project report on working capital management kodak

SUMMER TRAINING REPORT SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF POST GRADUATE DEGREE IN

INTERNATIONAL BUSINESS

WORKING CAPITAL MANAGEMENT

OnKotak Mahindra Group

INDUSTRY GUIDE FACULTY GUIDE

AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDA

AMITY UNIVERSITY – UTTAR PRADESH

AMITY INTERNATIONAL BUSINESS SCHOOL 1

http://www.oldmutual.com/userimages/Kotak-Life-250.jpg

TABLE OF CONTENTS

Chapter No. Subject Page No.

Ch No.1 Executive Summary…………………. 6Ch No.2 Research Methodology……………… 7 2.1 Primary Objective(s)…………. 2.2 Hypothesis…………………… 2.3 Research Design……………… 2.4 Sample Design……………….. 2.5 Scope of the Study……………. 2.6 Limitations…………………….Ch No.3 Critical Review of Literature……….. 9Ch No.4 Company Profile ……………………. 18Ch No.5 Industry Profile……………….. 21Ch No.6 SWOT Analysis…………………. 45Ch No.7 Data………………………………….. 46 7.1 Collection……………………… 7.2 Primary Data…………………… 7.3 Secondary Data….……………..Ch No.8 Working Capital- Overall View……… 53Ch No.9 Findings & Analysis…………………. 100Ch No.10 Recommendations…………………… 112Ch No.11 Bibliography…………………………. 114Ch No.12 Annexure…………………………….. 115 12.1 Tables…………………………. 12.2 Graphs…………………………Ch No.13 Case Study...…..................................... 117 Ch No.14 Synopsis of the Project………………. 122



CH NO.1: EXECUTIVE SUMMARY

The Indian Life Insurance Company has seen a remarkable shift since the time of

establishment of the first company, Oriental Life Insurance Company in 1823. At the

time of Independence and thereafter, there were more than 200 companies operating in India

and not all of them on sound ethical principles. Many factors combined together to prompt

the then Government to nationalize the life insurance industry in 1956 to form the Life

Insurance Corporation of India.

Insurance sector was once a monopoly, with LIC as the only company, a public sector

enterprise. But nowadays the market opened up and there are many private players

competing in the market. There are thirteen private life insurance companies who has

entered the industry.

The study in the first part gives detail information on the on-job training provided the

competitive analysis of product of Kotak Mahindra Old Mutual Life Insurance Ltd. with

ICICI Prudential Life Insurance. Also, analysis of financial statements.

In the second part, is a project on “How does the Indian mutual fund industry compare vis -

a - vis global standards and what should be our future expectations from it?”

The paper begins by analyzing the current scenario in the industry characterized by

problems with distribution, low investor awareness and concentration of corporate

investors. In the next section, a comparison of the Mutual Fund Industry with global

standards reveals that the industry still compares unfavorably with developed countries in

terms of penetration, investor awareness and diversity of products and the extent of use of

risk management techniques. Further comparison reveals that the attitude of regulator

towards investor protection and the governance of mutual funds are at par with global

standards. The paper then analysis the future expectations from the mutual fund industry

in terms of increased investor awareness, product diversity and improvement in

penetration and distribution. In the end I recommend certain steps that SEBI and AMCs

should take in order to build investor confidence and trust.



CH NO. 2: RESEARCH METHODOLOGY

Primary Objective(s)

The Basic objective of cash management is two fold:

To meet the cash disbursement needs (payment schedule);

To minimize funds committed to cash balances.

These are conflicting and mutually contradictory and the task of cash management is

to reconcile them.

Hypothesis:

1. Customers have basis of preference in selection of the final Kotak Mahindra Old

Mutual Life Insurance

2. The choice of the Kotak Mahindra Old Mutual Life Insurance might have an

effect either of the personal preference or the country of origin

3. The final decision is based on prior experience

Sample Size:

The size of the sample was around 70 people considering the time constraint.

Research Design:

Data Collection: Data has been collected through both primary and secondary approach.

Data Sources

The research involved gathering Secondary data as well as Primary data. For the purpose

two types of survey was conducted by me to collect the data -

Customer survey and

Consumer survey

Primary Data

Consumer survey was done to know their purchasing behaviour because they are the one

who constitute the market and are the target of the business . In Insurance Industry untill

and unless we have the knowledge of the consumer behaviour and factor which influence

them to buy a paticular brand ,companies cannot focus upon the target market. Hence a

consumer survey was done to know their wants, purchasing power, and buying habits in



order to segment the market , and based on this consumer profile was identified.

Secondary Data

Secondary data regarding sales figures, promotional expenses and other related expenses

was collected from the company’s own record to analyse the impact on sales due to the

running schemes and make cost benefit analysis.

Scope of the Study

Both primary and Secondary data has been be used for the study. Primary data was

collected through direct interaction with the company’s finance and accounts department.

If needed schedule/questionnaires would be devised to get the information on all the

relevant areas of the study such as receivable management, inventory management,

management of cash etc.

And I collected the data from the secondary sources comprising Annual Reports of the

firm, other journals and peridocials.

Apart from the conducting this research work on the basis of these informations, various

techniques of financial management e.g., comparative statement, trend analysis and ratio

analysis etc. were used in the present study. To present a broad view so far the purpose of

the analysis and to make it easy to understand the problem/concept of a few graphs and

tables shall also be presented. In each chapter, the analysis has been compared with actual

management practices of the company under study.

Limitation of the Study

The present study is limited to one Co., i.e. Kotak Mahindra Life Insurance Ltd., and

covers a period from 2005 and 2006 due to limitation of time and accessibility to data

base.

The authenticity of the suggestions and recommendations depend upon the rationality

of the data provided to me.

Have to rely upon the data supplied.

Executives are not ready to part with the information beyond a limit.



CH NO. 3: CRITICAL REVIEW OF LITERATURE

WORKING CAPITAL - OVERALL VIEW

Working Capital management is the management of assets that are current in nature.

Current assets, by accounting definition are the assets normally converted in to cash in a

period of one year. Hence working capital management can be considered as the

management of cash, market securities receivable, inventories and current liabilities. In

fact, the management of current assets is similar to that of fixed assets the sense that is

both in cases the firm analyses their effect on its profitability and risk factors, hence they

differ on three major aspects:

1. In managing fixed assets, time is an important factor discounting and

compounding aspects of time play an important role in capital budgeting and a

minor part in the management of current assets.

2. The large holdings of current assets, especially cash, may strengthen the firm’s

liquidity position, but is bound to reduce profitability of the firm as ideal car yield

nothing.

3. The level of fixed assets as well as current assets depends upon the expected

sales, but it is only current assets that add fluctuation in the short run to a

business.

To understand working capital better we should have basic knowledge about the various

aspects of working capital. To start with, there are two concepts of working capital:

Gross Working Capital

Net working Capital

Gross Working Capital: Gross working capital, which is also simply known as working

capital, refers to the firm’s investment in current assets: Another aspect of gross working

capital points out the need of arranging funds to finance the current assets. The gross

working capital concept focuses attention on two aspects of current assets management,

firstly optimum investment in current assets and secondly in financing the current assets.

These two aspects will help in remaining away from the two danger points of excessive

or inadequate investment in current assets. Whenever a need of working capital funds

arises due to increase in level of business activity or for any other reason the arrangement

should be made quickly, and similarly if some surpluses are available, they should not be

allowed to lie ideal but should be put to some effective use.



Net Working Capital: The term net working capital refers to the difference between the

current assets and current liabilities. Net working capital can be positive as well as

negative. Positive working capital refers to the situation where current assets exceed

current liabilities and negative working capital refers to the situation where current

liabilities exceed current assets. The net working capital helps in comparing the liquidity

of the same firm over time. For purposes of the working capital management, therefore

Working Capital can be said to measure the liquidity of the firm. In other words, the goal

of working capital management is to manage the current assets and liabilities in such a

way that a acceptable level of net working capital is maintained.

Importance of working capital management:

Management of working capital is very much important for the success of the business. It

has been emphasized that a business should maintain sound working capital position and

also that there should not be an excessive level of investment in the working capital

components. As pointed out by Ralph Kennedy and Stewart MC Muller, “the inadequacy

or mis-management of working capital is one of a few leading causes of business failure.

Current assets, in fact, account for a very large portion of the total investment of the firm.

Table showing Current assets as percentage of Total assets

Year Percentage

2004 31%

2005 26%

2006 35%



It can be visualized from the table that in the first year of our study i.e. 2004 it was 31%

which was reduced to 26% in the next year and in 2006 it is 35% shows fluctuating trend.

Determinants of Working Capital:

There is no specific method to determine working capital requirement for a business.

There are a number of factors affecting the working capital requirement. These factors

have different importance in different businesses and at different times. So a thorough

analysis of all these factors should be made before trying to estimate the amount of

working capital needed. Some of the different factors are mentioned here below:-

1. Nature of business: Nature of business is an important factor in determining the

working capital requirements. There are some businesses which require a very

nominal amount to be invested in fixed assets but a large chunk of the total

investment is in the form of working capital. There businesses, for example, are of

the trading and financing type. There are businesses which require large

investment in fixed assets and normal investment in the form of working capital.

2. Size of business: It is another important factor in determining the working capital

requirements of a business. Size is usually measured in terms of scale of operating

cycle. The amount of working capital needed is directly proportional to the scale

of operating cycle i.e. the larger the scale of operating cycle the large will be the

amount working capital and vice versa.

3. Business Fluctuations: Most business experience cyclical and seasonal

fluctuations in demand for their goods and services. These fluctuations affect the

business with respect to working capital because during the time of boom, due to

an increase in business activity the amount of working capital requirement

increases and the reverse is true in the case of recession. Financial arrangement

for seasonal working capital requirements are to be made in advance.

4. Production Policy: As stated above, every business has to cope with different

types of fluctuations. Hence it is but obvious that production policy has to be

planned well in advance with respect to fluctuation. No two companies can have

similar production policy in all respects because it depends upon the

circumstances of an individual company.



5. Firm’s Credit Policy: The credit policy of a firm affects working capital by

influencing the level of book debts. The credit term is fairly constant in an

industry but individuals also have their role in framing their credit policy. A

liberal credit policy will lead to more amount being committed to working capital

requirements whereas a stern credit policy may decrease the amount of working

capital requirement appreciably but the repercussions of the two are not simple.

Hence a firm should always frame a rational credit policy based on the credit

worthiness of the customer.

6. Availability of Credit: The terms on which a company is able to avail credit

from its suppliers of goods and devices credit/also affects the working capital

requirement. If a company in a position to get credit on liberal terms and in a

short span of time then it will be in a position to work with less amount of

working capital. Hence the amount of working capital needed will depend upon

the terms a firm is granted credit by its creditors.

7. Growth and Expansion activities: The working capital needs of a firm increases

as it grows in term of sale or fixed assets. There is no precise way to determine

the relation between the amount of sales and working capital requirement but one

thing is sure that an increase in sales never precedes the increase in working

capital but it is always the other way round. So in case of growth or expansion the

aspect of working capital needs to be planned in advance.

8. Price Level Changes: Generally increase in price level makes the commodities

dearer. Hence with increase in price level the working capital requirements also

increases. The companies which are in a position to alter the price of these

commodities in accordance with the price level changes will face fewer problems

as compared to others. The changes in price level may not affect all the firms in

same way. The reactions of all firms with regards to price level changes will be

different from one other.



CIRCULATION SYSTEM OF WORKING CAPITAL

In the beginning the funds are obtained by issuing shares, often supplemented by long

term borrowings. Much of these collected funds are used in purchasing fixed assets and

remaining funds are used for day to day operation as pay for raw material, wages

overhead expenses. After this finished goods are ready for sale and by selling the finished

goods either account receivable are created and cash is received. In this process profit is

earned. This account of profit is used for paying taxes, dividend and the balance is

ploughed in the business.

Working capital is considered to efficiently circulate when it turns over quickly. As

circulation increases, the investment in current assets will decrease. Current assets

turnover ratio speaks about the efficiency of Kotak Mahindra in the utilisation of current

assets. Fast turnover current assets results in a better rate on investment.

Table showing Current Assets Turnover Ratio

Year Ratio (in times)

2004 1.78

2005 2.98

2006 1.98

Average: 2.24



The ratio average is 2.24 times in the study period of 3 years. In 2005 current assets

turnover ratio is highest one i.e. 2.98 during the 3 year study. Reasons being during this

year company has achieved sales growth 44.36% over the previous year and additional

activity needs more funds.

KOTAK MAHINDRA LIFE INSURANCE LTD.

Ratios useful to analyze working capital management

(A) Efficiency Ratios 2004 2005 2006 Ideal Ratio

1. Working Capital Turnover (times) 4.84 10.23 5.71 -

2. Current Assets Turnover (times) 1.78 2.98 1.97 -

3. Inventory turnover (times) 9.49 9.20 7.88 -

(B) Liquidity Ratio

1. Current Ratio 2.12 1.80 2.41 2.0

2.AcidTestRatio 1.15 0.98 1.03 1.0

3. Cash Ratio 0.57 0.08 0.05 0.5

(C) Structural Health of Working Capital

Ratio/Year 2004 2005 2006

1. CA 0.31 0.26 0.35

2. CL 0.15 0.14 0.14

3. Cash to CA 0.27 .04 0.02

4. Receivables to CA 0.27 0.50 0.40

5. Loans and Advances to CA 0.15 0.19 0.15

6. Inventory to CA 0.42 0.38 0.50

7. RM to Inventory 0.44 0.46 0.30

8. Stock spares to inventory 0.12 0.14 0.11

9. WIP to inventory 0.06 0.08 0.03

10. Finished Goods to Inventory 0.38 0.32 0.56



Interpretation (Ratio Analysis)

The utilization rate of net working capital as depicted by working capital turnover

ratio is fluctuating during the period. It shows that working capital has not been

effectively used over the period of years except in the year 2005.

As shown by current assets turnover ratio, the utilisation of current assets in terms

of sales has shown a decreasing trend which shows that current assets has been

effectively used to achieve sales.

Again if we look at the efficiency with which individual elements of working

capital have been utilized, the picture of inventory turnover is not very bright.

Receivables turnover also shows a declining trend. Generally such a situation

does not suit the company.

As we look at the extent of liquidity of working capital, we notice that the ratio

shows an increasing trend. This indicates improvement on the liquidity front.

If we analyze the structural health of working capital, the proportion of current

assets to total assets has been appropriate during this period.

Such a higher proportion of current asset in the assets portfolio of Kotak

Mahindra Life Insurance Ltd. is quite acceptable.

Our analysis above indicates the areas of concern to management in making best possible

use of resources. Decreasing efficiency in the use of current assets hints of the possibility

of problems in working capital management.

On further analysis, inventory constitutes a major proportion of total current assets.

Among its various components, raw materials, stocks, spared and finished goods in

particular need further analysis as here stand out to the problem areas.

Cash Flow Statement (2005-06)

Sources Amount A

( in Lacs)

Application Amount B

(in Lacs)

Proceeds from

borrowings

162.37 Loss from operation 185.27

Sale of assets 27.34 Change in cash 5.01

Total 190.28 190.28



Summary of Cash Flow Analysis

a) Cash from operation to total cash available

= 185.31/190.28 = 97.38%

b) Cash from long term sources to total cash available

= 162.37/190.28 = 85.33%

c) Proceeds from sale of non-current assets to total cash

= 17 14/19028 = 0.90%

Schedule of Changes in Working Capital

Particulars Amount

(in lacs)

Changes in Working

Capital

Dec’2005 Dec’2006 Increase

(Debit)

Decrease

(Credit)

Current Assets

Inventories 93.87 146.36 52.48 -

Sundry Debtors 123.22 114.71 - 8.51

Cash and Bank

balances

10.64 5.63 - 5.01

Other current assets 20.14

247.87

21.66

288.36

1.52 -

Current Liabilities 137.02 116.07 20.95 -

Working capital (CA-CL) 110.85 172.29

Increase in Working Capital 61.44 - 61.44

172.29 172.29

74.96 74.96



Fund Flow Statement (2005-06)

Sources Amount A

(in lacs)

Application Amount B

(in Lacs)

Increase in loan 162.37 Increase in working capital 61.44

Sale of asset 22.94 Loss from operation 123.87

Total 185.31 185.31

Summary of Fund Flow Analysis

1. Increase in net working capital — 61.44

2. Funds from operations to finance permanent address (123.87)

3. Ratio of fund flow from operations to total funds in the business (-) 123.87/85.31

= (66.85)

Interpretation (Fund Flow Statement)

1. Networking capital has been increased over the years, which has increased

liquidity

2. Company should take corrective actions to covert loss from operation to funds

from operation.



CH NO. 4: COMPANY PROFILE

CREATING BANKING HISTORY

Established in 1985, The Kotak Mahindra group has long been one of India's most

reputed financial organizations. In February 2006, Kotak Mahindra Finance Ltd, the

group's flagship company was given the license to carry on banking business by the

Reserve Bank of India (RBI). This approval creates banking history since Kotak

Mahindra Finance Ltd. is the first company in India to convert to a bank.

The Complete Bank

At Kotak Mahindra Bank, we address the entire spectrum of financial needs for

individuals and corporates. We have the products, the experience, the infrastructure and

most importantly the commitment to deliver pragmatic, end-to-end solutions that really

work.

* A license authorizing the bank to carry on banking business has been obtained from the

Reserve Bank of India in terms of Section 22 if the Banking Regulation Act, 1949. It

must be distinctly understood, however, that in issuing the license, the Reserve Bank of

India does not undertake any responsibility for the financial soundness of the bank or the

correctness of any of the statements made or opinion expressed in this connection.

