2560-sources Of Financing In Abhyudaya Bank.pdf

UNIVERSITY OF MUMBAI PROJECT REPORT ON “SOURCES OF FINANCING IN ABHYUDAYA BANK.”

IN PARTIAL FULLFILMENT FOR MASTER OF COMMERCE STUDIES SEMESTER IV 2017-18

PROJECT GUIDE: PROF. MONALI RAY

SUBMITTED BY: PALLAVI VILAS PAWAR ROLL NO: 2560

SPECIALISATION IN: FINANCIAL MANAGEMENT

MAHATMA EDUCATION SOCIETY’S PILLAI COLLEGE OF ARTS, COMMERCE AND SCIENCE SECTOR-16, NAVI MUMBAI-410206 1

PILLAI COLLEGE OF ARTS, COMMERCE AND SCIENCE DR K.M. VASUDEVAN PILLAI'S CAMPUS SECTOR - 16, NEW PANVEL, 410206

Certificate To whomsoever It May Concern, This is to certify that Miss. Pallavi Vilas Pawar has successfully completed the project work titled “SOURCES OF FINANCING IN ABHYUDAYA BANK” in partial fulfillment for the award of MASTER OF COMMERCE prescribed by PILLAI COLLEGE OF ARTS, COMMERCE AND SCIENCE. This Project is the record of authentic work carried out during semester- IV for the Academic year 2017-18.

Project Supervisor

Project Supervisor

External Examiner

M.COM Coordinator

2

ACKNOWLEDGEMENT First of all, I would like to thank my college, Pillai’s College of Arts, Science and Commerce for giving me an opportunity to prepare this project as a part of the MCOM programme of Mumbai University. Secondly, I would like to thank my project guide, Prof. MONALI MA’AM, for guiding me throughout the preparation of this project and for correcting me whenever required. I would also like to thank my college librarian for giving me access to the library books and materials as and when I required them. Last but not the least, a big thank you to my parents and colleagues, without whose support an encouragement this project would never have been completed.

3

DECLARATION

I, MISS. PALLAVI VILAS PAWAR of PILLAI COLLEGE OF ARTS, COMMERCE AND SCIENCE – PANVEL student in M.COM (PART- II) hereby declare that I have completed this project on “SOURCES OF FINANCING IN ABHYUDAYA BANK” in the academic year 2017-18. The information submitted is true and original to the best of my knowledge.

Place:

Date:

Signature of Student

(PALLAVI VILAS PAWAR)

4

INDEX

SR. NO.

TOPICS

PAGE NO.

1

EXECUTIVE SUMMARY

6

2

INTRODUCTION

9

3

RESEARCH METHODOLOGY

12

4

REVIEW OF LITERATURE

15

5

CONCEPTUAL FRAMEWORK

27

6

COMPANY PROFILE

49

7

DATA ANALYSIS AND INTERPRETATION

69

8

CONCLUSION

75

9

BIBILIOGRAPHY

77

10

APPENDIX

78

Executive Summary This Course helped us to implement our theoretical knowledge in our project. In this project we tried our level best to incorporate all the information and data that we have learned throughout this semester. So here we have covered the main activities that we have done. This project is prepared on the basis on Sources of financing. In this project we discuss about Sources of financing in abhyudaya bank. In this project the both methods that is, primary and secondary method used. Primary data is based on the Survey (Questionnaire). I Secondary data is based on the website of the Topic. This project helps to know about the Sources of financing.

6

Chapter 1:Introduction

7

8

Chapter 1:- Introduction

Definition of Finance:Finance is a field that deals with the study of investment. It includes the dynamic of assets and liabilities over time under conditions of different degrees of uncertainties and risks finance can also be define as science of money management.

Definition of sources of finance:A company would choose from among various sources of finance depending on the amount of capital required and the terms for which it is needed. Without cash, the business would not be able to survive. With many possible uses of finance-wages, advertising, expansion, is paying the interest on loans, etc... We should consider the various sources of finance available to business.

9

Objectives of the Study 1. State the meaning, nature and importance of business finance. 2. Classify the various sources of business finance. 3. Evaluate merits and limitations of various sources of finance. 4. Identify the international sources of finance, and 5. Examine the factors that affect the choice of appropriate sources of finance.

10

Chapter 2:Research Methodology

11

Chapter 2:- Research Methodology

Introduction

Research refers to the search for practical knowledge, and it is a scientific investigation for the search for relevant information. Research consists of comprising and redefining problem, formulating, solutions, collecting, organizing, and evaluating data, making conclusions and carefully testing conclusion clarify the accuracy of conclusion. For the successful completion of this project apart from the guidance from various people, two type of data collection was used viz. Primary data collection and secondary data collection. My methodology of primary data collection was questionnaire consisting of 5 questions. My methodology for secondary data collection was only internet search engines like Google, website of the bank, etc. Thus, I would conclude by saying that this project is a mainly based on secondary data but it’s also include Primary data.

RESEARCH INSTRUMENT:After the research is selected, the data collection through questionnaire, which is Designed by covering the objective is defined.

12

RESEARCH METHOLOGY

Secondar y y

Primary

Questionnai re re

Interview Internet

Journals

Books

Magazine s

Primary Data:Primary research consists of a collection of original primary data collected by the researcher. It is often undertaken after researcher has gained some insight into the issue by reviewing secondary research or by analyzing previously collected primary data. It can be accomplished through various methods, including questionnaires and telephone interview in market research, or experiments and direct observation in the physical sciences, amongst others. This term is widely used in academic research, market research and competitive intelligence.

Secondary Data:Secondary data is data collected by someone other than the user. Common sources of secondary data for social science include censuses, organizational records and data collected through qualitative methodologies or qualitative research. Secondary data analysis saves time that would otherwise be spent collecting data and particularly in case of quantitative data, provides larger and higher-quality databases that would be unfeasible for any individual researcher to collect on their own. In addition, analysts of social and economic change consider secondary data essential, since it is impossible to conduct a new survey that can adequately capture past change and/or developments.

13

CHAPTER 3:REVIEW OF LITERATURE

14

CHAPTER 3:- REVIEW OF LITERATURE Literature survey is a process of developing awareness about conceptual and researchbased studies available on the area and the topic selected for the proposed research. The objective of such review is to understand the importance of the topic and find out research gaps, if any, in the chosen area.

1. Demirgüç-Kunt and Levine (1996) Financial Structure and Economic Growth

Demirgüç-Kunt and Levine (1996) made a pioneering study using data from both industrial

and developing countries. Their study supports the Gurley and Shaw (1955)

view that at low

levels of development commercial banks are the dominant financial

institutions. As economies grow, specialized financial intermediaries and equity markets develop and prosper, which will reduce the share of banking finance in the overall financial system. They also studied the interaction between development of financial intermediaries and stock market development. Their results suggest that across countries the level of stock market development is positively correlated with the development of financial intermediaries.

Boyd and Smith (1996) studied the co-evolution of the real and financial sectors of the economy as it develops. They argued that financial innovation is a dynamic process that both influences and is influenced by the real sector. As an economy develops, the aggregate ratio of debt to equity generally falls; yet, debt and equity markets function as complements rather than substitutes in financing real development of the economy. They found that the development of equity markets occur relatively late in the economic development process because of the frictions in the financial market. As these frictions become less severe overtime, the economy gets the benefits of a more efficiently functioning set of capital markets.

Fase and Abma (2003) examined the empirical relationship between financial development and economic growth in South- East Asia using data for twenty five years. They found that financial development matters for economic growth and that causality runs 15

from financial structure to economic development. The results suggested that in developing countries a policy of financial reforms could improve economic growth. 2. Harvey (1989) Financial Development and Economic Growth

Harvey (1989) analyzed the forecasting capacity of stock and bond prices for GNP growth rate. He found that information about economic growth can be drawn from both bond market and stock market variables. However, the bond market delivers more information about future economic growth than the stock market. He found that the bond market forecasts also compare favorably with the forecasts from leading econometric models, whereas forecasts from stock market models do not perform well in this regard.

Levine (1991) studied the impact of stock markets on economic activity through the creation of liquidity. The study revealed strong link between stock market liquidity and economic growth even after controlling for other economic, social, political, and policy factors that affect economic growth. Stock market liquidity is proved to be a good predictor of future long-term growth. However, other measures of stock market development such as stock market size and volatility do not significantly affect economic growth.

Berthelemy and Varovdakis (1994) made a novel attempt to find out the reciprocal interactions between financial and real sectors in the economy in the context of multiple steady state equilibrium. They found that depending on the nature of the initial steady state, there may exist either a poverty trap in which the financial sector disappears and the economy stagnates or a positive endogenous growth which is followed by a natural development of financial intermediation. They concluded that financial development policies might have very different consequences depending on the initial context of the economy.

