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Cash management is a marketing term for certain services offered primarily to larger business customers. It may be used to describe all bank accounts (such as checking accounts) provided to businesses of a certain size, but it is more often used to describe specific services such as cash concentration, zero balance accounting, and automated clearing house facilities. Sometimes, private bank customers are given cash management services. Purpose of Cash Management Cash management is the stewardship or proper use of an entitys cash resources. It serves as the means to keep an organization functioning by making the best use of cash or liquid resources of the organization. The function of cash management at the U.S. Treasury is threefold: 1. To eliminate idle cash balances. Every dollar held as cash rather than used to augment revenues or decrease expenditures represents a lost opportunity. Funds that are not needed to cover expected transactions can be used to buy back outstanding debt (and cease a flow of funds out of the Treasury for interest payments) or can be invested to generate a flow of funds into the Treasurys account. Minimizing idle cash balances requires accurate information about expected receipts and likely disbursements. 2. To deposit collections timely. Having funds in-hand is better than having accounts receivable. The cash is easier to convert immediately into value or goods. A receivable, an item to be converted in the future, often is subject to a transaction delay or a depreciation of value. Once funds are due to the Government, they should be converted to cash-in-hand immediately and deposited in the Treasury's account as soon as possible.


3. To properly time disbursements. Some payments must be made on a specified or legal date, such as Social Security payments. For such payments, there is no cash management decision. For other payments, such as vendor payments, discretion in timing is possible. Government vendors face the same cash management needs as the Government. They want to accelerate collections. One way vendors can do this is to offer discount terms for timely payment for goods sold.

Cash flow is the life blood of a business which plays a vital role in an entire economic life. Cash flow s refers to actual movement of cash into and out of an organization. In Other words, the movement of cash inclusive of inflow of cash and outflow of cash. When the cash flow into the organization, it represents inflow of cash. Similarly when The cash flows out of the business concern, it is called as cash outflow. In order to ensure cash flows are adequate to meet current liabilities such as tax Payments, wages, amounts due to trade creditors, it is essential to prepare a statement of Changes in the financial position of a firm on cash basis is called as cash flow Statement. This statement depicting movement of cash position from one period to another.

What is the role of cash management on the firms performance analysis?



Cash management information improves financial performance. Cash management information creates flexible and effective solutions to the organizations most pressing challenges. A cash management approach recognizes that all strategic, operational, and financial issues are interrelated.

Cash management information serves as a valuable component of a program that compares planned (or budgeted) and earned amounts with actual results on a regular basis. With this information, the performance of each manager or department can be accurately and objectively measured. Explicitly identifying where, why, and by how much performance differs from expectations allows management to more effectively apply corrective actions.


Cash management involves the aspects such as cash planning, managing the cash outflows, managing optimum cash balance, investing cash. Cash management is also important because it is difficult to predict cash flows accurately, particularly the inflows, and there is no perfect coincidence between inflows and out flows The study entitled THE ROLE OF CASH MANAGEMENT ON THE FIRMS PERFORMANCE is an attempt to understand the functions of finance department and also to find out the different departments of KSFE. The present study attempts to identify the importance of managing the cash. This study is helpful to evaluate and compare contributions of the bank in each year and ratios computed with facilitate inter firm comparison.



Primary Objective
The primary objective of the present study is to ascertain the importance of cash management on the firms performance.

Secondary objectives
1. To identify nature of expenses. 2. To learn about various aspects of KSFEs cash management. 3. The ascertainment of profitability. 4. To analyze the history of KSFE.

5. To have a control on cash. 6. To gain insights about functioning of KSFEs cash management. 7. To provide with information to manager with information for decision making and planning. 8. To explore the future prospects of KSFEs cash management.

To identify the relation of cash management on the firm's performance



Research is a process through which we attempt to achieve systematically and with the support of data the answer to a question, the resolution of a problem, or a greater understanding of a phenomenon. This process which is frequently called research methodology.

Research Design
Research design is systematic planning of research, usually including the formulation of a strategy to resolve a particular question, the collection and recording of the evidence, the processing and analysis of these data and their interpretation and the publication of results. The major purpose of analytical research is to analyze the state affair as it exists at present. Analytical research includes in-depth analysis of variables. The research plan calls for gathering secondary data.