The Kotak Mahindra Group

Kotak Mahindra is one of India's leading financial conglomerates, offering complete

financial solutions that encompass every sphere of life. From commercial banking, to

stock broking, to mutual funds, to life insurance, to investment banking, the group caters

to the financial needs of individuals and corporates.

The group has a net worth of over Rs. 3,200 crore, employs around 10,800 people in its

various businesses and has a distribution network of branches, franchisees, representative

offices and satellite offices across 300 cities and towns in India and offices in New York,

London, Dubai, Mauritius and Singapore. The Group services around 2.6 million

customer accounts.



Our Story

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance

Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak &

Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and

that's when the company changed its name to Kotak Mahindra Finance Limited.

Since then it's been a steady and confident journey to growth and success.

1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting

1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market

1990 The Auto Finance division is started

1991The Investment Banking Division is started. Takes over FICOM, one of India's

largest financial retail marketing networks

1992 Enters the Funds Syndication sector

1995

Brokerage and Distribution businesses incorporated into a separate company -

Kotak Securities. Investment Banking division incorporated into a separate

company - Kotak Mahindra Capital Company

1996

The Auto Finance Business is hived off into a separate company - Kotak

Mahindra Prime Limited (formerly known as Kotak Mahindra Primus Limited).

Kotak Mahindra takes a significant stake in Ford Credit Kotak Mahindra

Limited, for financing Ford vehicles. The launch of Matrix Information Services

Limited marks the Group's entry into information distribution.

1998Enters the mutual fund market with the launch of Kotak Mahindra Asset

Management Company.

2000

Kotak Mahindra ties up with Old Mutual plc. for the Life Insurance business.

Kotak Securities launches its on-line broking site (now

www.kotaksecurities.com). Commencement of private equity activity through

setting up of Kotak Mahindra Venture Capital Fund.

2004 Matrix sold to Friday Corporation Launches Insurance Services.

2006Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian

company to do so.



2004 Launches India Growth Fund, a private equity fund.

2005

Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime

(formerly known as Kotak Mahindra Primus Limited) and sells Ford credit

Kotak Mahindra.

Launches a real estate fund

2006Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital

Company and Kotak Securities



CH NO. 5: INDUSTRY PROFILE

Our Corporate Identity

Kotak Mahindra BankAt Kotak Mahindra Bank, we address the entire spectrum of financial needs for

individuals and corporates. We have the products, the experience, the infrastructure and

most importantly the commitment to deliver pragmatic, end-to-end solutions that really

work.

Kotak Mahindra Old Mutual Life Insurance Ltd.Kotak Mahindra Old Mutual Life Insurance is a 76:24 joint venture between Kotak

Mahindra Bank Ltd. and Old Mutual plc. Kotak Mahindra Old Mutual Life Insurance is

one of the fastest growing insurance companies in India and has shown remarkable

growth since its inception in 2004.

Old Mutual, a company with 160 years experience in life insurance, is an international

financial services group listed on the London Stock Exchange and included in the FTSE

100 list of companies, with assets under management worth $ 400 Billion as on 30th

June, 2006. For customers, this joint venture translates into a company that combines

international expertise with the understanding of the local market.

Every child is different. Each has their own set of dreams and aspirations. As a parent

you would like to provide your child with all the building blocks that could develop his or

her potential to the fullest. This could mean extra coaching or tuition for talented

children, special training or equipment for natural athletes or professional training for

born singers.



HEADSTART CHILD PLANS

A specially tailored, cost-effective plan, aims to give your children the financial means

to pursue his or her dreams and live them.

The Headstart Advantage:

Choice of 2 plan variants

o Future Protect

o Assure Wealth

Maximizes wealth while providing protection

Joint life option

Save for 2 children with one plan

Additional bonus units

Flexible Withdrawal

Life is unpredictable, but the earlier you start planning for your future, the more likely

are you and your family to reap the rewards.

SUKHI JEEVAN

It is a long-term savings and protection plan that keeps pace with your changing needs at

every step of life - be it saving for your kids’ future, or your retirement. This plan helps

you prepare for important milestones in your life. And, most importantly, it ensures your

family is secure when life dishes up harsh misfortunes.

Benefits

Fulfill your children’s dreams or plan your retirement

Small savings to meet your varying needs

Regular bonuses

Easy application:

o Simple documentation

o No medical tests*

o Hassle–free sign-up

Premium payment options: yearly, half-yearly or monthly (through ECS only)



KOTAK PRIVILEGED ASSURANCE PLAN

“In this policy, the investment risk in the investment portfolio is borne by the

policyholder.”

Kotak Privileged Assurance Plan is exclusively crafted to ensure that while your money

is protected, it multiplies. Concocting the best mix of steady and stable growth with

dynamic and flexible management of your funds, the plan strives to give you that extra

bit of return, protection and flexibility, in a single plan made specially for discerning

customers like you. The plan offers you access to two# funds to provide you avenue for

growth while offering you Capital Guarantee.

Please note that in this policy, the investment risk in the investment portfolio is to be

borne by the policyholder. However, Kotak Life Insurance offers you a capital guarantee

on this plan to safeguard against the downside risk of falling markets.

"Why should you invest in the Kotak Privileged Assurance Plan?"

This plan is ideal if you want

Low cost structure on an investment plus insurance package

A short investment horizon

Flexibility of investment amounts

Protection of your hard earned money

Aggressive growth with calculated risks

Smart protection for your family

KOTAK TERM PLAN

Kotak Term Plan is a pure risk product that aims to cover your life at a nominal cost.

You may want to take this plan to cover your outstanding debts like a mortgage, a home

loan etc. Since this is a pure risk cover product, there is no maturity benefits payable on

survival. This is a non-participating plan.

"Who can avail of this plan?"

HOW OLD DO YOU HAVE TO BE TO AVAIL OF THIS PLAN?

Minimum age - 18 years

Maximum age - 60 years

FOR WHAT TERM CAN I AVAIL OF THIS PLAN?

10 - 30 years for regular premium

5 - 30 years for single premium



WHAT IS THE MINIMUM PREMIUM THAT I NEED TO PAY AND AT

WHAT INTERVALS CAN I PAY THEM?

Quarterly Rs.540

Half Yearly Rs.1055

Annually Rs.2000

Single Premium Rs.10000

WHAT IS THE MAXIMUM AGE THAT THE PLAN CAN COVER YOU

TILL?

70 years

"What are the advantages of this plan?"

1. It is a low-cost insurance plan.

2 You can choose between a regular premium payment option or a single premium

payment option.

3 In case you opt for the regular premium payment option, you may pay your

premiums either annually, or in half yearly or quarterly installments.

4 Your Kotak Term Plan can be converted into any other plan offered by Kotak Life

Insurance (except for another Term plan) provided there are at least 5 years before

cover ceases*.

5 In case you forget to pay your premium by the due date, you are entitled to a

grace period of 30 days from the date of unpaid premiums.

6 In case of a financial emergency, you have the option to surrender the policy

provided you have taken the single premium payment option*.

"What value-adds can you opt for?"

You may avail of the following non-participating value-adds for a nominal premium at

the time of taking your policy, subject to aggregate premium on all value-adds (except

Critical Illness Benefit) not exceeding 30% of the basic Kotak Term Plan premium.

Accidental Death Benefit: This benefit provides an additional amount (over and

above the basic sum assured) to the beneficiary in the event of the accidental

death of the life insured. The maximum cover available under this rider is equal

to the basic sum assured (subject to a maximum of Rs.10 lakhs).



Permanent Disability Benefit: This benefit can be added to your basic life

insurance policy to provide financial support in case of disability due to an

accident. The amount payable under this benefit would be paid out as an annuity.

The maximum permanent disability benefit that you can avail of is equal to the

basic sum assured (subject to a maximum of Rs.10 lakhs).

Critical Illness Benefit: This benefit can be added to your basic life insurance

policy to provide financial support in the event of a medical emergency. On the

first occurrence of critical illness during the term of the policy, you would receive

a portion of the sum assured to reduce your financial burden in this emergency.

"What do you receive on maturity of the policy?"

Since this is a pure risk cover plan, there are no maturity benefits.

"What happens in the event of death of the life insured?"

In the event of death during the term of the policy, the beneficiary would receive the sum

assured.

"Are there any Tax Benefits?"

Section 80C, 10(10D) of Income Tax Act would apply. Premiums paid for Critical

Illness Benefit qualify for benefits under Section 80D. These benefits are as per the

currently prevailing tax regulations and you are advised to consult your tax advisor for

details.

"How does this plan work?"

To explain, how his plan works….

Mr. Sanjay Gupta, a 30-year-old male, decides to buy the Kotak Term Plan for a sum

assured of Rs.10, 00,000 for a 10 year term. The annual premium that Mr.Gupta pays is

Rs.3, 747 annually. In the event of his unfortunate death during the next ten years, his

family would receive Rs.10, 00,000.

In the illustration, some benefits are guaranteed and some are variable. Guaranteed

Returns are marked "guaranteed" in the illustration. Variable returns are shown at two

different rates of assumed future returns. These assumed rates of return are not

guaranteed and they are not the upper or lower limits of what you might get back .The

actual return may be different depending on a number of factors including future

investment performance.



"What do you do next?"

To find out more about this plan, you can call us at any Kotak Life Insurance Branch

Offices or send us an e-mail at [email protected].

"Exclusions"

In case the life insured commits suicide within 1 (one) year of the plan, no benefits

outlined in the plan would be payable.

Exclusions for Accidental Death Benefit, Permanent Disability Benefit & Critical

Illness Benefit:

he Accidental Death Benefit, Permanent Disability Benefit & Critical Illness Benefit

would not be paid out in the following circumstances:

a) Self inflicted injuries, suicide, insanity, immorality, committing any breach of law or

being under the influence of drugs, liquor etc.

b) When the life insured is engaged in aviation or aeronautics other than as a passenger

on a licensed commercial aircraft operating on a scheduled route.

c) Due to injuries from war (whether war is declared or not), invasion, hunting, other

dangerous hobbies or activities, or having been on duty in military, para-military,

security or police organization.

Additional Exclusions for Critical Illness:

a) Unreasonable failure to seek or follow medical advice.

b) Any pre-existing medical conditions not disclosed at inception.

c) Infection with Human Immunodeficiency Virus (HIV) or conditions due to acquired

Immune Deficiency Syndrome (AIDS).

In addition, no benefit would be paid in respect of the exclusions specific to each critical

illness.

"Prohibition of Rebates"

Section 41 of the Insurance Act, 1938 states: -

(1) No person shall allow or offer to allow, either directly or indirectly, as an

inducement to any person to take out or renew or continue an insurance in

respect of any kind of risk relating to lives or property in India, any rebate of

the whole or part of the commission payable or any rebate of the premium

shown on the policy, nor shall any person taking out or renewing or


mailto:[email protected]

http://www.kotaklifeinsurance.com/omkm3/branchlocator.htm



continuing a policy accept any rebate, except such rebate as may be allowed

in accordance with the published prospectuses or tables of the insurer.

(2) Any person making default in complying with the provision of this section

shall be punishable with fine, which may extend to five hundred rupees.

The product leaflet gives only the salient features of the plan. The policy

document is the conclusive document, and provides in detail all the

conditions relating to the Kotak Term Plan.

KOTAK PREFFERED TERM PLAN

The Kotak Preferred Term Plan is designed to provide you with reduced premium rates

for a sum assured of Rs.10 lakhs and above.

"Who is eligible for Kotak Preferred Term Plan?"

1) Males over the age of 18 years, who do not use tobacco in any form.

2) Females over the age of 18 years.


It is a low-cost insurance plan.

You can choose between a regular premium payment option or a single premium

payment option. In case you opt for the regular premium payment option, you

may pay your premiums either annually, or in half yearly or quarterly

installments.

Your Kotak Term Plan can be converted into any other plan offered by Kotak Life

Insurance (except for another Term plan) provided there are at least 5 years before

cover ceases*.

In case you forget to pay your premium by the due date, you are entitled to a

grace period of 30 days from the date of unpaid premiums.

In case of a financial emergency, you have the option to surrender the policy

provided you have taken the single premium payment option*.


You may avail of the following non-participating value-adds for a nominal premium at

the time of taking your policy, subject to aggregate premium on all value-adds (except

Critical Illness Benefit) not exceeding 30% of the basic Kotak Term Plan premium.





death of the life insured. The maximum cover available under this rider is equal to

the basic sum assured (subject to a maximum of Rs.10 lakhs).

Permanent Disability Benefit: This benefit can be added to your basic life

insurance policy to provide financial support in case of disability due to an

accident. The amount payable under this benefit would be paid out as an annuity.

The maximum permanent disability benefit that you can avail of is equal to the

basic sum assured (subject to a maximum of Rs.10 lakhs).

Permanent disability is defined as permanent and immediate inability to work or

permanent loss of use of two limbs or total and permanent loss of sight.

Critical Illness Benefit: This benefit can be added to your basic life insurance

policy to provide financial support in the event of a medical emergency. On the



"What do you receive on maturity of the policy?"

Since this is a pure risk cover plan, there are no maturity benefits.


In the event of death during the term of the policy, the beneficiary would receive the sum

assured.





details.

* Please consult your tax advisor for details


Mr.Rajiv Sharma, 30 years old, is eligible for the Kotak Preferred Term Plan. He decides

to take up this policy for a sum assured of Rs.10, 00,000 for a term of 10 years. His

annual premium would be Rs.2, 645. In case of Mr. Sharma’s unfortunate death during

the next ten years, his family would receive Rs.10, 00,000.











Offices or send us an e-mail at [email protected].

"Exclusions"




Illness Benefit:

The Accidental Death Benefit, Permanent Disability Benefit & Critical Illness Benefit


a) Self inflicted injuries, suicide, insanity, immortality, committing any breach

of law or being under the influence of drugs, liquor etc.

b) When the life insured is engaged in aviation or aeronautics other than as a

passenger on a licensed commercial aircraft operating on a scheduled route.

c) Due to injuries from war (whether war is declared or not), invasion, hunting,

other dangerous hobbies or activities, or having been on duty in military,

para-military, security or police organization.


a) Unreasonable failure to seek or follow medical advice.

b) Any pre-existing medical conditions not disclosed at inception.

c) Infection with Human Immunodeficiency Virus (HIV) or conditions due to

acquired Immune Deficiency Syndrome (AIDS).


illness.













continuing a policy accept any rebate, except such rebate as may be allowed in

accordance with the published prospectuses or tables of the insurer.



How to live for today and plan for an independent tomorrow.

KOTAK MONEY BACK PLAN

The Kotak Money Back Plan not only covers your life, it also assures you a certain

percent of the sum assured as cash payment at regular intervals of every 5 years. It is a

savings plan with the added advantage of life cover and regular cash inflow. This plan is

ideal for planning special moments like a wedding, your child's education or purchase of

an asset etc. This is a participating plan (with profits).

"Who can avail of this Plan?"

HOW OLD DO YOU HAVE TO BE TO AVAIL OF THIS PLAN?

Minimum age- 18 years

Maximum age- 60 years


15, 20 & 25 years

WHAT IS THE MAXIMUM AGE THAT THE PLAN CAN COVER YOU

TILL?

75 years




1. The plan not only covers your life but also provides you with a survival benefit

payout every 5 years.

2. In the unfortunate event of death of life insured, the beneficiary would receive the

death benefit. The death benefit keeps increases by 7% of the sum assured every

year.

3. On maturity, you would receive the sum of the Survival Benefit, Bonus addition*

and Guaranteed addition**.

*Bonus addition is the amount in the Accumulation Account, in excess of the

sum assured.

Accumulation Account is your personal account in which the premiums that you

pay are deposited, the return declared every year is added and the survival benefit

payouts, risk and expense charges are deducted.

Guaranteed addition is the guaranteed amount payable on maturity,

over and above the Survival Benefit.

4. The amount available in the Accumulation Account is invested in various

financial instruments (as per IRDA regulations) so your money works hard for

you.

5. The Automatic Cover Maintenance facility ensures the policy remains in force

even if you miss premium payments. This facility is available after the first three

years of the term.

6. You have the benefit of a 15-day free look period.

7. You have the option of paying premiums quarterly, half yearly or yearly.


You may avail of the following value-adds for a nominal premium at the time of taking

the plan, subject to the aggregate premium on all value-adds not exceeding 30% of the

basic Kotak Money Back Plan premium.



Term Benefit/ Preferred Term Benefit: In the event of death during the term of

this benefit, the beneficiary would receive an additional death benefit amount,

which is over and above the sum assured. The maximum Term Benefit you can

avail of is equal to the basic sum assured. Where the term benefit cover applied

for is more than Rs 10 lakhs, better rates may apply, subject to meeting eligibility

requirements.


above the sum assured) to the beneficiary in the event accidental death of the life

insured. The maximum cover available under this benefit is equal to the basic

sum assured (subject to a maximum of Rs.10 lakhs).

Permanent Disability Benefit: This benefit can be added to the basic life

insurance plan to provide financial support in case of permanent disability due to

an accident. The amount payable under this benefit would be paid out as an

annuity. The maximum permanent disability benefit that you can avail of is equal


Permanent disability is defined as permanent and immediate inability to

work or permanent loss of use of two limbs or total and permanent loss of

sight.

Critical Illness Benefit: This benefit can be added to the basic life insurance

plan to provide financial support in the event of medical emergencies. On the first

occurrence of critical illness during the term of the policy, you would receive a

portion of the sum assured to reduce your financial burden in this emergency.

*Please contact our Life Advisor for the list of critical illnesses

Life Guardian Benefit: This benefit can be availed of, only in case where the

life insured and the proposer are two different individuals. In case of the

unfortunate death of the proposer, this benefit keeps the policy alive by waiving

all future premiums on the policy.

