PART 1 BANKING SCENARIO IN INDIA

Banking Scenario in India

Banking in India originated in the first decade of 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the "The Bank of Bengal" in Calcutta in June 1806. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras. The presidency banks were established under charters from the British East India Company. They merged in 1925 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India. For many years the Presidency banks acted as quasi-central banks, as did their successors. The Reserve Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. A couple of decades later, foreign banks such as Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time, Calcutta was the most active trading port, mainly due to the trade of the British Empire, and due to which banking activity took roots there and prospered.

EARLY HISTORY:
Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India. It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire dEscompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities.

The Bank of Bengal, which later became the State Bank of India.

The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian Joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.

FROM WORLD WAR I TO INDEPENDENCE:

The period during the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities.At least 94 banks in India failed between 1913 and 1918 as indicated in the following

Year

Number Banks Failed

of Authorized Capital Paid up Capital that (Rs. Lacs) 274 710 56 231 76 209 (Rs lacs) 35 109 05 04 25 01

1913 1914 1915 1916 1917 1918

12 42 11 13 09 07

POST-INDEPENDENCE:
The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalization of major banks in India on 19th July, 1969.
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NATIONALISATION:
By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, thethen Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalization." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquition and Transfer of Undertaking) Bill, and it received the presidential approval on 9th August, 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India. Later on, in the year 1993, one of the nationalized banks, namely, New Bank of India was merged with Punjab National Bank. It was the first and only merger of a Nationalized Bank into a Nationalized Bank, resulting in the reducing the number of Nationalized Banks from 20 to 19.After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

LIBERALISATION:
In the early 1990s the then Narasimha Rao government embarked on a policy of liberalization and gave licenses to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks such as Global Trust Bank (the first of such new generation banks to be set up) which later amalgamated with Oriental Bank of Commerce, UTI Bank (now re-named as Axis Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, kick started the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.
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The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more.

CURRENT SITUATION:
Currently banking in India is generally fairly mature in terms of supply, product range and reacheven though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&as, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kodak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is Government of India is holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 49,000ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively

More Introductions of Products and Facilities;

In 1991, under the chairmanship of M. Narasimha, a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.

FUNCTIONS OF RESERVE BANK OF INDIA:

The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank to the Reserve Bank of India. With this act Reserve Bank of India became the sole regulatory body of the banking sector in India. It was entitled to perform the following functions. Bank of Issue: Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Originally, the assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War and the post-war period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Ra. 200 cores, of which at least Rs. 115 cores should be in gold. The system as it exists today is known as the minimum reserve system.
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At present, banknotes in India are issued in the denomination of Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000. These notes are called banknotes as they are issued by the Reserve Bank of India (Reserve Bank). The printing of notes in the denominations of Re.1, Rs. 2 and Rs.5 has been discontinued as these denominations have been coinised. However, such banknotes issued earlier can still be found in circulation and these banknotes continue to be legal tender. Every banknote issued by Reserve Bank of India (Rs.2, Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000) shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government, subject to provisions of sub-section (2) Section 26 of RBI Act, 1934. Currency Management; The Reserve Bank derives its role in currency management from the Reserve Bank of India Act; 1934.The Reserve Bank manages currency in India. The Government, on the advice of the Reserve Bank, decides on various denominations of banknotes to be issued. The Reserve Bank also co-ordinates with the Government in the designing of banknotes, including the security feature. The Reserve Bank estimates the quantity of banknotes that are likely to be needed denomination-wise and accordingly, places indent with the various printing presses. Banknotes received from banks and currency chests are examined and those fit for circulation are reissued and the others (soiled and mutilated) are destroyed so as to maintain the quality of banknotes in circulation. In terms of Section 25 of RBI Act, 1934 the design of banknotes is required to be approved by the Central Government on the recommendations of the Central Board of the Reserve Bank of India. The responsibility for coinage vests with the Government of India on the basis of the Coinage Act, 1906 as amended from time to time. The Government of India also attends to the designing and minting of coins in various denominations. The Reserve Bank decides the volume and value of banknotes to be printed each year. The quantum of banknotes that needs to be printed, broadly depends on the requirement for meeting the demand for banknotes due to inflation, GDP growth, replacement of soiled banknotes and reserve stock requirements

Banker to Government: The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. To keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matter.

Controller of Credit: The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank. The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a license from the Reserve Bank of India to do banking business within India, the license can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective Control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank. As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers:
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a) It holds the cash reserves of all the scheduled banks. b) It controls the credit operations of banks through quantitative and qualitative control. c) It controls the banking system through the system of licensing, inspection and calling for information. d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.

Custodian of Foreign Reserves: The Reserve Bank of India has the responsibility to maintain the official rate of exchange According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d. Though there were periods of extreme pressure in favor of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F. Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country.

Supervisory functions: In addition to its traditional central banking functions, the Reserve bank has certain nonmonetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorized to
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carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalization of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realization of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.

Classification of RBIs functions:

The monetary functions also known as the central banking functions of the RBI are related to control and regulation of money and credit, i.e., issue of currency, control of bank credit, control of foreign exchange operations, banker to the Government and to the money market. Monetary functions of the RBI are significant as they control and regulate the volume of money and credit in the country. Equally important, however, are the non-monetary functions of the RBI in the context of India's economic backwardness. The supervisory function of the RBI may be regarded as a nonmonetary function (though many consider this a monetary function). The promotion of sound banking in India is an important goal of the RBI, the RBI has been given wide and drastic powers, under the Banking Regulation Act of 1949 - these powers relate to licensing of banks.

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Banking Structure in India

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Scheduled Commercial Banks:

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Scheduled Commercial Banks are those included in the second schedule of the Reserve Bank of India Act, 1934. In terms of ownership and function, commercials banks can be classified into four categories;

1) Public sector Banks.

Public sector banks are those in which the government has the major holding. These can be classified into two groups. State Bank of India and its Associates. The state bank of India was initially known as the Imperial Bank, which was formed in 1921 by the amalgamation of three presidency banksthe bank of Bengal, the bank of Bombay and the bank of Madras. The imperial bank acted as a bank to the government until the establishment of RBI in 1935. The imperial bank was nationalized under the State Bank of India; Act 1955.this marked the first phase of the nationalization of the banks. The main objective of the nationalization was to extend banking facilities on a large scale particularly in the rural and semiurban areas. The state bank of India has the seven subsidiaries. The state bank of Bikaner and Jaipur. The state bank of Hyderabad. The state bank of Indore. The state bank of Mysore. The state bank of Patiala. The state bank of Saurashtra. The state bank of Travancore.

