CHAPTER – 1

INTRODUCTION

1
 INTRODUCTION
Cash Management is a marketing term for certain services offered primarily to larger
business customers. It may be used to describe all bank accounts (such as checking
accounts) provided to businesses of a certain size, but it is more often used to describe
specific services such as cash concentration, zero balance accounting, and automated
clearing house facilities. Sometimes, private bank customers are given cash management
services.

Cash management is a broad term that refers to the collection, concentration, and
disbursement of cash. The goal is to manage the cash balances of an enterprise in such a
way as to maximize the availability of cash not invested in fixed assets or inventories and
to do so in such a way as to avoid the risk of insolvency. Factors monitored as a part of
cash management include a company's level of liquidity, its management of cash balances,
and its short-term investment strategies. In some ways, managing cash flow is the most
important job of business managers. If at any time a company fails to pay an obligation
when it is due because of the lack of cash, the company is insolvent. Insolvency is the
primary reason firms go bankrupt. Obviously, the prospect of such a dire consequence
should compel companies to manage their cash with care. Moreover, efficient cash
management means more than just preventing bankruptcy. It improves the profitability and
reduces the risk to which the firm is exposed.

Purpose of Cash Management

Cash management is the stewardship or proper use of an entity’s cash resources. It serves
as the means to keep an organization functioning by making the best use of cash or liquid
resources of the organization.

The function of cash management at the U.S. Treasury is threefold:

1. To eliminate idle cash balances. Every dollar held as cash rather than used to augment
revenues or decrease expenditures represents a lost opportunity. Funds that are not
needed to cover expected transactions can be used to buy back outstanding debt (and
cease a flow of funds out of the Treasury for interest payments) or can be invested to
generate a flow of funds into the Treasury’s account. Minimizing idle cash balances
requires accurate information about expected receipts and likely disbursements.

2
2. To deposit collections timely. Having funds in-hand is better than having accounts
receivable. The cash is easier to convert immediately into value or goods. A
receivable, an item to be converted in the future, often is subject to a transaction delay
or a depreciation of value. Once funds are due to the Government, they should be
converted to cash-in-hand immediately and deposited in the Treasury's account as soon
as possible.

3. To properly time disbursements. Some payments must be made on a specified or legal

date, such as Social Security payments. For such payments, there is no cash
management decision. For other payments, such as vendor payments, discretion in
timing is possible. Government vendors face the same cash management needs as the
Government. They want to accelerate collections. One way vendors can do this is to
offer discount terms for timely payment for goods sold.

4. When cash is received in exchange for products or services rendered, many small
business owners, intent on growing their company and tamping down debt, spend most
or all of these funds. But while such priorities are laudable, they should leave room for
businesses to absorb lean financial times down the line. The key to successful cash
management, therefore, lies in tabulating realistic projections, monitoring collections
and disbursements, establishing effective billing and collection measures, and adhering
to budgetary restrictions. These factors make effective cash management an essential
part of any business's financial planning. Cash is the lifeblood of a business. Managing
it efficiently is essential for success.

3
 FIGURE No. 1.1

For Financial Institutions

Standard Chartered is highly recognized as a leading cash management supplier across the
emerging markets. Our Cash Management Services cover local and cross border
Payments, Collections, Information Management, Account Services and Liquidity
Management for both corporate and institutional customers. If you are looking for a
correspondent banking partner you can trust, Standard Chartered can help you. We have
more than 500 offices located in 50 countries throughout the world and, with 150 years of
on-the-ground experience, we can help our bank clients with all their cash management
needs.

Cash is the important current asset for the operations of the business. Cash is the basic
input needed to keep the business running on a continuous basis; it is also the ultimate
output expected to be realized by selling the service or product manufactured by the firm.
The firm should keep sufficient cash, neither more nor less. Cash shortage will disrupt the
firm’s manufacturing operations while excessive cash will simply remain idle, without

4
contributing anything towards the firm’s profitability. Thus, a major function of the
financial manager is to maintain a sound cash position.

Cash is the money which a firm can disburse immediately without any restriction. The
term cash includes coins, currency and cheques held by the firm, and balances in its bank
accounts. Sometimes near-cash items, such as marketable securities or bank times
deposits, are also included in cash. The basic characteristic of near-cash assets is that they
can readily be converted into cash. Generally, when a firm has excess cash, it invests it in
marketable securities. This kind of investment contributes some profit to the firm.

Payment Services
Global payments solution for efficient transaction processing looking to outsource your
payments to enable:
 Efficient processing of all your payables in the most cost effective way
 Straight through processing both at your end as well as your bank's back-end
 Efficient payables reconciliation with minimal effort and delay
 Quick approval of payments from any location
 Minimum hindrance to automation due to local language difficulties
 Centralized management of payables across departments, subsidiaries and
countries.
Liquidity Management
Solutions for efficient management of your funds A corporate treasurers main challenge
often revolves around ensuring that the company's cash resources are utilized to their
maximum advantage. You need a partner bank that can help you:
 Maximize interest income on surplus balances; minimize interest expense on
deficit balances for domestic, regional and global accounts
 Customize liquidity management solutions for different entities in different
countries.

5
NEED OF THE STUDY
Out of all the assets cash is the liquid asset. In an organization most of the activities or
transactions takes place with the help of cash. So managing the cash in an organization
should be effective. Cash management also includes cash flows as it deals with operating
activities, investment activities, and financial activities. A cash flow statement is necessary
to adequately assess the incoming and outgoing flow of cash and other resources in a
business. A business with regular and reliable cash flow statements shows more economic
solvency. Managing your cash is one of the most important aspects of running your
business. When you're on top of it, you're financially stable. A business can fail because of
a shortage of cash even while it is profitable. Ideally your business needs to be both
profitable and liquid. Liquidity refers to having cash available when required, to meet bill
payments.
Cash management basically involves the following elements:
 To plan for enough cash for prompt payments of accounts due and loan
repayments.
 To make sure receipts and payments match.
 To invest surplus cash or arranging appropriate loans.
 To make sure that sufficient cash is available for investment by not tying up cash in
stock unnecessarily
 Putting procedures in place for chasing up outstanding debts, To make sure
controlling different levels of cash outflows in relation to the size of the business.

6
OBJECTIVES OF THE STUDY
Objectives of a project tell us why project has been taken under study. It helps us to know
more about the topic that is being undertaken and helps us to explore future prospects of
that organization. Basically it tells what all have been studied while making the project.
Businesses aim to provide greater financial returns than the level of interest earned by
simply placing the cash in a bank. They can also hold too much cash. Cash does not earn
anything so holding too much cash could mean potential losses of earnings. The cash
situation is referred to as the liquidity position of the business

 The study helps to prevent firm from being insolvent.

 Contingencies can be met easily.
 The study helps firm to maintain good relations with suppliers.
 The study helps to meet the cash disbursement needs as per the payment schedule.
 The study helps to minimize the amount locked up as cash balances.
 The study helps to meet the payment schedule on time
 The study helps to know the meeting payments schedule
 The study helps to collect of cheques and remittances of cash

7
SCOPE & IMPORTANCE OF THE STUDY
 Efficient cash management processes are pre-requisites to execute payments,
collect receivables and manage liquidity.
 Managing the channels of collections, payments and accounting information
efficiently becomes imperative with growth in business transaction volumes.This
includes enabling greater connectivity to internal corporate systems, expanding the
scope of cash management services to include “full-cycle” processes (i.e., from
purchase order to reconciliation) via ecommerce, or cash management services
targeted at the needs of specific customer segments.
 Cost optimization and value-add services are customer demands that necessitate
the creation of a mechanism to service the various customer groups.
 Banks are increasingly becoming innovative and anticipating the needs of
corporate towards standardization, ERP integration, reconciliation, real-time
reporting, providing an end-to-end view of cash management value chain besides
offering the ability to reach and be reached by their own customers.
 Business analysts report that poor management is the main reason for business
failure. Poor cash management is probably the most frequent stumbling block for
entrepreneurs
 The mounting pressure from competitors forces the Banks to look for
an Information Technology vendor who can offer better solutions and
services in Cash Management and Internet Banking.
 Understanding the basic concepts of cash flow will help you plan for the
unforeseen eventualities that nearly every business faces.
 Cash is ready money in the bank or in the business. It is not inventory, it is not
accounts receivable (what you are owed), and it is not property. These can
potentially be converted to cash, but can't be used to pay suppliers, rent, or
employees.
 Cash flow refers to the movement of cash into and out of a business. Watching the
cash inflows and outflows is one of the most pressing management tasks for any
business

8
RESEARCH METHODOLOGY
Research is a process through which we attempt to achieve systematically and with the
support of data the answer to a question, the resolution of a problem, or a greater
understanding of a phenomenon. This process, which is frequently called research
methodology, has eight distinct characteristics:
1. Research originates with a question or problem.
2. Research requires a clear articulation of a goal.
3. Research follows a specific plan of procedure.
4. Research usually divides the principal problem into more manageable sub
problems.
5. Research is guided by the specific research problem, question, or hypothesis.
6. Descriptive research is used in this project report in order to know about cash
management services to clients and determining their level of satisfaction. This is
the most popular type of research technique, generally used in survey research
design and most useful in describing the characteristics of consumer behavior. The
method used was following:
 Questionnaire method
 Direct Interaction with the clients.

