Report Analyzes Working Capital Management at State Bank of India

REPORT ON WORKING CAPITAL MANAGEMENT July 21, 2010
OF SBI
A
REPORT ON
Working Capital
Management in
STATE BANK OF INDIA
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR
DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
(MBA)
PROGRAMME OFFERED BY
PUNJAB TECHNICAL UNIVERSITY
SUBMITTED TO:- BY:- PRAKASH KUMAR

SHARMA
PROF. S. PRAKASH
I N T E R N A T I O N A L I NROLL
S T I TNO.
UTE:- 36
OF
B U S I N E S S S T U D I E S Page 1
SEC:- B (S09)
OF SBI
ACKNOWLEDGEMENT
I take this opportunity to express my heart-felt gratitude to everyone

who has given a valuable contribution towards the successful completion
of my project.
First of all, I acknowledge with thanks, the guidance and

encouragement received from Prof. S. Prakash.
I would like to thanks to Prof. Narayan Prasad & Prof. Satya Sidharth
Panda & Prof Amit Kanjilal for helping me in choosing my topic of
research and guiding me in the preparation of my research,
A Study on Working Capital

Management in
STATE BANK OF INDIA
Place: BANGALORE Name: PRAKASH KUMAR SHARMA
Date: 20TH JULY, 2010 MBA ( 2nd SEM)
PRAKASH KUMAR SHARMA

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TABLE OF CONTENT
S.No. CHAPTER
PAGE NO.
1. ABSTRACT 04
2. EXECUTIVE SUMMARY 05
3. INTRODUCTION 07
4. REVIEW OF LITERATURE 21
5. RESEARCH DESIGN & IMPLEMENTATION 27
6. PRESENTATION & ANALYSIS OF FINDINGS 46
7. CONCLUSION 55
8. BIBILIOGRAPHY 58

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ABSTRACT
The study is an attempt to analyze the efficiency of working capital

management of seven associate banks of state bank of India during 1990-
91 to 2003-04 & last four years Instead of using common working capital
ratios, performance index, utilization index and overall efficiency index
are calculated to measure efficiency of working capital management.
Again, assuming arithmetic mean of seven banks’ indices as target level,
one more attempt was taken to test the speed of achieving that target
level of efficiency by an individual bank during the study period. The
study indicates that overall performance of associate banks were not
bad, but performance of individual banks fluctuated very much during
study period.

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EXECUTIVE SUMMARY
The findings from this research are as follows:-
Performance Index represents average performance index of the

various components of current assets. If performance index of a firm is
more than 1, it indicates the firm managed their working capital
efficiently. It means the proportionate rise in sales (income) is more than
the proportionate rise in current assets. Average performance indices of
seven banks show that the performance indices were more than 1 in 7
periods out of 14. In 1992, average of performance index of seven banks
shows very good condition (3.279). On the other hand, the year 1990-91
proved to be the worst year for those seven banks as average shows .
613. A year wise comparison reveals that the number of efficient firms
varied from 0 to 6. In 1991, no bank could cross performance level (≥1).
In the year 1994-95, 1998-99 and 1999-2000, only one bank could cross
the level. But in the year 1991-92, six banks out of seven had managed
their current assets efficiently and crossed performance level. Among the
other years, during 1993-94 and 2002-03, 4 banks had managed
working capital well and helped the average of the banks to get second
position according to performance index. Year 1996-97, 1997-98 and
2000-01 is in third position according to number of banks crossed
performance level. 3 banks had managed working capital in efficient way
during those years. During other years, i.e., 1992-93, 1995-96, 2001-02
and 2003-04 banks’ performance as a whole was not so good, as only 2
banks could cross the level of performance.

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Individual bank wise analysis reveals that, State Bank of Travancore

performed working capital management better way as 7 years out of
study period of 14 years, the bank’s performance index crossed 1. State
Bank of Indore’s performance over study period was not good. Out of 14
years of study, they crossed the performance level 3 times only. In
comparison, State Bank of Patiala and state Bank of Saurashtra could
do better, as they managed their working capital efficiently for 4 times.
According to the number of times the banks crossed performance level,
State Bank of Mysore is in second position crossing the level 6 times.
Other two banks, i.e. State Bank of Bikaner and Jaipur and State Bank of
Hydrabad got third position by managing various components of current
assets better for 5 times. But, in the year 1991-92, when most of the firm
performed well, State Bank of Bikaner could not perform well to manage
currents assets.
Again, fluctuation in performance index is another interesting

observation I found. Like, State Bank of Indore’s performance index
was .515 in 1990-91. Just at the next year (1991-92), it raised to 7.156.
Reasons are,1) income in 1991-92 increased by Rs. 7283 lakhs 2) tax
paid in advance reduced by 1524 lakhs. 3) Stamps and stationary
reduced by 2188 lakhs.

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INTRODUCTION:-
The working capital is the life-blood and nerve centre of a business

firm. The importance of working capital in any industry needs no special
emphasis. No business can run effectively without a sufficient quantity of
working capital. It is crucial to retain right level of working capital.
Working capital management is one of the most important functions of
corporate management. A business enterprise with ample working
capital is always in a position to avail advantages of any favorable
opportunity either to buy raw materials or to implement a special order or
to wait for enhanced market status. Working capital can be utilized for
the payment of lease, employee's payroll, and pretty much any other
operating costs that are involved in the everyday life of business. Even
very successful business owners may need working capital funds when
the unexpected circumstances arise. The overall success of the
company depends upon its working capital position. So, it should be
handled properly because it shows the efficiency and financial strength
of company.
Working capital management is highly important in firms as it is used

to generate further returns for the stakeholders. When working capital is
managed improperly, allocating more than enough of it will render
management non-efficient and reduce the benefits of short term
investments. On the other hand, if working capital is too low, the
company may miss a lot of profitable investment opportunities or suffer
short term liquidity crisis, leading to degradation of company credit, as it
cannot respond effectively to temporary capital requirements. Efficient
management of working capital means management of various
components of working capital in such a way that an adequate amount of
working capital is maintained for smooth running of a firm and for
fulfillment of objectives of liquidity and profitability. But, it is very difficult
for the management too to estimate working capital properly because,
amount of working capital varies across firms over the periods