Obstfeld (1994) examined the impact of risk diversification through internationally integrated stock markets on economic growth. He found that, since high-return projects also tend to be comparatively risky, stock markets that facilitate risk diversification encourage a shift to higher return projects. Thus, better functioning, more internationally integrated stock markets boost economic growth by shifting society’s savings into higher return projects. Bencivenga, et al (1995) studied the impact of the efficiency of an economy’s equity markets-as measured by the cost of transacting in them, affects the economy’s efficiency in 16

producing physical capital and through these channel final goods. They found that as the efficiency of an economy’s capital markets increases, it cause agents to make longer-term and hence more transaction-intensive investments, resulting in a positive change in the composition of savings and investment.

Levine and Zervos (1996) in their pioneering study empirically evaluated the relationship between stock market development and long-run economic growth through crosscountry growth regressions. Their results suggest that there is a positive and robust association between the two. Moreover, there is a strong connection between the pre-determined component of stock market development and economic growth in the long run.

A comprehensive study by Mishkin (1996) concluded that adverse selection and moral hazard problems arising from asymmetric information in investor-firm relationship creates disruption in financial markets, leading to inefficient allocation of funds. His study revealed that banks and financial intermediaries are more efficient than stock markets in this regard.

Nagraj (1996) made a comprehensive work on the impact of stock market activity on aggregate savings and investment, and found that in India, the huge increase in stock market activity is not associated with either a rise in aggregate gross domestic saving or with an increase in the proportion of financial saving. He found no statistically valid association between capital market resource mobilisation and growth in corporate fixed investment or growth in net value added. Stock market’s role is limited to financial intermediation with little effect on aggregate saving rate, corporate investment and output growth rates.

Harris (1997) made a comparative study of the relationship between stock market activity and economic growth on different samples of both developed and less-developed countries. He found no hard evidence for the models that suggest a positive association between the level of stock market activity and growth in per-capita output. Further, for the less developed countries’ sample, the stock market effect, as with the full sample, was very weak. For the developed countries, however, stock market activity exhibited some explanatory power.

Shah and Thomas (1997) studied the relative efficiency of banking system and stock market in terms of quality of information processing and reduction of transaction cost. They found that in India the stock market is more efficient than banking system in both dimensions. Efficient stock market contributes to long run growth through efficient allocation of scarce 17

savings. They also found that foreign capital flows have a positive impact on the real economy via lowering the cost of capital.

Singh (1997) examined the impact of rapid growth of market capitalisation in developing countries after financial liberalisation. He found that stock markets, by making the financial system more fragile, are not likely to enhance growth in developing countries. Singh (1998) after examining the implications of stock market development for economic growth, recommend that less developed countries should promote bank-based system, and influence the scale and composition of capital flows and prevent a market for corporate control from emerging.

Levine and Zervos (1998) studied the empirical relationship between various measures of stock market development, banking development and long-term economic growth. They found that even after controlling for other factors associated with growth, stock market liquidity and banking development are both positively and robustly correlated with contemporaneous and future rates of economic growth, capital accumulation and productivity growth. They found no evidence for theories that suggest more liquid and more internationally integrated capital markets hinder saving and growth rates.

According to Filer and Campos (1999) stock markets, especially in more developed countries, incorporate expected future growth in to current prices. Their study also revealed a strong relationship between stock market activity and future economic growth for the low and middle income countries but not in higher income countries with more developed alternative financial mechanism. They argued for the establishment of proper institutional framework for stock market since it is found that stock market activity fails to contribute to economic growth in countries which with inefficient institutional system.

In a comprehensive work in the Indian context, Nagaishi (1999) studied the role of stock markets in domestic resource mobilisation, the impact of foreign portfolio investment on the domestic economy, and the possibility of complementary development of stock market with financial intermediaries. The study revealed that Indian stock market development from the 1980’s onwards has not played any prominent role in domestic savings mobilisation. Similarly the impact of foreign portfolio investment on economic growth is insignificant when compared to other Asian countries. He also found that Indian stock market and financial intermediaries have shown hand-in-hand development during the period under study. 18

Agarwal (2000) investigated the relationship between stock markets and financial intermediaries’ development and the link between stock market development and long-term growth in India. The study suggests that well-developed stock markets offer different types of financial services than those of the banking system and therefore provide an extra impetus to economic activity. Hence, banking sector and capital markets are complementary and not substitutes. He also found that various parameters of stock market development such as size and liquidity are statistically significant in explaining economic activity.

Henry (2000) studied the impact of stock market liberalization on private investment in a sample of eleven developing countries. He found that after liberalization most of the countries experienced higher private investment growth rates than their pre-liberalization period. The evidence stands in sharp contrast to recent works that suggest capital account liberalization has no effect on investment.

Arestis, et al (2001) examined the relationship between stock market development and economic growth in five developed countries after controlling for the effects of banking system and stock market volatility. The results support the view that, although both banks and stock markets are able to promote growth, the effect of the former is more powerful. They also suggested that the contribution of stock markets to economic growth has been exaggerated by studies that use cross -country growth regressions.

Beck and Levine (2001) examined the link between financial development and growth and the independent impact of banks and stock markets on long-term growth. Their findings are consistent with the models that suggest that well-functioning financial systems ease information and transaction costs, and thereby, enhance resource allocation and economic growth. They found that the measures of banking development and stock market development both frequently enter the growth regression significantly, which suggests that both banks and stock markets independently boost economic growth.

Biswal and Kamaiah (2001) evaluated the behaviour of stock market development indicators, viz. market size, liquidity and volatility and examined the presence of trend break in these indicators since liberalization in India. The findings of the study suggested that stock market has become larger and more liquid in the post-liberalization period. In respect of volatility, however, there was no significant change. 19

Durham (2002) tested the relevance of stock market development for lower income countries. The study showed that stock market development has a more positive impact on growth for greater levels of per capita GDP, lower levels of country credit risk and high levels of legal development. Similarly, equity price appreciation seemed to boost private investment growth in the short run, but only in rich countries.

According to Laurenceson (2002) the impact of stock market on economic development is limited in China. Especially, the corporate governance effect has been ineffectual and stock markets are insignificant sources of financing for non-state owned firms. Besides, on a macro level, their impact on the overall level of savings mobilisation and allocation efficiency of capital also has found to be negligible.

Caporale, et al (2003) tested the hypothesis that financial development causes higher growth through its influence on the level of investment and productivity. The results reiterated that investment productivity is the channel through which stock market development enhance growth rate in the long run. The study supported the endogenous growth proposition that economic policies intended to promote financial institutions will lead to higher rate of growth in the long run.

Sharia and Junankar (2003) analyzed the impact of stock markets on economic growth in Arab countries using panel estimation techniques. They found that the level of stock market activity is related to economic growth in the Arab countries. Of the various stock market development measures used, the turnover ratio shows significant impact on growth when compared to market capitalization and value traded in the stock market.

Bayer, et al (2004) examined the connection between the creation of stock exchanges and economic growth. They found that economic growth increased relative to the rest of the world after a stock exchange opened. Evidence indicated that increased growth of productivity is the primary way through which a stock exchange increases the growth rate of output, rather than an increase in the growth rate of physical capital. They also found that financial deepening is rapid before the creation of a stock exchange and slower subsequently.

Binswanger (2004) investigated the traditionally strong relation between the stock return and subsequent growth rates of real activity in the U.S. and also in the other G-7 countries. He 20

found a breakdown in the positive relation between stock return and growth rate of real economic activity in the U.S. and Japan. Temporary breakdown occurred in Canada and Germany, while the evidence supported the traditional link in the U.K. The results for France and Italy were inconclusive.

The growth impact of stock markets in Nigeria was investigated by Osinubi (2004). The results indicate that there exists a positive relationship between growth and the various stock market development variables, such as stock market size, liquidity, and concentration. However, these relationships are statistically insignificant, indicating that the effect of stock market on economic growth is weak and insignificant.

Handroyiannis, et al (2005) studied the impact of the development banking system and stock markets on the economic performance of Greece. The results suggest that there exist a bidirectional causality between finance and growth in the long run. Both bank and stock market promote growth in the long run, although their effect is small. Further, the contribution of stock market finance to economic growth appears to be substantially smaller compared to bank finance.

According to Beckaert, et al (2005), stock market liberalization, on an average, leads to a one per cent increase in annual real economic growth. Their study with alternate definitions of liberalization revealed that in countries with high quality institutions the growth response to stock market liberalization was more significant. The effect also remained intact when an exogenous measure of growth is included in the regression.

3. Demirgüç-Kunt and Maksimovic (1996) Financial Markets and Corporate Finance

Demirgüç-Kunt and Maksimovic (1996) analysed the effects of stock market development on firm’s financing choices using data on both developing and industrial countries. The results suggest that initial improvements in the functioning of developing stock markets produce a higher debt-equity ratio for firms and thus create more business for banks. In stock markets that are already developed, further development leads to a substitution of equity for debt financing. In developing stock markets, large firms become more benefited as the stock markets develops, whereas small firms do not appear to be significantly affected by stock market development. Their study also shows that firms in countries with better functioning 21

stock markets and banks grow faster than predicted by individual firm characteristics.

