1. A
SUMMER TRANING REPORT
ON
JOB SATISFACTION
THE CENTRAL CO-OPERATIVE BANK LTD (PANIPAT)
(SUBMITTED IN THE PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE
OF
BACHELOR OF BUSINESS ADMINISTRATION
(SESSION 2012-13)
SUBMITTED TO: SUBMITED BY:
MISS NISHA GUPTA JYOTI KAMAL
B.B.A. III YEAR
CLASS ROLL No. 7875
UNIVERSITY ROLL No..
I.B.(P.G.) COLLEGE
AFFILIATED BY
KURUKSHETRA UNIVERSITY, KURUKSHETRA

2. DECLARATION
I JYOTI KAMAL student of B.B.A. III year in I.B.(P.G.) College, Panipat hereby
declare that the project report entitled “JOB SATISFACTION THE CENTRAL
CO-OPERATIVE BANK LTD (PANIPAT)” submitted for the degree of B.B.A. III
year is my original work and the project report has not formed the basis for the award
of any diploma, degree, associate ship, fellowship or similar other titles. It has not
been submitted to any other university or institution for the award of any degree or
diploma.
JYOTI KAMAL

3. ACKNOWLEDGEMENT
Survey is an excellent tool for learning and exploration. No classroom routine can
substitute which is possible while working in real situations. Application of theoretical
knowledge to practical situations is the bonanzas of this survey.
Without a proper combination of inspection and perspiration, it‟s not easy to achieve
anything. There is always a sense of gratitude, which we express to others for the help
and the needy services they render during the different phases of our lives. I too would
like to do it as I really wish to express my gratitude toward all those who have been
helpful to me directly or indirectly during the development of this project.
I would like to thank my professor MISS.NISHA GUPTA who was always there to
help and guide me when I needed help. Her perceptive criticism kept me working to
make this project more full proof. I am thankful to her for his encouraging and
valuable support. Working under her was an extremely knowledgeable and enriching
experience for me. I am very thankful to her for all the value addition and
enhancement done to me.
No words can adequately express my overriding debt of gratitude to my parents whose
support helps me in all the way. Above all I shall thank my friends who constantly
encouraged and blessed me so as to enable me to do this work successfully.
JYOTI KAMAL

4. Table of content
Executive summary
Introduction
Aims and objectives
Part 1.
An Overview of the Organization
Banking Regulation Act- 1949
Definition of Co-operative Bank
Values of Co- operative Bank
Principles of Co-operative Bank
Part 2.
An Company Profile
Introduction
History of the organization.
Special features
Services
Competitors
Part 3 .
Project overview
Introduction
Aims and objectives
Methodology
Analysis
Finding
conclusion
Part 4.
Methodology
Bibliography

5. EXECUTIVE SUMMARY
This project focuses on “Credit appraisal on working capital” In order to do the justice
to the topic, there is a brief introduction of credit appraisal this includes the different
types of credit sectors.
Further, the concept of credit appraisal has been elaborated upon, which includes
various factors for appraising credit to working capital .
Primary aim of the project “ Credit appraisal on working capital” at the Raichur
District Central Co-op Bank Ltd, Raichur. Was to analyses existing practices of co-
operative banks for credit appraisal on working capital.
Basic objectives of the project
1) Study the credit appraisal in co- operative banks.
2) Study the credit appraisal on working capital.
3) Study the credit appraisal to different companies

6. CHAPTER – I
INTRODUCTION
Job satisfaction describes how content an individual is with his or her job. It is a
relatively recent term since in previous centuries the jobs available to a particular person
were often predetermined by the occupation of that person’s parent. There are a variety of
factors that can influence a person’s level of job satisfaction. Some of these factors include
the level of pay and benefits, the perceived fairness o the promotion system within a
company, the quality of the working conditions, leadership and social relationships, the job

7. itself (the variety of tasks involved, the interest and challenge the job generates, and the
clarity of the job description/requirements).
The happier people are within their job, the more satisfied they are said to be. Job
satisfaction is not the same as motivation, although it is clearly linked. Job design aims to
enhance job satisfaction and performance methods include job rotation, job enlargement
and job enrichment. Other influences on satisfaction include the management style and
culture, employee involvement, empowerment and autonomous workgroups. Job
satisfaction is a very important attribute which is frequently measured by organizations. The
most common way of measurement is the use of rating scales where employees report
their reactions to their jobs. Questions relate to relate of pay, work responsibilities, variety
of tasks, promotional opportunities the work itself and co-workers. Some questioners ask
yes or no questions while others ask to rate satisfaction on 1 – 5 scale 9where 1 represents
“not all satisfied” and 5 represents “extremely satisfied”).
Definitions
Job satisfaction has been defined as a pleasurable emotional state resulting from
the appraisal of one’s job; an affective reaction to one’s job; and an attitude towards one’s
job. Weiss (2007) has argued that job satisfaction is an attitude but points out that
researchers should clearly distinguish the objects of cognitive evaluation which are affect
(emotion), beliefs and behaviors. This definition suggests that we from attitudes towards
our jobs by taking into account our feelings, our beliefs, and our behaviors.
Affect Theory
Edwin A. Lockes Range of Affect Theory (1976) is arguably the most famous job
satisfaction model. The main premises of this theory is that satisfaction is determined by a
discrepancy between what one wants in a job and what one has in a job. Further, the
theory states that how much one values a given facet of work (e.e. the degree of autonomy

8. in a position) moderates how satisfied/dissatisfied one becomes when expectations are/are
not met. When a person values a particular facet of a job, his satisfaction is more greatly
impacted both positively (when expectations are met) and negatively (when expectations
are not met), compared to one who does not value that facet. To illustrate, if Employee A
values autonomy in the workplace and Employee B is indifferent about autonomy, then
Employee A would be more satisfied in a position that offers a high degree of autonomy
compared to Employee B. this theory also states that too much of a particular facet will
produces stronger feelings of dissatisfaction the more a worker values that facet.
Dispositional Theory
Another well known job satisfaction theory is the Dispositional Theory. It is a very
general theory that suggests that people have innate dispositions that cause them to have
tendencies toward a certain level of satisfaction, regardless of one’s job. This approach
became a notable explanation of job satisfaction in light evidence that job satisfaction tends
to be stable over time and across careers and jobs. Research also indicates that identical
twins have similar levels of job satisfaction.
A significant model that narrowed the scope of the Dispositional Theory was the core
Self-evaluations Model, proposed by Timorthy A. Judge in 1998. Judge argued that there
are four Core Self-evaluations that determine one’s disposition towards job satisfaction:
self-esteem, general self-efficacy, locus of control, and neuroticism. This model states that
higher levels of self-esteem (the value one places on his self) and general self-efficacy (the
belief in one’s own competence) lead to higher work satisfaction. Having an internal locus
of control (believing one has control over her/his own life, as opposed to outside forces
having control) leads to higher job satisfaction. Finally, lower levels of neuroticism lead to
higher job satisfaction.
Two – Factor Theory (Motivation – Hygiene Theory)
Fredrick Herzberg’s Two factor theory (also known as Motivator Hygiene Theory)
attempts to explain satisfaction and motivation in the workplace. This theory states that
satisfaction and dissatisfaction are driven by different factors motivation and hygiene
factors, respectively. Motivating factors are those aspects of the job that make people want
o perform, and provide people with satisfaction. These motivating factors are considered to
be intrinsic to the job, or the work carried out. Motivating factors include aspects of the

9. working environment such as pay, company policies, supervisory practices, and other
working conditions.
While Herzberg’s model has stimulated much research, researchers have been
unable to reliably empirically prove the model, with Hackman & Oldham suggesting that
Herzberg’s original formulation of the model may have been a methodological artifact.
Furthermore, the theory does not consider individual differences, conversely predicting all
employees will react in an identical manner to changes in motivating/hygiene factors.
Finally, the model has been criticised in that it does not specify how motivating/hygiene
factors are to be measured.

10. Measuring Job Satisfaction
There are many methods for measuring job satisfaction. By far, the most common
method for collecting data regarding job satisfacting is the Likert scale (named after Rensis
Likert). Other less common methods of for gauging job satisfaction include: Yes/No
questions, True/False questions, point systems, checklist, forced choice answers.
The Job Descriptive Index (JDI), created by smith, Kendall, & Hulin (1969), job
satisfaction that has been widely used. It measures one’s satisfaction in five facets: pay,
promotions and opportunities, coworkers, supervision, and the work itself. The scale is
simple, participants answer either yes, no, or decide in response to whether given
statements accurately describe one job.
The Job in General Index is an overall measurement of job satisfaction. It was an
improvement to the job Descriptive Index because the JDI focused too much on individual
facets and not enough on work satisfaction in general.
1.1 Objective of the study
The objective of the study is as follows
 To assess the satisfaction level of employees in orient glass pvt ltd.
 To identify the factors which influence the job satisfaction of employees.
 To identify the factor which improves the satisfaction level of employees.
 To know the employee satisfaction towards the facilities.
 To offer valuable suggestions to improve the satisfaction level of employees.

