INTRODUCTION

WORKING CAPITAL:
Cash is the lifeline of a company. If this lifeline deteriorates, the company's
ability to fund operations, reinvest and meet capital requirements and
payments also deteriorate. Understanding a company's cash flow health is
essential for making investment decisions. A good way to judge a company's
cash flow prospects is to look at its working capital management (WCM).
Working capital of a company reveals more about the financial condition of a
business than almost any other calculation. It tells you what would be left if
a company raised all of its short term resources, and used them to pay off its
short term liabilities. The more working capital, the less financial strain a
company experiences. Working capital also gives investors an idea of the
company's underlying operational efficiency. Money that is tied up in
inventory or money that customers still owe to the company can't be used to
pay off any of its obligations. So, if a company is not operating in the most
efficient manner (slow collection) it will show up in the working capital. This
can be seen by comparing the working capital from one period of time to
another; slow collection may signal an underlying problem in the company's
operations.
DEFINITION:
The definition of working capital is that it is the difference between an
organizations current assets and its current liabilities. Of more importance is
its function which is primarily to support the day-to-day financial operations
of an organization, including the purchase of stock, the payment of salaries,
wages and other business expenses, and the financing of credit sales. Its a
measure of both a company's efficiency and its short-term financial health.
The better a company manages its working capital, the less the company
needs to borrow. Even companies with cash surpluses need to manage
1

working capital to ensure that those surpluses are invested in ways that will
generate suitable returns for investors.
There are two concepts of working capital.
They are
Gross working capital and
Net working capital.
The term gross working capital, also referred to as working capital means the
total current asset. The term net working capital can be defined in two ways:

The most common definition of net working capital is the difference

between the current assets and the current liabilities.

The alternate definition of NWC is that portion of current assets which

is financed with long term funds. Since the current liabilities represent
the sources of short term funds, as long as current assets exceed
current liabilities, the excess must be financed with long term funds.

The net working capital, as a measure of liquidity is quite useful for internal
control. The net working capital helps in comparing the liquidity of the same
firm over time.
Therefore:
Current Assets - Current Liabilities = Working Capital
A positive working capital means that the company is able to pay off its
short-term liabilities. A negative working capital means that a company
currently is unable to meet its short-term liabilities with its current assets
(cash, accounts receivable, inventory).Management must ensure that a
business has sufficient working capital. Too little of the working capital will
result in cash flow problems highlighted by an organization exceeding its
agreed overdraft limit, failing to pay suppliers on time, and being unable to
claim discounts for prompt payment. In the long run, a business with
insufficient working capital will be unable to meet its current obligations and
will be forced to cease trading even if it remains profitable on paper.

On the other hand, if an organization ties up too much of its resources in

working capital it will earn a lower than expected rate of return on capital
employed. Again this is not a desirable situation. As it is said that working
capital is the difference between the current assets and the current liabilities,
the management of the company has to manage their current assets and
current liabilities.

NEED OF THE STUDY:

Working capital management is one of the key areas of financial decisionmaking. It is significant because, the management must see that an
excessive investment in current assets should protect the company from the
problems of stock-out.

Current assets will also determine the liquidity

position of the firm.

The goal of working capital management is to manage the firm current
assets and current liabilities in such a way that a satisfactory level of working
capital is maintained.

If the firm cannot maintain a satisfactory level of

working capital, it is likely to become insolvent and may be even forced into
bankruptcy.

SCOPE OF THE STUDY:

A study of the Working capital involves an examination of long term as well
as short term sources that a company taps in order to meet its requirements
of finance. Working Capital scope is very wide concerning with the problems
of managing current assets and current liabilities because managing them is
3

not an easy task. The scope of the study is confined to the sources that
Kotak Mahindra Group tapped over the years under study i.e. 2010-15.

OBJECTIVES OF THE STUDY:

To study the existing working capital management system of Kotak
Mahindra Group. (Formerly Kotak Mahindra bank Ltd.).
To find the liquidity position of the current assets and current liabilities
of the company.
To examine feasibility of present system of managing working capital.
To understand how the company finances its working capital
To analyze the financial performance of the company with reference to
working capital.
To give some suggestions to the management based on the information
studied.
Investigate the relationship between corporate performance and WCM.
To investigate the impact of different factors affecting the working capital on net

liquidity balance and working capital requirement.

4

LIMITATIONS OF THE STUDY:

Due to the busy schedule of the executives in the company, all the required
primary data could not be collected, which might affect the results of the
study

Recommendations of the study are only personal opinions. Hence the

judgments may be biased and could not be considered as ultimate and
standard solutions

Short period of time is one of the limitations, due to which a detailed study
could not be conducted on the topic.

You cant expand, cant pay your staff, cant pay yourself and cant
pay your suppliers. So in a nutshell, no cash flow, or working capital, no
viable business.

It leads to excessive debtors.

5

Firm fails to maintain the relationship with the banks due to non
requirement of fun.

RESEARCH METHODOLOGY
The study of Working Capital management is based on primary as well as
secondary data.
Data relating to. Has been collected through

PRIMARY

DATA:

Data observed or collected directly from first-hand experience. It is original research

data in its raw form, without any analysis or processing

Detailed discussions with Vice-President.

Discussions with the Finance manager and other members of the

Finance department.

SECONDARY

DATA:

Secondary data is the data that have been already collected by and readily
available from other sources. Such data are cheaper and more quickly obtainable
than the primary data.

Published annual reports of the company for the year 2008-12.

DATA ANALYSIS
The collected data has been processed using the tools of

Ratio analysis

Graphical analysis

Year-year analysis
These tools access in the interpretation and understanding of the Existing
scenario of the Capital Structure.

The primary data was gathered through personal interaction with the
director of the company.

The secondary data was collected from companys annual reports from
2010-11 to 2014-15, various books and Internet.

INDUSTRY PROFILE
History:
A bank is a financial institution that accepts deposits and channels those
deposits into lending activities. Banks primarily provide financial services to
customers while enriching investors. Government restrictions on financial
activities by banks vary over time and location. Banks are important players
in financial markets and offer services such as investment funds and loans.
In some countries such as Germany, banks have historically owned major
stakes in industrial corporations while in other countries such as the United
States banks are prohibited from owning non-financial companies. In Japan,
7

banks are usually the nexus of a cross-share holding entity known as the
keiretsu. In France, bancassurance is prevalent, as most banks offer
insurance services (and now real estate services) to their clients. The level of
government regulation of the banking industry varies widely, with countries
such as Iceland, having relatively light regulation of the banking sector, and
countries such as China having a wide variety of regulations but no
systematic process that can be followed typical of a communist system. The
oldest bank still in existence is Monte dei Paschi di Siena, headquartered in
Siena, Italy, which has been operating continuously since 1472.

Origin of the word:

The name bank derives from the Italian word banco "desk/bench", used
during the Renaissance by Jewish Florentine bankers, who used to make their
transactions above a desk covered by a green tablecloth. However, there are
traces of banking activity even in ancient times, which indicates that the
word 'bank' might not necessarily come from the word 'banco'.In fact, the
word traces its origins back to the Ancient Roman Empire, where
moneylenders would set up their stalls in the middle of enclosed courtyards
called macella on a long bench called a bancu, from which the words banco
and bank are derived. As a moneychanger, the merchant at the bancu did
not so much invest money as merely convert the foreign currency into the
only legal tender in Romethat of the Imperial Mint. The earliest evidence of
money-changing activity is depicted on a silver drachm coin from ancient
Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350325 BC,
presented in the British Museum in London.
The coin shows a banker's table (trapeza) laden with coins, a pun on the
name of the city.In fact, even today in Modern Greek the word Trapeza
() means both a table and a bank.

Traditional banking activities:

8

Banks act as payment agents by conducting checking or current accounts for

customers, paying cheques drawn by customers on the bank, and collecting
cheques deposited to customers' current accounts. Banks also enable
customer payments via other payment methods such as telegraphic transfer,
EFTPOS, and ATM.Banks borrow money by accepting funds deposited on
current accounts, by accepting term deposits, and by issuing debt securities
such as banknotes and bonds. Banks lend money by making advances to
customers on current accounts, by making installment loans, and by
investing in marketable debt securities and other forms of money
lending.Banks provide almost all payment services, and a bank account is
considered indispensable by most businesses, individuals and governments.
Non-banks that provide payment services such as remittance companies are
not normally considered an adequate substitute for having a bank account.

Entry regulation:
Currently

in

most

jurisdictions

commercial

banks

are

regulated

by

government entities and require a special bank licence to operate.Usually

the definition of the business of banking for the purposes of regulation is
extended to include acceptance of deposits, even if they are not repayable to
the customer's orderalthough money lending, by itself, is generally not
included in the definition.
Unlike most other regulated industries, the regulator is typically also a
participant in the market, i.e. a government-owned (central) bank. Central
banks also typically have a monopoly on the business of issuing banknotes.
However, in some countries this is not the case. In the UK, for example, the
Financial Services Authority licences banks, and some commercial banks
(such as the Bank of Scotland) issue their own banknotes in addition to those
issued by the Bank of England, the UK government's central bank.

