation of high quality service , the bank have ban adopting latest

    technology to render cost effective and customer- friendly products and

    services without losing its personal Touch.

    The bank has also tied up with National Financial Switch (NFS) having

    membership of 30 banks and MITR having membership have of 6 bank to

    enable the bank card holder to access the ATMs of these member banks .

    The Bank has rolled out 694 branches under core banking solution. The

    business covered under CBS braches is 86% . The Bank has soft launch

    multiple delivery channels like Internet Banking, Phone Banking and Mobile

    Banking. Real Time Gross Settlement (NEFT) is also made available at these

    604 branches. For Bank assurance, the bank has toed up to with United

    India Insurance Co. Ltd for general insurance Corporate of India for life

    insurance. The bank also enter into corporate agency agreement with

    Export Credit and Guarantees Corporate of India Ltd for sale of export credit

    insurance product The bank has tied up with 15 leading mutual fund for

    distribution of various schemes of mutual funds .The bank has a tie up with

    Western Union Money Transfer for foreign inward remittance we hope you

    will find their website quite useful not only to get the details relating to our

    various product and up dated feature of all product and services of the

    bank and can share the developments relating to the bank from time to

    time.

    The Three stages of bank from time to

    time

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    XXI

    The Birth

    Registered on 16th

    September 1935 with an authorizes capital of Rs. 10.00

    lack and commenced business on 8th

    ; February 1936.

    The childhoodKnown as a common mans bank since inception, its initial help to small unitgiven birth too many of todays industrial houses. After nationalization

    in1969 the bank expanded rapidly. It now has 1332 branches (as of 31st

    January 2007) all over India. The Bank has the largest network of branches

    by any public sector bank in the stare of Maharashtra.

    The Adult

    The bank has fine tuned its services to cater the needs of the common man

    and incorporate the latest technology in banking offering a variety of

    services.

    Banks Philosophy: - Technology with personal touch

    The Pillar: - Institution symbolizing strength

    The Divas: - Branch are symbolizing services.

    The 3 M s

    Symbolizing

    Mobilization Of Money

    Modernization of Methods and

    Motivation of Staff

    Their Aims

    The Bank wishes to cater to all types of needs of the entire family in whole

    country. Its dream is One Bank, Maharashtra Bank

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    The Autonomy the Bank autonomous status in1998.It helps in giving more

    and more services with simplified procedures without intervention of the

    Government.

    Banks social Aspect

    The bank excels in social Banking, Overlooking the profit: it has a good share

    of priority sector lending having 46% of its branches in rural Ares.

    Other Attributes

    Banks it the convener of state Bankers committee

    Bank has a MOU with EXIM bank for co-financing of project exports

    Bank offers Depository services and Demat Facilities in Mumbai.

    Banks has captured 97.68% of its total business through computerization.

    Products Profile

    The Bank offers personal banking. Cash management retail loans and other

    financial services. These include car loans two wheeler loans. Personal

    loans, retail trade finance. Global banking, lending to priority sector and

    small scale sector, foreign exchange and export finance, corporate loans

    and equipment loans.

    Deposit Products:

    1. Mahabank family

    banking card

    2.Mahabanks Yuva

    Yojana

    3.Mahabank Loc

    Bichat Yojana

    4.Quartarly interest

    deposit scheme(QIDS)

    5. Maxine Deposit

    scheme

    6. Floating rate

    Deposit scheme

    7. Saving Deposit 8. cumulative Deposit

    scheme(CDR)

    9. Recurring Deposit

    scheme

    10. Megabank Unit

    Deposit scheme

    11. sulabh jams yojana

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    Credit Facilities:Terms loans , overdrafts of credit , Guarantees and many mares such products are

    include in the credit basket . Recognizing individual customer needs Banks of

    Maharashtra has identified customer segments for the individual we have finance

    schemes that your dreams into reality.

    Education loans For Agriculturists For Corporate

    For Entrepreneurs For Exporters For Individuals

    For Professional Housing Finance Scheme Mahabank Andhra

    Scheme

    Mahabank Consumer

    Loan Scheme

    Mahabank Gold Card

    Scheme For Exporters

    Mahabank Vehicle Loan

    Scheme

    Mahabank Realty

    Finance

    Mahabank Salary Gain

    Scheme

    Mahabank Vehicle

    Loan Scheme

    Personal Loans Maha deep Solar

    Home Systems

    Banking Services Bank Of

    Maharashtra.

    ATM

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    Megabank visa debit card gives you the freedom to access your saving at any visa

    accredited merchant Establish or ATM. This card allows you to purchase goods at

    retail outlet and withdraw cash from ATMs in India and abroad. Direct on line debit

    to your account. Round the clock cash withdrawal facility up to Rs 20000/- No

    joining fees, completely safe and secure.

    Credit cards:-

    The INDIA CERD is affiliated to master card International and is acceptable at

    thousands of member establishment spread all over India and Nepal where Master

    Card logo is displayed. It provides safety and convenience while traveling and

    shopping. It is an ideal companion. The card is issued for2 year with nominal

    membership fees and automatic renewal facility. The CREDIY CARD holder can

    enroll family member as add on member at confessional fee. Free air travelinsurance up to Rs. 2.00 lacks & accident insurance cover (group insurance) up to

    Rs. 1.00 lack is available cash withdraw able facility up to Rs. 5,000/- on two

    occasions in insurance premium of medical policy of national insurance company

    limited .It insurance you against any fraudulent usage on your lost/stolen card. One

    time free credit card has been issued to customer having deposit above one lack &

    Housing Loan Account holder.

    Add on service:-

    Bill Pay:-

    They have lunch An Electronic Bill presentment and payment services presently in

    pune and Mumbai known as maha Bill Pay in association with India Ideas . Com

    better known as Bill Desk Company.

    Gist of the Scheme

    The customer , who wisher to make payment utility payment like Electricity ,

    Telephone Bill, etc. should apply through the branch and get registered under the

    scheme . The Bill Desk Company for easy identification will provide each customer

    with unique registration number. Bill Desk Company would accordingly obtain the

    bill details of the register customer from the utility provider like MSEB , BSNL etc.

    the list of customer with bill details whose bill have fallen due for payment , will be

    sent to the branch, on receipt of the payment list would debit the account of the

    customer concerned accordingly.

