Introductin

A comparative study on working capital management of
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Chapter 1
Introduction
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1.1 INTRODUCTION TO WORKING CAPITAL MANAGEMENT
Working capital management is one the most important aspects of financial management. It
forms a major function of the finance manager and accountant. Working capital may be
regarded as the life blood and controlling nerve center of business. A study of working
capital is important to internal and external analysts for making decision because of its close
relationship with day to day operation of business. The finance manager spends most of his
time in managing current assets and current liabilities, arranging for short term financing,
negotiating merchandise. The current assets of the business should be maintained at
satisfactory level to cover the current obligation, to make a business success.
Working capital management is a relationship between current assets and current liabilities.
When a firms products or finished goods are sold, it has what is known as cash or
receivables. When receivables are collected, more cash is available for the purchase for raw
material merchandise and service. This flow of cash into production and so on illustrates the
circular flow of working capital.
1.2MEANING OF WORKING CAPITAL MANGEMENT
Working capital management refers to the management of both current assets and liabilities.
In other words, it is a study of relationship between current assets and current liabilities. The
main aim of financial management is to supply continuous flow of funds to administer the
day-to-day activities. The size of this capital must not be in excess or inadequate. It should be
adequately supplied to increase the wealth of the organization.
1.3 DEFINITION OF WORKING CAPITAL MANAGEMENT
According to smith Working Capital Management is concerned with problems that arise

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in attempting to manage the current assets and current liabilities: and their relationship that
exists between them.
1.4 OBJECTIVES OF WORKING CAPITAL MANAGEMENT
The objective of working capital management could be stated as:
1) To ensure optimum investment in current assets.
2) To strike a balance between the twin objectives of liquidity and profitability in the use
of funds.
3) To ensure adequate flow of funds for current operation
1.5 AIM OF WORKING CAPITAL MANAGEMENT
The two important aims of working capital management are profitability & solvency.
Solvency solves the maturing obligations. To ensure solvency the firm should be very liquid
which means that a large current assets holding.
Profitability solves the shareholders obligations. To ensure profitability the firm should
sacrifice the solvency & maintain the relatively low level of current assets where the funds
are tied up.

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Chapter: 2
Theoretical background

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2.1 HISTORY OF BANKING IN INDIA:
Banking in India originated in the first decade of 18th century with The General Bank of
India coming into existence in 1786. This was followed by Bank of Hindustan. Both these
banks are now defunct. The oldest bank in existence in India is the State Bank of India being
established as "The imperial bank of india in Calcutta in June 1806. A couple of decades later,
foreign banks like Credit Lyonnais started their Calcutta operations in the 1850s. At that point
of time, Calcutta was the most active trading port, mainly due to the trade of the British
Empire, and due to which banking activity took roots there and prospered. The first fully
Indian owned bank was the Allahabad Bank, which was established in 1865. By the 1900s,
the market expanded with the establishment of banks such as Punjab National Bank, in 1895
in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded under private
ownership. The Reserve Bank of India formally took on the responsibility of regulating the
Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was
nationalized and given broader powers. For the past three decades India's banking system has
several outstanding achievements to its credit. The most striking is its extensive reach. It is no
longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote corners of the country. This is one of the main reasons
of India's growth process.The government's regular policy for Indian bank since 1969 has
paid rich dividends with the nationalization of 14 major private banks of India. Not long ago,
an account holder had to wait for hours at the bank counters for getting a draft or for
withdrawing his own money. Today, he has a choice. Gone are days when the most efficient
bank transferred money from one branch to other in two days.
The first bank in India, though conservative, was established in 1786. From 1786 till today,
the journey of Indian Banking System can be segregated into three distinct phases. They are

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as mentioned below:
Early phase from 1786 to 1969 of Indian Banks
Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms
New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991
Scenario of Bank as per Phase I, Phase II and Phase III
2.2 Phase I
The General Bank of India was set up in the year 1786 followed by Bank of Hindustan and
Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay
(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks.
These three banks were amalgamated in 1920 and Imperial Bank of India was established
which started as private shareholders banks, mostly Europeans shareholders. In 1865
Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank
Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India,
Central Bank of India, Bank of Baroda, Caara Bank, Indian Bank, and Bank of Mysore were
set up. The Reserve Bank of India which is the Central Bank was created in 1935 by passing
Reserve Bank of India Act, 1934 which was followed up with the Banking Regulations in
1949. These acts bestowed Reserve Bank of India (RBI) with wide ranging powers for
licensing, supervision and control of banks. Considering the proliferation of weak banks, RBI
compulsorily merged many of them with stronger banks in 1969. During the first phase the
growth was very slow and banks also experienced periodic failures between 1913 and 1948.
There were approximately 1100 banks, mostly small. To streamline the functioning and

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activities of commercial banks, the Government of India came up with The Banking
Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per
amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with
extensive powers for the supervision of banking in India as the Central Banking Authority.
During those day public has lesser confidence in the banks. As an aftermath deposit
mobilization was slow. Abreast of it the savings bank facility provided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.
2.3 Phase II
Government took major steps in this Indian Banking Sector Reform after independence. In
1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale
especially in rural and semi-urban areas. It formed State Bank of India to act as the principal
agent of RBI and to handle banking transactions of the Union and State Governments all over
the country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960
on 19th July, 1969, major process of nationalization was carried out. It was the effort of the
then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country
were nationalized. Second phase of nationalization Indian Banking Sector Reform was
carried out in 1980 with seven more banks. This step brought 80% of the banking segment in
India under Government ownership.
The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.

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1961: Insurance cover extended to deposits.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 crores.
After the nationalization of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%. Banking in the
sunshine of Government ownership gave the public implicit faith and immense confidence
about the sustainability of these institutions.
2.4 Phase III
This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of Narasimhan, a committee was set up by
his name which worked for the liberalization of banking practices.
The country is flooded with foreign banks and their ATM stations. Efforts are being put to
give a satisfactory service to customers. Phone banking and net banking is introduced. The
entire system became more convenient and swift. Time is given more importance than
money. The financial system of India has shown a great deal of resilience. It is sheltered from
any crisis triggered by any external macroeconomics shock as other East Asian Countries
suffered.
This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital
account is not yet fully convertible, and banks and their customers have limited foreign
exchange exposure.

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2.5 RESERVE BANK OF INDIA (RBI):
The central bank of the country is the Reserve Bank of India (RBI). It was established in
April 1935 with a share capital of Rs.5crore on the basis of the recommendations of the
Hilton Young Commission. The share capital was divided into shares of Rs.100 each fully
paid which was entirely owned by private shareholders in the beginning. The Government
held shares of nominal value of Rs.2,20,000.
Reserve Bank of India was nationalized in the year 1949. The general superintendence and
direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor
and four Deputy Governors, one Government official from the Ministry of Finance, ten
nominated Directors by the Government to give representation to important elements in the
economic life of the country, and four nominated Directors by the Central Government to
represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New
Delhi. Local Boards consist of five members each Central Government appointed for a term
of four years to represent territorial and economic interests and the interests of co-operative
and indigenous banks. The Reserve Bank of India Act, 1934 was commenced on April 1,
1935. The Act, 1934 (II of1934) provides the statutory basis of the functioning of the Bank.
The Bank was constituted for the need of following:
To regulate the issue of banknotes
To maintain reserves with a view to securing monetary stability and
To operate the credit and currency system of the country to its advantage.
Structure of Banking in India

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2.6 TYPES OF BANKS

SCHEDULED BANKS
Scheduled banks are those banks that come under the purview of the second schedule
of Reserve Bank of India act 1934. The banks that are included under this schedule are those
that satisfy the criteria laid down vide section 42(6) of the act.
The bank is dealing in banking business in India only.
The paid up capital and total funds of the bank should not be less than five lacks.
It should convince RBI that its activities would not be against the interest of the
investors.
The bank must be:
State co-operative bank, or
A company according to the definition of the companies act 1956, or
An institution notified by the central government, or
A corporation or a company incorporated by or under any law in force in any place
outside India.
Thus, Indian Commercial Banks, Foreign commercial banks, and state cooperative banks

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fulfilling the above conditions are considered as scheduled banks. Moreover under the RBI
Act section 42, the central Government has declared the following banks as scheduled banks.
State bank of India and its 7 subsidiary banks,
20 Nationalized banks, and
Urban banks
In June 1980 there were 149 scheduled banks which included
Public Sector banks
Private sector banks
Foreign exchange banks and
State cooperative banks.
A bank which wants to register its name as scheduled bank has apply to the central
government. On receiving such applications, the central government orders RBI to
investigate Banks accounts. If RBI gives favorable reports, the central government sanctions
its proposal, and the bank is listed under schedule annexure II and is considered as a
scheduled bank. Some co-operative banks come under the category of scheduled commercial
banks though not all cooperative banks.
2.7 Public Sector Banks