MODE OF DATA COLLECTION

 Primary Data: - The sources of Primary data were questionnaires and
personal interviews.
 Secondary Data: - The sources of secondary data were internet, books and
newspaper articles.

9
LIMITATIONS OF THE STUDY
 The study is purely based on the information provided by the company and the data
is collected from the reports annual reports.
 The study is based mainly on secondary information.
 The present study cannot be used for inter firm comparison.
 The Study has lack of available or reliable data.
 The data collected is only for a financial year, with in a speculated time.
 The study has only the upper records of cash management of the company not the
entire data are displayed.
 The Study has no confidential information of the company regarding the cash
management.
 All means of secondary data like internet, books, newspaper articles evidences are
not solid enough to know the cash management of the company.

10
 CHAPTER – 2
REVIEW OF LITERATURE

11
 REVIEW OF LITERATURE
Cash management is a marketing term for certain services offered primarily to larger
business customers. It may be used to describe all bank accounts (such as checking
accounts) provided to businesses of a certain size, but it is more often used to describe
specific services such as cash concentration, zero balance accounting, and automated
clearing house facilities. Sometimes, private bank customers are given cash management
services.

Cash Management Services generally offered

The following is a list of services generally offered by banks and utilized by larger
businesses and corporations:
 Balance Reporting Services: Corporate clients who actively manage their cash
balances usually subscribe to secure web-based reporting of their account and transaction
information at their lead bank. These sophisticated compilations of banking activity may
include balances in foreign currencies, as well as those at other banks. They include
information on cash positions as well as 'float' (e.g., checks in the process of collection).
Finally, they offer transaction-specific details on all forms of payment activity, including
deposits, checks, wire transfers in and out, ACH (automated clearinghouse debits and
credits), investments, etc.

 Cash Concentration Services: Large or national chain retailers often are in areas
where their primary bank does not have branches. Therefore, they open bank accounts at
various local banks in the area. To prevent funds in these accounts from being idle and not
earning sufficient interest, many of these companies have an agreement set with their
primary bank, whereby their primary bank uses the Automated Clearing House to
electronically "pull" the money from these banks into a single interest-bearing bank
account.

 Lockbox services: Often companies (such as utilities) which receive a large

number of payments via checks in the mail have the bank set up a post office box for them,
open their mail, and deposit any checks found. This is referred to as a "lockbox" service.
 Positive Pay: Positive pay is a service whereby the company electronically shares
its check register of all written checks with the bank. The bank therefore will only pay

12
checks listed in that register, with exactly the same specifications as listed in the register
(amount, payee, serial number, etc.). This system dramatically reduces check fraud.

 Sweep Accounts: are typically offered by the cash management division of a

bank. Under this system, excess funds from a company's bank accounts are automatically
moved into a money market mutual fund overnight, and then moved back the next
morning. This allows them to earn interest overnight. This is the primary use of money
market mutual funds.

 Zero Balance Accounting: can be thought of as somewhat of a hack. Companies

with large numbers of stores or locations can very often be confused if all those stores are
depositing into a single bank account. Traditionally, it would be impossible to know which
deposits were from which stores without seeking to view images of those deposits. To help
correct this problem, banks developed a system where each store is given their own bank
account, but all the money deposited into the individual store accounts are automatically
moved or swept into the company's main bank account. This allows the company to look
at individual statements for each store. U.S. banks are almost all converting their systems
so that companies can tell which store made a particular deposit, even if these deposits are
all deposited into a single account. Therefore, zero balance accounting is being used less
frequently.

 Wire Transfer: A wire transfer is an electronic transfer of funds. Wire transfers

can be done by a simple bank account transfer, or by a transfer of cash at a cash office.
Bank wire transfers are often the most expedient method for transferring funds between
bank accounts. A bank wire transfer is a message to the receiving bank requesting them to
effect payment in accordance with the instructions given. The message also includes
settlement instructions. The actual wire transfer itself is virtually instantaneous, requiring
no longer for transmission than a telephone call.
 Controlled Disbursement: This is another product offered by banks under Cash
Management Services. The bank provides a daily report, typically early in the day, that
provides the amount of disbursements that will be charged to the customer's account. This
early knowledge of daily funds requirement allows the customer to invest any surplus in
intraday investment opportunities, typically money market investments. This is different

13
from delayed disbursements, where payments are issued through a remote branch of a
bank and customer is able to delay the payment due to increased float time.

In the past, other services have been offered the usefulness of which has diminished with
the rise of the Internet. For example, companies could have daily faxes of their most recent
transactions or be sent CD-ROMs of images of their cashed checks.

Cash management aims at evolving strategies for dealing with various facets of cash
management. These facets include the following:

 Optimum Utilization of Operating Cash

Implementation of a sound cash management programmer is based on rapid generation,
efficient utilization and effective conversation of its cash resources. Cash flow is a circle.
The quantum and speed of the flow can be regulated through prudent financial planning
facilitating the running of business with the minimum cash balance. This can be achieved
by making a proper analysis of operative cash flow cycle along with efficient management
of working capital.

 Cash Forecasting
Cash forecasting is backbone of cash planning. It forewarns a business regarding expected
cash problems, which it may encounter, thus assisting it to regulate further cash flow
movements. Lack of cash planning results in spasmodic cash flows.

 Cash Management Techniques:

Every business is interested in accelerating its cash collections and decelerating cash
payments so as to exploit its scarce cash resources to the maximum. There are techniques
in the cash management which a business to achieve this objective.

 Liquidity Analysis:
The importance of liquidity in a business cannot be over emphasized. If one does the
autopsies of the businesses that failed, he would find that the major reason for the failure

14
was their unability to remain liquid. Liquidity has an intimate relationship with efficient
utilization of cash. It helps in the attainment of optimum level of liquidity

 Profitable Deployment of Surplus Funds

Due to non-synchronization of ash inflows and cash outflows the surplus cash may arise at
certain points of time. If this cash surplus is deployed judiciously cash management will
itself become a profit centre. However, much depends on the quantum of cash surplus and
acceptability of market for its short-term investments.

 Economical Borrowings
Another product of non-synchronization of cash inflows and cash outflows is emergence
of deficits at various points of time. A business has to raise funds to the extent and for the
period of deficits. Rising of funds at minimum cost is one of the important facets of cash
management.

Purpose of Cash Management

Cash management is the stewardship or proper use of an entity’s cash resources. It serves
as the means to keep an organization functioning by making the best use of cash or liquid
resources of the organization.

The function of cash management at the U.S. Treasury is threefold:

1. To eliminate idle cash balances. Every dollar held as cash rather than used to augment
revenues or decrease expenditures represents a lost opportunity. Funds that are not needed
to cover expected transactions can be used to buy back outstanding debt (and cease a flow
of funds out of the Treasury for interest payments) or can be invested to generate a flow of
funds into the Treasury’s account. Minimizing idle cash balances requires accurate
information about expected receipts and likely disbursements.

2. To deposit collections timely. Having funds in-hand is better than having accounts
receivable. The cash is easier to convert immediately into value or goods. A receivable, an
item to be converted in the future, often is subject to a transaction delay or a depreciation
of value. Once funds are due to the Government, they should be converted to cash-in-hand
immediately and deposited in the Treasury's account as soon as possible.

15
3. To properly time disbursements. Some payments must be made on a specified or legal
date, such as Social Security payments. For such payments, there is no cash management
decision. For other payments, such as vendor payments, discretion in timing is possible.
Government vendors face the same cash management needs as the Government.