2) Nationalized Bank
In 1969, fourteen big Indian joint stock banks in the private sector were nationalized. The nationalization was effected by an ordinance which was later replaced by an act of Parliament, known as Banking Companies (Acquisition and Transfer of Under takings) Act, 1970.the major objective of the nationalization was to widen the branch net work of the banks particularly in the rural and the semi urban areas which, in turn, would help in the greater mobilsation of savings
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and flow of credit to neglected sectors such as, Agriculture and small scale industries. Public sector banks have an edge over private sector banks in term of size, geographical reach and access to low cost deposits. Huge Size enables them to cater to the large credit need of corporates. The nationalized banks are a dominant segment in commercial Banking. Public sector banks dominate with 75% of deposits and 71% of advances in the industry.

2) Private Sector Banks.

For over two decades, after nationalization of 14 large banks in 1969, no banks were allowed to be set up in the private sector. The Narasimha Committee, in its first report, recommended the freedom of entry into the financial system. The banks which have been set up in the 1990s under the guidelines of the Narasimha Committee are referred to as new private sector banks. New private sector banks to with stand the competition from the public sector banks came up with innovative products and superior services. They tapped new market such as retailing, capital markets etc. They accessed low cost NRI funds and managed the associated Forex risk for them. HDFC Bank had the lowest cost of deposits in 2003-04. Given the greater efficiency of private sector banks, public sector banks started loosing market share and have been doing soat about 1% per annum.

3) Foreign Banks.
Foreign banks have been operating in India since decades. A few foreign banks have been operating in India for over a century. ANZ Grind lays has been in India for more than hundred years, while Standard Chartered Bank ha been around since 1858. The presence of foreign banks in India has benefitted the financial system by enhancing competition, transfer of technology and specialized skills in higher efficiency and greater customer satisfaction. They have also enabled large Indian companies to access foreign currency resources from their overseas branches. They are active players in the money market and foreign exchange market which has contributed to enhancing the liquidity and deepening of these markets in terms of both volumes and products. New foreign banks are allowed to conduct business in India after taking into consideration the financial soundness of the bank, international and home country ranking, rating, international presence and economic and political relations between the countries.

4) Regional Rural Banks.

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A new category of scheduled banks came into existence in 1975 when six regional rural banks (RRBs) came into existence under the regional rural banks ordinance, 1975. This ordinance was promulgated by the government of India on 26 September 1975. This ordinance was subsequently replaced by Regional Rural Banks Act, 1976. Although cooperative and commercial banks achieved a high reach and disbursement of credit, there existed a vast gap in the area of rural credit. In order to fill up this gap, a new set up of banks, namely, RRBs was established. Each RRB is sponsored by a public sector bank. The authorized capital of each RRB is Rs one core and the issued capital is Rs 25 lakh. Out of this issued capital, 50% is authorized by the government of India, 15% by concerned state government and the rest 35% by the sponsor bank.

Cooperative Banking;
Cooperative Banks came into existence with the enactment of the cooperative credit societys act of 1904 which provided for the formation of cooperative credit societies. Subsequently, in 1912, a new act was passed which provided for the formation of cooperative central banks. Cooperative credit institutions play a pivotal role in the financial system of the economy in terms oh their reach, volume of operations and the purpose they serve. Cooperative banks fill in the gaps of banking needs of small and medium income groups not adequately met through by the public and private sector banks. The cooperative banking system supplements the efforts of the commercial banks in mobilizing savings and meeting the credit needs of the local population. The cooperative credit sector in India comprises rural cooperative institutions and urban cooperative banks. The rural cooperative credit institutions comprise of institutions such as state cooperative banks, district central cooperative banks and primary agriculture credit societies, which specialize in short term credit and institutions such as state cooperative agriculture & rural development banks and primary cooperative agriculture & rural development banks, which specialize in long term credit. Urban cooperative banks (UCBs) are mostly engaged in retail banking. They are not permitted to deal in foreign exchange directly because of the high risk involved in the Fore business. Urban cooperative banks mobilize saving from middle and low income urban groups and purvey the credit to the weaker sections.

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PART2 Company profile

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State bank of India

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 2 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.

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 statesponsored bank.

The All India Rural Credit Survey Committee proposed the takeover 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.

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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 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.

Branches
the corporate center of SBI is located in Mumbai. In order to cater to different functions, there are several other establishments in and outside Mumbai, apart from the corporate center. The bank boasts of having as many as 14 local head offices and 57 Zonal Offices, located at major cities throughout India. It is recorded that SBI has about 10000 branches, well networked to cater to its customers throughout India.

ATM
SBI provides easy access to money to its customers through more than 8500 ATMs in India. The Bank also facilitates the free transaction of money at the ATMs of State Bank Group, which includes the ATMs of State Bank of India as well as the Associate Banks State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, etc. You may also transact money through SBI Commercial and International Bank Ltd by using the State Bank ATM-cum-Debit (Cash Plus) card. Subsidiaries. The State Bank Group includes a network of eight banking subsidiaries and several non-banking subsidiaries. Through the establishments, it offers various services including merchant banking services, fund management, factoring services, primary dealership in government securities, credit cards and insurance.

The eight banking subsidiaries are:

State Bank of Bikaner and Jaipur (SBBJ) State Bank of Hyderabad (SBH) State Bank of India (SBI) 20

State Bank of Indore (SBIR) State Bank of Mysore (SBM) State Bank of Patiala (SBP) State Bank of Saurashtra (SBS) State Bank of Travancore (SBT)

STATE BANK OF PATIALA

State Bank of Patiala is an associate bank of State Bank of India. State Bank of Patiala (SBP), originally named Patiala State Bank, and currently an associate bank of the State Bank of India, was founded on 17 November 1917. SBP was founded by Maharaja Bhupinder Singh, Maharaja of the princely state of Patiala of Undivided India, and the functions of the Bank included the normal functions of commercial banks, as also some functions similar to functions of a central bank for the princely state of Patiala. After Indias independence, the Bank was made a wholly owned subsidiary of the Government of Punjab. On 1 April 1960, SBP was accorded the status of an Associate bank of the State Bank Group. Presently, the State Bank of Patiala has a network of 1035 service outlets, including 1010 branches, in all major cities of India, but most of the branches are located in the Indian states of Punjab, Haryana, Himachal Pradesh, Rajasthan, Madhya Pradesh, Jammu & Kashmir, Delhi and Gujarat.