11. 1.2 Scope of the study
This study emphasis in the following scope:
 To identify the employees level of satisfaction upon that job.
 This study is helpful to that organisation for conducting further research.
 It is helpful to identify the employer’s level of satisfaction towards welfare measure.
 This study is helpful to the organization for identifying the area of dissatisfaction of
job of the employees.
 This study helps to make a managerial decision to the company.
1.3 Research Methodology
Research methodology is the systematic way to solve the research problem. It gives
an idea about various steps adopted by the researcher in a systematic manner with an
objective to determine various manners.
1.3.1 Research Design
A research design is considered as the framework or plan for a study that guides as
well as helps the data collection and analysis of data. The research design may be
exploratory, descriptive and experimental for the present study. The descriptive research
design is adopted for this project.
1.3.2 Research Approach
The research worker contacted the respondents personally with well-prepared
sequentially arranged questions. The questionnaire is prepared on the basis of objectives
of the study. Direct contract is used for survey, i.e., contacting employees directly in order
to collect data.
1.3.4 Sample size
The study sample constitutes 100 respondents constituting in the research area.

12. 1.3.5 Sampling Area
The study is conducted in employees of Orient Glass Pvt Ltd.
1.3.6 Sampling Design
The researcher has used probability sampling in which stratified random sampling is used.
1.3.7 Collection of Data
Most of the data collected by the researcher is primary data through personal interview, where the researcher and the respondent operate
face – to – face.
1.3.8 Research Instrument
The researcher has used a structured questionnaire as a research instrument tool which consists of open ended questions, multiple choice
and dichotomous questions in order to get data. Thus, Questionnaire is the data collection instrument used in the study. All the questions in the
questionnaire are organized in such a way that elicit all the relevant information that is needed for the study
1.3.9 Statistical Tools
The statistical tools used for analyzing the data collected are percentage method,
chi square, bar diagrams and pie diagrams.

13. 1.3.10 Analysis of Data
The data are collected through survey and books, reports, newspapers and internet etc., the
survey conducted among the employees of Orient Glass Pvt Ltd. The data collected by the
researcher are tabulated and analyzed in such a way to make interpretations.
Various steps, which are required to fulfill the purpose, i.e., editing, coding, and tabulating.
Editing refers to separate, correct and modify the collected data. Coding refers to assigning
number or other symbols to each answer for placing them in categories to prepare data for
tabulation refers to bring together the similar data in rows and columns and totaling them in an
accurate and meaningful manner
The collected data are analyzed and interrupted using statistical tools and
techniques.
1.4 Research period
The research period of the study has from 1st February to May 1st 2008 having 18
weeks of duration.
1.5 Limitations of the study
 The survey is subjected to the bias and prejudices of the respondents. Hence 100%
accuracy can’t be assured.
 The researcher was carried out in a short span of time, where in the researcher
could not widen the study.
 The study could not be generalized due to the fact that researcher adapted personal
interview method.

14. 1.6 Chapter scheme
This project is summarized into five different chapters.
Chapter-1
Consists of an Introduction, statement of the problem, objectives of the study,
Rrsearch methodology and limitations of the study
Chapter-2
Contains Industry Profile, which contains of world scenario, national scenario, and
state scenario.
Chapter -3
Consists of company profile, which states about the promoter of the company and a
brief history about the company.
Chapter-4
Consists of analysis and interpretation of the collected data.
Chapter-5
Consists of findings of the study.
Chapter-6
It includes suggestion and recommendations.
A copy of questionnaire is included as appendix at the end of this report.

15. Methodology
As my project work is based on credit appraisal in the Raichur District Central Co-op
Bank Ltd, Raichur. I had put my self very much into the job to reach the depth of
credit appraisal in different sectors. I involved myself directly interacting with various
executives of loans and investment department.
The findings of the project included following steps:
I. Collection of data:-
I. Primary Data: The data collected through face to face interaction with
Managers and Executives.
II. Secondary Data: The data collected through magazines, internet.
II. Analysis of data:-
I. Pie charts,
II. Annual reports of bank.

16. PART-1
An Industry Profile
Banking Regulation Act-1949
Definition Of Co-Operative Bank
Values Of Co- Operative Bank
Principles Of Co-Operative Bank

17. Banking Regulation Act, 1949
(As applicable to co-operative societies)
The Banking Regulation Act,1949(as applicable to co-operative societies) which had
come into force from 1st March 1966, has vested the Reserve Bank with various
statutory powers of control and supervision over the Co-operative Banks. The powers
in regard to incorporation, management etc. of these banks, continue to vest in the
Registrars of Co- operatives societies of the States concerned. Further the provisions
of the B.R. Act 1949 shall be in addition to, and not, save as expressly provided in the
Act, in derogation of any other law for the time being in force. This means that the
Co-operative Banks are required not only to comply with the provision of the B.R.
Act, but also other laws applicable to them. In respect of matters specifically provided
for in the B.R. Act the provisions of the said Act will prevail over the provisions of
the Co-operative societies Acts.
According to this Act, a “Primary Co-operative Bank” means a Co-operative
Society other than a Primary Agriculture Credit Society:
1) The primary object or principal business of which is the transaction of banking
business
2) The paid- up share capital and reserves of which are not less than one lakh of
rupees.

18. 3) The bye- laws of which gives only permit as a share holder or a member varies co-
op institutions which are working in Raichur district. Like Primary Agriculture Co-op
societies which are back bone of DCC Bank, Taluka Agricultural produces marketing
co-op societies, Urban Co-op Banks & co-op societies.
Definition of Co- operative Banks
A co-operative is an autonomous association of smaller co-op institutions or persons
united voluntarily to meet their common economic, social and cultural needs and
aspirations through a jointly owned and democratically controlled enterprise.
Values of Co- operative Banks:
1) Self – responsibility
2) Democracy
3) Solidity
In tradition of their founders, co-operative members believe in the ethical values of
honesty, openness, social responsibility and caring for others.
Principles of Co- operative Banks:

19. 1) Voluntary and open membership only for co-op societies which are working in
Raichur district only.
2) Democratic member control.
3) Member Economic Participation.
4) Autonomy and independence.
5) Education, Training, and Information.
6) Cooperation among Cooperatives.
7) Concern for Community.
PART- 2
An Bank Profile
Introduction
Special Features
Services
Competitors

20. Bank Profile:
RAICHUR DISTRICT CENTER CO-
OPERATIVE BANK LTD.
Head Office: Rajendra Gunj Circle, Raichur-584102.
Established: 1919
First President: Late A. B. Patil (1960-67) (After State re-organisation1959)
Present President: Sharane Gowda Bayyapur
The Raichur District central Co-op Bank Ltd, Raichur is a district level rural credit
bank established in 1919 for the sake of people to help agricultures. Up to
Independence in 1947, bank was worked under Hyderabad Nizam Sarkar Govt.
After Independence up to state re-organization bank were worked in 11 talukas
namely Raichur, Manvi, Deodurga, Lingasugur , Sindhanur, Koppala Kushtigi,
yalburga, Gangavati, Alampur & Gadval under the Hyderabad state. In 1959 Raichur
District separated from Hyderabad State included in Karnataka State than called

21. Mysore state. Gadval & Alampur talukas separated from RDCC Bank, because these
two talukas included in newly formed Andhra Pradesh.
In 1959 than Deputy Commissioner of Raichur took over the charge as the President
of RDCC Bank.
In 1960 A. B. Patil became the first president of RDCC Bank.
In the year 2001 Raichur district divided in to two district namely Raichur district &
Koppal district. Koppal district includes Gangavati, yalburga, kushtagi, but RDCC
Bank were not divided. So present it has operations in two district.
Fund collection is necessity of bank but this bank‟s prime goal is protection of
collected fund and useful investment. With the suitable directions given by Board of
Directors and with efficient management, the bank is moving forward with success.
Today it contains nineteen branches. Out of its nineteen branches today four branches
are having their own building. Other building are well planned and furnished.
All of its nineteen branches well equipped computerized facilities are available.
This bank not only gives importance to co-operative sector but also gives importance
to education, health and social programs and also encourages them. Without any
discrimination it helps people according to their qualification. It helps the patients
suffering from kidney problem, heart problem, cancer and other diseases. It is due to
this bank that high- educational system and eye- specialist centre are established in
Raichur town.

22. Board of Directors
The present members in board of directors of Raichur District
Center Co-Operative Bank Ltd, Raichur.