Key Features:
Based on your needs and the regulatory environment that you are in, you can choose any
of the following features:
 Physical Sweeping
 Notional Pooling
METHODOLOGIES:
The purpose of this seminar to give you a practical understanding of methods and tools
applied in cash management.
We start with general introduction to “cash management” and explain how good liquidity
management can enable companies to achieve optional profitability from under-utilization
funds and increase control over their cash flows.
We explained how the sources and uses of firm can be identified and how cash inflows
and outflows can be assessed by looking at known assets and liabilities and from budget
simulations. We also explain how critical “trouble spots” and the firm’s vulnerability to
cash flow shortfalls can be qualified.
We then present and explain a number of tools and methods that you can to change idle
funds into working cash. One strategy is to optimize your working capital using “just in
time” inventorying and other techniques. Another method is “pooling”, which will enable
you to minimize interest expense by off-setting (“netting”) debit and credit positions while
preserve autonomy, control and record-keeping without having to actually move funds.
We also explain how notional pooling can be used in conjunction with “target balancing”
and “automated investments”. Other tools include “controlled investment accounts”, “end-
of-day sweep accounts” and “lock-box accounts” that can be set up with the assistance of a
big money center bank or regional bank.

FACTS OF CASH MANAGEMENT

16
Cash management is concerned with the management of cash flows in and out of the firm,
cash flows within the firm, and balances held by the firm point of time by financing deficit
or investing surplus cash.
The firm should evolve strategies regarding the following four facts of cash management:
 Cash planning: Cash inflow and outflow should be planned to project cash surplus or
deficit for each period of the planning period.
 Managing the cash flows: The firm should decide about the properly managed. The
cash inflows should be accelerated while, as far as possible, the cash outflows should be
decelerated.
 Optimum cash level: the firm should decide about the appropriate level of cash
balances. The cost of excess cash and danger of cash deficiency should be matched to
determine the optimum level of cash balances.
 Investing surplus cash: The surplus cash balances should be properly invested to
earn profits. The firms should decide about the division of such cash balances between
alternative short-term investment opportunities such as bank deposits, marketable
securities, or inter-corporate lending.

CASH FORECASTING AND BUDGETING:

Cash budget is the most significance device to plan for and control cash receipts and
payments. A cash budget is a summary statement of the firm expected cash inflows and
outflows over a period of time. It gives information on the timing and magnitude of
expected cash flows and cash balances over the projected period.
This information helps the financial manager to determine the future cash needs of the
firm, plan for the financing of these needs and exercise control over the cash and liquidity
of the firm.

The time horizon of a cash budget may differ from firm to firm. A firm whose business is
affected by seasonal variations may prepare monthly cash budgets. Daily or weekly cash
budgets should be prepared for determining cash requirements if cash flows show extreme
fluctuations. Cash budget for a longer intervals may be prepared if cash flows are
relatively stable. Cash forecasts are needed to prepare cash budget. Cash forecasting may
be done on shorter long term basis. Generally, forecasts covering periods of one year or
less are considered short term, those extending beyond one year are considered long-term.

17
SHORT TERM CASH FORECASTS:
It is comparatively easy to make short term cash forecasts. The important functions of
carefully developed short term cash forecasts are:
 To determine operating cash requirements.
 To anticipate short term financing.
 To manage investment of surplus cash.
The short term forecasts helps in forecasting the cash requirements are not determined, it
would not be possible for the management to know how much cash balances is to be keep
in hand, upon and weather surplus funds would be available to invest in marketable
securities.

LONG TERM CASH FORECASTING:

Long term cash forecast are prepared to give an idea of the company’s financial
requirements in the distant future. They are not as detailed as the short terms. Once a
company has developed long term cash forecasts, it can be used to evaluate the impact of,
say, new product development or plant acquisition on the firm’s financial conditions three,
five or more years in the future.
It indicates as company future financial needs, especially for its working capital
requirement. It helps to evaluate proposed capital projects. It pinpoints the cash required to
finance these projects as well as the cash to be generated by the company to support them.

CASH FLOW CYCLE

Order goods
Receive goods 14
Pay invoice 25
Sell goods 178
Delivery goods
Send invoice
Customer pays 50
Total 240 days

MANAGING CASH COLLECTIONS AND DISBUERSEMENTS:

TANLE No. 2.1

18
Once the cash budget has been prepared and appropriate net cash flow established, the
financial manager should ensure that there does not exist a significant deviation between
projected cash flows and actual cash flows. To achieve this, cash management efficiency
will have to be improved through a proper control of cash collection and disbursement.
The twin objectives in managing the cash flows should be to accelerate cash collections as
much as possible and to decelerate or delay cash disbursements as much as possible

ACCELERATING CASH COLLECTIONS:

A firm can conserve cash and reduce its requirements for cash balances if it can speed up
its cash collects. The first hurdle in accelerating the cash collection could be the firm itself.
It may take long time to process the invoice. Days taken to get the invoice to buyers adds
to order processing delay. In INDIA, yet another problem is with regard to the extra time
enjoyed by the buyers in clearing of bills: particularly, the government agencies take time
beyond what is allowed by sellers in paying bills. Cash collections can be accelerated by
reducing the lag or gap between the time the cheque is collected and funds become
available for the firm’s use.

The amount of cheques sent by customer which are not yet collected is called collection or
deposit float. The greater the firm’s deposit float, the longer the time taken in converting
cheque into usable funds. An efficient financial manager will attempt to reduce the firm’s
deposit float by speeding up the mailing, processing and collection times. A firm can use
decentralized collection system and lock- box system to speed up cash collections and
reduce deposit float.

DECENTRALIZED COLLECTIONS:
A large firm operating over wide geographical areas can speed up its collections by
following a decentralized collection procedure. A decentralized collection procedure,
called concentration banking in USA is a system of operating through a number of
collections centered, instead of a single collection centre centralized at the firm’s head
office. The basic purpose of decentralized collection is minimize the lag between the
mailing time when the firm can make use of the funds. Under de centralized collection, the
firm will have a large number of bank accounts. Operate in the areas where the firm has its
branches. All branches may not have the collection centre or concentration bank account,
generally at the firm’s head office, each day. A concentration bank is one where the firm
19
has a major account usually disbursement account funds can be transferred to a central or
concentration procedure, is thus, a useful way to reduce float.

LOCK – BOX SYSTEM:

Another technique of speeding up the mailing, processing and collection time which is
quite popular in USA and European countries, and has been no introduced in the
developing countries, is the lock –box system. Come foreign and Indian banks in India
have started providing this service to individuals and firms in India. In case of the
concentration banking, cheques are received by a collection centre and after processing,
are deposited in the bank. Lock-box system helps the firm to eliminate the time between
the receipt of cheques and their deposit in the bank. In a Lock-box system, the firm
establishes a number of collection centers, considering customer locations and volume of
remittances. An each centre, the firm hires a post office box and instructs its customers to
mail their remittances to the box. The firm’s local bank picks up the mail several times a
day and deposits the cheques in the firms account.
Two main advantage of the lock –box system are first, the bank handles the remittances
prior to deposit at a lower cost. Second, the cheques are deposited immediately upon
receipt of remittances and their collection process starts sooner than if the firm would have
processed them for internal accounting purposes prior to their to deposits. The firms can
still process the cheques on the basis of the records supplied by the bank without delaying
the collection. Thus, lock-box system eliminates the period between the time cheques are
received by the firm and the time they are deposited in the bank for collection.

CLEARING: The instruments of exchange are used to receive or pay claims. Before the
amount is credited or debited to any account it has to pass through the clearing system.
The clearing process refers to the exchange of instruments by banks drawn on them
through a clearing house. Instruments like cheques, demand drafts, interest and dividend
warrants and refund orders can through clearing. Documentary bills or promissory notes
do not go clearing.

CONTROLLING DISBURSEMENTS: The effective control of disbursement can also

help the firm in conserving cash and reducing the financing requirements. Disbursements
arise due to trade credit, which is a source of funds. The firm should make payments using
credit term to the fullest extent. There is no advantage in paying sooner them agreed. By
20
delaying payments as much as possible, the firm makes maximize use of trade credit as a
source of funds a source which is interest free.

DISBURSEMENT OR PAYMENT FLOAT: Some firms use the technique if playing

the float to maximize the availability of funds. When the firm’s actual bank balance is
greater than the balance shown in the fir m’s books, the difference is called disbursement
or payment float.

DETERMINING THE OPTIMUM CASH BALANCE: One of the primary

responsibilities of the financial manager is to maintain a sound liquidity position of the
firm so that the dues are settled in time. The firm needs cash to purchase raw materials and
pay wages and other expenses as well as for paying dividend, interest and taxes. The test
of liquidity is the availability of cash to meet the firm’s obligations when they become
due.

