A

TRAINING - REPORT
On

WORKING CAPITAL MANAGEMENT

at

ALLAHABAD BANK

Submitted in partial fulfillment of the requirement for the degree of

MASTER OF BUSINESS ADMINISTRATION

Training Supervisor Submitted by

Session 2018 -20

THE TECHNOLOGICAL INSTITUTE OF

TEXTILE & SCIENCES, BHIWANI
Affiliated to Maharshi Dayanand University, Rohtak
 INTODUCTION TO THE INDUSTRY

BANKING IN INDIA:
Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should
be able to meet new challenges posed by the technology and any other external
and internal factors. 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.

HISTORY:
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 as mentioned below:
· PHASE I - Early phase from 1786 to 1969 of Indian Banks
· PHASE II - Nationalization of Indian Banks and up to 1991
· PHASE III - Indian Financial & Banking Sector Reforms after 1991.

PHASE I:
The General Bank of India was set up in the year 1786. Next came 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. 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 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’s 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 the traders.

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. 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.
· 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
raised 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.

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 M Narasimham, 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. 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.
1.2 NATIONALIZED BANKS IN INDIA
Banking System in India is dominated by nationalized banks. The
nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the
then prime minister. The major objective behind nationalization was to spread
banking infrastructure in rural areas and make available cheap finance to Indian
farmers. Fourteen banks were nationalized in 1969.
Before 1969, State of India (SBI) was only public sector bank in India. SBI
was nationalized in 1955 under the SBI Act of 1955. The second phase of
nationalization of Indian banks took place in the year 1980. Seven more banks
were nationalized with deposits over 200 crores

List of Public Sector Banks in India is as follows:

 Allahabad Bank
 Andhra Bank
 Bank of Baroda
 Bank of India
 Bank of Maharashtra
 Canara Bank
 Central Bank of India
 Corporation Bank
 Dena Bank
 Indian Bank
 Indian Overseas Bank
 Oriental Bank of Commerce
 Punjab and Sind Bank
 Punjab National Bank
 State Bank of Bikaner and Jaipur
 State Bank of Hyderabad
 State Bank of India (SBI)
  State Bank of Indore
 State Bank of Mysore
 State Bank of Patiala
 State Bank of Saurashtra
 State Bank of Travancore
 Syndicate Bank
 UCO Bank
 Union Bank of India
 United Bank of India s
 Vijaya Bank

1.3 PRIVATE BANKS

All the banks in India were earlier private banks. They were founded in the
pre-independence era to cater to the banking needs of the people. But after
nationalization of banks in 1969 public sector banks came to occupy dominant
role in the banking structure. Private sector banking in India received a fillip in
1994 when Reserve Bank of India encouraged setting up to private banks as part
of its policy of liberalization of the Indian Banking Industry. Housing
Development Finance Corporation Limited (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.
Private Banks have played a major role in the development of Indian
banking industry. They have made banking more efficient and customer friendly.
In the process they have jolted public sector banks out of complacency and forced
them to become more competitive.
Major Private Banks of India
 Bank of Rajasthan
 Bharat Overseas Bank
 Axis Bank
 Catholic Syrian Bank
 Centurion Bank of Punjab
 Dhanalakshmi Bank
 Federal Bank
 HDFC Bank
 ICICI Bank
 IDBI Bank
 Indusind Bank
 ING Vysya Bank
 Jammu & Kashmir Bank
 Karnataka Bank
 Karur Vysya Bank
 Kotak Mahindra Bank
 SBI Commercial and International Bank
 South Indian Bank
 United Western Bank
 UTI Bank
 YES Bank
 COMPANY PROFILE

Allahabad Bank is a nationalised bank with its headquarters in Kolkata, India. It

is the oldest joint stock bank in India. On 24 April 2014, the bank entered into its
150th year of establishment. It was founded in Allahabad in 1865.

As of 31 March 2018, Allahabad Bank had over 3245 branches across India. The
bank did a total business of INR 3.8 trillion during the FY 2017-18.

The bank's market capitalisation in June 2018 was US$573 million and it ranked
#1,882 on the Forbes Global 2000 list.

On 24 April 1865, a group of Europeans founded Allahabad Bank in Allahabad.

By the end of the 19th century it had branches
at Jhansi, Kanpur, Lucknow, Bareilly, Nainital, Calcutta, and Delhi.