depending upon the nature of the business, nature of raw material used,
process technology used, nature of finished goods, degree of
competition in the market, scale of operation, credit policy etc. Therefore,
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a significant amount of fund is required to invest permanently in the form

of different current assets.
Keeping in view the pragmatic importance of working capital

management in finance, an attempt is made in this study to look into the
working capital management of seven associates of State Bank of India.
The specific purposes of the study are:
To examine the efficiency of working capital management practices of

state bank of India’ associates.
To test how fast the banks have been able to improve their respective
level of efficiency in working capital management with respect to a
targeted level (average among the banks).
Capital required for a business can be classified under two main

categories via,
1) Fixed Capital
2) Working Capital
Every business needs funds for two purposes for its establishment and
to carry out its day- to-day operations. Long terms funds are required to
create production facilities through purchase of fixed assets such as
p&m, land, building, furniture, etc. Investments in these assets represent
that part of firm’s capital which is blocked on permanent or fixed basis
and is called fixed capital. Funds are also needed for short-term
purposes for the purchase of raw material, payment of wages and other
day – today expenses etc. These funds are known as working capital.
In simple words, working capital refers to that part of the firm’s capital
which is required for financing short- term or current assets such as
cash, marketable securities, debtors & inventories. Funds, thus, invested

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in current assts keep revolving fast and are being constantly converted in
to cash and this cash flows out again in exchange for other current
assets. Hence, it is also known as revolving or circulating capital or short
term capital.
CONCEPT OF WORKING CAPITAL
There are two concepts of working capital:
1. Gross working capital
2. Net working capital
The gross working capital is the capital invested in the total current
assets of the enterprises current assets are those Assets which can
convert in to cash within a short period normally one accounting year.
CONSTITUENTS OF CURRENT ASSETS
1) Cash in hand and cash at bank
2) Bills receivables
3) Sundry debtors
4) Short term loans and advances.
5) Inventories of stock as:
a. Raw material
b. Work in process

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c. Stores and spares
d. Finished goods
6. Temporary investment of surplus funds.
7. Prepaid expenses
8. Accrued incomes.
9. Marketable securities.
In a narrow sense, the term working capital refers to the net working.
Net working capital is the excess of current assets over current liability,
or, say:
NET WORKING CAPITAL = CURRENT ASSETS – CURRENT

LIABILITIES.
Net working capital can be positive or negative. When the current

assets exceeds the current liabilities are more than the current assets.
Current liabilities are those liabilities, which are intended to be paid in the
ordinary course of business within a short period of normally one
accounting year out of the current assts or the income business.
CONSTITUENTS OF CURRENT LIABILITIES
1. Accrued or outstanding expenses.

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2. Short term loans, advances and deposits.
3. Dividends payable.
4. Bank overdraft.
5. Provision for taxation , if it does not amt. to app. Of profit.
6. Bills payable.
7. Sundry creditors.
The gross working capital concept is financial or going concern

concept whereas net working capital is an accounting concept of
working capital.Both the concepts have their own merits.
The gross concept is sometimes preferred to the concept of working

capital for the following reasons:
1. It enables the enterprise to provide correct amount of working capital

at correct time.
2. Every management is more interested in total current assets with

which it has to operate then the source from where it is made available.
3. It take into consideration of the fact every increase in the funds of the
enterprise would increase its working capital.

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4. This concept is also useful in determining the rate of return on

investments in working capital. The net working capital concept,
however, is also important for following reasons:
 It is qualitative concept, which indicates the firm’s ability to meet to its

operating expenses and short-term liabilities.
 IT indicates the margin of protection available to the short term

creditors.
 It is an indicator of the financial soundness of enterprises.
 It suggests the need of financing a part of working capital requirement

out of the permanent sources of funds.
CLASSIFICATION OF WORKING CAPITAL:-
Working capital may be classified in to ways:
• On the basis of concept.
• On the basis of time.

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On the basis of concept working capital can be classified as gross

working capital and net working capital. On the basis of time, working
capital may be classified as:
 Permanent or fixed working capital.
 Temporary or variable working capital
PERMANENT OR FIXED WORKING CAPITAL:-
Permanent or fixed working capital is minimum amount which is

required to ensure effective utilization of fixed facilities and for
maintaining the circulation of current assets. Every firm has to maintain a
minimum level of raw material, work- in-process, finished goods and
cash balance. This minimum level of current assts is called permanent or
fixed working capital as this part of working is permanently blocked in
current assets.
As the business grow the requirements of working capital also

increases due to increase in current assets.
TEMPORARY OR VARIABLE WORKING CAPITAL:-
Temporary or variable working capital is the amount of working capital

which is required to meet the seasonal demands and some special
exigencies. Variable working capital can further be classified as seasonal
working capital and special working capital. The capital required to meet
the seasonal need of the enterprise is called seasonal working capital.
Special working capital is that part of working capital which is required to
meet special exigencies such as launching of extensive marketing for
conducting research, etc.

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Temporary working capital differs from permanent working capital in the

sense that is required for short periods and cannot be permanently
employed gainfully in the business.
IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING

CAPITAL:-
 SOLVENCY OF THE BUSINESS: Adequate working capital helps in

maintaining the solvency of the business by providing uninterrupted of
production.
 Goodwill: Sufficient amount of working capital enables a firm to make

prompt payments and makes and maintain the goodwill.
 Easy loans: Adequate working capital leads to high solvency and

credit standing can arrange loans from banks and other on easy and
favorable terms.
 Cash Discounts: Adequate working capital also enables a concern to

avail cash discounts on the purchases and hence reduces cost.
 Regular Supply of Raw Material: Sufficient working capital ensures

regular supply of raw material and continuous production.
 Regular Payment Of Salaries, Wages And Other Day TO Day

Commitments: It leads to the satisfaction of the employees and raises
the morale of its employees, increases their efficiency, reduces wastage
and costs and enhances production and profits.