Accidental Disability Guardian Benefit: In case the proposer is permanently

disabled as a result of an accident, this benefit keeps the policy alive by waiving


"What do you receive on maturity of this plan?"

On maturity, you would receive the sum of the Survival benefit, Guaranteed addition and

Bonus addition. The table below illustrates the survival benefit pay out for every Rs.1000

of sum assured.



Survival Benefit

Payout for every Rs. 1000 Sum Assured

Payouts (in Rs.)

5th year 10th year 15th year 20th year 25th year 15-YEAR PLAN

SURVIVAL BENEFIT

250 250 500

GUARANTEED ADDITION

- - 200* 20-YEAR PLAN

SURVIVAL BENEFIT

200 200 200 400

GUARANTEED ADDITION

- - - 300* 25-YEAR PLAN

SURVIVAL BENEFIT

150 150 150 150 400

GUARANTEED ADDITION

- - - - 400*

*The Bonus Addition, if any, is payable over and above these benefits.


In the unfortunate event of the death during the term of the plan, the beneficiary would

receive the death benefit. The death benefit increases by 7% of the sum assured each

year. This increasing amount has been designed keeping in mind the rising inflation.

Death Benefit payout for every Rs. 1000 Sum Assured

Payouts (in Rs.)

Term

1st

year

2nd

year

3rd

year

5th

year

7th

year

10th

year

15th

year

20th

year

25th

year

15

YEARS

1000 1070 1140 1280 1420 1630 1980 20

YEARS

1000 1070

1140 1280 1420 1630 1980 2330 25

YEARS

1000 1070 1140

1280 1420 1630 1980 2330 2380







details.

* Please consult your tax advisor for details.


Mr. Sanjay Gupta, 30 years old, decides to buy a Kotak Money Back Plan for a sum

assured of Rs.5,00,000 and for a term of 20 years.

His annual premium and the payouts are outlined below.

Annual Premium

Rs.34,124

Survival Benefit:

After 5 years

Rs.100,000

After 10 years

Rs.100,000

After 15 years

Rs.100,000

At the end of the 20 years

Balance sum assured

Rs.200,000

Guaranteed addition

Rs.150,000

Bonus addition

Variable



i) What would Mr.Gupta receive on maturity of the plans?

Mr.Gupta would get cash flows in year 5, 10 and 15 as mentioned above. Assuming that

the Accumulation Account grows at a rate of 6%, the payout on maturity would be

Rs.510,900. At a growth rate of 10%, the maturity amount payable would be Rs.872,600.

The table below shows the details of the payout.

@6%

@10%

BALANCE SUM ASSURED

Rs.200,000

Rs.200,000

GUARANTEED ADDITION

Rs.150,000

Rs.150,000

BONUS ADDITION

Rs.160,900

Rs.522,000

Final payout at the end of 20 years

Rs.510,900

Rs.872,600

ii) What would Mr.Gupta receive on death of Mr.Gupta at the end of 11 th year?

On Mr.Gupta’s death, his family would receive a sum of Rs.850,000

In the past, Mr.Gupta has already received 2 installments of Rs.100,000 each as survival

benefit payouts in the 5th and 10 year.










To find out more about our plans, you can call us at any of our branch offices or e-mail

us at [email protected].

"General exclusion"




Illness Benefit:

The Accidental Death Benefit, Permanent Disability Benefit & Critical illness Benefit


a. Self inflicted injuries, suicide, insanity, immorality, committing any breach of law

or being under the influence of drugs, liquor etc.

b. When the life insured is engaged in aviation or aeronautics other than as a


c. Due to injuries from war (whether war is declared or not), invasion, hunting, other

dangerous hobbies or activities, or having been on duty in military, para-military,

security or police organization.


a. Unreasonable failure to seek or follow medical advice.

b. Any pre-existing medical conditions not disclosed at inception.

c. Infection with Human Immunodeficiency Virus (HIV) or conditions due to

acquired Immune Deficiency Syndrome (AIDS).


illness.

No claim under the Kotak Life Guardian Benefit would be admitted if, within one year of

the date of issue of this policy, the premium payer commits suicide, whether being sane

or insane at the time of committing suicide.

No claim under the Kotak Accidental Disability Guardian Benefit would be admissible in

the following circumstances:




a. The premium payer suffers from self-inflicted injuries, suicide, insanity,

immorality, committing any breach of law or being under the influence of drugs,

liquor etc.

b. Where the premium payer is engaged in aviation or aeronautics other than as a


c. The premium payer suffers injuries from war (whether war is declared or not),

invasion, hunting, mountaineering, motor racing of any kind, other dangerous

hobbies or activities, or having been on duty in military, para-military, security or

police organization.












KOTAK CHILD ADVNTAGE PLAN

The Kotak Child Advantage Plan is an investment plan designed to meet your child's

future financial needs. It's a plan that gives your child the "azaadi" to realize his dreams.

The plan is a participating plan with a 15-day free look period.


HOW OLD DOES THE CHILD HAVE TO BE TO AVAIL OF THIS PLAN?


Maximum age -17 years


10 - 30 years



WHAT IS THE MAXIMUM SUM ASSURED ALLOWED UNDER THIS

PLAN?

Rs.25,00,000


1. On Maturity, you would receive the sum assured plus the bonus addition. Bonus

addition is the amount in the Accumulation Account*, in excess of the sum

assured.

2. The balance available in the Accumulation Account is invested in various

financial instruments (as per IRDA regulations) so your money works hard to earn

more for your child.



years of the Term.

4. You can take a loan against this plan, after the policy has been in force for at least

three years.

5. You have the option of paying premiums quarterly, half yearly or yearly.

*Accumulation Account is your personal account in which the premiums

that you pay are deposited,

the return declared every year is added and risk and expense charges are

deducted.

6. You have the benefit of a 15 day free look period.


You may avail of these value adds for a nominal premium at the time of taking the plan.

The aggregate premium of the value-adds should not exceed 30% of the basic policy

premium.

Life Guardian Benefit: In case of the unfortunate death of the premium payer,

this benefit keeps the policy alive by waiving all future premiums on the policy.

Accidental Disability Guardian Benefit: In case the premium payer is

permanently disabled as a result of accident, this benefit keeps the policy alive by

waiving all future premiums on the policy.




Section 80C, 10(10D) of Income Tax Act, 1961 would apply. You are advised to consult

your tax advisor for details.

Please consult your tax advisor for details


Mr.Sanjay Gupta is a 30-year-old professional and has a 6-year-old son. To secure his

child's future, Mr.Gupta decides to buy the Kotak Child Advantage Plan. He wants to buy

a plan with a sum assured of 5 lakh, term of 15 years, so that when the child is 21 years

old, he has at least Rs.5 lakh to invest in his education/ career etc.

Mr. Gupta buys the Kotak Child Advantage Plan along with both the value-adds offered

with the basic plan.

Description

Premium

Kotak child advantage plan premium

Rs.31,857/-

Life guardian benefit premium

Rs.1,225/-

Accidental disability guardian benefit premium

Rs.155/-

Total Annual Premium Paid

Rs.33,237/-

i) What would be the payout on maturity of the plan?

Assuming that the Accumulation Account grows at 6%p.a., the maturity amount would

be Rs.6, 34,800/- at the end of 15 years. At a growth rate of 10%, the maturity amount

payable would be Rs. 8, 82,100/-.

ii) In the unfortunate event of the death/ disability of the parent (premium payer),

what would the beneficiary receive?

Mr.Gupta has taken the benefit of waiver of premium by paying a minimal additional

amount of Rs.1, 380/- per year. In the event of Mr.Gupta’s death or accidental disability,

future premiums payable on his son’s policy will be waived and the policy will continue

to be in force. On maturity the beneficiary would get the sum assured of Rs.5,00,000

along with bonuses accrued during the term of the policy (as discussed in (i) above).










In the event of the unfortunate death of the insured during the term of the plan, the

following would become payable:

If the policy has been in force for five years or if the life insured is at least 18

years old, the beneficiary will receive either the Sum Assured or Accumulation

Account whichever is higher, as on the date of death.

If the death occurs within five years from commencement of policy and if the

insured is less than 18 years old, the death benefit would be either the total of all

premiums paid so far or the surrender value at that time, whichever is higher.



Offices or send us an e-mail at [email protected]

"General exclusion"



No claim under the Kotak Life Guardian Benefit would be admitted if, within one year of

the date of issue of this policy, the premium payer commits suicide, whether being sane

or insane at the time of committing suicide.

No claim under the Kotak Accidental Disability Guardian Benefit would be admissible in

the following circumstances:

(1) The premium payer suffers from self-inflicted injuries, attempt to suicide, insanity,

immorality, committing any breach of law or being under the influence of drugs,

liquor etc.

(2) Where the premium payer is engaged in aviation or aeronautics other than as a


(3) The premium payer suffers injuries from war (whether war is declared or not),






invasion, hunting, mountaineering, motor racing of any kind, other dangerous hobbies

or activities, or having been on duty in military, para-military, security or police

organization.












KOTAK ENDOWMENT PLAN

Kotak Endowment Plan is a protection plan that covers your life and at the same time

ensures that your money does not lie idle. It invests a portion of your premium in

financial instruments and ensures a considerable growth in savings. This is a participating

plan (with profits).


How old do you have to be to avail of this

plan?


Maximum age - 65 years

For what term can i avail of this plan? 10-30 years

What is the maximum age that the plan can

cover you till?75 years


1. On maturity, you would receive the sum assured plus the bonus addition. Bonus

addition is the amount in the Accumulation Account*, in excess of the sum

assured. Accumulation Account is your personal account, in which the premiums

that you pay are deposited, the return declared every year is added and risk and

expense charges are deducted.

2. The amount available in the Accumulation Account is invested in various



financial instruments (as per IRDA regulations) so your money works harder for

you.



years of the term.

4. You can take a loan against your policy, after the policy has been in force for at

least three years.

5. You have the option of paying premiums quarterly, half yearly or yearly. You

also have the flexibility to pay premiums through the full term of the policy or

pay it for a fixed term of 3, 5, 7, 10 or 15 years.

6. You have the benefit of a 15-day free look period.


You may avail of the following value-adDs for a nominal premium at the time of taking

the plan, subject to the aggregate premium on all value-adds not exceeding 30% of the

basic plan premium.

Term Benefit / Preferred Term Benefit: In the event of death during the term

of this benefit, the beneficiary would receive an additional death benefit amount,

which is over and above the sum assured. The maximum term benefit you can

avail of is equal to the basic sum assured. Where the Term Benefit cover applied

for is more than Rs.10 lakhs, better rates may apply, subject to meeting eligibility

requirements.



death of the life insured. The maximum cover available under this benefit is equal


Permanent Disability Benefit: This benefit provides financial support in case of

your permanent disability due to an accident. The amount payable is over and

above the basic sum assured and would be paid out as an annuity. The maximum

Permanent Disability Benefit that you can avail of is equal to the basic sum

assured (subject to a maximum of Rs.10 lakhs).

Permanent disability is defined as a permanent and immediate inability to

work, the permanent loss of use of two limbs or a total and permanent loss of

sight.

Critical Illness Benefit: This benefit can be taken with the basic life insurance



policy to provide financial support in the event of medical emergencies. On the



The maximum Critical Illness Benefit that you can avail of is equal to half the

basic sum assured subject to maximum of Rs. 20 lakhs.

Life Guardian Benefit: This benefit can be availed of, only in a case where the

life insured and the proposer are two different individuals. In case of the

unfortunate death of the proposer, this benefit keeps the policy alive by waiving


Accidental Disability Guardian Benefit: In case the proposer is permanently

disabled as a result of an accident, this benefit keeps the policy alive by waiving

all future premiums on the policy. This benefit is available also where the life

insured is the proposer.


In the event of death of the life insured during the term of the plan, the beneficiary would

receive the sum assured or the amount in the Accumulation Account, whichever is

higher.





details.


Mr. Sanjay Gupta, who is 30 years old, decides to buy a Kotak Endowment Plan for a

sum assured of Rs. 5,00,000 for a 20-year term for his wife, who is aged 28. Mr. Gupta

decides to take the Life Guardian Benefit as a rider to the plan. He does this to provide

enhanced security and protection to his wife.

The annual premiums paid by Mr. Gupta are as follows



Amount (Rs.)

KOTAK ENDOWMENT PLAN PREMIUM 22,552

LIFE GUARDIAN BENEFIT PREMIUM 1,106

TOTAL ANNUAL PREMIUM PAID 23,658

i) What would be the payout maturity?

On maturity Sanjay Gupta would receive the sum assured or Accumulation Account,

whichever is higher.

Assuming that the Accumulation Account grows at a rate of 6%, the payout on maturity

would be Rs. 6,93,800. At a growth rate of 10%, the maturity amount payable would be

Rs. 10,97,700.

ii) What would happen in the event of Mr.Gupta’s unfortunate death at the end of

10th year?

Since Mr. Gupta is the proposer on Mrs. Gupta’s policy and has availed of the Life

Guardian Benefit, all future premiums on Mrs. Gupta’s policy would be waived.

Thereafter the policy will continue as if the premiums are being paid regularly. On

maturity of her policy Mrs. Gupta would receive amounts as discussed above.*

* Assuming that the Accumulation Account grows at 6% and 10% respectively p.a.







CH NO. 6: SWOT ANALYSIS



STRENGTHS

Market position is strong

Aggressive foreign bank

Shareholders return has grown more than 7 times

Maintains a position as a leading Asian Cash Management provider

Brand – Kotak Bank modern and dynamic look appeals to the growing middle

income earners

Improved product proposition

Better geographic balances

WEAKNESS

HDFC, IDBI, ABN-AMBRO, Citibank and ICICI Bank are dominant players

Has disadvantage due to last entry

Fewer locations as compared to other MNC banks

Service delivery perception is weak

OPPORTUNITIES

Branch expansion for rapid growth

Increase focus on value creation in whole banking

Improve shareholders return

Build market share in consumer banking as consumer banking continues to offer

highest potential for growth

Broadening of the demographic base

Tie ups with master card networks

Integrated sales and service approach

Can offer a complete corporate package under proposed corporate relationship

THREATS

ICICI is pitching in quite aggressively

Citibank is expanding in new markets

Competitive products and offers from IDBI and HDFC

Proposed networking of all branches in next 6 months



CH NO. 7: DATA COLLECTIONDATA COLLECTION

A semi-structured kind of questionnaire was designed which contain both open- ended

and multiple choice questions.

The questionnaire designed was to provide dual information sharing type, it is seriously

undertaken that anyone who in undergoing the process, should find his interest or else he

might show disinterest towards the programme. Actually, I have been dressing my project

as the awareness programme. This awareness programme provided all those filling up of

the questionnaire with enough information about the services of the Kotak Mahindra Old

Mutual Life Insurance. Thus the questionnaire was equally important both ways to the

customers as well as to the bank to draw out its prospects.

The questionnaire designed to know the potential of the customer and help as a successful

programme visiting the offices and small business enterprises without pre-appointment

also provided me with information about that they demand from a new bank where they

would prefer to open an account.

For those already holding a relationship with the Kotak Mahindra Old Mutual Life

Insurance, shared with me their opinion about the back and its services as well as

suggestions were also obtained from them of how to attract more potentiality for the

bank.

SAMPLING PLANSAMPLING PLAN

I have been assigned to visit the offices and small business firms in Delhi. I was free to

choose my area. Hence I choose areas near the Bank or places where I could feel greater

prospects, such a places where small shopping malls or new business firms have come

out and over the industrial belts where several offices could be found out.

The sample areas I choose was the following:

Noida

Punjabi Bagh

Lawrence Road

Gurgaon

I was advised not to visit the bigger companies because they were not our target

customers.



FIELD WORK PLANFIELD WORK PLAN

The field work was carried according the sampling plan formed. I visited the offices and

small business enterprises /firms under my own limitations and time constraint at the

following places.

(a) Noida

(b) Punjabi Bagh

(c) Lawrence Road

(d) Gurgaon

At some of the offices appointment were already made while at many places I visited,

without pre-appointments.

The main motive for these visits was to identify the potential customers or the potential

market. A two-way discussion was done through which the customers were made aware

of the services of Kotak Mahindra. The questionnaires are either directly filled up or

indirectly filled up by the people through this as well as the prospect of the areas as such

were these campaigns were put up.



FINANCIAL STATEMENTS

Kotak Mahindra Life Insurance Ltd...