Definition:
9

The definition of a bank varies from country to country. Under English

common law, a banker is defined as a person who carries on the business of
banking, which is specified as:

conducting current accounts for his customers

paying cheques drawn on him, and

Collecting cheques for his customers.

In most English common law jurisdictions there is a Bills of Exchange Act that
codifies the law in relation to negotiable instruments, including cheques, and
this Act contains a statutory definition of the term banker: banker includes a
body of persons, whether incorporated or not, who carry on the business of
banking' (Section 2, Interpretation). Although this definition seems circular, it
is actually functional, because it ensures that the legal basis for bank
transactions such as cheques do not depend on how the bank is organized or
regulated.
The business of banking is in many English common law countries not
defined by statute but by common law, the definition above. In other English
common law jurisdictions there are statutory definitions of the business of
banking or banking business. When looking at these definitions it is
important to keep in minds that they are defining the business of banking for
the purposes of the legislation, and not necessarily in general. In particular,
most of the definitions are from legislation that has the purposes of entry
regulating and supervising banks rather than regulating the actual business
of banking. However, in many cases the statutory definition closely mirrors
the common law one. Examples of statutory definitions:

"banking business" means the business of receiving money on current

or deposit account, paying and collecting cheques drawn by or paid in by
customers, the making of advances to customers, and includes such other
business as the Authority may prescribe for the purposes of this Act;
(Banking Act (Singapore), Section 2, Interpretation).

"banking business" means the business of either or both of the

following:
10

1.

Receiving from the general public money on current, deposit, savings

or other similar

account repayable on demand or within less than [3

months] ... or with a period of call or notice of less than that period;
2.

paying or collecting cheques drawn by or paid in by customers.

Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale),
direct credit, direct debit and internet banking, the cheque has lost its
primacy in most banking systems as a payment instrument. This has led
legal theorists to suggest that the cheque based definition should be
broadened to include financial institutions that conduct current accounts for
customers and enable customers to pay and be paid by third parties, even if
they do not pay and collect cheques.

Accounting for bank accounts:

Bank statements are accounting records produced by banks under the
various accounting standards of the world. Under GAAP and IFRS there are
two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity
and Liabilities. Debit Accounts are Assets and Expenses. This means you
credit a credit account to increase its balance, and you debit a debit account
to decrease its balance.
This also means you debit your savings account every time you deposit
money into it (and the account is normally in deficit), while you credit your
credit card account every time you spend money from it (and the account is
normally in credit).
However, if you read your bank statement, it will say the oppositethat you
credit your account when you deposit money and you debit it when you
withdraw funds. If you have cash in your account, you have a positive (or
credit) balance; if you are overdrawn, you have a negative (or deficit)
balance.
The reason for this is that the bank, and not you, has produced the bank
statement. Your savings might be your assets, but the bank's liability, so they
are credit accounts (which should have a positive balance). Conversely, your
11

loans are your liabilities but the bank's assets, so they are debit accounts
(which should also have a positive balance).
Where bank transactions, balances, credits and debits are discussed below,
they are done so from the viewpoint of the account holderwhich is
traditionally what most people are used to seeing.

Economic functions:
1. Issue of money, in the form of banknotes and current accounts subject
to cheque or payment at the customer's order. These claims on banks
can act as money because they are negotiable and/or repayable on
demand, and hence valued at par. They are effectively transferable by
mere delivery, in the case of banknotes, or by drawing a cheque that
the payee may bank or cash.
2. Netting and settlement of payments banks act as both collection and
paying agents for customers, participating in interbank clearing and
settlement systems to collect, present, be presented with, and pay
payment instruments. This enables banks to economies on reserves
held for settlement of payments, since inward and outward payments
offset each other. It also enables the offsetting of payment flows
between geographical areas, reducing the cost of settlement between
them.
3. Credit intermediation banks borrow and lend back-to-back on their
own account as middle men.
4. Credit

quality

improvement

banks

lend

money

to

ordinary

commercial and personal borrowers (ordinary credit quality), but are

high quality borrowers. The improvement comes from diversification of
the bank's assets and capital which provides a buffer to absorb losses
without defaulting on its obligations. However, banknotes and deposits
are generally unsecured; if the bank gets into difficulty and pledges
assets as security, to rise the funding it needs to continue to operate,
12

this puts the note holders and depositors in an economically

subordinated position.
5. Maturity transformation banks borrow more on demand debt and
short term debt, but provide more long term loans. In other words, they
borrow short and lend long. With a stronger credit quality than most
other borrowers, banks can do this by aggregating issues (e.g.
accepting deposits and issuing banknotes) and redemptions (e.g.
withdrawals and redemptions of banknotes), maintaining reserves of
cash, investing in marketable securities that can be readily converted
to cash if needed, and raising replacement funding as needed from
various sources (e.g. wholesale cash markets and securities markets).

Law of banking:
Banking law is based on a contractual analysis of the relationship between
the bank (defined above) and the customerdefined as any entity for which
the bank agrees to conduct an account.
The law implies rights and obligations into this relationship as follows:
1. The bank account balance is the financial position between the bank
and the customer: when the account is in credit, the bank owes the
balance to the customer; when the account is overdrawn, the customer
owes the balance to the bank.
2. The bank agrees to pay the customer's cheques up to the amount
standing to the credit of the customer's account, plus any agreed
overdraft limit.
3. The bank may not pay from the customer's account without a mandate
from the customer, e.g. a cheque drawn by the customer.
4. The bank agrees to promptly collect the cheques deposited to the
customer's account as the customer's agent, and to credit the
proceeds to the customer's account.
5. The bank has a right to combine the customer's accounts, since each
account is just an aspect of the same credit relationship.

13

6. The bank has a lien on cheques deposited to the customer's account,

to the extent that the customer is indebted to the bank.
7. The bank must not disclose details of transactions through the
customer's accountunless the customer consents, there is a public
duty to disclose, the bank's interests require it, or the law demands it.
8. The bank must not close a customer's account without reasonable
notice, since cheques are outstanding in the ordinary course of
business for several days.
These implied contractual terms may be modified by express agreement
between the customer and the bank. The statutes and regulations in force
within a particular jurisdiction may also modify the above terms and/or
create new rights, obligations or limitations relevant to the bank-customer
relationship.
The requirements for the issue of a bank license vary between jurisdictions
but typically include:
1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners,
directors, and/or senior officers
4. Approval of the bank's business plan as being sufficiently prudent and
plausible.

Types of banks:
Banks' activities can be divided into retail banking, dealing directly with
individuals and small businesses; business banking, providing services to
mid-market business; corporate banking, directed at large business entities;
private banking, providing wealth management services to high net worth
individuals and families; and investment banking, relating to activities on the
financial markets. Most banks are profit-making, private enterprises.
However, some are owned by government, or are non-profit organizations.
14

Central banks are normally government-owned and charged with quasiregulatory responsibilities, such as supervising commercial banks, or
controlling the cash interest rate. They generally provide liquidity to the
banking system and act as the lender of last resort in event of a crisis.

Types of retail banks:

Commercial bank: the term used for a normal bank to distinguish it

from an investment bank. After the Great Depression, the U.S.
Congress required that banks only engage in banking activities,
whereas investment banks were limited to capital market activities.
Since the two no longer have to be under separate ownership, some
use the term "commercial bank" to refer to a bank or a division of a
bank that mostly deals with deposits and loans from corporations or
large businesses.

Community Banks: locally operated financial institutions that empower

employees to make local decisions to serve their customers and the
partners.

Community development banks: regulated banks that provide financial

services and credit to under-served markets or populations.

Postal savings banks: savings banks associated with national postal

systems.

Private Banks: banks that manage the assets of high net worth
individuals.

Offshore banks: banks located in jurisdictions with low taxation and

regulation. Many offshore banks are essentially private banks.

Savings bank: in Europe, savings banks take their roots in the 19th or
sometimes even 18th century. Their original objective was to provide
easily accessible savings products to all strata of the population. In
some countries, savings banks were created on public initiative; in
others, socially committed individuals created foundations to put in
15

place the necessary infrastructure. Nowadays, European savings banks

have kept their focus on retail banking: payments, savings products,
credits and insurances for individuals or small and medium-sized
enterprises. Building societies and Landesbanks: institutions that
conduct retail banking.

Ethical banks: banks that prioritize the transparency of all operations

and

make

only

what

they

consider

to

be

socially-responsible

investments.

Islamic banks: Banks that transact according to Islamic principles.

Types of investment banks:

Investment banks "underwrite" (guarantee the sale of) stock and bond
issues, trade for their own accounts, make markets, and advise
corporations on capital market activities such as mergers and
acquisitions.

Merchant banks were traditionally banks which engaged in trade

finance. The modern definition, however, refers to banks which provide
capital to firms in the form of shares rather than loans. Unlike venture
capital firms, they tend not to invest in new companies.

Both combined:

Universal

banks,

more

commonly

known

as

financial

services

companies, engage in several of these activities. These big banks are

very diversified groups that, among other services, also distribute
insurance hence the term bancassurance, a portmanteau word
combining "banque or bank" and "assurance", signifying that both
banking and insurance are provided by the same corporate entity.