Public sector banks are those in which the government of India or the RBI is a majority
shareholder. These banks include the State Bank of India (SBI) and its subsidiaries, other
nationalized banks, and regional rural banks (RRBs). Over 70% of the aggregate branches in
India are those of the public sector banks. Some of the leading banks in this segment include
Allahabad Bank, Canara Bank, Bank Of Maharashtra, Central Bank Of India, Indian overseas
bank, state bank of India, State bank of Patiala, state bank of Bikaner and Jaipur, state bank of
Travancore, bank of Baroda, Bank of India, oriental bank of commerce, UCO Bank, Union
Bank of India, Dena Bank and corporation Bank.
2.8PRIVATE SECTOR BANKS
Old banks
The old private sector banks comprise those, which were operating before banking

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nationalization act was passed in 1969. On account of their small size, and regional
operations, these banks were not nationalized these banks face intense rivalry from the new
private banks and the foreign banks. The banks that are included in this segment include:
Bank Of Madura ltd.(now a part of ICICI bank), Bharat overseas bank ltd., Bank of
Rajasthan, Karnataka bank ltd., Lord Krishna bank ltd., the Catholic Syrian bank ltd., the
Dhanlakshmi bank ltd., the federal bank ltd., the Jammu & Kashmir bank ltd., The
KarurVyasya bank ltd., The Lakshmi Vilas bank ltd., The Nedungadi Bank ltd. and Vysya
Bank.
New banks
The new private sector banks were established when the banking regulation act was amended
in 1993. Financial institutions promoted several of these banks. After the initial licenses, The
RBI has granted no more licenses. These banks are gearing up to face the foreign banks by
focusing on service and technology. Currently, these banks are on an expansion spree,
spreading into semi-urban areas and satellite towns. The leading banks that are included in
this segment includes bank of Punjab ltd., Centurion Bank ltd., HDFC Bank ltd., ICICI Bank
corporation ltd., CITI Bank ltd., Indus India Bank ltd. And UTI bank ltd.
2.9 Co-operative banks

Co-operative banks act as substitutes for money lenders, and offer timely and adequate short-
term and long-term institutional credit at reasonable rates of interest. Co-operative banks are
relatively similar in terms of functions to the other banks except for the following:
a) They are organized and managed on the principle of co-operation, self-health, and mutual
health.
b) They operate under the rule of One member, one vote.
c) Operate on No profit, no loss basis.
d) Co-operative bank conducts all the main banking functions of the deposit mobilization,
supply of credit and provision of remittance facility. Co-operative Banks offer limited
banking products and are functionally specialists in agriculture- related products, and even in
providing housing loans of late. Urban co-operative banks offer working capital loans and
term loan as well.
e) Co-operative banks primarily operate in the agriculture and rural sector. However, UCBs,

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SCBs, and CCBs function in the semi urban, urban, and metropolitan areas too.
f) Co-operative banks are probably the first government sponsored, government- supported,
and government- subsidized financial agency in India. They get financial and other aid from
the reserve bank of India NABARD, central governments and state governments. They are
the Most favored banking sector with risk of nationalization.
g) Co-operative banks normally concentrate on High revenue niche retail segments.
2.10 Development Banks

Development banks are primarily intended to encourage industrial development by providing
adequate flow of funds to industrial projects. In other words, these institutions undertake the
responsibility of aiding all- round development in the countrys economy by promoting new
industrial projects, and providing financial assistance for the expansion, diversification, and
up gradation of the existing units. Development banks may be classified as all India
developments banks and regional development banks. While all India development banks
include industrial development banks of India and industrial finance corporation of India,
examples of regional development banks include state finance corporation and state industrial
development corporation.
2.11 NON-SCHEDULED BANKS:

The banks, which are not included in the second schedule of RBI act, 1934, are known as
non-scheduled banks. Such banks total share capital is less than 5 lacs. These banks are not
governed according to the RBI act and they receive no benefits from the RBI. These banks
have no place in the list of recognized banks of the RBI. These banks are not much trusted by
the people and they do not get handsome deposits. Since 1951 the numbers of such banks
have been gradually decreasing. In 1979 there were only 5 non-scheduled banks. Generally
now days we found many co-operative banks which are belongs to the non- scheduled co-
operative banks. Following are the types of non-scheduled banks they are work like the
schedule banks but here the difference in it status and it not having the status of the scheduled
banks.
a. Deposits bank
b. Co-operative banks
c. Central banks

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d. Exchange banks
e. Investment or industrial banks
f. Land development banks
g. Savings banks
a) Deposits banks:
Generally, banks which provide short-term loans to business and industrial units and which
mobilize savings of people as deposits are called deposit banks. Deposit banks accept
deposits from people, and provide short-term advances. They provide over draft and cash
credit facilities to merchants. To meet long-term requirement of industrial units is not
possible for these banks. They accept 3 types of deposits saving bank deposits, fix deposits
and current account deposits. They accept these deposits which are payable on demand or on
short notice, and provide funds to trading and commercial units for short durations.
b) Co-operative Banks:
Co-operative banks meet the short-term financial needs of farmers. Agriculturists, Petty
farmers and artisans organized themselves on cooperative principles and form co-operative
societies and banks. Cooperative banks raise funds through various means, besides receiving
all kinds of deposits to make them available as lendable funds to its members. In India
developed cooperative banks supply finance for agriculture and non-agriculture activities.
c) Central Banks:
A central bank is a special institution which controls and regulates the entire banking
structure of country. It also strives to maintain monetary stability of the country. Central bank
is also known as the Apex bank of the country. Since it functions in the best interest of the
country and making profits is unknown to it, it is entrusted the right it issue currency notes.
No other bank is allowed this right. It operates in close co-operation with the government of
implementing economic policies, thereby promoting economic development.
d) Exchange Banks:
There is a difference in financing of foreign trade and financing of internal trade. Generally a
person carrying on international trade requires foreign currencies to meet this obligation. It is
here that exchange banks play the role of financing the dealer for setting transactions

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involved in foreign trade, there are specialized banks for exchange business. In India, there is
an export-import bank (EXIM).
e) Investment or industrial banks:

Investment banks provide long-term credit to industries. They raise their funds by way of
share capital, debentures, and long-term deposits from the public. They also raise fund by the
issue of bonds for business operations and government agencies. Usually they underwrite
fresh issue of shares and debentures of companies. Such banks also buy the entire issue of
new securities of public limited companies and try to get them subscribed at a higher price by
the public.
f) Land Development Banks:

Land development banks were earlier known as land mortgage banks. In India, there is
limited number of such banks. There are special institutions providing long-term loans to
agricultures and farmers. They provide loans on security of land and other immovable
properties. They supply long-term funds for periods exceeding 6 years. Agriculturists and
farmers need such funds for making permanent improvements to land and for buying farming
machinery and equipment.
g) Savings Banks:
Saving banks are specialized institutions, which encourage general public to save something
from their earnings. In other words such banks pool the small savings of middle and lower
income sections of society. They are the banks in the true sense of the term and their main
aim is to promote and collect of the public. Not only the depositors are given interest, but also
they are allowed to withdraw in times of need. The numbers of withdrawal are, however,
restricted. Separate saving banks are organized in various nations. The government can also
run a savings bank. In India the postal department runs the postal saving bank all over the
country. It is very popular in rural areas where no branches of established commercial bank
operate. In urban areas, commercial bank handles savings business.
2.12 OPPORTUNITIES AND CHALLENGES FOR PLAYERS:

The bar for what it means to be a successful player in the sector has been raised. Four

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challenges must be addressed before success can be achieved. First, the market is seeing
discontinuous growth driven by new products and services that include opportunities in credit
cards, consumer finance and wealth management on the retail side, and in fee-based income
and investment banking on the wholesale banking side. These require new skills in sales &
marketing, credit and operations. Second, banks will no longer enjoy windfall treasury gains
that the decade-long secular decline in interest rates provided. This will expose the weaker
banks. Third, with increased interest in India, competition from foreign banks will only
intensify. Fourth, given the demographic shifts resulting from changes in age profile and
household income, consumers will increasingly demand enhanced institutional capabilities
and service levels from banks.
2.13 CURRENT TREND IN BANKING:

Currently banking in India is generally fairly mature in terms of supply, product range and
reach-even though reach in rural India still remains a challenge for the private sector and
foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered
to have clean, strong and transparent balance sheets relative to other banks in comparable
economies in its region. The Reserve Bank of India is an autonomous body, with minimal
pressure from the government. The stated policy of the Bank on the Indian Rupee is to
manage volatility but without any fixed exchange rate-and this has mostly been true. With the
growth in the Indian economy expected to be strong for quite some time- especially in its
services sector-the demand for banking services, especially retail banking, mortgages and
investment services are expected to be strong. One may also expect Mergers & Acquisitions,
takeovers, and asset sales. Currently, India has 88 scheduled commercial banks (SCBs) - 28
public sector banks (that is with the Government of India holding a stake), 29 private banks
(these do not have government stake; they may be publicly listed and traded on stock
exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches
and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector
banks hold over 75 percent of total assets of the banking industry, with the private and
foreign banks holding 18.2% and 6.5% respectively.