23. Sharanegowda Bayyapur ( President)
Ramesh vaidya ( Director)
K. Sharanappa ( Director )
Pampanagowda Badarli ( Director )
S. B. Reddy ( Director )
Halappa achar ( Director )
Shyamrao Kulkarni ( Director )
Vishwanath patil ( Director )
Rajshekhar Naik ( Director )
Amregowda ( Director )
M. Venkagowda ( Director )
Pratap Patil maski ( Director )
R.TimmayyaShetti (Apex Bank rep.)
B.H. Patil (Co-op societies joint
registrar)
Rajashri B. Agsar (Co-op Societies sub-Registrar)
D.S. Velu (NABARD Raichur, Spl.
Invity director )
H.K. Chandrashekar (D.G.M. Apex Bank Bangalore,
Spl. Invity director)
VISION AND MISSION

24. Protection of collected fund.
Useful investment of fun
Better customer service.
Building transparency in all dealings.
SPECIAL FEATURES:
Fully computerized for efficient services.
Secured deposits and high returns.
“ EASY HOME LOANS” and many other attractive
loan schemes.
BRANCHES:
Sl.no Branches
1 Head Office Raichur
2 Gunj Branch Raichur
3 City Talties Road Raichur
4 Gajgarpet Raichur
5 Nijalingappa Raichur
Colony
6 Station Area Raichur
7 I.D.S.M.T. Layout Raichur
8 Manvi
9 Sindhanur
10 Gangavati
11 Koppala

25. 12 Yalburga
13 Kuknur
14 Kushtagi
15 Hanumasagar
16 Lingasugur
17 Devadurga
18 Kavital
19 Koppala Station
Area
PROGRESS AT A GLANCE
Rupees in Lakhs
S. Details 2006-07 2007-08 2008-09 2009-10
N (UnAdited)

26. 1 Membership
a) Govt. 1 1 1 1
b) Co-op Societies 782 787 791 792
Total 783 788 792 792
2 Branches 16 16 18 18
3 Share Capital
a) Govt. 381.87 381.87 381.87 381.87
b) Co-op Societies 630.13 648.85 795.72 908.03
Total 1012.00 1030.72 1277.59 1289.90
4 Reserve & other funds
a) Reserve fun 22.04 23.87 51.08 101.55
b) Other fund 669.61 670.76 757.40 813.23
Total 691.65 694.63 808.48 914.78
5 Deposits
a) Individual Deposits 44223.17 5477.13 6794.58 9068.49
b) Institutions Deposits 1829.30 1817.63 1945.82 2212.48
c) Societies Deposits 4171.05 5200.55 6627.61 7806.16
Total 10423.52 12495.31 15368.01 19087.13
6 Loan Borrowed
a) Short term loan 5887.47 7409.00 9670.49 9091.87
b) Mid term loan (non form) 196.60 143.05 104.05 81.81
c) Mid term loan 412.95 303.23 195.99 140.75
d) Computer loan 0.82 0.77 0.77 0.76
total 6497.84 7856.05 9971.79 9315.19

27. 7 Loans & Advances
a) Short term loan 67.10 60.04 59.88 65.17
b) Oil seed loan 35.58 35.23 35.23 35.32
c) KCC loan 9341.38 8625.24 11670.22 13718.48
d) Midterm agriculture loan 233.98 296.28 380.33 513.57
e) Renewed midterm loan 29.14 28.33 24.62 23.54
f) Security loan 893.77 981.18 1157.75 1248.71
g) Mortgage loan 754.21 268.02 1230.99 2133.90
h) Long term loan 259.93 411.93 564.01 782.44
i) Short term (non-agri) 594.09 555.53 759.08 1317.72
j) Mid & long term loan 471.99 530.19 867.13 767.98
(non-agri)
k) Housing loan 81.09 90.22 187.03 280.93
l) Vehicle loan 54.05 54.01 79.90 99.86
m) Liquidated societies loan 9.37 38.14 32.83 28.31
arrears
Total 12825.68 11974.34 17045.00 21015.33
8 Investments 4802.95 8211.59 8709.28 7949.87
9 Own fund 1703.65 1725.35 1986.07 2204.68
10 Working Capital 18625.01 23028.25 27325.87 32340.57
11 Profit & loss -158.5 335.58 336.98 -332.66

28. PROPORTION OF PROFIT & LOSS
Rupees in Lakhs
YEAR Profit
2006-07 -158.5
2007-08 335.58
2008-09 336.98
2009-10 -332.66
400
300
200
100
0
year 2006-07 2007-08 2008-09 2009-10
-100
-200
-300
-400

29. FINANCIAL PERFORMANCE
The Financial performance of RDCC Bank Ltd, Raichur for the year 2008-2009 &
forecast for the year 2009-10, under the various parameters are as discussed here
below:
Rupees in
Lakhs:
Sl.no Income & Expenditure 2007-08 2008-09 Forecast For
the year
2009-10
1 Interest income 1699.67 1783.22 2545.16
2 Non interest income 52.26 52.35 104.84
3 Interest expenses 752.67 1043.97 1598
4 Net interest income (1+2-3) 999.26 791.16 1052
5 Staff expenses & others 669.09 454.63 700
6 Provisions & Contingencies ---- ---- ----
7 Profit 330.17 336.97 352.00
Bank under profit of Rs. 336.97 Lakhs for the year 2008-09 against to 2007-08 little
high. In 2007-08 bank was under profit of Rs. 330.17 Lakhs due to payment of exceed
in payment of interest by the bank. In the same time in the year 2007-08 salary
expenses was Rs.669.09 Lakhs, where as the salary expenses was decreased to Rs.
454.63Lakhs in the year 2008-09 .
Non interest by the banking operating income, bank earned Rs. 52.26 Lakhs &
52.35 Lakhs for the year 2007-08 & 2008-09 accordingly.

30. Bank audit for the year 2009-10 is going on. Bank‟s forecasted profit for the
year 2009-10 is Rs. 352 Lakhs. Bank expected interest income for the said year Rs.
2545.16 Lakhs and from other non-interest income by Rs. 105.84 lakhs whereas,
expected expenditure of interest Rs. 1598 Lakhs, Salary and other expenses is Rs. 700
Lakhs.
RECOVERY PERFORMANCES
The bank has recovered a loan amount of Rs. 8180.25 Lakhs as on 31.03.2009.
Details are as shown below:
Agriculture Loan
Sl. Details Demand Recovery Balance %
No.
1. Short Term Loan 60.12 0.16 59.96
2. Short Term Oil Seed Loan 36.38 -- 36.38
3. KCC Loan 8551.31 7208.44 1342.87
4. Mid Term Loan 117.35 81.62 35.73
5. Mid Term Converted 18.04 3.71 14.33
Loan
6. Long Term Loan 32.75 30.31 2.44
Total 8815.95 7324.24 1491.71 83.08

31. Non-Agriculture Loan
Sl. Details Demand Recovery Balance %
No.
1. Short Term Loan 459.53 439.90 19.63
2. Mid Term Loan 493.88 416.11 77.77
Total 953.41 856.01 97.40
3. Non-Renewal CC & 18.75 -- 18.75
OD Loan
4. Credits of Societies 32.83 -- 32.83
under Liquidation
Total (1+2+3+4) 9820.94 8180.25 1640.69 83.29
INVESTMENTS
As on 31-3-2009 bank invested Rs.8709.28 Lakhs in various organizations.
Rs. 301.57 Lakhs invested in state & Central Government bonds, Rs. 354.40 Lakhs in
NABARD, Rs. 4723.23 Lakhs in Karnataka Co-op Apex Bank ltd, Bangalore. Rs.
3328.88 Lakhs in local commercial bank for daily transaction. And also bank
purchased shares from IIFCO for the worth of Rs. 1Lakhs.
WORKING CAPITAL:
Bank Working Capital was Rs. 22090.86 Lakhs as on ending 31-3-2008, it is
increased in the year 2008-09 to Rs. 27325.87 Lakhs as on year ending 31-3-2009.
In the year 2008-09 bank sanction the loan Rs. 11057.48 lakhs for short term
agricultural loan, Rs. 175.25 Lakhs as mid term loan, Rs. 432.42 lakhs long term loan
& for non- agricultural sector Rs. 7147.47 lakhs. Bank advanced in agricultural sector
like Horticulture, irrigation, Agri land development, tanks formation dairy
development & rural key loan etc.

32. Bank formed 3200 self service wings in Raichur & Koppala districts out of these SSG
1965 groups were sanctioned loan upto 31-3-2009. As per the direction of central
Govt, State Govt . & NABARD. Bank given the priority for SSG. Bank given more
attention to upliftment of Rural, BPL, women SSG.
NPA:
In the year 2001 NPA were 11.42%, but in decreased by 2008-09 to 3.09%. where as
RBI & NABARD fixed NPA to max 5%.
BORROWINGS:
NABARD bank is main borrower of the bank. bank borrowed the Rs. 9670.49 lakhs in
the year 2008-09. And payable to NABARD bank for the year 2007-08 was Rs.
7856.05 Lakhs. Bank refunded the total loan to NABARD through Apex bank which
to be paid as on 31-3-2009 there is no out standing loan payable to NABARD.
AUDIT AND CONTROLS:
The audit and inspection serves the objective of ensuring safe and sound practices and
policies. The concurrent audit of the bank which covers all the 19 branches has
enabled early identification of defects/ deficiencies for initiating necessary actions for
rectification and setting right the deficiencies. In the area of house keeping the bank
continues to do well with the balancing of books and inter bank/ branch accounts been
drawn up to March 31, 2009. Now as per the NABARD direction bank is under going
the audit through the Charted Accountant those who are appointed by NABARD.
Previously the was done by Karnataka Govt. co-op audit department.
HUMAN RESOURCES:
Total staff strength of the bank as at the end of March 2009 stood at132.
The collective efforts of management and the employees enabled the bank to show
progressive growth during the year and the relationship continued to be harmonious.
With a thrust to strengthen and improve competency, bank has been imparting training
to the staff discharging their duties at various levels to enable them to perform their
duties and responsibilities more effectively in a highly competitive customer driven

33. environment. Bank has also been encouraging its employees to take up various
examinations conducted by Indian Institute of Banking and Finance.
The bank is also encouraging its staff to enroll them for various specialized courses
more particularly on Anti Money Laundering and Know Your Customer (AML &
KYC), Trade Finance, Risk Management etc.
BOARD OF DIRECTORS:
The Board of Directors at the end of March 2009 comprised of 15 & 2 members are
special invites. 17 members of the Board of Directors were held during the year. The
board has constituted various sub committees, which met regularly and transacted
various business entrusted to them. All the members on board contributed
Their knowledge, expertise and experience in their respective fields towards all round
development of the bank.
As per the directions of NABARD bank, DCC bank must have the Professional
knowledge 3 directors from the field of Charted Accountant, Business developer &
Professional development those who are highly skilled. Bank is going to co-opt 3
directors from the same field in forth coming year.
ACHIEVEMENTS AND AWARDS:
Won “ Best Co- operative Bank “ Award in 2005- 2006.
By Apex Bank.