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    BANCS:- (Banks ATM Network and Customer

    services)

    BANS (Banks ATM Network and Customer Services) is a consortium of member

    banks with one settlement bank; it currently has member banks with eight more to

    join the met work shortly. Member bank BANCE: BANCS would ATMS of member

    banks-banks of Bahrain & Kuwait, Greater Bombay co-op bank. Centurion bank ,

    central bank of India UTI banks, Punjab & Sind bank , IDBI Bank ,Ltd, Ranker Bank

    ltd and SBI commercial & International Bank , cosmos Bank , Air corporation

    Employee co-op Bank , Sara swat Bank through Nearly eight more banks are

    expected to joined those band wages Bank of India will de the settlement bank are

    BANCE network ISC is supporting the network of member Banks through a mix of

    VSATs INDN and leased line as / well as latest technology of CDMA and GPRS from

    various Infrastructure provider for the ATMs.

    Banc assurance

    With the commitment to customer convenience the bank has up has tied with

    insurance companies so that customer can avail of insurance services at the

    branches They are the corporate agent of the life insurance corporation in India for

    distribution of their life insurances company Both our insurance partner as a result

    of our banc assurance tie ups this is another for the our customer in their banking

    relationship with us

    Distribution of Mutual Funds

    Bank of Maharashtra is always looking to value to the relationship which customer

    have with them. For the convenience of their customer, they are to provide a cost

    of financial services under one roof .The Bank has tied up with Franklin Templeton

    mutual fund for distribution of their products through their branches.

    Techno products

    Banking and you can avail these facilities from your place using Internet Bank of

    Maharashtra is offering the following services through Internet connectivity, its

    banking made available at your doorsteps.

    Accounting Balance Enquiry

    Transaction History/Statement of Account

    View of Account details for all types of account

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    Mini statements

    Cheque Status Enquiry

    Cheque book Queries

    E-Payment of Taxes

    Loans and Schemes of banks

    MAHA BANK FINANCINE TO TRADE AND

    SERVICES SCHEME WITH 100% COLLATERAL

    Objective

    To extend easy flow of finance to eligible applicants banked by as adequate

    collateral security. Without Insisting upon insisting upon the stock, receivable

    statement for audited for audited balance sheet.

    Purpose.

    The purpose of credit facility under the scheme shall be working capital as well as

    long term requirements, The basic security and consideration would be collateral,

    i.e. landed property, Paper security.

    Eligibility:

    Trade or business man, professional engaged is trading or services activity. The

    business activity should be lawful with potential to service and repay such extended

    facility.

    Proof of activity:

    The applicant enterprise must be in possession of registration/ licensed, as

    applicable under local low, example.

    Shop establishment act

    Sales tax registration

    Drug license for retail trade

    Ration and civil supplies

    License to deal in petroleum products etc.

    Any other relevant regulatory

    Support of collateral security:

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    The business enterprise should extend collateral security, the by way of

    equitable mortgage of property, pledge of papers security like our banks

    deposit receipts NSC ,KVP ,LIC ,RBI ,relief bands.

    Nature of Facility:

    The nature of facility could be any of following or combination of both.

    Term Loan:

    Purchase/renovation of shops/go downs

    Interiors such as furniture/ fixtures, equipments such A.C., P.C. or

    any other equipment which is necessary for business promotion.

    Advance money/ permanent deposit required to be kept with

    supplies or manufacturers.

    Purchase of vehicle for transport of goods.

    Payment of advance rent is respect of rented premises.

    Construction/payment of hire charges for warehouse.

    The sanction of term loan shall also be subject to satisfactory DSCR.

    Working Capital (WC) needs may be considered

    Method:

    Turn over method will be applied and the credit limit will be 20% of the annual

    Project turnover. The basis for acceptability of projection will be actual turnover and

    growth rate archived during the previous year.

    The acceptable level of turnover will be decided on the basis of sales tax/income tax

    return for the last two there years. The financial data will be called for to ascertain

    that there are no adverse features and to verify financial indicators such as net

    worth, the sales turnover, current ration etc.

    In respect of borrowers requiring fund based facilities about Rs 2 corer, the projected

    working capital In these case also attempts will be made to additionally cover the

    facility by collateral security to the extent of 100% or more available, we may

    consider further relaxations in norms as under.

    Acceptable current ratio up to 1.25:1

    Acceptable Debt-Equity ratio up to 4:1

    Margin on term loan, if available will be 20% in bank favors.

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    Quantum:

    The maximum quantum of credit facility shall be as per area of

    operation of that activity shall be on following manner:

    Location of unit Rural Semi urban &

    urban

    Metro

    Ceiling for CC &

    term put together

    5.00 lakhs 15.00 lakhs 30.00 lakhs

    Sub ceiling for TL 2.50 lakhs 5.00 lakhs 10.00 lakhs

    The quantum of finance is subject to availability of the collateral cover with

    minimum mentioned below. An area wise ceiling, including sub ceiling for TL, shall

    be observed.

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    Security :

    I. Primary primary security shall be hypothecation of stocks in

    trade wherever available book debt receivables also will be

    accepted.

    II. Collaterals The finance will necessarily be secured against

    collateral security will be

    a. Mortgage of landed properties. The valuation there of

    should be of latest date or maximum one year old by bank/

    government approved value

    b. Term deposit of our bank

    c. NSCs ,KVPs ,RBI Bonds eligible for creation of charge in favor

    of Bank

    d. LIC policies, surrender value of the same be reckoned as

    collateral securities.

    In respect of mortgage of immovable property taken as collateral security,

    search report. Verification of title deeds, possession of original document of title

    deeds by the borrowers mortgagibility of the property on the basis of clear.

    Marketable and unencumbered title of the borrower. Should be ascertaining at theper-sanction stage itself.

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    Security Verification

    Since the finance is provided under the scheme on liberal terms. It is necessary to

    verify the securities charged to the bank at least once in quarter and report there of

    should be kept on record. In respect of facilities above Rs. 50 lack their normalproducer for verification of securities by external CAs on half yearly basis will apply.

    In respect of documentation also, for facilities beyond Rs 50 lakhs , verification by

    low officers/Advocate on the panel should be immediately rectified.

    The valuation of such collateral securities has to be necessarily done through

    approved valuer each year. In case there is any deterioration in the value of the

    property, proportionate curtailment in the limit should be done immediately.

    Repayment Period :Term loan- repayment period for term loan will depend on the quantum of

    the loan and repaying capacity of the borrower. However the maximum

    repayment period for term loan shall not exceed 5years including

    moratorium period, if any.

    Working capital limit- the facility shall be reviewed annually based on

    internal operational data, availability of the balance sheet be additional

    advantage.