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 Exploitation Of Favorable Market Conditions: If a firm is having

adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices
are lower and holdings its inventories for higher prices.
 Ability To Face Crises: A concern can face the situation during the
depression.
 Quick And Regular Return On Investments: Sufficient working capital

enables a concern to pay quick and regular of dividends to its investors
and gains confidence of the investors and can raise more funds in future.
 High Morale: Adequate working capital brings an environment of

securities, confidence, high morale which results in overall efficiency in a
business.
EXCESS OR INADEQUATE WORKING CAPITAL:-
Every business concern should have adequate amount of working

capital to run its business operations. It should have neither redundant or
excess working capital nor inadequate nor shortages of working capital.
Both excess as well as short working capital positions are bad for any
business. However, it is the inadequate working capital which is more
dangerous from the point of view of the firm.
DISADVANTAGES OF REDUNDANT OR EXCESSIVE

WORKING CAPITAL:-

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1. Excessive working capital means ideal funds which earn no profit for
the firm and business cannot earn the required rate of return on its
investments.
2. Redundant working capital leads to unnecessary purchasing and

accumulation of inventories.
3. Excessive working capital implies excessive debtors and defective

credit policy which causes higher incidence of bad debts.
4. It may reduce the overall efficiency of the business.
5. If a firm is having excessive working capital then the relations with

banks and other financial institution may not be maintained.
6. Due to lower rate of return n investments, the values of shares may

also fall.
7. The redundant working capital gives rise to speculative transactions
DISADVANTAGES OF INADEQUATE WORKING CAPITAL:-
Every business needs some amounts of working capital. The need for
working capital arises due to the time gap between production and
realization of cash from sales. There is an operating cycle involved in
sales and realization of cash. There are time gaps in purchase of raw
material and production; production and sales; and realization of cash.
Thus working capital is needed for the following purposes:

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 For the purpose of raw material, components and spares.
 To pay wages and salaries
 To incur day-to-day expenses and overload costs such as office

expenses.
 To meet the selling costs as packing, advertising, etc.
 To provide credit facilities to the customer.
 To maintain the inventories of the raw material, work-in-progress,

stores and spares and finished stock.
For studying the need of working capital in a business, one has to

study the business under varying circumstances such as a new concern
requires a lot of funds to meet its initial requirements such as promotion
and formation etc. These expenses are called preliminary expenses and
are capitalized. The amount needed for working capital depends upon
the size of the company and ambitions of its promoters. Greater the size
of the business unit, generally larger will be the requirements of the
working capital.
The requirement of the working capital goes on increasing with the

growth and expensing of the business till it gains maturity. At maturity the
amount of working capital required is called normal working capital.
There are others factors also influence the need of working capital in
a business.
FACTORS DETERMINING THE WORKING CAPITAL

REQUIREMENTS:-
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1. NATURE OF BUSINESS: The requirements of working is very limited

in public utility undertakings such as electricity, water supply and
railways because they offer cash sale only and supply services not
products, and no funds are tied up in inventories and receivables. On the
other hand the trading and financial firms requires less investment in
fixed assets but have to invest large amt. of working capital along with
fixed investments.
2. SIZE OF THE BUSINESS: Greater the size of the business, greater is

the requirement of working capital.
3. PRODUCTION POLICY: If the policy is to keep production steady by

accumulating inventories it will require higher working capital.
4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time

the raw material and other supplies have to be carried for a longer in the
process with progressive increment of labor and service costs before the
final product is obtained. So working capital is directly proportional to the
length of the manufacturing process.
5. SEASONALS VARIATIONS: Generally, during the busy season, a firm

requires larger working capital than in slack season.
6. WORKING CAPITAL CYCLE: The speed with which the working cycle
completes one cycle determines the requirements of working capital.
Longer the cycle larger is the requirement of working capital.
7. RATE OF STOCK TURNOVER: There is an inverse co-relationship

between the question of working capital and the velocity or speed with
which the sales are affected. A firm having a high rate of stock turnover
wuill needs lower amt. of working capital as compared to a firm having a
low rate of turnover.
8. CREDIT POLICY: A concern that purchases its requirements on credit

and sales its product / services on cash requires lesser amt. of working
capital and vice-versa.

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9. BUSINESS CYCLE: In period of boom, when the business is

prosperous, there is need for larger amt. of working capital due to rise in
sales, rise in prices, optimistic expansion of business, etc. On the
contrary in time of depression, the business contracts, sales decline,
difficulties are faced in collection from debtor and the firm may have a
large amt. of working capital.
10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we

shall require large amt. of working capital.
11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have

more earning capacity than other due to quality of their products,
monopoly conditions, etc. Such firms may generate cash profits from
operations and contribute to their working capital. The dividend policy
also affects the requirement of working capital. A firm maintaining a
steady high rate of cash dividend irrespective of its profits needs working
capital than the firm that retains larger part of its profits and does not pay
so high rate of cash dividend.
12. PRICE LEVEL CHANGES: Changes in the price level also affect the
working capital requirements. Generally rise in prices leads to increase
in working capital.
Others factors: These are:
 Operating efficiency.
 Management ability.
 Irregularities of supply.
 Import policy.
 Asset structure.
 Importance of labor.

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 Banking facilities, etc.
MANAGEMENT OF WORKING CAPITAL:-
Management of working capital is concerned with the problem that

arises in attempting to manage the current assets, current liabilities. The
basic goal of working capital management is to manage the current
assets and current liabilities of a firm in such a way that a satisfactory
level of working capital is maintained, i.e. it is neither adequate nor
excessive as both the situations are bad for any firm. There should be no
shortage of funds and also no working capital should be ideal.
WORKING CAPITALMANAGEMENT POLICES of a firm has a great on
its probability, liquidity and structural health of the organization. So
working capital management is three dimensional in nature as
1. It concerned with the formulation of policies with regard to profitability,

liquidity and risk.
2. It is concerned with the decision about the composition and level of

current assets.
3. It is concerned with the decision about the composition and level of

current liabilities.
REVIEW OF LITERATURE
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The corporate finance literature has traditionally focused on the study

of long-term financial decisions. However, short-term assets and
liabilities are important components of total assets and needs to be
carefully analyzed. Management of these short-term assets and liabilities
warrants a careful investigation since the working capital management
plays an important role for the firm’s profitability and risk as well as its
value. The optimal level of working capital is determined to a large extent
by the methods adopted for the management of current assets and
liabilities.
A research study on working capital management of paper industries

in India was conducted by R. Sivarama and Prasad (2001). They
reported that the chief executives properly recognized the role of efficient
use of working capital in liquidity and profitability, but in practice they
could not achieve it. Again they reported a clear reveal of a suboptimum
utilization of working capital in paper industry.
A study on working capital management of horticulture industry in

himachal Pradesh by Joginder Singh Dulta (2001) observed the size of
current assets and current liabilities with all variations, registered a slight
increase, but due to inefficient use of the various components of working
capital of Himachal Pradesh Horticulture Produce Marketing and
Processing Corporation Ltd, the current liabilities increased
proportionately at a faster rate than current assets and net working
capital position was worsened continuously.
A study on working capital management is done by me Prakash Kumar