Distribution network
The business of State Bank of Patiala has grown manifold since its establishment. Recent records say that State Bank of Patiala is networked by its 830 service outlets. There are more than 1000 branches of SBP, spread across the major cities of India, out of which, the majority of branches are located in its home State, Haryana, Himachal Pradesh, Rajasthan, Jammu & Kashmir, Delhi and Chandigarh. The Bank provides easy access to money to its customers through its ATMs spread over 16 states of India. It was the first bank in India to go on CORE 100%., the Bank has grown to a network of 1060 branches and 25 Extension Counters spread over 20 States and 1 UT, and total business of more than Rs. 1,45,000 corers as on 30TH JUNE 2012.

Mission
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To retain the banks position as the premier Indian financial services. Its also aims to be a group with world class standard and significant global business commitment to quality in customer, shareholder and employee satisfaction.

Vision
It aims to maximize its shareholder value through high sustained earning per share.

Competitors and other player in the field:

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Related product and services:

Bank offers fruitful product like Insurance, mutual fund investment, general insurance & credit cards under tie up arrangement various companies as under: Sr.no. Tie-up company 1 2 SBI life insurance co.ltd. Type of product All type of life insurance product

SBI mutual fund UTI MF,frankin Mutual fund templetion MF

3 4

United India insurance co.ltd. SBI cards & payment services ltd.

Non-life insurance product credit card product

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SBI Life Insurance Products: - SBI Life Insurance products are of two types:1. Group Products a) Group Swadhan Insurance: - This is a simple insurance product available for all account holders of our bank in the age group of 18 to 50 years at a very affordable premium. Under the scheme Sum Assured for ` 50,000, ` 1 lac, `3 lac & ` 5 lac is available. b) Rinnraksha Scheme: - This scheme covers the House, Vehicle, Education & Personal Loan borrowers of the bank. In unfortunate event of death the loan outstanding amount (according to EMI Schedule) is adjusted with the claim received from SBI Life Insurance Co. 2. Individual Products: - These products can be sold by the Certified Insurance Felicitators (CIF, a staff member specifically trained, as per IRDA norms, for sale of individual insurance products).At present the main products for sale are:-

Saral Shied: - It is an individual without profit pure term insurance plan. Minimum age:
18 years Max Entry age: 60 years Maturity/vesting age: 65 years Min. term 5 years, Minimum Sum Assured Rs.7.50 Lacs/Maximum Rs. 24.00 Lacs, Riders: Preferred Term/Accidental Death Benefit/Accidental Total Permanent Disability is also available.

Smart Shield: - It is an individual without profit pure term insurance plan. Minimum
age: 18 years Max Entry age: 65 years Maturity/vesting age: 70 years Min. term 5 years, Minimum Sum Assured-Rs.25.00Lacs/Maximum-no limit, Riders: Preferred Term/Accidental Death Benefit/Accidental Total Permanent Disability is also available.

Smart Money Back: - It is an individual endowment assurance product with money

back plan where in case policyholder is alive at specific durations (end of policy years).During the policy term, a fixed % of the basic sum assured is paid to him as survival benefit in fixed number of installments. Minimum Age: 14 years Max Entry Age: 58 years Maturity/vesting age: 70 years, Term 12/15/20/25 years.

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 Subh Nivesh:

- It is an individual participating traditional savings cum whole life

endowment plan primarily designed as savings vehicle with protection along with income generation and wealth transformation. It is a regular premium plan for a term varies from 5 to 30 years with a minimum annual premium payment of Rs. 6000.00 per annum and minimum/maximum entry age is 18/60 years.

Smart Wealth: - It is an individual Unit Link single premium insurance product. This
product provides the policyholders two types of investment return, namely Guaranteed Return and Market Linked Return. Minimum Term 10 years, Minimum Premium Amount Rs.50000

Flexi Smart Insurance: - It is an individual, non-linked traditional life insurance cum

saving plan with guaranteed interest rate of 2.50%p.a. for the entire policy term. This product provides the flexibilities to policy holders to choose option of premium holiday during the policy term, increase or decrease the Sum Assured (SA), SA multiplier factor (SAMF),boost investment through Top-ups. Minimum Age: 8 years Max. Entry age: 60 Years, Maturity/Vesting Age: 70 Years, Premium term: 10 to 20 years, Premium Mode: Regular Premium.

Hospital Cash: - It is an Individual/Non- unitlinked/Health Plan which provides daily

cash benefit to cover hospitalization expenses due to sickness/accident. In the product 3 types of benefit is available: (a)Daily Hospital Cash Benefit (DHCB) this benefit is payable in the event of hospitalization (other than ICU) of the Life Assured for a continuous period of more than 24 hours of hospitalization (b)Intensive Care Unit Benefit (ICU) This benefit is payable in the event of hospitalization in an ICU of the Life Assured for a continuous period of more than 24 hours of hospitalization.

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(c) Family Care Benefit if in case, members covered under the same policy are hospitalized simultaneously due to same ailment or due to same event of accident for at least 5consecutive days, then an additional lump sum equivalent to Rs.10000 Minimum age: 1 years Max Entry age: 65 years Maturity/vesting age: 75 years Min. term 3 years (Fixed) Max Term 3 years (Fixed) Premium Mode: Regular Premium

Smart Horizon:

- It is a unit-linked product with an option of both active fund

management and/or passive fund management with the feature of Automatic Asset Allocation. The customer can also choose a mix between Passive & Active fund management. Minimum and maximum annual premium under yearly premium mode of Rs. 24,000/- & Rs 74,000/- respectively. The policy term is of 10 years and any term between 15 years and 30 years.

Smart Pension: - It is a ULIP pension product with minimum single premium mode of
Rs. 50,000/-and no maximum limit of premium. It has 4 fixed policy terms: 10/15/20/25 years. The minimum & maximum entry age is 30 years and 65 years respectively Minimum Term 10 years, Maturity Benefit: 1/3rd of commutable, 2/3rd Annuity (compulsory), Death Benefit, Fund Value.

Smart Scholar: - It is a unit-linked non-participating product for securing the future

needs of the child. The risk cover is on the life of the proposer who is the life assured. The nominee at the point of sale must be a child whose interest the policyholder wants to protect. Entry Age for child- 0 to17 years, for parents 18 to 57 years. Maturity/Vesting Age 65 years, Minimum Term 8 years, Maximum Term 25 years, Guaranteed Addition available from 8th Policy year 1% x (Average fund value over the 1st day of the last 24 policy months).