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Chapter: 3
Company Profile

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3.1 HISTORY OF BANK OF INDIA

Bank of India was founded on September 07, 1906 by a group of eminent businessmen from
Mumbai. The bank was under private ownership and control till July 1969 when it was
nationalized along with 13 other banks. Beginning with one office in Mumbai, with a paidup
capital of Rs 50 lakh and 50 employees, the bank has made a rapid growth over the years and
developed into a institution with a strong national presence and sizable international
operations. In business volume, the bank occupies a premier position among the nationalized
banks. The bank has 3101 branches in India spread over all states/ union territories including
141 specialized branches. These branches are controlled through 48 Zonal Offices. There are
29 branches/ offices (including three representative offices) abroad. The bank came out with
its maiden public issue in 1997 and follow on Qualified Institutions Placement in February
2008. Total number of shareholders as on September 30, 2009 is 2, 15,790. While firmly
adhering to a policy of prudence and caution, the bank has been in the forefront of
introducing various innovative services and systems. Business has been conducted with the
successful blend of traditional values and ethics and the most modern infrastructure. The
bank has been the first among the nationalized banks to establish a fully computerized branch
and ATM facility at the Mahalaxmi Branch at Mumbai way back in 1989. It pioneered the
introduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio.
The bank's association with the capital market goes back to 1921 when it entered into an
agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It is
an association that has developed into a joint venture with BSE, called the BOI Shareholding
Ltd. to extend depository services to the stock broking community.
3.2 International Operations

The bank has presence across 4 continents and 18 countries covering all the major financial
centers such as London, New York, Paris, Tokyo, Singapore and Hong Kong. As on March
31, 2011, bank has a network of 29 branches and offices abroad, including 5 representative
offices. The bank has also received permission from RBI to expand its overseas operations in
Bangladesh, Canada, China, Egypt, New Zealand, Madagascar, Qatar, South Africa, UK,
UAE and Vietnam. In New Zealand, the subsidiary Bank of India limited on March 31, 2011.
The bank has a Global Processing Centre (GPC) at Singapore with identical IT systems at
foreign branches, thereby improving the Management Information system and the customer

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service.
The bank is acting as Mandated Lead Arranger (MLA) and Joint Book Runner (JBR) for
Multicurrency International Syndication loans and has arranged loan in USD, JPY, EURO
and GBP currencies for Indian Corporates for their expansion / acquisition and Joint
Ventures, covering a wide range of industries. The bank has also opened Global Remittance
Centre (GRC) in Mumbai. The inward remittances, SB accounts, NRE/NRO Account
opening of NRI customers have been centralized at GRC. The bank has initiated the process
for establishing a hub for the purpose of handling the documentation part of Trade Finance
portfolio.
3.2.1 Indo Zambia Bank Ltd. (IZB)

IZB is a joint venture of three Indian Banks viz. Bank of India, Bank of Baroda, Central Bank
of India and Government of Zambia. Each of the Indian Banks holds 20% of the share
capital, whereas Government of Zambia holds 40% of the share capital. IndoZambia Bank
Ltd is fine example successful joint venture. It enjoys the patronage of two friendly republics,
the Government of Republic of Zambia and Government of India.
3.2.2 PT Bank Swadeshi Tbk, Indonesia

During FY 200708 the bank acquired a stake of 76% in PT Bank Swadeshi Tbk at a total
consideration of Indian Rs 3.77 crore. The Bank has three Directors on the Board of PT Bank
Swadeshi Tbk.
3.2.3Bank of India (Tanzania) Ltd.

Bank of India (Tanzania) Ltd. is wholly owned subsidiary of the Bank and commenced
operations on June 16, 2008 with first branch at DarEsSaleam.
3.2.4 Bank of India (New Zealand) Ltd.

Bank of India (NewZealand) Ltd. is wholly owned subsidiary of the bank with Rs 176.95
crore paid up capital. The bank has received a license to operate as a bank from Reserve Bank
of New Zealand on March 31, 2011. The operations are likely to start shortly

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3.3 Bank of India Subsidiaries / Associates

BOI Shareholding Ltd. (BOISL)
Banks association with the Capital Market spans a period of nine decades. The clearing and
settlement function of Bombay Stock Exchange (BSE) was being handled by the Bank since
1921. In 1989, Bank setup BOI Shareholding Ltd. (BOISL), joint venture with BSE, to
manage the clearing house activities of the Stock Exchange. The bank is holding 51% of its
paid up capital of Rs 2 crore.
3.3.1 Securities Trading Corporation of India Ltd. (STCI)

STCI Ltd. is one of the leading primary dealers in the country. It was established in 1999 with
the objectives of widening the gilt and other debt security market through development of a
vibrant secondary market. Bank of India with 29.96% holding is the single largest
stakeholder in STCI having paidup capital of Rs 380 crore. The company is an associate
company of the bank in terms of Accounting Standards 21 (AS21) of the Institute of
Chartered Accountants of India.
3.3.2 Star Union Daiichi Life Insurance Company Ltd. (SUDLife)

Bank of India, Union Bank of India and Daiichi Mutual Life Insurance Company, Japan
have formed Star Union Daiichi Life Insurance Company to take advantage of the growing
insurance market and to provide quality assured insurance to its clients spread across the
length and breadth of the country. The company has commenced insurance business since
February 2009. BOI holds 48% in the company, paid up capital of Rs 250.00 crore. Union
Bank holds 26% stake and Daiichi Mutual Life Insurance Company, Japan holds 26% in
addition to the stake. In terms of the Joint Venture Agreement, the bank has transferred its 3%
stake in favor of Union Bank.
3.3.3 ASREC (India) Ltd. (Associate)

The company was floated by the Specified Undertaking of the Unit Trust of India to
undertake securitization and asset reconstruction activities. The company was granted
Certificate of Registration by RBI under the SARFAESI Act, 2002 in the second half of FY
200405 and has since commenced fullfledged operation. Currently the Bank is holding
26.02% stake, in the equity capital of the company which is Rs 27.06 crore.

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3.4 Business Initiatives

Keeping its growth aspirations in mind, the bank embarked upon a new bold vision Sankalp
10,000. Sankalp 10,000 rests on the three pillars of customer first, building winning teams
and high performance driven culture. Under Project Sankalp, the organizational structure of
the bank has been redesigned in September 2010 with its division in two distinctly separate
groups of businesses i.e. (a) National Banking Group and (b) Wholesale and International
Banking Group in order to have a more focused attention to each business segment. The two
groups are headed by the two executive directors of the bank. National Banking Group (Head
Office) The national banking group is comprised of rural banking, financial inclusion, retail
banking and SME banking business units. Wholesale and International Banking Group (Head
Office) The wholesale and international banking group are comprised large corporate
banking, midcorporate banking, project finance, transaction banking, international banking
and treasury. 15 rural centralized Credit Processing Centers (CPC) have been started at
Belgaon, Ujjain, Barabanki, Mehasana, Ludhiana, Karad, Amalapuram, Tanjavur, Barasat,
Hardoi, Nadiad, Ratnagiri, Nashik, Solapur and Barnagar. In all, 40 focused districts have
been identified in 19 zones to target large and medium farmers and large institutions with
high credit quality. Five New Retail Business Centers were launched in 5 identified Zones
namely Bangalore, Chandigarh, Mumbai South, New Delhi and Pune on Pilot basis on
January 14, 2011. Five SME City Centers at Ahmedabad, Coimbatore, Kolkata, Ludhiana,
and Pune were launched on December 14, 2010. Subsequently, seven more SME City Centres
at Bangalore, Chandigarh, Hyderabad, New Delhi, Nagpur, Mumbai North and Vadodara
have started functioning. MidCorporate branches at Ernakulam, Andheri and Seepz opened,
10 MidCorporate CPCs started functioning and large corporate branches at Mumbai
(Nariman Point) and Hyderabad opened. The bank is treating financial inclusion as social
cause and implementing it as a movement taking all banking products and services to those
who are currently deprived from these services. So far, first step towards achievement of
financial inclusion was opening of NoFrill Accounts and accordingly, the Bank has opened
50.07 lakh NoFrill Accounts.The bank is also implementing IT solutions on end to end basis
using hand held devices and smart cards. The bank has issued/ enrolled 6.01 lakh smart cards.
3.5 Milestones
It was first nationalized bank to establish to a fully computerized and ATM facility. The first
Indian bank to open its branch outside country in London in 1946. The bank became the first