34. Part 3.
Project overview
Introduction
Aims and objectives
Methodology
Analysis
Findings
Conclusion

35. INTRODUCTION:
Why Bank Credit?
Credit provided by banks is an important driver of National economy. In the olden
days, when banking had not taken the present shape, individuals or families
traditionally doing the banking business provided credit to the user. However, the
present day economy is vastly different from the old economy.
The modern economy is driven by technology, and the most important variable of the
economy are the consumption demands of the vast population as well as the supply
machineries to meet the demand. The sources of supply no longer confine to the area
where the demand exists. With the improvement in transport and communication
system, the demands can be easily met by supplies made from sources located in far-
flung areas .
Today, the total output of by our industrial and non- industrial sectors is very large,
the finance requirements of which cannot possibly be met by traditional financiers
alone. The role of modern co- operative banks as providers of credit to the economy
begins at this point.
Sectors in which banks provide credit:
During the post- independence period, a phenomenal growth in bank credit has been
largely responsible behind the growth of industry in our country.
Most of the credit was directly provided to the production sector that fuelled the
growth of manufacturing industries in India. However, even during the post-
independence period, banks were owned / controlled by large business houses. This
resulted in credit flowing to selected enterprises mainly belonging to these business
houses. Consequently, the credit portfolio of many banks acutely suffered from high
concentration risks, as the beneficiaries of credit were a select few and, also because
credit was utilized in only a small number of activities pursued by these business

36. houses. Many banks became unviable in the process. Besides, this approach of lending
was not in tune with the prime objective of independent India i.e. welfare of society
at large.
Priority Sector:
The nationalization of banks in 1969 and 1980 made an attempt to shift the focus of
bank lending to a large extent.
RBI propagated the concept of priority sector and laid down guidelines that every
bank would have to deliver credit to certain important sectors of the Indian economy.
In order to ensure that these guidelines are met, RBI also stipulated a minimum level
of credit the banks have to commit to these sub- sectors, are the following ,:
 Agriculture
 Small scale industries. Indirect financing to the SSI sector include financing
industrial estates, khadi and village industries etc
 Small road and water transport operators, retail trade, small business, and
professional and self- employed persons, State sponsored organization for
Scheduled Caste and Tribes etc
 Education , Housing, pure consumption loans , loans to self- help groups.
 Food and agro- based industry
 Software sector and Venture capital
 others
According to RBI directives, the scheduled banks are required to ensured that
priority sector advances constitute 40% of net bank credit and that a substantial
portion is directed to the weaker sections. Within the overall main lending
target of 40% of net bank credit to the priority sector, 10% of net bank credit
should be delivered to the weaker sections and 1% of previous year‟s total
advances is given under the Differential Rate of Interest ( DRI) schemes.

37. Other Sector:
As we have already discussed, banks have traditionally been providing credit to the
industrial and manufacturing sector. During the past two decades, services sector has
emerged as a significant contributor to the gross domestic product of he nation.
Services sector is therefore an area of tremendous opportunity for banks in India, so
far as lending is concerned.
Thanks to the economic liberalization and growing consumerism in the country,
almost all banks ( including foreign banks) in India have identified personal business
segment as the thrust area for providing credit. Dedicated branches are being opened
for financing consumer durables as well as for consumption by banks.
Retail finance has been identified as the area in which maximum target for credit
deployment is being set by a majority of banks. The core business in the personal
business segment is dominated by housing loans and education loans in which there is
keen competition for grabbing higher market share amongst banks.
LOAN POLICY AND EXPOSURE NORMS :
Banks accept deposit from the general public. The funds mobilized are invested by
the banks in various types of securities, investments, and loans.
The deposits are repaid out of the proceeds of loan, advances and investments made
by them. While dispensing credit, banks have to thoroughly examine the inherent risk
element in a credit proposal.
In order to contain the risk to a manageable level, and also to ensure that the lending
bank does not fall into an asset liability. Mismatch position, RBI has laid down
elaborate guidelines on the maximum ceiling of the loan that can be given to provided
to certain section of borrowers.
RBI has also prescribed that all banks should have an in house loan policy document (
which should be based on the broad guidelines given by RBI).

38. Such loan policy document would contain the ceiling level, the standards of appraisal,
decision making powers at different levels of hierarchy, the documentation standards
and the premise on which lending decision should be taken by credit officers.
The exposure norms prescribed by RBI are given below in brief. An important point
to be noted by the credit officers in this context is that the exposure norms relate to the
exposure at the whole bank level.
Within the overall exposure limit, the individual lending banks may decide on the
limit up to which credit officers can provide credit facilities at the ground / operating
level:
 The exposure ceiling is linked to the capital funds of the lending bank. Capital
funds is the sum total of Tier 1 and Tier 2 capital recognized for the purpose of
computation of capital adequacy.
 With effect from April 1, 2002, the exposure ceiling is 15% of capital funds in
case of single borrower and 40% in the case of a borrower group.
 Exposure to borrowers belonging to a group may exceed the exposure norm of
40% of the bank‟s capital funds by an additional 10% (i.e. up to 50%) ,
provided the additional exposure is on account of extension of credit to all
infrastructure projects.
Lending rates :
Lending in India was in the nature of directed lending till about a decade ago. So were
the lending rates , and banks were expected to offer interest rates for deposits and
charge lending rates against credit in terms of RBI prescription most of the time.
Through out the 1990s , the lending norms were gradually relaxed as a result of the
steps initiated towards financial sector reforms.

39. This also resulted in gradual deregulation of interest rates by RBI . Today, almost
the entire interest scenario is deregulated except loans up to Rs. 2.00 Lakh in priority
sector ( where interest rates are prescribed by RBI)And in the DIR ( differential
interest rates) lendings.
As things stand now , the most important elements of lending rates and the directives
issued by RBI in this direction are given below:
PLR ( Prime Lending Rates) : PLRs are benchmark rates set by the policy
framers of the bank. During the second half of the 1990s, banks were allowed
to set different PLRs for the purpose of pricing loans of various maturities.
Banks in India are now generally pricing their loan products on the basis of
individual benchmarks fixed by them w. e. f. the financial year 2004 – 2005.
Individual banks fix their PLRs after taking into account their actual cost of
funds , operating expenses and a minimum margin to cover regulatory
requirement of provisioning / capital charge besides factoring their profit
margin.
Commercial banks apply interest to the loan accounts on a monthly basis. This
is also a recent development and has been effective from April 2002. This is
popularly known as application of interest on diminishing balance method.
RBI has now given the freedom to banks to offer all categories of loans on fixed
or floating rates. The floating rate credit products are usually priced using their
PLRs or other market benchmarks.
Now banks are offering loans at sub – PLR rates to their creditworthy
borrowers. This has been permitted in view of the prevailing international
practice , integration of the domestic credit dispensation with international
platforms and also to provide operational flexibility to banks in deciding their
lending rates.

40. CREDIT APPAISAL:
In the credit appraisal process, the decision maker makes an attempt to find answer to
two questions. First, whet her the entrepreneur requires fund, and also what are his
credentials. If the answer to the first question is positive, the second question is all
about the extent of his requirement and the ways and means to fund the requirement.
Assessment of credit requirement for enterprises working at a small scale is often
difficult because of lack of data relating to operations of the unit. Often, the promoters
are skilled personnel or artisans without having any knowledge of financial
management or accountancy. Besides, the low level of operations may not allow the
promoter to employ a regular accountant.
A credit appraising officer may not find any profit and loss account or balance sheet
of the borrowing enterprise, on the basis of which he may work out the level of credit
required. In many situations, a credit analyst may have to counsel the borrower , and
even work out the likely profit/ loss and balance sheet on the basis of available
information.
It is therefore necessary that a credit analyst has a good knowledge of accountancy.
RBI has therefore suggested that lending banks may not insist on submission of
audited financial statements up to credit requirements of Rs. 25 lakh from
prospective borrowers.
Beyond this level, lending bankers usually compute the credit requirements after
undertaking a structured analysis of the financial statements of the borrowing
enterprises. The financial management textbooks as well as the internal guidelines of
individual banks prescribe the various methods of undertaking these exercises. The
problem in credit assessment and dispensation , however, lies elsewhere.
The financial statements are mostly prepared from the tax management angle. These
statements may not necessarily be built on the prudential principles of financial
management. Credit analysts therefore face a daunting task of uncovering the mask of
window dressing from the financial statements and undertake the analysis only on the
resultant figures that represent the situation in reality. Thus, besides being a good
accountant, a credit analyst must possess a basic undertaking of the principles of
financial management as well as taxation matters to understand the nuances of
financial engineering.