Method of Data Collection

Primary Data Primary data has been collected from finance manager of the company through personal interview. Secondary Data Secondary data was collected from Annual reports, Internet and books, journals and magazines and published statement of KSFE. Research Instrument Secondary instrument is used i.e. Published statement of KSFE for the period 20052009. Period of Study The Research Period was from 1st April to 15th may 2011.

Estimated cost Rs.4000. 5|Page


2.1.1 INTRODUCTION Definitions and Objectives of Cash Management
Cash has been defined in the Government Financial Statistics (GFS) manual. In GFS, cash on hand refers to notes, coins, and deposits held on demand by government institutional units with a bank or another financial institution. Cash equivalents are defined to be highly liquid investments that are readily convertible to cash on hand. A major focus of this paper is on managing government cash on hand. However, as will be seen in the discussion on active cash management, Treasuries are also concerned about managing cash equivalents. Cash management is necessary because there are mismatches between the timing of payments and the availability of cash. Even if the annual budget is balanced, with realistic revenue and expenditure estimates, in-year budget execution will not be smooth, since both the timing and seasonality of cash inflows (which depend in turn on tax and nontax flows, and timing of grant or loan disbursements) and of expenditures can result in conditions of temporary cash surpluses or temporary cash shortfalls. For example, if taxes are paid quarterly, there can be large temporary cash surpluses around the time taxes are due, and temporary deficits in other time periods.

2.1.2 BASIC LITERATURE Cash Management Basics

Cash is a business's lifeblood. Managed well, the company remains healthy and strong. Managed poorly, it goes into cardiac arrest. If we haven't considered cash management an important issue, then we probably undermining your business's short-term stability and its long-term survival. But how can we manage business cash better?


Start with understanding how good cash-management practices can influence our company's growth and survival by reading "The Art of Cash Management," Inc Finance Editor Jill Andresky Fraser's classic article on the topic. Then dive into forecasting our business-cash needs and learning how to handle a cash crisis. Assembled here are practical pieces of advice, tips and tricks from CEOs, and tools that we can use to get a handle on business cash. Cash is money that is easily accessible either in the bank or in the business. It is not inventory, it is not accounts receivable, and it is not property. These might be converted to cash at some point in time, but it takes cash on hand or in the bank to pay suppliers, to pay the rent, and to meet the payroll. Profit growth does not always mean more cash. Profit is the amount of money you expect to make if all customers paid on time and if your expenses were spread out evenly over the time period being measured. However, it is not your day-to-day reality. Cash is what you must have to keep the doors of your business open. Over time, a company's profits are of little value if they are not accompanied by positive net cash flow. You can't spend profit; you can only spend cash. Cash Flow refers to the flow of cash into and out of a business over a period of time. The outflow of cash is measured by the money you pay every month to salaries, suppliers, and creditors. The inflows are the cash you receive from customers, lenders, and investors.


Positive Cash Flow

If the cash coming into the business is more than the cash going out of the business, the company has a positive cash flow. A positive cash flow is very good and the only concern here is managing the excess cash prudently.

Negative Cash Flow

If the cash going out of the business is more than the cash coming into the business, the company has a negative cash flow. A negative cash flow can be caused by a number of problems that result in a shortage of cash, such as too much or obsolete inventory, or poor collections on accounts receivable. If the company doesn't have money in the bank or can't borrow additional cash at this point, it may be in serious trouble.


Another aspect of cash management is knowing the optimal cash balance. There are a number of methods that try to determine the magical cash balance, which should be targeted so that costs are minimized and yet adequate liquidity exists to ensure bills are paid on time (hopefully with something left over for emergency purposes). One of the first steps in managing the cash balance is measuring liquidity. There are numerous ways to measure this, including: cash to total assets ratio, current ratio (current assets divided by current liabilities), quick ratio (current assets less inventory, divided by current liabilities), and the net liquid balance (cash plus marketable securities less short-term notes payable, divided by total assets). The higher the number generated by the liquidity measure, the greater the liquidity and vice versa. There is a trade off, however, between liquidity and profitability that discourages firms from having excessive liquidity.