Smart Elite:

- It is an individual unit-linked product designed mainly for preferred

(HNI) customer. It offers Limited Premium paying Term and Single Premium payment option. Minimum Entry 18 years, Max Entry age: 60 years, Maturity/Vesting Age 65 years, Minimum Term 5 years, Maximum Term 20 years.
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B. Mutual Fund Investments: - The main products are as under:1. SBI Gold Fund 2. SBI Magnum Tax Gain 3. SBI Magnum Emerging Business 4. Magnum FMCG 5. Magnum Global 6. Franklin India Blue Chip 7. Franklin India Tax Shield 8. Franklin India Prima Plus 9. UTI Opportunities 10. UTI Dividend Yield

C. General Insurance Business: 1. Insurance Cover of buildings, Machinery, Goods, and Vehicles etc. can be got from our branches through United India Insurance Co. Ltd. 2. Our account holders can have accidental insurance cover of ` 2.5 lacs at annual premium of ` 50 only and cover of ` 5 lacs (with PAN Card) at ` 98 only.

D. SBI Credit Cards:1. Our bank is only sourcing the applications for SBI Credit Cards. The credit decision regarding the approval or otherwise of the applications sourced would vest with SBICPSL.
27

2. This product is available at selected centres approved SBI Credit Cards.

RELATED PRODUCTS
SBI Mutual Fund SBI Life Insurance SBI Card

RELATED FORMS
SBI Credit Card United India Insurance Co. Ltd. UTI Mutual Fund

PART 3

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RESEARCH METHODOLOGY

Research methodology
PROJECT TITLEA study of finance MARKET FESIBILITY OF CASH CREDIT IN STATE BANK OF PATIALA, JAIPUR.

DURATION OF PROJECT- 45 DAYS

OBJECTIVE OF THE PROJECT-

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To ascertain the awareness of the cash credit as a product/ offering of SBP Bank. To identify the major market players of this offering and their respective share. To assess the importance of the loyalty of the customers vis--vis financers. To identify the share/ segment (whether it exists or not) for the said offering of the SBP Bank

RESEARCHResearch Methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. When we talk of research methodology we not only talk of research methods but also consider the logic behind the methods we use in the context of the research study and why we are not using other methods so that research results are capable of being evaluated either by the researcher himself or by others.

Research Area:
Research area of my study is Hyundai motors India ltd. More specifically my research area is to do financial analysis of this company. It includes sales, production, cost, profit, liquidity and solvency analysis of this company. To study its Corporate Social Responsibility and its concern towards environment and safety also formed a part of my research area.

Research Design: Data Collection and Sampling:

Sources of Data Collection:-Basically there are two types of data i.e. secondary and primary: Primary Data Collection:Primary data collection contains the following four types of methods: 1) Observation Method 2 ) Experimental Method. 3) Panel Method.
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Secondary Data Collection 1) Internal Source: Various internal sources like employee, books, sales activity, stock availability, product cost, etc. 2) External Sources: Libraries, trade publications, literatures, etc. are some important sources of external data. In this our survey team has used primary data for the core purpose of the project and this primary data has been gathered by survey method. We have also used secondary data to know the background of the company.

TOOLS AND TECHNIQUES

The following tools and techniques were implemented and put to use in order to analyze ably.

Statistical Tools:
Pie charts

Technological Tools:
Ms- Excel Ms-Word

Working Capital finance

Working capital, also known as "WC", is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. Net working capital is working capital minus cash (which is a current asset). It is a derivation of working capital, which is commonly used in valuation techniques such as DCFs (Discounted cash flows).

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Working Capital = Current Assets Current Liabilities A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash.

Working capital management

Working capital management Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short term assets and its short term liabilities. The goal of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. The term working capital has several meanings in business and economic development finance. In accounting and financial statement analysis, working capital is defined as the firms shortterm or current assets and current liabilities. Net working capital represents the excess of current assets over current liabilities and is an indicator of the firms ability to meet its short-term financial obligations. From a financing perspective, working capital refers to the firms investment in two types of assets. In one instance, working capital means a businesss investment in short-term assets needed to operate over a normal business cycle. This meaning corresponds to the required investment in cash, accounts receivable, inventory, and other items listed as current assets on the firms balance sheet. In this context, working capital financing concerns how a firm finances its current assets. A second broader meaning of working capital is the companys overall no fixed asset investments. Businesses often need to finance activities that do not involve assets measured on the balance sheet. For example, a firm may need funds to redesign its products or formulate a new marketing strategy, activities that require funds to hire personnel rather than acquiring accounting assets. When the returns for these soft costs investments are not immediate but rather are reaped over time through increased sales or profits, then the company needs to finance them. Thus, working capital can represent a broader view of a firms
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capital needs that includes both current assets and other no fixed asset investments related to its operations. We use this last meaning of working capital and focus on the tools and issues involved in financing these business investments. Business Uses of Working Capital Just as working capital has several meanings, firms use it in many ways. Most fundamentally, working capital investment is the lifeblood of a company. Without it, a firm cannot stay in business. Thus, the first, and most critical, use of working capital is providing the ongoing investment in short-term assets that a company needs to operate. A business requires a minimum cash balance to meet basic day-to-day expenses and to provide a reserve for unexpected costs. It also needs working capital for prepaid business costs, such as licenses, insurance policies, or security deposits. Furthermore, all businesses invest in some amount of inventory, from a law firms stock of office supplies to the large inventories needed by retail and Wholesale enterprises. Without some amount of working capital finance, businesses could not open and operate. A second purpose of working capital is addressing seasonal or cyclical financing needs. Here, working capital finance supports the buildup of short-term assets needed to generate revenue, but which come before the receipt of cash. For example, a toy manufacturer must produce and ship its products for the holiday shopping season several months before it receives cash payment from stores. Since most businesses do not receive prepayment for goods and services, they need to finance these purchase, production, sales, and collection costs prior to Receiving payment from customers.

Capital Financing.
There is always a minimum level of current assets or working capital which is continuously required by the firm to carry on its business operations. This minimum level of current assets is known as permanent or fixed working capital. It is permanent in the same way as the firms fixed assets are. This portion of working capital has to be financed by permanent sources of funds such as; share capital, reserves, debentures and other forms of long term borrowings. The extra working capital needed to support the changing production and sales is called fluctuating or variable or temporary working capital. This has to be financed on short term basis. The main

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sources for financing this portion are trade credit, bank credit, factoring and commercial paper that bank financing assumes significance in the working capital financing of industrial concerns.