Samuel (1996) made a comparative study of the importance of stock market as a source of finance to Indian and U.S. firms. He found that internal finance plays a lesser role for Indian firms than for U.S. firms. Indian firms rely more on external debt as a source of finance. By generalising the results for other developing countries, he concluded that stock market development is unlikely to spur corporate growth in developing countries.

Rajan and Zingales (1998) investigated the link between financial sector development and industrial growth. They found that financial sector development reduces the cost of external cost of finance for firms. Industrial sectors that are relatively more in need of external finance develop disproportionately faster in countries with more developed financial and stock markets.

Oshikoya and Ogabu (2000) studied the impact of African stock market activity on longterm growth in the context of the continent’s structural adjustment programme and financial sector liberalisation. The study showed that the development of stock market helped to strengthen the corporate sector because of the requirements for the development of international accounting standards and disclosure of reliable information. However, the African stock markets suffer from high volatility and focus on short-term financial return rather than on longterm economic return.

Gupta and Yuan (2004) investigated the effect of stock market liberalisations on industrial

growth

in

emerging

markets.

Their

results

suggest

that

liberalisations

disproportionately benefit particular type of industries. Firms more dependent on external sources of finance, and industries that experience global demand shocks grow significantly faster following liberalisation. They also found that the increase in growth occurred primarily through an expansion in the size of existing firms, rather than through the creation of new firms.

Michelacci and Suarez (2004) studied the role of stock markets in creating new business. They found that stock markets encourage business creation, innovation and growth by allowing sufficiently mature companies to go public and monitors to redirect their resources towards new ventures. Demirgüç-Kunt and Maksimovic (2005) on the basis of firm level survey data studied the link between finance development and corporate growth. They found that financial development eases the obstacles that firms face while growing faster. This effect was found to 22

be particularly stronger for smaller firms.

4. La Porta et al (1999) Legal Framework and Financial Development

Based on a large sample of countries, La Porta et al (1999) studied the link between law, finance and economic growth and found that stronger legal protection of investors is associated with more efficient financial institutions and better outcomes on overall economic growth. They found that countries with English common-law origin provide the strongest legal protection to both shareholders and creditors, while countries with French civil law origin provide the weakest.

Beck, Thorsten, et al (2000) explored the relationship between financial structure - the degree to which a financial system is market or bank-based, and economic development. They applied three different methodologies using cross country data, industry level data and firm level data. They concluded that financial structure is not analytically important to explain differences in the growth rate of countries, industries and firms. It is the overall level of financial development and the legal environments in which financial institutions are working that critically influence economic development.

Allen, et al (2004) demonstrated that China provides a counter example for the findings in the law, finance, and growth literature. Despite its poor legal and financial systems and autocratic government, China has one of the fastest growing economies. They have pointed out that alternative financing channels and informal governance mechanisms have substituted for formal channels and mechanisms to support corporate as well as overall economic growth in China.

Allen, Franklin et al (2006) studied the legal aspects of Indian financial system and its impact on corporate financing pattern and growth. They found that despite English-common law, British–style judicial system and democratic government, corruption within the legal system and government weakens the legal protection to investors in practice. Alternate financing channels such as internal financing and trade deficits provide the most important source of funds to Indian firms. It is also found that entrepreneurs and investors rely more on informal governance mechanism such as those based on reputation, trust to resolve disputes, 23

overcome corruption and finance growth. They concluded that the weakness of the legal system inhibits the growth of stock markets as an important provider of external finance.

5. Greenwood and Jovanovic (1990) Financial Development and Income Inequality

Greenwood and Jovanovic (1990) studied the impact of accessibility to credit and income distribution in a cross section of countries. They found that if access to credit improves with economic growth and more people can afford to participate in the formal financial system, it will reduce income inequalities. However this relationship is non-linear in the sense that there are adverse effects during the early stages which gets fade away in the long run and ultimately creates a positive impact.

Using cross country growth regressions Beck, et al (2000) investigated how financial development influences the growth rates of Gini coefficient of income inequality, the growth rate of the income of the poorest section of the society. The results indicate that finance exerts a disproportionately large, positive impact upon the poor and hence reduces income inequality.

Haber (1997) showed that financial access, especially access to credit, only benefits the rich and the connected, particularly during the early stages of development. It cannot be precisely stated that when it will create a positive impact on other sections of the society. Hence, he concluded that though financial development promotes economic growth, its impact on income distribution is not clear.

The result of these studies shows that the impact of stock market on economic growth is mixed. Though a large body of studies found positive association between the two, many of them admit that the relationship is weak (Handroyiannis et al 2005, Osinubi 2004, Arestis, et al 2001). The observation by Berthelemy and Varovdakis (1996) that the policy impact of stock market reforms differs in accordance with the initial condition is noteworthy. It calls for the need for conducting separate research studies in different types of economies before suggesting policy prescriptions. Besides, it emphasises that uniform policy prescription on the basis of the success stories of developed nations may not produce the desirable results. The finding that banks and stock markets act as complementary institutions in providing finance is also important from the view point of policy formulation (Beck and Levine 2001, Agarwal 2000). The importance of stock market development for developing countries is doubted by many 24

researchers (Sharia and Junankar 2003, Durham 2002, Laurenceson 2002, Harris 1997). Recent studies point towards the need for setting up of efficient and competent legal framework so as to make stock markets formal institutions of resource mobilisation and vehicles of economic growth (Beckaert, et al (2005), Durham 2002, Fase and Abma 2003, Beck, Thorsten, et al 2000, Filer and Campos 1999, Shah and Thomas 1997, Bencivenga, et al 1996).

25

Chapter 4:Conceptual framework

26

Chapter 4:- Conceptual framework Sources of Financing in Abhyudaya Bank.

“Some sources of finance are short term and must be paid back within a year. Other sources of finance are long term and can be paid back over many years. Internal sources of finance are funds found inside the business. For example, profits can be kept back to finance expansion.”

Parameter for choosing sources of finance. •

Cost of Source of fund.

•

Tenure

•

Leverage planned by the company.

•

Financial condition prevalent in the economy.

•

Risk profile of both the company as well as the industry in which the company operates.

27

Sources of finance are equity, debt, debentures, retained earnings, term loans, working capital loans, letter of credit, euro issue, venture funding etc. These sources of funds are used in different situations. They are classified based on time period, ownership and control, and their source of generation. It is ideal to evaluate each source of capital before opting it. Sources of capital are the most explorable area especially for the entrepreneurs who are about to start a new business. It is perhaps the toughest part of all the efforts. There are various sources of capital, we can classify on the basis of the time period, ownership and control, and source of generation of finance. Having known that there are many alternatives to finance or capital, a company can choose from. Choosing right source and the right mix of finance is a key challenge for every finance manager. The process of selecting right source of finance involves in-depth analysis of each and every source of fund. For analyzing and comparing the sources, it needs the understanding of all the characteristics of the financing sources. There are many characteristics on the basis of which sources of finance are classified. On the basis of a time period, sources are classified as long-term, medium term, and short term. Ownership and control classify sources of finance into owned capital and borrowed capital. Internal sources and external sources are the two sources of generation of capital. All the sources of capital have different characteristics to suit different types of requirements. Let’s understand them in a little depth. 28

According to Time Period Sources of financing a business are classified based on the time period for which the money is required. The time period is commonly classified into following three: LONG TERM SOURCES OF FINANCE / FUNDS

MEDIUM TERM SOURCES SHORT TERM OF FINANCE / FUNDS SOURCES OF FINANCE / FUNDS

Share Capital or Equity Shares

Preference Capital or Preference Shares

Trade Credit

Preference Capital or Preference Debenture / Bonds Shares

Factoring Services

Retained Earnings or Internal Accruals

Lease Finance

Bill Discounting etc.

Debenture / Bonds

Hire Purchase Finance

Advances received from customers

Term Loans from Financial Institutes, Government, and Commercial Banks

Medium Term Loans from Financial Institutes, Government, and Commercial Banks

Short Term Loans like Working Capital Loans from Commercial Banks

Venture Funding

Fixed Deposits (<1 Year)

Asset Securitization

Receivables and Payables

International Financing by way of Euro Issue, Foreign Currency Loans, ADR, GDR etc. 1. Long-Term Sources of Finance Long-term financing means capital requirements for a period of more than 5 years to 10, 15, 20 years or maybe more depending on other factors. Capital expenditures in fixed assets like plant and machinery, land and building etc of a business are funded using long-term sources of finance. Part of working capital which permanently stays with the business is also financed with long-term sources of funds. Long-term financing sources can be in form of any of them: •

Share Capital or Equity Shares

•

Preference Capital or Preference Shares

•

Retained Earnings or Internal Accruals

•

Debenture / Bonds

•

Term Loans from Financial Institutes, Government, and Commercial Banks 29

•

Venture Funding

•

Asset Securitization

•

International Financing by way of Euro Issue, Foreign Currency Loans, ADR, GDR etc

2. Medium Term Sources of Finance Medium term financing means financing for a period of 3 to 5 years and is used generally for two reasons. One, when long-term capital is not available for the time being and second when deferred revenue expenditures like advertisements are made which are to be written off over a period of 3 to 5 years. Medium term financing sources can in the form of one of them: •

Preference Capital or Preference Shares

•

Debenture / Bonds

•

Medium Term Loans from o

Financial Institutes

o

Government, and

o

Commercial Banks

•

Lease Finance

•

Hire Purchase Finance

3. Short Term Sources of Finance Short term financing means financing for a period of less than 1 year. The need for short-term finance arises to finance the current assets of a business like an inventory of raw material and finished goods, debtors, minimum cash and bank balance etc. Short-term financing is also named as working capital financing. Short term finances are available in the form of: •

Trade Credit

•

Short Term Loans like Working Capital Loans from Commercial Banks

•

Fixed Deposits for a period of 1 year or less

•

Advances received from customers

•

Creditors

•

Payables

•

Factoring Services

•

Bill Discounting etc.