Profit & Loss Account for the year ended 31St Dec, 2005

Current Year

31st Dec. 05

(in lakhs)

Previous Year

31st Dec 04

(in lakhs)

Income

Sales 1,134.22 785.65

Other Income 25.32 21.33

1159.54 806.98

Expenditure

Materials consumed 738.73 526.15

Personnel Expenses 87.3 70.36

Depreciation 30.01 29.93

Financial Charges 26.72 55.68

Excise duty 130.87 101.14

Misc. Expenditure 18.33 19.87

1198.26 953.49

Loss for the year before extra ordinary

items and prior period adjustments

(38.72) (146.51)

Extra-ordinary items

- Expenses on abandoned projects - (2.15)

Assets w\off (6.64)

Pension liability (5.14) -

Prior period adjustments (0.30) (1.50)

Expenses of extraordinary items 44.16 156.80

Loss bought forward from previous years (324.23) (167.43)

Balance carried to the B/S (368.39) (324.23)



Balance Sheet as at 31 Dec 2005

As on 31st Dec 05

(In Lacs)

As on 31st Dec 04

(In Lacs)

Source of Funds

Shareholders funds

Share capital 734.20 834.20

Reserve and surplus 21.00

755.20 855.20

Loan Funds

Secured loans 198.09 217.96

Unsecured loans 0.04 2.95

198.13 220.91

953.33 976.11

Application of funds

Fixed Asset

Gross block 520.94 493.93

Less: Depreciation 125.09 95.21

395.85 398.72

Capital W.I.P. 1.58 2.69

Net book value 397.43 401.41

Investments 0.10 -

Current Assets, Loans and Advances

Inventories 93.87 129.57

Sundry Debtors 123.22 82.75

Cash& Bank Balances 10.64 82.20

Other current Assets 20.14 11.42

Loans and advances 47.06 45.68

294.93 351.62



As at Dec 31 2005 As at Dec 31.2004

Less: Current Liabilities Provisions

Current Liabilities 137.02 143.68

Provisions 15.73 8.56

152.75 152.24

Net current assets 142.18 199.38

Miscellaneous Expenditure (Total extent

not written off adjusted)

45.23 51.09

Profit and loss 368.39 324.23

953.33 1076.11

Profit & Loss Account for the year ended 31st Dec, 2006

Current Year 31

Dec 06

(In Lacs)

Previous Year 31

Dec 05

(In Lacs)

Income

Sales 903.92 1134.22

Other Income 34.09 25.32

987.04 1159.54

Expenditure

Materials Consumed 621.23 738.73

Personnel Expenses 104.58 87.33

Mfg Other expenses 172.48 166.27

Dep / Amortisation 34.38 30.01

Financial Charges 30.57 26.72

Excise duty 120.04 130.87

Mis Expenditure W/off 20.28 18.33

1224.32 1198.26

Loss for the year before extra ordinary

items and prior period adjustments

(116.88) (38.72)

Extra ordinary items:

Expenses on abandoned project W/off -- --

Assets W/off -- --



Pension liability -- 5.14

Prior period adjustments -- 0.30

Loss after prior pd. Exp. & extra-ord.

Items.

(116.88) (44.16)

Loss b/f from early years (368.39) (324.23)

Less: Amt. Adjusted against Cap.

Reduction300

(68.39) ---

Loss: c/f to B/S (185.27) (368.39)

Balance Sheet as at 31 Dec 2006

Sources Of Funds 31 Dec 06 (Lacs) 31 Dec 05 (Lacs)

Shareholders Fund

Capital 434.20 734.20

Reserves & Surplus 21.00 21.00

455.20 755.20

Loan Funds

Secured loans 360.46 198.09

Unsecured loans -- 0.04

Application of Funds

Fixed Assets

Gross Block 530.59 520.94

Less: Dep. 153.55 125.09

Net Block 377.04 395.85

Capital work in progress inc. capital

advances.

3.25 1.58

380.29 397.43

Investments 0.10 0.10

Current assets, Loans & Advances

Inventories 146.36 93.87

Sundry Debtors 114.71 123.22

Cash & Bank Balances 5.63 10.64

Other current Assets. 21.66 20.14

Loans & Advances 44.39 47.06



Less: Current liabilities & Provisions

Liabilities 116.07 137.02

Provisions 14.11 15.73

Net Current Assets 130.18 152.75

Misc. Expenditure

(To the extent not w/off)

47.43 45.23

Profit & Loss A/c 185.27 368.39

Total: 815.66 953.33



CH NO. 8: WORKING CAPITAL- OVERALL VIEW

CASH MANAGEMENT

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 realised 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 operations while excessive cash will simply remain idle, without 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 currency and cheques held by the firm and balances in its bank

accounts. Sometimes near cash items, such as marketable securities or bank time deposits

are also included in cash. The basic characteristics of near cash assets are that they can

readily be converted into cash. Cash management is concerned with managing of:

i) Cash flows in and out of the firm

ii) Cash flows within the firm

iii) Cash balances held by the firm at a point of time by financing deficit or inverting

surplus cash.

Sales generate cash which has to be disbursed out. The surplus cash has to be invested

while deficit cash has to be borrowed. Cash management seeks to accomplish this cycle

at a minimum cost. At the same time it also seeks to achieve liquidity and control.

Therefore the aim of Cash Management is to maintain adequate control over cash

position to keep firm sufficiently liquid and to use excess cash in some profitable way.

The Cash Management is also important because it is difficult to predict cash flows

accurately. Particularly the inflows and that there is no perfect coincidence between the

inflows and outflows of the cash. During some periods cash outflows will exceed cash

inflows because payment for taxes, dividends or seasonal inventory build up etc. On the

other hand cash inflows will be more than cash payment because there may be large cash

sales and more debtors’ realization at any point of time. Cash Management is also

important because cash constitutes the smallest portion of the current assets, yet

management’s considerable time is devoted in managing it. An obvious aim of the firm

now-a-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 funds in profitable opportunities. In order to

resolve the uncertainty about cash flow prediction and lack of synchronization between

cash receipts and payments, the firm should develop appropriate strategies regarding the

following four facets of cash management.

1. Cash Planning: - Cash inflows and cash outflows should be planned to project cash

surplus or deficit for each period of the planning period. Cash budget should prepared

for this purpose.

2. Managing the cash flows: - The flow of cash should be properly managed. The cash

inflows should be accelerated while, as far as possible decelerating the cash outflows.

3. 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.

4. Investing surplus cash: - The surplus cash balance should be properly invested to

earn profits. The firm should decide about the division of such cash balance between

bank deposits, marketable securities and inter corporate lending.

The ideal Cash Management system will depend on the firm’s products, organisation

structure, competition, culture and options available. The task is complex and decision

taken can effect important areas of the firm.

Functions of Cash Management:

Cash Management functions are intimately, interrelated and intertwined Linkage among

different Cash Management functions have led to the adoption of the following methods

for efficient Cash Management:

Use of techniques of cash mobilization to reduce operating requirement of cash

Major efforts to increase the precision and reliability of cash forecasting.

Maximum effort to define and quantify the liquidity reserve needs of the firm.

Development of explicit alternative sources of liquidity

Aggressive search for relatively more productive uses for surplus money assets.



The above approaches involve the following actions which a finance manager has to

perform.

1. To forecast cash inflows and outflows

2. To plan cash requirements

3. To determine the safety level for cash.

4. To monitor safety level for cash

5. To locate the needed funds

6. To regulate cash inflows

7. To regulate cash outflows

8. To determine criteria for investment of excess cash

9. To avail banking facilities and maintain good relations with bankers

Motives for holding cash:

There are four primary motives for maintaining cash balances:

1. Transaction motive

2 .Precautionary motive

3. Speculative motive

4. Compensating motive

1. Transaction motive: - The transaction motive refers to the holding of cash to

meet anticipated obligations whose timing is not perfectly synchronised with cash

receipts. If the receipts of cash and its disbursements could exactly coincide in the

normal course of operations, a firm would not need cash for transaction purposes.

Although a major part of transaction balances are held in cash, a part may also be

in such marketable securities whose maturity conforms to the timing of the

anticipated payments.

2. Precautionary motive: - Precautionary motive of holding cash implies the need

to hold cash to meet unpredictable obligations and the cash balance held in

reserve for such random and unforeseen fluctuations in cash flows are called as

precautionary balances. Thus, precautionary cash balance serves to provide a

cushion to meet unexpected contingencies. The unexpected cash needs at short

notice may be the result of various reasons as : unexpected slowdown in

collection of accounts receivable, cancellations of some purchase orders, sharp

increase in cost of raw materials etc. The more unpredictable the cash flows, the



larger the need for such balances. Another factor which has a bearing on the level

of precautionary balances is the availability of short term credit. Precautionary

cash balances are usually held in the form of marketable securities so that they

earn a return.

3. Speculative motive: - It refers to the desire of a firm to take advantage of

opportunities which present themselves at unexpected movements and which are

typically outside the normal course of business. The speculative motive represents

a positive and aggressive approach. Firms aim to exploit profitable opportunities

and keep cash in reserve to do so. The speculative motive helps to take advantage

of :In opportunity to purchase raw materials at a reduced price on payment of

immediate cash; A chance to speculate on interest rate movements by buying

securities when interest rates are expected to decline; delay purchases of raw

materials on the anticipation of decline in prices; etc.

4. Compensation motive: - Yet another motive to hold cash balances is to

compensate banks for providing certain services and loans. Banks provide a

variety of services to business firms , such as clearances of cheques, supply of

credit information, transfer of funds, etc. While for some of the services banks

charge a commission of fee for others they seek indirect compensation. Usually

clients are required to maintain a minimum balance of cash at the bank. Since this

balance can not be utilised by the firms for transaction purposes, the bank

themselves can use the amount for services rendered. To be compensated for their

services indirectly in this form, they require the clients to always keep a bank

balance sufficient to earn a return equal to the cost of services. Such balances are

compensating balances. Compensating balances are also required by some loan

agreements between a bank and its customer.



CASH MANAGEMENT: OBJECTIVES

The Basic objective of cash management is two fold:

(a) To meet the cash disbursement needs (payment schedule);

(b) To minimize funds committed to cash balances. These are conflicting and mutually

contradictory and the task of cash management is to reconcile them.

Meeting the payments schedule: - A basic objective of the cash management is to meet

the payment schedule, i.e. to have sufficient cash to meet the cash disbursement needs of

the firm. The importance of sufficient cash to meet the payment schedule can hardly be

over emphasized. The advantages of adequate cash are : (i) it prevents insolvency or

bankruptcy arising out of the inability of the firm to meet its obligations; (ii) the

relationship with the bank is not strained; (iii) it helps in fostering good relations with

trade creditors and suppliers of raw materials, as prompt payment may also help their

cash management; (v) it leads to a strong credit rating which enables the firm to purchase

goods on favorable terms and to maintain its line of credit with banks and other sources

of credit; (vi) to take advantage of favorable business opportunities that may be available

periodically; and (vi) finally the firm can meet unanticipated cash expenditure with a

minimum of strain during emergencies, such as strikes , fires or a new marketing

campaign by competitors.

Minimizing funds committed to cash balances: - The second objective of cash

management is to minimize cash balances. In minimizing cash balances two conflicting

aspects have to be reconciled. A high level of cash balance will, ensure prompt payment

together with all the advantages, but it also implies that large funds will remain idle

ultimately results less to the expected. A low level of cash balances, on the other hand,

may mean failure to meet the payment schedule that aim of cash management should be

to have an optimal amount of cash balances



CASH MANAGEMENT TECHNIQUES & PROCESSES

The following are the basic cash management techniques and process which are helpful

in better cash management:

Speedy cash collection: In managing cash efficiently the cash in flow process can be

accelerated through systematic planning and refined techniques. These are two broad

approaches to do this which are narrated as under:

Prompt payment by customer: One way to ensure prompt payment by customer is

prompt billing with clearly defined credit policy. Another and more important technique

to encourage prompt payment the by customer is the practice of offering trade

discount/cash discount.

Early conversion of payment into cash: Once the customer has makes the payment by

writing its cheques in favor of the firm, the collection can be expedited by prompt

encashment of the cheque. It will be recalled that there is a lack between the time and

cheque is prepared and mailed by the customer and the time funds are included in the

cash reservoir of the firm.

Concentration Banking: In this system of decentralised collection of accounts

receivable, large firms which have a large no. of branches at different places, select some

of these which are strategically located as collection centers for receiving payment for

customers. Instead of all the payments being collected at the head office of the firm, the

cheques for a certain geographical areas are collected at a specified local collection

centers. Under this arrangement the customers are required to send their payments at

local collection center covering the area in which they live and these are deposited in the

local account of concerned collection, after meeting local expenses, if any. Funds beyond

a predetermined minimum are transferred daily to a central or disbursing or concentration

bank or account. A concentration banking is one with which the firm has a major account

usually a disbursement account. Hence this arrangement is referred to as concentration

banking.

Lock-Box System: The concentration banking arrangement is instrumental in reducing

the time involve in mailing and collection. But with this system of collection of accounts

receivable, processing for purposes of internal accounting is involved i.e. sometime in

elapses before a cheque is deposited by the local collection center in its account. The

lock-box system takes care of these kind of problem, apart from effecting economy in

mailing and clearance times. Under this arrangement, firms hire a post office box at

important collection centers. The customers are required to remit payments to lock-box.



The local banks of the firm, at respective places, are authorized to open the box and pick

up the remittance received from the customers. Usually the authorised bank picks up the

cheques several times a day and deposits them in the firm’s account. After crediting the

account of the firm the banks send a deposit 4epo slip along with the list of payments and

other enclosures, if any, to the firm by way of proof and record of the collection.

Slowing disbursements: A basic strategy of cash management is to delay payments as

long as possible without impairing the credit rating/standing of the firm. In fact, slow

disbursement represents a source of funds requiring no interest payments. There are

several techniques to delay payment of accounts payable namely (1) avoidance of early

payments; (2) centralized disbursements; (3) floats; (4) accruals.

Avoidance of early payments: One way to delay payments is to avoid early payments.

According to the terms of credit, a firm is required to make a payment within a stipulated

period. It entitles a firm to cash discounts. If however payments are delayed beyond the

due date, the credit standing may be adversely affected so that the firms would find it

difficult to secure trade credit later. But if the firm pays its accounts payable before the

due date it has no special advantage. Thus a firm would be well advised not to make

payments early i.e. before the due date.

Centralized disbursements: Another method to slow down disbursements is to have

centralized disbursements. All the payments should be made by the head office from a

centralized disbursement account. Such an arrangement would enable a firm to delay

payments and conserve cash for several reasons. Firstly it involves increase in the transit

time. The remittances from the head office to the customers in distant places would

involve more mailing time than a decentralized payment by a local branch. The second

reason for reduction in operating cash requirement is that since the firm has a centralized

bank account, a relatively smaller total cash balance will be needed. In the case of a

decentralized arrangement, a minimum cash balance will have to be maintained at each

branch which will add to a large operating cash balance. Finally, schedules can be tightly

controlled and disbursements made exactly on the right day.

Float: A very important technique of slow disbursements is float. The term float refers

to amount of money tied up in the cheque that have been written, but have yet to be

collected and encashed. Alternatively, float represents the difference between the bank

balance and book balance of cash of a firm. The difference between the balance as shown

in the firm’s record and the actual bank balance is due to transit and processing delays.

There is time lag between the issue of a cheque by the firm and its presentation to its

bank by the customer’s bank for payment. The implication is that although a cheque has



been issued cash would be required later when the cheque resented for encashment.

Therefore, a firm can send remittance although it does not have cash in its bank at the

time of issuance of cheque. Meanwhile, funds can be arranged to make payments when

the cheque is presented for collection after a few days. Float used in this sense is called

cheque kitting.

Accruals: Finally, a potential tool for stretching accounts payable is accruals which are

defined as current liabilities that represent a service or goods received by a firm but not

yet paid for. For instance, payroll, i.e. remuneration to employees, who render services in

advance and receive payment later. In a way they extend credit to the firm for a period at

the end of which they are paid, say, a week or month. The longer the period after which

payment is made, the greater the amount of free financing and the smaller the amount of

cash balances required. Thus, less frequent payrolls, i.e. monthly as compared to weekly,

are important sources of accruals. They can be manipulated to slow down disbursements.

DETERMINING THEOPTIMAL LEVEL OF CASH BALANCE:

Cash balance is maintained for the transaction purposes and additional amount may be

maintained as a buffer or safety stock.

The Finance manager should determine the appropriate amount of cash balance. Such a

decision is influenced by trade-off between risk and return. If the firm maintains a small

cash balance , its liquidity position becomes week and suffers from a paucity of cash to

make payments. But a higher profitability can be attained by investing released funds in

some profitable opportunities. When the firm runs out of cash it may have to sell its

marketable securities, if available, or borrow. This involves transaction cost.

On the other hand if the firm maintains a higher level of cash balance, it will have a

sound liquidity position but forego the opportunities to earn interests. The potential

interest lost on holding large cash balance involves opportunities cost to the firm.

Thus the firm should maintain an optimum cash balance, neither a large nor a small cash

balance.

To find out the optimum cash balance the transaction cost and risk of too small balance

should be matched with opportunity costs of too large a balance should be matched with

opportunity cost of too large a balance. Figure shows this trade-off graphically. If the

firm maintains larger cash balances its transaction cost would decline, but the opportunity

cost would increase. At point X the sum of two costs is minimum. This is the point of

optimum cash balance. Receipts and disbursement of cash are hardly in perfect

synchronization.



Despite the absence of synchronization it is not difficult to determine the optimum level

of cash balance.

If cash flows are predictable it is simply a problem of minimizing the total costs - the

transaction cost and the opportunity cost.

The determination of optimum working cash balance under certainty can thus be viewed

as an inventory problem in which we balance the cost of too little cash ( transaction cost)

against the cost of too much cash( opportunity cash)

Cash flows, in practice, are not completely predictable. At times they may be completely

random. Under such a situation, a different model based on the technique of control

theory is needed to solve the problem of appropriate level of working cash balance.

With unpredictable variability of cash flows, we need information on transaction costs,

opportunity costs and degree of variability of net cash flows to determine the appropriate

cash balance. Given such data the minimum and maximum of cash balances should be

set. Greater the degree of variability, higher the minimum cash balance. Whenever the

cash balance reaches a maximum level, the differences between maximum and minimum

levels should be invested in marketable securities. When balance is falls to zero,

marketable securities should be sold and proceed should be transferred to the working

cash balances.