To help manage cash on a day-to-day basis in actual dollars and cents, there are a number of cash management models. These include the Baumol Model, Miller-Orr Model, and the Stone Model.

The Baumol Model is similar to the Economic Order Quantity (EOQ) Model. Mathematically it is:

where C = the optimal amount of cash to be acquired when reaching a threshold balance, F = the fixed cost of acquiring the cash C amount, S = the amount of cash spent during a time interval, i = the interest rate expressed in the same time interval as S One shortcoming of this model is that it accommodates only a net cash outflow situation as opposed to both inflows and outflows. Also, the cash outflow is at a constant rate, with no variation.

The Miller-Orr Model rectifies some of the deficiencies of the Baumol Model by accommodating a fluctuating cash flow stream that can be either inflow or outflow. The Miller-Orr Model has an upper limit U and lower limit L When there is too much cash and U is reached, cash is taken out (to buy shortterm securities to earn interest) such that the cash balance goes to a return (R) point. Otherwise, if there is too little cash and L is reached, cash is deposited (from the shortterm investments) to replenish the balance to R. The equations of the Miller-Orr Model are:


where R = the return point, f = the fixed cost for each transaction to withdraw or deposit cash, s 2 = the variance of the cash flows, i = the interest rate per same time period as s 2 , U = the upper limit L is determined by other means, for example, compensating balance requirement, minimum balance to avoid bank service charges on checking account, or zero.

The Stone Model is somewhat similar to the Miller-Orr Model insofar as it uses control limits. It incorporates, however, a look-ahead forecast of cash flows when an upper or lower limit is hit to take into account the possibility that the surplus or deficit of cash may naturally correct itself. If the upper control limit is reached, but is to be followed by cash outflow days that would bring the cash balance down to an acceptable level, then nothing is done. If instead the surplus cash would substantially remain that way, then cash is withdrawn to get the cash balance to a predetermined return point. Of course, if cash were in short supply and the lower control limit was reached, the opposite would apply. In this way the Stone Model takes into consideration the cash flow forecast. The goals of these models are to ensure adequate amounts of cash on hand for bill payments, to minimize transaction costs in acquiring cash when deficiencies exist, and to dispose of cash when a surplus arises. These models assume some cash flow pattern as a given, leaving the task of cash collection, concentration, and disbursement to other methods.

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2.1.5.Cash Management Services Generally offered

The following is a list of services generally offered by banks and nbfcs and utilized by larger businesses and corporations:

Account Reconcilement Services: Balancing a checkbook can be a difficult process for a very large business, since it issues so many checks it can take a lot of human monitoring to understand which checks have not cleared and therefore what the company's true balance is. To address this, banks have developed a system which allows companies to upload a list of all the checks that they issue on a daily basis, so that at the end of the month the bank statement will show not only which checks have cleared, but also which have not. More recently, banks have used this system to prevent checks from being fraudulently cashed if they are not on the list, a process known as positive pay.

Advanced Web Services: Most banks have an Internet-based system which is more advanced than the one available to consumers. This enables managers to create and authorize special internal logon credentials, allowing employees to send wires and access other cash management features normally not found on the consumer web site.

Armored Car Services: Large retailers who collect a great deal of cash may have the bank pick this cash up via an armored car company, instead of asking its employees to deposit the cash.

Automated Clearing House: services are usually offered by the cash management division of a bank. The Automated Clearing House is an electronic system used to transfer funds between banks. Companies use this to pay others, especially employees (this is how direct deposit works). Certain companies also use it to collect funds from customers (this is generally how automatic payment plans work). This system is criticized by some consumer advocacy groups,

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because under this system banks assume that the company initiating the debit is correct until proven otherwise.

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

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

Lockbox services: Often companies (such as utilities) which receive a large number of payments via checks in the mail have the bank set up a post office box for them, open their mail, and deposit any checks found. This is referred to as a "lockbox" service.

Positive Pay: Positive pay is a service whereby the company electronically shares its check register of all written checks with the bank. The bank therefore will only pay checks listed in that register, with exactly the same specifications as listed in the register (amount, payee, serial number, etc.). This system dramatically reduces check fraud.