BOI & HDFC
to open branch in Europe Paris in 1974. The bank is the first PSU Bank in India to
implement two factors Authentication (2FA) Star Token for both Retail and Corporate
internet banking customers as an additional security measure. The first banks to recognize the
difficulties faced by MSME in the wake of economic slowdown and proactively set up
MSME Care Centers (Help Desks) to provide timely and needy support to MSME units. A
Nodal Officer for SME has been identified in each zone to take care of MSME clients.
3.6 DEVLOPMENT OF BANK OF INDIA

The Bank of India Finance Ltd. was incorporated in June 1989 as a subsidiary of Bank of
India to extend a complete package of professional financial services to the corporate sector,
including merchant banking, leasing and investment banking.- Rs 140 crores capital
contributed by Government. BOI Mutual Fund was established in 1990, to provide direct
services to investors by pooling their resources and investing in capital market securities, Rs
100 crores capital contributed by Government. A new subsidiary of the bank was formed to
manage the investment operations of BOI Mutual Fund. It received Certificate of
Commencement of Business on 21st February 1994, Rs 848.38 crores capital contributed by
Government. The bank of India finance in1997 was associated with 12 issues as Lead
Managers/Co-Manager/Arranger. The Company became Depository Participate of National
Securities Depository Ltd., for the purpose of clearing and settlement of trades in the
dematerialized segment of BSE.As on 31st March, 1998 the Bank had sponsored 16 Regional
Rural Banks with capital of 5.60 crores and a total branch network of 992 in five states. Bank
of India has been awarded the Gem & Jewellery Export Promotion Council Award. Bank of
India (BOI) has set up a full-fledged risk management department at its corporate office. The
bank has already integrated its money market and forex operations to set up global treasury
which will be better equipped to manage the types of risks arising from capital recent
convertibility. The public sector Bank of India has launched the BOI Navy Card with
MasterCard International on the occasion of Navy Day 1999.Bank of India in 2000 entered
the insurance partnership with a foreign insurance company. Bank of India has introduced
floating interest rate on deposits for select customers, besides advancing on (MIBOR). Bank
of India has unveiled major business initiatives like the introduction of a centralized banking
system, floating deposit schemes and cash management services. Bank of India plans to
introduce a centralized banking program which will facilitate anytime and anywhere banking

BOI & HDFC
for its customers. Bank of India in 2001 suspended bullion trading in Ahmedabad after being
hit by a payment crisis involving a troubled cooperative bank. Bank of India has finalized a
comprehensive human resource development (2001) package for its employees. The scheme
is believed to provide impetus to banks business growth and will cost the bank around Rs 30
lakh per annum. Bank of India proposes to convert its fully-owned subsidiary in Kenya into a
full-fledged bank. The two existing bank of India branches in Kenya will also be merged into
the entity. According to Mr. S.A. Bhat, General Manager, International, and Bank of India,
Bank of India in 2002 exited from the Mutual Fund Business and therefore the remaining two
current Mutual Fund Schemes have been sold to Taurus Mutual Fund. In 2002 bank of India
enters film financing sector, becomes the first commercial bank to enter the film sector. In
2002 becomes the bank with third highest Non-Performing Assets (NPA).Bank of Indi, Indian
Bank, Syndicate Bank and United Bank of India enter into an agreement to share their
respective ATM (automated teller machine) networks in 2003.Introduces 'Star links' global
debit card in partnership with Visa International and India Switch Company in 2003. In 2003
bank of India tied up with insurers for Bank assurance products - both life insurance and
general insurance. The bank launched some of the products on December after tying up with
ICICI Prudential Life Insurance Company and National Insurance Company. In 2004
launches IPO(initial public offering) financing, becomes the first public sector bank to do so,
launches Star IPO, a demand loan for investors interested in subscribing to initial public
offerings (IPO) approved by the bank. In 2004 bank of India inks pact with Escort Tractors &
with Punjab Tractors. Bank of India enters collaboration with ACIL-Navasarjan Rural
Development Foundation (ANARDE), a non-government organization (NGO) to increase
rural penetration and boost lending to the agriculture sector in 2005. Bank of India launches
an international gold credit card in association with Visa International on January 5,
2005.Bank of India signs Memorandum of understanding with LG to finance consumer
durables. Bank of India ties up with ICICI Prudential Life Insurance to provide cover to
housing loan borrowers against risk of death during the loan tenure. Bank of India inks
Memorandum of understanding with Exim Bank 2006, to promote exports and imports.Bank
of India teams up with Nabard in 2007 for financing agricultural projects. In 2007 bank of
India launches debt waiver scheme on agricultural loans. Bank of India on July 23 2008
opened the first branch of its Tanzanian subsidiary, Tanzania at Dar-es-Salaam. Bank of India
has signed a memorandum of understanding with Tata Motors 2009 to provide financing for
Tata's entire range of commercial vehicles. In 2009 launches new home loan plan for new

BOI & HDFC
borrowers. Bank of India brings in Mckinsey for revamp, growth road map -Bank of India
launched mobile-based remittance facility through business correspondents in 2010. In 2011
bank of India joined hands with AXA Investment Managers in the Asset Management
business in India. BOI sign memorandum of understanding to encourage Micro Small and
Medium enterprises (MSMEs) 2011. Bank of India becomes 1st Indian bank to offer trade
settlement in Chinese Yuan in 2012. Bank of India establishing a 100% subsidiary in Uganda
namely Bank of India (Uganda) Ltd in 2012. In 2013 bank acquired 51% of the equity stake
of Bharti AXA investment Managers Private Limited and Bharti AXA Trusteeship Services
Private Limited. Bank of India ties up with Aegis for customer relationship management in
2014.
3.7 HISTORY OF HDFC BANK

The HDFC Bank was incorporated on August 1994 by the name of 'HDFC Bank Limited',
with its registered office in Mumbai, India. HDFC Bank commenced operations as a
Scheduled Commercial Bank in January 1995. The Housing Development Finance
Corporation (HDFC) was amongst the first to receive an 'in principle' approval from the
Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's
liberalization of the Indian Banking Industry in 1994.
HDFC Bank is headquartered in Mumbai. The Bank at present has an network of over 1416
branches spread over 550 cities across India. All branches are linked on an online realtime
basis. Customers in over 500 locations are also serviced through Telephone Banking. The
Bank also has a network of about over 3382 networked ATMs across these cities. The
promoter of the company HDFC was incepted in 1977 is India's premier housing finance
company and enjoys an impeccable track record in India as well as in international markets.
HDFC has developed significant expertise in retail mortgage loans to different market
segments and also has a large corporate client base for its housing related credit facilities.
With its experience in the financial markets, a strong market reputation, large shareholder
base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the
Indian environment. The shares are listed on the Bombay Stock Exchange Limited and The
National Stock Exchange of India Limited. The Bank's American Depository Shares ( ADS )
are listed on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's
Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange.

BOI & HDFC
On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was
formally approved by Reserve Bank of India to complete the statutory and regulatory
approval process. As per the scheme of amalgamation, shareholders of Centurion Bank of
Punjab received 1 share of HDFC Bank for every 29 shares of Centurion Bank of Punjab.
The merged entity now holds a strong deposit base of around Rs. 1, 22,000 crore and net
advances of around Rs. 89,000 crore. The balance sheet size of the combined entity would be
over Rs. 1, 63,000 crore. The amalgamation added significant value to HDFC Bank in terms
of increased branch network, geographic reach, and customer base, and a bigger pool of
skilled manpower. In a milestone transaction in the Indian banking industry, Times Bank
Limited (another new private sector bank promoted by Bennett, Coleman & Co. / Times
Group) was merged with HDFC Bank Ltd., effective February 26, 2000. This was the first
merger of two private banks in the New Generation Private Sector Banks. As per the scheme
of amalgamation approved by the shareholders of both banks and the Reserve Bank of India,
shareholders of Times Bank received 1 share of HDFC Bank for every 5.75 shares of Times
Bank. HDFC Bank offers a wide range of commercial and transactional banking services and
treasury products to wholesale and retail customers. The bank has three key business
segments: Wholesale Banking Services The Bank's target market ranges from large, blue
chip manufacturing companies in the Indian corporate to small & midsized corporates and
agriculture based businesses. Retail Banking Services The objective of the Retail Bank is to
provide its target market customers a full range of financial products and banking services,
giving the customer a onestop window for all his/her banking requirements. Treasury
Within this business, the bank has three main product areas Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities. The Treasury
business is responsible for managing the returns and market risk on this investment portfolio.
HDFC Securities (HSL) and HDB Financial Services (HDBFSL) are its subsidiaries.
3.8 DEVELOPMENT OF HDFC BANK

The bank has also entered into a similar understanding with the Bombay Stock Exchange
(BSE) whereby they will provide support for recovery of money against the card for loan
against share facility. The bank will also provide phone-banking facility in Bangalore. HDFC
tied up with Visa International to offer its Debit Card. - HDFC Bank Ltd has entered into a