41. METHODS OF CREDIT APPRAISAL:
Till about, 1990 , bank credit was considered a scarce commodity and therefore there
was a strong focus on the need to optimally use this resource towards creation of
primary assets. In banking parlance , these assets were known as a primary security,
as a primary charge is created in favour of the lending bank on the assets created out
of bank finance. With the gradual liberalization of the Indian economy , co- operative
banks began providing credit to other sectors and also for activities that do not fall
strictly under the manufacturing sector.
As a result, the consumption sector got a big boost and personal banking segment
emerged as a lucrative business proposition for credit delivery. In its turn, a credit
provided to the personal segment also meant a thrust to the industries manufacturing
consumer goods. On the other hand, general services and software sector emerged as
another area to which the label of industrial production may not strictly fit. The
importance of this sector in the Indian economy as a whole has only been increasing
which the co-operative banks cannot afford to ignore.
These developments in the last decade gradually brought in a revolution in the
methods of financing so far followed by co- operative banking. In the monetary policy
of 1997 – 98 , RBI declared the MPBF method as optional and suggested that co-
operative banks may evolve their own rational methods for financing various types of
activities . RBI also suggested cash budget method as a viable option. In fact , cash
budget method of financing has already gained recognition as a suitable method of
financing activities. Where no tangible security can be created or changed in favour
of the bank.
Cash flow based assessment is emerging as the most important method of appraisal
of bank finance, where the lending banks finance a portion of the cash gap or deficit
occurring at any point of time , the remaining portion being met by the promoters as
their margin.

42. INCOME RECOGNITION NORMS:
There has been a sea change in the manner in which Indian co- operative banking has
been dispensing credit during the last decade.
A credit portfolio is recognized as a non- performing asset in books of the bank if the
borrower has not serviced the interest or repayment obligation.
This is regardless of whether the borrowing enterprise is a profit making entity.
Credit appraisal methods are therefore increasingly focusing on the assessment of the
repayment capacity of the borrower , which in turn depends on his cash generating
ability.
Mere assessment of accounting profit is no more the most important criteria of credit
assessment. Today, credit appraisal has emerged as an area which require adequate
domain knowledge on the part of the appraising officer, with a mix of experience
and the ability to see through the maze of financial statements .

43. Fair practices code for lenders:
There have been far reaching changes in the arena of banker - borrower relationship
during the year 2002 and 2003.
The changes relate to both the recovery aspects of the credit provided by the lending
bankers as well as the responsibility of the lending bankers in this regard .
Thus, while the lending banks have been provided with a very strong recover
weapon by means of SARFAESI
Act during the year 2002, RBI has also advised the lending bankers to adopt
the prescribed guidelines regarding Fair Practices code. The important
guidelines prescribed by RBI in this regard have been listed in Annexure no. 2.

44. CREDIT APPAISAL FOR WORKING CAPITAL
MEANING OF WORKING CAPITAL:
The term working capital refers to the current asset holding of an enterprise.
This is also sometimes called the Gross Working Capital. For a manufacturing
enterprise, the average levels of holding of raw material, goods in process,
finished goods , receivables, cash and other current assets together constitute a
working capital . How does it differ from the other forms of capital employed
in a business ? Let us consider a example of a house owner . The house owner
purchases the house and furniture for the purpose of having a comfortable life .
However , merely owning a house and various pieces of furniture is not a
sufficient condition for running the daily chores of the household .
Fixed capital and working capital :
We may therefore broadly classify the funds employed in a business enterprise
into two components viz. fixed capital and working capital .
Fixed capital is invested in fixed assets which enable an enterprise manufacture
goods for sale and earning profit . on the other hand , working capital is
employed in purchasing those items , which are transformed into saleable goods
by the production process .
Working capital refers to the merchandise itself . The difference between the
fixed capital and and working capital may be expressed in another manner .
The assets representing working capital rapidly convert from one form to another in
a short period of time. Thus, cash converts into raw material , raw material converts
into goods in process and finally into finished goods. The finished goods can be sold
in market and in the process is converted back to cash again.
All these forms of current assets constitute working capital . The cash conversion
time in respect of fixed assets may be very high , usually years .

45. T.G. Rose has used the phrase circulating capital to express working capital
movement in his book titled The Internal Finance Of Industrial Undertakings. The
dynamics of circulating capital vis- a- vis infusion of funds , withdrawal of funds and
relatively stationary character of fixed capital is summed up in the diagram below :
First circle is circulating capital
Middle circle is fixed capital
The above diagram captures the movement as well as the magnitude of both the
categories of capital . The fixed capital forms the core of the total funds invested in
business. The circulating capital continuously moves around the nucleus , i.e. core
capital. The diagram indicates that there is a continuous churning of the circulating
capital . If the profit earned and other funds infused in the business are retained and
further ploughed back , the circle dimension grow over a period of time. The
dimensions of the nucleus and the outer circle may also undergo changes , if the firm
acquires new fixed assets or dispose the old ones.

46. Operating cycle concept of working capital:
The operating cycle concept of working capital envisages measurement of the
average time taken by an enterprise in manufacturing the goods and selling them for
cash so that the funds can be deployed for starting another batch of production . The
system completes one cycle when cash is realized out of the sale proceeds of finished
goods from the receivable / debtors .
Working capital has different components , the most important being the raw material
. Manufacturing enterprises ensure that there always remain a minimum level of stock
of raw material , which takes care of any abrupt discontinuity in supply. The raw
material is then pressed into production . The processing time largely depends on the
nature and specification of the final product .
Again , because the process of delivery takes some time , the enterprise may have to
ensure that a minimum level of finished goods always remains available. This would
take care of any sudden influx of order that may have to be supplied immediately .
Finally , though the products have been delivered according to schedule , not all the
supplies are paid for immediately . A portion of sale proceeds may remain locked for
sometime in the form of receivables. The receivables holding period is the time
allowed by manufacturer / supplier of the finished products to its customers for
making payments. The receivables are realized by the enterprise on expiry of the
credit period allowed by it .
Thus, every rupee invested in current assets at the beginning of the cycle comes back
to the promoter with the profit element added , after a lapse of a specific period of
time . This length of time is popularly known as the operating cycle or the working
capital cycle. The cycle may be diagrammatically represented in the following
manner :

47. Cash
Raw
Receivables
material
Finished Goods in
goods process

48. Measuring operating cycle :
The operating capital concept raises a fundamental issue – how to measure this time ?
It is not possible to physically track every element of raw material pressed into
production , and observe its movement across every stage of processing through the
final production . When it comes out in the shape of finished goods. The operating
cycle is therefore measured in terms of days of average inventory held for every major
category of working capital component. The holding ratios play a very important role
at this stage. The holding periods of the individual WC components are computed in
the manner on analysis of financial statements. The aggregate of all these holding
periods represents the length of the operating cycle.
The following diagram makes the point clear :
processing
starts
rec realised
RM processing
purchaed end
FG sold

49. Working capital policy :
The working capital management policy of an enterprise is inextricably linked to its
approach towards current asset funding . From the point of view of currency, the
assets of an enterprise may be broadly divided into two categories i.e. current and non
– current assets . The capital assets are funded by long term sources of finance ,
generally in a combination of long term loans from banks / DFI s and a margin
contributed by the promoters. On the other hand , current assets may further be
classified into two components ( I ) a core component and ( ii) a fluctuating
component.
A manufacturing enterprise has to maintain a minimum level of inventory at any
point of time in order to run the production at specified level . Fall of inventory below
this level may trigger a discontinuity in production and the required synchronization
between the various stages of production may get lost. We may call this minimum
level of current assets as the permanent or core current asset level.
The fluctuating current assets refer to the portion above this level that undergoes a
change continually on account of changes in demand , seasonality of product etc .
during the various period of the year.