INVESTING SUEPLUS CASH IN MARKETABLE SECURITIES:

There is a close relationship between cash and money market securities or other short –
term investment alternative should be properly managed. Excess cash should normally be
invested in those alternatives that can be conveniently and promptly converted into cash.

Instead of holding excess cash for the above –mentioned purpose, the firm may meet its
precautionary requirements and when they arise by making short term borrowings. The
choice between the short –term borrowing and liquid assets holding will depend upon the
firm’s policy regarding the mix of short-term financing.

The excess amount of cash held by the firm to meet its variable cash requirements and
future contingencies should be temporarily invested in marketable securities, which can be
regarded as near moneys. A number of marketable securities may be available in the
market. The financial manager must decide about the portfolio of marketable securities in
which the firm’s surplus cash should be invested.

Selecting investment its excess cash n many types of securities or short-term investment
opportunities. As the firm invests its temporary cash balance, its primary criterion in
selecting a security or investment opportunities will be its quickest convertibility into
21
cash, when the need for cash arises. Besides this, the firm would also be interested in the
fact that when it sells the security o liquidations investment it, at least, gets the amount
alternative investment, the firm should examine three basic features of security, safety
maturity and marketable.

SAFETY: Usually, a firm would be interested in receiving as high a return in his

investment as is possible. But the higher returns yielding securities or investment
alternatives are relatively more risky. The firm would invest in every safe securities as the
cash balance invested in them is needed in future. Thus the firm would tend to invest in
highest yielding marketable securities subject to the constraint that the securities have
acceptance level of risk.

MATURITY: Maturity refers to the time period over which interest and principal are to
be made. The price of long term security fluctuates more widely with the interest rate
changes than the price of short term security. Over time, interest rates have a tendency to
change. Because of these two factors, the long term securities are relatively more risky.

MARKETABLITY: Marketability refers to convenience and speed with which a security

or on investment can be converted into cash. The two important aspects of marketability
are price and time. If the security can be sold quickly without loss of price, it is highly
liquid or marketable. The government treasury bills fall under this category. If the security
need time to sell without loss, it is considered illiquid. As the funds invest in the securities
that are readily marketable. The securities that have low marketability usually have higher
yields in order to attract investment. Thus, difference in marketability also causes
differences in the security yields.

Cash management is concerned with the managing of: (i) Cash flows into and out of the
firm, (ii) Cash flows within the firm, and (iii) Cash balances held by the firm at a point of
time by financing deficit or investing surplus cash. It can be represented by a cash
management cycle. Sales generate cash which has to be disbursed out. The surplus cash
has to be invested while deficit this cycle at a minimum cost. At the same time, it also
seeks to achieve liquidity and control. Cash management assumes more importance than
other current assets because cash is the most significant and the least productive asset that
a firm’s holds. It is significant because it is used to pay the firm’s obligations. However,
22
cash is unproductive. Unlike fixed assets or inventories, it does not produce goods for
sale. Therefore, the aim of cash management is to maintain adequate control over cash
position to keep the firm sufficiently liquid and to use excess cash in some profitable way.

Cash management is also important because it is difficult to predict cash flows accurately,
particularly the inflows, and there is no prefect coincidence between the inflows and
outflows of cash. During some periods, cash outflows will exceed cash inflows, because
payments for taxes, dividends, or seasonal inventory buildup. At other times, cash inflow
will be more than cash payments because there may be large cash sales and debtors may be
realized in large sums promptly. Further, cash management is significant because cash
constitutes the smallest portion of the total current assets, yet management’s considerable
time is devoted in managing it. In recent past, a number of innovations have been done in
cash management techniques. An obvious aim of the firm these days is to manage its cash
affairs in such a way as to keep cash balance at a minimum level and to invest the surplus
cash in profitable investment opportunities.

MOTIVES FOR HOLDING CASH: The firm’s need to hold cash may be attributed to
the following three motives:
 The transactions motive
 The precautionary motive
 The speculative motive
TRANSACTION MOTIVE
The transactions motive requires a firm to hold cash to conduct its business in the ordinary
course. The firm needs cash primarily to make payments for purchases, wages and
salaries, other operating expenses, taxes, dividends etc. The need to hold cash would not
arise if there were perfect synchronization between cash receipts and cash payments, i.e.,
enough cash is received when the payment has to be made. But cash receipts and
payments are not perfectly synchronized. For those periods, when cash payments exceed
cash receipts, the firm should maintain some cash balance to be able to make required
payments. For transactions purpose, a firm may invest its cash in marketable securities.
Usually, the firm will purchase securities whose maturity corresponds with some
anticipated payments, such as dividends or taxes in the future. Notice that the transactions

23
motive mainly refers to holding cash to meet anticipated payments whose timing is not
perfectly matched with cash receipts.

PRECAUTIONARY MOTIVE
The precautionary motive is the need to hold cash to meet contingencies in the future. It
provides a cushion or buffer to withstand some unexpected emergency. The precautionary
amount of cash depends upon the predictability of cash flows. If cash flows can be
predicted with accuracy, less cash will be maintained for an emergency. The amount of
precautionary cash is also influenced by the firm’s ability to borrow at short notice when
the need arises. Stronger the ability of the firm to borrow at short notice, less the need for
precautionary balance. The precautionary balance may be kept in cash and marketable
securities. Marketable securities play an important role here. The amount of cash set
aside for precautionary reasons is not expected to earn anything; the firm should attempt to
earn some profit on it. Such funds should be invested in high-liquid and low-risk
marketable securities. Precautionary balances should, thus, be held more in marketable
securities and relatively less in cash.

SPECULATIVE MOTIVE
The speculative motive relates to the holding of cash for investing in profit-making
opportunity to make profit may arise when the security prices change. The firm will hold
cash, when it is expected that interest rates will rise and security prices will fall. Securities
can be purchased when the interest rate is expected to fall; the firm will benefit by the
subsequent fall in interest rates and increase in security prices. The firm may also
speculate on materials prices. If it is expected that materials prices will fall, the firm can
postpone materials purchasing and make purchases in future when pric4e actually falls.
Some firms may hold cash for speculative purposes.

CASH PLANNING
Cash flows are inseparable parts of the business operations of firms. A firm needs cash to
invest in inventory, receivable and fixed assets and to make payment for operating
expenses in order to maintain growth in sales and earnings. It is possible that firm may be
making adequate profits, but may suffer from the shortage of cash as its growing needs
may be consuming cash very fast. The ‘poor cash’ position of the firm cash is corrected if
its cash needs are planned in advance. At times, a firm can have excess cash may remain
24
idle. Again, such excess cash outflows. Such excess cash flows can be anticipated and
properly invested if cash planning is resorted to. Cash planning is a technique to plan and
control the use of cash. It helps to anticipate the future cash flows and needs of the firm
and reduces the possibility of idle cash balances ( which lowers firm’s profitability ) and
cash deficits (which can cause the firm’s failure).

Cash planning protects the financial condition of the firm by developing a projected cash
statement from a forecast of expected cash inflows and outflows for a given period. The
forecasts may be based on the present operations or the anticipated future operations.
Cash plans are very crucial in developing the overall operating plans of the firm.

Cash planning may be done on daily, weekly or monthly basis. The period and frequency
of cash planning generally depends upon the size of the firm and philosophy of
management. Large firms prepare daily and weekly forecasts. Medium-size firms usually
prepare weekly and monthly forecasts. Small firms may not prepare formal cash forecasts
because of the non-availability of information and small-scale operations.

25
 CHAPTER – 3 INDUSTRY
& COMPANY PROFILE

INDUSTRY PROFILE:
Following diagram gives the structure of Indian financial system:

26
 FINANCIAL MARKET
Financial markets are helpful to provide liquidity in the system and for smooth functioning of the
system. These markets are the centers that provide facilities for buying and selling of financial

27
claims and services. The financial markets match the demands of investment with the supply of
capital from various sources.

According to functional basis financial markets are classified into two types.
They are:
 Money markets (short-term)
 Capital markets (long-term)
According to institutional basis again classified in to two types. They are
 Organized financial market
 Non-organized financial market.
The organized market comprises of official market represented by recognized institutions, bank
and government (SEBI) registered/controlled activities and intermediaries. The unorganized
market is composed of indigenous bankers, moneylenders, individual professional and non-
professionals.
MONEY MARKET:
Money market is a place where we can raise short-term capital.
Again the money market is classified in to
 Inter bank call money market
 Bill market and
 Bank loan market Etc.
 E.g.; treasury bills, commercial papers, CD's etc.