In the early 20th century, with the start of Swadeshi movement, Allahabad Bank
witnessed a spurt in deposits. In 1920, P & O Banking Corporation acquired
Allahabad Bank with a bid price of ₹436 (US$6.30) per share. In 1923 the bank
moved its head office and the registered office to Calcutta for reasons of both
operational convenience and business opportunities. Then in 1927 Chartered
Bank of India, Australia and China (Chartered Bank) acquired P&O Bank.
However, Chartered Bank continued to operate Allahabad Bank as a separate
entity.

Allahabad Bank opened a branch in Rangoon (Yangon). At some point Chartered

Bank amalgamated Allahabad Bank's branch in Rangoon with its own.[10] In 1963
the revolutionary government in Burma nationalized the Chartered Bank's
operations there, which became People's Bank No. 2.

On 19 July 1969, the Indian Government nationalised Allahabad Bank, together

with 13 other banks.

In October 1989, Allahabad Bank acquired United Industrial Bank, a Calcutta-

based bank that had been established in 1940 and that brought with it 145
branches. Two years later, Allahabad Bank established AllBank Finance Ltd, a
wholly owned Merchant Banking subsidiary.

The government's ownership of Allahabad Bank shrank in October 2002 after the
bank engaged in an Initial Public Offering (IPO) of ₹100
million (US$1.4 million) of shares, each with a face value ₹ 10. The IPO reduced
the Government's shareholding to 71.16%. Then in April 2005 the bank
conducted a second public offering of ₹ 100 million of shares, each with a face
value ₹ 10 and selling at a premium of ₹ 72. This offering reduced the
Government's ownership to 55.23%.

In June 2006 the bank opened its first office outside India when it opened a
representative office in Shenzen, Mainland China. In February 2007, Allahabad
Bank opened its first overseas branch, in Hong Kong. In March, the bank's
business crossed the ₹ 10 million mark.

Allahabad Bank's equity shares are listed on Bombay Stock Exchange and
the National Stock Exchange of India.

Shareholders (as on 31 March 2014) Shareholding

Promoter Group (Government of India) 64.80%

Indian FIs/MFs 16.60%

Foreign Institutional Investors (FII) 03.20%

Resident Indians 08.80%

Others 06.60%

Total 100.0%
As on 31 March 2013, the bank had 22,557 employees, out of which 3,293 were
women (15%). Out of the total employees, 51% were officers, 30% were clerks
and remaining 19% were subordinate staff. The bank recruited 1,950 employees
(1,421 Officers, 390 Clerks and 139 subordinate staff) during the same financial
year. The company incurred INR 20 billion on employee benefit expenses during
the same financial year.

Employee productivity: During the FY 2013–14, the business per employee was
INR 13.50 crores and it earned a net profit of INR 4.77 lakhs per employee.

The bank is now operating in the following States/UTs

Andaman And Nicobar Island

Andhra Pradesh
Arunachal Pradesh
Assam
Bihar
Chandigarh
Chhattisgarh
Delhi
Goa
Gujarat
Haryana
Himachal Pradesh
Jammu And Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
 Maharashtra
Manipur
Meghalaya
Nagaland
Odisha
Puducherry
Punjab
Rajasthan
Sikkim
Tamil Nadu
Telangana
Tripura
Uttar Pradesh
Uttarakhand
West Bengal

On July 13, 2019, Allahabad Bank disclosed that it detected a fraud,

worth ₹1,774.82 crore (US$257 million) by Bhushan Power & Steel Ltd (BPSL).

The bank also detected another fraud of ₹688.27 crore (US$100 million) by SEL
Manufacturing Ltd., a Ludhiana-based textile company on July 17, 2019.
 BOARD OF DIRECTORS

Shri Bijaya Kumar

Sahoo
Shareholder Director
Shri CH. S. S. Shri Rajeev Ranjan
Mallikarjuna Rao Govt. Nominee Director
MD & CEO

Dr. Parthapratim Pal

Shri Vivek Deep Shareholder Director
RBI Nominee Director
Shri K Ramachandran
Executive Director

Prof. Radha R.
Sharma
Part-Time Non-Official
Director

Sri P. R. Rajagopal
Executive Director

Shri Sarath Sura

Shareholder Director
 VISION & MISSION

Vision :

To put the Bank on a higher growth path by building a Strong Customer-base

through Talent Management, induction of State-of-the-art Technology and
through Structural Re-organization.