    Processing fees-processing charge shall be @0.50% of the credit limit, but

    minimum is Rs100/-

    Education loan scheme:

    Purpose:

    For studies in IndiaFor studies abroad

    Eligibility:

    You should be an Indian National

    You should have secured admission to professional /

    Technical courses through entrance test / selection

    Process.

    You should have, secured admission to foreign university/ institutions

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    Amount:

    For studies in India: Rs. 10.00 lac

    For studies abroad: Rs. 20.00 lac

    Margin:

    There is no margin up to Rs.4.00 lac.

    For loan above Rs. 4.00 lac.

    For studies in India: 5%

    For studies abroad: 15%

    Security:

    No security required up to Rs.4.00 lac loan.

    Above Rs. 4.00 lack securities are required to be furnished as under

    Either singly or in combinations-

    o Government securities, public sector bonds.

    o Units of UTI, Shares (as per our approved list from time to time),

    Debentures.

    o L.I.C. Policies

    o NSCs/ KVPs, Bank own depositso Mortgage of land and building

    The eligible securities are as above. However terms apply.

    Value of collateral security after providing requisite margin, as stated above should

    be equal to the quantum of finance.

    Repayment by EMI

    You get a repayment holiday of one year completion of the course selected or 6

    months after getting a job (after which your repayment will start)

    The loan is then to be repaid in 5 years after commencement of repayment.

    Processing Fee

    Nil

    Expenses Considered

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    Tuition fees, hostel expenses, purchase of books / equipments / instrument etc,

    Travel expenses for studies abroad & other essential expenses

    Courses Eligible

    Studies in India

    School education including plus 2 stages of CBES& state Education Board.

    Graduation courses/college universities approved UGC.

    B.A.B.Com, B.Sc. etc.

    Post graduation courses

    Professional Courses, Engineering, Medical, Agriculture , Veterinary, Law,

    dental, Management Computer etc.

    Computer certificate courses of reputed institutes accredited to Dept. of

    Electronics or institutes affiliated to university.

    Courses offered in India by reputed foreign universities.

    Courses like ICWA, CA, CFA etc.

    Courses conducted by IIM, IIT, IISC , XLRI , NIFT etc.

    Evening Courses of approved institutes recognized by State/ Central Govt.

    Other courses leading to diploma / degree etc. conducted by colleges/

    universities approved by UGC/Govt./AICTE/ICMR etc.

    Studies abroad

    Graduation : For job oriented professional/ technical courses offered by

    reputed universities

    Post graduation: MCA, MBA, MS etc.

    Courses conducted by CIMA- London, CPA in USA etc.

    Documents to be furnished

    Proof of being an Indian national i.e. School Leaving Certificate. Letter confirming selection through Entrance Test

    Letter confirming admission to foreign university / institution

    Brochure of the educational institution stating the amount of fees charge

    Housing Loan:

    Purpose

    To provide housing finance to public in general for the following purpose For construction of new house / flat.

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    For outright purchase of houses /flat (new or old)

    Far repairs/ renovation of the existing house / flat

    Home Conversion Loan.

    Land purchase Loan.

    Bridge Loan.

    Stamp Duty Loan.

    Refinance Loan Scheme.

    Take over of housing loan from other bank/ institution

    Additional loan on account of escalation of cost / for expansion etc.

    Eligibility:

    Salaried persons, professionals / Businessmen having sufficient disposable

    income to meet the repayment. The employment should be in state/ Central

    Govt., public or private Sector Companies, Establishment of repute. The

    sanctioning authority should be satisfied about repaying capacity of

    employee

    Farmers having minimum five acres of irrigated land holding.

    Non Resident Indian are also eligible for the loan.

    Age Criteria:

    Minimum : 21 years

    Maximum 50 year in case of salaried persons.

    55year for applicants other i.e. Business , professional etc.

    Quantum of Loan: For Salaried Class

    Equal to 50 times of monthly gross salary or 60 times of net monthly salary

    whichever is higher or

    85% of the cost of house / flat to be purchased / constructed

    (Including registration and other essential charge i.e. Electricity Deposit,

    Mortgage charge etc.) Loan eligibility will be minimum amount of (a) and (b)

    above.

    For Individual in Business/ profession or self-

    employment.

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    Equal to average annual income of last 3 year X 4 times to be worked out as

    eligibility for quantum of loan. For example, if the average income of a

    businessman/ professional is around Rs. 5.00 lakhs (to be ascertained from

    source such as Balance sheet, Income tax return etc.) then the loan

    quantum in such would be Rs. 5.00 lakhs multiple by 4 times which worksout to Rs. 20.00 lakhs- or 85% of the cost of the house / flat to be purchased

    / constructed.

    Loan eligibility will be minimum amount of (a) and (b) above

    In Case of individual business man or professionals, the income may be ascertained

    from different sources as (1) Balance sheet, (2) Income tax return etc.

    Before considering the sources, consistency of income is insured. For the

    businessmen carrying proprietary concern and professional / self employed person,

    the term total income would mean Net Profit Depreciation. However repayment

    obligation on account of term liabilities should be taken into consideration while

    deciding the quantum of loan and EMI.

    For Farmers

    For finalizing quantum of loan , net annual income may be considered .(i.e.4 time of

    average net income of last three years) The branches may cross check the gross &

    Net Annual Income of the application with reference to the land holding , cropping

    pattern . sugar factory bill/ cotton bills/ Agriculture produce Marketing committeeBill etc.

    Income Of Spouse And Other Relatives:

    The income of son , daughter , sister & brother along with the spouse to be taken

    for deciding the quantum of loan and repayment capacity provide the property is in

    the name of all joined member or their guarantee is obtained .

    Maximum Amount:

    For Purchase / Construction of House Property : No maximum limit for

    Metro and Urban areas .In respect of semi- Urban & Rural area, the amount

    of loan should not exceed Rs. 15.00 lakhs.

    For repair & renovation the amount of loan shall not exceed Rs. 5.00 in all

    the areas ( i.e. Rural/Semi-Urban/Urban/Metropolitan)

    Margin

    For purchase / Construction Of New House Property: Minimum 15% For Purchase/ Construction Of Old House Property: Minimum25%

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    For repair and Renovations : Minimum 25%

    Repayment

    Maximum repayment period shall be-

    For purchase of new / old house / flat 240 months

    For repair & renovation 60 months

    For extension of house 120 months

    Repayment will be by equated monthly installment (EMI)

    Repayment will start one month after disbursement which ever is earlier

    In case of farmer borrower repayment may be fixed annually or six monthly

    in accordance with cropping pattern harvesting time. Income from allied

    activities etc.