Sharma on State Bank Of India on 12 june 2010. I had taken into
consideration the current assets and the current liabilities of the State

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Bank Of India. It shows that in the year 2007 and 2008 the net working
capital is so high but in the year 2009 it was so low , but in the year 2010
SBI is able to manage the working capital properly.
State Bank of Bikaner and Jaipur:
State Bank of Bikaner and Jaipur was established in 1963 after

amalgamation of erstwhile State Bank of Jaipur (established in 1943)
with State Bank of Bikaner (established in 1944) as a subsidiary of State
Bank of India. The Bank took over the business of the Govind Bank Pvt.
Ltd. on 25.04.1966. The Bank's main area of operation is Rajasthan, with
presence at all important centers in the country.
The Bank follows transparent corporate governance policies and is

preparing itself for smooth migration to Basel II. On technology front,
during 2005-06, the Bank migrated all branches to Core Banking
Solution (CBS). The Bank has installed 336 ATMs and all ATMs are the
part of over 5500 ATMs of State Bank Group. The Bank has been
earning profit continuously since its inception and the Bank's business
crossed the level of Rs. 49,245 crores with a net profit of Rs. 305.80
crores at the end of March, 2007.
State Bank of Hyderabad:
State Bank of Hyderabad of India was established on August 8, 1941.

It was then known as Hyderabad State Bank. The bank was the central
bank of the erstwhile princely State of Hyderabad during pre-
independence days. Hyderabad State Bank was responsible for

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managing Osmania Sikka-the currency of Hyderabad state in those

days. The first branch of Hyderabad State Bank opened at Gunfoundry,
Hyderabad on April 5, 1942. Hyderabad State Bank came under
operational control of Reserve Bank of India (RBI) in 1953. The bank
became RBI's subsidiary. Hyderabad State Bank was also renamed
State Bank of Hyderabad in the same year. It became an associate of
State Bank of India on October 1, 1959.
Current business turnover is Rs. 88600 crores in the Financial Year
ending March 31, 2008.
State Bank of Mysore:
State Bank of Mysore was established in the year 1913 as Bank of

Mysore Ltd. under the patronage of the erstwhile Govt. of Mysore, at the
instance of the banking committee. Subsequently, in March 1960, the
Bank became an Associate of State Bank of India. State Bank of India
holds 92.33% of shares. The Bank's shares are listed in Bangalore,
Chennai, and Mumbai stock exchanges.
State Bank of Patiala:
State Bank of Patiala was founded by Late Bhupinder Singh, Maharaja

of erstwhile Patiala state, with one branch by the name of 'Chowk Fort to
the year 1917.’Patiala State Bank' was state owned and setup for the
explicit purpose of fostering growth of agriculture, trade and industry.
The constitution, scope and operations of the Bank underwent a sea
change with the formation of the Patiala and east Punjab States Union
(PEPSU) in 1948.The Bank was then reorganized and brought under the
control of Reserve Bank of India. Another milestone in history of the

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Bank was its becoming a subsidiary of the State Bank of India on 1st
April,1960 when it was named as the State Bank of Patiala and since
then it has grown significantly both in size and volume of business.
During these glorious years, the Bank has been playing an important role
in banking sphere. The bank has now added a golden chapter to its
history by fully computerizing all its branches on 24th January 2003 and
became the first fully computerized Public Sector Bank in the country.
Bank of Saurashtra:
The origins of State Bank of Saurashtra can be traced to Bhavnagar

Darbar Bank, which was established in the year 1902. In 1948, when
princely states were integrated to form Saurashtra state, the Bhavnagar
Darbar Bank was formed into a statutory corporation, called State Bank
Of Saurashtra, and the four Darbar Banks - Rajkot State Bank,
Porbandar State Bank, Palitana Darbar Bank and Vadia State Bank -
were merged with it with effect from 1st July, 1950 as its branches. In
1960, the State Bank of Saurashtra joined the State Bank family as one
of its fully owned subsidiaries. At the close of 1950, the Bank had only 9
branches and deposits of Rs.7 crores. By 31.03.2005, the total deposits
amounted to Rs. 12613.04 crores and total advances reached the level
of Rs. 6714.07 crores. Presently, the Bank has a network of 423
branches spread over 15 states and the Union Territory of Daman and
Diu.
State Bank of Travancore:
State Bank of Travancore (SBT) was originally established as

Travancore Bank Ltd. in 1945 sponsored by the erstwhile Princely State
of Travancore. Under a special statute of the Indian Parliament (SBI
subsidiary Banks Act 1959) it has been made an Associate of the State
Bank of India and a member of the State Bank Group. Now it has
network of 712 branches with total business of Rs. 66644 Crores.

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State Bank of Indore:
State Bank of Indore popularly known as Indore Bank in Malwa

Region, originally known as Bank of Indore Ltd. was incorporated under
a special charter of His Highness Maharaja Tukojirao Holker-III, the then
ruler of this region. In terms of State Bank of India (Subsidiary Banks)
Act, 1959 the Bank of Indore Ltd. became a subsidiary of State Bank of
India w.e.f. 1st January 1960 and was renamed as State Bank of Indore
The Bank acquired business of The Bank of Dewas Ltd. in 1962 and The
Dewas Senior Bank Ltd. in 1965 and was up-graded to class 'A' category
bank in 1971. Ever since, the Bank has been making steady progress
and at the end of September 2008, the business turnover has crossed
Rs.45000 crore.
LIMITATIONS:-
1) The survey was conducted in the Bangalore.
2) Managers were too busy persons, so it was difficult to get their

time and view for specific questions.
3) Area covered for the project while doing job also was very large
and it was very difficult to correlate two different customers /
respondents’ views in a one.