16

COMPANY PROFILE

Kotak Mahindra Bank Ltd

17

Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The
bank offers personal finance solutions of every kind from savings
accounts to credit cards, distribution of mutual funds to life insurance
products. Kotak Mahindra Bank offers transaction banking, operates
lending verticals, manages IPOs and provides working capital loans.
Kotak has one of the largest and most respected Wealth Management
teams in India, providing the widest range of solutions to high net
worth individuals, entrepreneurs, business families and employed
professionals.
For more information, please visit the Kotak Mahindra Bank website
www.kotak.com/bank/personal-banking/

Kotak Mahindra Old Mutual Life Insurance Ltd

Kotak Mahindra Old Mutual Life Insurance Ltd is a 74:26 joint venture
between Kotak Mahindra Bank Ltd., its affiliates and Old Mutual plc. A
Company

that

combines

its

international

strengths

and

local

advantages to offer its customers a wide range of innovative life

insurance products, helping them take important financial decisions at
every stage in life and stay financially independent. The company
covers over 3 million lives and is one of the fastest growing insurance
companies in India. www.kotaklifeinsurance.com

Kotak Securities Ltd

Kotak Securities is one of the largest broking houses in India with a

wide geographical reach. Kotak Securities operations include stock
broking and distribution of various financial products including private
and secondary placement of debt, equity and mutual funds.
Kotak Securities operate in five main areas of business:
o

Stock Broking (retail and institutional).

18

Depository Services.

Portfolio Management Services.

Distribution of Mutual Funds.

Distribution of Kotak Mahindra Old Mutual Life Insurance Ltd

products.

Kotak Mahindra Capital Company (KMCC)

Kotak Investment Banking (KMCC) is a full-service investment bank in

India offering a wide suite of capital market and advisory solutions to
leading domestic and multinational corporations, banks, financial
institutions and government companies.
Our services encompass Equity & Debt Capital Markets, M&A Advisory,
Private Equity Advisory, Restructuring and Recapitalization services,
Structured Finance services and Infrastructure Advisory & Fund
Mobilization.

Kotak Mahindra Prime Ltd (KMPL)

Kotak Mahindra Prime Ltd is among India's largest dedicated passenger

vehicle finance companies. KMPL offers loans for the entire range of
passenger cars, multi-utility vehicles and pre-owned cars. Also on offer
are inventory funding and infrastructure funding to car dealers with
strategic arrangements via various car manufacturers in India as their
preferred financier.
For

more

information,

please

visit

the

KMPL

website

http://carloan.kotak.com
Kotak International Business

Kotak International Business specialises in providing a range of

services to overseas customers seeking to invest in India. For
19

institutions and high net worth individuals outside India, Kotak

International Business offers asset management through a range of
offshore funds with specific advisory and discretionary investment
management services.
For more information, please visit the Kotak Mahindra International
Business website www.investindia.kotak.com
Kotak Mahindra Asset Management Company Ltd (KMAMC)

Kotak Mahindra Asset Management Company offers a complete

bouquet of asset management products and services that are designed
to suit the diverse risk return profiles of each and every type of
investor. KMAMC and Kotak Mahindra Bank are the sponsors of Kotak
Mahindra Pension Fund Ltd, which has been appointed as one of six
fund managers to manage pension funds under the New Pension
Scheme (NPS).

Kotak Private Equity Group (KPEG)

Kotak Private Equity Group helps nurture emerging businesses and

mid-size enterprises to evolve into tomorrow's industry leaders. With a
proven track record of helping build companies, KPEG also offers
expertise with a combination of equity capital, strategic support and
value added services. What differentiates KPEG is not merely funding
companies, but also having a close involvement in their growth as
board members, advisors, strategists and fund-raisers.
For

more

information,

please

visit

the

KPEG

website

www.privateequityfund.kotak.com

20

Kotak Realty Fund

Kotak Realty Fund deals with equity investments covering sectors such
as hotels, IT parks, residential townships, shopping centers, industrial
real estate, health care, retail, education and property management.
The investment focus here is on development projects and enterprise
level investments, both in real estate intensive businesses.

Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985,
it has been a steady and confident journey leading to growth and success.
The milestones of the group growth story are listed below year wise.
VISION
To be the most trusted Global Indian Financial Services brand and the most preferred financial
services employer with focus on creating value.
OUR STORY
Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a
steady and confident journey leading to growth and success. The milestones of the group growth
story are listed below year wise.
OUR BUSINESSES
Kotak Mahindra is one of India's leading banking and financial services group, offering a wide
range of financial services that encompass every sphere of life.

Kotak Mahindra Old Mutual Life Insurance Ltd

Kotak Securities Ltd
Kotak Mahindra Capital Company (KMCC)
Kotak Mahindra Prime Ltd (KMPL)
Kotak International Business
Kotak Mahindra Asset Management Company Ltd (KMAMC)
Kotak Private Equity Group (KPEG)
Kotak Realty Fund

21

Milestones
2015

Uday Kotak - 'Transformational Business Leader Award' at the AIMA Managing

India Awards 2014.
Uday Kotak - 'Entrepreneur of the Decade' by Bombay Management Association
(BMA).
2014 . Ranked among top 5 Best Ranked Companies for Corporate Governance Practices
in IR Global Ranking

2013

Best Managed Board by Aon Hewitt-Mint Study 2012.

Best Bank Award in New Private Sector Bank category by Financial Express.

2012 .
Bank

Uday Kotak, Executive Vice Chairman & Managing Director, Kotak Mahindra

was presented with the Financial Leadership Award at NDTV Profit Biz Excellence

Award.

2011 .Kotak

Mahindra Bank and Cisco won the Asian Banker Award for

the Best Contact Center Deployment

20

10

.Ahmedabad Derivatives and Commodities Exchange, a Kotak

anchored enterprise, became operational as a national commodity
exchange.

200

Dubai

200

8
20

05

Entered Ahmedabad Commodity Exchange as anchor investor.

Launched a Pension Fund under the New Pension System.

Bought the 25% stake held by Goldman Sachs in Kotak Mahindra

Capital Company and Kotak Securities.

06
20

Kotak Mahindra Bank Ltd. opened a representative office in

Kotak Group realigned joint venture in Ford Credit; their stake in

Kotak Mahindra Prime was bought out (formerly known as Kotak
Mahindra Primus Ltd) and Kotak groups stake in Ford credit
22

Kotak Mahindra was sold.

20
04
20

Launched a real estate fund.

Launched India Growth Fund, a private equity fund.

Kotak Mahindra Finance Ltd. converted into a commercial bank the first Indian company to do so.

03
2001

Matrix sold to Friday Corporation.

Launched Insurance Services.
Kotak Securities Ltd. was incorporated

200

Kotak Mahindra tied up with Old Mutual plc. for the Life
Insurance business.

Kotak Securities launched its on-line broking site.

Commencement of private equity activity through setting up of

Kotak Mahindra Venture Capital Fund.

19

Mahindra Asset Management Company.

98
19

Entered the mutual fund market with the launch of Kotak

The Auto Finance Business is hived off into a separate company Kotak

96

Mahindra

Prime

Limited

(formerly

known

as

Kotak

Mahindra Primus Limited). Kotak Mahindra takes a significant

stake in Ford Credit Kotak

Mahindra Limited, for financing Ford vehicles. The launch of

Matrix Information Services Limited marks the Group's entry into
information distribution.

19
95

Brokerage and Distribution businesses incorporated into a

separate company - Securities. Investment banking division
incorporated into a separate company - Kotak Mahindra Capital
23

Company

19
92
19

Entered the Funds Syndication sector

The Investment Banking Division was started. Took over FICOM,

one of India's largest financial retail marketing networks

91
199
0
198

The Auto Finance division was started

Kotak Mahindra Finance Ltd entered the Lease and Hire Purchase
market

7
198

Kotak

Mahindra

Finance

Ltd

started

the

activity

of

Bill

Discounting

6
Awards

Recent achievements
At Kotak Mahindra Group we take a client-centric view and constantly
innovate to provide you with the best of services and infrastructure. We have
regularly received accolades that stand testimony to our success in this
endeavour. Some of our recent achievements are:

Banking

ICAI Award
Excellence in Financial Reporting under Category 1 - Banking Sector for
the year ending 31st March, 2014.

24

Asiamoney
Best Local Cash Management Bank 2014.

IDG India
Kotak won the CIO 100 'The Agile 100' award 2013.

IDRBT
Banking Technology Excellence Awards Best Bank Award in IT
Framework and Governance Among Other Banks' 2009.
Banking Technology Award for IT Governance and Value Delivery, 2008.

IR Global Rankings
Best Corporate Governance Practices - Ranked among the top 5
companies in Asia Pacific, 2009.

FinanceAsia
Best Private Bank in India, for Wealth Management business, 2009.

Kotak Royal Signature Credit Card

Was chosen "Product of the Year" in a survey conducted by Nielsen in
2009.