Sweep Accounts: are typically offered by the cash management division of a bank. Under this system, excess funds from a company's bank accounts are

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automatically moved into a money market mutual fund overnight, and then moved back the next morning. This allows them to earn interest overnight. This is the primary use of money market mutual funds.

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

Wire Transfer: A wire transfer is an electronic transfer of funds. Wire transfers can be done by a simple bank account transfer, or by a transfer of cash at a cash office. Bank wire transfers are often the most expedient method for transferring funds between bank accounts. A bank wire transfer is a message to the receiving bank requesting them to effect payment in accordance with the instructions given. The message also includes settlement instructions. The actual wire transfer itself is virtually instantaneous, requiring no longer for transmission than a telephone call.

Controlled Disbursement: This is another product offered by banks under Cash Management Services. The bank provides a daily report, typically early in the day, that provides the amount of disbursements that will be charged to the customer's account. This early knowledge of daily funds requirement allows the customer to invest any surplus in intraday investment opportunities, typically money market investments. This is different from delayed disbursements, where

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payments are issued through a remote branch of a bank and customer is able to delay the payment due to increased float time. In the past, other services have been offered the usefulness of which has diminished with the rise of the Internet. For example, companies could have daily faxes of their most recent transactions or be sent CD-ROMs of images of their cashed checks. Cash management aims at evolving strategies for dealing with various facets of cash management. These facets includes the following:

Optimum Utilisation of Operating Cash

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

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

Cash Management Techniques:

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

Liquidity Analysis:
The importance of liquidity in a business cannot be ignored. If one does the autopsies of the businesses that failed, he would find that the major reason for the failure was their inability to remain liquid. Liquidity has an intimate relationship with efficient utilization of cash. It helps in the attainment of optimum level of liquidity.

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Profitable Deployment of Surplus Funds

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

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

2.1.6.How to Improve Cash Management Practice in India?

There are, of course, many ways to improve and re-engineer the processes. However, depending on budgets and also to minimise disturbances to the business, the following are the suggested simple and initial steps. Note that the larger the corporation, the more involved the process will be.

(1) Commit to change: Recognize the need for improvement and commit to change (this commitment must come from top management and cannot be just lip service).

(2) Establish a credible project team: The project team must have a credible and strong project leader and be sponsored by the decision maker(s).

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(3) Study the existing internal financial transaction processes: This is straightforward and a simple overview. Ask questions such as: Is electronic banking used? To what degree? How are revenues collected and how are payments made? How many staff are dedicated to these functions? What is the decisionmaking and authorisation chain? What information is available from internal management information systems? (4) Review services available in the marketplace: Review existing service providers and other service providers, making initial presentations and discussions with banks and providers. Quickly shortlist potential providers for further in-depth discussions and presentations. Develop a good idea of what solutions, services and products are on offer. (5) Establish high-level, practical goals and objectives: There must be a true desire and commitment to improve and make changes for the better; however, the process should be evolutionary and practical. Take care to ensure goals are not artificially set for easy attainment nor established for ideal perfection so to be unreachable or unrealistic. The goals should be at a higher level than where the company is now and the initial level of improvement. For example, a goal may be to achieve costs savings and efficiency gains on the process of collecting revenues and reconciling with the accounts receivable system.

(6) Establish and commit to specific initiatives, sequence and timeframe: Action points, initiatives and a realistic time frame must be decided for achieving each initiative. Communicate these to the providers. For example, an initiative may include automating and outsourcing vendor payments.

(7) Obtain simple written proposals from the shortlisted potential providers: Have providers present proposals and be prepared to ask questions and probe exactly what is being offered and whether the proposed solution, services and products meet your objectives. Look for comprehensive, well thought-out and realistic solutions.

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(8) Decide on the solution and decide on a provider(s): It is not necessary to have only one provider of services. For example, there could be a domestic collection bank and a regional account management bank. Document all goals and services as well as pricing and the period the pricing covers, such as one-year or two-year, and the start dates.

(9) Review the internal project team and add actual users to help implement the proposed changes: This process is to help obtain commitment from the bottom up and to gain the buy in of internal users. The bank provider(s) should also have a parallel team to work with your implementation or project team. Also, a mutually designed and agreed schedule and action plan should be established.