Mission :

To ensure anywhere and any time banking for the customer with latest state-of-
the-art technology and by developing effective customer centric relationship and
to emerge as a world-class service provider through efficient utilization of Human
Resources and product innovation.
 WORKING CAPITAL AT A GLANCE

 INTRODUCTION
 TYPES
 FEATURES
 DETERMINANTS
 COMPONENTS
 WORKING CAPITAL CYCLE
 INTRODUCTION

A business needs funds for two purposes- for its establishment and
to carry its day to day operations and a successful sales program is necessary for
earning profits by any business enterprise. Sales don’t convert into cash instantly.
There is a time lag between the sale of goods and receipt of cash.
Therefore, there is a need for working capital in the form of current
assets to deal with the problem arising out of the lack of immediate realization of
cash against goods sold. Therefore sufficient working capital is necessary to
sustain sales activity.

Defination of Working Capital:-

 According to C.W. Gestenbergh-
“Working capital is ordinarily defined as the excess of the current assets
over current liabilities”.
 According to Lawrence. J. Gitmen

“The most common defination of working capital is the difference of the

firm’s current assets and current liabilities.”
 According to Shubin-
“Working capital is the amount of funds necessary to cover the cost of
operating the enterprise.”
Definition of working capital management:-
“Working capital management involves the relationship between a firm's short-
term assets and its short-term liabilities. The goal of working capital
management is to ensure that a firm is able to continue its operations and that
it has sufficient ability to satisfy both maturing short-term debt and upcoming
operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable, and cash.” -From
WWW.STUDYFINANCE.COM
 Management of working capital

Guided by the above criteria, management will use a combination of policies and
techniques for the management of working capital. These require managing the
current assets - generally cash and cash equivalents, inventories and debtors.
There are also a variety of short term financing options which are considered.

Cash management – identify the cash balance which allows for the
business to meet day to day expenses, but reduces cash holding costs
Inventory management - identify the level of inventory which allows for
uninterrupted production but reduces the investment in raw materials and
hence increases cash flow; see Just In Time (JIT) and Economic order
quantity (EOQ).
Debtors management - identify the appropriate credit policy, i.e. credit
terms which will attract customers, such that any impact on cash flows and
the cash conversion cycle will be offset by increased revenue and hence
Return on Capital (or vice versa); see Discounts and allowances.
Short term financing - inventory is ideally financed by credit granted by
the supplier; dependent on the cash conversion cycle, it may be necessary
to utilize a bank loan (or overdraft), or to "convert debtors to cash" through
"factoring".
 TYPES

Working capital can be classified either on the basis of concept

or on the basis of periodicity of its requirement.
1) ON THE BASIS OF CONCEPT
On the basis of concept working capital is of 2 types.
A) Gross working capital - Gross working capital is represented by the total
Current asset.
Gross working capital = Total current assets
B) Net working capital - Net working capital is the excess of current assets
over current liabilities.
Net working capital = Current assets – Current liabilities
2) ON THE BASIS OF REQUIREMENT
On the basis of requirement working capital is also of 2 types.
A) Permanent working capital - It is that amount of investment which should
always be there in the fixes or minimum current assets like inventory,
accounts receivables or cash balance etc. to carry out business smoothly.
Such an amount can’t be reduced if the firms want to carry on business
operations without interruption.
B) Variable working capital - The excess the amount of working capital over
permanent working capital is known as variable working capital. It may
also be subdivided into two parts.
a) Seasonal working capital - Such capital is required to meet out the
seasonal demands of busy periods occurring at stated intervals.
b) Special working capital - Such capital is required to meet out the
extra-ordinary needs for contingencies. Events like strike, fire,
unexpected competition, rising price tendencies, or initiating a big
advertisement campaign require such capital.
 FEATURES

1) Working capital is regarded as the excess of current assets over current

liabilities.

2) Working capital indicates circular flow of funds in the day-to-day activities of

business. That’s why it is also called circulating capital.

3) Working capital represents the minimum amount of investment in raw

materials, work-in progress, finished goods, stores and spares, accounts
receivables and cash balance.
 IMPORTANCE
Working capital is required for every business for smooth running. No business
can run successfully without an adequate amount of working capital main
advantages are as follows-
1. Solvency of the business- Adequate working capital helps in maintaining
solvency of the business by providing uninterrupted flow of production.
2. Goodwill- Sufficient working capital enables a business concern to make
prompt payments and hence helps in creating and maintaining goodwill.