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RESEARCH DESIGN &

IMPLEMENTATION
RESEARCH METHODOLOGY:

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The Research and Methodology adopted for the present study has
been systematic and was done in accordance to the objectives set which
has been detailed as below.
Research Definition:-
Research is a process in which the researcher wishes to find out the

end result for a given problem and thus the solution helps in future
course of action.
According to Redman & Mory, research is defined as a “Systemized

effort to gain new knowledge”.
Nature of Research:
Research is basically of two types.
1. Descriptive research
2. Explorative research
1. Descriptive Research:
.
My research design is descriptive as descriptive research –

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• Describe the characteristics of certain groups/ samples / populations.
• Estimate proportions in specified populations.
• Make specific predictions.
Determining sources of Data:
There are two main sources of data
1. Primary data
2. Secondary data
Primary Data:
It consists of original information’s collected for specific Purpose.
Primary data for this research, data are collected through a direct source
like survey to obtain the first hand information is others resources are
written below.
• Survey.
• Face to face interaction.

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Secondary Data:
It consists of information that already exists somewhere and has

been collected for some specific purpose in the study. The secondary
data for this study is collected from various sources like,
• Books.
• Website.
• Newspaper.
• Financial Magazine. ( weekly , business world etc)
Questionnaire Development:
Questionnaire is the most common instrument in collecting primary

data. In order to gather primary data from viewers. The present
questionnaire consists closed ended type of questions.
Sampling:-
Sampling is that part of statistical practice concerned with the selection

of individual observations intended to yield some knowledge about a
population of concern, especially for the purposes of statistical inference.

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In my survey, I have taken convenience sampling.
My sampling is probability sampling as probability sampling that has

been selected using simple random selection each unit in the population
has a known chance of being selected.
Moreover, my sampling technique is simple random technique as in

simple Random sampling; each unit of the population has an equal
probability of inclusion in the sample. In my survey, each respondent
have equal opportunity to be selected and the data, which I collected,
was from customers of SBI who had taken loan.
INTRODUCTION OF THE
BANK
Introduction to Banking:-
Customers are broadly classified into two:
 Personal Customers: Individuals having accounts singly or jointly

(including minors)

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 Non Personal Customers: Non individual customers like

Proprietary concerns, Partnerships, Companies, Trusts,
Associations, Clubs, Societies, Institutions, Govt. Departments,
NGOs, SHG etc.
Accounts are broadly classified into two:
 Customer accounts (external accounts) : Deposit accounts

(Savings Bank, Current Account etc), Loan Accounts (Demand
Loan, Term Loan etc) and Contingent accounts (Bank Guarantee
etc)
 Office accounts. (Internal accounts): Cash Balance accounts, fixed

assets account, Drafts account, Sundry Deposit account, Interest
account etc.
Basic Deposits Account:
 Savings Bank : Running account for saving with restriction in

number of withdrawal
 Current Account: Running account without restriction on number

of withdrawals
 Term Deposit : Deposit of an amount for a fixed period where

interest is paid monthly/Quarterly

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 Special Term Deposit : Deposit of an amount for a fixed period

where interest is compounded
(Capitalized) and paid on maturity.
 Recurring Deposit: Regular (Monthly) deposit of a fixed amount

for a fixed period.
Types of Loan Account:
 Overdraft
 Demand Loan
 Term Loan
 Cash Credit

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Overdraft:
 A Current account when permitted to overdraw (allowing

withdrawal more than deposited or without deposits ) becomes an
overdraft account
 Can be operated by cheque, ATM, INB
 A type of advance of temporary nature/ to valued clients

sometimes against Term Deposit, NSC etc.
 A running account where further withdrawals (debits) can be

permitted as and when deposits (credits) come.
Demand Loan:
 Basically an advance payable on demand.
 Payment in installments also generally allowed.
 Given against Bank deposits, NSCs, Insurance policies
 Gold loans and Pension Loans are given as Demand loans
 Only one Debit allowed for disbursement. Cannot be operated by

cheque & ATM.

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Term Loan:
 Loan payable as per pre-determined installments over a fixed term.
 Extended for acquisition of assets like house, car, land, building,

Plant & Machinery etc.
 Installments are to be paid out of the income of the person in case

of Personal Segment loans
 Installments are to be paid out of the income of the activity

financed in case of non-personal segment loans.
Cash Credit:
 An advance facility for financing the working capital needs of

commercial activities.
 A running account on the lines of Overdraft.
 An account where all the receipts and payments of the activity on

account of day-to-day operations are expected to be reflected.
 Extended against the stocks and receivables of the unit. (Stocks:

raw materials, semi finished goods, finished goods etc, Receivable
means money to be received towards sales).

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Security and Margin:
 The physical or financial asset for / against which the advance is

made is referred as security. A car is a security for which a car loan
is given.
 Assets acquired out of bank finance is called primary security. Any

additional security offered by the borrower is called collateral.
However, in CBS parlance all securities are referred as collaterals.
 The amount contributed by the borrower to the project cost / the

percentage value of the assets owned by him is referred as
margin.
Charge:
 An asset offered to the creditor (who lends the money) becomes a

security only if a legally enforceable interest is created in his
favour. This process is called the creation of Charge.
 Lien, Pledge, Hypothecation and Mortgage are different types of

charges applicable to different types of securities.

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Transaction:
There are three types of transactions:
 Cash: Where receipt payment of physical cash is involved
 Transfer: Where funds are transferred from one account to

another account without
 Clearing: Transfer transactions where funds are exchanged with

other banks through clearing
Introduction to State Bank of India:
Evolution of SBI:
 Born as Bank of Calcutta (2 June 1806).
 Renamed Bank of Bengal (2 January 1809).
 Bank of Bombay (15 April 1840).
 Bank of Madras (1 July 1843).
 All three were called Presidency Banks.
 Amalgamated as Imperial Bank of India on 27 January 1921.