50. LENDING AGAINST WORKING CAPITAL
REQUIREMENT (PRE- NATIONALISATION
SCENARIO) :
During the pre- nationalization period, lending operation of co- operative banks in
India was largely confined to funding credit requirement of individual companies
engaged mainly in agro – based industries / activities such as jute , sugar , textile etc.
The lending covenants were almost always governed by the security provided by the
borrowers , both primary and collateral. Besides, as the industrial activity of the
country was largely agro based, large swings in the operations on account of seasonal
fluctuations in a business year were common occurrences. This led to large seasonal
variations in the demand for bank credit as well.
In fact, availability of bank credit was not necessarily a function of the level of
production or operation , as it is today . The lending bankers followed a security –
centric approach in credit dispensation.
The establishment of new industries and introduction of new technologies in the post-
independence period brought about a change in the outlook of commercial lending by
banks in India . The working capital requirement of many new generation industries
were uniform throughout the year , the demand for credit was at a higher level and
agricultural inputs were not necessarily required for many products .
Co-operative banks adopted an operating cycle approach towards working capital
related lending operations , where the requirement was determined in terms of
holding periods of individual current asset components . for example , raw material
holding would be in terms of „X „ months of consumption and so on . The sum total
of the current assets would then be netted against other sources of funding such as
trade credit received etc.
The balance amount represented the working capital requirement against which bank
credit was provided. The lending banker would then determine the extent to which the
above gap should be funded after considering the margin available against individual
components. The borrowing company would have to fund the residual amount, by
infusing fresh capital or by mobilizing funds from other sources .
Co- operative banks in India were thus already in search of a logical and rational
system of lending for working capital purposes during the initial years of the post
independence period . In the late sixties , Dehejia Committee made an observation
that the ratio of bank credit to inventory had grown rather disproportionately . Also,

51. the growth in the quantum of bank credit extended far exceeds the value of the
output of industrial production . These two observations indicated that bank credit
was perhaps not being used for the purpose of production alone .
Indications were quite strong that the increased bank credit was used for hoarding
essential commodities for the purpose of making undue profits. In order to rectify
the situation , Dehejia Committee made a few strong recommendations . one of the
recommendations was to use funds flow analysis for ascertaining the sources and
end use of funds . In order to contain the rapid and disproportionate growth of credit ,
RBI took certain stringent measures in 1973 which resulted in Credit Squeeze in the
lending scenario of India .
Finally, RBI appointed a committee in 1974 under the chairmanship of Shri P.L.
Tondon , the then chairman and managing director of Punjab National Bank . The
main agenda before the committee was to examine the various patterns and
methods of financing working capital requirement adopted by banks in India and
to suggest necessary changes in these methods , which would ensure judicious
allocation of bank credit . Bank credit was scarce and RBI wanted to ensure that
there should at least be a need based distribution of credit amongst the
borrowing community or a credit rationing system , if possible .

52. Working capital requirement up to Rs.1 crore:
Following are the requirement for working capital up to Rs. 1 crore.
 The assessment of working capital requirement of borrowers , other than SSI
units , requiring fund based working capital limits up to Rs.1 crore and SSI
units requiring fund based working capital limits up to Rs 5.oo crore from the
banking system may be made on basis of their projected annual.
 In accordance with these guidelines , working capital requirement is to be
assessed at 25% of the projected turnover to be shared between the borrower
and the bank viz. borrower contributing 5% of the turnover as net working
capital and bank providing finance at a minimum of 20 % of the turn over .
 The banks may carry out the assessment based on projected turnover basis or
the traditional method. If the requirement based on traditional production /
processing cycle is higher than the one assessed on projected turn over basis ,
the same may be sanctioned , as borrower must be financed up to the extent of
minimum 20 percent of their projected annual turnover .
 The bank may satisfy themselves about the reasonableness of the projected
annual turnover of the applicants , both for new as well as existing units, on the
basis of annual statements of account or any other documents such as return
filed with sales- tax / revenue authorities and also ensure that the estimated
growth during the year is realistic.
 The borrowers would be required to bring in 5 % of their annual turnover as
margin money. In cases, where out put exceeds the projections or where the
initial assessment of working capital is found inadequate , suitable
enhancement in the working capital limits should be considered by the
competent authority as and when deemed necessary.
 Drawals against the limits should be allowed against the usual safeguards so as
to ensure that the same are used for the purpose intended. Banks will have to

53. ensure regular and timely submission of monthly statements of stocks ,
receivables , etc. by the borrowers and also periodical verification of such
statements by their officials.

54. Working capital requirements above Rs. 1 Crore:
Method of Assessment :
 The revised guidelines in respect of borrowers of other than SSI units ,
requiring working capital limits above Rs. 1 crore and for SSI units requiring
fund based working capital limits above Rs. 5 crore from the banking system
bestow greater level of flexibility to the primary Co- operative banks in their
day to- day operations without diluting the prudential norms for lending as
prescribed by RBI.
 The earlier prescription regarding Maximum Permissible Bank Finance ( MPBF
) , based on a minimum current ratio of 1.33 :1, recommended by Tondon
Working Group has been withdrawn. Banks are now free to decide on the
minimum current ratio and determine the working capital requirement
according to their perception of the borrowers and their credit needs.
 Banks may evolve an appropriate system for assessing the capital credit needs
of borrowers whose requirement are above Rs. 1 crore . Banks may adopt any
of the under noted methods for arriving at the working capital requirement of
such borrower .
a) The turnover method , as prevalent for small borrowers may be used as a
tool of assessment for this segment as well ,
b) Since major corporates have adopted cash budgeting as a tool of funds
management , banks may follow cash budget system for assessing working
capital finance in respect of large borrowers.
c) The banks may even retain the concept of the MPBF with
necessary modification.

55. Tondon committee on Financing Working Capital
requirements :
The Tondon Committee examined the different aspects of prevalent bank lending
practices during the period and suggested implementation of some far reaching steps
that would streamline and rationalize the process of credit dispensation process by
the banks in India.
The important suggestions are given below :
 Assessment of the credit requirements of the borrowers should be directly
related to the level of operations and activity of the borrowing enterprise . This
envisaged distinct shift from the security- centric approach of lending to a
production- oriented approach of lending in future.
 The promoters must bring in a minimum amount of margin out of total
working capital requirement of the unit . Banks should finance only the residual
portion of working capital requirement as bank credit should be viewed only as
a supplementary source of finance .
 The committee prescribed standard norms for holding raw material , stock in
process , finished goods , consumables and receivables etc . for different
industries. This would ensure a level of homogeneity is assessment of working
capital requirements of similar industries . The holding levels of individual
component of working capital therefore could no longer be fixed arbitrarily.
This measure would effectively reduce the scope for arbitrarily setting the level
of bank credit for working capital purposes without having any linkage with
the level of production of the borrowing enterprise.
 The committee also felt that it was necessary to standardize the different
methods practiced by bank for computing the levels of bank credit for working
capital requirements . The committee prescribed 3 methods for computation of
MPBF in this regard.

56.  Depending on holding level of the individual component of working capital,
the total amount of bank credit computed in accordance with the MPBF
prescription would be bifurcated into different components of credit. Delivery
of different components of credit would also confirm to specific prescription
pertaining to that working capital component, if anualy. The committee also
suggested methods to follow up the bank credit after delivery to verify whether
actual levels of production and utilization of bank credit were closed to the
initially projected levels on the basis of which assessments were done .
We elaborate further the specific suggestion made by the committee in context
of financing of working capital requirement made by The Committee.

57. Inventories and Norms:
While prescribing holding norms for the different components of working capital,
the Committee classified the inventory in to the following categories:
Normal inventory :
Normal inventory is the level of inventory carried by an enterprise required to
maintain a normal production schedules. A normal level of inventory sustains the
production as initially planned . It also includes the cushion level or safety level of
inventory designed to take care of contingent situations .
Flabby inventory :
Inventory in excess of the normal level resulting on account of poor working
capital management or inefficient distribution was identified as flabby inventory
by the committee.
Profit making inventory :
Inventory held by a unit for a realization of stock profit is a profit making
inventory . Hording of essential commodities was a common phenomenon during
the relevant period , which is a example of profit making inventory .
Safety inventory :
A safety inventory level is built up to meet unexpected short fall in supply of basic
material or to take care of a sudden spurt of demand .
The committee treated build – up of safety inventory as a mode of insurance cover
.
Excessive inventory :
The committee also recognized that some time an enterprise may have to build an
inventory level much in excess of normal level . excessive inventory may built if
the enterprise imports and stocks a large quantity of material require for

58. production . Excessive inventory built up may also occur as a result of
governmental control on sale of a commodity. Sugar is an example were the sale
of which is subject to government control. Build up of excessive inventory is
common occurrence in sugar manufacturing unit which may not necessarily be on
account of inefficient working capital management policy followed by the
enterprise.
The committee made the recommendations in very clear terms . It suggested that
flabby and profit making inventories should not be financed by banks . Further ,
borrowing enterprise have to make a constant and endeavours to bring down the
flabby or otherwise excessive inventory to the normal inventory level by
employing prudent inventory management techniques. The committee summed up
its recommendations in respect of financing inventory by banks in following words
“ carrying inventory in excess of normal inventory which includes reasonable
factor of safety , is but an avoidable luxury, which the banker should not encourage
“
The committee also felt that a level of receivables which is not in tune with the
past trend of the enterprise and also with the general industry practices, should not
be financed by a banker.
Inventory norms :
The committee identified the following as the main component of working capital of
a manufacturing enterprise :
 Raw material including stores and other items used in the manufacturing
process
 Stock in process
 Finished goods
 Receivables and
 Spares
Holding periods in respect of different components of working capital are expressed
in months . Where as raw material holding period is expressed in terms of months of
consumption. Holding period of stocks in process is expressed in terms of months of
cost of production . for example, if cost of production per annum is Rs.120 lakh and
stocks in process holding is worth Rs. 5 lakh, the holding period of SIP is one half of

59. a month . On the other hand , the holding period of finished goods is expressed in
terms of months of cost of sale ( i.e. cost of production + change in stock of finished
goods ) . Finally, holding period of receivables is expressed in terms of months of
sales. Receivable arising out of export sales or deferred payments sale etc. were not
included while working out the holding level for receivables . No specific norms were
prescribed by the committee for holding period of spares . This is in view of the fact
that the value of spares is generally in significant compare to that of other component
of inventory. However , the value of spare is not expected to exceed 5% of the total
inventory . The committee is expected that lending banks should enquire into the
reasons if the holding level of spares exceeds this level or is inconsistent with the past
trend of the enterprise in this regard .
The Tondon committee had initially prescribed holding norms for fifteen industry
group. It was also prescribed that these norms should be reviewed on a periodical
basis and modified , if necessary . As, suggested , such reviews were undertaken
several times subsequently and norms revised in respect of a no. of industry groups.
Besides, norms for new industry group were also prescribed from time to time .
Compliance with these norms by the lending banks was mandatory. In its Monetary
and Credit Policy of 1997- 98 , RBI declared these compliance norms optional .
Banks were now free to set their own bench marks on holding norms on the basis of
their own data base or industry wise databases accepted and recognized by them .
Nevertheless , the holding norms prescribed by the Tondon Committee are still
recognized as important sources both for the purpose of reference and assessment by
the banks engaged in lending against working capital requirements. A list of the
holding norms of the various industry groups is annexed . Salient features of the
holding norm prescriptions of Tondon Committee are summarized below :
 Holding norms prescribed by committee were not static in nature. The
norms were subjected to review periodically.
 Separate holding norms were prescribed for same product for different
geographical locations whenever warranted .