EVALUATION OF CASH MANAGEMENT PERFORMANCES

To assess the cash management performance this phase is divided as follows:

a) Size of Cash

b) Liquidity and Adequacy of cash

c) Control of cash

A) Size of cash: The quantum of cash held by KOTAK MAHINDRA during the study

period is presented in the table. The trend percentage also calculated and shown in

the table:



Size of cash balance (Rs. in Crores)

Year Cash (In Lacs) Trend

2004 82.20 100

2005 10.64 -87.83

2006 5.63 -93.15

Source : Annual report



Size of sales (Rs. in Lacs)

Year

Sales Trend

2004 785.65 100

2005 1134.23 44.36

2006 903.92 15.05

Source Annual Reports



(B) Liquidity and Adequacy of Cash:

One of the most important jobs of the Finance Manager is to maintain sufficient liquidity

to enable the firm to pay off its obligations when they fall due. To test a firm’s liquidity

and solvency we commonly use current and quick ratios. Traditionally 2:1 current ratio

and 1:1 quick ratio are taken as satisfactory standards for the purpose. The former

indicates the extent of the soundness of the current financial position of a firm and the

degree of safety provided to the creditors, the later signifies the ability of a firm to settle

all its current obligations on a particular date.

Current ratio and quick ratio

Year Current ratio Quick ratio

2004 2.12 1.51

2005 1.80 0.97

2006 2.41 1.03

Source: Annual Reports



Our analysis clearly shows that the company has very sound position regarding liquidity

and solvency. Further, all the ratios fluctuate throughout the period.

(C) Control of Cash:

One of the major objectives of cash management from the stand point of increasing return

on investment is to economize on the cash holding without impairing the overall liquidity

requirements of the firms. This is possible by effecting tighter controls over cash flows.

The following ratio has been applied to assess the efficiency of cash control:

Cash to Current Assets ratio

Cash turnover ratio

Cash to current liabilities ratio

Cash to Current assets ratio

Year Cash to CA Ratio

2004 26.89

2005 4.29

2006 1.95

Average : 9.43

Source : Annual Reports



Conclusion: It can be inferred from the above table that cash to current assets ratio is

decreasing which shows dark position of liquidity, which ultimately affect the operational

efficiency of the firm.

Cash to Current Liability Ratio (%)

Year Cash to CL ratio

2004 57.21

2005 7.76

2006 4.85

Average: 23.27

Source: Annual Reports

Conclusion:

Cash to current liability ratio shows the cash balance maintained by company at a certain

point of time for meeting its current liabilities. The lesser the ratio, proves the efficiency

of the company for maintaining liquidity at a minimum level of cash balance. It is

reducing during the study period and is at the minimum level of 4.85% in the year 2006.

Overall Conclusion: The analysis of financial data reveals that the company has very

sound position regarding liquidity and solvency as shown by the current and quick ratios.

The cash to current liabilities ratio is nearly on decreasing trend shows the efficiency of

operations.



MANAGEMENT OF INVENTORY

Inventories are the stock of the product made for sale by the company or semi finished

goods or raw materials. Inventory of finished goods which are ready for sale is required

to maintain smooth marketing operation. The inventory of raw material and work in

progress is required in order to maintain an unobstructed flow of material in the

production line. These inventories serve as a link between the production and

consumption of goods.

The aspect of management of inventory is especially important in respect to the fact that

in country like India, the capital block in terms of inventory is about 70% of the current

assets. It is therefore, absolutely imperative to manage efficiently and effectively in order

to avoid unnecessary investment in them. Although to maintain low inventories may

prove to be profitable but to maintain very low inventories may prove risky on the

contrary.

This aspect of management if tackled in a proper way may prove to be a boon its

effective and efficient management would result in the maintaining of optimum level of

inventories. At this level the profitability of the organisation will not be jeopardised at the

cost of inventory.

Now from the above stated facts it is clear that maintaining of optimum level of inventory

involves huge cost, so why should keep the inventories at all. Basically there are three

main reasons for which inventories are stocked and they are:-

1. Transaction Motive: This motive lays emphasis on maintaining of inventories in

order to maintain a smooth and unobstructed supply of materials for the sales and

production operations.

2. Precautionary Motive: This motive emphasizes on the stocking goods in order

to guard against the uncertainties of future i.e. unpredictable changes in the forces

of demand, supply and other forces.

3. Speculative Motive: This motive influences the decisions regarding the increase

or decrease in the level of inventory in order to take advantage of price

fluctuations.



A company should maintain adequate stock of materials for a continuous supply to the

factory for an uninterrupted production. It is not possible for a company to procure raw

material instantaneously whenever needed. A time lag exists between demand and supply

of material. Also, there exists an uncertainty in procuring raw material in time at many

occasions. The procurement of materials may be delayed because of factors beyond

company’s control e.g. transport disruption, strike etc. Therefore, the firm should keep a

sufficient stock of raw material at a time to have streamline Other factors which may

incite us to keep stock of inventories is the quantity discounts, expected rise is price.

The work in process inventory builds up because of the production cycle. Production

cycle is the time span between the introduction of raw material in to the production and

the emergence of finished goods at the completion of production cycle. Till the

production cycle completes, the stock of work in process has to be maintained.

Efficient firms constantly try to make the production cycle smaller by improving their

production techniques.

The stock of finished goods has to be held because production and sales are not

instantaneous. A firm can not produce immediately when goods are demanded by

customers. Therefore to supply finished goods on regular basis, their stock has to

maintain for sudden demand of customers, in case the firm sales are seasonal in nature,

substantial finished goods inventory should be kept to meet the peak demand. Failure to

supply products to customer, when demanded, would mean loss of the firm’s sales to the

competitors.

The basic objective in holding raw material inventory is separate purchase and production

activities and in holding finished goods inventory is to separate production and sales

activities. If raw material inventory is not held, purchase would have to be made regularly

at the time of usage. This would mean production intereptions and high cost of ordering.

A sufficiently large inventory has to be maintained of finished goods so as to meet the

fluctuating demands. If a close link is maintained between the sales and the production

department then an organisation can do with a small inventory also. In the process,

inventory is also necessary because production can not be instantaneous. But it should be

seen that the size of production cycle should be small.



OBJECTIVES OF INVENTORY MANAGEMENT

In the modern business world there is practically nothing that is done without objective.

The objective is also one that would help the organization in reaching its goals in a better

way. Hence it can be inferred that the importance given to management of inventory in

the business world is not devoid of a concrete reasons behind it.

The two main reasons behind all this are, firstly, to maintain a inventory big enough that

the production and sales operation are carried on without any hindrance and secondly, to

minimize the investment in inventory, in order to maximize the profits. Both, excessive

as well as inadequate inventory level is not good. They are the two danger points that a

company should try to avoid and should always try to maintain optimum level of

inventory. The excessive investment in the inventory has the following drawbacks:

Unnecessary tie up of firm’s fund and loss of profit.

Excessive carrying cost.

The risk of liquidity.

The over investment of funds in inventory eat up the precious funds which could have

been put to some profitable use. The carrying cost incurred, can not be ignored, this is the

cost of storage, handling insurance, recording and inspecting. These all costs incurred in

order to have large inventories impair the profitability of the firm. Another danger of

carrying excessive inventory is the deterioration, obsolescence and pilferage of raw

materials.

Maintaining inadequate inventory is also dangerous. The consequences of under

investment in inventory are

Production hold ups;

Failure to meet commitment

If the inventory of finished goods is not adequate than the demand of customer is peak

periods may be left unmet and it the under investment is in the area of raw materials that

is likely that the production process may be held up frequently.

The aim of inventory management thus should be to avoid excessive and inadequate level

of inventory and to maintain sufficient inventory for smooth production and sales

operation efforts should be made to place an order at the right time to right source to

acquire right amount at the right price and for right quantity. The aspects of a effective

inventory management should take care of are as:



Ensure continuous supply of material to facilitate uninterrupted production.

To maintain sufficient stocks of raw material in the periods of short supply and

evident price rise.

To maintain sufficient inventory of finished goods for smooth sales operation.

Minimize carrying cost and time.

Control investment and keep it to the optimum level.

Before discussing the inventory control technique, here is the discussion of the various

terms such as economic order quantity, carrying cost etc.

1. Economic Order Quantity: It is the inventory level which minimises the total of

ordering and carrying cost. Determining economic order quantity involves two

types of costs i.e. ordering cost and carrying cost.

2. Ordering Cost: This is used especially in the case of raw materials and is

included in the cost incurred in acquiring the raw material. It is proportional to the

number of orders and inversely proportional to the size of inventory. Apart from

the cost of acquired raw material this also includes requisitioning, purchasing

order, transporting receiving, inspecting and sorting cost.

3. Carrying Cost: This is used in the case of all types of inventories. there are the

costs which are incurred for holding a given amount of inventory, they include

opportunity cost of funds invested is inventories insurance, taxes, storage cost and

the cost of deterioration and obsolescence. It is directly proportional to the size of

inventory.

4. Reorder Points: Reorder point is the inventory level at which an order must be

placed to replenish the inventory and evade the risk of running out of raw

material. To determine the reorder point under uncertainty we should know the

lead time, the average usage, economic order quantity etc.

5. Safety Stocks: It is difficult to predict usage and the lead time accurately. The

demand for material is never constant. Similarly the actual delivery time may be

different firm the normal lead time. In case of increased usage or delivery

delayed, there is bound to be problem of stock out. Stockout can prove to be

costly affair for a company. Therefore in order to guard against the stock out, the

company may keep some buffer stock as a cushion against expected increased

and/or delay in delivery .This buffer stock is called as safety stock.



The various techniques or approaches used in the management of inventory by different

firms to calculate the economic order quantity are here given below: -

1). Trial and Error Approach: This is the technique to resolve the economic order

quantity problem. In this technique we take the annual requirement, purchasing

cost per unit, ordering cost per order and carrying cost per unit for the

computation of economic order quantity. We suppose a constant usage and then

considering different sizes of orders and calculate the different total costs. The

order corresponding to the minimum total cost has the economic order quantity.

2). EOQ Model: This is quite an easy approach to calculate the economic order

quantity than the trial and error approach. Here we find the economic order

quantity with the help of the formula

EQ = Sqrt (2AO / C)

Where A -> Total Annual Requirement

O -> Ordering cost order

C -> Carrying cost per unit

3). Graphic Approach: Here the economic order quantity is found out with the help

of a graph. We take the order size on horizontal axis and cost incurred on the

vertical axis. Now we plot the graph regarding the carrying cost and the ordering

costs. Now with the help of these two we draw a graph of minimum total cost.

The economic order point is the point at the lowest value of the total minimum

costs.



EVALUATION OF INVENTORY MANAGEMENT:

In this section of this chapter, a attempt has been made to judge the efficiency of

inventory management in kotak mahindra by examine composition movement and level

of inventory held by the firm.

Composition of Inventory:

Composition of inventory generally depends upon the nature of business. The proportion

of each component in the total inventory varies from industry to industry. In order to

assure effective control on the total investment in inventories it is desirable to maintain a

proper balance in all the components. The structure of inventory show us that which part

of the inventory is more in the organisation. Such knowledge helps us in the efficient

management of inventory. Table shows the composition of inventory in KOTAK

MAHINDRA

Composition of Inventory:

Year Raw

Material

Semi

Material

Finished

Goods

Stores

Spares &

Scarp

Total

2004 44 6 38 12 100.00

2005 46 8 32 14 100.00

2006 30 3 56 11 100.00

Average 40 5 42 12 100.00

Conclusions: Table reveals the proportion of each component of inventory to total of

inventory in percentage terms. On the opposite, the percentage share of finished goods in

the total inventory has increased significantly during last 3 years of the study period. The

percentage share of store/scrap/spares etc. is moving between 10-12%. The increasing

share of finished goods is to be checked and controlled, that shows the blockage of goods

at finished stage.



Inventory Turnover Ratio

Year Ratio In days

2004 4.06 90

2005 6.61 55

2006 4.76 77

Average :74 days

Inventory turnover ratio is generally regarded as indicator of inventory efficiencies. It

establishes a relationship between the total sales during a period and average inventory

hold to meet that quantum at 4.06 times, that signifies the slow moving of inventory. In

other words, the stock held during 2006 is for 77 days as comparison of average at 74

days for the view of 3 years.

Overall Conclusion:

This can be concluded that overall composition includes the highest factor of finished

goods and that is too on increasing trend. Moreover, the inventory level is maintained for

77 days for the year 2006 that is the highest during the study period. The to overall

position of inventory is that adequate on following basis:

The factor of finished goods in the composition of inventory in total is at higher level

and also having an increasing trend.

The stock is also very slow moving and the stock retention period is on fluctuating

trend.

The above two factors increases the cost of production and decreases the profitability,

therefore, these should be taken in to consideration for better productivity and efficiency

of operation.



MANAGEMENT OF RECEIVABLES

Trade credit, the tool which as a bridge for movement of goods through production and

distribution stages to customer, is a force in the present day business and a essential

device. Trade credit is granted with a motive of protecting the sale from ones,

competitors and attaching more of the potential customers. Trade credit is said to be

extended to a customer when a firm sell its services or goods and does not receive the

payment for them immediately. Thus trade credit creates receivable which refer to the

amount which a firm is expected to collect in near future.

The book debt or receivable which arise a result of trade credit have the following

features:

It involves a element of risk and hence should never to be fiddled with. As credit sale

leave a sum to be recovered in future and future can never be the certainty, hence it is

risky.

It is based on economic value, while for the buyer, the economic value in goods

passes immediately at the time of purchase, while the seller expects an equivalent

value to be received later on.

It represents futurity. The cash payments for the goods or services received by the

buyer will be made in future.

The management of receivable gain more importance in the view of the fact that more

than one third of the total current assets is blocked in the form of trade debtors. The

interval between the date of sale and the date of payment is financed by working capital.

Thus trade debtors represents the investment. As substantial amount are tied up as trade

credit hence it requires careful analysis and proper management.

GOALS OF MANAGEMENT OF RECEIVABLES

As all other aspects of management, this also aims at the maximisation of wealth by a

beneficial trade off between liquidity risk and profitability. The main aim of management

is not to maximise sales or minimise bad debt risk but in a way it is to expand sale to the

extent that the bad debt risk remained within the limits. So in a effort to maximise the

wealth, the goals of management of receivable are:



To obtain optimum value of sales

To control the cost of credit and keep it to the minimum level.

To maintain investment in debtors at optimum level.

Sales maximization is not the purpose of credit management but an effective and efficient

credit management helps in expanding sales and acts as a marketing tool. A good and

well administered credit means profitable credit accounts.

In order to maximize the wealth of the firm, the cost involved in the credit and its

management has to be controlled within the acceptable limits. These costs can brought to

zero level but that would adversely affect the sales, therefore the objective should be to

kept receivable to the minimum level. A dynamic credit policy and its management will

help to optimize the sale at a minimum cost.

Debtors involve funds, which have an opportunity cost. Therefore the investment in

debtors should be never be excessive. Extending liberal credit pushes the sale and results

in higher profitability but the increase in level of investment in debtors result in increased

cost. Thus we are to bring the investment at a optimum level by doing trade off between

the costs and benefits. The level of debtors to a large extent depends on external factors

such an industry norms, level of activity, seasonal variations etc. But there are lot of

internal factors which affects the firm’ credit policy. These factors include credit terms,

standard, limits and collection procedures. The internal factors should be well

administered to optimise the investment in debtors.

OPTIMUM CREDIT POLICY

The whole set of decision variables that affects the investment in receivable is termed as

credit policy. Generally, we can divide the credit policy into two types

Lenient Credit Policy

Stringent Credit Policy

The firms following Lenient Credit Policy tend to sell on credit to its customers very

readily, without even knowing the credit worthiness of the customers. The firms with

lenient credit policy will have more sales and higher profits. But they can also incur high

bad debts losses and face the problem of liquidity. The firm which follows Stringent

Credit policy are very selective in extending credit, and credit is extended to those

customer only whose credit worthiness is well proven. These firms follow tight credit

standards and terms as a result, minimize cost and chances of bad debts.

The stringent credit policy never poses the problem of liquidity but restrict the sale and

profit margins.



Extension of credit increases the sale of the firm. The number of customers purchasing

the firm’s goods and services increases as it makes its credit policy liberal. If the cost do

not increase at a greater rate, the increased revenue will increase the profit of the firm. As

a consequence, the market value of firm’s share will rise.

The extent to which the sales will be affected by pursuing a particular credit policy can

not be gauged with accuracy. Sales forecast with respect to a particular credit policy can

be made with regards to prevailing economic condition. However, cost benefit analysis

has to be done in order to anticipate the acceptability of a credit policy.

Credit extension involves cost, the incurred cost can be of many types such as bad debt

losses, production and selling costs., administrative expenses, cash discounts, opportunity

cost etc.

Bad debt losses are incurred when a firm is unable to collect the book debts. Bad debt

losses are more if the credit policy is lenient. This never means that a company should its

credit policy, in case the profit generated by additional sales are more than corresponding

costs the firm should surely go in for credit policy relaxation.

The additional sales resulting from the relaxed credit policy will increase the production

and selling costs. Only the incremental production or selling costs should be estimated.

Similarly, the expenses incurred in the administration of credit should be included in the

costs of extending credit. The cost of administration generally includes the credit

supervision costs and collection costs. Again, these costs will be nil if the credit policy

simply utilize the idle capacity of the credit department.

The opportunity cost is the cost of foregone profits of the amount blocked as trade credit

to customers in order to sustain or increase sales. As a result of the funds tied up in credit

accounts often the firms have to go in for credit from banks in order to sustain their

operations.

In order to collect the trade credits at an early date, often cash discounts have to be

extended. As a result of these cash discounts firms are not in a position to collect the

remuneration for their sales in full. This is essentially a tool to bring the trade credit to a

optimum level.