BOI & HDFC
memorandum of understanding for strategic business collaboration with Chase Manhattan

Bank. HDFC Bank will be the first bank in the Asia-Pacific region to connect the American
Express (Amex) payment system in 1999. HDFC Bank, has tied up with BPL Ltd to offer
Internet-enabled supply-chain management and business-to-consumer (B2C) e-commerce
services to corporates. Hutchison Max Telecom and HDFC Bank introduced the country's
first-ever mobile-banking services in the cities in 1999
HDFC Bank also signed a memorandum of understanding with Singapore Telecom's e-

commerce arm Sesami.Com Pvt Ltd in 2000. The Bank latter also entered into a partnership
agreement with National Computer Systems, the e-commerce unit of SingTel.
A new company called SESAMi.com (India) has been formed by a strategic alliance between
HDFC Bank and Singapore Telecom's e-commerce company SESAMi.com, to offer e-
commerce solutions for the Indian market. HDFC Bank is also set to become the first bank in
the country to offer wireless application protocol (WAP) services to customers in 2000.
HDFC Standard Life Insurance has entered into a memorandum of understanding with the
Chennai-based Indian Bank in 2001.The Bank has launched the international Maestro debit
card in association with Master Card in 2001. HDFC Bank entered into a strategic tie-up with
Tally Solutions Pvt. Ltd in 2001 to offer online real time accounting services to small and
medium enterprises. HDFC Standard Life Insurance has launched a `Development Insurance
Plan' a low cost life insurance product developed specifically to meet the needs of
economically weaker sections. HDFC Bank files with US regulators in 2002 to list more than
11 million American Depositary Shares on the New York Stock Exchange.
The bank introduced a non-interactive product named "Financial Planner" in 2002, which
would be available for all its customers for an annual fee starting from Rs 10,000. The bank
is offering fee based advisory programme to the "mass affluent" segment, which was earlier
offered to high net worth customers. The wealth management programme would cater to
individual needs taking into account various factors such as customer's age, financial goals
and risk profile, which includes equity, MFs and debt instruments such as RBI Relief Bonds.
In 2003HDFC Bank unveils resident foreign currency account & Escotel ties up with HDFC
Bank for Global Debit Card. HDFC Bank, IRCTC in tie up for online railway booking in
2003. Launches Quick remit, in 2004 a unique online service that enables NRIs in the US to
send money to their relatives in India from the comfort of their homes. Andhra Bank has

BOI & HDFC
entered into an alliance with HDFC Bank for sharing its network of automated teller
machines (ATMs). On March 29, 2004. HDFC Bank ties up with the International Bank of
Qatar (IBQ) to launch banking services in Qatar in 2005. HDFC Bank along with MasterCard
International launched credit card targeted at small and medium-sized enterprises in
2005.HDFC Bank tied up with US-based WL Ross and company for investing in corporate
restructuring in 2006.
HDFC Bank unveils credit card for farmers in 2006. HDFC Bank has signed an agreement
with Tata Pipes in 2007 to offer credit facilities to farmers across the country. HDFC Bank
Launches Indias First "Online Market Linkage Programme" For Self Help Groups in 2008.
HDFC Bank Launches Indias First Rural Banking BPO at Tirupathi in 2008. HDFC Bank
Bags Asia money Award for the Best Domestic Bank in 2009.HDFC Bank replaces ICICI as
Number 1 private retail bank in India in 2010. HDFC ties up with UAE bank for online
remittances in 2010.HDFC Bank started 3G services to boost mobile banking share in 2011.
The Housing Development Finance Corporation Limited (HDFC), one of the largest private
sector banks in India, which had a network of 1,725 branches as at March 2010, opened 275
new branches in the current fiscal. The bank now has a total network of 2,000 branches
spread across 1,000 cities. The bank also acquired Centurion Bank of Punjab in 2008, which
adds around 404 branches to its network. HDFC Bank opens 87 branches in Punjab, Haryana
in a single-day in 2012.
HDFC Bank which is a major Indian financial services company based in Mumbai stated that
they have collaborated with Punjab Grains Procurement Corporation Ltd (PUNGRAIN) with
an aim to make easy and faster payment to its agents who are dealing in agricultural products
in about 350 mandis in Punjab.HDFC Bank launches 11 mini branches in rural locations in
Andhra Pradesh in 2013.HDFC Bank launches memorandum of understanding with Indian
institute of management in Lucknow for online payment gateway in 2014.

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Chapter: 4
Literature Review

BOI & HDFC
4.1 Articles on working capital management

Sagan (1955) in his paper, introduced first theoretical paper on the theory of working capital
management emphasized the need for working capital accounts. He discussed mainly the role
and functions of money manager inefficient working capital management. The money
manager operations were primarily in the area of cash flows generated in the course of
business transactions, and he should be familiar with what is being done with the control of
inventories, receivables and payables because all these accounts cash position. Thus Sagan
concentrated mainly on cash component of working capital. Sagan suggested that money
manager should take decisions on the basis of cash budget and total current assets position
rather than on the basis of traditional working capital ratios and its important because
efficient money manager can avoid borrowing from outside even when his net working
capital position is low. The study pointed ou that there was a need to improve the collection
of funds but it remained silent about method of doing it, this is descriptive without any
empirical support.
Walker (1964) in his study made an pioneering effort to new theory of working capital
management by empirically testing though partially, three propositions based on risk-return
trade-off of working capital management. Proposition 1: if the amount of working capital is
to fixed capital, amount of risk the firm assumes is also varies and opportunities for profit or
loss are increased. Walker further stated if rim wants reduce risk to minimum it should
employ only equity capital for financing working capital, if employed this method firm
reduced its opportunities for higher gains on equity capital as it would not be taking
advantage of leverage. The problem is not whether to use debt capital but how much debt
capital to use which depends on firms management attitude on risk and returns. Proposition
2: the type of capital (debt or capital) used to finance working capital directly affects the
amount of risk that a firm assumes as well as opportunities for profit or loss. Walker
suggested that not only debt-equity ratio, but also maturity period of debt would affect risk-
return trade-off. The longer period of debt lesser risk and for management would have
enough opportunity to acquire fund from operations to meet debt obligations. Proposition 3:
the greater the disparity between the maturities of a firms debt instruments and its flow of
internally generated funds the greater the risk and vice-versa, walker tried build up a theory
of working capital management by developing three propositions, and empirically walker

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tested the first proportion only.
Weston and Brigham (1972) in the research further extended the second proposition given
by walker by dividing debt into long-term-debt and short-term-debt, and they suggested that
short term debt should be used in place of long term debt whenever their use would lower the
average cost of capital of firm. They also suggested that a business would hold short term
marketable securities only if there were excess funds after meeting short term debts
obligations and current assets holding should be expanded to the point where marginal
returns on increase in these assets would just equal the cost of capital required to finance such
increases.
Chakraborty (1973) stated that working capital as a segmented of capital employed rather
than a mere cover for creditors. Working capital is the fund to pay off all the operating
expenses of running a business. The return on capital employed an aggregate measure of
overall efficiency is running a business ,would be adversely affected by excessive working
capital and similarly too little working capital might reduce the earning capacity of the fixed
capital employed over the successive years. By applying Operating Cycle (OC) he calculated
required cash working capital by applying OC concept and compares it with cash from
balance sheet data to find out adequacy of working capital for various Indian firms.
Jarvis.(1996): The working capital meets the short-term financial requirements of a business
enterprise. It is a trading capital, not retained in the business in particular form for longer than
a year. The money invested in it changes form during the normal course of business. The
need for maintaining inadequate working capital can hardly be questioned, like human body
circulation of blood is essential the flow of funds is very necessary to maintain business. If it
becomes weak business can hardly prosper and survive. Working capital starvation is
generally credited as a major cause for business failure in many developing countries.
Deloof (2003)in his paper discussed that most firms had a large amount of cash invested in
working capital.it can therefore be expected that the way in which working capital is
managed will have a significant impact on profitability of those firms. Using correlation and
regression test he found a significant negative relationship between gross operating income
and the number of days accounts receivable, inventories accounts payable of Belgian banks.