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Birth of SBI:
 An Act was passed in Parliament in May 1955 and the State Bank
of India was constituted on 1 July 1955.
 State Bank of India (Subsidiary Banks) Act was passed in 1959,

enabling the State Bank of India to take over eight former State-
associated banks as its subsidiaries (later named Associates).
 State Bank of India was thus born with a new sense of social
purpose with 480 offices, 3 Local Head Offices and a Central
Office.
History of SBI:
The evolution of State Bank of India can be traced back to the first
decade of the 19th century. It began with the establishment of the Bank
of Calcutta in Calcutta, on 2 June 1806. The bank was redesigned as the
Bank of Bengal, three years later, on 2nd January 1809. It was the first
ever joint-stock bank of the British India, established under the
sponsorship of the Government of Bengal. Subsequently, the Bank of
Bombay (established on 15 April 1840) and the Bank of Madras
(established on 1 July 1843) followed the Bank of Bengal. These three
banks dominated the modern banking scenario in India, until when they
were amalgamated to form the Imperial Bank of India, on 27 January
1921.

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An important turning point in the history of State Bank of India is the

launch of the first Five Year Plan of independent India, in 1951. The Plan
aimed at serving the Indian economy in general and the rural sector of
the country, in particular. Until the Plan, the commercial banks of the
country, including the Imperial Bank of India, confined their services to
the urban sector. Moreover, they were not equipped to respond to the
growing needs of the economic revival taking shape in the rural areas of
the country. Therefore, in order to serve the economy as a whole and
rural sector in particular, the All India Rural Credit Survey Committee
recommended the formation of a state-partnered and state-sponsored
bank.
The All India Rural Credit Survey Committee proposed the take over
of the Imperial Bank of India, and integrating with it, the former state-
owned or state-associate banks. Subsequently, an Act was passed in
the Parliament of India in May 1955. As a result, the State Bank of India
(SBI) was established on 1 July 1955. This resulted in making the State
Bank of India more powerful, because as much as a quarter of the
resources of the Indian banking system were controlled directly by the
State. Later on, the State Bank of India (Subsidiary Banks) Act was
passed in 1959. The Act enabled the State Bank of India to make the
eight former State-associated banks as its subsidiaries.
The State Bank of India emerged as a pacesetter, with its operations

carried out by the 480 offices comprising branches, sub offices and three
Local Head Offices, inherited from the Imperial Bank. Instead of serving

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as mere repositories of the community's savings and lending to

creditworthy parties, the State Bank of India catered to the needs of the
customers, by banking purposefully. The bank served the heterogeneous
financial needs of the planned economic development.
State Bank Today:-
(Rupees in Crores)
BALANCE SHEET AS AT 31ST MARCH 2009

Balance Sheet size 7,21,526
Aggregate Deposits 5,37,404
Total Advances 4,16,768

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Capital Funds 69,762.64

Net Profit 6,729.12
Paid-up Capital 631.47
(In percentage terms)
BALANCE SHEET AS AT 31ST MARCH 2009

Yield on Advances (Domestic) 9.90
Cost of Deposits (Domestic) 5.59
Net Interest Margin 3.07
Gross NPA Ratio 3.04
Net NPA Ratio 1.78
Capital Adequacy Ratio 13.47
Return on Average Assets 1.01
AS AT 31ST MARCH 2009

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No. of Branches 10,186

No. of Foreign Offices 84
No. of Branches on CBS All Branches
No. of employees 1,79,205
No. of ATMs > 8,000
 The Bank handles almost the entire gamut of financial services. It

is a financial supermarket.
 The Bank extends banking services to:

 Corporate Sector
 SMEs
 Rural sector, especially Agriculture and
allied activities
 Retail sector, i.e., Personal Segment
 The Bank has designed both Deposits as well as Advances

products for specific segments as per their requirements.
 The loans range from Rs.100/- to say, Rs. 10,000 crores.
STATE BANK GROUP:
ASSOCIATE BANKS

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 State Bank of India has the following 6 Associate Banks (ABs) with
controlling interest ranging from 75% to 100%:
 State Bank of Bikaner and Jaipur (SBBJ)
 State Bank of Hyderabad (SBH)
 State Bank of Indore (SBIn)
 State Bank of Mysore (SBM)
 State Bank of Patiala (SBP)
 State Bank of Travancore (SBT)
 The six ABs have a combined network of 4596 branches in India,

which are fully computerized and on CBS.
 The ABs has 1070 ATMs, which are networked with SBI ATMs,
providing value added services to clientele.
FOREIGN BANKING SUBSIDIARIES:-

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 State Bank of India has the following Foreign Banking Subsidiaries:
 State Bank of India (Canada)

 SBI International (Mauritius) Ltd.
 State Bank of India (California)
 Indian Ocean International Bank Ltd.
 Commercial Bank of India LLC, Moscow
 PT Bank Indo Monex
NON-BANKING SUBSIDIARIES / JOINT VENTURES
 State Bank of India has the following Non-Banking Subsidiaries /

Joint Ventures:
 SBI Capital Markets Ltd. (SBICAP)

 SBICAP Securities Ltd. (SSL)
 SBICAPS Ventures Ltd. (SVL)
 SBICAP (UK) Ltd.
 SBI Funds Management Pvt. Ltd. (SBIFMPL)
 SBI Factors & Commercial Services Pvt. Ltd.
(SBIFACTORS)
 SBI DFHI Ltd.
 SBI Cards & Payment Services Pvt. Ltd.
(SBICSPL)
 SBI Life Insurance Company Ltd. (SBILIFE)
 Global Trade Finance Ltd. (GTFL)
 SBI Mutual Funds Trustee Company Pvt. Ltd.

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OTHERS
 In addition to these, there are other Subsidiaries / Jointly

Controlled Entities such as:
 SBI Commercial and International Bank Ltd.

 SBICAP (UK) Ltd.
 SBI Funds Management (International) Ltd.
 GE Capital Business Process Mgmt. Services Pvt.
Ltd.
 C-Edge Technologies Ltd.
All these together constitute this mammoth organization the

“STATE BANK”.