Aspects of Credit Policy:

The important aspects of credit policy should be identified before establishing an

optimum credit policy. The important decision variables of the credit policy are:

Credit Terms: Credit terms are the conditions or stipulations under which the

firm extends credit. The terms and conditions can be clubbed according to the

period for which they are extended and according to the amount of discount

offered thereby there are two important components of trade credit namely cash

period and cash discounts. Credit terms can be effectively used as a tool to boost

sales. The most desirable credit terms which increases the overall profitability of

the firm, should be offered to the customers cost benefit trade off between credit

terms should be done to choose the best one. If the action of relaxation of the

credit terms is followed by the competitors. Then the firm may have to pay

instead of gaining anything.

The time duration for which the credit is extended to the customers is referred to

as credit period. Usually the credit period of the firm is governed by the industry

norms, but firms can extend credit duration to stimulate its sales. If the firm’ bad

debts build up, it may tighten up its credit policy as against the industry norms.

Cash discounts is the offer made by the firm to customer to pay less if the

required amount is paid earlier. The cash discount terms indicate the rate of

discount and the period for which discount has been offered. If the customer does

not avail this offer, he is expected to make the payment by the due date.

Credit Standards: The credit standards followed by the firm has an impact on

sales and receivable. The sales and receivable levels are likely to be high if the

credit standards of the firm are relatively loose. In contrast, If the firm has

relatively tight credit standards, the sales and receivable are expected to be low.

The credit standards are governed by various aspects such as the to willingness of

the customer to pay, the ability of the customer to pay in the economic conditions

etc.

The credit Kotak Mahindra can be liberalised to the extent that the profits earned

by them remain more than the cost incurred. Usually cost incurred in the case of

making the credit standards more liberal are bad debt looses, selling and

production costs etc. The result of a credit policy with loose standards is the

lengthening of collection period.



Collection Policy: The need to collect the payments early gave rise to a policy

regarding it, called as the collection policy. It aims at the speed recovery from

slow payers and reduction of bad debts losses. The firm has to very cautious while

it goes in for collection from slow payers. The various aspects such as

willingness, capabilities, and external conditions should be taken care of before

you go in collection procedure. The optimum collection policy will maximize the

profitability and will be consistent with the objective of maximizing the value of

the firm.

CREDIT PROCEDURE

A clear cut guiding policy regarding the granting of credit to individual customers and the

collection from individual account should be laid down. The collection procedure of the

firm differs from customer to customer. The credit evaluation procedure before extending

of credit is done in the following ways:

1) Credit Information : In extending credit to customers, the firm would ensure

that the receivable are collected in full and on due date. To ensure this, the firm

should have credit information concerning each customer to whom credit is given.

Collection of credit information involves expenses. The cost of collecting

information should therefore be less than the potential profitability. In addition to

the cost, the time required to collect information should be considered. This

information can be collected from financial statement, bank references, trade

references, credit bureau reports etc.

2) Credit Investigation: After the collection of credit information the firm needs to

go in for further investigation. These investigations are different for different

people and depend upon the type of customers, customer’s background, nature of

our product, size of the other, firm’s credit policy etc.

Credit investigations involve cost. But a credit decision without adequate

investigations can be more expensive in terms of excessive collection costs and

possible bad debts losses. Therefore credit investigations should be cared so long

as the savings, in terms of speedy collection and prevention of bad debts losses,

from it exceed the cost incurred in the process.



3) Credit Analysis: In the credit procedure, the next step is of credit analysis. The

appraisal regarding the financial strength, nature of business, type of management

regarding the other party are to be considered. The decision to extend credit to the

customers will basically depend upon the judgment of the credit analyst, although

numerical, credit evaluation systems exist, if it is expected that more and more of

qualitative systems will evolve in near future.

4) Credit Limits: Once the decision regarding the extending of credit has been

taken then the decision regarding the duration and the amount of credit are to be

taken. The credit limit is to be periodically reviewed and alterations, continuously

done. The decision on the magnitude of credit will depend upon the amount of

contemplated sale and the customers financial strength.

5) Collection Procedure: A clear cut and well administered collection procedure

will speed up the rate of dues collection if collection is delayed then the chances

of bad debts also increases. The procedure of collection can not be same for

everyone, it has to down according to the relation of the firm with its customer the

responsibility of follow up and collection should be clearly designated. To speed

up the process of collection after we use discount schemes etc.



PERFORMANCE EVALUATION OF RECEIVABLES MANAGEMENT

Evaluation of the performance of the credit department is a difficult task. There is no

Kotak Mahindra yardstick to compare with the actual performance. Yet a successful

receivable management must ensure a comparatively slow growth of receivable as

against sales, as factory collection period and receivable task over minimum bad debts

losses and effective use of capital invested in receivable. To what extent the concern have

been successful in their efforts, can be gauged by their actual performance. Accordingly

the following criterion have been employed to evaluate the performance of receivable

management in KOTAK MAHINDRA :

1. Composition of Receivable : It helps in showing the point where receivable are

concentrated most.

2. Ageing of accounts receivable : To have a detail idea of a quality of accounts

receivable through agency schedule.

3. Average collection period : To measure the effectiveness of collection efforts.

4. Relationship between debtors and sales : To know growth rate and also co-

efficient of correlation and determination.

5. Receivable as percentage of sales ratio: To examine the level of investment is

receivable

AVERAGE COLLECTION PERIOD

Average collection period explains how many days of credit, a company is allowing to

the customer, a higher collection period indicates towards a liberal and inefficient credit

and collection performances shorter the collection period the better the credit

management and liquidity of accounts receivable.

Average collection period

Year Days

2004 38

2005 40

2006 46

Average : 41 days



Conclusion : The receivable collection period at an average level is for 41 days during

five years of study. The period is increasing



DEBTORS TURNOVER RATIO

This ratio is calculated the effective utilisation of funds involved in receivable. An

effective credit management result in a higher turnover of accounts receivable.

Year Debtors Turnover Ratio Average collection period

(in days)

2004 9.49 38

2005 9.20 40

2006 7.88 46

Conclusion: The debtors turnover ratio is decreasing which signifies dark side of debtor.

The average collection period is at level of 41 days for the 3 years of study. The

collection period of debtors should be kept at lowest level for the reduction in cost of

capital and better productivity.



MANAGEMENT OF PAYABLES

A substantial part of purchase of goods and services in business are on credit terms rather

than against cash payment. While the supplier of goods and services tends to perceive

credit as a lever for enhancing sales or as a form of non-price instrument of competition,

the buyer tends to look upon it as a loaning of goods or inventory. The supplier’s credit is

referred to as Accounts payable, Trade Credit, Trade Bill, Trade Acceptance, commercial

drafts of bills payable depending on the nature of the credit. The extent to which this

‘buy-now, pay- later’ facility is provided will depend upon a variety of factors such as the

nature, quality and volumes of items to be purchased, the prevalent practices in the trade,

the degree of competition and the financial status of the parties concerned. Trade credits

or Payables constitutes a major segment of current liabilities in many business

enterprises. And they primarily finance inventories which form a major components of

current assets in many cases.

TYPES OF TRADE CREDITS

Trade credits or Payables could be of three types : Open Accounts, Promissory notes and

Bills Payables.

Open Account or open credit operates as an informal arrangement wherein the supplier,

after satisfying himself about the credit-worthiness of the buyer, dispatches the goods as

required by the buyer and sends the invoice with particulars of quantity dispatched, the

rate and the total price payable and the payment terms. The buyer records his liability to

the supplier in his books of accounts and this is shown as Payables on open account. the

buyer is then expected to meet his obligations on the due date.

The promissory notes is a formal document signed by the buyer promising to pay the

amount to the seller at a fixed or determinable future times. Where the client fails to meet

his obligations as per open credit on the due date, the supplier may require a formal

acknowledgment of debt and a commitment of payment by a fixed date. The promissory

note is thus an instrument of acknowledgment of debt and a promise to pay. The supplier

may even stipulate an interest payment for the delay involved in payment.

Bills payable or commercial drafts are instrument drawn by the seller and accepted by the

buyer for payment on the expiry of the specified duration. the bill or draft will indicate

the banker to whom the amount is to be paid on the due date, and the goods will be

delivered to the buyer against acceptance of the bill.



The seller may either retain the bill present it for payment on the due date or may raise

funs immediately thereon by discounting it with the banker. The buyer will then pay the

amount of the bill to the banker on due date.

DETERMINANTS OF TRADE CREDIT

Size of the firm:

Smaller firms have increasing dependence on trade credits as they find it difficult to

obtain alternative sources of finance as easily as medium or large sized firms. At the

same time, larger firms that are less vulnerable to adverse turns in business can command

prompt credit facility from supplier, while smaller firms may find it difficult to sustain

creditworthiness during periods of financial strain and may have reduced access to credit

due to weak financial position.

Industrial Credits:

Different categories of industries or commercial enterprises show varying degree of

dependence on trade credit. In certain lines of business the prevailing commercial

practices may stipulate purchases against payment in most cases. Monopoly firms may

insist on cash on delivery. There could be instances where the firms inventory turns over

every fortnight but the firm enjoys thirty days credit from suppliers, whereby the trade

credit not only finances the firms inventory but also provides part of the operating funds

or additional working capital.

Nature of Product:

Products that sell faster or which have higher turnover may need shorter term credit.

Products with slower turnover take longer to generate cash flows and will need extended

credit terms.

Financial Position of Seller:

The financial position of the seller will influence the quantities and periods of credits he

wishes to extend. Financially weak suppliers will have to be strict and operate on higher

credit terms to buyers. Financially stronger suppliers, on the other hand, can dictate

stringent credit terms but may prefer to extend liberal credit so long as the transactions

provide benefits in excess of the costs of extending credit. They can, afford to extend

credits to smaller firms and assume higher risks, suppliers with working capital crunch

will be willing to offer higher cash discounts to encourage early payments.



Financial position of the buyer:

Buyer’s creditworthiness is an important factor in determining the credit quantum and

period. It may be logical to expect large buyers not to insist on extending credit terms for

small suppliers with weak bargaining power. Where goods are supplied on a consignment

basis, the supplier provides extra finance for the merchandise and pays commission to

consignee for the goods sold. Small retailers are thus enabled carry much larger levels of

stocks then they will be able to finance by themselves. Slow paying or delinquent

accounts may be compelled to accept stricter credit terms or higher prices for products, to

cover risk.

Cash discounts:

Cash discount influences the effective length of credit. Failure to take advantage of the

cash discount could result in the buyer using the funds at an effective rate of interest

higher than the alternative sources of finance available. By providing cash discount and

inducing good credit risks to pay within the discount period, the supplier will also save on

the costs of administration connected with keeping records of dues and collecting

overdue accounts.

Degree of risk:

Estimates of credit risk associated with the buyer will indicate what credit policy is to

adopt the risk may be with reference to the buyer’s financial standing or with reference to

the nature of the business the buyer is in.

Nature and Extent of competition:

Monopoly status facilitates imposition of tight credit terms where as intense competition

will promote the tendency to liberalize credit. Newly established companies in

competitive fields may more readily resort to liberal trade credit for promoting sales than

established firms which are more formal in deciding on credit policies.



ADVANTAGES OF PAYABLES

Easy to obtain:

Payable or trade credit is readily obtainable, in most cases, without extended procedural

formalities. During periods of credit crunch or paucity of working capital, trade credit

from large suppliers can be boon to small buyers.

Suppliers Assume the risk:

Where the suppliers have the advantage of high gross margins on their products, they

would be able to assume greater risk and extend more liberal credit.

Informality:

In trade credit, there is no rigidity in the matter of repayment of scheduled dates,

occasional delays are not frowned upon. It serves as an extendible, convenient source of

unsecured credit.

Continuous Financing:

Even as the current dues are paid, fresh credit flows in as further purchases are made. It is

continuous source of finance. With a steady credit terms and the expectation of

continuous circulation of trade credit backing up repeat purchases, trade credit does, in

affect, operate as long term source.

EFFECTIVE MANAGEMENT OF PAYABLES

The salient points to be noted on affective management of Payables are:

Negotiate and obtain the most favorable credit terms consistent with the prevailing

commercial practice pertaining to the concerned product line.

Where cash discount is offered for prompt payment, take advantage of the offer and

derive the savings there from.

Where cash discount is not provided, settle the payment on its date of maturity and

not earlier. It pays to avail the full credit terms.

Do not stretch Payables beyond due dates, except in inescapable situations, as such

delays in meeting obligations has adverse affect on buyer’s credibility and may result

in more stringent credit terms, denial of credit or higher prices on goods and services

procured.

Sustain healthy financial status and a good track record of past dealings with the

supplier such as would maintain his confidence. the quantum and the terms of credit

are mainly influenced by suppliers’ assessment of buyer’s financial health and ability



to meet maturing obligations promptly.

Avoid the tendency to divert Payables. Maintain the self liquidating character of

Payables and do not use the funds obtained therefrom for acquiring fixed assets.

Payables are meant to flow through current assets and speedily get converted into

cash through sales for meeting maturing short terms obligations.

In highly competitive situations, suppliers may be willing to stretch credit limits and

periods. Assess your bargaining strength and get the best possible deal.

Provide full information to suppliers and concerned credit agency to facilitate a frank

and fair assessment of financial status and associated problems. With fuller

appreciation of client’s initiatives to honor his obligations and the occasional

financial strains which he might be subjected to for a variety of reasons, the supplier

will be more considerate and flexible in the matter of credit extension.

Keep a constant check on incidence of delinquency. Delays in settlement of Payables

with references to due dates can be classified into age groups to identify delays

exceeding one month, two month, three month, etc. Once overdue Payables are given

priority of attention for payment, the delinquency rate can be minimised or eliminated

altogether.

Evaluation of Payables Management:

Creditor’s turnover ratio & Average Payment Period

Year Creditors Turnover Ratio Average Payment Period

2004 3.95 92

2005 5.33 68

Average : 80 days

Source : Annual reports

Conclusion: Table shows that the minimum average creditor period is

68 days and maximum is 92 days. Table reveals the decreasing trend in average payment

period which is not good for the company.



FINANCING OF WORKING CAPITAL

WORKING CAPITAL FINANCE

Funds available for a period of one year or less are called short-term finance. In India,

short-term funds are used to finance working capital the sources of finance that are used

to finance current assets are as follows.

BANK FINANCE AND MARGIN REQUIREMENT

The Bank finances only that portion of the asset which are not financed by the creditors,

Banker finances the working capital requirement after taking the net current assets into

consideration. The bank will not finance the net working capital to the extent of 100% of

net current assets. It will like the company and the rest of the amount put in that some

amount o the asset may be financed by the bank.

The term margin money for working capital’ will imply the position of the current assets

which are to be financed by the promoter / company. The Tandon and Chore committee

are two notes worthy committees which had made important and significant

recommendations in this regard .The prime importance of the margin money is that the

amount to some extent should be brought in by the promoter to see that the current assets

are not double financed. Thus the actual bank borrowings are, say 75% of the net current

assets. The balance 25% of the contribution is to be brought in by the promoter company.

Following steps are involved on financing working capital

1. Receiving applications

2. Brief assessment of requirement as per application.

3. Processing of application — which involve:

(a) Assessment of financial parameters

(b)Assessment of need (on the basis of site visit)

(c) Assessment of creditworthiness of party

(d)Assessment of economic viability

(e) Assessment of technical feasibility

(f) Assessment on managerial competency.

4. Security — which involves

(a) Scrutiny of securities

(b) Valuation of stocks and securities



(c) Obtaining legal opinion

(d) Assessment of personal guarantors.

5. Forming opinion about the proposal

6. Sanction of credit

7. Documentation — which involves inspecting and acquiescing all legal document.

8. Release of credit

9. Follow up

ASSESSMENT OF WORKING CAPITAL

Recognizing the need for making the loan policy of the bank responsive, at the same time

ensuring that it affords a comprehensive credit risk management, observing accepted

prudential norms and exposure guidelines with regard to assessment of working capital

requirements of the borrowers has to be followed by banks. The following method has

been in effect since January 1998 and. may change with new guideline from RBI. But

before new guidelines from RBI banks will follow these methods for assessing working

capital requirements of borrowers.

ASSESSMENT OF WORKING CAPITAL FINANCE: METHODLOGIES

The following methods has been adopted, depending on the quantum of finance requested

for assessing working capital requirements of the borrowers

Quantum of limits requested

(Rs in lacs)

1. Upto Rs. 200 from the banking system Turnover method

2. Rs. 200 and above from the banking system But upto and inclusive of Rs 200000

lacs from the bank. Eligible working capital Limit.

3. For limits above Rs 2OO lacs EWCL or cash budget method may be decided by

the bank.

BASIC FINANCIAL PARAMETERS

The steadfast adherence to stipulated current ratios under the erstwhile MPBF system as

mandated by RBI had rendered the system inflexible to the needs of the borrowers and at

the same time did not afford any scope for the lending banker to exercise credit judgment.

The raised assessment methodology envisages adoptions of a basket of basic financial

parameters with broad bands to facilitate better risk management and to imbibe requisite

flexibility in credit dispensation.



The following are the basic financial parameters to be observed in case of borrower

assessment.

1. LIQUIDITY

The liquidity of any borrower is reflected in his current ratio and lowers the current ratio,

tighter the liquidity is indicating a lower net working capital (NWC) in the business.

If other basic financial parameters are satisfactory, the bank may make available full

sanctioned limits at lower than assessed NWC provided the resulting current ratio

semained within the band fixed by the bank. The bank may on merits of the case make

available additional finance either in the form of a short term loan or additional OD limit,

provided other basic financial parameters are satisfactory and at the same time

commensurate collateral security cover is available to the extent of 1.5 times of the value

of credit facilities availed by the borrower.