BOI & HDFC
On the basis of these results he suggested that managers could create value for their
shareholders by reducing the number of accounts receivable and inventories to a reasonable
minimum. The negative relationship between accounts payable and profitability is consistent
with the view that less profitable banks wait longer to pay their bill.
Chawla (2010) in the study investigated the relationship between working capital
management and liquidity of companies with profitability of companies. In the study use of
cash conversion cycle, inventory turnover, receivables collection period, the creditors
settlement period, current ratio. Research results that were performed based on correlation
and linear regression, indicates that there is a significant inverse relationship between the
cash conversion cycle and its components including inventory turnover period,recivables
collection period and creditors settlements period with companys profitability that indicated
by increasing the cash conversion cycle, profitability of company are reduced and
management can make a positive value for the shareholders by reducing the conversion cycle
at lowest possible level. Also the results showed that statistically there is significant inverse
relationship between liquidity and profitability of the firms.
Shin and sonnen (1998): in the study highlighted that efficient working capital management
was very important for creating value for the shareholders. The way working capital was
managed ha a significant impact on both profitability and liquidity. The relationship between
the duration of net trading cycle, corporate profitability and risk adjusted stock return was
examined using correlation and regression analysis by industry and capital intensity, resulting
in strong negative relationship between lengths of the firms net trading cycle and its
profitability.
Cohn and Pringle (1973) in their study illustrated the extension of capital asset pricing
model (CAPM) for working capital management decisions. They tried to interrelate long term
investment and financing decisions and working capital management decisions through
CAPM. They emphasized that an active working capital management policy based on CAPM
could be employed to keep firms shares in a given risk class. Risk meaning unsystematic risk,
the only risk deemed relevant by CAPM. Depending he on the big risk for long term financial
decisions, the firm is continuously subject to shifts in the risk of its equity. They suggested
that a policy using CAPM could be adopted for the management of marketable securities

BOI & HDFC
portfolio such that the appropriate risk level at any point in time was that which maintains the
risk of the firms common stock at constant level.
Copeland and Khourey (1980) in their study applied CAPM to develop a theory of credit
expansion. They argued that credit should be extended only if the expected rate of return on
credit is greater than or equal to market determined required rate of return. They applied
CAPM to determine the required rate of return for the firm with its new risk arising from
uncertainty regarding collection due to extension of credit. Thus these studies show CAPM
can be used for decisions involved in working capital management.
Chatterjee (2010) in the research stated the relationship between working capital
management practices and the profitability of listed firms on the London stock exchange,
applying the Pearson correlation data analysis technique for 30 firms as sample confirms a
significantly negative association between profitability and working capital management
variables. Specifically study observes a significantly negative relationship between
profitability and liquidity and also negative relationship between total debt and profitability.
There is positive association between profitability and firms size. The implication is profits of
forms improve if they improve their working capital management, holding liquid assets is
important as it is significantly enhances firms profits this is because assets can easily be sold
off and revenue re invested in other relatively short term assets and also a high level of debt
use is unhealthy for the financial success of the firm.
Dong and Su (2010) examined working capital management effects on firms profitability of
listed Vietnamese firms from 2006-2008. The authors found that a there is negative
relationship exists between profitability, measured as gross operating profit and the
components of cash conversion cycle (inventory days and receivable days).further the study
also observes a statistically positive association between profitability and accounts payable
days. These results imply that increasing firms inventory ad receivables days lead to
decreasing profit while significant financial success can be attained with increase payable
days.
Warren and Shelton (1971) applied financial simulation to simulate future financial
statements of affirm, based on simultaneous equation. Financial simulation approach makes it

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possible to incorporate both uncertainty of the future and the many interrelationships between
assets and liabilities and other balance sheet accounts. Warren and Shelton presented a model
in which twenty simultaneous equations were used to forecast future balance sheet of the firm
including forecasted current assets forecasted current liabilities, however individual working
capital accounts can also be forecasted in a larger simulation system.
Vanhorne (1970) stated that working capital as an area largely lacking theoretical
perspective, attempted to develop a framework in terms of probabilistic cash budgeting for
evaluating decisions concerning the level of liquid assets and the maturity composition of
debt involving risk-return trade-off. He suggested preparing a schedule showing under each
alternative of debt maturity, probability distributions of liquid assets balances for future
periods, opportunity cost, maximum probability of running out of cash and number of future
periods in which there was a chance of cash stock out. Once the risk and opportunity cost for
different alternatives were estimated, the form could determine the best alternative by
balancing the risk of running out of cash against the cost providing a solution to avoid such a
possibility depending on management risk tolerance limits thus vanhorne presented a risk
return trade off of working capital management.
Smith and Begemann (1997) emphasized that those who promoted working capital theory
shared that profitability and liquidity comprised the salient goals of working capital
management. The problem arose because the maximization of the firm's returns could
seriously threaten its liquidity, and the pursuit of liquidity had a tendency to dilute returns.
Smith and Begemann (1997) emphasized that those who promoted working capital theory
shared that profitability and liquidity comprised the salient goals of working capital
management. The problem arose because the maximization of the firm's returns could
seriously threaten its liquidity, and the pursuit of liquidity had a tendency to dilute returns.

BOI & HDFC
Chapter: 5
Research methodology
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BOI & HDFC
5.1 Research design meaning:
Research design means a search of facts, answers to the question and finding a solution the
problems. It is thorough investigation. Research is a systematic logical study of an issue or
problem through scientific method; it is a systematic and objective, analysis and recording of
accurate observations that may lead to the development of generalization, principles,
resulting in prediction and possibly ultimate control of events.
Types of research design
Descriptive (e.g., case study,; survey)
Correlational (e.g. Case-control study, observation)
Semi experimental (e.g. field experiment, quasi experiment)
Experimental ( experiment with random assignment)
Review ( literature review, systematic review)
Research design is the arrangement of conditions for the collection and analysis of data in
manner that aims to combine relevance to the research purpose with relevance to economy.
There are various designs which are descriptive and helpful for analytical research.
5.2 Research design used in the specific study includes the following
Identifying the statement of problem.
Data collection from companys annual reports for the study period
Gathering information about the profile of the company
Collection of information from various journals, articles to know and understand
Industrial background.
5.3 objectives of the study

BOI & HDFC
1) To know the working capital management of the Bank of India and HDFC bank.
2) To know the past NPA trends of both the banks.
3) To know the profit trends of both the banks.
5.4 Scope of the study
The field of working capital comprising of capital management, inventory management and
provision of utilization of working capital management will help to out to understand that
how effectively bank is dealing with working capital and at the same time will talk about the
strategies required for improving the level of efficiency in concern with capital management
on the other hand evaluation of NPA and profitability, will provide clear picture about current
position of the banks, because the efficiency of a particular bank is directly related to NPA
more the NPA less the profits and efficiency.
5.5 Need for the study
The need for working capital (gross) or current assets cant be over emphasized as already the
objective of financial decisions making is to maximize the shareholders wealth and also to
earn profit for them, proper management of capital make it possible because it gives the idea
where to invest and how much to invest that helps in decreasing the total NPA.
5.6 Limitation of the study
Data for evaluation is limited (last 10 years) based on that the report is prepared.
The report is based on only few parameters and does not evaluate other major
aspects.
Last limitation of the study is limited period of time.

BOI & HDFC
5.7 Statement of the problem
Working capital is an important requirement for any business, without which no business can
survive every activity of business, is related to the availability of the working capital, i.e.
arranging short term financing, controlling movement of cash, managing accounts receivables
etc and he obstacles arising in managing effective working capital throws open challenges to
finance managers in managing working capital. Financial statements are prepared primarily
for decision making and applicable for taking effective financial decisions but information
provided in financial statements is not end to itself. The purpose of the financial analysis is to
find out the necessary information which contains a companys financial soundness and also
to know the profitability of the company or to know the weakness of the company.
5.8 Data
Data is defined as raw information raw facts and figures which can be in the form of text,
image, and numbers etc which should be processed into a form that is meaningful and useful
for the recipient.
There are two types of data
Primary data Secondary data
5.8.1 Primary data
Primary data are the data which are collected for the first time by the investigator or an
agency from primary sources who makes use of the data for the first-time. Primary data are
collected through various methods like questionnaires, interviews through phone, email
letters, or through market research, observations, experiments etc. primary data research is
widely used in academic research market research and information is somewhat accurate

BOI & HDFC
compared to secondary data.
5.8.2 Secondary data
Secondary data are the data which are already collected by someone other than researcher or
investigator. Secondary data includes articles published by various agencies, Governmental
bodies, private investigators, and academicians etc.
5.9 Sources of data collection
In order to complete research report, the data for the study have been collected from Bank of
India and HDFC Bank, as annual reports for the last ten years and also includes information
collected during the discussions with company officials which also include data collected
through official websites.
The collected data has been classified, tabulated, analyzed and interpreted in an organized
manner. Inference have been drawn carefully and systematically to avoid deviation in the
process. Conclusions have been written and suggestions have been made accordingly. All the
work is done under the assumptions that data collected from the sources was accurate.
5.10 Plan of analysis
The collected data has been classified, tabulated, analyzed and interpreted in an organized
manner. Inferences have been drawn carefully and methodically with supportive guidance to
avoid discrepancies in the report. Conclusions have been drawn and suggestions have been
made accordingly and all the work is done under the assumption that the data collected from
the sources was accurate.