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PRESENTATION & ANALYSIS

OF FINDINGS
Project findings reveal that SBI is sanctioning less Credit to agriculture,

as compared with its key competitor’s viz., Canara Bank, Corporation
Bank, Syndicate Bank
·
Recovery of Credit: SBI recovery of Credit during the year 2006 is

62.4% Compared to other Banks SBI ‘s recovery policy is very good,
hence this reduces NPA
· Total Advances: As compared total advances of SBI is increased year

by year. State Bank Of India is granting credit in all sectors in an
Equated Monthly Installments so that any body can borrow money easily
· Project findings reveal that State Bank Of India is lending more credit or
sanctioning more loans as compared to other Banks.
· State bank Of India is expanding its Credit in the following focus areas:
1. SBI Term Deposits
2. SBI Recurring Deposits

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3. SBI Housing Loan
4. SBI Car Loan
5. SBI Educational Loan
6. SBI Personal Loan …etc
Working capital Management in State Bank Of India In case of

indirect agriculture advances, SBI is granting 3.1% of Net Banks
Credit, which is less as compared to Canara Bank, Syndicate Bank and
Corporation Bank. SBI has to entertain indirect sectors of agriculture so
that it can have more number of borrowers for the Bank.
·
SBI’s direct agriculture advances as compared to other banks is 10.5%

of the Net Bank’s Credit, which shows that Bank has not lent enough
credit to direct agriculture sector.
·
Credit risk management process of SBI used is very effective as
compared with other banks.

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From the finding I found that STATE BANK OF INDIA is able to

manage the Working capital . from the above graph we can see that
the bank is having 56.75% of current assets and 43.25% of current
liabilities, it means that the bank is good in working capital
management.

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2008 2009 2010
ASSETS
31st March 31st March 31st March
REPORT ON WORKING CAPITAL MANAGEMENT
CURRENT ASSETS
July 21, 2010
OF SBI
Cash and cash equivalents \159,007 \126,313 \142,582
Time deposits 1,518 1,141 1,233
Cash required to be
313,817 266,267 318,909
segregated under regulations
Trade notes and accounts
10,985 7,915 8,484
receivable
Operational investment
115,717 105,236 121,576
securities
Valuation allowance for
operational investment (4,967) (6,207) (8,424)
securities
Operational loans receivable 66,261 47,868 34,694
Real estate inventory 32,895 36,515 28,768
Trading assets 1,728 7,725 3,515
Margin transaction assets:
Receivables from customers 274,887 134,792 221,107
Cash deposits as collateral
17,995 46,009 40,534
for securities borrowed
Loans secured by securities - 1 -
Short-term guarantee
13,414 8,846 5,944
deposits
Deferred tax assets—current 1,053 5,921 7,667
Prepaid expenses and other
66,723 46,951 55,767
current assets
Allowance for doubtful
(1,762) (2,703) (2,033)
accounts
TOTAL CURRENT ASSETS 1,069,271 832,590 980,323
PROPERTY AND
12,652 8,578 20,614
EQUIPMENT-Net

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INVESTMENTS AND OTHER ASSETS
OF SBI
Working Capital of SBI for last 4 years
Reason for increasing in working capital from 2007

to 2008 and reason for decreasing working capital
in 2009 and again increasing in working capial in
2010:-

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• In the
year 2007 SBI has the equal distribution of assets and
liabilities so working capital is accurate.
• In the year 2008, due to ression all the people were

withdrawling their money so the liabilities of the bank was
very low so the working capital was increased double of
2007.
• Again in the year 2009 the working capital is very low

because after the ression people ware want to deposite the
money in bank , so thi liabilities of the Bank was increased
and the working capital was decreased more than half of
the year 2008.
• In the
year 2010 SBI is able to manage the working capital
properly so it is able to balance both assets and liabilities.

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CONCLUSION
In this study I investigated the efficiency of managing working capital

of seven associate banks of State Bank of India for the period from
1990-91 to 2003-04. But traditional methods of analyzing working capital
ratios are not used here. Three index values, Performance index,
Utilization index and efficiency index have been used to find individual
bank’s efficiency in working capital management. Regression analysis
also has been done to find the comparative speed of achieving targeted
level of efficiency by individual banks during the study period.
This report will be very helpful for my future career because this
project is going to give me a broad idea about the working capital
management which is one of the most important part of an organisation
as well as SBI.
Working capital is a very vital part of an organisation weather it is

a Bank or any other organisation and this project is going to help me in
my future a lot.
From this study, it is observed that the associates’ average efficiency

level was satisfactory. Average of average values of all the years for the
group of banks is showing good position (greater than 1). But it does not
mean that most of the banks performed well through out the period.
Rather, all the banks except state bank of Travancore were not
satisfactory. In my study period no bank has shown steady improving
state of efficiency in managing working capital. Fluctuation was a
common trend for all the banks.

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In the case of achieving the target level (all the banks’ average) of
efficiency by the banks, State Bank of Patiala was the most successful
bank followed by State bank of Indore, Saurashtra, Hydrabad,
Travancore, Mysore and Bikaner and Jaipur. Observing banks’ beta
values, suggestion can be given to all the banks except state bank of
Patiala and Indore to take necessary steps in order to improve their
efficiency in managing working capital. Again, a further study can be
conducted to find the problems of the individual banks in managing
working capital efficiently.
The project undertaken has helped a lot in gaining knowledge of the

“Credit Policy and working capital Management” in Nationalized Bank
with special reference to State Bank Of India. Credit Policy and Credit
Risk Policy of the Bank has become very vital in the smooth operation of
the banking activities. Working capital of the Bank provides the
framework to determine (a) whether or not to extend credit to a customer
and (b) how much credit to extend. The Project work has certainly
enriched the knowledge about the effective management of “Working
capital” and “Working capital Management” in banking sector.
· “Working capital Management” is a vast subject and it is very difficult to

cover all the aspects within a short period. However, every effort has
been made to cover most of the important aspects, which have a direct
bearing on improving the financial performance of Banking Industry.
To sum up, it would not be out of way to mention here that the State
Bank Of India has given special inputs on “Credit Policy” and “Working
capital management”. In pursuance of the instructions and guidelines
issued by the Reserve Bank of India, the State bank Of India is granting
and expanding credit to all sectors. The concerted efforts put in by the
Management and Staff of State Bank Of India has helped the Bank in
achieving remarkable progress in almost all the important parameters.