CAPITAL MARKET:
Capital market is a place where we can raise long-term capital.
Again the capital market is classified in to two types and they are
 Primary market and
 Secondary market.
E.g.: Shares, Debentures, and Loans etc.

PRIMARY MARKET:
Primary market is generally referred to the market of new issues or market for mobilization of
resources by the companies and government undertakings, for new projects as also for expansion,
modernization, addition, diversification and up gradation. Primary market is also referred to as
New Issue Market. Primary market operations include new issues of shares by new and existing
companies, further and right issues to existing shareholders, public offers, and issue of debt
instruments such as debentures, bonds, etc.

28
The primary market is regulated by the Securities and Exchange Board of India (SEBI a
government regulated authority).

Function:
The main services of the primary market are origination, underwriting, and distribution.
Origination deals with the origin of the new issue. Underwriting contract make the shares
predictable and remove the element of uncertainty in the subscription. Distribution refers to the
sale of securities to the investors.
The following are the market intermediaries associated with the market:
 Merchant banker/book building lead manager
 Registrar and transfer agent
 Underwriter/broker to the issue
 Adviser to the issue
 Banker to the issue
 Depository
 Depository participant

Investors’ protection in the primary market:

To ensure healthy growth of primary market, the investing public should be protected. The term
investor protection has a wider meaning in the primary market. The principal ingredients of
investors’ protection are:
Provision of all the relevant information
Provision of accurate information and
Transparent allotment procedures without any bias.

SECONDARY MARKET:

The primary market deals with the new issues of securities. Outstanding securities are traded in the
secondary market, which is commonly known as stock market or stock exchange. “The secondary
market is a market where scrip’s are traded”. It is a market place which provides liquidity to
the scrip’s issued in the primary market. Thus, the growth of secondary market depends on the
primary market. More the number of companies entering the primary market, the greater are the
volume of trade at the secondary market. Trading activities in the secondary market are done
through the recognized stock exchanges which are 23 in number including Over The Counter

29
Exchange of India (OTCE), National Stock Exchange of India and Interconnected Stock Exchange
of India.
Secondary market operations involve buying and selling of securities on the stock exchange
through its members. The companies hitting the primary market are mandatory to list their shares
on one or more stock exchanges in India. Listing of scrip’s provides liquidity and offers an
opportunity to the investors to buy or sell the scrip’s.
The following are the intermediaries in the secondary market:
 Broker/member of stock exchange – buyers broker and sellers broker
 Portfolio Manager
 Investment advisor
 Share transfer agent
 Depository
 Depository participants.

COMPANY PROFILE

INTRODUCTION

30
HDFC (Home Development Finance Corporation) Home Loan, India have been serving the
people for around 3 decades and providing various housing loan according to their varied
needs at attractive and reasonable interest rates. Owing to their wide network of financing,
HDFC Home Loans provide services at doorstep and helps you find a home as per your
requirements.

COMPANY PROFILE

HDFC Limited founded in 1997 by Ravi Maurya and Hansmukh bhai Parekh, is an Indian
NBFS focusing on home loans. HDFC operates through almost 450 locations throughout the
country with its corporate head quarters in Mumbai, India. HDFC also has an international
office in Dubai, UAE with service associates in Kuwait. HDFC is the largest housing
company in India for the last 27 years.

HDFC was amongst the first to receive an in principal approval from RBI to set up a bank in
the private sector, as a part of the RBI’s liberalization of the Indian banking industry. It was
incorporated on 30th august 1994 in the name of ‘HDFC Bank Limited’, with its registration
office in Mumbai. HDFC began its operations as a scheduled commercial bank on 16 th
January 1995.

ABOUT THE PROMOTER

HDFC, the promoter, is India’s premier housing finance company and enjoy an impeccable
track record in India as well as in international markets.

Since its inception in 1997, HDFC has maintained a consistent growth in its operation and
profitability. Its outstanding loan portfolio covers over a million dwelling units. HDFC has
developed significant expertise in retail mortgage loans to different market segment and also
has a large corporate client base in relation to its housing related credit facilities and its
investment in portfolio.

31
With its tremendous brand equity, the strong reputation in the Indian and international
financial services market, large shareholder base and unique consumer franchise, HDFC was
ideally positioned to promote a bank in the

Indian environment. HDFC (together with its fully owned subsidiary HDFC Investment
Limited) owns about 31 % of the equity. They had started with a strategic alliance with the
Natwest group in UK with 20% equity, which has divested later on. The bank has also signed
a memorandum of understanding for strategic business collaboration with chase Manhattan
Bank in Feb. 2, 1999.

BUSINESS PHILOSOPHY

The mission of the HDFC Bank is to be world class Indian bank. This would imply a bank
that would meet various financial needs of its customers in a convenient and cost effective
manner at international standard of service.

The bank seeks to achieve the status of a “preferred organization” among its major
constituents- customers, shareholders, regulators, employees, suppliers etc. while maintaining
the highest level of integrity and corporate governance.

The business philosophy at HDFC bank is based on four core values: operational excellence,
customer focus, and product leadership and people competitors.

The Bank faces the strong competition in all of their principal lines of business. Their
primary competitors are large public sector banks, other private sector banks, foreign banks
and in some product areas, non-banking financial institutions.

WHOLESALE BANKING

Principal competitors in wholesale banking are public and new private sector banks as well as
foreign banks. The large public sector banks have traditionally been the market leaders in the
commercial lending. Foreign banks have focused primarily on serving the needs of
multinational companies and the Indian corporations with cross- border financing

32
requirements including trade, transactional and foreign exchange services, while the large
public sector banks have extensive branch networks and large local currency funding
capabilities.

RETAIL BANKING

In retail banking, their principal competitors are the large public sector banks, which have
much larger deposit bases and branch networks,, other new private sector banks and foreign
banks in case of retail loan products. The retail deposit shares of the foreign banks are quite
small in comparison to the public sector banks, and have also declined in the last five years,
which we attribute principally to the competition from new private sector banks. However,
some of the foreign banks have a significant presence among non-resident Indians and also
compete for non-branch based products such as auto loans and credit cards. They face
significant competition primarily from foreign banks. In provision of debit cards and also
expect to face competition from foreign banks when we begin offering credit cards. In mutual
fund sales and other investment related products, their principal competitors are brokers and
foreign private banks.

TREASURY

In treasury advisory services for corporate clients, the compete principally with foreign
banks in foreign exchange and derivatives trading as well as SBI and other public sector
banks ion the foreign exchange and money market business.

LOANS

HDFC brings back you a wide range of loans to cater your financial needs.

The bank offers the following loans:

1) Personal loans.
2) Consumer loans.
3) Auto loans
4) Loans against shares
5) Loans against RBI bonds
6) Loans against insurance policy
7) E- Instant loans give the facility of loans approval in the 60 second on the internet.

33
 8) HDFC has offices spread all over the country. This extensive network helps HDFC in
providing services to large and well spread out clients. This network of
interconnected offices (on data circuits) helps HDFC to process application for
purchase of property anywhere in India. HDFC has further established an office in
Dubai and service associates in Kuwait, Oman and Quarter to make to easier for
Middle East based non-resident Indians to apply for loan to HDFC-India.
9) HDFC is pioneer of housing finance in India and has been a leader in business for the
last 23 years. HDFC has vast experience and a very committed and skilled staff to
handle housing loan applications and solving customer problems.

HDFC LOAN SCHEME PURPOSE

HDFC Limited offers loans for the following purposes:

 Land purchase
 Home construction/purchase
 Home extension
 Home improvement loans
 Short-term bridge loans
 Non-resident premises loans for professionals.
HDFC BANK LIMITED was established by the Industrial Credit and Investment
Corporation of India, an Indian financial Institution, as a wholly owned subsidiary in 1955.
The parent company was formed in 1955 as a joint-venture of the World Bank, India's public-
sector banks and public-sector insurance companies to provide project financing to Indian
industry. The bank was initially known as the Industrial Credit and Investment Corporation of
India Bank, before it changed its name to the abbreviated HDFC BANK LIMITED. The
parent company was later merged with the bank.

Industrial Credit and Investment Corporation of India is India's largest private bank. HDFC
BANK LIMITED has total assets of about 27.05bn (end-Mar 2013), a network of over 580
branches and offices, and about 2300.