30

According to Ownership and Control: Sources of finances are classified based on ownership and control over the business. These two parameters are an important consideration while selecting a source of funds for the business. Whenever we bring in capital, there are two types of costs – one is the interest and another is sharing ownership and control. Some entrepreneurs may not like to dilute their ownership rights in the business and others may believe in sharing the risk. OWNED

BORROWED

CAPITAL

CAPITAL

Equity Capital

Financial institutions,

Preference Capital

Commercial banks or

Retained Earnings

The general public in case of debentures.

Convertible Debentures Venture Fund or Private Equity

Owned Capital Owned capital also refers to equity capital. It is sourced from promoters of the company or from the general public by issuing new equity shares. Promoters start the business by bringing in the required capital for a startup. Following are the sources of Owned Capital: •

Equity Capital

•

Preference Capital

•

Retained Earnings

•

Convertible Debentures

•

Venture Fund or Private Equity

Further, when the business grows and internal accruals like profits of the company are not enough to satisfy financing requirements, the promoters have a choice of selecting ownership 31

capital or non-ownership capital. This decision is up to the promoters. Still, to discuss, certain advantages of equity capital are as follows: •

It is a long-term capital which means it stays permanently with the business.

•

There is no burden of paying interest or installments like borrowed capital. So, the risk of bankruptcy also reduces. Businesses in infancy stages prefer equity capital for this reason.

Borrowed Capital Borrowed or debt capital is the capital arranged from outside sources. These sources of debt financing include the following: •

Financial institutions,

•

Commercial banks or

•

The general public in case of debentures

In this type of capital, the borrower has a charge on the assets of the business which means the company will pay the borrower by selling the assets in case of liquidation. Another feature of borrowed capital is regular payment of fixed interest and repayment of capital. Certain advantages of borrowing capital are as follows: •

There is no dilution in ownership and control of the business.

•

The cost of borrowed funds is low since it is a deductible expense for taxation purpose which ends up saving on taxes for the company.

•

It gives the business a leverage benefit.

32

According To Source of Generation: Based on the source of generation, the following are the internal and external sources of finance: INTERNAL SOURCES Retained profits Reduction or controlling of working capital Sale of assets etc. Owner’s investment Debt collection Sale of Stock

EXTERNAL SOURCES Equity Debt or Debt from Banks All others except mentioned in Internal Sources Additional Partner's Share Issue Leasing Government Grants Trade Credit Mortgage

Internal Sources The internal source of capital is the capital which is generated internally by the business. These are as follows: •

Retained profits

•

Reduction or controlling of working capital

•

Sale of assets etc.

•

Owner’s investment

•

Debt collection

•

Sale of Stock

The internal source of funds has the same characteristics of owned capital. The best part of the internal sourcing of capital is that the business grows by itself and does not depend on outside parties. Disadvantages of both equity capital and debt capital are not present in this form of financing. Neither ownership dilutes nor fixed obligation/bankruptcy risk arises.

33

External Sources An external source of finance is the capital generated from outside the business. Apart from the internal sources of funds, all the sources are external sources of capital. Deciding the right source of funds is a crucial business decision taken by top-level finance managers. The wrong source of capital increases the cost of funds which in turn would have a direct impact on the feasibility of project under concern. Improper match of the type of capital with business requirements may go against the smooth functioning of the business. For instance, if fixed assets, which derive benefits after 2 years, are financed through short-term finances will create cash flow mismatch after one year and the manager will again have to look for finances and pay the fee for raising capital again.

INTERNAL SOURCES: 1. Owner’s Investment •

This is money which comes from the owner/s own savings.

•

It may be in the form of startup capital - used when the business is setting up.

•

It may be in the form of additional capital – perhaps used for expansion.

•

This is a long-term source of finance.

Advantages •

Doesn’t have to be repaid.

•

No interest is payable.

Disadvantages •

There is a limit to the amount an owner can invest.

2. RETAINED PROFITS •

This source of finance is only available for a business which has been trading for more than one year.

•

It is when the profits made are ploughed back into the business.

•

This is a medium or long-term source of finance. 34

Advantages •

Doesn’t have to be repaid.

•

No interest is payable.

Disadvantages •

Not available to a new business.

•

Business may not make enough profit to plough back.

3. SALE OF STOCK •

This money comes in from selling off unsold stock.

•

This is a short-term source of finance

Advantages •

Quick way of raising finance.

•

By selling off stock it reduces the costs associated with holding them.

Disadvantages •

Business will have to take a reduced price for the stock.

4. Sale of Fixed Assets. •

This money comes in from selling off fixed assets, such as: a piece of machinery that is no longer needed.

•

Businesses do not always have surplus fixed assets which they can sell off.

•

There is also a limit to the number of fixed assets a firm can sell off.

•

This is a medium-term source of finance.

Advantages •

Good way to raise finance from an asset that is no longer needed

Disadvantages •

Some businesses are unlikely to have surplus assets to sell.

•

Can be a slow method of raising finance.

35

5. Debt Collection •

A debtor is someone who owes business money.

• •

A business can raise finance by collecting the money owed to them (debts) from their debtors. Not all businesses have debtors i.e. those who deal only in cash.

•

This is a short-term source of finance.

Advantages •

No additional cost in getting this finance, it is part of the businesses’ normal operations.

Disadvantages •

There is a risk that debts owed can go bad and not be repaid.

36

EXTERNAL SOURCES 1. Bank Loan •

This is money borrowed at an agreed rate of interest over a set period of time.

•

This is a medium or long-term source of finance.

Advantages •

Set repayments are spread over a period of time which is good for budgeting.

Disadvantages •

Can be expensive due to interest payments.

•

Bank may require security on the loan.

2.

Bank Overdraft •

This is where the business is allowed to be overdrawn on its account.

•

This means they can still write cheques, even if they do not have enough money in the account.

•

This is a short-term source of finance.

Advantages •

This is a good way to cover the period between money going out of and coming into a business.

•

If used in the short -term it is usually cheaper than a bank loan.

Disadvantages •

Interest is repayable on the amount overdrawn.

•

Can be expensive if used over a longer period of time.

3. Additional Partners •

This is sources of finance suitable for a partnership business.

•

The new partner/s can contribute extra capital .

Advantages •

Doesn’t have to be repaid No interest is payable.

Disadvantages •

Diluting control of the partnership.

•

Profits will be split more ways.

37

4. Share Issue •

This is sources of finance suitable for a limited company.

•

Involves issuing more shares.

•

This is a long-term source of finance.

Advantages •

Doesn’t have to be repaid.

•

No interest is payable.

Disadvantages •

Profits will be paid out as dividends to more shareholders.

•

Ownership of the company could change hands.

5. Leasing •

This method allows a business to obtain assets without the need to pay a large lump sum up front.

•

It is arranged through a finance company.

•

Leasing is like renting an asset.

•

It involves making set repayments.

•

This is a medium-term source of finance.

Advantages •

Businesses can have the use of up to date equipment immediately.

•

Payments are spread over a period of time which is good for budgeting.

Disadvantages •

Can be expensive.

•

The asset belongs to the finance company.

6. Hire Purchase •

This method allows a business to obtain assets without the need to pay a large lump sum up front.

•

Involves paying an initial deposit and regular payments for a set period of time.

•

The main difference between hire purchase and leasing is that with hire purchase after all repayments have been made the business owns the asset.

•

This is a medium-term source of finance. 38

Advantages •

Businesses can have the use of up to date equipment immediately.

•

Payments are spread over a period of time which is good for budgeting.

•

Once all repayments are made the business will own the asset.

Disadvantages • 7.

This is an expensive method compared to buying with cash Mortgage

•

This is a loan secured on property.

•

Repaid in installments over a period of time typically 25 years.

•

The business will own the property once the final payment has been made.

•

This is a long-term source of finance.

Advantages •

Business has the use of the property.

•

Payments are spread over a period of time which is good for budgeting.

•

Once all repayments are made the business will own the asset.