60.  For the purpose of prescribing holding norms , finished goods and
receivables were taken together , and a composite holding norm
suggested .
 Holding norms prescribed for a particular industry is the ceiling level and
these should not be treated as rights or entitlements .
 The norms indicate the average level of the inventory holding for a class
of current assets , and not necessarily for any sub – components of such
current assets.
 The committee recognized the need to allow deviations from the
prescribed norms in certain deserving situations.
Tandon Committee prescription for assessment for
assessment of working capital credit requirement :
Tandon Committee made an observation that a banker‟s role as a working capital
lender should be to supplement the resources already available to the borrower in
carrying a reasonable level of current asset in relation to his production requirements .
Such resources may in the form of promoters‟ margin or other liabilities e.g. trade
credit made available by suppliers of materials etc .
The Committee recognized that the other current liabilities are very important
sources for funding the on going working capital requirements and these should be
used diligently before availing bank credit as a source of last resort which should be
taped only after all the internal and external sources of funding working capital
requirements at the disposal of the enterprise were exhausted .
The role of NWC as the promoters‟ margin towards working capital requirements
was firmly established in the process . In view of the above observations , the
committee prescribed three alternative methods of computation of MPBF. All the
three methods recognized that the banks would lend only a portion of the WCG ,
which is the value of the acceptable level of current assets after netting of f the other
sources of funding WC requirements.
The other sources of funding were represented by all the current liabilities except bank
borrowing for working capital .In other words, current assets would be funded first by

61. raising the other current liabilities . The residual portion of current asset in working
capital gap which would be part financed by the lending banks.
 First Method :
In the first method of computation of MPBF , the margin contribution of the
borrowing enterprise would be at a minimum level of 25% of the WCG . Such
margin is contributed by the NWC of the enterprise . In the first method of
computation , the NWC of the enterprise would be at a minimum level of 25 % of
WCG . A bank may lend a maximum amount of 75 % of the WCG.
 Second Method :
The second method provides a more stringent prescription , where the enterprise has
to meet a minimum margin requirement of 25% of the current assets ( as against 25%
of WCG stipulated in the first method ) .
WCG is always lower than the level of current assets , and therefore , the margin
requirement in the second method is always higher than that stipulated in the first
method . The MPBF is worked out by subtracting the stipulated amount of margin
from the WCG.
Third Method :
As discussed earlier , the committee recognized that there always exists a core element
in the working capital requirement of an enterprise . This core element is the
permanent level of current assets maintained by an enterprise so long it remains a
going concern . This level of asset was termed as the core current asset ( CCA) by the
committee . This is an idea very close to concept of minimum level of inventory
maintained by enterprise to ensure uninterrupted production . The third method of
lending prescribes that the borrowing enterprise should have the financial strength to
fund the entire core current assets on its own ( or from long term surplus ).
In addition , the promoters have to bring in a minimum margin to the extent of 25%
to the remaining portion of the current assets . In this method , therefore , MPBF is the
residual portion of WCG after subtracting the CCA and margin component ,
calculated in the above method .

62. The third method is the most stringent of the all three methods prescribed by the
committee . Though recognition of core current asset was a very bold and realistic
step and the prescribed method of financing working capital requirement was perhaps
an answer to address the problem of allocation of scarce bank funds during the
relevant period , the third method was not accepted by RBI for the purpose of
implementation . RBI accepted the lending prescription as per the first and second
methods for implementation of lending banks . to start with , it was suggested the
bank credit for working capital requirements would be computed using first method
for limits of Rs. 10 lakh and above up to Rs.50 lakh . The method of computation
would then be replaced by second method during the subsequent year .
The three methods of computing MPBF are summarized in the table below :
First method MPBF = ( CA – OCL ) – 25% of ( CA- OCL)
Second method MPBF = ( CA- OCL ) – 25% of CA
Third method MPBF = ( CA- OCL ) – CCA - 25 % of ( CA- OCL)
Comments and Observation :
1. The enterprise has made short term borrowing fro the banking system in excess
of MPBF , though the amount of excess borrowing varies with the method of
computation of MPBF. The excess borrowing is at the highest level when the
third method is employed for computing MPBF.
2. The impact of selecting a particular method of computation of MPBF on the
Current Ratio is discernible . In the first method , the extent of margin that the
enterprise has to mobilize from its long term surplus depends on its ability to
tap the other short term sources of finance .
3. On the other hand , the second method envisages a minimum current ratio of
1.33 . A transition from the first method to the second method therefore always
puts pressure on the enterprise to bring in more margin from long term surplus
/ other long term sources .

63. 4. Theoretically, the minimum current ratio in respect of the 3rd method also
stands at 1.33 . However , a business enterprise has always maintain a certain
level of core current asset .
A lending bank may continue to follow these methods or evolve other methods for
working capital lending. The alternative methods suggested by RBI included cash
budget method, which has been discussed in detail .
Holding period method of assessment of working capital :
Banks have traditionally been assessing working capital credit requirements on the
basis of holding period of the components of chargeable current assets i.e. raw
material , stocks in process, finished goods etc. The holding period method of
assessment follows the operating cycle concept of working capital.
The working capital requirement and compute the permissible level of bank credit of
an enterprise by this method in the following manner :
 To start with , the assessing officer firms up the projection for sales, the
important cost element related to production and weighs such projections
against benchmark set by lending bank, if any. For existing units, validation of
projected figures may be done by undertaking a trend analysis of sales, the
various expenses and holding and other ratios over a period of time . For new
enterprises , validation of the projections may be done on the basis of his own
experience and the industry average figures for such activity .
 The holding period method of assessment of working capital requirements
generally adopts a simplified approach towards recognition of the various
elements of cost. In this method, the assessing officer usually adds all the
expenses with the cost of raw materials and consumables .
 The amount of working capital required for holding the different components
of current assets are then worked out on the basis of the prospective holding
periods as projected and validated above.
 In addition , some lending bankers prefer to include the amount of expenses for
reasonable period in the amount of working capital required. This is generally

64. applied in case of small units in order to provide an extra cushion while
computing the working capital requirement .
 The individual margin requirement against working capital requirement against
working capital requirements for holding various component of current asset
are computed using the specified rates .
 The amount mobilized from the other sources of financing current assets are
now subtracted from the aggregate of the individual current asset holdings.
The other sources of financing current assets are :
 Actual NWC available in the business .
 Amount of trade credit allowed by the suppliers
 Advance payment received from customers against future supplies to be
made by the enterprise .
The permissible amount of bank finance is lower of the following :
 Total of the net working capital credits limits calculated as per step four and
 The aggregate of the working capital limit as reduced by the other available
sources of finance , as worked out .
Working capital assessment for small loans :
Small business, retailer , village and tiny industries in the SSI sector form an
important business segment for co-operative banks . Thus, providing timely
assistance to these small entrepreneurs is also equally important for lending banks. A
timely and adequate level of bank credit helps generate employment in this sector .
Besides , co-operative banks in India are given specific targets for lending to this
segment of priority sector by the Government and RBI. This is a weak and vulnerable
sector where the units may become non-performing even if there are temporary
mismatches in their cash flows. In t view of this , it is important that assessment and
delivery of working capital credit facilities for such units are done on realistic
parameters and also that the monitoring of credit facilities are done on a regular basis.

65. This is possible if the characteristic feature of the small enterprise are understood
properly. The most important features of such units are the following :
 They usually do not maintain proper books of account.
 A full scale application of holding norms for the purpose of assessing working
capital credit limits in these situations may not be necessary in practice.
 Monitoring the withdrawal of funds and the position of outstanding balance in
these small loan accounts against a permitted level of drawing power may not
always be a practicable proposition in respect of small loan.
 Small entrepreneurs tend to divert the amount of credit provided for business
needs towards consumption needs at the slightest provocation.
A simple method of SSI of their WC credit needs :
 Work out an estimate of sales and the corresponding production related item -
wise expenses per month.
 The average holding period of important items viz . raw material , semi
finished goods, may be assessed by credit officer on the basis of his experience
in dealing with similar kind of activity.
 If the operating cycle is estimated in months , the product of the OC and the
total expenses per month may be considered as the gross working capital .