HDFC BANK LIMITED offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and through its
specialized subsidiaries and affiliates in the areas of investment banking, life and non-life
insurance, venture capital and asset management. HDFC BANK Limiter’s equity shares are

34
listed in India on stock exchanges at Kolkata and Vadodara the Stock Exchange, Mumbai and
the National Stock Exchange of India Limited are listed on the New York Stock Exchange
(NYSE). During the year 2012 HDFC BANK LIMITED was involved as a defendant in cases
of alleged criminal practices in its debt collection operations and alleged fraudulent tactics to
sell its products.

The industrial Credit and Investment Corporation of India Limited now known as ICICI Ltd.
Was founded b the World Bank, the Government of India and representatives of private
industry on January 5, 1955. The objective was to encourage and assist industrial
development and investment in India. Over the years, ICICI has evolved into a diversified
financial Institution.

HDFC BANK LIMITED launched internet banking operations in

1998. ICICI's shareholding in HDFC BANK LIMITED was reduced to 46 percent, through a
public offering of shares in India in 1998, followed by an equity offering in the form of
American Depositary Receipts on the NYSE in 2000. HDFC BANK LIMITED acquired the
Bank of Madura Limited in an all-stock deal in 2001 and sold additional stakes to Institutional
investors during 2001-02. In the 1990s, ICICI transformed its business from a development
financial Institution offering only project finance to a diversified financial services group,
offering a wide variety of products and services, both directly and through a number of
subsidiaries and affiliates like HDFC BANK LIMITED. In 1999, ICICI become the first
Indian company and the first bank or financial Institution from non-Japan Asia to be listed on
the NYSE.

In 2000, HDFC BANK LIMITED became the first Indian bank to list on the New York Stock
Exchange with its five million American depository shares issue generating a demand book
13 times the offer size.

In October 2001, the Boards of Directors of ICICI and HDFC BANK LIMITED approved the
merger of ICICI and two of its wholly owned retail finance subsidiaries, ICICI Personal
Financial Services Limited and ICICI Capital Services Limited, with HDFC BANK
LIMITED. The merger was approved by shareholders of ICICI and HDFC Bank in January
2002, by the High Court of Gujarat at Ahmedabad in March 2002 and by the High Court of
Judicature at Mumbai and the Reserve Bank of India in April 2002

35
HDFC BANK LIMITED is an Indian multinational bank and financial services company
headquartered in Mumbai. Based on 2013 information, it is the second largest bank in India
by assets and third largest by market capitalization. It offers a wide range of banking products
and financial services to corporate and retail customers through a variety of delivery channels
and through its specialized subsidiaries in the areas of investment banking, life and non-life
insurance, venture capital and asset management. The Bank has a network of 3,539 branches
and 11,162 ATM's in India, and has a presence in 19 countries.

HDFC BANK LIMITED is one of the Big Four banks of India, along
with State Bank of India, Punjab National Bank and Bank of Baroda. The bank has
subsidiaries in the United Kingdom, Russia, and Canada; branches in United States,
Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre;
and representative offices in United Arab Emirates, China, South Africa, Bangladesh,
Thailand, Malaysia and Indonesia. The company's UK subsidiary has established branches in
Belgium and Germany.

3.1 VISION AND MISSION:

Vision:

 To be the leading provider of financial services in India and a major

global bank.

Mission:

“We will leverage our people, technology, speed and financial capital to”:

 Be the banker of first choice for our customers by delivering

high quality, world-class products and services.
 Expand the frontiers of our business globally.
 Play a proactive role in the full realization of India’s potential.
 Maintain a healthy financial profile and diversify our earnings across
businesses and geographies.

36
 Maintain high standards of governance and ethics.
 Contribute positively to the various countries and markets in
which we operate.
 Create value for our stakeholders.

TAGLINE OF HDFC BANK LIMITED:- “Hum Hai Na”

Broad objectives of the ICICI are:

 To assist in the creation, expansion and modernization of private concerns,

 To encourage the participation of internal and external capital in the private
concerns,
 To encourage private ownership of industrial investment.

Functions of the HDFC BANK LIMITED:

 It provides long-term and medium-term Roles of Housing Loan Banking
Groups, in rupees and foreign currencies.
 It participates in the equity capital of the industrial concerns.
 It underwrites new issues of shares and debentures.
 It guarantees the Housing Loan Banking Groups, raised by private concerns
from other sources.
 It provides technical, managerial and administrative assistance to industrial
concerns.
BOARD MEMBERS OF HDFC BANK LIMITED:

 Mr. K. V. Kamath, Chairman

 Dr. Swati Piramal
 Mr. Homi R. Khusrokhan
 Mr. Dileep Choksi
 Mr. Arvind Kumar
 Mr. M.S. Ramachandran
 Dr. Tushaar Shah

37
  Mr. V. Sridar
Ms. Chanda Kochhar,
Managing Director & CEO.
 Mr. N. S. Kannan,
Executive Director.
 Mr. K. Ramkumar,
Executive Director.
 Mr. Rajiv Sabharwal,
Executive Director.
AWARDS & RECOGNITIONS:

2004

 Best Bank in India Award presented by Euro money Magazine.

2007

 HDFC BANK LIMITED has been conferred the Euro money Award 2007 for the
Best Bank in the Asia-Pacific Region
 HDFC BANK LIMITED wins the Excellence in Remittance Business award by The
Asian Banker.
2009

 HDFC BANK LIMITED bags the "Best bank in SME financing (Private
Sector)" at the Dun & Bradstreet Banking awards.
2011

 HDFC BANK LIMITED ranked 5th in the list of "57 Indian Companies", and 288 th
in World Rankings in Forbes Global 2000 list.
http://en.wikipedia.org/wiki/ICICI_Bank - cite_note-46.
 HDFC BANK LIMITED has won the "Banking Technology Awards 2010" at The
Indian Banks Association in the following categories.

 For the second year in a row, HDFC BANK LIMITED was ranked 70th in the Bran
directory league tables of the world’s most valuable brands by, The Brand Finance
Banking 500.
 HDFC BANK LIMITED was ranked 1st in the Banking and Finance category and 9th
in the "2010 Best Companies to Work For" by Business Today.

38
  HDFC BANK LIMITED, UK, Hi SAVE product range has been awarded the
Consumer Money facts Awards 2011 for the 'Best Online Savings Provider.

2012

 Airtel, ICICI among 'top 100 global brands'.

 HDFC BANK LIMITED won the "Best Bond House (India) 2011", by IFR Asia.
 HDFC BANK LIMITED won the "Century International Quality Era Award" at
Geneva.
 HDFC BANK LIMITED received the "Dataquest Technology Innovation Awards
2012" for Data centre migration by Dataquest.
 Mr.K.V.Kamath was awarded the "Hall Of Fame" by Outlook Money for his long
standing contribution in the financial services sector.
 HDFC BANK LIMITED won the Best Bank - India Award by The Banker.
 Ms. Chanda Kochhar ranked 18th in the Fortune's list of '2012 Businesspersons of the
Year'. The 50 global leaders are Fortune's annual ranking of leaders who are "the best
in business".
 Ms. Chanda Kochhar tops the list of "50 Most Powerful Women in Business" by
Fortune India.
 For the second year in a row, Ms. Chanda Kochhar, Managing Director & CEO was
ranked 5th in the International listing of 50 Most Powerful Women in Business by
Fortune.
2013

 HDFC BANK LIMITED wins awards under the categories of 'Most Innovative Bank'
and 'Most Innovative use of Multi-Channel Infrastructure' at the Indian Bank's
Association's BANCON Innovation Awards 2013.
 HDFC BANK LIMITED won the Asian Banking & Finance Retail Banking Award
2013 for the Online Banking Initiative of the Year.
 HDFC BANK LIMITED won an award under the Social Media category at the
InformationWeek EDGE Award.
 Ms. Chanda Kochhar, MD and CEO has been awarded as the Best CEO - Private
Sector category at the Forbes India Leadership Awards 2013.
 Ms. Chanda Kochhar, MD & CEO, has been named as the most powerful woman in
business in India for the third consecutive year in Fortune's list of '50 Most Powerful
Women In Business: The Global 50'. She is also among the four most powerful
women in business in the world, according to the list.

39
  HDFC BANK LIMITED received the award for 'Best Private Sector Banker' by the
Sunday Standard Best Bankers Awards 2013.
 HDFC BANK LIMITED has been awarded the 'Best Banker - All round expansion'
by the Sunday.