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The Bank is marching ahead in the direction of achieving the Number-1

position in the Banking.
This group comprises of the State Bank of India and its seven
subsidiaries viz., State Bank of Patiala, State Bank of Hyderabad, State
Bank of Travancore, State Bank of Bikaner and Jaipur, State Bank of
Mysore, State Bank of Saurashtra, State Bank of India State Bank of
India (SBI) is the largest bank in India. If one measures by the number of
branch offices and employees, SBI is the largest bank in the world.
Established in 1806as Bank of Bengal it is the oldest commercial bank in

the Indian subcontinent. SBI provides various domestic, international and
NRI products and services, through its vast network in India and
overseas. With an asset base of $126 billion and its reach, it is a regional
banking behemoth. The government nationalized the bank in1955, with
the Reserve bank of India taking a 60% ownership stake. In recent years
the bank has focused on two priorities, 1), reducing its huge staff through
Golden handshakeschemes known as the Voluntary Retirement
Scheme, which saw many of its best and brightest defect to the private
sector, and 2), computerizing its operations. Credit Risk Management in
State Bank Of India The State Bank of India traces its roots to the first
decade of19th century, when the Bank of culcutta, later renamed
theBank of bengal, was established on 2 jun 1806. The government
amalgamatted Bank of Bengal and two other Presidency banks, namely,
the Bank of Bombay and the bank of Madras, and named the
reorganized banking entity the Imperial Bank of India. All these
Presidency banks were incorporated ascompanies, and were the result
of theroyal charters. The Imperial Bank of India continued to remain a
joint stock company. Until the establishment of a central bank in India the
Imperial Bank and its early predecessors served as the nation's central
bank printing currency. The State Bank of India Act 1955, enacted by the
parliament of India, authorized the Reserve Bank of India, which is the
central Banking Organisationof India, to acquire a controlling interest in
the Imperial Bank of India, which was renamed the State Bank of India
on30th April 1955. In recent years, the bank has sought to expand its
overseas operations by buying foreign banks. It is the only Indian bank to
feature in the top 100 world banks in the Fortune Global 500 rating and

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various other rankings. According to the Forbes 2000 listing it tops all
Indian companies.
BIBILIOGRAPHY
www. sharekhan.com
www.indiainfoline.com
www.sbi.co.in
www.investopedia.com
www..wikepedia.com
I.M.PANDEY FINANCIAL MANAGEMENT

KHAN AND JAIN FINANCIAL MANAGEMENT
S.M.D MAHESWARI FINANCIAL MANAGEMENT
www.studyatfinance.com
www.financeprinciples.com
www.mbaguys.com
http://www.ece.cmu.edu/~koopman/essays/abstract.html
Page 61
OF SBI
http://www.rpi.edu/dept/llc/writecenter/web/abstracts.html>acce
ssed 2 February 2004
http://discuss.itacumens.com/index.php/topic,52179.0/prev_nex
t,prev.html#new
http://wiki.answers.com/Q/Bangalore_population_as_on_august
_2009
http://www.ifad.org/gender/tools/hfs/anthropometry/ant_3.htm
https://www.mysavingsatwork.com/atwork/1080912163747/110
0788684437/1127740752644.htm
QUESTIONNAIRE

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Dear Sir/ Madam,
As part of my MBA curriculum, I, Prakash Kumar Sharma,

is conducting a market research regarding the working capital
management on SBI for which I need your personal views
regarding the net working capital in shape of a questionnaire
designed by me. The data being collected are solely for academic
purpose. I request you to kindly extend your co-operation.
1) Name: 2) Profession:
3) Age group :( plz tick)
A)18-30 yrs. B)31-40 yrs. C)41-50 yrs. D)51-60 yrs.
4) How do you manage the working capital?
5) How much current Assets do you have?

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6) How do you distribute the current assets ?
7) How much current liabilities do you have?
8) In which area do you distribute the current liabilities?
9) Can you give me the net working capital of last four years?
10) Why in the year 2007 the working capital is in the good level?
11) Why in the year 2008 it was increased so much?
12) Why in the year 2009 net working capital is decreased more
than half?
13) How in the year 2010 SBI is able to manage the net working
capital?
THANKS

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OF SBI

Page 61

Report Analyzes Working Capital Management at State Bank of India

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REPORT ON WORKING CAPITAL MANAGEMENT July 21, 2010

SUBMITTED TO:- BY:- PRAKASH KUMAR

I take this opportunity to express my heart-felt gratitude to everyone

First of all, I acknowledge with thanks, the guidance and

A Study on Working Capital

Place: BANGALORE Name: PRAKASH KUMAR SHARMA

Date: 20TH JULY, 2010 MBA ( 2nd SEM)

PRAKASH KUMAR SHARMA

5. RESEARCH DESIGN & IMPLEMENTATION 27

6. PRESENTATION & ANALYSIS OF FINDINGS 46

PRAKASH KUMAR SHARMA

The study is an attempt to analyze the efficiency of working capital

PRAKASH KUMAR SHARMA

The findings from this research are as follows:-

Performance Index represents average performance index of the

PRAKASH KUMAR SHARMA

Individual bank wise analysis reveals that, State Bank of Travancore

Again, fluctuation in performance index is another interesting

PRAKASH KUMAR SHARMA

The working capital is the life-blood and nerve centre of a business

Working capital management is highly important in firms as it is used

amount of working capital varies across firms over the periods

a significant amount of fund is required to invest permanently in the form

Keeping in view the pragmatic importance of working capital

The specific purposes of the study are:

To examine the efficiency of working capital management practices of

Capital required for a business can be classified under two main

PRAKASH KUMAR SHARMA

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

2. Net working capital

CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

4) Short term loans and advances.

5) Inventories of stock as:

PRAKASH KUMAR SHARMA

c. Stores and spares

6. Temporary investment of surplus funds.

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT

Net working capital can be positive or negative. When the current

CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

PRAKASH KUMAR SHARMA

2. Short term loans, advances and deposits.

5. Provision for taxation , if it does not amt. to app. Of profit.

The gross working capital concept is financial or going concern

The gross concept is sometimes preferred to the concept of working

1. It enables the enterprise to provide correct amount of working capital

2. Every management is more interested in total current assets with

PRAKASH KUMAR SHARMA

4. This concept is also useful in determining the rate of return on

 It is qualitative concept, which indicates the firm’s ability to meet to its

 IT indicates the margin of protection available to the short term

 It is an indicator of the financial soundness of enterprises.

 It suggests the need of financing a part of working capital requirement

CLASSIFICATION OF WORKING CAPITAL:-

Working capital may be classified in to ways:

• On the basis of concept.

• On the basis of time.

PRAKASH KUMAR SHARMA

On the basis of concept working capital can be classified as gross