IBA Banking Technology Awards

Best Customer Relationship Achievement - Winner 2008 & 2009.
Best overall winner, 2007.
Best IT Team of the Year, 4 years in a row from 2006 to 2009.
Best IT Security Policies & Practices, 2007.

Euromoney
Best Private Banking Services (overall), 2009.

Emerson Uptime Champion Awards

Technology Senate Emerson Uptime Championship Award in the BFSI
category, 2008.

Miscellaneous

Best Local Trade Bank in India

The UK based Trade & Forfaiting Review awarded Kotak Mahindra Bank
25

Ltd. the Bronze Award in the category of Best Local Trade Bank in India
at the TFR Awards 2011.

LACP Vision Awards 2010 for Annual Report 2010-11

Platinum Award - Best among Banking Category, APAC.
Gold Award - Most Creative Report, APAC.
Ranked No. 21 among Top 50 Reports, APAC.
Ranked No. 87 among the World's Top 100 Annual Reports.

Businessworld
'Most Valuable CEO' overall, 2010 awarded to Mr. Uday Kotak,
Executive Vice Chairman & Managing Director.

CNBCTV 18
'Best Performing CFO in the Banking/Financial Services sector by
CNBCTV 18 CFO Awards 2010 awarded to Mr. Jaimin Bhatt.

GIREM
GIREM awarded Kotak Realty Funds Group, the "Investor of the Year"
Award for 2009.

IBA Banking Technology Awards

Best Use of Business Intelligence - up, 2008.
Best Enterprise Risk Management - Runner up, 2008.

The Great Places to Work Institute, India

Best Workplaces in India, 2008.

Hewitt
10th Best Employer in India, 2007, 2008 & 2009.

Financial Insights Innovation Award

Best Innovation in Enterprise Security Management in the Asia Pacific
Region, 2009.

Frost & Sullivan

Best Passenger Vehicle Finance Company in India, 2006.

CNBC TV 18
Indian Business Leader of the Year, 2008 awarded to Uday Kotak,
Executive Vice Chairman & Managing Director.
26

Banking information
The Bank publishes the standalone and consolidated results on a quarterly
basis. The standalone results is subjected to "Limited Review" by the auditors
of the Bank. The same are also reviewed by the Audit Committee before
submission to the Board. Along with the quarterly results, an earnings update
is also prepared and posted on the website of the Bank. Every quarter, the
Executive

Vice-Chairman

and

Managing

Director

and

the

Executive

Director(s) participate on a call with the analysts / shareholders, the

transcripts of which are posted on the website of the Bank. The Bank also
has dedicated personnel to respond to queries from investors.

Financial Calendar: For each calendar quarter, the financial results are
reviewed and taken on record by the Board during the last week of the
month subsequent to the quarter ending. The audited annual accounts as at
31st March are approved by the Board, after a review thereof by the Audit
Committee. The Annual General Meeting to consider such annual accounts is
held in the second quarter of the financial year.
Stock Exchanges on which listed:

Trading of shares to be in compulsorily dematerialized

form: The equity shares of the Bank have been activated for
dematerialization with the National Securities Depository Limited and with
the Central Depository Services (India) Limited vide ISIN INE237A01028.

Share Transfer System: Applications for transfers, transmission and

transposition are received by the Bank at its Registered Office or at the
office(s) of its Registrars & Share Transfer Agents. As the shares of the Bank
are in dematerialized form, the transfers are duly processed by NSDL/CDSL in
electronic form through the respective depository participants. Shares which
are in physical form are processed by the Registrars & Share Transfer Agents,
27

Karvy Computershare Private Limited, on a regular basis and the certificates

dispatched directly to the investors.

Investor Helpdesk: Share transfers, dividend payments and all other

investor related activities are attended to and processed at the office of our
Registrars & Share Transfer Agents. For lodgment of Transfer Deeds and any
other documents or for any grievances/complaints, kindly contact Karvy
Computershare Private Limited, contact details of which are provided
elsewhere in the Report.
For the convenience of the investors, transfers and complaints from the
investors are accepted at the Registered Office between 9:30 a.m. to 5:30
p.m. from Monday to Friday except on bank holidays.

Corporate Responsibility
Community investment and development
Kotak Mahindra views Corporate Social Responsibility as an investment in
society and in its own future. Kotak uses the power of its human and financial
capital to help in transforming communities into vibrant, desirable places for
people to live. The group leverages its core competencies in three areas:

Sustainability
An integral part of all Kotak Mahindra Group activities is to be
consistently responsible to shareholders, clients, employees, society
and the environment.

Economic Development
By helping people achieve their financial goals, Kotak strengthens the
fabric of communities and helps them overcome unemployment and
poverty to help them shape their future.

28

Doing My Bit
A growing number of employees are committed to civic leadership and
responsibility with the support and encouragement of the Kotak Group.
A number of employees have been involved in strengthening
communities through voluntary work, payroll giving and management
inputs.

For any CSR related queries, please contact:

Group CSR
Kotak Mahindra Bank Ltd
Tel. Board +91 22 6720 6720
Email: cr@kotak.com

Senior Management
Mr. Uday S. Kotak

Executive Vice Chairman and Managing Director

Mr. Uday Kotak, is the Executive Vice-Chairman and Managing Director of the
Bank, and its principal founder and promoter. Mr. Kotak is an alumnus of
Jamnalal Bajaj Institute of Management Studies.
In 1985, when he was still in his early twenties, Mr Kotak thought of setting
up a bank when private Indian banks were not even seen in the game. First
Kotak Capital Management Finance Ltd (which later became Kotak Mahindra
Finance Ltd), and then with Kotak Mahindra Finance Ltd, Kotak became the
first non-banking finance company in India's corporate history to be
converted into a bank. Over the years, Kotak Mahindra Group grew into
several areas like stock broking and investment banking to car finance, life
insurance and mutual funds.
Among the many awards to Mr Kotak's credit are the CNBC TV18 Innovator of
the Year Award in 2006 and the Ernst & Young Entrepreneur of the Year
Award in 2003.
29

He was featured as one of the Global Leaders for Tomorrow at the World
Economic Forum's annual meet at Davos in 1996. He was also featured
among the Top Financial Leaders for the 21st Century by Euromoney
magazine. He was named as CNBC TV18 India Business Leader of the Year
2008 and as the most valued CEO by businessworld in 2010.
Mr. C Jayaram

Joint Managing Director

Mr. C. Jayaram, is a Joint Managing Director of the Bank and is currently in
charge of the Wealth Management Business of the Kotak Group. An alumnus
of IIM Kolkata, he has been with the Kotak Group since 1990 and member of
the Kotak board in October 1999. He also oversees the international
subsidiaries and the alternate asset management business of the group. He
is the Director of the Financial Planning Standards Board, India. He has varied
experience of over 25 years in many areas of finance and business, has built
numerous businesses for the Group and was CEO of Kotak Securities Ltd. An
avid player and follower of tennis, he also has a keen interest in psephology.
Mr. Dipak Gupta
Joint Managing Director

An electronics engineer and an alumnus of IIM Ahmedabad, Mr. Gupta has

been with the Kotak Group since 1992 and joined the board in October 1999.
He heads commercial banking, retail asset businesses and looks after group
HR function. Early on, he headed the finance function and was instrumental
in the joint venture between Kotak Mahindra and Ford Credit International.
He was the first CEO of the resulting entity, Kotak Mahindra Primus Ltd.
Sr.No

Name & Address of Stock Exchange

Market Scrip Code

The Bombay Stock Exchange Limited

1

Phiroze Jeejeebhoy Towers

Dalal Street, Fort,

500247

Mumbai 400 023

30

National Stock Exchange of India Limited

2

Exchange Plaza, 5th Floor,

Bandra-Kurla Complex,

KOTAKBANK

Bandra, Mumbai 400 051

3

Luxembourg Stock Exchange BP 165, L-2011

Luxembourg

REVIEW OF LITERATURE
WORKING CAPITAL MANAGEMENT
Management of working capital plays a very important role in the financial
management of a company because maintaining a balance of income to debt
can be difficult and owners must be diligent to assure that it is kept.
Sometimes it takes a little assistance to maintain levels of fluidity or make
major purchases.
If working capital dips too low, a business risks running out of cash. Even
very profitable businesses can run into trouble if they lose the ability to meet
their short-term obligations. Working capital financing can be used as a fast
cash option to cushion the periods when the flow is not ideal or readily
available. Even when owners are meticulous in managing working capital,

31

finding the right levels to remain comfortable and competitive can be

difficult.

The Importance of Good Working Capital Management

Working capital constitutes part of the Companys investment in a
department. Associated with this is an opportunity cost to the company.
(Money invested in one area may "cost" opportunities for investment in other
areas.) If a department is operating with more working capital than is
necessary, this over-investment represents an unnecessary cost to the
Company
From a department's point of view, excess working capital means operating
inefficiencies. In addition, unnecessary working capital increases the amount
of the capital charge which departments are required to meet

OBJECTIVES OF MANAGING WORKING CAPITAL

Describe the risk-return trade-off involved in managing a firm's working

capital.