(10) Review, establish and commit to a process for ongoing improvement: Services should be reviewed once implemented to ensure that the high-level goals and objectives are obtained. There should also be an ongoing emphasis on improvement, and a culture for empowering staff to recommend and look for ways and means to improve cash management services and processes. This needs to be encouraged, especially with the new developments in technology afforded by the Internet. Management and users must commit to the discipline of cash management.


Cash collection systems aim to reduce the time it takes to collect the cash that is owed to the firm (for example, from its customers). The time delays are categorized as mail float,processing float, and bank float. Obviously, an envelope mailed by a customer containing payment to a supplier firm does not arrive at its destination instantly. Likewise, the moment the firm receives payment it is not deposited in its bank account.And finally, when the payment is deposited in the bank account oftentimes the bank does not give immediate availability to the funds. These three "floats" are time

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delays that add up quickly, requiring the firm in the meantime to find cash elsewhere to pay its bills.

Cash management attempts to decrease the time delays in collection at the lowest cost. A collection receipt point closer to the customer, such as a lock box, with an outside thirdparty vendor to receive, process, and deposit the payment (check) will speed up the collection. For example, if a firm collects $10 million each day and can permanently speed up collections by five days, at 6 percent interest rates, then annual before-tax profits would increase by $3 million. The techniques to analyze this case would utilize data involving where the customers were; how much and how often they pay; the bank they remit checks from; the collection sites the firm has (their own or a third-party vendor); the costs of processing payments; the time delays involved for mail, processing, and banking; and the prevailing interest rate that can be earned on excess funds. Once the money has been collected, most firms then proceed to concentrate the cash into one center. The rationale for such a move is to have complete control of the cash and to provide greater investment opportunities with larger sums of money available as surplus. There are numerous mechanisms that can be employed to concentrate the cash, such as wire transfers, automated clearinghouse transfers, and checks. The tradeoff is between cost and time. Disbursement is the opposite of collection. Here, the firm strives to slow down payments.It wants to increase mail delays and bank delays, and it has no control over processing delay.

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2.1.8.Web-based Cash Management

Finable web-based cash management solution enables banks to offer comprehensive cash management services to businesses, ranging from small enterprises to large corporate houses. Built on new-generation industry standard technologies J2EE and .NET, the modular solution provides corporate customers anytime, anywhere access to real-time consolidated information. It manages cash positions and electronically sends and receives funds in a secure manner, within and across borders. The solution is multi-currency enabled and offers multilingual support. It is also designed to support multiple channels including the Internet and mobile, and can be interfaced with disparate host systems and third-party applications.

Key Offerings

Balances and Transaction Information Electronic Invoice Presentment and Payment Payables Management Receivables Management Liquidity Management and Reconciliation Reporting Trade Finance

Additional Features

Alerts Infrastructure Security

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2.1.9.Four Steps to a Healthy Cash Flow

Healthy cash flow is essential to the success of a small business. You may have the best service or product around, your employees and customers may love you, your office may be well organized, but if you dont have the money to buy inventory or pay bills, you cant keep your business running. Many business owners make the mistake of believing cash flow is largely out of their control. On the contrary, the following steps can really help.

1. Analyze your financial condition

Financial analysts, credit providers and knowledgeable investors rely heavily on financial ratios to judge the health of a company. You should use these tools as well. Commonly used ratios can help you analyze your pricing strategy, level of overhead, liquidity, the health of your cash flow, your average collection period, the appropriateness of your collection terms and your inventory turnover rate.

2. Improve your cash management

When it comes to the cash flowing through your financial accounts, your goals should be to ensure that incoming funds spend as much time as possible earning interest or dividends for your benefit and that outgoing funds are available when needed. With a traditional business checking account, meeting these seemingly simple goals can be a complex task. You will have to move funds manually into a separate money market account in order to earn interest or dividend income and back into your checking account to cover disbursements when due. An alternative is a central asset account, which combines traditional checking features, investment and borrowing into a single account. A central asset account saves you time and effort by automatically putting your cash where it needs to be, when it needs to be 20 | P a g e

there. And by keeping your cash in interest-bearing accounts right up until the moment disbursements clear your account, a central asset account can also help increase your return and your bottom line.