BOI & HDFC
Chapter: 6
Data analysis
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BOI & HDFC
6.1 Data Analyses

Analysis is the process of breaking a complex topic into smaller parts to gain a better
understanding of it.
6.2 comparative analysis
Comparative analysis is item by item comparison of two or more comparable alternatives,
variables, set of data like change in financial statements.
Raw data
Tables
Graphs
Interpretation
Conclusion

BOI & HDFC
Table 1: Current Assets and Current Liabilities of BANK OF INDIA

Particulars 2015 2014 2013 2012 2011
current assets (in Cr.Rs) 493020.19 453251.7 355119.2 295010.29 262819.4
current liabilities (in 15287.25 17865.56 11477.39 13243.43 12974.69
Cr.Rs)
net working capital (in 477192.94 27460.14 343641.8 281775.86 249844.5
Cr.Rs)
Net Working capital = current assets current liabilities
Graph 1
500000
400000
300000
200000
current asets (in Cr.Rs) current liabalitiesin Cr.Rs) net working capital in Cr.Rs)
100000
0
2015
2014
2013
2012
2011
working capital of BOI
Interpretaion
The above graph shows the working capital of bank of india from the year 2011 to
2015. Working capital, if the current assets is less than current liabalities there is an working
capital deficiency and if current assets is more than current liabalities there is an working
capital surplus, from the year 2011 to 2015 there is an surplus or increasing working capital,
which shows that bank of india is effiecent in managing workink capital.

BOI & HDFC
Table 2: Current Assets and Current Liabilities of BANK OF INDIA

particulars 2010 2009 2008 2007 2006
current asets (in Cr.Rs) 24265.32 21550.23 18788.46 14650.87 10120.23
current liabalitiesin 10890.23 8450.32 7150.65 4452.89 3585.21
Cr.Rs)
net working capital in 13375.09 13099.91 11637.81 10197.98 6535.02
Cr.Rs)
Graph 2
25000
20000
15000
10000
5000
0
2010
2009
2008
2007
2006
working capital
Interpretaion
The above graph shows the working capital of bank of india from the year 2010 to 2006.
Working capital, if the current assets is less than current liabalities there is an working capital
deficiency and if current assets is more than current liabalities there is an working capital
surplus, from the year 2010 to 2006 there is an surplus or increasing working capital, which
shows that bank of india is effiecent in managing workink capital.

BOI & HDFC
Table 3: Current assets and current liabilities of HDFC Bank
particulars 2015 2014 2013 2012 2011

current asets (in Cr.Rs) 388436.94 326364.11 251151.05 200647.53 175259.72
current liabalities (in 32484.46 41344.4 34864.17 37431.87 28992.86
Cr.Rs)
Cr.Rs)
Graph 3
400000
350000
300000
250000
200000
150000
100000
50000
0
2015
2014
2013
2012
2011
working capital
Interpretaion
The above graph shows the working capital of HDFC bank from the year 2011 to 2015.
shows that HFFC bank is effiecent in managing workink capital.
Table 4: Current Assets and Current Liabilities of HDFC Bank

BOI & HDFC
Particulars 2010 2009 2008 2007 2006

current assets (in Cr.Rs) 154543.36 139858.89 101369.63 95950.52 75652.78
current liabilities(in 25985.17 19255.42 14155.34 8560.12 5585.39
Cr.Rs)
Cr.Rs)
Graph 4

BOI & HDFC
160000
140000
120000
100000
80000
current asets (in Cr.Rs)
60000
current liabalitiesin Cr.Rs)
40000 net working capital in Cr.Rs)
20000
0
2010
2009
2008
2007
2006
working capital
Interpretaion
The above graph shows the working capital of HDFC bank from the year 2010 to 2016.
shows that HDFC bank is effiecent in managing workink capital.

BOI & HDFC
Table 5: Comparison of NPA of BOI & HDFC

HDFC BOI
S.no Year
NPA(in Cr.Rs) NPA (in Cr.Rs)
1 2006 855.18 641.94
2 2007 966.67 628.41
3 2008 1175.13 636.16
4 2009 1706.73 711.19
5 2010 2122.81 858.12
6 2011 2170.65 1046.46
7 2012 2347.19 1487.16
8 2013 2703.18 2778.93
9 2014 2939.92 5786.16
10 2015 3121.73 5885.53
Graph 5
7000
6000
5000
4000
3000 HDFC NPA(in Cr.Rs)

2000 BOI NPA (in Cr.Rs)
1000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
NPA
Interpretation
The above graph shows the non-performing assets of BOI & HDFC bank for the last 10 years
from 2006 to 2015. The nonperforming assets of HDFC increases from 2006 to 2015 but the
rate of increase is less compared to that of BOI which has high nonperforming assets. This

BOI & HDFC
shows the efficiency of HDFC is better to recover NPA than that of BOI which could not
recover the NPA.
Table 6: Comparison of profit earned by BOI & HDFC
BOI HDFC
S.no year
net profit(in Cr.Rs) net profit (in Cr.Rs)
1 2006 1046.16 875.84
2 2007 1813.22 1143.46
3 2008 2632.19 1592.21
4 2009 3009.41 2252.13
5 2010 1738.56 3032.91
6 2011 2488.71 4017.69
7 2012 2674.62 5273.4
8 2013 2741.19 6900.28
9 2014 2732.65 8764.51
10 2015 1748.32 10700.2
Graph 6
12000
10000
8000
6000
4000
BOI net profit(in Cr.Rs)
2000 HDFC net profit (in Cr.Rs)
0
Net Profit
Interpretation
The above graph shows the profits earned by BOI & HDFC banks for the last 10 years. From
the year 2006 to 2009 BOI has earned more profit than of HDFC, from the year 2010 to 2015

BOI & HDFC
HDFC has earned more profit than BOI the rate of growth profit for HDFC is higher than that
of BOI which has slow growth of profit from the year2011 to 2015. This shows that HDFC
has better profitability.
Table 7: Comparison of share capital of BOI & HDFC

BOI HDFC
S.no year
share capital share capital (in Cr.Rs)
1 2006 488.14 313.14
2 2007 488.14 319.39
3 2008 525.91 354.43
4 2009 525.91 425.38
5 2010 525.91 457.74
6 2011 547.22 465.23
7 2012 574.52 469.34
8 2013 596.64 475.88
9 2014 643 479.81
10 2015 665.65 501.31
Graph 7

BOI & HDFC
Share Capital
700
600
500 BOI share capital
400
300 HDFC share capital (in
200 Cr.Rs)
100
0
Interpretation
Above graph shows the total share capital raised by BOI & HDFC by selling shares from the
year 2006 to 2015. Share capital BOI from the year 2006 to 2015 is increasing & that of
HDFC from the year 206 to 2015 is increasing but BOI is more effective and better in raising
share capital than that of HDFC.
Table 8: Showing the comparison of investments of BOI & HDFC

BOI HDFC
S.no Year
investments (in Cr.Rs) investments (in Cr.Rs)

BOI & HDFC
1 2006 31781.8 58607.6

2 2007 35492.8 58817.6
3 2008 41802.9 49393.5
4 2009 52607.2 30564.8
5 2010 67080.2 28394
6 2011 85872.4 70929.4
7 2012 86753.6 97482.9
8 2013 94613.4 111614
9 2014 114152 120951
10 2015 119792 166460
Graph 8
Investment
350000
300000
250000 HDFC investments (in
200000 Cr.Rs)
150000 BOI investments (in Cr.Rs)
100000
50000
0
Interpretation
Investment is the measure of income; increase in investment shows the increase in returns.
The increase in the investments that leads to increase in profit or returns because of it there
will be an increase in liquidity which can be used as working capital. The above graphs show
the investment pattern for both the banks, investments from the year 2006 to 2015, HDFC is
more efficient than BOI.
Table 9: Comparison of deposits of BOI & HDFC

S.no year BOI HDFC

BOI & HDFC
Deposits (inCr.Rs.) deposits(inCr.Rs

)
1 2006 93932.1 55796.8
2 2007 119882 68297.9
3 2008 150012 100769
4 2009 189708 142812
5 2010 229762 167404
6 2011 298886 208586
7 2012 318216 246706
8 2013 381840 296247
9 2014 476974 367337
10 2015 531907 450796
Graph 9
Deposits
0 100000 200000 300000 400000 500000 600000
BOI Deposits (inCr.Rs.) HDFC deposits(inCr.Rs)
Interpretation
Deposits are the primary source of income for a bank to carry on its banking operations. The
above graph shows the deposits at BOI & HDFC. Deposits of BOI has been constantly
increasing from the year 2006 to 2015, deposits of HDFC is increasing from the year 2006 to
2015, but compared to BOI HDFC is ineffective in managing to get more deposits.