Disadvantages •

This is an expensive method compared to buying with cash.

•

If business does not keep up with repayments the property could be repossessed.

8. Trade Credit •

Trade credit is summed up by the phrase: Buy now pay later.

•

Typical trade credit period is 30 days.

•

This is a short-term source of finance.

Advantages •

Business can sell the goods first and pay for them later.

•

Good for cash flow.

•

No interest charged if money is paid within agreed.

Disadvantages •

Discount given for cash payment would be lost.

•

Businesses need to carefully manage their cash flow to ensure they will have money available when the debt is due to be paid. 39

9. Government Grants •

Government organizations such as Invest NI offer grants to businesses, both established and new.

•

Usually certain conditions apply, such as where the business has to locate.

Advantages •

Don’t have to be repaid.

Disadvantages • •

Certain conditions may apply e.g. location. Not all business may be eligible for a grant.

Capital Lease Criteria A Capital gain is defined as the temporary right entitled to a user of an asset. It allows lessee to records only to interest as expenses. Capital Leases Criteria

Lease Term

Bargain Purchase Option

Ownership

Purchase Option

Define Capital Lease In a capital lease, a lesser only finances the asset but the ownership rights reside with the lessee. A capital lease is also defined as the temporary right entitled to a user of an asset. It allows the lessee to records only the interest as expenses. Capital Lease Criteria For qualifying as a capital lease, a lease agreement should satisfy any of the four criteria mentioned below:

40

Lease Term The term in which the assets are leased out to the user or renter of any asset determine if it is a capital lease or an operating lease. For a lease to be called a capital lease, the leasing period should encompass not less than 75% of the asset useful life, and is not cancellable during this period. This means that the lifespan of the asset to be leased should be greater than it’s already useful life. Ownership Another capital lease criterion is the ownership. Ownership rights in a capital lease are transferred back to the lessee from the lesser when the contacts or agreement expire Bargain Purchase Option Bargain option gives the lessee a right to buy the asset from the renter or lesser when the leasing contract or agreement ends. The buying price has to be less than the fair market value at that future date. Present Value The aggregate of present value of each periodic rental (or lease payment) over the lease term should be more than 90% of the market value of the underlying asset at the beginning of the lease. For example, if the lease rentals of the leased assets whose value is $100,000 are $12,000 every year for say 10 years, the present value of these lease rentals @ 5% would be $92,660.82. We can see that the present value is 92.66% which is more than 90% of the current market value of $100,000. This lease criterion is therefore satisfied for the above lease arrangements. Therefore, all these listed capital lease criteria are conditions for capital leases and if a lease agreement has any one of these criteria, then the lessee should record the agreement as a capital lease. Otherwise, it is known as an operating lease agreement.

41

Example of Capital Lease Criteria Suppose you saw nice machinery that you would love to own for your business, it has everything you need as ideal machinery, but the problem is that you don’t have the money to outrightly buy or pay for it. Having knowledge of capital lease, you contact the owner of the machinery owner to know if he would be willing to finance the purchase of the machinery as long as you agree to make the lease payments. And since you are not willing to return the car after the lease agreement, you can enter what is called a capital lease agreement (which satisfies the criteria explained above) and you take charge of all maintenance, repairs while still paying for your monthly payment depending on the lease agreement. Capital Lease Criteria FASB Capital lease criteria according to Financial Accounting Standards Board (FASB) amendment of 2016 asked every corporation operating in the US to capitalize all lease above one year with. This amendment should become effective and fully implemented by December 15, 2018. This capital lease amendment has a serious effect on most corporations in the US. This issue is as a result of GAAP view of the capital lease as a purchase of assets if some criteria are met instead of a rental agreement that it is. Capital Lease Requirement Disclosures For a lease agreement to take place, the lessor and lessee are required under the GAAP disclosure form to disclose the following information. 1. The general leasing arrangements should be properly described 2. There should be a gross amount disclosure of assets and it should be recorded under capital leases. 3. The disclosure should also show a major asset class and accumulated depreciation amount. 4. There should be a separate identification of the asset obligations. This information is found on the balance sheet of the organization and appropriate classification of the current and noncurrent assets. 5. There should be a minimum of all future lease payments for the next five years in total. 6. The whole net investment components as of the date of which each balance sheet was presented should show: 42

7. The minimum payment to be received in the future. A number of separate deductions should be made such as representing executor costs, profits that are in the minimum lease payments 8. It also shows the minimum lease payments receivable for uncollectible accumulated allowances. 9. The benefits (unguaranteed) accruing to the lessor should be disclosed 10. Unearned income included offsetting the direct cost that is initially charged against the income for the different period with respect to the presented income statement. Accounting for Capital Leases A capital lease which is an example of accrual accounting requires a company to calculate its present value of all the capital lease payment on their yearly financial report. An example is a company estimate value of its capital lease to be $200,000; it records $200,000 debit entry and 200,000 credit entry to its fixed asset account and capital lease liability account respectively on the balance sheet. Since this type of lease is a financial arrangement, the company breaks down its periodical lease payments into expenses. If the company makes $2,000 in its monthly payment of lease and $400 estimated interest rate. This will show a $2,000 credit entry and $400 to the cash account and debit entry to interest expense account respectively. This will then give the company a $1600 debit entry into capital lease account. Short-Term Finance

What is Short Term Finance? Short term finance refers to financing needs for a small period normally less than a year. In businesses, it is also known as working...

What is Short Term Finance?

Short term finance refers to financing needs for a small period normally less than a year. In businesses, it is also known as working capital financing. This type of financing is normally needed because of uneven flow of cash into the business, the seasonal pattern of business, etc. In most cases, it is used to finance all types of inventory, accounts receivables etc. At times, only specific one time orders of a business are financed. Types / Sources of Short-Term Financing 43

As we understood, why we need short-term financing, there are various sources of short-term financing for a business. Each type of short-term finance has different characteristics and can be used in different situations. Some of those are explained below:

Trade Credit Ooh yes, you have understood it right. It is the credit extended by the accounts payables. We would classify this credit into 2 types – free trade credit and paid trade credit. After a particular no. of days as per payment terms, the supplier charges interest on the delay of payment. So, the period before this is free trade credit and after that is paid trade credit. It’s quite obvious that the free trade credit should be as much as possible because it is free of cost. How much is free trade credit extended to a customer? It depends upon the creditworthiness of the buyer, discipline maintained in payment commitments, the bulk of the business, etc. Higher you rate on these factors; higher would be the free trade credit available to your business. Paid trade credit is definitely a type of short-term financing but on the priority list, it would be quite below. In short, it should be selected only when another financing is not available. The reason for not opting for it is its high-interest cost. Short-term / Working Capital Loans Short term loans can be availed from banks and other financial institutions. Banks extend these loans after careful study of the business, its working capital cycle, past track record etc. Once availed, these loans are repaid either in small installments or may be paid in full at the end of the period. This depends on the terms of the loan. It is advisable to use these loans for financing permanent working capital needs. There are other alternatives to fund the temporary working capital needs. Business Line of Credit Business line of credit, a type of short term financing, is most appropriate for termporary working capital needs. In this type of financing, an amount is approved by the issuing bank or financial institution. Within the limit of this amount, the business can make payment and keep depositing once payment from customers is received. It works like a revolving credit and best 44

part of this is the interest is charged on the utilized amount only and not on the approved amount. The business has the flexibility to deposit unused amount to save on interest cost. This way it becomes a very cost-effective financing option.

Invoice Discounting Invoice discounting is another source of short-term finance where the receivable invoices can be discounted with the financial institutes or banks or any third party. Discounting invoices means the bank will pay you the money at the time of discounting and collects the money from your customer when the bill becomes due. Factoring Factoring is also a similar arrangement like invoice discounting where the accounts receivables of a business are sold to a third party at a price which is lower to the realizable value of the accounts receivable. This purchasing party is commonly known as a factor. These factoring services are provided by both banks and other financial institutions. There are many types of factoring like with recourse or without recourse etc. Short-Term vs. Long-Term Financing The most important difference between the two types of financing is the time period, the purpose and the cost of financing. The time period is simple to understand. Short-term financing is normally for less than a year and long-term could even be for 10, 15 or even 20 years. The purposes are totally different for both types of financing. Short-term financing is normally used to support the working capital gap of a business whereas the long term is required to finance big projects, PPE, etc. The third thing is the cost of financing which is higher in case of short-term and comparatively lower in case of long-term barring abnormal economic conditions.

45

FACTORS AFFECTING CHOICE OF SOURCE OF FINANCE

The source of finance chosen will depend on a number of factors: •

Purpose – what the finance is to be used for

•

Time Period – how long the finance will be needed for

•

Amount – how much money the business needs

•

Ownership and Size of the business

46

Benefits Some sources of finance offer special benefits. Selling stock is among the fastest ways to get access to a large amount of cash, and its money you'll never need to pay back directly. Internal sources of finance keep control within the company and don't subject you to interest payments on loans. Finally, no ownership capital is a vote of confidence from the investor or agency that issues a loan or grant. Grants are especially valuable because they don't require repayment, and might be available on a recurring basis

Drawbacks Each source of finance also has its own limitations. Ownership capital makes you responsible to a group of shareholders who have partial ownership rights. Loans cost interest, which the lender will demand back on schedule whether you've turned a profit or not. Internal sources are limited and once you sell off your assets or spend your savings, you'll need to turn to a new source of external finance anyway.

Time Frame The amount of money your business needs, along with how soon you need it and how long you expect to need before you can pay it back, will impact which sources of finance work best. For example, a bank loan comes with a fixed repayment schedule, but you'll need to begin making payments relatively soon. Ownership capital gives your company a sudden influx of cash, but you can only take advantage of it once before you need to give up even more control by selling your own shares. If you need a long-term investment that might not show returns any time soon, selling assets or dipping into savings are likely better alternatives.

Effects The methods you use to secure finance for your business can directly affect how your business grows and operates. If you choose to have an initial public offering, or IPO, by selling stock, you'll distribute control of your business to shareholders who will be able to vote for board members and have a say in the company's direction. Selling assets usually involves giving up a portion of your security or production capacity, which may involve a larger restructuring plan.

47

Chapter 5:Company Profile

48

Chapter 5:- Company Profile

Profile of the Abhyudaya bank.

Type: -

Co-Operative

Industry: -

Banking Financial Services.

Founded: -

June 1965

Headquarters: -

Mumbai, India

Key People: -

Puneethkumar Raju Shetty (Managing Director)

Products: -

Forex & Trade Mortgages Demat Services Internet Banking

Revenue: -

131,452.844 million (US$2.0 billion)(2012–13)

Net Income: -

912.177 million (US$14 million)(2012–13)

Website: -

www.abhyudayabank.co.in

49

History In the year 1964 several social workers and activists came together and formed Abhyudaya Co-operative Credit Society Ltd with a relatively small share capital of ₹5,000 (US$77). Within a short period of time Abhyudaya Co-op, Credit Society got converted into an Urban Co-operative bank. In June 1965 Abhyudaya Co-operative Bank Ltd was finally established as a full-fledged cooperative Bank. It was conferred with Scheduled bank status by the Reserve Bank of India in the year 1988. On 11 January 2007 the Bank was registered as a multi-state co-operative bank by the Central Registrar, New Delhi.

Branches It has branches in Metropolitan Mumbai, Navi Mumbai, Pune, Thane, Raigad, Nagpur, Nashik, Nanded, Kankavali and Aurangabad in Maharashtra State, Vadodara and Ahmedabad in Gujarat State, Udupi and Mangalore in Karnataka State. The area of operation of the bank is confined to 3 States •

Maharashtra

•

Gujarat

•

Karnataka.

The Bank further proposes to extend its area of operation to other States. Abhyudaya Co-operative Bank Ltd has 111 computerized branches in India

Acquisitions •

Pune based Citizens Co-op Bank.

•

Vadodara based Shree Krishna Co-operative Bank.

•

Ahmedabad based Manekchowk Co-operative Bank.

•

Udupi based Janatha Co-op. Bank Ltd.

50

SUCCESS STORY

The Beginning:

A dedicated group of social workers and labour movement activists, imbued with the spirit of service to the cause of mill workers, other industrial and hitherto neglected economically weaker sections of society started Abhyudaya Co-op. Credit Society Ltd. in 1964, with a small share capital of Rs. 5,000. The area of Kalachowki, Sewri, Parel and their surroundings were predominantly populated by low income industrial labour and lower middle class people at that time. In a short period of time Abhyudaya Co-op. Credit Society got converted into an Urban Co-op. Bank. Finally in June 1965, Abhyudaya Co-op. Bank Ltd. was established with the motto of "Prosperity through Co-operation".

A Forward March:

The Bank was conferred with Scheduled Bank Status by Reserve Bank of India in September 1988. Over a span of 51 years, it became one of the leading Urban Co-op. Bank in the country with branches in Metropolitan Mumbai, Navi Mumbai, Pune, Thane, Raigad, Nagpur, Nashik, Nanded, Kankavali, Aurangabad, Ahmednagar & Pen in Maharashtra State, Vadodara and Ahmedabad in Gujarat State, Udupi and Mangalore in Karnataka State. On 11th January, 2007 the Bank was registered as a MultiState Co-op. Bank by the Central Registrar, New Delhi. The area of operation of the bank is confined to 3 States - Maharashtra, Gujarat and Karnataka. The merger of Shree Krishna Sahakari Bank Ltd., Vadodara, Gujarat State, Janatha Co-op. Bank Ltd., Udupi, Karnataka State and Manekchowk Co-op. Bank Ltd., Ahmedabad, Gujarat State has been effected.

Vision Our Bank’s plunge to excellence in all directions will be powered by the VISION that provides overarching inspiration, The VALUES that serve to guide taught & action, The VITALITY that embarks on strategy formation & execution. The immense potential of our Bank will be realized by the distinctive amalgam of the ‘Vision, Values & Vitality.

51

Mission To continuously strive for synergy between technology, systems & human resources for providing products & services that meet the quality, performance & aspirations of the vast clientele & to maintain the highest standards of ethics & societal responsibilities, constantly innovate products & processes & develop teams that keep the momentum going to take the Bank to excellence.

INTRODUCTION Abhyudaya Co-operative Bank Ltd. operates as an urban co-operative bank in India. The companyoffers various personal banking services, such as saving bank accounts, current accounts, no frillsaccounts, any branch banking services, and ATM services, as well as various deposit schemes,including saving, current, and term deposit schemes; and business banking services, which includemobile and Internet banking, NRO/NRE accounts, and foreign exchange services. Its loan productsinclude personal, housing, education, mortgage, and vehicle loans, as well as loan against goldornaments, loan/secured overdrafts, loans against govt. securities, loan secured overdrafts againstgovt. Securities and loans for women entrepreneurs. The company also provides fax on demandservices that consist of statement of account, latest balance, and inward clearing cheque detailsservices; telebanking, franking, and lockers services; real time gross settlement services for customer transaction/remittances; and insurance services. Abhyudaya Co-operative Bank Ltd. was founded in1964 and is based in Mumbai, India with branch locations in Mumbai, Navi Mumbai, Pune, Raigad,Thane, Udupi, Manglore, Vadodara, and Ahmedabad, India.

52

ABHYUDAYA BANK IN PURSUIT OF GROWTH

Shri Premnath S. Salian

:

Managing Director

Shri Rajeev D. Gangal

:

Chief General Manager

Shri Prasanta K. Mohapatra

:

General Manager (IT , Treasury & Clearing )

Shri Camillo F. Fernandes

:

General Manager (HRM, Development, Legal & Recovery)

Shri Girish V. Rane

:

General Manager (Credit, Forex & Share )

Shri Anthony P. Naronha

:

Deputy General Manager (Central Law and Legal & Recovery)

Shri Pradeep V. Kamat

:

Deputy General Manager (Legal & Recovery)

Shri Mangesh S. Rane

:

Deputy General Manager (Legal & Recovery)

Shri. Devendra K. Mewada

:

Deputy General Manager (Central Zone)

Shri Suresh S Shetty

:

Deputy General Manager (Navi Mumbai Zone)

Shri Rajesh B. Paralkar

:

Assistant General Manager ( Treasury Dept.)

Shri Sunil S. Shetty

:

Assistant General Manager ( I.T. Dept.)

53

Smt Mamata N. Shetty

:

Assistant General Manager ( Clearing Dept.)

Shri Ganesh M. Shetty

:

Assistant General Manager ( Inspection Dept.)

Shri Kiran M. Rane

:

Assistant General Manager (Vigilance & IS Audit )

Shri Sanjay V. Wani

Senior. Manager (KYC/AML.)

54

SHARE HOLDERS’ BENEFIT

1) Medical Benefit: "Family members shall mean and include dependents on member, viz. spouse, son, daughter, parents, brother and sister. Benefits under Members Welfare Fund would be available to members for the financial year i.e. from April to March. Bank will provide medical benefits to shareholders who have completed two years of their membership." W.e.f 01st April 2016

a)

Family Planning Operation

b)

Up to 5 years For Members more

For members more

Membership than 5 yrs and up to

than 15 yrs old

Rs.1000/-

15 membership

membership

Rs.1500/-

Rs. 2000/-

Major Operations : Reimbursement of expenditure will be considered either to the member or to the family members, as detailed below, incurred on major expenses viz. Bypass surgery, Brain Tumor, Kidney Transplant etc.

i)

For members

Rs.10,000/-

Rs.20,000/-

Rs.25,000/-

ii) For other members

Rs.7,000/-

Rs.15,000/-

Rs.20,000/-

iii) For Family members

Rs.5,000/-

Rs.7,000/-

Rs.10,000/-

Rs.1000/-

Rs.1,500/-

Rs.2,000/-

over 60 years of age.

c) Medical Check Up : Reimbursement of expenses incurred on complete medical check for member and his / her spouse are over 60 years of age. 55

d) Hospitalization for more than 5 days : i)

For members over 60 yrs of Rs.3,000/-

Rs.7,000/-

Rs.10,000/-

Rs.3,000/-

Rs.5,000/-

age. ii) Other members Below 60

Rs.2,000/-

years of age.

e) Operation including cataract operation / major medical aliments / accidental cases / small operation Rs.3,000/-

Rs.8, 000/- OR 50% of Rs.10, 000/- OR 50% actual expenses

of actual expenses

whichever is less.

whichever is less.