    Depending upon the option exercised by the borrower, interest for the

    moratorium period be got repaid as and when applied or capacity and

    suitable EMI be given.

    In case of salaried person, the repayment would be maximum up to date of

    retirement. In case the installment are proposed to be continued from the

    monthly pension , in such case the amount equal to loan balance at the time

    of retirement should be kept in term of deposit from a terminal benefits /

    other sources under lien.

    Total deduction inclusive of proposed repayment installment should not

    exceed 65% of annual gross income.

    In order to ensure that on regular repayment of EMI , loan account shouldbe closed at the term of the term of the loan , it is decided to introduce the

    uniform procedure in respect of repayment linked to EMI , which is provide

    at annexure-I You are request to strictly adhere to the procedure.

    Security

    Loan amount up to Rs. 25,000/- One acceptable guarantor having sufficient

    income/ net worth.

    Loan amount above to Rs. 25,000/- Simple (Registered)/ equitable

    mortgage of house property to be purchase and guarantee of the spouse.

    In case house property cannot be mortgaged for some reasons , NSC,FDR(

    of our bank) , Government security such acceptable security equal to

    quantum of loan , security In the from of share should not be accepted

    In case where the income of the spouse / other relatives is reckoned for

    determining quantum of loan and repaying capacity and is not co owner

    of the house , the spouse / relatives to be taken as additional guarantor to

    the housing loan.

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    Processing Fee

    Up to Rs. 5 lakh : Rs 1000/-

    Above Rs. 5 lakh and to Rs. 15 lakh : 2500/-

    Above Rs. 15lakh : 5000/-

    Consumer loan :

    Purpose

    For purchase of consumer durable including computers.

    Eligibility

    i. Salaried person, permanent in service / professional / businessman having

    minimum income Rs. 1.00 lakh p.a.

    ii. Age of Applicant:

    Minimum 21 years.

    Maximum- 60 years at loan maturity.

    iii. Minimum Employment ;

    For services person:Minimum 3 years employment and minimum 2 years in the current

    organization.

    For other L: He / she must be in the business / professional for at least 3

    years.

    Amount loan

    for salaried employees10 times of gross monthly emolument

    For professionals / businessmen

    100% of gross average annual income as per last three incomes

    Tax returns

    Maximum loan amount Rs.1.00 lakh.

    Margin

    15%

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    Security

    1. Hypothecation of assets purchased

    2. One guarantor acceptable to the bank

    Repayment

    Maximum up to 60months

    Processing/ services charges

    1% subject to the minimum Rs.500/-

    Courses eligible

    Studies in India

    School education including plus 2 stages of CBES & state education

    boards.

    Graduation courses/ colleges under universities approved by UGC.

    B.A. B.com. B.sc. etc.

    Professional courses, engineering, medical, agriculture, veterinary,

    law, dental, management completer etc

    Computer certificate courses of reputed institution accredited to

    dept. of electronic or institution affiliated to university.

    Courses like ICWA, CA, CFA ECT.

    Courses offered in India by reputed foreign universities.

    Courses conducted by IIM, IIT, IISC, XLRI, NIFT etc.

    Evening courses of approved institutes recognized by recognized by

    state / central govt.

    Other courses leading to diploma / degree etc. Conducted by

    colleges/ universities approved by UGC/ government/ AICTE/ ICMR

    etc

    Studies abroad

    Graduation For job oriental professional/ technical courses offered

    by reputed universities.

    Post graduation MCA, MBA, MS etc.

    Courses conducted by CIMA- London, CPA in USA etc.

    Documents to be furnished

    Proof of being an Indian national I.e. School leaving certificate.

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    Letter confirming selection through Entrance Test.

    Letter confirming admission to foreign university/ institutions.

    Brochure of the educational institution stating the amount of fees

    charged.

    Housing Loan

    Purpose

    To provide housing finance to public in general for the following

    purposes

    For construction of new house/ flat.

    For outright purchase of house / flat (new or old)

    For repairs/ renovation of the existing house/ flat. Home conversion loan.

    Bridge loan.

    Stamp duty loan.

    Refinance loan scheme.

    Takeover of housing loan from other bank/ institution.

    Additional loan on account of escalation of cost/ for expansion

    etc.

    Eligibility

    Salaried persons, professional / Businessmen having

    sufficient disposable income to meet the repayment. The

    repayment. The employment should be in state / central

    Govt., public or private Sector Companies, Establishment of

    repute. The sanctioning authority should be satisfied about

    repaying capacity of employee.

    Farmer having minimum five acres of irrigated land holding

    Non Resident Indian are also eligible for the loan

    Age Criteria :

    Minimum : 21 Years

    Maximum : 50 Years in case of salaried persons

    55 Years for application other i.e. Business, professionals

    etc.

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    INTEREST RATE OF BANK OF MAHARASTRA

    General institution on application of interest

    The interest rate charge on loan / advance credit or any other

    financial accommodation granted or discount sance bills shall

    be in accordance with the directives on interest on advance with

    the directives on interest rate on advance issued by RBI from

    time to time.

    The BPLR, whenever application, is uniformity application to all

    branches of the bank.

    The effect of revision of interest rate shall be application on all

    the existing advance from the effective date of the revised

    interest rate. This is not application in case of advance

    sanctioned fixed rate of interest.

    Interest at the specified rate shall be charge at monthly rests

    from April

    The term loan and the working capital facilities shall be clubbed

    together for the purpose of determining the size of the advance

    also the applicable rate of interest is not determined on the size

    of the advance.

    Whatever application the rate of interest is to be charged as per

    credit rating of the borrower accounts 5.

    Unless specified in the individual sanction term, the quoting of

    the rate of the interest to the borrower shall always be

    expressed as so many percentage points above banks BPLR the

    case may be. Prohibition on offering Zero percentage interest finance scheme

    for consumer durables.

    Instruction on charging interest at monthly rests

    Shall not be applicable to agriculture advance and

    Bank shall continue to following the exiting practice

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    Of charging compounding of interest on agriculture. Advance linked to crop

    seasons.

    Interest application for the non performing asset account which is notsuit field or decreed debts.

    It should ensure that in respect of NPA account, the interest is

    calculated as per revised interest rate structure. But not charged to the

    account.