2. INDEBTEDNESS

The ratio of total outside liability to tangible net worth (TOL TNW) is reflective of total

in debtender of a borrower. A higher TOL : TNW ratio is cridicative of a higher level of

indebtedness on the part of the borrower generally on TOL : TNW ratio upto 5:1 to 10:1

may be accepted as reasonable. But sanctioning authority is vested with necessary

discretion to decide the ratio on a case to case basis.

3. SECURITY

The security coverage (Primary / esllateral put together) vis-à-vis the credit facilities

enjoyed by a particular borrower shall not be less than the value of advance. This is a

minimum requirement and a stronger security position should be tried for wherever

possible for the purpose of arriving at security courage ratio, the value of the second

change should be reckoned with after adjusting the quantum of first / prior charges. The

value of primary security plus collateral security shall be taken into account to determine

whether an advance is secured or clean.

4. PROFITABILITY

While sanctioning any credit proposal the minimum requirement shall be that the

business is making profit and not incurring loss. However, exception may be made

wherever a borrower suffers a temporary set back leading to an operating loss during a

particular year. The credit proposals of used / sick units will however remain subjected to

relevant guidelines mandated by RBI.



CREDIT MONITORING ARRANGEMENT (CMA)

The RBI regulates the overall credit granted by commercial banks to firms. It has

replaced is credit authorization scheme (CAS) by its credit monitoring arrangement

(CMA) in Oct 1988. Nov, RBI will oversee the sanction of the term loans and working

limits beyond the levels as post sanction scrutiny.The banks are required to report to RBI

about the cases, where the borrowers are enjoying the fund based limits from the banking

system which is in excess of Rs, 10 cr, etc. the key issues examined in scrutiny are

(1) Whether the minimum CR is 1:33:1; (2) whether the estimates, of sales, production

etc are in line with past trends if not, reason for deviation; (3) whether unit has complied

with chore committee of information system. (4) Whether renewal of limits is in time?

(5) Whether the bank is following norms of inventory and receivable procedures by RBI

standing committee.

No working capital loan is available without entering into a credit monitoring

arrangement with the banks. To enable complete control over the banking sector, the

Reserve Bank of India, has a universal format for CMA. The same format is applicable to

PSU banks, nationalized banks, private and foreign banks.

The format has 5 portions, which are described below:

A. Request:

The corporate seeking the working capital has to make a formal request to the

bank indicating its need for the loan.

B. Operating Statements:

Operating statement of the corporate for 4 years has to be given, out of which for

2 years the actual results (audited past results) are to be given while for the 2

future year an estimated operating System (1st year) and a projected operating

system (2nd year) have to be given.

C. Balance sheet spread:

An analysis of the balance sheet for 4 years has to be given (last 2 years actual, as

per audited balance sheet, current year estimates and following year projections).

D. MPBF:

A statement showing the calculation of the maximum permissible bank finance

for working capital for 3 years has to be given

E. Funds Flow Statement:

Funds Flow statement of the corporate for 3 years has to be given (last year

actuals as per audited balance sheet, current year estimates and following year

projections).



DRAWING POWER OF COMPANY:

S.NO Jan (in

lakhs)

Feb (in

lakhs)

Mar (in

lakhs)

Apr (in

lakhs)

May (in

lakhs)

June (in

lakhs)

1. Total

Inventory

201.5 220.33 235.9 238.67 275.91 282.94

Less: 50% of

JDF

24.18 24.26 24.27 23.99 23.99 24.04

177.32 196.07 211.63 214.68 251.92 258.90

2. Debtors

Less :Exp. &

DEB over

120 days

69.31 87.76 92.88 136.34 119.18 111.19

3. Total 246.63 283.83 304.51 351.02 371.10 370.09

4. 25% of CAS 55.62 64.90 70.06 81.76 86.78 86.52

5. Creditors 77.57 75.21 58.28 73.48 67.05 51.55

6. Total Net

WCG (3-5)

169.06 208.62 246.23 277.54 304.05 318.54

7. Drawing

power (6-4)

113.45 143.73 176.17 195.78 217.28 232.03

Add

8. Export

Debtors

19.80 25.98 21.00 26.00 23.79 25.00

9. Total

Drawing

power

133.25 169.71 197.17 221.78 241.06 257.03



S.NO July(in

lakhs)

Aug (in

lakhs)

Sept. (in

lakhs)

Oct (in

lakhs)

Nov (in

lakhs)

Dec(in

lakhs)

1. Total

Inventory

269.64 249.36 228.03 196.52 213.19 193.91

Less: 50% of

JDF

24.06 24.22 24.13 24.61 24.99 24.92

245.88 225.14 203.90 171.91 188.20 168.99

2. Debtors

Less : Exp. &

Deb over 120

days

96.36 113.36 161.54 165.32 128.47 109.58

3. Total 342.24 338.50 365.44 337.23 316.67 278.57

4. 25% of WCG 39.87 47.47 78.49 75.21 77.83 34.76

5. Creditors 39.87 47.47 78.49 75.21 77.83 34.76

6. Total Net

WGC (3-5)

302.37 291.03 286.95 262.02 238.84 243.81

7. Drawing

power (6-74)

222.82 212.46 201.62 183.87 165.92 180.40

Add

8. Export Debtors 25.00 15.00 12.00 9.00 4.00 6.00

9. Total Drawing

Power

247.82 227.46 213.62 192.87 169.92 186.40



MPBF of Company

Jan (in

lakhs)

Feb(in

lakhs)

Mar(in

lakhs)

Apr(in

lakhs)

May(in

lakhs)

June(in

lakhs)

Current Asset 222.46 222.46 222.4 222.46 222.46 222.4

Less : 25% of WCG 55.62 55.62 55.6 55.62 55.62 55.6

Net WCG 166.85 166.85 166.8 166.85 166.85 166.8

ADD:

50% JDF 24.18 24.26 24.2 23.99 23.99 24.0

Export Debtors 19.8 25.98 2 26 23.79 2

Total Net NCG 210.83 217.09 212.1 216.84 214.63 215.8

Total Net WCG 210.83 217.03 212.1 216.84 214.63 215.8

Less : CL 77.57 75.21 58.2 73.48 67.05 51.5

Total Net WCG 210.83 217.09 212.1 216.64 214.63 215.8

Less : CL 77.57 75.21 58.2 73.48 67.05 51.5

MPBF 133.26 141.88 153.8 143.36 147.58 164.3

July (in

lakhs)

Aug(in

lakhs)

Sep(in

lakhs)

Oct(in

lakhs)

Nov(in

lakhs)

Dec(in

lakhs)

Current Asset 222.46 222.46 222.4 222.46 222.46 222.46

Less : 25% of WCG 55.62 55.62 55.6 55.62 55.62 55.62

Net WCG 166.85 166.85 166.8 166.85 166.85 166.85

ADD:

50% JDF 24.06 24.22 24.1 24.61 24.99 24.92

Export Debtors 25 15 1 9 4 6

Total Net WCG 215.91 206.07 202.9 200.46 195.84 197.77

Less : CL 39.87 47.47 78.4 75.21 77.83 34.76

MPBF 176.04 158.60 124.4 125.25 118.01 163.01



PROCEDURE ADOPTED BY KOTAK MAHINDRA REGARDING MPBF

METHOD 1

Company follows the procedure the second method of MPBF as per recommendations of

the group related to approach to lending. It was stipulated that the unit should finance a

part of its current assets from owned funds and term liabilities. It prescribed a minimum

margin of 25% of CAS to be brought in by the units from its owned funds and long term

liabilities and suggested 3 different methods of lending to arrive at the contribution of the

borrower.

METHOD 2

The borrower should finance 25% of all current assets from owned funds and long term

liabilities and the balance be financed by the bank.

As all we know that contribution from long term sources is to be progressively increased

as we move fro of lending to the 3 rd method of lending and the ideal set up by the group.

It is also known that 2 method ensures a minimum current ratio of 1.33 : 1.

As a first step now the existing units have to adjust the excess borrowings by bringing in

additional capital or arranging the funds from long term sources.

The borrowings in excess of the permitted bank finance should normally be adjusted by

the unit by arranging funds from long term sources by way of additional capital etc. In

any case when it is not possible for the unit to arrange for funds for liquidating the excess

of borrowings, the bank may consider to amortize these dues by granting a short term

working capital loan. The repayment of working capital loan may be fixed according to

the cash generating and capital raising capacity of the unit. To induce the units for early

adjustment of working capital loan, it is suggest that a higher interest may be charged on

the loan component as compared to the interest on normal working capital loan.



ROLE OF BANKS

In today’s increasingly competitive world, where the firms are trying their best to manage

their working capital requirements most effectively the role of Bank in helping the firm in

its Working Capital management has become of crucial importance. Today Banks not

only provide short term or working capital loans but also play a major role in receivables

and payables management. Thus the basic questions which need to be addressed with

regard to Bank’s role can be stated as follows:

What facilities does/can the Bank provide the firm to reduce its days of working

cycle? i.e. what can the firm do to reduce firm’s average collection period and

increase its average payable period.

How can the Bank help the firm in reducing the cost of Debtors and Creditors

without having an adverse impact on average collection and average payable

period respectively?

CITIBANK

Kotak Mahindra’s Working Capital Management is basically done by Citibank. Citibank

has been playing a major role in Kotak Mahindra’s Working Capital Management and

recently it has come up several new products some of which will help Kotak Mahindra in

reducing its cost of Debtors and Creditors.

Now what the Bank has offered is that instead of dealers sending cheque/drafts to the

company, the Bank will directly collect cheque from the dealers. Citibank through its

own branches and tie up with correspondent banks offer to collect cheque drawn in more

than 2500+ locations and sent them for collection. This facility offered by the Citibank

helps the firm in reducing their average collection period considerably from usual 9-10

days (cheque) or 4-5 days (drafts) to 2-3 days. This is because the Bank Agent collects

the cheque from the day zero and deposits them in the Citibank branch or corresponding

Bank on that day itself. By the day zero evening only, the cheques are sent to clearing

house and then the entire process takes about 2 days. Thus there is reduction in average

collection period by almost 6-7 days in case of cheques and 2-3 days in case of drafts by

outsourcing B/R collection process to the Bank.

Another product/facility offered by the Citibank is purchase of client’s receivables.

In this the Bank buys client’s receivables and pay the client the discounted value (day

zero). The client continues its collection process as usual.



On Day, the client pays Bank 1st installment and on Day B, the 2nd installment. Even if

actual collection is less than the installment sold, the client has to bear/borne the shortfall

up to FLDG

(first loss deficiency guarantee) given by it and the rest has to be reimbursed by the Bank.

This facility offered by the bank enables companies to achieve off balance sheet

treatment for trade receivables. It is a kind of factoring facility which is given by the bank

to the firm. The main benefit to the client in this is that firstly it is getting money on the

very first day and thus its funds are not stock up in Debtors for the usual 30 or 60 days as

the case may be. Though the Bank does charge firm for this facility, it should be kept in

mind that the present of discounted the firm will receive on the day zero will be almost

equal to or could even be more than the present value of funds that the firm will receive

on 30th / 60th day from the dealer. Thus it is definitely advantageous for the firm to get

discounted funds from bank on day zero (it can utilize these funds somewhere else).

Secondly, if there is default in payment by some debtors then the entire shortfall is not

borne by the client (only FLDG).

Moreover contingent liability for FLDG amounts only has to be reported as against

Balance Sheet.

Another advantage is that it does not disturb the clients existing structure for collection

and recovery.

However, certain conditions are to be kept in mind:

Securitization of receivables is done through assignment of debtors and

assignment of debts is done under a Kotak Mahindra irrecoverable receivables

agreement.

Company is the collection agent throughout the tenure of the deal. Recourse to the

company in the event of default (Pre determined recourse level- FLDG limit)

Selection of poor of receivable based on pre defined criteria’s such as

Authorized dealers

No over dues greater than 90 days and no re-structuring of debts

Minimum association of 2 years

Consistent profitability record

Receivables pertain only to the sale of client’s products

Receivables do not present disputed amounts

Not from negative locations as specified by bank.



Another facility offered by banks for receivables is simple B/R discounting. In this the

Bank takes the bill from the client and in return pays it the discounted amount on first day

and on the due date it collects the amount from the dealer. Thus in this way the firm is

getting the funds on the very first day.

PAYABLES

Recently, Citibank has come up with some new products/facilities in Payables

Management; these products/facilities are as follows:

One such facility is post delivery financing which implies financing the purchase of

critical raw materials. In the normal course of business, the client or the vendor usually

pays the supplier after the expiry of pre determined period. Since the supplier is not

getting the money immediately on delivery but after 2 or 3 months as the case may be, he

will charge an interest rate which will be included in the cost of materials.

What Citibank has proposed is that it will pay the supplier discounted proceeds (i.e. after

deducting cash discount) on the very first date. Thus if the supplier was suppose4to get

Rs 100 from the client after one or two months as the case may be, now he will get Rs 93

from the Bank on the very first date (The Bank is charging an interest rate of 7%). On the

due date the Bank will debit the clients a/c by Rs 93 plus the interest rate on Rs 93 (say

7%). The benefit to the client is that earlier it was paying the supplier Rs 100 + 7% = Rs

107, whereas now it is paying only Rs 99.51 to the Bank. Thus the entire extra cost of

interest which the client was paying earlier has now been passed on to the supplier and in

this way firm’s cost of creditors has gone down without having an adverse effect on

payment period.

For this there are certain documentation requirements:

One time documentation

Citibank offer letter to be duly accepted by the client.

Board resolution from the client for signature verification on the transaction does.

Transactions based Documents

Request letter from client

Accepted B/E

Original invoice

Transport Documents.

Another facility offered by the Citibank is managing the entire payment process of the

client.



In other words the Bank works as a “Back Office”. It involves everything from printing

cheque, electronic authorization to payment advice generation and delivery.

Apart from these, Citibank also provide services in import and export finance by giving

credit to both suppliers and buyers and they directly benefit as their cost of borrowing is

lower in this case.



CH NO. 9: FINDINGS & ANALYSIS

The study conducted on working capital management of Kotak Mahindra shows the

evaluation of management performance in this regard. Major findings and suggestions

thereon are narrated as under: (Questionnaire given in Annexure A)

1. Do you know about Insurance?

(a) Yes- 92%

(b) No - 8%



2. Have you ever opted for Insurance from any Company?

(a) Yes- 61%

(b) No - 39%



3. If Yes, Which Company have you taken Insurance from?

LIC 42%

TATA AIG Life Insurance 7%

HDFC Standard Life Insurance 12%

ICICI Pur 19%

Kotak Mahindra Old Mutual Life

Insurance

8%

Birla sun life Insurance 10%

Met life insurance 2%



4. How did you come to know about Insurance?

(a) Advertisement - 76%

(b) Word of Mouth - 14%

(c) Referred by your company / Friend - 10%



5. What made you select a particular Company for the Insurance?

(a) EMI - 78%

(b) Brand name - 3%

(c) Procedures - 9%

(d) Facilities - 1%

(e) Policies - 7%

(f) Advertisement - 2%



6. How do you like the Marketing strategy by different Companies?

(a) Good - 68%

(b) Average - 19%

(c) Bad - 13%



7. What made you select this particular bank for the services & products?

Conveneint location

Procedures

Facilities

Working hours

Advertisement

8. Advantages or Comment about Insurances

(a) Advertisement should be more on the advantages and fact rather the features.

(b) There is a Tax saving factors while opting for Insurance.

(c) Procedure should be made easier for the normal public as it consumes a lot of

time and effort for providing all the documents.

(d) Insurance is a need and not Luxury.



9. Which Company would you prefer if you have never applied for

Insurance?

LIC 56%

Birla sun life Insurance 7%

HDFC Standard Life Insurance 12%

Icici Prudential 17%

Kotak Mahindra Old Mutual Life

Insurance

8%

TATA AIG life Insurance 5%

FINDINGS & SUGGESTIONS



This chapter deals with the concluded aspects of the study carried out on “General

perception about Life Insurance”. The basic objective for which the study was carried out

has been fulfilled in the earlier chapter, based on the objective interview schedule was

designed. Data collected based on schedule was analyzed and some findings have

emerged.

Major Findings of the Study

Based on the quantitative analysis the major findings of the study have been highlighted

below….

Most of the people are satisfied with the extent of their life insurance cover. They are

not interested in buying more life insurance.

People do not consider life insurance as a good savings because of low returns.

As life insurance is a long term contract. Maximum people do not have faith on

private life insurance companies, they still prefer LIC.

Because of less advertising not many people are aware about private life insurance

companies.

Most of the people do not know about broker, corporate agents and banc assurance,

they rely on their agents only

The most preferred type of plan is money back. The reason being availability of funds

after every five years which can be used for paying further premium, thus saving the

regular income.

Some people have no idea about what type of cover they have.

Most of the people feel that life insurance is essential but they think returns are low.

Some people have their doubts on the credibility and long stay of private insurance

companies.

Suggestions



Advertising of the insurance product should stress on the need of security.

Insurance should be popularized as the means of securing future rather than saving

tax.

New entrants should come out with innovative riders.

Policies should be issued quickly and with less formalities

Other service should also be improved.

Newspaper/Magazines and television are the most effective medium of advertising

life insurance.

Insurance agents should be well trained.

Dividend for the Financial Year 2004-05

The Board of Directors of the Corporation has recommended payment of dividend of

170% (Rs. 17 per share), for the financial year ended March 31, 2007, for approval of the

shareholders at the AGM. [Previous year 135% (Rs. 13.50 per share)].

Dividend entitlement is as follows:

For shares held in physical form: shareholders whose names appear on the register

of members of the Corporation as at the close of business hours on June 30, 2007.