3. Even out temporary fluctuations

No matter how efficiently you manage your cash flow, there may be times when your business needs more money than it has on hand. This is why adequate credit resources are essential. A business line of credit is useful and convenient because it can be used as needed, paid down and reused without reapplying. When a line of credit is integrated with a central asset account, credit is automatically accessed when needed. And incoming funds automatically go to pay down your loan balance, reducing borrowing time and interest expense.

4. Invest surplus cash

Although part of your business capital needs to be liquid, most businesses have some capital that can be invested in short- and intermediate-term securities for potentially higher yields. A broad array of investments can be purchased within a central asset account. And you can sell securities in your account at any time, or, if appropriate, borrow against their value2, to meet working capital needs. Be sure to discuss the risks of borrowing against your securities with your Business Financial Advisor. Todays business environment changes rapidly, and as a business owner, you need to regularly review your cash flow and cash management policies to ensure that they are helping to keep your business competitive

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2.1.10.Cash Management Programme

An astute each management programme is concerned with the past, present and future activities.Past is relevant for analyzing cash movements historically, so as to figure out the trends of such movements. Such an analysis can provide vital information regarding cash needs during seasons or off-season, quantum and periodically of various cash expenses etc. Equipped with such historical data, a business develops its cash flow programme for the present and future operations. Present is relevant for monitoring current cash movement so that effectively regulated and controlled, many business a venues warrant constant watch. A business has to lean and mean to be successful. It helps in identifying areas that require immediate attention. Future is relevant for forecasting the anticipated cash movements of the ensuring budget period. Cash forecasting is the most effective instrument of cash and cash control the most important tool of financial management cash forecasting reveals the time and extend of probable cash deficits and surpluses in the future period. On the longer time frame, cash forecasting helps, the management to appreciate cash implications of long term policies it has envisaged in it corporate plan. 2.1.11.FLOAT A business at times deals with two balances associated with its bank account. One, the balance appearing in its own books of accounts and the other the actual cash balance as displayed in the books of the bank. The reasons for the difference in these two balances can be many. The two most prominent reasons are Cheques presented by the bank not yet collected known as collection float. Cheques issued by the business but not presented known as disbursement float. The sum total of these two is known as Float. *Collection The collection float is represented by the aggregate of the amounts of the cheques, which have been deposited in the bank but are in the process of collection by the bank. As soon as the cheque is deposited in the bank, the amounts are deposited to the bank account appearing in the books of the business. But the bank accords the credit to its customers when it realized the amount from the banks of the customers. The time lag in the two results in the differences of balances known as Collection Float.

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As a matter of fact collection float is part of overall which additionally covers mainly float and processing float. Mainly float accrues due to time lag involved in the issue of cheques by customers and their receipt by the recipients. Processing float is an account of time even by the business for processing the cheques for presentation to the bank. The close monitoring of all the three is tent for the speedy collection of receivables.

*Disbursement Disbursement float is the sum total of all the cheques which have been issued to suppliers but are in the process of being presented to for payments. The bank account is the bank of business is credited as soon as cheques are drawn on it and sent to the suppliers but the ban would debit the account of its customer only on the receipt of the cheques from the bankers of suppliers. The different between the two balances is known as Disbursement Float.

2.1.12.ACCELERATING COLLECTION Credit to customers is inevitable. No business can function without it and so it can adopt such policies, which ensure early retrieval of cash from customers. The discount is not such strong persuasive factor and a business following a policy of offering discount will get early payments from customers. In addition to these policies, there are some cash management techniques, which accelerate speedy collection receivable. The important cash collection techniques are the following sections.

* Concentration Banking Under this system, cash collection is centralized by the receipts from decentralized cash collection centers. Normally, local sales offices are saddle with the additional responsibility of collecting receipts from customers located in the geographical areas falling under the purviews. The cheques so collected are deposited in the local bank accounts serving the concerned sales offices. The local banks are instructed to keep on predetermined limited account with them transfer the balance to a central of Concentration bank account on daily. All the disbursements are effected through this central bank account. The figure exhibits the operation of concentration banking. 23 | P a g e

* Advantages The advantages of concentration banking system from both of its operational wings are - Decentralized billing and cash collection; - Centralized pooling of cash.