WORKING CAPITAL FINANCING BY BANKS

A commercial bank is a business organization which deals in money i.e. lending and borrowing of money. They perform all types of functions like accepting deposits, advancing loans, credit creation and agency functions. Besides these usual functions, one of the most important functions of banks is to finance working capital requirement of firms. Working capital advances forms major part of advance portfolio of banks. In determining working capital requirements of a firm, the bank takes into account its sales and production plans and desirable level of current assets. The amount approved by the bank for the firms working capital requirement is called credit limit. Thus, it is maximum fund which a firm can obtain from the bank. In the case of firms with seasonal businesses, the bank may approve separate limits for peak season and nonpeak season. These advances were usually given against the security of the current assets of the borrowing firm. Usually, the bank credit is available in the following forms:

Cash Credit Under this facility, the bank specifies a predetermined limit and the borrower is
allowed to withdraw funds from the bank up to that sanctioned credit limit against a bond or other security. However, the borrower cannot borrow the entire sanctioned credit in lump sum; he can draw it periodically to the extent of his requirements. Similarly, repayment can be made whenever desired during the period. There is no commitment charge involved and interest is payable on the amount actually utilized by the borrower and not on the sanctioned limit.

Overdraft Under this arrangement, the borrower is allowed to withdraw funds in excess of the
actual credit balance in his current account up to a certain specified limit during a stipulated period against a security. Within the stipulated limits any number of withdrawals is permitted by the bank. Overdraft facility is generally available against the securities of life insurance policies, fixed deposits receipts, Government securities, shares and debentures, etc. of the corporate sector. Interest is charged on the amount actually withdrawn by the borrower, subject to some minimum (commitment) charges.

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Loans Under this system, the total amount of borrowing is credited to the current account of
the borrower or released to him in cash. The borrower has to pay interest on the total amount of loan, irrespective of how much he draws. Loans are payable either on demand or in periodical installments. They can also be renewed from time to time. As a form of financing, loans imply a financial discipline on the part of the borrowers.

Bills Financing This facility enables a borrower to obtain credit from a bank against its bills.
The bank purchases or discounts the bills of exchange and promissionary notes of the borrower and credits the amount in his account after deducting discount. Under this facility, the amount provided is covered by cash credit and overdraft limit. Before purchasing or discounting the bills, the bank satisfies itself about the creditworthiness of the drawer and genuineness of the bill.

Letter of Credit While the other forms of credit are direct forms of financing in which the
banks provide funds as well as bears the risk, letter of credit is an indirect form of working capital financing in which banks assumes only the risk and the 3 supplier himself provide the funds. A letter of credit is the guarantee provided by the buyers banker to the seller that in the case of default or failure of the buyer, the bank shall make the payment to the seller. The bank opens letter of credit in favor of a customer to facilitate his purchase of goods. This arrangement passes the risk of the supplier to the bank. The customer pays bank charges for this facility to the bank.

Working Capital Loan Sometimes a borrower may require additional credit in excess of
sanctioned credit limit to meet unforeseen contingencies. Banks provide such credit through a Working Capital Demand Loan (WCDL) account or a separate nonoperable cash credit account. This arrangement is presently applicable to borrowers having working capital requirement of Rs.10 crores or above. The minimum period of WCDL keeps on changing. WCDL is granted for a fixed term on maturity of which it has to be liquidated, renewed or rolled over. On such additional credit, the borrower has to pay a higher rate of interest more than the normal rate of interest.

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SECURITY REQUIRED IN BANK FINANCE

Banks generally do not provide working capital finance without adequate security. The nature and extent of security offered play an important role in influencing the decision of the bank to advance working capital finance. The bank provides credit on the basis of following modes of security:

Hypothecation Under this mode of security, the banks provide working capital finance to the
borrower against the security of movable property, generally inventories. It is a charge against property for the amount of debt where neither ownership nor possession is passed to the creditor. In the case of default the bank has the legal right to sell the property to realize the amount of debt.

Pledge A pledge is bailment of goods as security for the repayment of a debt or fulfillment of
a promise. Under this mode, the possession of goods offered as security passes into the hands of the bank. The bank can retain the possession of goods pledged with it till the debt (principal amount) together with interest and other expenses are repaid. . In case of non-payment of loan the bank may either; Sue the borrower for the amount due; Sue for the sale of goods pledged; or after giving due notice, sell the goods.

Lien Lien means right of the lender to retain property belonging to the borrower until he
repays the debt. It can be of two types: (i) Particular lien and (ii) General lien. Particular lien is a right to retain property until the claim associated with the property is fully paid. On the other hand, General lien is applicable till all dues of the lender are paid. Banks usually enjoy general lien.

Mortgage 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, while the lender enjoys the full legal title. The mortgage interest in the property is terminated as soon as the debt is paid. Mortgages are taken as an additional security for working capital credit by banks.
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Charge Where immovable property of one person is made security for the payment of money
to another and the transaction does not amount to mortgage, the latter person is said to have a charge on the property and all the provisions of simple mortgage will apply to such a charge. A charge may be created by the act of parties or by the operation of law. It is only security for payment.

REGULATION OF BANK CREDIT

Till the sixties, bank credit for working capital was available easily and in convenient form to industrial borrowers. Further, the cash credit arrangement, the principal device through which such finance has been provided, is quite advantageous from the point of view of borrowers. Banks have not been concerning themselves about the soundness of the borrower or about the actual end use of the loan. Bank financing was mainly security oriented. This security oriented system tended to favor borrowers with strong financial resources irrespective of their economic function. This resulted in the concentration of economic power. Another problem was that the increase in the bank credit was not commensurate with the expansion in the level of inventory and production. This resulted in a number of distortions in financing of working capital by banks. Major Banks was nationalized in 1969 and with that, approach to lending also changed. Consequently, bank credit has been subjected to various rules, regulations and controls. The basic objective of regulation and control of bank credit is to ensure its equitable distribution to various sectors of the Indian economy. The RBI has been trying, particularly from the midsixties onwards, to bring a measure of discipline among industrial borrowers and to redirect credit to priority sectors of the economy. The RBI has been issuing guidelines and directives to the banking sectors towards this end. Important guidelines and directives have derived from the recommendations of certain specially constituted groups assigned with the task of examining various aspects of bank finance to industry.