Explain the determinants of net working capital.

Calculate the effective cost of short-term credit.

List and describe the basic sources of short-term credit.

Describe the special problems encountered by multinational firms in

managing working capital.

Working capital management takes place on two levels:

Ratio analysis can be used to monitor overall trends in working capital

and to identify areas requiring closer management
32

The individual components of working capital can be effectively

managed by using various techniques and strategies

When considering these techniques and strategies, departments need to

recognize that each department has a unique mix of working capital
components. The emphasis that needs to be placed on each component
varies according to department.
Furthermore, working capital management is not an end in itself. It is an
integral part of the department's overall management. The needs of efficient
working capital management must be considered in relation to other aspects
of the department's financial and non-financial performance.

Working Capital Ratio=Current Assets /Current Liabilities:

The working capital ratio (or current ratio) attempts to measure the level of
liquidity, that is, the level of safety provided by the excess of current assets
over current liabilities.
The "quick ratio" a derivative, excludes inventories from the current assets,
considering only those assets most swiftly realizable. There are also other
possible refinements.
There is no particular benchmark value or range that can be recommended
as suitable for all government departments. However, if a department tracks
its own working capital ratio over a period of time, the trends-the way in
which the liquidity is changing-will become apparent.

Current assets:
33

The term current assets refer to those assets which in the ordinary course of
business can be, or will be, converted into cash within one year without
under going any diminution in the value and without disrupting the
operations of the firm. The major current assets are cash, cash equivalent,
marketable securities, accounts receivable, inventory, prepaid expenses and
other short term investments.

Debtors
Debtors are people or other firms who owe money to the firm. This will
usually happen where the firm has sold goods with a period of credit. The
firm sells the good or service but allows the purchaser a period of credit to
pay - usually a month. During this month the purchaser owes the firm the
money and is therefore a debtor.
If the firm has debts these are considered an asset, because when the
debtors pay the firm will have converted the debt into cash in the bank.
Because most debts are relatively short-term they are considered current
assets the amount of debtors a firm has depends on the line of business they
are in.

CASH
In a business the term cash may have a broader meaning. Cash is an asset
to the business and is usually considered to be one of the current assets.
Under the heading cash on the balance sheet may be included a number of
items of varying liquidity. A small amount may actually be cash (or readies)
held in tills or as petty cash, but the majority is likely to be held in various
bank accounts. However, since money in current accounts rarely earns
interest, if a business has a surplus of cash it may invest it in various ways.
34

Some will have to be in very liquid accounts so that if necessary they can get
at it very quickly, but some may be tied up for longer periods of time.

Inventory
Inventory is also a current asset which can be either raw materials, finished
items available for sale, or goods in the process of being manufactured.
Inventory is recorded as an asset on a company's balance sheet.

Raw material
An item used to produce something else is called a "raw material." Some raw
materials are easy to spot, but many require detective work.
Raw material of a company may be imported or indigenous. Raw material
should be managed in such a way that flow of production is not interrupted.
Reordering quantity and time should be estimated in a proper manner.

Work in process
An operation is composed of processes designed to add value by
transforming inputs into useful outputs. Inputs may be materials, labor,
energy, and capital equipment. Outputs may be a physical product (possibly
used as an input to another process) or a service. Processes can have a
significant

impact

on

the

performance

of

business,

and

process

improvement can improve a firm's competitiveness.

35

Finished Goods
Definition: Commodities that will not undergo further processing and are
ready for sale to the final demand user, either an individual consumer or
business firm. This includes unprocessed foods such as eggs and fresh
vegetables, as well as processed foods such as bakery products and meats.
This also includes durable goods such as automobiles, household furniture
and appliances, and Nondurable goods such as apparel and home heating
oil.

Prepaid Expenses
In the course of every day operations, businesses will have to pay for goods
or services before they actually receive the product sometimes companies
decide to prepay taxes, salaries, utility bills, rent, or the interest on their
debt. These would all be pooled together and put on the balance sheet
under the heading prepaid expenses. By their very nature, Prepaid Expenses
are a small part of the balance sheet.

Current liabilities
The term current liabilities are those liabilities which are intended at the time
of their inception, to be paid in the ordinary course of business, within a
year, out of the current assets or earnings of the concern. The basic current
liabilities are accounts payable, bills payable, bank overdraft and outstanding
expenses and other short term debts.

36

Creditors
Creditors (Accounts Payable) are suppliers whose invoices for goods or
services have been processed but who have not yet been paid.
In other words, creditors are people to whom the company owes the money.
The term creditor is frequently used in the financial world, especially in
reference to short term loans, long term bonds, and mortgages.
The term creditor derives from the notion of credit. In modern America, credit
refers to a rating which indicates the ability of a borrower and likelihood to
pay back his or her loan. In earlier times, credit also referred to reputation or
trustworthiness.

Classification of Current Assets and Current Liabilities

The current classification applies to those assets that will be realized in cash,
sold, or consumed within one year (or operating cycle, if longer), and those
liabilities that will be discharged by use of current assets or the creation of
additional current liabilities within one year (or operating cycle, if longer).
The current liability section of a balance sheet is also intended to include
obligations that are due on demand or will be due on demand within one
year from the balance sheet date, even though liquidation may not be
expected within that period. Short-term obligations shall be excluded from
current liabilities only if the enterprise intends to refinance the obligation on
a long-term basis and has the demonstrated ability to consummate the
financing.

37

The ordinary operations of a business involve a circulation of capital within

the current asset group. Cash is expended for materials, labor, operating
expenses, and other services, and such cash expenditures are included in
the inventory value. Upon sale of the products or performance of services,
the accumulated expenditures are converted into receivables and ultimately
into cash again. The average period of time intervening between the cash-tocash conversion is the operating cycle of the business. When the business
has no clear operating cycle, or when the operating cycle is shorter than 12
months, a 12-month period should be used to segregate current assets.
This concept of the nature of current assets would exclude from that
classification such resources as 1) cash and claims to cash that are restricted
as to withdrawal or other use for current operations; 2) investments in
securities (whether marketable or not) or advances that have been made for
the purpose of control, affiliation, or other business advantage; 3) cash
surrender value of life insurance; 4) depreciable assets; 5) long-term
receivables; and 6) land.
For analytical purposes, specific recommendations of the FFSC are:
1. Principal debt due within 12 months, even on notes with monthly
payments, should be included as a current liability.
2. Capital leases should be accounted for on the balance sheet, with the
current portion of the principal due and the accrued interest shown as
a current liability.
3. Cash value of life insurance should be a non-current asset.
4. Loans

to

family

members

should

be

treated

based

on

the

characteristics of the notes. (The amount of these loans should be

separately disclosed, if material.)
5. PIK certificates should be treated as current assets.
6. Retirement accounts should be shown as non-current assets.

38

The current portion of both deferred tax assets and deferred tax liabilities are
to be recorded as current assets or current liabilities.

CASH MANAGEMENT
Good cash management can have a major impact on overall working capital
management.
The key elements of cash management are:

Cash forecasting;

Balance management;

Administration;

Internal control.

Cash Forecasting:
Good cash management requires regular forecasts. In order for these to be
materially accurate, they must be based on information provided by those
managers responsible for the amounts and timing of expenditure. Capital
expenditure and operating expenditure must be taken into account. It is also
necessary to collect information about impending cash transactions from
other financial systems, such as creditors and payroll.

39

Balance Management: Those responsible for balance management

must make decisions about how much cash should at any time be on call in
the Departmental Bank Account and how much should be on term deposit at
the various terms available.
There are various types of mathematical model that can be used. One type is
analogous to the ERQ inventory model. Linear programming models have
been developed for cash management, subject to certain constraints. There
are also more sophisticated techniques.

Administration: Cash receipts should be processed and banked as

quickly as possible because:

They cannot earn interest or reduce overdraft until they are banked;

Information about the existence and amounts of cash receipts is

usually not available until they are processed.

Where possible, cash floats (mainly petty cash and advances) should be
avoided. If, on review, the only reason that can be put forward for their
existence is that "we've always had them", they should be discontinued.
There may be situations where they are useful, however. For example, it may
be desirable for peripheral parts of departments to meet urgent local needs
from cash floats rather than local bank accounts.

Internal Control:
Cash and cash management is part of a department's overall internal
control system. The main internal cash control is invariably the bank
reconciliation. This provides assurance that the cash balances recorded in
40

the accounting systems are consistent with the actual bank balances. It
requires regular clearing of reconciling items.
The key to successful cash management is milestones:
o

Capital is provided to execute a business plan

Cash use must track growth in enterprise value

Enterprise value is measured by milestones, not the fiscal

calendar

Cash management is not cost control

o

Cost control is a reactive measure using crude tools e.g. % cuts

Cost control often depletes value (e.g. by using people as

accounting chips)

CREDITORS MANAGEMENT:
Creditors are the businesses or people who provide goods and services in
credit terms. That is, they allow us time to pay rather than paying in cash.
There are good reasons why we allow people to pay on credit even though
literally it doesn't make sense! If we allow people time to pay their bills, they
are more likely to buy from your business than from another business that
doesn't give credit. The length of credit period allowed is also a factor that
can help a potential customer deciding whether to buy from a company or
not: the longer the better.
Creditors will need to optimize their credit control policies in exactly the
same way as the debtors' turnover ratio.
CREDITORS TURNOVER RATIO:
Creditors' Turnover

Average Creditors
(Cost of Sales/365)

41

As with the stock turnover ratio, creditor values relate to the costs of raw
materials, goods and services.

DEBTORS MANAGEMENT
The objective of debtor management is to minimize the time-lapse between
completion of sales and receipt of payment. The costs of having debtors are:

Opportunity costs (cash is not available for other purposes);

Bad debts.

Debtor management includes both pre-sale and debt collection strategies.

Pre-sale strategies include:

Offering cash discounts for early payment and/or imposing penalties

for late payment;

Agreeing payment terms in advance;

Requiring cash before delivery;

Setting credit limits;

Setting criteria for obtaining credit;

Billing as early as possible;

Requiring deposits and/or progress payments.

Post-sale strategies include:

Placing the responsibility for collecting the debt upon the center that
made the sale;
42

Identifying long overdue balances and doubtful debts by regular

analytical reviews;

Having an established procedure for late collections, such as

- a reminder;
- a letter;
- cancellation of further credit;
- telephone calls;
- use of a collection agency;
- legal action.

Objectives of Receivables management:

To maintain an optimum level of investment in receivables.

To maintain optimum volume of sales.

To control the cost of credit allowed & to keep it at the minimum possible
level.

To keep down the average collection period.

To obtain benefit from the investment in debtors at optimum level.

Debt Control and Debt Collection Period

Debt control is an important part of business activity because although a
debt is an asset, it is not as liquid an asset as cash in the bank. Firms have to
ensure they collect their debts as efficiently as possible within the terms they
have set for the debt.
The only way we can consider how efficient the firm's debt control has been
is to use a ratio. This ratio is known as the debt collection period.
DEBT COLLECTION PERIOD (in days)

365_____________

debt turnover ratio

The figure measures (in number of days) how long on average it has taken
the firm to collect its debts. The higher the figure the longer it has taken.
However, the normal period for collecting debts will differ between
43

industries. For example, a figure of 10 days may sound very impressive, but
if this was the figure for a chain of supermarkets it would be high. Therefore
no debt is incurred and retail firms will tend to have very few debtors and a
low debt collection period. Firms who do a lot of business on credit though
will have much higher debt collection periods.

Debtors' Turnover:
Debtors control is a vital aspect of working capital management. Many
businesses need to sell their goods on credit, otherwise they might find it
difficult to survive if their competitors provide such credit facilities; this could
mean losing customers to the opposition.
The formula for debtors' turnover is:
Debtors' Turnover

Net credit sales

Average debtors

Working Capital Cycle:

The way working capital moves around the business is modeled by the
working capital cycle. This shows the cash coming into the business, what
happens to it while the business has it and then where it goes.
The working capital cycle shows the movement of cash into and out of the
business. The components of working capital cycle are the debtors, creditors,
raw materials and cash.
The cycle starts with buying of raw materials on credit from the suppliers.
These suppliers become the creditors of the company. The raw materials
44

undergo through different value addition stages and are converted into
finished goods. The finished goods are sold to the customers on credit who
become the debtors of the company. At the end of the credit period the
company gets the cash from the debtors whom they pay to the creditors and
the cycle goes on.
It is must for any company to have an ideal working capital cycle. It should
neither be too long nor too short. If the cycle is too long the funds get stuck
up with the debtors and prompt payment to the creditors cannot be made.
A simple working capital cycle may look something like:

45

Payment
CASH

CREDITORS

Collection

Supply

RAW MATERIALS

DEBTORS

Sales

Production

FINISHED GOODS

W.I.P
Value added conversion

WORKING CAPITAL FINANCING:

Banks are the main institutional sources of working capital finance in India.
After trade credit bank credit is the most important source of working capital
requirement of firms in India. A bank considers a firms sales and production
plans and the desirable levels of current assets in determining its working
capital requirements. The amount approved by the bank for the firms
working capital is called credit limit.

FORMS OF BANK FINANCE:

46

A firm can draw funds from its banks within the maximum credit limit
sanctioned. It can draw funds in the following forms.
Overdrafts
Cash credit
Bills purchasing or discounting
Working capital loan
Letter of credit

TANDON COMMITTEE:
Like many other activities of the banks, method and quantum of
short-term finance that can be granted to a corporate was
mandated by the Reserve Bank of India till 1994. This control was
exercised on the lines suggested by the recommendations of a
study group headed by Shri Prakash Tandon.
The study group headed by Shri Prakash Tandon, the then
Chairman of Punjab National Bank, was constituted by the RBI in
July 1974 with eminent personalities drawn from leading banks,
financial institutions and a wide cross-section of the Industry with
a view to study the entire gamut of Bank's finance for working
capital and suggest ways for optimum utilization of Bank credit.
This was the first elaborate attempt by the central bank to
organize the Bank credit. The report of this group is widely known
as Tandon Committee report.
Most banks in India even today continue to look at the needs of
the corporate in the light of methodology recommended by the
Group.
47

As per the recommendations of Tandon Committee, the corporate

should be discouraged from accumulating too much of stocks of
current assets and should move towards very lean inventories and
receivable levels.

First Method of Lending:

Banks can work out the working capital gap, i.e. total current assets
less current liabilities other than bank borrowings (called Maximum
Permissible Bank Finance or MPBF) and finance a maximum of 75 per
cent of the gap; the balance to come out of long-term funds, i.e., owned
funds and term borrowings. This approach was considered suitable only
for very small borrowers i.e. where the requirements of credit were less
than Rs.10 lacs. This method will give a minimum current ratio of 1:1

Second Method of Lending:

Under this method, it was thought that the borrower should
provide for a minimum of 25% of total current assets out of long-term
funds i.e., owned funds plus term borrowings. A certain level of credit
for purchases and other current liabilities will be available to fund the
buildup of current assets and the bank will provide the balance (MPBF).
Consequently, total current liabilities inclusive of bank borrowings could
not exceed 75% of current assets. RBI stipulated that the working
capital needs of all borrowers enjoying fund based credit facilities of
more than Rs. 10 lacs should be appraised (calculated) under this
method this method will give a current ratio of 1.3:1.

48

Working Capital assessment on the formula prescribed by

the

Tandon

Committee.

Working Capital Requirement (WCR) = [Current assets i.e. CA (as per

industry

norms)

Current

Liabilities

i.e.

CL]

Permissible Bank Financing [PBF} = WCR Promoters Margin Money i.e.

PMM (to be brought in by the promoter)
As per Formula 1: PMM = 25% of [CA CL] and thereby PBF = 75% of [CA
CL]
As per Formula 2: PMM = 25% of CA and thereby PBF = 75%[CA] CL
As is apparent Formula 2 requires a higher level of PMM as compared to
Formula 1. Formula 2 is generally adopted in case of bank financing. In cases
of sick units where the promoter is unable to bring in PMM to the extent
required under Formula 2, the difference in PMM between Formulae 1 and 2
may be provided as a Working Capital Term Loan repayable in installments
over a period of time.

METHODS

FOR

DETERMINING

PERMISSIBLE

BANK

BORROWINGS
1st method

2nd method

(a

Current

100

100

)
(b

assets(CA)
Current

20

20

)
(c)

liabilities(CL)
Working

80

80

(d

(CA-CL)(a-b)
Borrowers

20(25% of c)

25(25% 0f a)

)
(e

contribution
Permissible

60

55

bank finance,

capital

(c-d)

gap

49

The main factors used in the estimation of working capital

requirement:

The nature of business and sector-wise norms

Factors such as seasonality of raw materials or of demand may require

a high level of inventory being maintained by the company. Similarly,
industry norms of credit allowed to buyers determine the level of
debtors of the company in the normal course of business.

The level of activity of the business Inventories and receivables are

normally expressed as a multiple of a days production or sale. Hence,
higher the level of activity, higher the quantum of inventory,
receivables and thereby working capital requirement of the business.
So in order to arrive at the working capital requirement of the business
for the year, it is essential to determine the level of production that the
business would achieve. In case of well-established businesses, the
previous years actual and the management projections for the year
provide good indicators. The problems arise mainly in the case of
determining the limit for the first time or in the initial few years of the
business. Banks often adopt industry standard norms for capacity
utilization in the initial years.

Steps involved in arriving at the level of working capital

requirement:

Based on the level of activity decided and the unit cost and sales price
projections, the banks calculate at the annual sales and cost of
production.

The quantum of current assets (CA) in the form of Raw Materials, Workin-progress, Finished goods and Receivables is estimated as a multiple
of the average daily turnover. The multiple for each of the current
assets is determined generally based on the industry norms.

50

The current liabilities (CL) in the form of credit availed by the business
from its creditors or on its manufacturing expenses are deducted from
the current assets (CA) to arrive at the Working Capital Requirement
(WCR).