The foremost advantage of concentration banking is drastic reduction of mailing time due to close proximity of customer with sales collection center and that of sales / collection center with the bank. As a result of which the saving is effected in the following deposit float. - Time involved in sending a bill to the customers. - Time involved in dispatch of a cheque from the customer to Sales/Collection center. - Time involved in sending the cheque to bank. - Time involved in processing the cheque as the cheques belongs to local clearings.

Another important advantage of concentration banking is efficient warehousing of cash. The funds are pooled at one place in the central bank account allowing the business to make the adroit use of these funds. The unds can be disbursed as per the priorities laid down by the business and idle funds can be parked for earning interest. The pooling of funds from scattered collection centers aggregate to a sizeable amount and the banks are not reluctant to accept such funds ever for a very short period.

* Lock Box System Under this system, a business hires special post office boxes in the area having maximum concentration of its customers. The post office boxes are special in the sense that these are hired by the business but operated by bank. The customers are advised to remit the remittances to post office boxes. The local banks at the respective places are authorized to open the post office boxes, collect the cheques and process for realization. While processing the cheques for collection the bank sends the statement detailing amounts received by, to the business along with the original envelops and invoices. This serves as a proof as well as record for according necessary accounting treatment to the receivables. 24 | P a g e

This ways, both the collection process and accounting process function simultaneously. The figure exhibits the operation of Lock Box System.

* Advantages The advantages of Lock Box system have made it a favorite technique of cash management. There are explained below.

* Reduction in the main processing time The lock box system follows the basic principles of concentration banking collection through decentralized units. The customers are required to send remittances directly to post office box, which are handled by the bank. This reduces the business-associated main processing time.

* Reduction in the cheques Collection Time The bank itself initiates the cheques collection process, so, the time involved in the presentation of cheques by the business to bank is completely eliminated.

* Reduction in receivable processing Costs A business has to engage dedicated staff to handle manual opening, sorting and making necessary endorsements in the records. The cost on this account is substantially reduced when the bank handles these activities because the bank specializes in high volume lock box processing and enjoys the economy of scale.

* Constant Updating of records Every customer has a credit limit. Acceleration realization of customers remittances and almost simultaneous credit to their account, under this system, enables customer to make optimum system, enables the customer to make optimum use of his credit limit. Ultimately, it is the business, which is benefited by increased sales.

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* Increase in the availability of funds The primary motivation for use of lock box services is increase in the availability of funds to the business. Even if the funds are not intended for short-term deposits. They can well be used as margin money and other similar purpose.

* Improved Internal Control Since big chunk of cash is handled by outside agency, at the source of entry itself, the internal control system of the business is improved reducing the possibility of frauds.

* Authorized Cheque (PAC) Pre-authorized cheque is also an important method of accelerating the cash collection. In this system and arrangement is entered into among the parties involving the business, its customers and the banker. The arrangement authorizes the business company raise a demand for a predetermined amount and date on bank of the customer. The bank accepts the demand as if it is a mandate from the customer himself. The demand deposit instrument to raised is known as PAC.

* Advantages The advantages of PAC are two fold.

* Acceleration in receipts collection PAC eliminates certain activities necessary for the collection. The business need not send a remainder, thereby eliminating postal float associated with rising of invoices. Even the postal float associated with receipt of cheques customer is saved.

* Reduction in cost PAC system has a direct impact on the reduction of cost as well. The costs involved in sending the notices and postage expenses are saved. Also clerical costs involved in processing mail on the receipts of cheques are reduced.

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* Pre-Authorized Debits (RAD) Pre-Authorized debit is one of the latest techniques for the acceleration of cash inflow. It is an automatic system and warrants good deal of automated infrastructure for its operation. Under this system, on a pre-determined date the bank of the business company automatically debits bank of the customer with the due the amount. The bank has already been authorized by the customer to honour such debits. There is no movement any document, script or cheque. This paperless operation is better than pre-authorized cheque system in the sense that even the used demand deposit instrument is eliminated. This result in the reduction of cost of printing of demand deposit note bankers charges etc. The consumers object to this system because of its machine operated harsh approach under which they do not, but any float due to automatic transfer for funds.