RECENT RBI GUIDELINES REGARDING WORKING CAPITAL FINANCE

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In the past, working capital financing was constrained with detailed regulations on how much credit the banks could give to their customers. The recent changes made by RBI in the guidelines for bank credit for working capital finance are discussed below: 1. The notion of Maximum Permissible Bank Finance (MPBF) has been abolished by RBI and a new system was proposed by the Indian Banking Association (IBA). This has given banks greater freedom and responsibility for assessing credit needs and credit worthiness. The salient features of new system are: - For borrowers with requirements of upto Rs. 25 lakhs, credit limits will be computed after detailed discussions with borrower, without going into detailed evaluation. - For borrowers with requirements above Rs. 25 lakhs, but upto Rs. 5 crores, credit limit can be offered upto 20% of the projected gross sales of the borrower. - For large borrowers not selling in the above categories, the cash budget system may be used to identify the working capital needs. However, RBI permits banks to follow Tandon/Chore Committee guidelines and retain MPBF concept with necessary modifications. 2. Earlier RBI had prescribed consortium arrangements for financing working capital beyond Rs. 50 crores. Now it is not essential to have consortium arrangements. However, banks may themselves decide to form consortium so that the risks are spread. The disintegration of consortium system, the entry of term lending institutions into working capital finance and the emergence of money market borrowing options gives the best possible deal. 3. Banks were advised not to apply the second method of lending for assessment of MPBF to those exporter borrowers, who had credit export of not less than 25% of their total turnover during the previous accounting year, provided that their fund based working capital needs from the banking system were less than Rs. 1 crore. RBI has also suggested that the units engaged in export activities need not bring in any contribution from their long term sources for financing that portion of current assets as is represented by export receivables. 4. RBI had also issued lending norms for working capital, under which the banks would decide the levels of holding of inventory and receivables, which should be supported by bank finance,
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after taking into account the operating cycle of an industry as well as other relevant factors. Other aspects of lending discipline, via; maintenance of minimum current ratio, submission and use of data furnished under quarterly information system etc. would continue though with certain modifications, which would make it easier for smaller borrowers to comply with these guidelines.

ASSETS Current assets (CA)

LIABILITIES Current liabilities (CL)

Long-term liabilities & owners equity Long-term assets Share of current assets financed with long term capital

Net working capital requires long term financing Forms of Working Capital Financing
Working capital financing comes in many forms, each of which has unique terms and offers certain advantages and disadvantages to the borrower. This section introduces the five major forms of debt used to finance working capital and discusses the relative advantages of each one. The purpose of this information is to provide insight into the different ways in which debt can be structured and prepare practitioners to choose and structure a debt tool best suited to a firms financial situation and needs. The major features of the five working debt tools described below.

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Line of Credit A line of credit is an open-ended loan with a borrowing limit that the business can draw against or repay at any time during the loan period. This arrangement allows a company flexibility to borrow funds when the need arises for the exact amount required. Interest is paid only on the amount borrowed, typically on a monthly basis. A line of credit can be either Current Assets (CA) Long-term Assets. Specific assets such as accounts receivable or inventory. The standard term for a line of credit is 1 year with renewal subject to the lenders annual review and approval. Since a line of credit is designed to address cyclical working capital needs and not to finance long-term assets, lenders usually require full repayment of the line of credit during the annual loan period and prior to its renewal. This repayment is sometimes referred to as the annual cleanup. Two other costs, beyond interest payments, are associated with borrowing through a line of credit. Lenders require a fee for providing the line of credit, based on the lines credit limit, which is paid whether or not the firm uses the line. This fee, usually in the range of 25 to 100 basis points, covers the banks costs for underwriting and setting up the loan account in the event that a firm does not use the line and the bank earns no interest income. A second cost is the requirement for a borrower to maintain a compensating balance account with the bank. Under this arrangement, a borrower must have a deposit account with a minimum balance equal to a percentage of the line of credit, perhaps 10% to 20%. If a firm normally maintains this balance in its cash accounts, then no additional costs are imposed by this requirement. However, when a firm must increase its bank deposits to meet the compensating balance requirement, then it is incurring an additional cost. In effect, the compensating balance reduces the businesss net loan proceeds and increases its effective interest rate. Consider a line of credit for $1 million at a 10% interest rate with a 20% compensating balance requirement. When the company fully draws on the line of credit, it will have borrowed $1 million but must leave $200,000 on deposit with the lender, resulting in net loan proceeds of $800,000. However, it pays interest on the full $1 million drawn. Thus, the effective annual interest rate is 12.5% rather than 10% (one years interest is $100,000 or 12.5% of the $800,000 in net proceeds). Like most loans, the lending terms for a line of credit include financial covenants or minimal financial standards that the borrower must meet. Typical financial covenants include a minimum current ratio, a minimum net worth, and a maximum debt-to-equity ratio. The advantages of a line of credit are twofold. First, it allows a company to minimize the principal borrowed and the resulting interest
40

payments. Second, it is simpler to establish and entails fewer transaction and legal costs, particularly when it is unsecured. The disadvantages of a line of credit include the potential for higher borrowing costs when a large compensating balance is required and its limitation to financing cyclical working capital needs. With full repayment required each year and annual extensions subject to lender approval, a line of credit cannot finance medium-term or long-term Working capital investments. Accounts Receivable Financing Some businesses lack the credit quality to borrow on an unsecured basis and must instead pledge collateral to obtain a loan. Loans secured by accounts receivable are a common form of debt used to finance working capital. Under accounts receivable debt, the maximum loan amount is tied to a percentage of the borrowers accounts receivable. When accounts receivable increase, the allowable loan principal also rises. However, the firm must use customer payments on these receivables to reduce the loan balance. The borrowing ratio depends on the credit quality of the firms customers and the age of the accounts receivable. A firm with financially strong customers should be able to obtain a loan equal to 80% of its accounts receivable. With weaker credit customers, the loan may be limited to 50% to 60% of accounts receivable. Additionally, a lender may exclude receivables beyond a certain age (e.g., 60 or 90 days) in the base used to calculate the loan limit. Older receivables are considered indicative of a customer with financial problems and less likely to pay.3 Since accounts receivable are pledged as collateral, when a firm does not repay the loan, the lender will collect the receivables directly from the customer and apply it to loan payments. The bank receives a copy of all invoices along with an assignment that gives it the legal right to collect payment and apply it to the loan. In some accounts receivable loans, customers make payments directly to a bank-controlled account (a lock box). Firms gain several benefits with accounts receivable financing. With the loan limit tied to total accounts receivable, borrowing capacity grows automatically as sales grow. This automatic matching of credit increases to sales growth provides a ready means to finance expanded sales, which is especially valuable to fast-growing firms. It also provides a good borrowing alternative for businesses without the financial strength to obtain an unsecured line of credit. Accounts receivable financing allows small businesses with creditworthy customers to use the stronger credit of their customers to help borrow funds. One disadvantage of accounts receivable
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financing is the higher costs associated with managing the collateral, for which lenders may charge a higher interest rate or fees. Since accounts receivable financing requires pledging collateral, it limits a firms ability to use this collateral for any other borrowing. This may be a concern if accounts receivable are the firms primary asset. Factoring Factoring entails the sale of accounts receivable to another firm, called the factor, who then collects payment from the customer. Through factoring, a business can shift the costs of collection and the risk of nonpayment to a third party. In a factoring arrangement, a company and the factor work out a credit limit and average collection period for each customer. As the company makes new sales to a customer, it provides an invoice to the factor. The customer pays the factor directly, and the factor then pays the company based on the agreed upon average collection period, less a slight discount that covers the factors collection costs and credit risk. In addition to absorbing collection risk, a factor may advance payment for a large share of the invoice, typically 70% to 80%, providing the company with immediate cash flow from sales. In this case, the factor charges an interest rate on this advance and then deducts the advance amount from its final payment to the firm when an invoice is collect. Factoring has several advantages for a firm over straight accounts receivable financing. First, it saves the cost of establishing and administering its own collection system. Second, a factor can often collect accounts receivable at a lower cost than a small business, due to economies of scale, and transfer some of these savings to the company. Third, factoring is a form of collection insurance that provides an enterprise with more predictable cash flow from sales. On the other hand, factoring costs may be higher than a direct loan, especially when the firms customers have poor credit that lead the factor to charge a high fee. Furthermore, once the collection function shifts to a third party, the business loses control over this part of the customer relationship, which may affect overall customer relations, especially when the factors collection practices differ from those of the company Inventory Financing As with accounts receivable loans, inventory financing is a secured loan, in this case with inventory as collateral. However, inventory financing is more difficult to secure since inventory
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is riskier collateral than accounts receivable. Some inventory becomes obsolete and loses value quickly, and other types of inventory, like partially manufactured goods, have little or no resale value. Firms with an inventory of standardized goods with predictable prices, such as automobiles or appliances, will be more successful at securing inventory financing than businesses with a large amount of work in process or highly seasonal or perishable goods. Loan amounts also vary with the quality of the inventory pledged as collateral, usually ranging from 50% to 80%. For most businesses, inventory loans yield loan proceeds at a lower share of pledged assets than accounts receivable financing. When inventory is a large share of a firms current assets, however, inventory financing is a critical option to finance working capital. Lenders need to control the inventory pledged as collateral to ensure that it is not sold before their loan is repaid. Two primary methods are used to obtain this control: (1) warehouse storage; and (2) direct assignment byproduct serial or identification numbers.4 under one warehouse arrangement, pledged inventory is stored in a public warehouse and controlled by an independent party (the warehouse operator). A warehouse receipt is issued when the inventory is stored, and the goods are released only upon the instructions of the receipt-holder. When the inventory is pledged, the lender has control of the receipt and can prevent release of the goods until the loan is repaid. Since public warehouse storage is inconvenient for firms that need on-site access to their inventory, an alternative arrangement, known as a field warehouse, can be established. Here, an independent public warehouse company assumes control over the pledged inventory at the firms site. In effect, the firm leases space to the warehouse operator rather than transferring goods to an off-site location. As with a public warehouse, the lender controls the warehouse receipt and will not release the inventory until the loan is repaid. Direct assignment by serial number is a simpler method to control inventory used for manufactured goods that are tagged with a unique serial number. The lender receives an assignment or trust receipt for the pledged inventory that lists all serial numbers for the collateral. The company houses and controls its inventory and can arrange for product sales. However, a release of the assignment or return of the trust receipt is required before the collateral is delivered and ownership transferred to the buyer. This release occurs with partial or full loan repayment. While inventory financing involves higher transaction and administrative costs than other loan instruments, it is an important financing tool for companies with large inventory assets. When a company has limited

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accounts receivable and lacks the financial position to obtain a line of credit, inventory financing may be the only available type of working capital debt Term Loan While the four prior debt instruments address cyclical working capital needs, term loans can finance medium-term noncyclical working capital. A term loan is a form of medium-term debt in which principal is repaid over several years, typically in 3 to 7 years. Since lenders prefer not to bear interest rate risk, term loans usually have a floating interest rate set between the prime rate and prime plus 300 basis points, depending on the borrowers credit risk. Sometimes, a bank will agree to an interest rate cap or fixed rate loan, but it usually charges a fee or higher interest rate for these features. Term loans have a fixed repayment schedule that can take several forms. Level principal payments over the loan term are most common. In this case, the company pays the same principal amount each month plus interest on the outstanding loan balance. A second option is a level loan payment in which the total payment amount is the same every month but the share allocated to interest and principle varies with each payment. Finally, some term loans are partially amortizing and have a balloon payment at maturity. Term loans can be either unsecured or secured; a business with a strong balance sheet and a good profit and cash flow history might obtain an unsecured term loan, but many small firms will be required to pledge assets. Moreover, since loan repayment extends over several years, lenders include financial covenants in their loan agreements to guard against deterioration in the firms financial position over the loan term. Typical financial covenants include minimum net worth, minimum net working capital (or current ratio), and maximum debt-to-equity ratios. Finally, lenders often require the borrower to maintain a compensating balance account equal to 10% to 20% of the loan amount. The major advantage of term loans is their ability to fund long-term working capital needs. benefit from having a comfortable positive net working capital margin, which lowers the pressure to meet all short-term obligations and reduces bankruptcy risk. Term loans provide the medium-term financing to invest in the cash, accounts receivable, and inventory balances needed to create excess working capital. They also are well suited to finance the expanded working capital needed for sales growth. Furthermore, a term loan is repaid over several years, which reduces the cash flow needed to service the debt. However, the benefits of longer term financing
44

do not come without costs, most notably higher interest rates and less financial flexibility. Since a longer repayment period poses more risk to lenders, term loans carry a higher interest rate than short-term loans. When provided with a floating interest rate, term loans expose firms to greater interest rate risk since the chances of a spike in interest rates increase for a longer repayment period. Due to restrictive covenants and collateral requirements, a term loan imposes considerable financial constraints on a business. Moreover, these financial constraints are in place for several years and cannot be quickly reversed, as with a 1-year line of credit. Despite these costs, term loans can be of great value to small firms, providing a way to supplement their limited supply of equity and long-term debt with medium-term capital.

PART 5 FINDINGS
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Working capital management entails short term decisions - generally, relating to the next one year periods - which are "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related) rather they will be based on cash flows and / or profitability.

One measure of cash flow is provided by the cash conversion cycle - the net number of days from the outlay of cash for raw material to receiving payment from the customer. As a management tool, this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts receivable and payable, and cash. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities, management generally aims at a low net count.