    The calculation of product and interest amount so arrived at should

    noted on the ledger every months / quarter / half year as application

    without fail for updating and knowing the full interest liability at any

    point of time .

    In case decreed account the interest has to be calculate as per the

    terms of decree.

    Benchmarks prime lending rate of bank:

    The BPLR is 13.25% from feb-2008: earlier BPLR was 11.25% from 2006 to

    2007.

    Interest rate on advance as per credit ratings.

    Working Capital Limit with / without term loan

    component

    Rating Market out of 100 Interest rate

    MB-1 93-100 BPLR-2.00%

    MB-2 86-92 BPLR-1.50%

    MB-3 81-92 BPLR-1.005%

    MB-4 76-80 BPLR-0.75%

    MB-5 71-75 BPLR-0.25%

    MB-6 66-70 BPLR+0.25%

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    MB-7 65-75 BPLR+0.75%

    Loan without any Working Capital Component (term

    loans Rs. 5.00 lakh)

    Ratings Market out of 70 Interest rate

    MBT-1 66-70 BPLR-1.50%

    MBT-2 61-65 BPLR-1.00%

    MBT-3 56-60 BPLR-0.50

    MBT-4 51-55 BPLR+0.25

    MBT-5 Below 49 BPLR+0.75%

    The size wise rate of interest applicable for the new

    SME.

    Size of advance Rate of Interest

    Up to Rs. 50000/- BPLR-2.50%

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    Above 50000/-to 2.00 lakhs BPLR-2.00%

    Above 2.00 lakhs / to 25 lakhs BPLR-0.75%

    Above 25 lakhs to 1.00crore BPLR

    Above 1.00 crore BPLR+1.00%

    Housing loans floating interest rate for loans:

    Tenor Sanctioned loan amount

    up to 20.00 lakhs

    Sanctioned loan amount

    Above 20.00 lakhs

    Up to and inclusive 10

    year

    BPLR- 3.50 % BPLR 3.25 %

    Above 5 year up to and

    inclusive 10 year

    BPLR 3.25 % BPLR 2.75 %

    Above 10 year but below

    20 year

    BPLR 3.00 % BPLR 2.50 %

    Rate of Interest for repair and renovation is BPLR

    3.25 %

    Fixed rate of interest for housing

    particular Up to 5 years Above 5 year lass 10 year

    Sanctioned loan up to 20lakh 10.50 % 11.00 %

    Above 20.00 lakh 10.75 % 11.50 %

    Consumer loans:

    Particular Interest rates

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    Consumer loan BPLR

    Loan for 2 wheelers BPLR 1.50 %

    Loans for 4 wheelers BPLR 1.50 %

    Maha bank Education Loan :

    Slab loan amount Exiting rate Revised from 11.02.2008

    Up to and inclusive of Rs

    4.00 years

    BPLR 0.75% BPLR 1.25%

    Above 4.00 lakhs BPLR BPLR 0.50 %

    Discount for woman borrower basis point.

    Under maha bank family card scheme ( 100 basis point discount)

    Financing of trade and service :

    Size of advance cash credit / WC / limit /

    term loan.

    Rate of Interest

    Up to lakhs BPLR

    More than 5 lakh and less than 25 lakh BPLR + 1.50 %

    Above 25 lakhs BPLR + 2.50 %

    Interest rate on agriculture advance :

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    Cash credit / WC limits Rate of Interest

    25000 up to BPLR 3.00 %

    Above 25000 & up to 1 lakh BPLR 2.50 %

    Interest rate on the categories of advances

    TOD in CA BPLR + 4.00 %

    EOD S granted for WC limits 2% over the rate of interest applicable

    for the WC facility of borrower

    DRI loans 4%

    Loan against lack manual deposit 10%

    Advance to firm engaged in leasing &

    hire purchase activity

    BPLR + 4.00 %

    Advance to promoter & builders BPLR + 4.00 %

    Interest rate on export credit

    Category ( per shipment

    credit )

    Rate of Interest ( past ) Rate of Interest ( revised

    )

    Up to 180 days 8.00 % 7.50 %

    Beyond 180 days up to

    270 days

    10.50 % 10.00%

    Beyond 270 day up to

    360 days - BPLR + 4.00 %

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    Beyond 360 days till

    liquidation of advance

    - 7.50 %

    Against incentives

    receivable from GOVT

    Conversed ECGC

    8.00 % 10.00 %

    Beyond 90

    days up to 6

    months from

    date of

    shipment

    10.50 % 10.00 %

    Highlight of the bank

    Issued

    Subordinated bonds of Rs. 170 crore in August 1999, Rs. 50 crore in

    Feb.2001 and Rs. 100 crore in January 2002 to augment Tier II capital. The

    bank holds Tire II capital of Rs. 619.20 crore.

    During February march 2004, the bank come with its Initial Public Offer of10 crore share of Rs. 10 each at a premium of Rs. 13 amounting to Rs. 230

    crore,.

    Total business more than Rs. 43900 crore of which total deposit more than

    Rs. 26900 crore and gross advance more than Rs. 17,000 crore as at 31st

    March 2006.

    Branch network comprises of 1300 branch and 32 extent ion

    Specialized

    Branches :

    o Overseas branches2o Industrial Finance branches -2

    o S.S.I. branches

    o Agro High Tech branches 4

    25 FEX centers with total turnover (Merchant + Interbank) of more than

    Rs.1.18, 600 crore.

    Toll free telephone at 10 major Metro centers. Tele banking and remote

    access facility at 83 and 41 branches respectively.

    Implemented Money Management Scheme (MMS) from Sep 2000 for

    speedy collection of cheques.

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    Credit Card and Kinas Credit Card facility available. More than 1, 39,000

    Kinas credit card issued.

    Lending to priority sector was 42.71% , which is more than stipulated norms

    of 40%

    Finance to various non-traditional activities through self help group (SHGS)that have proved to be effective instrument for woman empowerment.

    Establishment Mahabank Self Employment Training Institute (MSETI) at

    Hadapsar, pune under the aegis of MARDEF in coordination with NABARD

    and Maharashtra State Government in December 2001. The institute has

    opened new centers at Aurangabad & Nagpur in 2003 2004.

    Loans for housing, which is a national priority, were to the tune of Rs.

    2576.13 crore as of March 2006.

    Sponsored three Regional Rural Bank in Maharashtra.