BOI & HDFC
Table 10: Comparison of Borrowings made by BOI & HDFC

BOI HDFC
S.no year borrowings(inCr.R borrowings(inCr.R
s) s)
1 2006 5893.91 4560.48
2 2007 6620.83 2815.39
3 2008 7172.45 4478.86
4 2009 9486.98 2685.84
5 2010 22399.9 12915.7
6 2011 22021.4 14394.2
7 2012 32114.2 23846.5
8 2013 35367.6 33006.6
9 2014 48427.5 39439
10 2015 40057.1 45213.6
Graph 10

BOI & HDFC
Borrowings
100000
90000
45213.56
80000
70000
60000
50000
40000 40057.14
30000
20000
10000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Interpretation
The above graph shows the borrowings made by BOI & HDFC for the last 10 years.
From the year 2006 to 2015 borrowings are increasing due to various internal & external
factors. BOI has fewer borrowings compared to HDFC, this shows that HDFC is not more
efficient in managing the borrowings.

BOI & HDFC
Chapter: 7
Conclusion

BOI & HDFC
7.1 Conclusion
The working capital of Bank of India for the last 10 years from 2006 to 2015 is
increasing constantly and has high liquidity for operating expenditure and pay off
short term and medium term liabilities.
The working capital of HDFC for the last 10 years from 2006 to 2015 is increasing
constantly and has high liquidity for operating expenditure and pay off short term
and medium term liabilities.
The non-performing assets of HDFC is increasing from the year 2006 to 2015 and
nonperforming assets of Bank of India is increasing from the year 2006 to 2015 but
bank of India has high increase in nonperforming assets compared to HDFC.
The profits earned by BOI & HDFC banks for the last 10 years, from the year 2006
to 2009 BOI has earned more profit than of HDFC, from the year 2010 to 2015
HDFC has earned more profit than BOI. The rate of growth profit for HDFC is
higher than that of BOI which has slow growth of profit from the year2011 to 2015.
Total investments made by BOI increased during the last ten years and the total
investment made by HDFC for the last 10 years from 2006 to 2015 increased over
the period time & HDFC investment decreases in the year 2009 and 2010 &
increases rapidly in the coming years, this shows both the banks will earn better
returns on investment.
The total share capital raised by BOI & HDFC by selling shares from the year 2006
to 2015, Share capital of BOI from the year 2006 to 2015 is increasing & that of
HDFC from the year 206 to 2015 is increasing but BOI is more effective and better
in raising share capital than that of HDFC.
The borrowings made by BOI & HDFC for the last 10 years. From the year 2006 to

BOI & HDFC
2015 borrowings are increasing due to various internal & external factors. BOI has
fewer borrowings compared to HDFC, this shows that HDFC is not more efficient
in managing the borrowings.
The deposits at BOI & HDFC,Deposits of BOI has been constantly increasing
from the year 2006 to 2015, deposits of HDFC is increasing from the year 2006 to
2015, but compared to BOI HDFC is ineffective in managing to get more deposits.
7.2 Suggestions
Net profits for both banks Bank of India and HDFC is increasing continuously from
the year 2006 to 2015 hence it should find out more options for investment.
Working capital of both banks Bank of India and HDFC is increasing compared to
their current liabilities from the year 2006 to 2015 and should maintain their
efficiency to retain their liquidity position in the future.
The nonperforming assets of both banks HDFC and Bank of India is increasing
from the year 2006 to 2015,compared Bank of India HDFC is having less increase
in non-performing assets & both the banks should adopt new norms strategies and
policies to reduce their nonperforming assets.
Both the banks needs to make dedicated team to identify potential risks while
making investment and providing large loans & identifying defaulters to recover
those large loans which are sanctioned.
The share capital raised by issuing shares of the banks by Bank of India is
increasing compared to that of HDFC; hence HDFC should improve the banks
image to increase their share capital.
The deposits made by account holders is high in Bank of India due to their image as

BOI & HDFC
a public sector bank compared to private sector HDFC bank, so HDFC should
maintain better goodwill to attract new account holders to deposit the money with
their bank.

BOI & HDFC
Bibliography

BOI & HDFC
Books
Financial management
R k Sharma & Shashi k gupta
Banking theory and practice
Kc Shekar
Websites
http://www.bankofindia.com/boi-bank-history
http://www.youarticlelibrary.com/banking/structure/-of-banking-systems-in-
indiaexplained/753
http://www.hdfc.com/hdfc-bank-history
www.rbi.com
http://www.wikipedia.com/wiki/banking-india
http://www.ibef.org/industry/banking-india.aspx
http://www.moneycontrol.com/financial/boi/balancesheet-IDBS
http://www.moneycontrol.com/financial/hdfc/balancesheet-IDBS
Reference for literature review

1. John Sagan, Towards a Theory of Working Capital Management, The Journal of
Finance, May 1955, pp. 121-129.
2. Ernest W. Walker, Towards A Theory of Working Capital, The Engineering Economist,
Winter 1967, pp. 21-35.
th
3. J. F. Weston and E.F. Brigham, Managerial Finance, Holt, Rinehart and Winston, 4
edition, 1972.
4. S.K. Chakraborty, Use of Operating Cycle Concept for Better Management of Working
Capital, The Economic and Political Weekly, August, 1973, Vol.8, pp. M69-M76.
5. Jarvis, The Nature and Stability of Inventory Cycles, Review of Economics and
Statistics, Vol.III, August 1941, pp. 113-129 .
6. Deloof, M. (2003). Does working capital management affect profitability of Belgian firms?
Journal of Business Finance and Accounting, 30(3/4), 573-588.
7. Chawla , Management of Working Capital, Sterling Publication Pvt. Ltd., New Delhi,
1983

BOI & HDFC
8.R. J. shin and Sonen Managing the Working Capital Cycle, Financial Executive, June 1979,
pp.32-41.
10. R.A. Cohen and J.J. Pringle Steps Towards as Integration of Corporate Financial Theory,
1973 in K.V. Smith, Readings on The Management of Working Capital, West Publishing
Company, U.S.A., 1980.
11. Thomas E. Copeland and Nabil T. Khoury, Analysis of Credit Extension in a World with
Uncertainty, in K.V. Smith, op.cit.
12. Chatterjee S (2010). The Impact of Working Capital Management on the Profitability of
the Listed Companies on the London Stock Exchange. Working Paper Series, SSRN.
13. Dong HP, Su J (2010). The Relationship between Working Capital Management
and Profitability: A Vietnam Case, Int. Res. J. Financ. 49:59-67.
14. J. M. Warren and J. P. Shelton, A Simultaneous Equation Approach to Financial
Planning, Journal of Finance, Volume 26, December 1976, pp. 1123-1142.
15. James C. Vanhorne, A Risk-Return Analysis of a firms Working Capital Position, The
Engineering Economist, Winter 1969, pp. 50-58

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A comparative study on working capital management of

BOI & HDFC

CMS Jain university Page 1

1.1 INTRODUCTION TO WORKING CAPITAL MANAGEMENT

negotiating merchandise. The current assets of the business should be maintained at

satisfactory level to cover the current obligation, to make a business success.

circular flow of working capital.

1.2MEANING OF WORKING CAPITAL MANGEMENT

adequately supplied to increase the wealth of the organization.

1.3 DEFINITION OF WORKING CAPITAL MANAGEMENT

CMS Jain university Page 2

exists between them.

1.4 OBJECTIVES OF WORKING CAPITAL MANAGEMENT

The objective of working capital management could be stated as:

1) To ensure optimum investment in current assets.

3) To ensure adequate flow of funds for current operation

1.5 AIM OF WORKING CAPITAL MANAGEMENT

which means that a large current assets holding.

are tied up.

CMS Jain university Page 3

CMS Jain university Page 4

2.1 HISTORY OF BANKING IN INDIA:

longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking

bank transferred money from one branch to other in two days.

CMS Jain university Page 5

Early phase from 1786 to 1969 of Indian Banks

Nationalization of Indian Banks and up to 1991 prior to Indian banking sector

Sector Reforms after 1991

Scenario of Bank as per Phase I, Phase II and Phase III

which started as private shareholders banks, mostly Europeans shareholders. In 1865

CMS Jain university Page 6

India under Government ownership.

Institutions in the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India.

1959: Nationalization of SBI subsidiaries.

CMS Jain university Page 7

1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980: Nationalization of seven banks with deposits over 200 crores.

about the sustainability of these institutions.

2.4 Phase III

his name which worked for the liberalization of banking practices.

CMS Jain university Page 8

2.5 RESERVE BANK OF INDIA (RBI):

held shares of nominal value of Rs.2,20,000.

nominated Directors by the Government to give representation to important elements in the

The Bank was constituted for the need of following:

To regulate the issue of banknotes

To maintain reserves with a view to securing monetary stability and

Structure of Banking in India

CMS Jain university Page 9

2.6 TYPES OF BANKS

CMS Jain university Page 10

2.7 Public Sector Banks

2.8PRIVATE SECTOR BANKS

CMS Jain university Page 11

2.9 Co-operative banks

CMS Jain university Page 12

2.10 Development Banks

2.11 NON-SCHEDULED BANKS: