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EXECUTIVE SUMMARY
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It gives me greatT pleasure to present this project report on working
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capital finance at FACOR STEELS LIMITED, NAGPUR. The project was
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carried out from 1st June 2010 to 31st July 2010.
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The main objective of the project was to study various types of
working capital finance required by companies. To know details the
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procedure of assessment
I of working capital finance extended by banks.
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Procurement of fund is one of the important functions in business
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enterprises and utilizes it for maximization of business profits.
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Business enterprisesE need funds to meet their different types of
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requirements, E
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i. Long-term requirement
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ii. Medium-term requirement
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iii. Short-term requirement
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Working capital requirement is the short-term requirement. Working
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capital is the investment needed for carrying out day-to-day operations of
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the business smoothly. A Bank is one of the important sources of working
capital requirement. BankS gives various facilities to the borrowers.
In this project IHhave considered various banking facilities for the
working capital finance to the industries. It covers almost important
aspect relating to assessment & follow up of working capital finance.
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 CONTENT

Chapter I: - Part “A” – “METHOD OF

ESTIMATING WORKING CAPITAL & CASH
MANAGEMENT”

• Introduction to working capital

• Advantage` s of adequate working capital
• Disadvantage`s of inadequate working capital
• Factors affecting working capital
• Types of working capital
• Bank credit as a source of meeting working capital
requirement
• Form of assistance
• Assessment of working capital
• Credit monitoring assessment
• Security
• Banking arrangements

Part “B”
• Corporate profile
• Introduction of FACOR
STEELS LIMITED

Chapter II: - “Research methodology”

• Statement of objective
• Statement of limitation
• Statement of problem
• Sources of data
• Techniques of data analysis

Chapter III: - Data analysis and interpretation

Chapter IV: -
• Findings
• Suggestion
• Conclusion

Chapter V: - Bibliography

Chapter VI: - Appendix

INTRODUCTION TO WORKING CAPITAL

In accounting, Working capital is the difference between the inflow and

outflow of funds. In other words, it is the net cash inflow. It is defined as
the excess of current assets over current liabilities and provisions. In other
words, it is net current assets or net working capital.

A study of working capital is of major importance to internal and external

analysis because of its close relationship with the day-to-day operations of
a business. Working Capital is the portion of the assets of a business
which are used on or related to current operations, and represented at any
one time by the operating cycle of such items as against receivables,
inventories of raw materials, stores, work in process and finished goods,
merchandise, notes or bill receivables and cash.

Working capital comprises current assets which are distinct from other
assets. In the first instance, current assets consist of these assets which
are of short duration.

Working capital`s effective provision can do much to ensure the success

of a business while its inefficient management can lead not only to loss of
profits but also to the ultimate downfall of what otherwise might be
considered as a promising concern.

The funds required and acquired by a business may be invested to two

types of assets:

1. Fixed Assets.

2. Current Assets

Fixed assets are those which yield the returns in the due course of time.
The various decisions like in which fixed assets funds should be invested
and how much should be invested in the fixed assets etc. are in the form
of capital budgeting decisions. This can be said to be fixed capital
management.

Other types of assets are equally important i.e. Current Assets.

These types of assets are required to ensure smooth business operations

and can be said to be life blood of the business. There are two concepts of
working capital — Gross and Net.
Gross working capital refers to gross current assets.

Net working capital refers to the difference between current assets and
current liabilities. The term current assets refers to those assets held by
the business which can be converted into cash within a short period of
time of say one year, without reduction in value. The main types of
current assets are stock, receivables and cash. The term current liabilities
refer to those liabilities, which are to be paid off during the course of
business, within a short period of time say one year. They are expected to
be paid out of current assets or earnings of the business. The current
liabilities mainly consist of sundry creditors, bill payable, bank overdraft or
cash credit, outstanding expenses etc.

OPERATING CYCLE

Operating cycle is the time duration required to convert sales, after

the conversion of resources into inventories, into cash. The longer the
period of conversion the longer will be the period of operating cycle. A
standard operating cycle may be for any time period but does not
generally exceed a financial year. Obviously, the shorter the operating
cycle larger will be the turnover of the fund invested for various purposes.
The channels of investment are called current assets.

The operating cycle of a manufacturing company involves three phases:

 1. Acquisition of resources such as raw material, labour, power, and
fuel etc.

2. Manufacture of the product which includes conversion of raw

material into work-in-progress into finished goods.

3. Sale of the product either for cash or on credit. Credit sale creates
book debts for collection.

After assessing the total requirement of working capital, a part of

working capital requirement should be financed for the long term &

partly by determining maximum permissible bank finance.

ADVANTAGES OF ADEQUATE WORKING CAPITAL

 SOLVENCY OF THE BUSINESS.

Adequate working capital helps in maintaining the solvency of the

business by providing uninterrupted of production.

 GOODWILL
 Sufficient amount of working capital enables a firm to make prompt
payments and makes and maintain the goodwill.

 EASY LOANS

Adequate working capital leads to high solvency and credit

standing can arrange loans from banks and other on easy and
favorable terms.

 CASH DISCOUNTS

Adequate working capital also enables a concern to avail cash

discounts on the purchases and hence reduces cost.

 REGULAR SUPPLY OF RAW MATERIALS

Sufficient working capital ensures regular supply of raw material and

continuous production.

 REGULAR PAYMENT OF WAGES, SALARIES AND DAILY

OPEARATING EXPENSES

It leads to the satisfaction of the employees and raises the morale of

its employees, increases their efficiency, reduces wastage and costs
and enhances production and profits.

 EXPLOITATION OF FAVORABLE WORKING CONDITIONS

If a firm is having adequate working capital then it can exploit the

favorable market conditions such as purchasing its requirements in
bulk when the prices are lower and holdings its inventories for
higher prices.

 ABILITY TO FACE CRISIS

A concern can face the situation during the depression.

 QUICK AND REGULAR RETURN ON INVESTMENTS

 Sufficient working capital enables a concern to pay quick and
regular of dividends to its investors and gains confidence of the
investors and can raise more funds in future.

 HIGH MORALE

Adequate working capital brings an environment of securities,

confidence, high morale which results in overall efficiency in a
business.

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for
working capital arises due to the time gap between production and
realization of cash from sales. There is an operating cycle involved in sales
and realization of cash. There are time gaps in purchase of raw material
and production; production and sales; and realization of cash.

Thus working capital is needed for the following purposes:

 For the purpose of raw material, components and spares.

 To pay wages and salaries

 To incur day-to-day expenses and overload costs such as office

expenses.

 To meet the selling costs as packing, advertising, etc.

  To provide credit facilities to the customer.

 To maintain the inventories of the raw material, work-in-progress,

stores and spares and finished stock.

For studying the need of working capital in a business, one has to study
the business under varying circumstances such as a new concern
requires a lot of funds to meet its initial requirements such as
promotion and formation etc. These expenses are called preliminary
expenses and are capitalized. The amount needed for working capital
depends upon the size of the company and ambitions of its promoters.
Greater the size of the business unit, generally larger will be the
requirements of the working capital.

The requirement of the working capital goes on increasing with the

growth and expensing of the business till it gains maturity. At maturity
the amount of working capital required is called normal working capital.

FACTORS AFFECTING WORKING CAPITAL MANAGEMENT

The amount of working capital required depends upon a number of factors
which can be stated as below

NATURE OF BUSINESS:

Some businesses are such, due to their very nature, that their
requirement of fixed capital is more rather than working capital. These
businesses sell services and not the commodities and not the
commodities and that too on cash basis. As such, no funds are blocked in
piling inventories and also no funds are blocked in receivables. E.g. Public
utility services like railways, electricity boards, infrastructure oriented
projects etc. Their requirement of working capital is less. On the other
hand, there are some business like trading activity, where the requirement
of fixed capital is less but more money is blocked in inventories and
debtors. Their requirement of the working capital is more.

LENGTH OF PRODUCTION CYCLE:

In some business like machine tool industry, the time gap between the
acquisitions of raw material till the end of final production of finished
product itself is quite high. As such more amounts may be blocked either
in raw materials, or work in progress or finished goods or even in debtors.
Naturally, their needs of working capital are higher. On the other hand, if
the production cycle is shorter, the requirement of working capital is also
less.

SIZE & GROWTH OF BUSINESS:

In very small companies the working capital requirements are quite high
overheads, higher buying and selling costs etc. As such, the medium sized
companies positively have an edge over the small companies. But if the
business starts growing after a certain limit, the working capital
requirements may be adversely affected by the increasing size.

BUSINESS / TRADE CYCLE:

If the company is operating in the period of boom, the working capital

requirements may be more as the company may like to buy more raw
material, may increase the production and sales to take the benefits of
favourable markets, due to the increased sales, there may be more and
more amount of funds blocked in stock and debtors etc. Similarly, in case
of depression also, the working capital requirements may be high as the
sales in terms of value and quantity may be reducing, there may be
unnecessary piling up of stocks without getting sold, the receivables may
not be recovered in time etc.

TERMS OF PURCHASE & SALE

Sometimes, due to competition or custom, it may be necessary for the

company to extend more and more credit to the customers, as a result of
which more and more amounts is locked up in debtors or bills receivables
which increase working capital requirements. On the other hand, in case
of purchases, if credit is offered by the suppliers of goods and services, a
part of working capital requirement may be financed by them, but if it is
necessary to purchase these goods or services on cash basis, the working
capital requirement will be higher.

PROFITABILITY

The profitability of the business may vary in each and every individual
case, which in its turn may depend upon numerous factors. But high
profitability will positively reduce the strain on working capital
requirements of the company, because the profits to the extent that they
are earned in cash may be used to meet the working capital requirements
of the company. However, profitability has to be considered from one
more angles so that it can be considered as one of the ways in which
strain on working capital requirements of the company may be relieved.
And these angles are:

TAXATION POLICY

How much amount is required to be paid by the company towards its tax
liability?

DIVIDEND POLICY

How much of the profits earned by the company are distributed by way of
dividend?
TYPES OF WORKING CAPITAL

FIXED OR CORE OR PERMANENT WORKING CAPITAL

The magnitude of current assets needed is not always same, it increases

& decreases over time. However, there is always a minimum level of
current assets which is continuously required by the firm to carry on its
business operations. This minimum level of current assets is referred to as
permanent, or fixed, working capital.

VARIABLE OR TEMPORARY WORKING CAPITAL

The extra working capital, needed to support the changing production and
sales activities is called fluctuating, or variable or temporary, working
capital. Both kinds of working capital – permanent and temporary- are
necessary to facilitate production and sale through the operating cycle,
but temporary- working capital is created by the firm to meet the liquidity
requirements that will last temporary. As far as financing of the fixed or
permanent needs of working capital are concerned, these needs should be
met out of the long term sources of funds, Own generation of funds, out of
the profits earned, shares or debentures.
As far as financing of the variable or temporary needs of working capital
are concerned, these needs can be met from the various sources:

1. A part of these needs may be financed by way of the credits available

from the suppliers of material or services and of delayed payment of
expenses.

2. A part of these needs may be financed by way of long term sources of

funds in the form of own generation of funds, out of profits earned shares,
debentures and other long term borrowings, public deposits etc.

3. A part of these needs may be financed by way of long term sources of

funds in the form of own generation of funds, out of profits earned, shares,
debentures and other long term borrowing.

BANK CREDIT AS SOURCE OF MEETING WORKING

CAPITAL REQUIREMENTS

While bank credit is considered as a major source of meeting the working

capital requirement of the industry, the banks have to consider the
following factors before meeting their requirements.

A].What should be the amount of working capital assistance?

B].What should be the form in which working capital assistance may be

extended?

C].What should be the security that should be obtained for extending the
working capital assistance?

AMOUNT OF ASSISTANCE

To obtain the bank credit for meeting the working capital requirements,
the company will be required to estimate the working capital requirements
and will be required to approach the banks along with the necessary
 supporting data. On the basis of the estimates submitted by the company,
the bank may decide the amount of assistance which may be extended,
after considering the margin requirements. This margin is to provide the
cushion against the reduction in the value of security. If the company fails
to fulfil its obligations, the bank may be required to realize the security for
recovering the dues. Margin money is meant to take care of the possible
reduction in the value of security. The percentage of margin money may
depend upon the credit standing of the company, fluctuations in the price
of security or the directives of Reserve Bank of India from time to time.

FORM OF ASSISTANCE

After deciding the amount of overall assistance to be extended to the

company, the bank can disburse the amount in any of the following forms

 Non-Fund Based Lending

 Fund Based Lending

NON-FUND BASED LENDING

In case of Non-Fund Based Lending, the lending bank does not commit any
physical outflow of funds. As such, the funds position of the lending bank
remains intact.

 BANK GURANTEE

Suppose Company A is the selling company and Company B is the

purchasing company. Company A does not know Company B and as such
is concerned whether Company B will make the payment or not. In such
circumstances, D who is the Bank of Company B, opens the Bank
Guarantee in favour of Company A in which it undertakes to make the
payment to Company A if Company B fails to honour its commitment to
make the payment in future. As such, interests of Company A are
protected as it is assured to get the payment, either from Company B or
from its Bank D. As such, Bank Guarantee is the mode which will be found
typically in the seller’s market. As far as Bank D is concerned, while
issuing the guarantee in favour of Company A, it does not commit any
outflow of funds. As such, it is a Non-Fund Based Lending for Bank D. If on
due date, Bank D is required to make the payment to Company A due to
failure on account of Company B to make the payment, this Non-Fund
Based Lending becomes the Fund Based Lending for Bank D which can be
recovered by Bank D from Company B. For issuing the Bank Guarantee,
Bank D charges the Bank Guarantee Commission from Company B which
gets decided on the basis of two factors-what is the amount of Bank
Guarantee and what is the period of validity of Bank Guarantee. In case of
this conventional for of Bank Guarantee, both company A as well as
Company B get benefited as it is able to make the credit purchases from
Company A without knowing Company A. As such, Bank Guarantee
transactions will be applicable in case of credit transactions.
In some cases, interests of purchasing company are also to be protected.
Suppose that Company A which manufactures capital goods takes some
advance from the purchasing Company B. If Company A fails to fulfil its
part of contract to supply the capital goods to Company B, their needs to
be to be some protection available to Company B. In such circumstances,
Bank C which is the banker of Company A opens a Bank Guarantee in

Favour of Company B in which it undertakes that if Company A fails to

fulfil its part of the contract, it will reimburse any losses incurred by
Company B due to this non fulfilment of contractual obligations. Such
Bank Guarantee is technically referred to as performance Bank Guarantee
and it ideally found in the buyer’s market.

 LETTER OF CREDIT
The non-fund based lending in the form of letter of credit is very regularly
found in the international trade. In case the exporter and the importer are
unknown to each other. Under these circumstances, exporter is worried
about getting the payment from the importer and importer is worried as to
whether he will get the goods or not. In this case, the importer applies to
his bank in his country to open a letter of credit in favour of the exporter
whereby the importer’s bank undertakes to pay the exporter or accept the
bills or drafts drawn by the exporter on the exporter fulfilling the terms
and conditions specified in the letter of credit.

FUND BASED LENDING

In case of Fund Based Lending, the lending bank commits the physical
outflow of funds. As such, the funds position of the lending bank gets
affected. The Fund Based Lending can be made by the banks in the
following forms-

LOAN

In this case, the entire amount of assistance is disbursed at one time only,
either in cash or by transfer to the company’s account. It is a single
advance. The loan may be repaid in instalments, the interests will be
charged on outstanding balance.

OVERDRAFT

In this case, the company is allowed to withdraw in excess of the balance

standing in its Bank account. However, a fixed limit is stipulated by the
Bank beyond which the company will not be able to overdraw the account.
Legally, overdraft is a demand assistance given by the bank i.e. bank can
ask for the repayment at any point of time. However in practice, it is in
the form of continuous types of assistance due to annual renewal of the
limit. Interest is payable on the actual amount drawn and is calculated on
daily product basis.

CASH CREDIT

In practice, the operations in cash credit facility are similar to those of

overdraft facility except the fact that the company need not have a formal
current account. Here also a fixed limit is stipulated beyond which the
company is not able to withdraw the amount. Legally, cash credit is a
demand facility, but in practice, it is on continuous basis. The interests is
payable on actual amount drawn and is calculated on daily product basis.

BILLS PURCHASED OR DISCOUNTED

This form of assistance is comparatively of recent origin. This facility

enables the company to get the immediate payment against the credit
bills raised by the company. The bank holds the bill as a security till the
payment is made by the customer. The entire amount of bill is not paid to
the company. The Company gets only the present worth of the amount of
bill, the difference between the face value of the bill and the amount of
assistance being in the form of discount charges. On maturity, bank
collects the full amount of bill from the customer. While granting this
facility to the company, the bank inevitably satisfies itself about the credit
worthiness of the customer. A fixed limit is stipulated in case of the
company, beyond which the bills are not purchased or discounted by the
bank.

PACKING CREDIT

This type of assistance may be considered by the bank to take care of

specific needs of the company when it receives some export order.
Packing credit is a facility given by the bank to enable the company to buy
the goods to be exported. If the company holds a confirmed export order
placed by the overseas buyer or a letter of credit in its favour, it can
approach the bank for packing credit facility.

ASSESSMENT OF WORKING CAPITAL

A unit needs working capital funds mainly to carry current assets required

for its operations. Inadequate levels of working capital may result in

under-utilization of capacity and serious financial difficulties. Similarly

excessive levels may lead to unproductive use of credit and unnecessary

interest burden on the unit. Proper assessment of working capital

requirement may be done as under-

I. NORMS FOR INDUSTRY & RECIVIABLES

If the bank credit is to be linked with production requirements, it is

necessary to assess the requirements on the basis of certain norms. The

‘study group to frame guidelines to follow-up of bank credit’ (Tandon

Study Group) appointed by Reserve Bank of India had suggested the

norms for inventory and receivables regarding

1: Major industries on the basis of company finance studies made by

Reserve Bank process periods in the different industries, discussions with

the industry experts and feed-back received on the interim report. Banks

make their own assessment of credit requirements of borrowers based

on a total study of borrowers’ business operations and they can also

decide the levels of holding each item of inventory as also of receivables

which in their view would represent a reasonable built up of current

assets for being supported by banks’ finance. Banks may also consider

suitable internal guidelines for accepting the projections made by the

borrowers regarding sundry creditors as sundry creditors are taken as a

source of financing current assets (inventories, receivables, etc.), it is

necessary to project them correctly while calculating need of bank

finance for working capital requirements.

II. COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE

The Tandon Study group had suggested the following alternatives for

working out the maximum permissible bank finance:-

a. FIRST METHOD OF LENDING:

Bank can work out the working capital gap. i. e. total current

assets less current liabilities other than bank borrowings and

finance a maximum of 75 per cent of the gap; the balance to come

out of long-term funds, i.e. owned funds and term borrowings

b. SECOND METHOD OF LENDING:

Borrower should provide for a minimum of 25 per cent of total

current assets out of long-term funds, i.e. owned funds and long
 term borrowings. A certain level of credit for purchases and other

current liabilities inclusive of bank borrowings will not exceed 75

per cent of current assets.

c. DRAWING POWER OF THE BORROWER

The drawing power that a borrower enjoys at any one point

depends on each components of working capital. The bank for

each component, which the borrower must hold as his contribution

to finance working capital, prescribes margins.

It may be observed from the above that borrower’s contribution from

long term funds would be 25 per cent of the working capital gap under the

FIRST METHOD OF LENDING and 25 per cent of total current assets under

the SECOND METHOD OF LENDING. The above minimum contribution of

long-term funds is called minimum stipulated Net Working Capital (NWC)

which comes from owned funds and term borrowings.

III.CLASSIFICATION OF CURRNET ASSETS & CURRENT

LIABILITES:

In order to calculate net working capital & maximum permissible bank

finance, it is necessary to have proper classification of various items of

current assets & current liabilities. All illustrative lists of current assets &

current liabilities for the purpose of assessment of working capital are

furnished below;

Current assets: -

a. Cash and bank balances

b. Investments

c. Receivables arising out of sales other than deferred receivables

(including bills purchased & discounted by bankers)

d. Installments by deferred receivables due within one year

e. Raw materials & components used in the process of manufactured

including those in transit

f. Stock in process including semi finished goods

g. Finished goods including goods in transit

h. Other consumable spares

i. Advance payment for tax

j. Prepaid expenses

k. Advances for purchases of raw materials, components &

consumable stores

l. Payment to be received from contracted sale of fixed assets during

the next 12 months

Current Liabilities:

a. Short-term borrowings (including bills purchased & discounted) from

I. Banks and II. Others

b. Unsecured loans

c. Public deposits maturing within one year

d. Sundry creditors (trade) for raw material & consumer stores &

spares

e. Interest & other charges accrued but no due for payments

f. Advances/progress payments from customers

 g. Deposits from dealers selling agents, etc.

h. Statutory liabilities

 Provident fund dues

 Provision for taxation

 Sales-tax, excise, etc.

 Obligation towards workers considered as statutory

i. Miscellaneous current liabilities

 Dividends

 Liabilities for expenses

 Gratuity payable within one year

 Any other payments due within one year

IV. INFORMATION / DATA REQUIRED FOR ASSEMENT OF

WORKING CAPITAL

In order to assess the requirements of working capital on the basis of

production needs, it is necessary to get the data from the borrowers

regarding their past/projected production, sales, cost of production, cost of

sales, operating profit, etc. in order to ascertain the financial position of

the borrowers & the amount of working capital needs to be financed by

banks, it is necessary to call for the data from the borrowers regarding

their net worth, long term liabilities, current liabilities, fixed assets, current

assets, etc. the Reserve Bank prescribed the forms in 1975 to submit the

necessary details regarding the assessment of working capital under its

credit authorization scheme. The scheme of credit authorization was

changed into CREDIT MONOTORING ASSESEMENT in 1988. The forms used

under the credit authorization scheme for submitting necessary

information have also been simplified in 1991 for reporting the credit

sanctioned by banks above the cut-off point to reserve bank under its

scheme of credit monitoring arrangement.

In addition to the information/data in the prescribed forms, bank

may also call for additional information required by them depending on

the nature of the borrowers’ activities & their financial position. The data

is collected from the borrowers in the following six forms: -

1. PARTICULARS OF THE EXISTING/PROPOSED LIMITS FROM THE

BANKING SYSTEM (FORM I)

Particulars of the existing credit from the entire banking system as

also the term loan facilities availed of from the term lending

institutions/banks are furnished in this form. Maximum & minimum

utilization of the limits during the last 12 months outstanding balances

as on a recent date are also given so that a comparison can be made

with the limits now requested & the limits actually utilized during the

last 12 months.

2. OPERATING STATEMENT (FORM II)

The data relating to last sales, net sales, cost of raw material, power

& fuel, direct labour, depreciation, selling, general expenses, interest,

etc. are furnished in this form. It also covers information on operating

profit & net profit after deducting total expenditure from total sale

proceeds.

3. ANALYSIS OF BALANCE SHEET (FORM III)

A complete analysis various items of last year’s balance sheet,

current year’s estimate & following year’s projections is given, in this

form. The details of current liabilities, term liabilities, net worth, current

assets, other non-current assets, etc. are given in this form as per the

classification accepted by banks.

4. COMPARATIVE STATEMENT OF CURRENT ASSETS & CURRENT

LIABILITES (FORM IV)

This form gives the details of various items of current assets and

current liabilities as per classification accepted by banks. The figures

given in this form should tally with the figures given in the form III

where details of all the liabilities & assets are given. In case of

inventory, receivables and sundry creditors; the holding/levels are

given not only in absolute amount but also in terms of number of

month so that a comparative study may be done with prescribed

norms/past trends. They are indicated in terms of numbers of months

in bracket below their amounts.

 5. COMPUTATION OF MAXIMUM PERMISSIBLE BANK FINANCE

(FORM V)

On the basis of details of current assets & liabilities given in form IV,

Maximum Permissible Bank Finance is calculated in this form to find out

credit limits to be allowed to the borrowers.

6. FUND FLOW STATEMENT (FORM VI)

In this form, fund flow of long term sources & uses is given to

indicate whether long term funds are sufficient for meeting the long

term requirements. In addition to long term sources and uses,

increase/decrease in current assets is also indicated in this form.

CREDIT MONITORING ARRANGEMENT

Consequent upon the withdrawal of requirement of prior authorization

under the erstwhile credit authorization scheme (CAS) and introduction of

a system of post sanction scrutiny under credit monitoring arrangement

(CMA) the database forms have been recognized as CMA database. The

revised forms for CMA database as drawn up by the sub-committee of

committee of directions have come into use from 1st April 1991.

The existing forms prescribed for specified industries continue to remain

in force. With a view to imparting uniformity to the appraisal system,

database from all borrowers including SSI units enjoying working capital
limits of Rs. 50 lacs and more from the banking system should be

obtained.

The revised sets of forms have been separately prescribed for industrial

borrowers and traders/merchant exporters. The details of forms are as

under: -

Form 1: - PARTICULARS OF THE EXISTING/PROPOSED LIMITS FROM

THE BANKING SYSTEM (FORM I)

Form 2: - OPERATING STATEMENT

It contains data relating to gross sales, net sales, cost of raw material,

power and fuel, etc. It gives the operating profit and the net profit figures.

Form 3: - ANALYSIS OF BALANCE SHEET

It is complete analysis of various items of last years balance sheet;

current years estimate and following years projection are given in this

form.

Form 4: - COMPARATIVE STATEMENT OF CURRENT ASSETS &

CURRENT LIABILITES

Details of various items of current asset and current liabilities are given.

The figures in this form must tally with those in form III.
Form 5: - COMPUTATION OF MAXIMUM PERMISSIBLE BANK

FINANCE FOR WORKING CAPITAL

The calculation of MPBF is done in this form to obtain the fund based

credit limits to be granted to the borrower.

Form 6: - FUND FLOW STATEMENT

It provides the details of fund flow from long term sources and uses to

indicate weather they are sufficient to meet the borrowers long term

requirements.

SECURITY

Banks need some security from the borrowers against the credit facilities

extended to them to avoid any kind of losses. Securities can be created in

various ways. Banks provide credit on the basis of the following modes of

security from the borrowers.

HYPOTHECATION: Under this mode of security, the banks provide credit

to borrowers against the security of movable property, usually inventory

of goods. The goods hypothecated, however, continue to be in possession

of the owner of the goods i.e. the borrower. The rights of the banks

depend upon the terms of the contract between borrowers and the lender.
Although the bank does not have the physical possession of the goods, it

has the legal right to sell the goods to realize the outstanding loans.

Hypothecation facility is normally not available to new borrowers.

MORTGAGE: It is the transfer of a legal / equitable interest in specific

immovable property for securing the payment of debt. It is the

conveyance of interest in the mortgaged property. This interest

terminated as soon as the debt is paid. Mortgages are taken as an

additional security for working capital credit by banks.

PLEDGE: The goods which are offered as security, are transferred to the

physical possession of the lender. An essential prerequisite of pledge is

that the goods are in the custody of the bank. Pledge creates some kind of

liability for the bank in the sense that ‘Reasonable care’ means care,

which a prudent person would take to protect his property. In case of non-

payment by the borrower, the bank has the right to sell the goods.

LIEN: The term lien refers to the right of a party to retained goods

belonging to other party until a debt due to him is paid. Lien can be of two

types viz. Particular lien i.e. A right to retain goods until a claim

pertaining to these goods are fully paid, and General lien, Which is
applied till all dues of the claimant are paid. Banks usually enjoyed

general lien.

BANKING ARRANGEMENTS

Working capital is made available to the borrower under the following

arrangements;

CONSORTIUM BANKING ARRANGEMENT:

RBI till 1997 made it obligatory for availing working capital facilities

beyond a limit (Rs 500 million in 1997), through the consortium

arrangement. The objective of the arrangement was to jointly meet the

financial requirement of big projects by banks and also share the risks

involved in it. While consortium arrangement is no longer obligatory, some

borrowers continue to avail working capital finance under this

arrangement. The main features of this arrangement are as follows;

Bank with maximum share of the working capital limits usually takes the

role of ‘lead bank’.

Lead bank, independently or in consultation with other banks, appraise

the working capital requirements of the company. Banks at the consortium

meeting agree on the ratio of sharing the assessed limits. Lead bank

undertakes the joint documentation on behalf of all member banks. Lead

bank organizes collection and dissemination of information regarding

conduct of account by borrower.

MULTIPLE BANKING ARRANGEMENT

Multiple banking is an open arrangement in which no banks will take

the lead role. Most borrowers are shifting their banking arrangement to

multiple banking arrangements. The major features are –

Borrower needs to approach multiple banks to tie up entire requirement of

working capital. Banks independently assessed the working capital

requirements of the borrower. Banks, independent of each other, do

conduct documentation and monitoring of account. Borrowers deals with

all financing banks individually.

SYNDICATION

A syndicated credit is an agreement between two or more lenders to

provide a borrower credit facility using common loan agreement. It is
internationally practiced model for financing credit requirements, wherein
banks are free to syndicate the credit limit irrespective of quantum
involved. It is similar to a consortium arrangement in terms of dispersal of
risk but consist of a fixed repayment period.
CORPORATE PROFILE

The history of Ferro Alloys Corporation Ltd – popularly known as "FACOR"

can be traced back to 1956. It started its operation with Ferro Manganese
production and slowly diversified into production of Ferro Chrome and
Charge Chrome. Today, FACOR is already a name to reckon with in Ferro
Alloys industry, both at home and abroad. The Charge Chrome Plant at
Bhadrak in Orissa State is 100% Export Oriented Unit. The Ferro Chrome
division in Andhra Pradesh also exports 40% to 50% of its products to
quality conscious customers in South-east Asian and European Countries.
As a major step towards forward integration, FACOR took over a mini steel
plant in 1978 for manufacture of Alloy, Special and Stainless Steels.
Thereafter, through innovative and sophisticated technological
developments, FACOR (Steel Division) has been able to develop and
manufacture critical grades of alloy and stainless steel to meet stringent
requirements of customers both at home and abroad. It is now a leading
alloy steel producer of the country and has been successful in exporting
special stainless steel products all over the worlds with a focus on
developed countries, apart from catering to critical requirements of
Automobile, Railways, Defence, Chemical, Heavy Machinery and
Engineering sectors in the domestic market.

MARKETS CATERED

FACOR steel produces and sells high quality stainless steels and speciality
steels that meet a variety of demands. We design our product mix to cater
to almost all leading automobile and engineering industries. Our products
withstand the extreme environments in which they are used. Our people
are attentive to customers' needs in an increasingly complex business
environment. Industries being catered to by
FACOR today are -
(1) FORGING INDUSTRY
(2) AUTO COMPONENT INDUSTRY
(3) FASTNERS INDUSTRY
(4) RAILWAY SPRINGS
(5) BRIGHT BAR INDUSTRY
(6) CHEMICAL AND CORROSION INDUSTRY
(7) SURGICAL EQUIPMENT INDUSTRY
(8) VALVE INDUSTRY
(9) BOILERS

FACOR also supply special steel for critical applications like Aerospace,
pressure equipments etc. and have successfully developed over 500 steel
grades in plant over period of time.

To cater the growing demand from auto sector and heavy engineering
sector for forged rounds, FACOR STEELS LTD. has set up a modern forging
unit at its existing plant and the commercial production has
started from 10th July, 2009 onwards. The company with its enhanced
capacity of ingot production and capability to provide higher diameter
forged rounds is ready to fulfil the global and domestic demand in Non-auto
sectors like sugar Mill, Cement Plants, Heavy machinery units etc. There is
a huge supply-demand gap in this sector and FACOR STEELS LTD. is rightly
poised to cater to this segment.

We are accredited for our quality management system by ISO/TS 16949 -

2002, AO 2000-Merkblatt WO & PED 97/23/EC, also we are going for
certification of Lloyds Register & DNV for supplies to Ship Building Industry.

MARKET SHARE
Through innovative technologies FACOR Steel meets customer
requirements, both in terms of quality and deliveries, which has helped us
to improve our share in Auto & Engineering industry. Our customers as on
date number more than 150 reputed manufacturers throughout the length
and breadth of the country.

STRENGTH
Our inherent strengths lie in meeting the requirements of critical grades,
even in smaller quantities of say 1 to 1.5 MT, in our wide product range in
shortest possible time of 4 to 6 weeks. We can adapt to rapid changes in
domestic as well as global market by careful adjustment in product mix.

BOARD OF DIRECTORS

Sr.No Name
Shri Narayandas D. Saraf
1.
( Chairman & Whole Time Director)
Shri Murlidhar D. Saraf
2.
(Vice Chairman & Managing Director)
Shri Vinod V. Saraf
3.
(Managing Director)
Shri Anurag M. Saraf
4.
(Joint Managing Director)
Shri P. K. Kukade
5.
(Director)
Shri Anand S. Kapre
6.
( Director )
Shri Mahendra B. Thaker
7.
(Director)
Mr. Arye Berest
8.
(Director)
Shri P K S Nair
9.
(Nominee Director, Bank of India)
Shri Ashim R. Saraf
10.
(Alternate Director to Mr. Arye Berest)
Shri Vibhu Bakhru
11.
(Director)

Certificates

ISO/TS 16949:2002
We Facor Steels Ltd. has accreditation of IRQS and awarded ISO/TS
16949:2002 certification in 2008. The scope of approval is for
manufacture Carbon, Alloy, Stainless & special Steels. The certification no
IRQS/0850766 is valid till 2011. We first achieved ISO certification in 1994
and ISO 9001:2000 in 2004. We are maintaining the system and our
certification since then.
TUV NORD System Gmbh& co

TUV NORD the international certification agency has recognized us as

manufacturer according to AD 2000- Merkblatt w0. Also approved for
Quality System according to pressure Equipment Directive 97/23/EC for
Stainless steel, Alloy Steel, Ingots, Rolled products and Bright bars as per
the annexure.
STATEMENT OF OBJECTIVES
  To know the various types of working capital finance provided by

banks.

 To analyze in detail the procedure of assessment of working capital

finance extended by bank.

 To apply these procedure at a practical level with the help of case

studies.

STATEMENT OF LIMITATION

 To main the secrecy of accounts and records of company data taken

are hypothetical and actual data is camouflaged to maintain

business secrecy.

SOURCES OF DATA

Source of information for this project is only secondary data. The

information about the company is all gathered from information

available on the website, annual report, CMA report of the company,

journal and reference book.

TECHNIQUE OF DATA ANALYSIS

Data gathered is analysed through using FINANCIAL RATIO`S to determine
the liquidity and profitability of the organisation. This shows the clear
picture of performance and management of cash in organisation.
DATA ANALYSIS AND INTERPRETATION.