    Convener for state Level Banker committee for Maharashtra

    Assuming responsibility of lead Banker in 6 districts i.e. pune, Nasik, Satara,

    Thane, Aurangabad, and jalna District of Maharashtra state. Establish Rural

    Development Centers at Hadapsar and bigram in Maharashtra.

    Established two trust especially for rural development

    Mahabank Agriculture Research & Rural Development Founding

    (MARDDEF)

    For strengthening MIS and creating comprehensive database of all advance

    accounts, credit Monitoring and administrative system (CREAM) wereintroduction successfully.

    Establishment joint venture banking E-infrastructure company Magic E-

    company Ltd

    Floating subsidiary company The Maharashtra Executor & Trustee

    Company Ltd. (METCO) which undertakes Trustee Business Property

    Management and Tax Consultancy as well.

    Assuming responsibility of town official language Implementation committee

    (TOLIC) at Mumbai: pune & solapur . Bank is convener of TOLIC in pune and

    Mumbai: Ministry of Home Affairs, Government of India awarded Third prize to

    TOLIC Mumbai. Various TOLIC awarded to Akola, Jabalpur, Chandigarh, Kolhapur,

    Kolkata, and Bangalore.

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    XLVII

    CHAPTERIIIWORKING

    CAPITAL

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    XLVIII

    MANAGEMENT

    CHAPTERIII

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    XLIX

    WORKING CAPITAL MANAGEMENT

    Learning Objective:

    To study major forms of working capital finance provide by the banks To note down basic principles of bank financing -5C s

    To know the recommendation made by Tendon committees

    To Learn about Credit authorization scheme Bank Credit (Working Capital

    Finance by commercial Banks

    Working Capital Financing by Banks:

    It is well known fact the working capital financing by the commercial bank (as also,

    of late, by other institution like HDFC, etc,) still contribute a major portion of such

    financing. Accordingly, the assessment and disbursement of working capital loan by

    bank (and the other financing institution) have exclusively been discussed.

    Whenever all the three method of assessing the working capital requirement.

    1) Projected balance sheets

    2) cash bought method

    3) project yearly turn over.

    Bank credit is the primary institution source of working capital finance in India . The

    following are the different aspects of source of finance:-

    I. Application and Processing

    II. Sanction and term of condition

    III. Forms of bank finance

    IV. Nature of security

    V. Margin amount

    Application and processing

    A Customer seeking an advance is required to submit an appropriate application

    form there are different types of application from for different categories of

    advance. The information furnished in the application covers, inter alia, the

    following:-

    a. The name and address of the borrowers and his established

    b. The detail of the borrowers business

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    c. The nature and amount of security offered

    The application from has to be supported by various ancillary statement like the

    financial statement and financial projection of the firm. The application is processedby the branch manager or his filed staff. This primarily involved an examination of

    the following factors:-

    a. Ability , integrity and experience of the borrower in the particular business

    b. General prospects of the borrowers business

    c. Purpose of advance

    d. Required of the borrower and its reasonableness

    e. Adequacy of security

    f. Provision of security

    g. Period of repayment

    Sanction, term and condition

    Once the application is duly processed, it is put up for sanction to the appropriate

    authority. The sanctioning powers of various officials like Branch Manager,

    Regional Manager, and General Manager are defined by virtue of the position

    they occupy.

    If the sanction is given appropriate authority along with the sanction of advance the

    bank specifies the term and condition application to the advance. These usually

    cover the following:-

    a. The amount of loan or the maximum limit of the advanceb. The nature of the advance

    c. The period for which the advance will be valid

    d. The rate of interest application to the advance

    e. The security to be charged

    f. The insurance of the security

    g. The detail of collateral security

    h. The margin to be maintained

    i. Other restriction or obligation on the part of borrower

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    It is a common banking practice to incorporate important terms and condition on a

    stamped security document to be executed by the borrower. This help the bank to

    create the required charge on the security offered and also obligation the borrower

    to observe the stimulated term and condition.

    Form of Bank finance

    A firm can draw funds from its bank within the maximum credit limit sanction. It

    can draw fund in the following forms:-

    a. Loan

    b. Cash Credit

    c. Overdraftd. Purchasing and discounting of bill

    e. Letter of Credit

    Loan:

    When a bank make an advance in lump sum against some security it is

    called a loan commercial bank generally provide short term loan up to one

    year for meeting working capital requirement. The term loans may beeither medium term or long term. In case of a loan a specified amount

    sanctioned by the sanctioned by the bank to the customer. The entire loan

    amount is paid to the borrower either in cash or credit to his account .The

    borrower is require to pay interest on the entire amount of the loan from

    the date of the sanction .A loan may be repayable in lump sum or

    installment .Interest on loan is calculate at quarterly rest and where

    repayment are stipulate in installments, the interest is calculated quarterly

    rest on the reduced balance.

    Cash Credit:

    A cash credit is an arrangement by which a bank allows his customer to

    borrower money up to certain limit against some tangible securities or

    guarantees. The interest is charge on the daily balance and not on the

    entire amount of the account. Hence it is the most favorite mode of borrow

    ring by industrial and commercial concerns.

    Overdrafts:

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    Overdraft means an agreement with a bank by which current account holder is

    allowed to withdraw more than the balance to his credit up to a certain limit.

    The interest is charge on daily overdrawn balance. The main different between

    cash credit and overdraft is that overdraft allowed for a short period and is a

    temporary accommodation whereas the cash credit is allowed for a longer

    period. Overdraft can be clean overdraft partly secured or fully secured.

    Purchasing and discounting of bill :

    In this case a bank lends without any collateral security .the seller draws a bill of

    exchange on the buyer of goods on credit. Such a bill may be either a clean bill

    or a documentary bill which is accompanied by document of title to goods such

    as railway receipts. The bank purchases the bills payable on demand and credits

    the customers accounts with the amount of bill less discount. At the maturity

    of the bills. Bank presents the bill to its acceptor for payment. In case the bill

    discounted is dishoard by non-payment. The bank recovers the full amount of

    the bill from the costumer along with expenses in that connection.

    Letter Of Credit

    A letter of credit is an arrangement whereby a bank helps its customer to obtain

    credit from its (customers) suppliers. When a bank opens a letter of credit in

    favor of its customer for some specific purchases, the bank undertakes theresponsibility to honor the obligation of its customer, should the customer fail

    to do so. To illustrate, suppose a bank assumes the opens a letter of credit in

    favor of A for some purchases that A plans make a payment to from B. If doses

    not make a payment to B within the credit period offered by B, the bank

    assumes the liability of A for the purchases covered by the letter to A when a

    bank opens a letter of credits in favor of A. It is clear from the preceding

    discussion that under a letter of credit arrangement the credit is provided by

    the supplier but the risk is assumed by the bank which open the letter of credit.