The issue of computation of working capital requirement has aroused

considerable debate and attention in this country over the past few
decades. A directed credit approach was adopted by the Reserve Bank
of ensuring the flow of credit to the priority sectors for fulfillment of the
growth objectives laid down by the planners. Consequently, the
quantum of bank credit required for achieving the requisite growth in
Industry was to be assessed. Various committees such as the Tandon
Committee and the Chore Committee were constituted and studied
the problem at length.

Norms were fixed regarding the quantum of various current assets for
different industries (as multiples of the average daily output) and the
Maximum Permissible Bank Financing (MPBF) was capped at a certain
percentage of the working capital requirement thus arrived at.

Negative Working Capital:

Some companies can generate cash so quickly they actually have a negative
working capital.

This is generally true of companies in the restaurant

business (McDonalds had a negative working capital of $698.5 million

between 1999 and 2000). Amazon.com is another example. This happens
because customers pay upfront and so rapidly, the business has no problems
raising cash. In these companies, products are delivered and sold to the
customer before the company ever pays for them.
A negative working capital is a sign of managerial efficiency in a business
with low inventory and accounts receivable (which means they operate on an
almost strictly cash basis). In any other situation, it is a sign a company may
be facing bankruptcy or serious financial trouble
51

Ratio Analysis:
The ratio analysis is one of the most powerful tools of financial analysis. it is
the process of establishing and interpreting various ratios (Quantities
relationship between figures and groups of figures).it is with the help of
ratios that the financial statements can be analysis more clearly and decision
are made from such analyses.
A ratio is simple arithmetic expression of the relationship of one to another.
According to accountants Handbooks by Ixen and Bedford a ratio is an
expression of the quantities relationship between two numbers.

Types of Ratios:
i. Liquidity Ratios
ii. Leverage Ratios
iii. Profitability Ratios
iv. Activity Ratios

i.

Liquidity Ratio
Current ratio= current assets/current liabilities
Quick ratio= quick assets/current liabilities
Measures firms ability to meet its obligation; leverage ratios show the
proportions of the debt equity in financing the firms assets; activity
ratios reflect the firm efficiency in utilizing its assets, and profitability
ratios measure overall performance and effectiveness of the firm.

ii.

Leverage Ratio
Leverage ratio= debt/equity ratio
The short-term creditors, like bankers and suppliers of raw materials,
are more concerned with the forms current debt paying ability. On the
other hand, long term creditors like debenture holders financial
institution etc. are more concerned with the firms long term financial
52

strength. A firm should have strong short as well as long-term financial

position.

iii.

Profitability Ratio
Profitability refers to net result of business operation two types of
ratios are used to measure profitability. These are profit margin ratios
rate of return ratios.While profit margin ratios shows the relationship
between profit and investment.
The important profit margin ratios are:

Gross profit Ratio= gross profit/sales*100

Operating

profit

ratio=operating

expenses/net

sales*100

Net profit Ratio=PAT/netsales*100

The important rate of return ratios are:

Return on assets Return of capital employed,
Return on shareholders equity,
Return on equity share capital.

iv.

Activity Ratio

Fixed assets turnover ratio=net sales/fixed assets

Current assets turnover ratio= net sales/current assets

Debtors turnover ratio=net credit sales/ average debtors

These ratios are also referred to activity ratios asset management

ratios. They measure how efficiency a firm employs the assets. They
53

are based on the relationship between level of activity and levels of

various assets. The important turnover ratios are inventory turnover
ratio, debtors turnover ratio, creditors turnover ratio, fixed turnover
ratio, total assets turnover ratio.

Comparative balance sheet:

The comparative balance sheet analysis is the study of the trend of the same
items, group of items and computed items in two or more balance sheets of
the same enterprise on different dates. The changes in periodic observed by
comparison of the balance sheet at the end of a period and these changes
can help in informing an opinion about the progress of and enterprise.
While interpreting comparative balance sheet the interpreter is expected to
study the following aspects;1. Current

interpreting

comparative

and

liquidity

position
2. Long term financial position
3. Profitability of the concern

54

DATA ANALYSIS AND INTERPRETATION

Size and growth of current assets and liabilities and Net working capital of
Kotak Mahindra during the period 2010-11 to 2014-15.
CURRENT ASSETS AND LIABILITIES

(All amounts

are in Cr)
Year

Curre

Growth

Current

Growth

nt

Rate

Liabilitie

(%)

W.C

100

4857.12

117.2798

2701.92
-

161.1132

1194.93

98.07509

7997.23
12516.0

122.6639

2010-

Assets (%)
17701.

11
2011-

69
17766.

100
100.363

12
2012-

01
23075.

4
129.884

13
2013-

31
31800.

6
137.810

23803.06

14
2014-

29
41713.

9
131.174

29197.75

15

78

Rate Net

s
12844.57
15064.09
24270.24

55

45000
40000
35000
30000
25000
20000
15000
10000
5000
0
-5000

2010-11
2011-12
2012-13
2013-14
2014-15

Interpretation:
The Current assets and the current liabilities of Kotak Mahindra are in the
increasing stage but at the financial year 2014-2015 it is in the decreasing
stage because of increasing in the current liabilities and the growth rate is
131.17. The net working capital is also in the increasing stage.

WORKING CAPITAL TURNOVER RATIO:

(All amounts are in Cr)
Year
2010-11
2011-12
2012-13
2013-14
2014-15

Sales(Income)
2845.84
3222.70
3676.54
4811.12
7028.66

Networking
Capital
4857.12
2701.92
-1194.93
7997.23
12516.03

Ratio
0.585911
1.192744
-3.07678
0.601598
0.561573

56

14000
12000
10000
2010-11

8000

2011-12

6000

2012-13
2013-14

4000

2014-15

2000
0
-2000

SALES (Income)

NET W.C

RATIO

Interpretation:
The Net working capital of Kotak Mahindra are In the increasing stage but
at the financial year 2014-2015 it is in the decreasing stage because of
increasing in the sales and the growth rate is 131.17. The net working capital
is also in the increasing stage.

TURNOVER RATIO:
Debtors Turnover Ratio expresses the relationship between debtors and
sales. A high Debtors Turnover Ratio or low Debt collection period is
indicative of sound credit management policy.

Table shows Debtors Turnover Ratio of Kotak Mahindra.

During 2010-11 to 2014-15.(All amounts are in Cr)
Year
2010-11

Net

Credit

Sales(Income)
2845.84

Avg. Debt

Ratio

21542.90

0.132101
57

2011-12

3222.70

21549.00

0.149552

2012-13

3676.54

30026.98

0.122441

2013-14

4811.12

40984.92

0.117388

2014-15

7028.66

55132.04

0.127488

60000
50000
40000

2010-11
2011-12

30000

2012-13
2013-14

20000

2014-15

10000
0
NET CREDIT SALE (Income)

AVERAGE DEBT.

RATIO

INERPRETATION:

From the above table, it is observed that the Kotak Mahindra debtors
turnover ratio shows a good sigh. The company noted a maximum ratio of
14.95 in the year 2011-12 and the maximum ratio in the year of 2014-15 is
12.74.

58

If we observed the above table the ratio is increasing the year 2010--11 is
13.21 to 14.95 in the year 2011-12 in the year but it is decreased to 12.74 in
the year 2014-15. It shows a good sign for the company.

Current Ratio:
It is the ratio of the current assets current liabilities this ratio is used to know
the companys ability to meet its current obligations. The standard norm for
the current ratio is 2:1
Current ratio = current Assets / Current liabilities.
Table showing current ratio of Kotak Mahindra Ltd during the period
2010-11 to 2014-15
59

(A
ll amounts are in Cr)
Current

Year

Current Assets

2010-11

17701.69

Liabilities
12844.57

2011-12

17766.01

15064.09

2012-13

23075.31

24270.24

Ratio
1.378146
1.179362
0.950766

2013-14

31800.29

23803.06
1.335975

2014-15

41713.78

29197.75
1.428664

45000
40000
35000
30000

2010-11

25000

2011-12

20000

2012-13
2013-14

15000

2014-15

10000
5000
0
CURRENT ASSETS

CURRENT LIABILITRIES

RATIO

INTERPRETATION:
It is observed that the Kotak Mahindra current rationing a increasing trend;
the companys liquidity position is satisfactory. The current ratio increased
slightly up to 2011-12 is 1.33. But in 2012-13 it declined because of increase
60

in current liabilities, and then it started to decreased further in 2012-13 as

0.95.If the company maintains to increase the ratio it can meet obligations.

Quick Ratio:
Quick ratio is relation between quick assets and current liabilities. The term
quick assets, which can be converted into cash with a short notice. This
category also includes cash bank balances short term investments and
receivables.
Quick ratio = Quick Assets / current liabilities
Table showing quick ratio of Kotak Mahindra during the period 2010-11 to
61

2014-15.
(All
amounts are in Cr)
Current

Year

Quick Assets

2010-11

17701.69

Liabilities
12844.57

2011-12

17766.01

15064.09

2012-13

23075.31

24270.24

2013-14

31800.29

23803.06

2014-15

41713.78

29197.75

Ratio
1.378146
1.179362
0.950766
1.335975
1.428664

45000
40000
35000
30000

2010-11

25000

2011-12

20000

2012-13
2013-14

15000

2014-15

10000
5000
0
QUICK ASSETS

CURRENT LIABILITRIES

RATIO

INTERPRETATION:
It is observed that the Kotak Mahindra current rationing a increasing trend;
the companys liquidity position is satisfactory.