N.B. The members over 60 years of age can claim medical benefits for not more than one purpose during the year (April-March) under clause No. (b) (i), (C),(d).members should submit their applications for assistance from fund not later than three months from the close of the financial year. Delayed submission will result in rejection of the application.

N.B. The members over 60 years of age can claim medical benefits for not more than one purpose during the year (April-March) under clause No. (b) (i), (C),(d).members should submit their applications for assistance from fund not later than three months from the close of the financial year. Delayed submission will result in rejection of the application.

2) Education Benefit : The bank will award cash prizes every year to the eligible members / spouse and their children who have completed 1 year on the date of application as detailed below :

w.e.f 01st April

2016 a) SSC & HSC Exam : For students who stand in the merit list of Board 56

Rs.2,500/-

For Students securing marks aggregating 90 % & above

Rs.2,000/-

For students securing marks aggregating 75% & above.

Rs.1,000/-

For Students securing marks aggregating 60% & above.

Rs.750/-

b) Graduation / Post-graduation : For successful completion of MBBS / ICWA / CA /

Rs.6,000/-

MBA / CS / PHD / IAS./BAMS/BDS/MMS/PGDM(Approved by AICT) For rank holder in the merit list of the University.

Rs.5,000/-

For successful completion of B.E.(First class)

Rs.3,500/-

For Technical Diploma Holder (Govt. approved)(First

Rs.3,000/-

Class)

Rs.1,700/-

For students securing marks aggregating 75% & above. For students securing marks aggregating 60% & above.

Rs.1,500/-

c) Nursing : For students securing 75 % & above

Rs.1,800/-

For students securing 60 % & above

Rs.1,200/-

3) Sports Benefit : The sports benefits will be considered to the members or to their family members, as detailed below, for participating in sports teams / individual events at State / National / International Level. Selection in State Level Team.

Rs.3,000/-

Selection in National Level Team.

Rs.5,000/-

Selection for the International event.

Rs.7,000/-

Par .excellence / outstanding achievements in any sports event.

Rs.7,000/-

57

AWARDS •

BEST BANK AWARD for THE BEST IT-ENABLED CO-OPERATIVE BANK for the year 2014-15 from IDRBT.

•

" One of the Highest Rupay Cards Issuing Bank"

•

“Best Technology Bank of the year 2011 " (First runner-up) in Co-op. Bank segment by Indian Banks Association".

• Award from Indian Bank's Association as Technology Bank of the year 2010 for outstanding achievement in Banking Technology. •

1ST BEST CO-OP. BANK 2010-11 AWARDED BY MUCBFL , MUMBAI Abhyudaya Bank has bagged three awards from the Banking Frontier in the field of Human Resource Management, Marketing & Customer Service & Excellence in Operational Management. Bank has branches in Maharashtra, Gujarat & Karnataka. Bank has taken the corporate agency of New India Assurance Co. Ltd. for selling general insurance policies. For the F.Y. 2011-2012 Bank has the vision of opening 15 more branches there by achieving a total of 111 branches & a total business mix of 11,300 Crore. The Capital Adequacy of Bank is as high as 16.07%. Shortly, bank will be achieving a total business mix of Rs.10, 000 Crore & 100 ATM centers.

58

Financial Results Financial Review for Last five Years

[RS. in Lakhs] 31.03.2012 31.03.2013 31.03.2014 31.03.2015 31.03.2016 Paid up Share Capital Reserves Deposits

7964.63 79239.7 651885

8861.29 88147 803640

10144.5 136891 933090

11270.6 138453 976107

11409.3 145752 1040261

Loans & Advances

437753

510889

570047

574632

571148

Gross Profits

12682.9

18252.3

17267.4

8968.52

8737.06

Net Profits

8016.87

9121.77

9805.48

3368

236.47

Working Capital

776429

936785

1118239

1160005

1240349

250393

315010

369683

386567

468820

146056

151818

161378

171140

182021

Investments Membership (Nos.)

59

INSURANCE PRODUCT Claim Procedure under PMJBY & PMSBY Schemes 1. Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY):i. For customers in the age group of 18-50 years having savings account with the Bank ii. Life Insurance cover of Rs. 2, 00,000/iii. Premium amount Rs. 330/- per annum. iv. Life insurance coverage period 1st June to 31st May every year. 2. Pradhan Mantri Suraksha Bima Yojana (PMSBY):i. for customers in the age group of 18-70 years having savings account with the Bank ii. Accidental insurance cover of Rs. 2, 00,000/iii. Premium amount Rs. 12/- per annum iv.Accidential insurance coverage period from 1st June to 31st May every year.

60

OTHER SERVICES 1. DEMAT SERVICES Bank now offers Demat Services as a Depository Participant (DP) of Central Depository Services (India) Ltd. (CDSL) through our Mumbai, Navi Mumbai and Thane Region Branches. SEBI NOTIFICATION:- No need to issue cheques by investors while subscribing to IPO. Just write the Bank account number and sign in the application form to authorise your Bank to make payment in case of allotment. No worries for refund as the money remains in investor’s account. SEBI NOTIFICATION - in respect of DEMAT Account holders:

"KYC is one time

exercise while dealing in securities markets - once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary." "Prevent Unauthorized Transactions in your demat account --> Update your Mobile Number with your Depository Participant. Receive alerts on your Registered Mobile for all debit and other important transactions in your demat account directly from CDSL on the same day......................issued in the interest of investors." Demat is a process, where at the request of the customer, the physical stocks are converted into electronic entries and maintained in the depository system.

2. PANCARD •

Permanent Account Number (PAN) is a ten digit alphanumeric number, issued by the Income Tax Department.

It is now mandatory to possess a PAN for filing of Income Tax Returns by Individuals, HUF, NRI, Corporate etc. It is also compulsory to quote PAN in all documents pertaining to financial 61

transactions notified from time-to-time by the Central Board of Direct Taxes and for opening of Demat Account as directed by SEBI. PAN must be mentioned while making cash transaction above a threshold limit. Considering the growing regulatory requirement and KYC norms for all financial transaction there are many such individuals who would require to posses PAN. Customers who already have old cards can exchange their cards for a new Tamper Proof Card. Our Bank now offers PAN card distribution services to our customers in association with UTI Technology Services Ltd. (UTITSL). Income Tax department has authorized UTI Technology Services Ltd. (UTITSL) and National Securities Depository Limited (NSDL) to set up and manage IT PAN Service Centers to dispense PAN card in all cities & towns. Blank application forms for PAN card are available free of cost at all our Mumbai, Navi Mumbai, Thane, Pune & Ahmedabad region branches and offices of UTITSL. PAN Card Charges: Including Coupon Charges Rs. 110/-. PAN card would be dispatched by UTITSL directly at the address indicated by the customer in the PAN application form submitted to UTITSL. Kindly note that submission of Aadhar details and a self attested copy of Aadhar card is mandatory for PAN application from 01st July 2017.

3. FRANKING Facility of Franking of Documents available at our following branches :

Vashi Address:

Abhyudaya Bank Bldg.,Sector17, Vashi, Navi Mumbai-400 705,

Telephone

27892458, 27892410,

No:

27892403

Franking

Monday-Friday

Timing:

10.00 a.m. to 5.00p.m. Saturday 10.00a.m. to 12.30p.m.