    Hence, this indicates from of financing as against overdraft, cash credit. Loans

    and bill purchasing/ discounting which are direct from of financing. In directfinancing the bank assumer risk as well as provides financing.

    4. Security

    Banks generally do not provide working capital finance without adequate

    security. The following are the modes of security which a bank may require.

    Hypothecation:

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    Under hypothecation the borrower is provided with working capital finance by

    the bank against the security of movable property, inventories. The borrower

    does not transfer the property to the bank; he remains in the possession of

    property made available as security for the debt. Thus hypothecation is a charge

    against property for an amount of debt where against property for amount of

    debt where neither ownership nor possession is passed to the credit. Banks

    generally grant credit hypothecation only to first class customer with highest

    integrity. They do not usually grant hypothecation facility to new borrower.

    Pledge:

    Under this arrangement, the borrower is requiring to transfer the physical

    possession of the property offered as a security to the bank obtain credit. The

    bank has a right of lien and can retain possession of the goods pledge unless

    payment of the principle , interest and any other expresses is made In case of

    default , bank any either.

    Sue the borrower for the amount due,

    Sue for the sales of good pledge

    After giving due notice , sell the goods

    Mortgage :

    a. Mortgage is the transfer of a legal or equitable interest in a specific

    immovable property for the payment of a debt. In case of mortgage, the

    possession of the property may remain with the borrower, with the lender

    getting the full legal title. The transfer of interest is called the mortgage, the

    transferee is called the mortgage, and the instrument of transfer is called

    the mortgage deed .The credit granted against immovable property has

    some difficulties. They are not self liquidating. Also there are difficulties in

    property ascertain the title and the assessing the value of the property.

    There is limited marketability, and therefore, security may obtain be difficult

    to realize. Also, without the court decree the property can not be sold.

    Usually for working capital finance the mode of security is either

    hypothecation is pledge Mortgage may be taken as additional security.

    Lien:

    Lien means right of the lender to remain property belonging to the borrower unit

    he repays credit .It can be either a particular lien or general lien. Particular lien is a

    right to retain property until the claim associated with the property is fully paid

    .General lien, on the other hand, is application till dues of the paid .Bank usuallyenjoy general lien.

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    Margin Account:

    Bank do not provide 100% finance .They insist that the customer should bring a

    portion of the required finance from other sources. This portion is known a marginaccount. How is the margin account established? Whole is no fixed formula for

    determine the margin account the following guideline is broadly observed: The

    margin is kept lowest for raw material and highest for account receivable

    Basic Principle of Bank Financing-5Cs

    The traditional approach to credit analysis credit calls for assessing a prospective

    customer in term of the 5Cs of credit

    Character:The willingness of the customer to honor his obligation. It reflects integrity,

    a moral attribute that is consideration very important by credit manager.

    Capacity:The ability the customer to meet credit obligation from the operating cash

    flows.

    Capital:The financing reserve of the customer if the customer has difficulty in

    meeting his credit obligation from the operation cash flow. The focus shiftto its capital.

    Collateral:The security offered by the customer in the form of pledged assets.

    Condition:The general economic conditional that after the customer A firm may rely

    on the following sources to obtain information on the 5Cs

    Financial Statement:Provide useful insight in to the creditworthiness of the customer Ration such

    as current ratio , acid , debt -equity ratio, BIT to total assets ratio return on

    equity.

    Bank references:to ensure higher degree of can dour, thecustomers banker may be approached indirectly through the bank of the

    firm granting credit.

    Experience of the firm: if the firm had previous dealing with thecostumer, then is worth how prompt has the customer been in making

    payments? How will has the customer honored his word in the past?

    Where the customer is being approached for the first time, the impression

    of the companys sale personal is useful.

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    Prices and yield on securities: Higher the prices

    multiple and lower the yield on bonds other being equal, lower

    will be the credit list.

    For the sake of simplicity, only 3cs namely character, capital and

    capital are considered. For judging a customer on thesedimensions, the credit analyst may use quantitative measures

    and qualitative assessment.

    Tendon committee report

    Like many other activities of the banks, method and quantum of short-term

    finance that can be granted to a corporate was mandated by the Reserve

    Bank of India till 1994.this control was exercised on the lines suggested bythe recommendations of a study group headed by shree parkash tandon.

    The study group headed by shri prakash tendon, the then chairman of

    Punjab national bank, was constituted by the RBI in July 1974 with eminent

    personalities drawn from leading banks, financial institution and wide cross-

    section of the industry with a view to study to study the entire gamut of

    Banks finance for working capital and suggest ways for optimum utilization

    of bank credit. This was the first elaborate attempt by the central bank to

    organize the bank credit. The report of this group is widely known as

    tendon.commity report. Most banks in India even today continue to look at

    the needs of the corporate in the light of methodology recommended by

    group.

    As per the recommendation of tendon committee. The corporate should be

    discourage from accumulating too much of stocks of current assets and

    should move towards very lean inventories and receivable levels. The

    committee even suggested the maximum levels. The Committee, even

    suggest the maximum levels of Raw Material, stock in process and finished

    goods which a corporate operating in an industry should be allowed to

    accumulated these levels were terms as inventory and receivable norms

    Depending on the size of credit required, the funding of these current assets

    of the corporate could be met by one of the following methods:

    First Methods Of Lending :Banks can work out the working capital gap , i.e. total current assets less

    current liabilities other than bank borrowing ( Called Maximum Permission

    Bank Finance or MPBF and finance a maximum of 75 per cent of the gap ;

    the balance to come out of long term funds , i.e. owed funds and term

    borrowing . This approach was considered suitable only for very small

    borrower i.e. where the required of credit were less than Rs. 10 lacs.

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    Second Method Of lending :Under this method , it was though that the borrower should provide for a

    minimum of 25% of total current assets out of long term funds i.e. owned

    plus term borrowing .A certain level of credit for purchase and other

    current liabilities will be available to fund the build up of current assets andthe bank will provide the balance (MPBF) . Consequently, total current

    liabilities inclusive of bank borrowing could needs of all borrower enjoying

    fund based credit facilities of more than Rs. 10 lacs should be appraisals

    under this methods.