For shares held in electronic form: beneficial owners whose names appear in the

statements of beneficial position furnished by NSDL and CDSL as at the close of

business hours on June 30, 2007.

Findings:

Current assets comprise a significant portion i.e. 30.89% (average for three years

of study) of total investment in assets of the company. There is fluctuating and

rather increasing trend of this ratio during the period which shows management

in-efficiency in managing working capital in relation to total investment. Further

current assets to fixed assets ratio also shows on fluctuating trend during the study

period which substantiate above mentioned criterion of in-effectiveness in

management of working capital by the company.

Current assets turnover ratio for the first three years of study shows fluctuating

trend which is due to significant increase in sales. In 2005 current assets turnover

ratio is highest one i.e. 2.98 during the study, reasons being during this year

company has achieved sales growth 44.36% over the previous year.

The ratio used for analysis of liquidity position are current ratio and quick ratio.



These ratio reveals that company has sound liquidity position throughout the

period of study. Both the ratio shows fluctuating trend within reasonable limit but

these ratio are higher than conventionally accepted norms i.e. 2:1 in case of

current ratio & 1:1 in case of quick ratio, which shows ineffectiveness of the

management in managing current/quick assets in relation to current liabilities.

The ratios used for cash management are cash to current assets ratio, cash to

current liabilities ratio. Cash to current liabilities also shows decreasing trend and

cash to current assets ratio also shows decreasing trend. All these ratios reveals

that management has no definite cash policy.

Inventory turnover ratio depict the fluctuating trend which indicates the

accumulation of inventory in turn which cause loss to the company by way of

deterioration of stock, interest loss on blockage of stock etc. Further composition

of inventory reveals that portion of individual element of inventory has

fluctuating trend which indicates that management has no policy in respect of

inventory management.

Debtors Turnover ratio reveals a decreasing trend during the period of study and

average collection period ranges from 38 to 46 days. Keeping in view of

INSURANCE industry trend credit period of 41 days is quite very higher. It

reveals that management has no specific policy in respect of debtors management.

Keeping in view of detailed analysis of our study and our findings mentioned in above

paragraphs, the following suggestions shall be helpful in increasing the efficiency in

working capital management.

Company should make a policy in respect of investment of excess cash, if any; in

marketable securities and overall cash policy should be introduced.

In case of inventory management ABC analysis, FSN technique, VED technique

should be adopted to increase the efficiency of inventory management. Further a

inventory monitoring system should be introduced to avoid holding of excess

inventory.

Management should develop a credit policy and proper self realisation system

from customers so that efficient and effective management of accounts receivable

can be ensured. This will significantly improve the profitability and liquidity of

the company.

Purchase policy regarding raw material, consumables, and tools and packing



materials etc. should be introduced which ultimately helps in planning of

inventory, availment of maximum trade cash discount and availment of maximum

credit period from suppliers.

CH NO. 10: RECOMMENDATIONS



1. System of lending cash credit/loans/ bills

The study group found that there was a substantial gap between the sanctioned

limit of cash credit and the extent of their utilization. They recommended that the

bank should strictly ensure that a review of all borrowers accounts, enjoying

working capital credit limits of Rs 10 Lac and over from the banking system is

made at least once a year. A working capital limit will include all fund-based

limits for working capital purposes. It will verify the continued viability of the

borrowers and also assess the need-based character of their limit.

2. Bifurcation of credit limits

Bifurcation of cash credit limits into a demand loan portion and a fluctuating cash

credit component has not found acceptance either on the part of the banks or the

borrowers. Such bifurcation may not serve the purpose of better credit planning

by narrowing gap between sanctioned limits and the extent of utilization thereof.

3. Reduction in over dependence on bank finances

The need for reducing the over dependence of the medium and large borrowers

both in private and public sectors on bank finance for their production / trading

purposes is recognized. The net surplus cash generation on established industrial

unit should be utilized partly at least for reducing borrowing for working capital

purposes.

4. Increase in owner’s contribution

In order to ensure that the borrowers do enhance their contributions working

capital and to improve their current ratio, it is necessary to place them under the

second method of sending recommended by hand on committee which would give

a minimum current ration of 1.33:1. As many of the borrowers may not be

immediately in a position to work under the second method of lending the excess

borrowings should be segregated and treated as working capital term loan which

should be made repayable loan, it should be charged at higher rate of interest. The

committee recommends that the additional interest may be fixed at 2% per annum

over the rate applicable on the relative cash credit limits. The procedure should be

made compulsory for all borrowers (except sick units) having aggregate working

capital limits of Rs 10 Lac and over.

5. Separation of Normal, Non-Peak Level & Peak Level Requirements



While assessing the credit requirement, the bank should appraise and the separate

limits or the normal non-peak level as also or the ‘peak level’ or requirement

indicating also the periods during which the separate limits would be extended to

all borrowers having working capital of Rs. 10 lacs and above. One of the imp.

Criteria for deciding such limit should be the borrowers’ utilization of cr. Limits

in the past.

6. Temporary Accommodation through loan

If any ad-hoc or temporary accommodation is req. in excess of the sanctioned

limit to meet unproven contingencies the additional finance should be given,

where necessary, through a separate demand loan A/C or a separate non-operable

cash Cr. A/C. There should be a stiff penalty for such demand loan or non-

operable cash cr. Portion, ablest 2% above the normal rate unless the RBI

exempts such penalty. The discipline may be made applicable in cases involving

working capital limits of Rs. 10 lacs and above.

7. Penal Information

The borrower should be asked to give his quarterly requirements of funds before

the commencement of the quarter on the basis of his budget, the actual

requirements being within the sanctioned limit for the particular peak level/non-

peak level periods. Drawings of less than or in excess of the operative limit so

fined (with a tolerance o 10% either way) but not exceeding the sanctioned limit

would be subject to a penalty to be fined by the RBI from time to time. For the

time being, the penalty may be fixed at 2% p.a. The borrower would be required

to submit his budgeted requirements in triplicate & a copy of each would be sent

immediately by the branch to the controlling office and head office for record.

The penalty would be applicable only in respect of parties enjoying cr. Limits of

Rs. 10 lacs and above subject to certain exemptions.

8. Info. Systems

The non-submission of the returns in time is partly due to certain features in the

forms themselves. Simplified forms have been proposed to overcome this prob.

As the quarterly info. System is part and parcel of the revised style of lending

under the cash cr. System, if the borrower does not submit the return within the

prescribed time, he should be penalized by charging the whole outstanding in the

A/C at a penal rate of int., 1% p.a. more than the contracted date for the advance

from the due date of the return till the date of its actual submission.



CH NO. 11: BIBLIOGRAPHY

BOOKS& REFERENCES:

Khan M.Y. and Jam P.K., Financial Management Banerjee, Cash Management Kulkarni P.V., Financial Management Pandey I.M. Financial Management Business India Business Today Capital Market Business Standards Economic Times Dalal Street Journal Annual Report- Kotak Mahindra

WEBSITES:

www .kotakmahindra.com www.karvy.comwww.camsonline.com

www.sbimf.com

www.dundeefunds-India.com

www.kotak.com

www.utittrustofindia.com

www.birlaglobat.com

www.www.kotakmahindra.com

www.hdfc-India.com

www.licofindia.com

www.icra.com

www.crisil.com

www.icici.com

www.idbi.com

www.reservebank.com

www.sebi.gov.in

www.icicibank.com

www.bankofpunjab.com

www.statebankofindia.com


http://www.bankofpunjab.com/

http://www.icicibank.com/

http://www.sebi.gov.in/

http://www.reservebank.com/

http://www.idbi.com/

http://www.icici.com/

http://www.crisil.com/

http://www.icra.com/

http://www.licofindia.com/

http://www.hdfc-India.com/

http://www.www.kotakmahindra.com/

http://www.birlaglobat.com/

http://www.utittrustofindia.com/

http://www.kotak.com/

http://www.dundeefunds-India.com/

http://www.sbimf.com/

http://www.camsonline.com/

http://www.karvy.com/

http://www.kotakmahindra.com/


CH NO. 12: QUESTIONNAIRE

(ANNEXURE A)

1. Name:

2. Occupation

3. Do you know about Insurance?

Yes

No

4. Have you ever opted for Insurance from any company?

Yes

No

5. If Yes,

Which company have you taken Insurance from?

LIC

SBI Insurance

HDFC Standard Life Insurance

Icici Pur

Max New York Life Insurance

Kotak Mahindra Old Mutual Life Insurance

TATA AIG life Insurance

6. How did you come to know about Insurance?

Advertisement

Word of Mouth

Referred by your company / Friend

7. What made you select a particular company for the Insurance?

EMI

Brand name

Procedures

Facilities

Policies

Advertisement



8. How do you like the Marketing strategy by different Insurance Company?

Good

Average

Bad

9. What motivates you for selecting any Company for Insurance?

EMI

Brand name

Procedures

Facilities

Policies

10. Advantages or Comment about Insurances

11. Which Company would you prefer if you have never applied for Insurance?

LIC

SBI Insurance

HDFC Standard Life Insurance

HDFC Prudential

Kotak Mahindra Old Mutual Life Insurance

TATA AIG life Insurance



CH NO. 13: CASE STUDY

In spite of the vast potential, the retirement solutions category remained virtually

untapped by the Indian Insurance players - until Kotak Mahindra Old Mutual Life

Insurance decided to build and explore this hidden goldmine. The following case study

discusses how Kotak Mahindra Old Mutual Life Insurance used smart strategies to

exploit this opportunity to its advantage.

KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE.

Market Scenario

With increasing life expectancy on one hand and rising inflation and medical costs on the

other, the need for planning one’s retirement was emerging as an important one.

However, it was quite surprising to know only 11 per cent of India’s total working

population was adequately covered for post-retirement life. This was mainly due to low

awareness of and attitudinal barriers with respect to these issues among consumers.

Opportunities

About 90 per cent of the working population in India was without retirement cover. Of

this, a sizeable portion belonged to the age group of 30-40 yrs - a big market left

unexploited so far. Even the market leader LIC, which has been in the country for

decades, had failed to truly drive growth of the retirement products category. Proof being

the mere 4.16 per cent contribution of pension products to its entire portfolio (as of end

2005).

Barriers

The task of capturing the unexploited market however, turned out to be an uphill one.

The first barrier was low awareness of the need for early retirement planning among

consumers. Add to it the consumer’s notion that planning for retirement starts only in

your 50s. The bigger issue however, was the consumer’s perceptions and fears as far as

retirement was concerned. The word ‘retirement’ itself brought to mind all the negatives

associated with old age – loss of independence (social, financial and physical), causing

‘avoidance’ or deferment of decisions regarding the same.



The Challenge

To re-position the traditional concept of retirement planning and thus create relevance for

it among the 30-40 yrs age group.

To change behavior, inducing consumers to invest in retirement planning early in life.

Campaign objectives

Bring the concept of planning for retirement into the consideration set of 30-40 year old

working men/ women thereby creating a new market

50 per cent of pension’s contributions to come from persons below 40 years Sales and

market share targets within six months post campaign (for the period Sep 2005 to Mar

2006):

1. Sales target: INR 400 million

2. Share of total pensions market: 10 per cent

3. Contribution of pensions to portfolio: 20 per cent.

Target Audience

SEC A, B, 30-40 year old, chief wage earner, who: is at the prime of his working life,

with a higher disposable income and majority of work life still at hand.

Currently thinks that retirement planning holds very low importance, as compared to

other needs of asset acquisition, child’s education etc.

Creative Strategy

Consumer Insight “Retirement is a long way off – why plan for it now?” Retirement

means the end of all good things in life” Creative strategy.

To a younger target group, for whom retirement is synonymous with growing old, the

strategy was to offer a fresh perspective by mirroring the never say die attitude of the 35

yr old. If age doesn’t stop him from sharing in the joys of life now, why should it stop

him later? Proposition Kotak Mahindra Old Mutual Life Insurance Retirement solutions

help you plan early for retirement, ensuring that you will continue to live life the way you

always wanted to. The advertising message “Retire from work – not life!”



Other Communication Programmes

The laddered task of share gain through changing consumer attitudes and behavior, called

for a multi-dimensional communication strategy that went beyond traditional mass

media.

1. Retirement Solutions Seminars: Through a tie up with The Times of India, full-page

educative advertorials were released in three metros inviting consumers for a free seminar

on early retirement planning. Over 2000 consumers attended these seminars.

2. Direct Marketing Campaign: More than 15 databases were carefully chosen to

accurately target the 30-40 yr old. Customers of/subscribers to KOTAK MAHINDRA

Bank credit card holders, Safety Bond holders, Money control and Myiris are few of the

databases that were used.

3. Retirement Planner: An educative booklet in the form of a planner was created

explaining why it made better sense to start planning for retirement several years in

advance. The mode of distribution was an innovation in Brand Equity (The Economic

Times).

4. Retirement calculator: A user-friendly calculator was designed to help customers

calculate the current savings required in order to meet post-retirement expenses. This was

made available on the brand website and used extensively as a needs analysis tool at the

time of sale.

Media Strategy

The overriding objective of the media strategy was customer interaction through various

touch points using a 24-hour cycle. So a multi media strategy was developed to contact

the target at every possible touch point.

1. TV: This was the main for reach, impact and demonstrates the emotional pay off. For

the first month of launch a high reach, high frequency plan was implemented, followed

up with three months of sustained activity. The activity started with 40-second

commercials and then moved to 20 and 30 seconds edits aimed at increasing frequency.

2. Print: Press reinforced the rational benefit of saving early to cushion your retirement

by highlighting the product’s comprehensive features. Vehicles were chosen based on the

best cost per response i.e. the publication which would generate the maximum no of call

ins.

3. Radio: The new FM channels launched in the previous year were explored to reach

audiences out of home. The spots were aired so as to get the morning and evening office-

going traffic.



4. Outdoor: A high visibility-high impact outdoor strategy was implemented across 21

cities. Morning traffic sites were specifically selected to target the office going consumer.

5. Internet: Used innovatively to seek responses via click-through. Financial sites and

general interest sites were chosen considering the net is used both in office and at home.

6. Direct Marketing: Mailers and brochures played the dual role of educating the

consumer on the rationale behind planning early for retirement and the advantages of

Kotak Mahindra Old Mutual Life Insurance Retirement Solutions.

7. Public Relations: Was effectively used to educate consumers on early retirement

planning, making them more receptive towards the brand’s communication. Competitive

Media Spends: The combined spend of just the top 2 competitors put together amounted

to Rs 16 crores approx. comparatively the spends on the Kotak Mahindra Old Mutual

Life Insurance campaign was Rs 4.8 crores.

Media

1. Television

2. Newspaper

3. Consumer Magazine

4. Radio

5. Point-of-Purchase

6. Out-of-Home

7. Public Relations

8. Sales Promotion

9. Consumer Seminars



Evidence of Results -Overwhelming Response

To begin with, the campaign triggered a large number of consumer response calls and e-

mails (35000 calls and 3000 emails).

The response rate for mailers sent out (Direct Marketing) varied from five per cent to 7.5

per cent, far higher than both domestic and international norms across categories.

Changing Attitudes

The average age of a person investing in Kotak Mahindra Old Mutual Life Insurance

retirement solutions rose to 38.5 years.

Sales and Market Shares

The success of the campaign was not limited to phone calls alone. The campaign

contributed greatly to the organization’s top line and bottom-line as is evident form the

charts below: 1. Sales achieved for the period Sept ‘02 to Mar ’03, were INR 740 million

as compared to a target of INR 400 million. 2. Market share Gain: The brand increased its

share of pensions market to 23 per cent against target of 10 per cent for the period Sep

2005 to Mar 2006. The table below which compares Kotak Mahindra Old Mutual Life

Insurance share in the pensions market with the overall life insurance category puts the

campaign’s success in perspective.



CH NO. 14: SYNOPSIS OF THE PROJECT

KOTAK MAHINDRA LIFE INSURANCE

WORKING CAPITAL MANAGEMENT AT

KOTAK MAHINDRA LIFE INSURANCE

STUDENT’S NAME: KUSHAGRA DABUR

INDUSTRY GUIDE: MR. RUCHIR AGGARWAL

FACULTY GUIDE: MR. AJIT MITTAL

OBJECTIVE:

To meet the cash disbursement needs (payment schedule);

To minimize funds committed to cash balances.

The present study is limited to one Co., i.e. Kotak Mahindra Life Insurance, and

covers a period from 2003 and 2006 due to limitation of time and accessibility to

data base.

The authenticity of the suggestions and recommendations depend upon the rationality

of the data provided to me.

FINDINGS: The relative growth rate of short term trade credit and value industrial production.

The relative growth rates of short term trade credit & inventories with industry &

trade.

The diversion of short-term credit for fixed asset acquisition & for lower and

Investments.

The incidence or multiple financing,

The elongation of credit period.




RECOMMENDATIONS:The study group found that there was a substantial gap between the sanctioned limit of

cash credit and the extent of their utilization. They recommended that the bank should

strictly ensure that a review of all borrowers accounts, enjoying working capital credit

limits of Rs 10 Lac and over from the banking system is made at least once a year. A

working capital limit will include all fund-based limits for working capital purposes. It

will verify the continued viability of the borrowers and also assess the need-based

character of their limit.

IMPLICATIONS:The Bank finances only that portion of the asset that is not financed by the creditors,

Banker finances the working capital requirement after taking the net current assets into

consideration. The bank will not finance the net working capital to the extent of 100% of

net current assets. It will like the company and the rest of the amount put in that the bank

may finance some amount of the asset.



project report on working capital management kodak

Documents

life insurance industry

graphs ch

data collection

insurance industry untill

data sources

insurance sector

industry profile

data customer survey