66. Financing working capital requirements of Trading Enterprises :
Trading enterprises include wholesale dealers and retail outlets of consumer goods tat
require a substantial amount of working capital . During the pre- liberalization years,
lending for working capital to traders did not rank high in the priority list of
commercial banks . The scenario is changing fast. Not only the sector has attracted a
higher level of bank lending during the recent year, co-operative banks are also
competing with each other to have a higher market share in bank credit in this sector
of economy .
Characteristic feature of Trading Enterprise :
 Trading is a traditional business activity , usually carried on by a family.
 In India, trading activity is carried on mostly by HUF‟s , partnerships, and
proprietorship concerns.
 In case of established trading units , a major portion of the working capital
requirement is usually met by trade credit made available by supplier , are very
common .
 Trading units generally have low NWC and profit figures both in absolute and
percentage terms .
 Usually , trading enterprise offer significant amount of collateral securities ,
often in the form of immovable properties.
 The asset side of the balance sheet of trading enterprise characteristically
merchandise , receivables, and current assets as the as the main items.
 On the liability side of the balance sheet , trading units usually carry a small
amount of capital. This is sometime associated with high level of trade credit s
and unsecured loans, the latter often made available by friends and relatives of
promoter (s).

67. Assessment of working capital requirement of trading units :
The trading enterprise s have a higher asset turn over ratio compared to that in respect
of enterprises in the manufacturing segment. A low level of bank credit provided for
working capital purposes to a trading unit may therefore support a comparatively high
turn over of sales.
It is not unusual for an inland trading unit to register an annual sale turnover in the
range of Rs. 2 crore – Rs. 10 crore or perhaps even beyond , on the strength of a
working capital credit limit of 50 lakh provided by banks .
The level of the turn over depends to a large extent of the commodity traded in .
Banks usually employ the traditional holding method for assessing working capital
credit requirement of trading enterprises . However, many banks , follow the method
prescribed by Tandon committee , especially when credit limits are high , say Rs. 25
lakh and above .
Margin requirements :
The skill of credit analyst does not lie in working capital out the permissible amount
of finance against an acceptable level of holding of current assets . This is a simple
arithmetical process, and very often the projection are made very close to the
permissible level of bank finance .
The real test of a quantitative appraisal of bank credit lies in validating the the
propriety of the margin requirement and whether the available sources of finance and
also the financial statements indicate that the amount of margin required can actually
mobilized .
The assumption in funding the margin required in respect of trading units may often
go wrong . Most commonly, the margin – deficit situations are explained by making
statements that the margin requirement would be funded by way of the existing
NWC in the business , plough back of profit / cash accrual etc.
If there still sources is commonly proposed .Quite often , the projected financial
statement do not corroborate these proposition . As a result , assessment of working
capital requirement largely reduces to a theoretical exercise.

68. System of credit delivery by Banks :
The banks lend the credit in following ways :
 Cash credit system .
 Working capital Demand loan ( WCDL ) system
 Consortium system of credit delivery
 Multiple Banking system
 Syndication of credit
 Commercial paper

69.  Cash credit system :
Bank in India have traditionally been using the cash credit system for delivery of bank
credit for working capital purposes . The system is quite popular and several reasons
are attributed to its popularity.
The cash credit system of credit delivery dominates the scenario of credit dispensation
by banks . A recent survey has shown that despite the various modes of bank
credit introduced by banks in India , the amount of credit delivered by way of cash
credit is reigning at level of 46 %.
Cash credit system of credit delivery poses some real operational problem for the
lending banks at the apex management level as well.
 Working capital Demand Loan system :
RBI had introduced the Loan system of delivery of bank credit in April 1995. The
loan system is commonly known as the WCDL system of lending. It was implemented
in phases proportion of borrowing accounts in the Indian banking system . Presently ,
the WCDL system is applicable to borrowers enjoying working capital credit limits of
Rs. 10 crore and above from the banking system . The loan system envisages that a
larger portion of WC credit provided by the banks should be in the form of a loan
repayable over a period of time. The remaining portion can be provided by way of
cash credit .

70. Consortium system of credit delivery :
In the pre nationalization period , the Indian banks practiced a crude form of multiple
banking relating to credit delivery . The system was not bound by any laid down code
of conduct or regulation . The nature and amount of security offered was very
important factor in the decision making process of banks . the beneficiaries of bank
credit were generally a big industrial and business houses. It was felt that this system
of indisciplined lending was likely to adversely affect the health of the lending banks
.It was therefore necessary to regulate this system of lending prevalent in the Indian
banking system and also to frame and implement a proper system of risk sharing
amongst banks.
Multiple Banking System :
In the monetary policy, of 1997- 98 , the RBI declared that borrowing enterprise
might also use multiple banking routes for availing working capital credit
requirement . However , no concrete set of guidelines regarding the use of this
new platform for delivery of credit has yet been issued by RBI or any other
regulatory authority. This has resulted in a certain degree of heterogeneity and
indiscipline in credit delivery by lending banks through the multiple banking
channel . companies with slack financial principles and governance may exploit
the situation in a manner that may be determined to the interest of lending
banks .
Syndication of credit
Syndication of credit is another mode of risk sharing and credit participation by a
group of lending bankers . This is a preferred mode of credit delivery especially when
the amount of credit is large in nature. In the monetary policy of 1997 – 98 , RBI had
indicated that bank might opt for syndication mode of lending in lieu of the
consortium route . Syndication of credit for providing working capital credit
requirement has not yet gained ground in India.

71. Commercial paper
Commercial paper has emerged as popular instrument for financing working
capital requirement of corporate borrowers of banks . Commercial Paper is an
unsecured money market instrument issued in the form of a promissory note
.This instrument was introduced in India in 1990 so as to enable the highly
rated corporate borrowers of banks to diversify their sources of borrowing.
ANALYSIS OF OPENING WORKING CAPITAL :
When a business enterprise approaches a bank for providing certain credit facilities ,
a enterprise is required to submit the important financial statements and any further
information relating to its activity, as required by lending bank. The lender undertakes
an analysis of above statements before he takes a decision on the credit proposal.
Analysis of profit and loss and balance sheet :
The following methods are applied for analysis of the statement :
For analysis of profit and loss statement
 Percent of sales method
 Incremental sales method
 Time series analysis
For analysis of balance sheet
 Percentage balance sheet method
 Trend percentage
 Ratio analysis
 Fund flow analysis
 Cash flow analysis
Analysis of operating ( profit & loss) statement by percent of sales method :
In this method the individual cost component are expressed as percentage of net
sales during the year.
Analysis of operating statement by incremental sales method :
The management of the enterprise has made endeavors to neutralize the impact of
increasing cost of consumption of raw material by ensuring that other inputs and
factor of production are made cost effective in best possible manner.

72. Analysis of balance sheet by ratios:
The balance sheet ratios are :
Liquidity ratio :
It used in considering in working capital.
Current ratio :
This is done by comparing the short term assets of enterprise with its short term
liabilities .
Current ratio = current assets
Current liabilities
Quick ratio :
It measure degree of liquidity of an enterprise may be gauged by weighing the liquid
component of current asset and CL.
Quick ratio = Current assets – Inventory
Current liability
Holding ratios :
Bankers attach a great degree of importance of these ratios .
a) Raw material holding = stock of raw material x 365
Annual consumption of raw material
b) Stock in process stock in process level x 365
Cost of production
c) Finished goods holding = finished goods level x 365
Cost of sales
d) Receivable holding level = BR level x 365
e) trade creditors level = trade credit level x 365
annul purchase
f) advances paid to suppliers = advances to future supplies x 365
annual purchase
g) advances received against future sale = advance received againstle s x 365/ annual gross sale

73. To know credit appraisal to working capital. I take the one trading company
and try to know how bank lend the credit to that trading company. Its name is
KIRAN TRADERS. And its balance sheet as follows:
Profit and loss account for marh 31 - 2008
Sale 22360
Purchase cost of material sold 21070
Other expenses ( including interest ) 1065
Depreciation 18
Profit before Tax 207
Tax 51
Drawing 48
Retained profit 108
Balance sheet particulars
particulars 2007 2008 particulars 2007 2008
Capital 104 212 Fixed 91 85
assets(net)
Unsecured 996 1176 Stock 1535 2634
loan (quasi (merchandised)
equity)
Unsecured 816 874 Advance to 787 1590
loan ( CL) suppliers
Bank 1257 1950 Receivables 2045 2516
borrowing
Trade 1809 2860 Advance tax 28 51
credit
Statutory 44 Other current 254 63
liability assets
Other 26 10 Cash/ bank 312 143
current
liabilities
Total 5052 7082 Total 5052 7082
The enterprise has purchased fixed assets worth Rs. 12000 during 2008.

74. Important holding ratios are :
Particular 2007 2008
Stock 1.27 1.5
Receivable 1.57 1.35
Advances to suppliers 0.63 0.86
Trade credit 1.44 1
Calculation of ratios :
a) Stock in process holding = stock in process level * 365
Cost of production
b) Receivable holding level = Bills receivable level * 365
Annual purchase
c) Advances to suppler = Advances paid against * 365
future supplies
______________________________
Annual purchase
d) Trade creditors holding = trade creditos level * 365
Level Annual purchase