DETERMINANTS
1) Nature of business – The effect of the general nature of the business on
working capital requirements can’t be exaggerated. Rail, roads and other
public utility services have large fixes investment so they have the lower
requirements of current assets. Industrial and manufacturing enterprises, on
the other hand, generally require a large amount of working capital.

2) Production policies – if the production is evenly spread over the entire year,
working capital requirements are greater, because the inventories will be
unnecessarily accumulated during of season period. But if the production
schedule favors a varying production plan as per the seasonal requirements,
working capital is required to a greater extent during a specified season only.
The production policies are affected by so many factors availability of raw
materials, labor, stocking facility etc & therefore, whatever the productions
policies are, the firm has to arrange its working capital requirements
accordingly.
3) Proportion of the cost of raw materials to total cost - In those industries
where cost of proportion is a large proportion of total cost of the goods
produced, requirements of working capital will be comparatively large.

4) Length of period of manufacturing – The time which elapses between the

commencement and end of the manufacturing process has an important
bearing upon the requirements of working capital. The manufacturing cycle
may be shorter for certain concerns & longer for others- it depends on the
type of the product to be manufactured, work to be done through machine
labor & hand

5) labor, degree of rationalization of manufacturing procedures through times,

motion & fatigue studies etc.

6) Terms of purchase - If suppliers allow continuous credit, payment can be

postponed for some time and can be made out of the sale proceeds of the
goods produced. In such a case, the requirements of working capital will be
reduced.

7) Dynamic Attitudes – As a company grows, it is logical to expect the large

amount of working capital will be required.

8) Business cycles – Requirement of working capital also varies with the

business. When the price level is up due to boom conditions, the inflationary
conditions create demand for more working capital. During depression also
a heavy amount of working capital is needed due to the inventories being
locked unsold and book debts uncollected.
 9) Requirement of cash - The working capital requirements of a company are
also influenced by the amount of cash required by it for various purposes.
The greater the requirement of cash, the higher will be the working capital
needs of the company.
10)Dividend policy of concern – If the management follows a conservative
dividend policy the needs of working capital can be met with the retained
earnings. The relationship between dividend policy and working capital is
well established and mostly companies declare dividend after a careful study
of their cash requirements.

10) Other Factors - Other factors, which affect the requirement of working
capital, are lack of co-operation in production and distribution policies,
transport and communication facilities, the fiscal and tariff policies of the
government etc.
 COMPONENTS

Main components of working capital are as follows:

1) Cash – Cash is the most liquid and important component of working capital.
Holding cash involves cash in the sense that the present worth of cash held
for a year is less than the value of cash on today. During inflationary
situations as exist today the cost of holding includes the deterioration in the
value of the cash due to inflation. Cash, therefore, results in enhanced
liquidity, but lower profitability. Despite in the cost involved it is pertinent
to hold cash because it facilitates the attainment of some important motives.

2) Marketable Securities – Though marketable securities provides a such

lower yield that the firm’s operation assets. They serve two useful functions.
Firstly, they act as a substitute for cash, and secondly, are used as temporary
investment. Where these securities are held in lieu of the cash balance, they
act as a substitute for transactional or precautionary balances. Normally,
these aren’t used as speculative balances, but only as a guard against the
possible shortage of bank credit.
Marketable securities (as temporary investment) may be held for one of the
following reasons:
Seasonal or cyclical operations
To meet known financial requirements. Construction of an
additional plant.
Immediately after the sale of long-term securities.
3) Account Receivable - Though accounts receivable are a vital investment of
any business organization, little analytical work as been done to determine
credit policies. Maintaining account receivable has its cost implications in
that the firm’s monetary resources are tied up. This is of greater significance
 in the inflationary economy, because of the depreciation in the value of
money. Basically, this is a two-step account. When goods are shipped,
inventories are reduced and accounts receivable is created. When payment
is made, this account is reduced and the cash level increases. Accounts
receivables are, therefore a function of the volume of credit sales and the
average length of time between sales and collections.

4) Inventory – Inventories represent a substantial amount of a firm’s current

assets. Management of inventories should be efficiently carried out so that
this investment doesn’t become too large, as it would result in blocked
capital which could put to productive use elsewhere. On the other hand,
having too small an inventory could result in loss of sale or loss of customer
goodwill. An optimum level of inventory should therefore be maintained.