62

The current ratio increased slightly up to 2011-12 is 1.33. But in 2012-13 it

declined because of increase in current liabilities, and then it started to
decrease further in 2012-13 as 0.95. If the company maintains to increase
the ratio it can meet obligations.

Composition of current Assets:

(All the amounts are in Cr)
63

Particulars

2010-

2011-

2012-13

2013-14 2014-15 Avg.

Sundry

11
21542.

12
21549.

30026.9

40984.9 55132.0 338.47

Debtors

90

00

995.35

2085.67

2107.72 2016.49 178.39

15552.

16625.

20775.0

29329.3 39079.2 242.72

22
Balance with 439.18

34
145.32

5
214.59

1
363.26

39315

53102.3

72785.2 96845.8

Cash

and 1710.2

Balance with 9
RBI
Advances

3
618.06

35.60

bank
Total

39244.
6

60000
50000
40000
30000
20000
10000
0

2010-11
2011-12
2012-13
2013-14
2014-15

INTERPRETATION:
64

The income statement is also called as income statement, it is considered to

be the most useful of all financial statements.

It prepared by a business

concern in order to know the profit earned and loss sustained during a
specified period. It explains what has happened to a business as a result of
operations between two balance sheet dates. For this purpose it matches the
revenues and cost incurred in the process of earning revenues and shows the
net profit earned or loss suffered during a particular period.
The nature of Income which is a focus of the income statement can be well
understood if business is taken as an organization that uses Input to
produce Output. The output of the goods and services that the business
provides to its customers. The values of these outputs are the goods and
services that the business provides to its customers. The values of these
outputs art the amounts paid by the customers for them. These amounts are
called revenues in the accounting. The inputs are the economic resources
used by the business in providing these goods and services. These are
termed expenses in accounting.
The comparative balance sheet analysis is the study of the same items,
group of items and computed items in two or more balance sheets of the
same enterprise on different dates. The changes in periodic balance sheet
items reflect the conduct of a business. The changes can be observed by
comparison of the balance sheet at the beginning and at the end of a period
and these changes can help in informing an opinion about the progress of
and enterprise.
.

65

Working capital turnover ratio Of Kotak Mahindra limited:

Implementing an effective working capital management system is an
excellent way for many companies to improve their earnings. The two main
aspects of working capital management are ratio analysis and management
of individual components of working capital.

Working capital turnover ratio 2015

Working
capital
turnover
ratio

2014

2015

Sundry Debtors

40984.92

55132.04

Cash and Balances with RBI

2107.72

2016.49

Balance with Bank

363.26

618.06

Advances

29329.31

39079.23

Total

72785.21

96845.82

Borrowings

11723.95

16595.52

Other Liabilities

3032.36

2553.67

Contingent Liabilities

12291.30

17319.52

Total

27047.61

36468.71

Net working capital

45737.6

60377.11

Total current Assets

Total Current Liabilities

66

Increase\decrease
working capital

in

net
14639.51

120000
100000
80000
60000
40000
20000
0

Interpretation:
The networking capital of Kotak Mahindra has been increased to 60377.11 Cr
the financial position i.e. the performance of Kotak Mahindra has increased
and the current assets defects its current liability.

67

Working capital turnover ratio 2014

Working capital turnover ratio 2014

Working
capital
turnover
ratio

2013

2014

Sundry Debtors

30026.98

40984.92

Cash and Balances with RBI

2085.67

2107.72

Balance with Bank

214.59

363.26

Advances

20775.05

29329.31

Total

53102.29

72785.21

Borrowings

6140.51

11723.95

Other Liabilities

2869.42

3032.36

Contingent Liabilities

4156.15

12291.30

Total

13166.08

27047.61

Net working capital

Increase\decrease

39936.21

45737.6

Total current Assets

Total Current Liabilities

working capital

in

net
5801.39

68

80000
70000
60000
50000
40000
30000
20000
10000
0

INTERPRETATION:
The networking capital of Kotak Mahindra has been increased to 45737.60 Cr
the financial position i.e. the performance of Kotak Mahindra has increased
and the current assets defects its current liability.

69

Working capital turnover ratio 2013

Working capital turnover ratio 2013

Working
capital
turnover
ratio

2012

2013

Sundry Debtors

21549.00

30026.98

Cash and Balances with RBI

995.35

2085.67

Balance with Bank

145.32

214.59

Advances

16625.34

20775.05

Total

39315.01

53102.29

Borrowings

5904.07

6140.51

Other Liabilities

3257.34

2869.42

Contingent Liabilities

4486.28

4156.15

Total

13647.69

13166.08

Net working capital

Increase\decrease

25667.32

39936.21

Total current Assets

Total Current Liabilities

working capital

in

net
14268.89

70

60000
50000
40000
30000
20000
10000
0

INTERPRETATION:
The networking capital of Kotak Mahindra has been increased to 39936.21Cr
the financial position i.e. the performance of Kotak Mahindra has increased
and the current assets defects its current liability.

71

Working capital turnover ratio 2012

Working capital turnover ratio 2012

Working
capital
turnover
ratio

2011

2012

Sundry Debtors

21542.90

21549.00

Cash and Balances with RBI

1710.29

995.35

Balance with Bank

439.18

145.32

Advances

15552.22

16625.34

Total

39244.59

39315.01

Borrowings

5119.25

5904.07

Other Liabilities

3175.75

3257.34

Contingent Liabilities

7172.79

4486.28

Total

15467.79

13647.69

Net working capital

Increase\decrease

23776.80

25667.32

Total current Assets

Total Current Liabilities

working capital

in

net
1890.52

72

45000
40000
35000
30000
25000
20000
15000
10000
5000
0

INTERPRETATION:
The networking capital of Kotak Mahindra has been increased to 25667.32 Cr
the financial position i.e. the performance of Kotak Mahindra has increased
and the current assets defects its current liability.

73

FINDINGS
1. The Kotak Mahindra net working capital is satisfactory between the
years 2012-13, since it shows decreasing trend but after that it is in
declining position.
2. The current ratio of Kotak Mahindra is satisfactory during the period of
study 2010-11 to 2014-15. It is increased but after that it is declining.
3. The average quick ratio of Kotak Mahindra is not good though the quick
ratio is showing maximum value of 1.24 in the year 2010-11 and then
it is declining.
4. Fixed assets turnover ratio of Kotak Mahindra has been increased. And
the company has to maintain this.
5. Inventory turnover ratio of Kotak Mahindra is also increased gradually,
without any fit falls up to 2010-11. In the year 2010-11 it is inclined,
and again it has increased in the year 2014-15. Good inventory
management is good sign for efficient management.
6. Total Assets turnover ratio of Kotak Mahindra is not satisfactory
because it is always below one, except in the year 2014-15 having a
value of 2.14.
7. Return on investment is not satisfactory. This indicates that the
companys funds are not being utilized in a better way.

74

SUGGESTIONS
1. position of funds should be utilized properly.
2. Better Awareness to increase the sales is suggested.
3. Cost cut down mechanics can be employed.
4. Better production technique can be employed.
5. The investment on raw material should be made as per the
requirement. Unnecessary investment may block up the funds.
6. Neither too high nor too low inventory turnover ratios may reduce
profit and liquidity position of the industry. So, proper balance should
be made to increase profits and to ensure liquidity.
7. The raw material should be acquired from the right source at right
quality and at right cost.
8. The process that was being used by Kotak Mahindra Group with the
purchasing department should undergo changes; so that, it enhances
the delivery of a product without compromising its quality by improving
the utilization of materials, labor and equipment.

75

CONCLUSIONS

1. The Kotak Mahindra Net Profit Ratio is showing negative profit in the
year 2010--11. These event is an expected one because since from the
previous two years it is showing the decline stage in Net Profit Ratio.
2. Profit Margin of Kotak Mahindra is decreasing and showing negative
profit because there is increase in the price of copper.
3. The Kotak Mahindra Net Working Capital Ratio is satisfactory.
4. The Kotak Mahindra return on Total Assets ratio shows a negative sign
in the year 2010-11.
5. The Operating Ratio of Kotak Mahindra increased in the year 2010-11.
6. The Operating Ratio of Kotak Mahindra satisfactory. Due to increase in
cost of production, this ratio is decreasing. So the has to reduce its
office administration expenses.

76

BIBLIOGRAPHY
BOOKS REFFERED:
Financial Management Written By M.Y. Khan & P.K. Jain
Financial Management Written By Prasanna Chandra
Financial Management Written By I. M. Pandey
Financial Management Written By S. N. Maheswari
Websites:
www.kotak.com
www.bankingindia.com
www.evanimics.com
www.damodaram.com
www.investopedia.com
www.valuebasedmanagement.net

77