    Third Method Of Lending :Under this method, the borrower contribution from long term funds, will

    be to the extent of the entire CORE CURRENT ASSETS, Which has been

    defined by the study Group represented the absolute minimum level of raw

    materials , process stock finished goods and store which are in the pipelineto ensure continuity of production and minimum of 25% of the balance

    current assets should be financed out of the long term funds plus term

    borrowing .

    Other major recommendations of the committee were:

    No slip back in current ratio, normally

    Classification guidelines for current assets and current liabilities

    Identification system, which was modification by Chore Committee

    Recommendation. Bifurcation of limit into loan and demand component

    Nayak Committees:

    Considering the contribution of the SSI to the overall industries

    production export and employees and also recognizing the need to give

    fillip to this sector , a special package of measure was devised by RBI

    (during April 1993) to ensure adequate and timely credit to this sector

    while doing so the recommendation of the PR nayak committee were

    taken into account Examination of bank finance profit of working

    capital to the small scale sector by the committee has revealed that this

    sector as a whole received a level of working capital which was only

    8.1% of the its output .The village industries and the smaller tiny

    industries among then could get working capital finance to the Bank

    have been advices to give preference to village industries , tiny

    industries and other small scale unit in that order while meeting the

    credit requirement of small scale sector.

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    The bank should step up the credit flow to meet the

    legitimate requirement of the SSI sector in full during the 8th

    5- year plan. For this purposed the bank should draw up

    annual credit budget for the SSI sector on a bottom up

    basis. Each branch of the banks should prepare an annualbudget in respect of working capital required of all SSIs

    before the commencement of the year. Such budgeting

    should cover.

    a)Functioning units which already have borrowing limits with the

    branch

    b)New unit whose proposals are under appraisal andc)Sick units under nursing and also sick unit found viable after

    discussion / feedback received from the borrowing units.

    The budget should take into account, among other relevant aspects,

    normal sale growth price during the past yearn, anticipate spurt in

    business etc.

    It is desirable that a single financial agency meets both therequirement of the working capital and term credit for small

    scale units. The single window scheme of SIDBI enables the

    same agency SFC or commercial bank, as the case may be to

    provide term loan and working capital requirement up to Rs.

    10 lacs .The banks have been advised to adopt this

    approach.

    At present norms for inventory and received are application

    to all units enjoying aggregate fund based working capital

    credit limits of Rs. 10 lacs and above from the banking

    system. Unit enjoying limit of Rs. 10 lacs and above but up to

    Rs.10 lac are subject to the 1st

    method of lending.

    Henceforth for the credit requirement of village industries,

    tiny industries and other SSI units having aggregate fund-

    based working capital credit limit up to Rs. 50 lac

    (subsequently raised to Rs. 1 crore and Rs. 200 lac during

    April 1997, to Rs400 lac during August 1998 and future to Rs.

    500 lac during May 1999) from the banking system, thenorm for inventories and receivables and also the 1st

    method

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    of lending will not apply . Instead such units may be provide

    working capital limits computed on the basis of a minimum

    of 20% of their project annual turnover for as well as exiting

    units.

    Bank point Of view :

    Working capital to sales ratios: Sales / working

    capital

    This ratio is compute by dividing working capital by sales. This ratio helps to

    measure the efficiency of the utilization of net working capital. It signifies that

    for amount of sales, a relative amount of working capital is needed. If any

    increase in sales is contemplated, working capital should be adequate and

    thus, this ratio helps management to maintain the adequate levels of working

    capital.

    Inventory Ratio : Sale / Inventory

    This ratio indicate the effectiveness and efficiency of the of the inventory

    management. The ratio shows how speedily the inventory is turned into

    account receivable through sales .The lower the inventory to sales ratio ,

    the more efficiently is said to be managed and vice-versa.

    Current assets Turnover Ratio : Sales / Current Assets

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    The ratio indicate the efficiency in which current assets turn into sales. A

    lower current assets to sales ratio implies by large a more efficient use of

    fund . Thus , a high turnover rate indicates reduced lock- up fund in current

    assets . An analysis of this ratio over a period of time reflects working

    capital management of a firm.

    Current Ratio : current Assets / Current liabilities

    This ratio indicates the extent of the soundness of the current financial

    position of an undertaking and the degree of safety provide to the creditor.

    The higher the current ratio the larger amount of rupees available pert

    rupee of current liability , the more the firms ability to meet current

    obligation and the greater safety of fund of short term creditor . Currentassets are those assets which can be converted into cash within a year

    current liability and provide are those liability that are payable within a

    year A current ratio of 2:1 indicates a high solvents position. A current ratio

    of 1:33:1 is considered by bank as minimum acceptable level for providing

    working capital finance The constituents of the current assets are as

    important as the current assets themselves for evaluation of companys

    solvency Position

    Structural Health Ratios :

    Current Assets to total Net Assets = Net Assets /Current Assets

    This ratio explains the relationship between current assets and total

    investment in assts. A business enterprise should use in current assets

    and economically because it is out of the assets that profit accrues. A

    business will end up in losses if there is any lack in management the

    assets to the advantage of business Investment in fixed being inelastic

    in nature, there is no elbow room to make amends in this in fixed and its

    impact on profitability remains minimal.

    Composition of Current assets

    An analysis of current assets components enable one to examinee in

    which component the working capital funds are locked up. A large tie-

    up of funds in inventories effects profitability of the business adversely

    owing to carry over costs. In addition losses are likely to occur by way

    of depreciation, decay, obsolescence, evaporation and so on, receivable

    instituting another component of current assets. If the major portions of

    current assets are made up of cash alones. The profitability will because

    cash is a non-earning asset. If the portion of cash balance is excessive,

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    then it can be said that managements is not efficient to employs the

    surplus cash.

    Debtors Turnover Ratio: = Sales/Debtors=365

    This ratio shows the exteT. Thus, it is an indicative of efficiency of tradecredit management. The lower the debtors to sales ratios, the better the

    trade credit management and the better the quality (liquidity) of

    debtors. The lower debtors mean prompt payments by customers. An

    excessively long collections period, on the other hand, indicates a very

    liberal, ineffective and inefficient credit and collections policy.

    Average collection period (in days) =Debtor/sales=365

    Average collection period, which measures how long in takes to collect

    amounts from debits. The actual collection period can be comparedwith the stated credit terms of the company. If it is longs than those

    terms. Then this indicates some insufficient in the procedures for

    collecting debits.

    Bad debts to sales= Bad Debts/sales

    This ratio indications the efficiency of the control procedures of the

    company. The actual ratio