PRODUCT PROFILE:

1. HDFC BANK LIMITED, Role of Providing Housing Finance to Middle and High
Income Groups Scheme:

With the HDFC BANK LIMITED Housing Finance to Middle and High Income Groups
Scheme, almost anyone can now fulfill his long cherished dream of owning a house or a flat
of his/ her choice at most attractive terms.

Eligibility:

Any individual aged 21 years or above having regular income.

Purpose:

 Purchase of land, purchase or construction of house/ flat.

 Purchase of up to 35 years old house/ flat.
 Renovation/ extension/ repair/ furnishing of house/ flat.
 Taking over of existing Housing Finance to Middle and High Income Groups,
form other Bank/ Financial Institution.
 The Housing Loan Banking Groups, is now extended to those cases also
where flats are being constructed by promoters/developers where immediate
mortgage of the property may not be possible.

Quantum of Housing Loan Banking Groups:

Quantum of Housing Loan Banking Groups, depends on the cost of house/flat, application is
age, income, repayment capacity etc.,

2. HDFC BANK LIMITED Car Finance to Middle and High Income Groups Scheme:

HDFC BANK LIMITED of India joins Hands with Maruti Udyog Ltd.

40
For Financing Purchase of Maruti Cars.

Purpose: Purchase of any Maruti Brand Car from authorized Maruti Dealer.

Eligibility:

 Any individual with gross income of Rs.10,000/- and minimum net income of
Rs.5,000/- per month.
 To be eligible the applicant will be required to get minimum score as per
structured scoring Model of UBI.
Quantum of Housing Loan Banking:

Maximum Rs.6 lakhs.

Margin: 10%

Security:

 In case of salaried person: -Nil-, if employer ensures repayment.

 In case of professional & Self-employed person :To be secured by personal
guarantee of 1 to 2 persons having adequate worth, otherwise at least 60% of
amount to be covered by liquid security in the form of Term Deposits, NS Cs,
KVPs, LIPs (SV), and Relief Bonds etc.,
Eligibility Criteria:

For purchase of new car as well as old car Your Savings/Current Deposit/ Term

CHAPTER – 4

41
 DATA ANALYSIS
AND
INTERPRETATION

DATA ANALYSS AND INTERPRETAON:

Data analysis and interpretation will give a clear about cash inflows and cash outflows
and their impact on the functioning of the banks.

Cash management is all about how well the cash inflows and cash outflows and cash
outflows are managed.

 Inflows would be the various deposits and investment with banks.

 Outflows would be the various types of loans granted by banks.
Generally a cash flow statement can be studied under three main activities:

1. Operating activities: cash flow from operating activities is a section of the cash

42
flow Statement that provides information regarding the cash generating abilities of
banks core activities.

Cash flow from operating activities is generally calculated according to the following
formula:

Cash flow from operating activities =net income + non-cash expenses + changes in
working capital

The noncash expenses are usually the depreciation and/ or amortization expensed
listed on the firm’s income statement.

A Statement of cash flows typically breaks out a company’s cash sources and uses for
the period into three categories:

a) Cash flows from operating activities.

b) Cash flows from investing activities.
c) Cash flows from financing activities.

Cash flows from operations primarily measures the cash generating abilities of the
company’s core operations rather than from its ability to raise capital or purchased
assets.Because working capital is a component of cash flow from operations,
investors should be aware that companies can influence cash flow from operating
activities by lengthening that time they take to pay the bills (thus preserving their
cash), shortening the time it take to collect what’s owed to them (thus accelerating the
receipt of cash), and putting off buying inventory (again thus pre Serving cash). It is
also important to note that companies also have some way about what items are or not
considered capital expenditures and the investor should be aware of this when
comparing the cash flow of different companies.

It is important to note that cash flow is not the same as net income, which includes
transactions that did not involve actual transfers of money (depreciation is common
example of a noncash expense that is included in net income calculation but not in
cash flow calculations).

It is important to note that cash helps companies expand, develop new products, buy
back Stock, pay dividends, or reduce debt. This is why some people value cash flow

43
 statement more than just about any other financial statement or measure out there,
including earning per share it’s also why many analysts look to cash flow from
operations for insight into the core of a company’s cash generating engine.

Almost all cash flow measures are influenced heavily by the state of company’s cash
from operations, which in turn is heavily influenced by a company’s net income.
Thus, higher revenues, lower overhead and more efficiency are big drivers of cash
flow from operating activities. For these reasons, investors often hunt for companies
that have high or improving cash flow from operations but low share prices the
disparity often means the share price will soon increase. This cash flow from
operating activities can be shown in the form of table by comparing it with the
previous year cash flows statements.

Cash flows from operating activities relating to the last five years

i.e. 2013,2014,2015,2016 and 2017

S.NO. Particulars 31.03.2013 31.03.2014 31.3.2015 31.3.2016 31.3.2017

1 OPERATING
ACTIVITES

Balance of profit 2813.63 2402.35 2649.27 2982.31 3063.41

and loss account
adjusted for:

Provision and 799.42 353.73 772.54 1511.50 1179.00

Contingencies

44
 Depreciation on 434.85 469.55 301.16 182.68 229.43
fixed assets

Profit on sale of (3.36) (11.94) - 2.37 8.67

asset

Additional provision - - - - -
on investment

Advance written off (50.28) 13.5 4.69 0.97 1.26

Loss on sale of 12.70 - - - -

investment

Decrease in BDDR 50.28 (1.45) - - -

provision

Cash Flow from

operating activities
i)
prior to the change
in assets and 4057.24 3213.59 3727.66 4679.85 4481.77
liabilities

Net increase or
decrease in
- - - - -
operating assets

Fixed deposits with (688.40) (5000.15) 3807.39 (2834) (863.95)

banks

Investments (14480.37) (7684.22) (7082.25) (14613.95) (20468.08)

Advances to 1557.23 (2151.25) (9123.94) (14120.97) (12461.27)

borrowers

Other operating 481.76 (736.87) (515.72) 100.54 (771.73)

assets

Net - - - - -
(increase/decrease)in

45
 operating liabilities

Deposits from 11422.58 17126.04 12553.41 29083.57 35732.20

depositor

Borrowings - - - - -

Other operating 538.86 529.41 655.86 (745.48) 536.53

liabilities

ii) Cash flow from 2888.90 5296.55 4022.41 1549.54 6185.47

operating activities
prior to other
payments:

Payment of ex-gratia (177.27) (188.34) (204.68) (210.78) (228.81)

Payment out of (6.86) (5.27) (6.04) (4.55) (3.81)

employees welfare
fund

Income tax paid (703.60) (459.55) (750.00) (888.00) (1212.84)

Payment out of (17.48) (19.46) (22.19) (18.55) (20.54)

common good fund

Contribution to co- (17.54) (20.49) - - -

operative educative
fund

Cash flow from 1966.15 4603.44 3039.50 427.66 4719.47

operating activities
(A)

So by referring to the above table cash flow from operating activities is generally
calculated according to the following formula:

Cash flow from operating activities = Net Income + Noncash Expenses +

Changes in Working Capital.

Where net income = carried forward balances of the last five years profit and loss

46
balances.

Noncash expenses would include transactions that did not involve actual transfers of
money i.e.

Depreciation on fixed assets, provisions and contingencies etc., all these are added
back to net income.

Changes in working capital would be difference between net increase and decrease in
changes in operating assets and liabilities of the bank.

Cash flow from operating Activities:

YEARS
4th Qtr; 1.2; 9%

3rd Qtr; 1.4; 10%

2nd Qtr; 3.2; 23% 1st Qtr; 8.2; 59%

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

The above data is presented in the form of pie diagram:

Interpretation

There was increase in profits of the bank from Rs.2813.63 Lakhs in 2013 to
Rs.3063.41 Lakhs in 2017 i.e. cash flow from operating activities have been
fluctuated.

47
There was increase in cash flow from operating activities because:

 There was loss on sale of asset in years 2013 &2014, and profit in 2016 &
2017.
 There was no borrowings from the bank during the years 2013 -2017 instead
there was increase in deposits from depositors with the bank.
 There was increase in provision and contingencies from year 2013 -2017

2. Investing activities:

Cash from investing activities is a sections of the cash flow statement that provides
information regarding a bank’s purchase or sales of capital assets. Cash flow from
investing activities primarily reflects the company’s purchase or sale of capital assets.
(i.e., assets that appear on the balance sheet and have a useful life of more than one
year). It is important to note that companies have Some Way about what items are or
are not considered capital expenditures, and the investor should be aware of this when
comparing the cash flow of different companies. It is important to note that companies
and investors always like to see positive cash flow from every aspect of a company
operations. After all, without positive cash flow, a company may have to borrow
money to do these things, or in Worse cases, it may not stay in business

However, having negative cash flow for a time is not always a bad thing. If a
company is a net Spender of cash for a time because it is building a second
manufacturing plant, for example, the company`s might show negative cash from
investing activities. Nonetheless, this could pay off for investors later if the plant
generates more cash. On the other hand, if the company has a negative cash flow
investing activities because it is making poor asset-purchase decisions, then the long-
term benefit might not be there.