In this context, the most useful measure of profitability is Return on capital (ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed; Return on equity (ROE) shows this result for the firm's shareholders. Firm value is enhanced when, and if, the return on capital, which results from working capital management, exceeds the cost of capital, which results from capital
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investment decisions as above. ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decision making Management of working capital Guided by the above criteria, management uses a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

Cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs and hence increases cash flow;

Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa).

Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring.

SBP bank has substantial appetite for recognized credits. The bank has a team of customerdriven relationship managers with wide industry experience in various segments. Bank offers working capital finance by way of cash credit or loans suitably structured to the needs and risk profile of the customer. Loan amounts from Rs 5 Lac onwards Easy Documentation Fast Processing At par cheque facility
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Internet Banking & Phone Banking Facilities Multi-Location Banking

Documentation
The Bank has well established systems and procedures for documentation in respect of all credit facilities. These have been laid down keeping in view the ultimate objective of documentation which is to serve as primary evidence in any dispute between the Bank and the borrower and for enforcing the banks right to recover the loan amount together with interest thereon (through court of law as a final resort), in the event of all other recourses proving to be of no benefit. In order that this objective is achieved, the documentation process attempts to ensure that :- The owing of the debt to the Bank by the borrower is clearly established by the documents. - The charge created on the borrowers assets as security for the debt is maintained and enforceable and - The Banks right to enforce the recovery of the debt through court of law is not allowed become time barred under the Law of Limitation. Documentation is not confined to mere obtention of security documents at the outset. It is a continuous and ongoing process covering the entire duration of an advance comprising the following steps:.i)Pre-execution formalities : These cover mainly searches at the Office of Registrar of

Companies and search of the Register of Charges (applicable to corporate borrowers), also capacity of borrowers to borrow and the formalities to be completed by the borrowers, searches at the office of the sub-Registrar of Assurances or Land Registry to check the existence or otherwise of prior charge over the immovable property offered as security, besides taking other precautions before creating equitable/registered mortgage. Including obtention of lawyers opinion as to clear, absolute and marketable title to the property based upon the genuineness, completeness and adequacy of the title deeds provided. ii) Execution of Documents: This covers obtention of proper documents, appropriate stamping and correct execution thereof as per terms of the sanction of the advance and the internal
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directives of a corporate borrower such as Memorandum and Articles of Association, relevant resolution of Board etc. A copy of the loan agreement along with its enclosures will be delivered to the borrower at the time of sanction/disbursal of loans and acknowledgement of receipt thereof will be obtained. iii) Post-execution formalities : This phase covers the completion of formalities in respect of mortgages, if any, registration with the Registrar of Assurances, wherever applicable, and the registration of charges with the Registrar of Companies within the stipulated period etc. iv) Protection from Limitation/Safeguarding Securities: These measures aim at preventing the documents from getting time-barred by limitation and protecting the securities charged to the Bank from being diluted by any subsequent charge that might be created by the borrower to secure his other debts, if any. These objectives are sought to be achieved by: a) Obtention of revival letter within the stipulated period. b) Obtention of Balance Confirmation from the borrower at least at annual intervals. c) Making periodical searches at the Office of Registrar of Companies/Registrar of Assurances. d) Insurance of assets charged (unless specifically waived) to insure the Bank against the risk of fire, other hazards etc. e) Periodical valuation of securities charged to the Bank.

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PART 6 PROJECT ANALYSIS

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PROJECT ANALYSIS

State bank of Patiala provide various type of loan. These are personal loan, home loan, educational loan, car loan and others. These shows in pie chart that how much people prefer what loan.

Interestrate

3.50%

2.25%

personal loan car loan

1.25% 1%

educational loan home loan

To repair/renovate/extend/alter an existing house. To purchase ready built flat/house/apartment from cooperative Group housing societies/State Govt. Housing Board/other Govt. agencies/ private builders of repute. Term Loans are sanctioned for Purchase of new Passenger cars/ jeeps multi utility vehicles (MUVs and SUVs). The interest rate is fixed over the term of the loan ensuring your repayments will not increase if official interest rates increase. Choose from a loan term ranging from 3 to 7 years. Flexible repayment options make repayments monthly or fortnightly. Easy repayment methods pay, direct debit, cash, cheque, or visit an RAC Member Service Centre.
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How many people are aware of the SBP Banks loan facility?

0 10 aware 30 60 not aware to some extent

Awareness regarding the SBP Banks loan facility seems better as 60% of the respondents were aware of this very facility of the bank, 30% were not knowing &10% were aware about

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PART 7

SWOT ANALYSIS

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Strength/ Opportunities:
The growth for SBP in the coming years is likely to be fueled by the following factors: Continued effort to increase low cost deposit would ensure improvement in NIMs and hence earnings. Growing retail & SMEs thrust would lead to higher business growth. Strong economic growth would generate higher demand for funds pursuant to higher corporate demand for credit on account of capacity expansion.

Weakness/ Threats:
The risks that could ensue to SBP in time to come are as under: SBP is currently operating at a lowest CAR. Insufficient capital may restrict the growth prospects of the bank going forward. Stiff competition, especially in the retail segment, could impact retail growth of SBI and hence slowdown in earnings growth. Contribution of retail credit to total bank credit stood at 26%. Significant thrust on growing retail book poses higher credit risk to the bank. Delay in technology up gradation could result in loss of market shares. Management indicated a likely pension shortfall on account of AS-15 to be close toRs50bn. Slow down in domestic economy would pose a concern over credit off-take thereby impacting earnings growth.

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PART 8 CONCLUSION AND SUGGESTION

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Conclusion
SBP Bank is the number one private, scheduled commercial banks in India, as found by many well reputed research organizations, nonetheless has a long way to go to establish a strong presence in this part. This is expressly reflected in the report under submission. The reasons put forward by the respondents largely boil down to the conservative lending procedures, that the bank takes pride in, particularly for the fact that the bank could successfully tide over the recession-smitten times that shook the banking industry across the world. The fact could also be attributed to the long presence of competitors. However what was reassuring that the bank has certainly bright prospects to make good strides as the private sector in the valley assumes prominence.

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SUGGESTION
Establishing new branches across valley at locations having trade / business importance could remarkably translate in great business prospects by providing services to the latent/ potential customer base. The issues of loyalty of customers towards their obtaining banker(s) suggests that appropriate offerings at suitable rates should be thought about to give them (potential customers) reason to think about the banks offerings.

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BIBLIOGRAPHY

www.sbi.com www. sbp.com Internal circular of SBP Bank The economics Times The times of India

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