62

New Panvel Address:

Abhyudaya Bank Bldg., Sector 17, New Panvel, Navi Mumbai - 410 206

Telephone

2745 3585, 2745 4270

No. Franking Timing:

Monday-Friday 10.00 a.m. to 04.00 p.m. Saturday 09.00 a.m. to 12.00 p.m

4. LOCKERS Safe Deposit Locker facilities available at various branches.

63

Balance sheet ABHYUDAYA CO-OP. BANK LTD.(Multi-State Scheduled Bank) PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH, 2016 (AUDITED) PREVIOUS EXPENDI Sche CURRENT PREVIOUS INCOME Sche CURRENT TURE dule dule YEAR No. YEAR YEAR No. YEAR 1. 1. INTEREST & INTEREST DISCOUNT ON DEPOSITS & BORROWI NGS a) On a) On 7,587,589,3 Deposits 7,514,882,7 6,171,994,2 Advances 5,898,417,2 62.77 35.49 90.01 38.33 b) On b) On 106,894,74 Borrowings 173,559,90 3,806,703,7 Investments 4,028,687,8 7.50 (Repo/ 3.65 64.33 39.95 Call/ CBLO/LA F/LTD) 2. c) On Lending 1,254,553,7 Salaries, 1,249,628,6 96,019,645. (Rev.Repo/Call/C 153,630,15 50.93 Allowances 05.02 47 BLO/LAF) 5.11 , PF, Gratuity etc. 3. 6,561,830.0 Directors 7,326,753.0 0 Sitting Fees 0 & Allowances 4. Rent, 2. Commission & 344,885,64 Rate, 353,133,62 113,799,93 Exchange 115,401,32 2.69 Taxes, 8.67 7.47 8.17 Insurance & Lighting 5. Legal 3. Locker Rent 11,979,022. and 18,576,455. 27,969,547. 35,118,744. 23 Professiona 43 29 82 l Charges 6. Audit 4. Service 16,906,561. Fees 16,754,184. 240,389,16 Charges 232,758,44 29 21 3.09 1.23 7. 5. Sundry Income 14 74,825,045. 46,231,620. Postage, 42,011,843. 71,326,775. 51 64

20

Telegram 05 84 & Telephone 8. 6. Profit on Sale 185,604,47 Depreciatio 192,270,33 314,702,66 of Investments 8.42 n 7.84 5.05 9. 7. Profit on Sale 21,626,301. Amortisatio 24,026,767. 1,210,559.9 of Assets 00 n of 00 7 Computer Software 10. Printing 8. Bad Debts 28,095,058. & 24,349,902. 36,966,085. Written off 97 Stationery 84 43 Recovered 11. 9. BDDR written 40,667,482. Advertisem 36,050,666. 445,576,59 back 48 ent 92 0.02 12. Repairs 10. Excess 70,187,032. & 76,053,382. 11,728.00 Provision for I09 Maintenanc 48 Tax written back e 13. 11. Prov.for 11,360,218. Travelling 9,739,111.4 712,839,87 Deprn.on 64 & 4 3.14 Investment Conveyanc Written Back e 14. 12. Erosion of 1,247,405.0 Subscriptio 1,377,740.8 90,000.00 Assets written 0 n 3 back 15. Sundry 13 13. Prov.for Std 249,678,73 Expenses 265,910,55 30,000,000. Aseets Written 7.47 9.25 00 Back 16. Loss 14. Prov.for Fraud 161,314.25 on Sale of 2,213,822.2 2,000,000.0 & Misapp. Written Assets 0 0 Back 17. Bad 15. Fraud & 445,576,59 Debts 16,845,682. Misapp. Written 0.02 written off 28 Back 18. Other 16. Other Assets 90,000.00 Assets Written Back written off 19. Fraud & Misapp. 1,375,536.6 written off 8 20. 24,703,037. Depreciatio 9,425,830.3 89 n on 8 Shifting of Investment 21. Further deduction 65

309,821,95 2.73 1,483,372.4 4

31,428,501. 43

16,845,682. 28 -

10,000.00

-

-

-

1,375,536.6 8

in terms of Section 62(2) of Multistate Coop. societies Act, 2002 a) Provision for Depreciatio n on Investment b) 45,705,142. Amortisatio 51 n of Premium on Investment s c) Provision towards Fraud & Misapp. d) 793,000,00 Provision 0.00 towards BDDR e) 24,374,000. Provision 00 towards Restructure d Assets 22. 753,921,28 PROFIT 8.76 BEFORE TAX Less : 407,140,24 Income Tax 0.00 Less : 9,981,527.0 Deferred 0 Tax NET 336,799,52 PROFIT 1.76 AFTER TAX carried forward

-

55,956,006. 40

12,734,136. 00

570,000,00 0.00

16,254,000. 00

209,346,24 7.62

205,998,18 7.01 (20,299,056 .86) 23,647,117. 47

66

NOTES 12,071,600, ON 625.11 ACCOUN TS

15

AS PER OUR REPORT OF EVEN DATE For BORKAR AND MUZUMDAR Chartered Accountants (FRN: 101569W ) V. S. MORYE (MANAGING DIRECTOR)

10,899,803, 12,071,600, 838.68 625.11

10,899,803, 838.68

FOR & ON BEHALF OARD OF OF B DIRECTORS, FOR ABHYUDAYA CO-OPERATIVE BANK LTD.,

SITARAM C. GHANDAT (CHAIRMAN)

Dilip M. Muzumdar Partner M.NO. : 8701 (Statutory Auditors ) Place : Mumbai Dated :09/06/2016

67

NITYANAND. PRABHU MARUTI MEHETRE (VICE CHAIRMAN) DIRECTOR

HARIHAR S. JAISWAR (DIRECT OR)

Chapter 6:Data Collection & Analysis

68

Chapter 6:- Data Collection & Analysis 1. Access to financing for firms in your situation is considered:  Easy  Normal  Difficult Table:Options

No of Respondents

Percentage

Easy Normal Difficult Total

3 2 0 5

60% 40% 100% 100%

Graph:-

0%

Access

40%

Easy Normal

60%

Difficult

Interpretation From the above table it is observed that the 60 percent of the Respondents Says Easy, 40 percent of the Respondents Says Normal & 0 Percent of the respondents says Difficult. So it is noted that the More than Average Respondents says, it is Easy process.

69

2. Including yourself, how many people are currently employed in your bank?    

50-100 101-249 250+ Can’t Say



Table:Options

No of Respondents

Percentage

50-100 101-246 250+ Can't Say

0 0 4 1

0% 0% 80% 20%

Total

5

100%

Graph:-

Employee 0% 0% 20%

50-100 101-246 250+ Can't Say

80%

Interpretation From the above table it is observed that the 80 percent of the Respondents Says 250 + Employees & 20 percent of the Respondents Says Can’t Say about this. So it is noted that the More than Average Respondents says, there are more than Average employee’s works in bank.

70

3. What was the most common reason given by the lender for those rejections applications for a line of credit or loan?     

Collateral or co-signers unacceptable Insufficient profitability Problems with credit history or credit report Other objections Don’t know (spontaneous)

Table:Options

No of Respondents

Percentage

Collateral or co-signers unacceptable

0

0

Insufficient profitability

1

20%

Problems with credit history or credit report

2

40%

Other objections Don't Know Total

1 1 5

20% 20% 100%

Graph:-

Reasons 0% 20%

Collateral or co-signers unacceptable 20%

Insufficient profitability Problems with credit history or credit report

20%

Other objections

40%

Don't Know

Interpretation From the above table it is observed that the 40 percent of the Respondents Says Problems With credit history or credit report, 20 percent of the Respondents Says Insufficient profitability, other objections, don’t Know & 0 percent of the Respondents Says Collateral or co-signers unacceptable. 71

4. Banks requires collateral as security for their loans? 

True



False

Table:Options True False Total

No of Respondents

Percentage

5 0 5

100% 0% 100%

Graph:-

Security 0%

1 0 100%

Interpretation From the above table it is observed that the 100 percent of the Respondents Says Bank Requires collateral as security for their loans.

72

5. Bank requires funds from other financial institutions? 

Yes



No



Sometimes



Can’t say

Table:Options

No of Respondents

Percentage

Yes No Sometimes Can’t say Total

3 0 1

60% 0% 20%

1

20%

5

100%

Graph:-

Funds Requirement 20%

Yes No

20%

60%

sometimes Cant say

0%

Interpretation From the above table it is observed that the 60 percent of the Respondents Says yes, 20 percent of the Respondents Says Sometimes, Can’t say & 0 percent of the Respondents Says No. So it is noted that the More than Average Respondents says, Bank requires funds from other financial institution.

73

Chapter 7:- Conclusion

74

Chapter 7:- Conclusion

Sources if finance is available from variety of sources but each source has its own cost & benefit. It is important to choose an appropriate and cheap source of finance for the smooth operation of the firm. Choosing the right financing source is based on this vital point, business condition and the interest rate or the other cost of the fiancé. There are important factors to consider when choosing a source of finance. However further work need to be done. The limitedness of time has not allowed for further research and more detail.

75

Chapter 8:References/Bibliography

76

Chapter 8:- References/Bibliography •

www.google.com

•

www.abhyudayabank.co.in

•

www.scrib.com

•

http://www.google.co.in/amp/s/efinancemanagement.com/sources-of-finance%3fisamp=1

•

https://business.wikinut.com/Busines%3A-Sources-of-Finance/jryqhksz/

•

www.slideshare.com

77

APPENDIX Questionnaire 1. Access to financing for firms in your situation is considered:  Easy  Normal  Difficult 2. Including yourself, how many people are currently employed in your bank?    

50-100 101-249 250+ Can’t Say



3. What was the most common reason given by the lender for those rejections applications for a line of credit or loan?     

Collateral or co-signers unacceptable Insufficient profitability Problems with credit history or credit report Other objections Don’t know (spontaneous)

4. Banks requires collateral as security for their loans? 

True



False

5. Bank requires funds from other financial institutions? 

Yes



No



Sometimes



Can’t say

78