It is important to note that cash is not the same as net income, which includes
transactions that did not involve actual transfers of money (depreciations is common
example of a non-cash expense that is included in net income calculations but not in
cash flow calculations). Investors often hunt for companies that have high or
improving cash flow but low share prices the disparity often means the share price
will soon increase.

48
 This cash flow from investing activities can be shown in the form of table and
Bar chart by comparing it.

S.NO PARTICULARS 31.03.2013 31.03.2014 31.03.2015 31.03.2016 31.03.2017

.

2 Investing
activities

Purchase of fixed (326.06) (335.71) (405.84) (944.54) (914.11)

asset (net of
sales)

Cash flow from (326.06) (335.71) (405.84) (944.54) (914.11)

investing
activities(B)

49
 Chart Title
6

5
5
4.4 4.5
4.3
4
3.5
3
3 2.8
2.4 2.5
2 2
2 1.8

0
Category 1 Category 2 Category 3 Category 4

Series 1 Series 2 Series 3

50
Interpretation:-

It can be interpreted from the above table that there was an purchase of fixed assets in
the previous year’s 2013, 2014, 2015, 2016 &2017 which are nothing but cash
outflows for the bank so in the Statement from the amounts are shown with signs
because these are the cash flows which are going out of the bank and there was no
cash inflows in the previous year’s i.e. amount being realized in the form of sale of
investments.

So by referring to the above chart cash flows investing activities was 11%, 11.50%,
13.50%, 32.50% and 31.50% in the year, 2013, 2014, 2015, 2016 &2017 respectively.
By referring to the table of cash flows operating and cash flows investing activities
the difference in the rates in cash from investing is due to the following :-

 In the year 2016 the bank has invested more on purchase of fixed assets
because the
Deposits from depositors in the year 2016 were RS. 29083.57 Lakhs.
 And also the income tax paid during the year 2014 was less i.e. Rs.459.55
Lakhs when compare to 2016 & 2017 respectively.
 So these were the main reason due to which cash flows from investing
activities were less in 2013

3. Financing activities:

51
 The Section of the cash flow Statement titled cash Flow from Financing Activities
accounts for inflows and Outflows of cash resulting from debt issuance and financing,
the issuance of any new Stock, dividend payments and repurchase of existing Stock

These cash flows from financing activities can be showing in the form of table and
column chart by comparing it with the previous year cash flows statements.

Cash flow from financing activities:-

S.NO. PARTICULARS 31.03.2013 31.03.2014 31.03.2015 31.03.2016 31.03.2017

3. FINANCING
ACTIVITIES

Share capital received 821.74 44.62 98.54 38.60 46.07

Entrance fee received 8.57 6.94 - - -

Dividend paid (338.91) (481.06) (546.87) (530.89) (566.41)

Cash flow from 491.40 (429.50) (448.33) (492.29) (520.34)

financing activities (C)

5
5
4.4 4.5
4.3
4
3.5
3 Series 1
3 2.8
2.4 2.5 Series 2
2 2 Series 3
2 1.8

0
Category 1 Category 2 Category 3 Category 4

Note – Category:- 1 Indicates Financial Year 2013-14

52
 Category:-2 Indicates Financial Year 2014-15

Category:- 3 Indicates Financial Year 2015-16

Category:- 4 Indicates Financial Year 2016-17

Interpretation

 The bank raises the cash with the help of share capital received Rs.821.74
crores in the year2013, Rs.44.62 crores in year 2014 Rs.98.54 in year 2015,
Rs.38.60 crores in 2016 and Rs. 46.07 Respectively.
 Where the dividend paid in the year (i.e.2013) is less than the total amount
received there by the balance with the bank becomes positive
 So initially there was inflow of funds in banks but due to the more payments
of dividends The figures are being shown negative sign there was maximum
grant of dividends in the year which resulted into more of outflows of cash the
bank.

CHAPTER – 5

53
 FINDINGS
SUGGESTIONS
&
CONCLUSIONS

54
 FINDINGS
To find out the financial position of “KOTAK MAHINDRA BANK” the present project
has been undertaken and the following facts were found out:
 Credit sales have been decrease in the year 2010-2011 and increase in the year
2012-2013.
 Receipt from sales of equipment has been increased in the year 2010-2011 and
2012-2013 respectively.
 Interest received has been decreased in the year 2010-2011and respectively 2012-
2013.
 Material purchases have been decreased in the year 2010-2011and increased in
2012-2013.
 General & administrative expenses has been increases in the year 2010-2011 and
decreased in the year 2012-2013.
 Capital expenditure has been decreased in the year 2010-2011 and 2012-2013
respectively.
 Receipt from sales of equipment has been increased in the year 2010-2011 and
2012-2013 respectively.

55
 SUGGESTIONS
 Credit sales should be decreased.
 Interest rate should be increased.
 Material purchases should be decreased.
 Credit material purchases should be decreased.
 General & administrative expenses should be decreased.
 Capital expenditure should be decreased.
 Accountants need to think in terms of sales and profits as much as working capital.
 Keep the cash management system as simple as possible like cash transaction
records, Supply records etc.
 It should be repetitive.
 It should be treated as a crucial process/part of the company.
 The process of cash management must be influenceable.
 Utilize purchasing cards for small value sales and purchase.
 Minimize the number of bank accounts and close all bank accounts not under the
direct control and operation of the central cash management function.
 Select a strong cash management bank and utilize an Internet-based cash
management system for daily cash management.

56
 CONCLUSIONS
 Successful cash management involves not only avoiding insolvency (and therefore
bankruptcy.
 Reducing days in account receivables (AR), increasing collection rates, selecting
appropriate short-term investment vehicles, and increasing days cash on hand all in
order to improveacompany'soverallfinancialprofitability.
 The company should take measures to reduce the expenses by improving efficiency of
the operations of the organization.
 They should be taken to keep the cost at minimum by timely general administrative &
expenses.
 Therefore AUTOFIN LTD should be considering costing by curbing unnecessary
expenditure and by efficiency measures. The overall performance of the company is
good

57
BIBLIOGRAPHY

58
 BIBLIOGRAPHY
BOOKS
1. N. Ramachandran, Ramkumar Kakani, “Financial Accounting for Management”, 2009, 2 nd Ed.
Tata McGraw Hill Publishing Pvt. Ltd.,
2. Dr. Jawaharlal, “Accounting for Management”, 2010, 5th Ed. Himalaya Publishing
House
3. Sudhindra Bhat, “Management Accounting”, 2009, 1st Ed, Excel Boks.
4. Ashish K.Battacharyya, “Essentials of Financial Accounting”, 2009, 5th Ed. PHI
Learnings.
5. Khan, M Y and P K Jain, Financial Management, Tata McGraw-Hill Publishing Co.,
New Delhi, 2007.
6. I M Pandey, Essentials of Financial Management, Vikas Publishing House Pvt Ltd, New
Delhi, 1995.
7. Ramesh, S and A Gupta, Venture Capital and the Indian Financial Sector, Oxford
University press, New Delhi, 1995.
8. Prasanna Chandra, financial Management, Tata McGraw-Hill Publishing Co., New
Delhi, 2007.
9. S L Gupta, “Marketing Research”, 2009, Excel Books, New Delhi.

WEBSITES
http://www.accountingtools.com/ -Cash Management.html
https://en.wikipedia.org/wiki/Balance_sheet
https://en.wikipedia.org/wiki/cash_management
http://www.riskencyclopedia.com/articles/cash-money-management/
www.iimb.ernet.in/~vaidya/Asset-liability.pdf
www.pankajbaid17/ -management-in-banks/
PUBLICATIONS:
BUSINESS TODAY
ECONOMIC TIMES
A Hybrid Simulation/Optimisation Scenario Model For Cash Management - GCE Boender -
European Journal Of Operational Research, 1997 - Elsevier
Management - D Mehta, HG Fung - International Bank Management, 2003 - Wiley Online
Library

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