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Project
on
Working Capital
Management
of
INDUSIND BANK
OVERVIEW
Capital required for a business can be classified under two main categories:
Fixed capital
Working capital
Fixed capital: funds are required to every business for two purposes for its establishment
and carry on its day to day operation. At time of long term funds are required to create
production facilities through purchase of fixed assets such as plant and machinery, land,
building, furniture, etc., funds invested are for permanent or fixed basis which are called
Fixed capital.
Working capital: To carry out daily operation short term funds are required to take care
purchase of raw materials, payment of wages, transportation expenses, etc, these funds
are known as Working capital.
Conversion of finished goods into debtors and bills receivable through sales
Conversion of debtors and bills receivable into cash
4. NET WORKING CAPITAL: The amount difference between current assets and current
liabilities is called net working capital. The concept of net working capital enables a firm
to determine the exact amount available for operational requirements.
5. NEGATIVE WORKING CAPITAL: When current liabilities exceeds current assets,
negative working capital emerges. This happens when a firm is nearing crisis which
might arise due to inefficiency of operative force.
6. CASH WORKING CAPITAL: It is one, which is calculated from the item appearing in
the profit & loss a/c. it shows the real flow of money or value at a particular time is
considered to the most reliable approach in working capital. The cash working capital
indicates the adequacy of cash flow, which is an essential pre-requisite of business.
ABOUT
IndusInd Bank Limited is a Mumbai based Indian new generation bank, established in 1994.
The bank offers commercial, transactional and electronic banking products and services.
IndusInd Bank was inaugurated in April 1994 by then Union Finance Minister Manmohan
Singh. Indusind Bank is the first among the new-generation private banks in India.
IndusInd Bank Limited is an India-based bank that offers various banking and para banking
services, including accepting of deposits, such as savings accounts, currents accounts and fixed
deposits. The Bank is also engaged in granting of loans to various segments, including
industries/business and retail loans to individuals, among others. Its segments include Treasury,
which includes various investment portfolios, profit/loss on sale of investments, profit/loss on
foreign exchange transactions equities, income from derivatives and money market operations;
Corporate/Wholesale Banking, which includes lending to and deposits from corporate customers
and identified earnings; Retail Banking, which includes lending to and deposits from retail
customers and identified earnings, and Other Banking Operations, which includes all other
operations not covered under Treasury Corporate/Wholesale Banking and Retail Banking. The
Bank has over 800 branches in India
The bank started its operations with a capital amount of Rs. 1 billion among which Rs.
600 million was donated by the Indian Residents and Rs. 400 million was raised by the NonResident Indians. The bank has specialized in retail banking services and continuously upgrades
its support systems by introducing newer technologies. It is also working on expanding its
network of branches all across the country along with meeting the global benchmark. According
to the bank, its name is derived from the rich and vivid Indus Valley Civilisation.
IndusInd Bank has 745 branches, and 1635 ATMs spread across 392 geographic locations of the
country as of May 2015. It also has a representative office in London and another in Dubai.
Mumbai has the maximum number of bank branches followed by New Delhi and Chennai. The
bank has also proposed to double the branches count to 1200 by March 2017.
Working capital management is a managerial accounting strategy focusing on maintaining efficient levels
of both components of working capital, current assets and current liabilities, in respect to each other.
Working capital management ensures a company has sufficient cash flow in order to meet its short-term
debt obligations and operating expenses.
Working capital is the financing in a small business that helps a company pay its trade creditors and cash
flow it is the finance that businesses need for their day-to-day trading operations.
Role of indusind bank in financing working capital
Following are the services been provided by the bank for financing the working capital of small- scale
enterprises:-
RETAIL LOANS
Housing Loan
Personal Loans
Gold loans
Home loans
Vehicle loans
Project financing
Loans to SME
Unsecured
Personal loan
2. Term Loan
3. Trade
Intention to repay the loan (seen from history or any political background, if any)
For providing loans against mortgage, Bank considers the following: Evaluate the property of customer to whom loan is to be extended, by the valuation
officer of its circle rate. And, also find out as to whether the property is constructed or
rented, is industrial/commercial or personal, is approved by Development Authority and
the type of property to be mortgaged.
PAN
In case of Partnership:
Separate PAN
Utility bill
Registration
PAN
MOA
Shareholding pattern
Utility Bill
List of directors
Repayment capacity
Various elements are considered to evaluate the repayment capacity of the borrower as
follows:In case of individuals:
In case of business:
Intention to repay
For evaluating the intention to repay mainly Data of borrowers credit track- from CIBIL or such
other Credit Rating Agency and the Credit Score is checked for the purpose of granting the loan.
Various other risk or credit scoring parameters for rating/scoring of borrowers of the bank are: Age, Domicile, and Profile
Track record with our own bank or other banks/financial instituitions
Applicants business experience and the experience of the co-borrower and/or the
Guarantor
Product for which the loan is sought- from type and nature of application;
locality; operational area perspective
Product and operational viability
Fleet strength( as maybe applicable for each type of loan product)
Other income and financials; other assets owned
Strength of banking transactions
Work orders on hand
Market reputation
Loan to value norms and loan period sought
Feedback from field investigation check
Processing of applying for loan:It takes 5-6 days for providing loan from the date of application of loan by the applicant after
performing all necessary procedures such as House verification, Business verification, Document
verification and Property from registrar office.
Vehicle loan
Loan for vehicle is unsecured loan because value is getting depreciated and it is movable
property.
Loan is provided for:
Commercial Vehicle
Construction Equipment
Personal vehicle
KYC
FTU( First Time User) have no back up with CIBIL; so they are reviewed for having
vehicle or not having vehicle.
Gold Loan
Income Proof : last 3 years audited financial along with audit report
with all schedules.
Others : any Govt. registration like service tax, sales Tax, excise,
Application form
Character
It is important to a bank to have significant comfort with the character of its prospective
borrowers. Indicators such as credit rating and borrowing history coupled with more qualitative
factors such as honesty and integrity all support a case for a borrower's willingness and ability to
repay a loan.
Capital
A bank needs to understand the capital position of the prospective borrower's business or
personal wealth. More capital represents the borrower's ability to withstand volatility. It also
demonstrates the commitment an owner of a borrowing entity maintains. A strong capital
position reassures a lender of repayment capacity in a borrower.
Capacity
Understanding capacity to repay a loan is critical for a bank during the underwriting process.
Capacity is determined by the borrower's ability to generate cash flow to service the interest and
principal on the loan. Strong cash flow from borrowers' normal business activities demonstrates
capacity to repay debt and mitigates the probability of default.
Conditions
A bank must also understand the broader market conditions affecting the industry, segment,
market and overall economy in which its borrowers engage in commerce. Strong industry growth
or economic conditions support a business' ability to generate cash and repay debt.
Collateral
Lenders often take a lien on borrower collateral. In the event a borrower is not able to repay debt
with its cash flow, a lender must rely on the quality and saleability of borrower collateral to repay
the loan. A robust analysis of the collateral supporting a loan is an important step in granting a
loan.