* Pay order by Bank In this technique, instead of the cheque the business insists for payment by pay order by a bank. The pay order is a bankers cheque. In order to facilitate early clearing, the bank draws on another branch in the different city a pay order for the desired amount. Procedurally, it is presented in the same way as cheque and credit accorded through local clearing of the city. The bank charges for the issue of pay order, which becomes additional cost to be borne either by customer or the business, of course, an additional advantage is guaranteed payment since the cheque is issued by the bank.

* Post Dated Cheques This is an indigenous version of pre-authorized cheques. If the payments to be released have a definite amount and periodicity, the payer sends post-dated cheques to the payee. The relevant cheques are deposited at the scheduled time. It has the benefit of reducing postal float tremendously since this float is involved only one.

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* Letter of Credit Letter of credit has got unique features making it a favorite instrument in the commercial world especially in international trade. The basic advantage is that of guaranteed payment in case the order is executed as per the terms. As an additional advantages it acts as a cash management tool also. The business can get instantaneous payment of full amount or as agreed with the customer through the bank, against delivery of dispatch documents. It need not wait till the tools reach the customers. Sometimes even before the dispatch or goods the bank provides advance against the letter to credit.

2.1.13.DECELERATING DISBURSEMENTS The technique involved in slowing release of payments to suppliers is as effective an instrument of cash control as methods involved for accelerating collection of receivables. Both the techniques are concerned with reducing the cash requirements of the business. They constitute two sides of the same coin. There are several techniques to delay the payment of accounts payables.

* Net sooner than due Trade credit is interest free financial accommodation provided by the supplier. The business must acquire maximum benefit out of it. The payment should not be delayed beyond the period of discount otherwise it will stand to lose the amount of cash, and if the payment is delayed beyond credit period the business is likely to lose its creditability also.

* Centralization of Disbursements The basic objective of conservation of cash resources is to optimize is utilization. This can well be achieved by concentrating the entire funds the business at one place and making centralized disbursements there form.

All payments, under this system, are released from the centralized disbursement account, normally operated at corporate office. The business thus achieves it objective of slowing of disbursements. With the customers scattered in far-off places, issue of cheques from 28 | P a g e

the corporate office will consume a care postal time. Secondly, the funds can be related as per decided priorities. This covers decisions with regard to availing cash discount, getting benefits of lower prices or adhering to disbursement schedules. Lastly, centralized disbursement enhances the investment value of cash reservoir available with the business. All this had made the centralized disbursement as most effective instrument for the control of cash outflow.

* Riding the Float Disbursement float is sum total of all the cheques which have been issued to supplies but are in the process of being presented to the bank for payments. This float continues till the time the bank receives cheques from the business after payment. A prudent finance manager makes use of this gap amount by temporarily using these funds for other purposes. This is known as riding the float or playing the float. The three steps involved in the disbursement float are (i) Mailing time and (ii) Cheque processing time associated with the supplier and (iii) Collection processing time with the bank. Some of the ways of playing the float are as follows.

* Payment from a Remote Bank The float can be increased by issuing cheques from a distant bank located far away from the bank of the supplier. The float associated with the postal time as well as with that of cheque collection will be substantially increased. There are certain limitations in the sue of this. First, the practice of releasing funds from different places dashes with the principles of centralized disbursements. Secondly, with automation involving highly proficient computers, wire transfer etc., effectiveness of this technique has diminished.

* Delayed Post Marks The cash discount is normally linked with the date of dispatch by the business and not with the receipt of cheque by the supplier. The date of dispatch is evidenced from the post-marked dates. This techniques, however, has the risk of losing business creditability with the supplier, it followed persistently.

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* Study of Encashment Pattern A proficient finance manager can make a study of encashment pattern of cheques issued in the past and find out general trend. A business deals with wide variety of supplierssome of them are very efficient while some others are not so efficient. Their efficiency is reflected in their own cheque processing time. An analytical review can indicate the actual float, which is likely to be available with the business. Likewise, if is experienced that all the employees whom the salary payments have been made do not rush to the bank immediately for encashment, some delay be a few days, lengthening the float availability playing the float is a very sensitive cash control instrument and requires very caution and adroit handling by the finance manager.

* Payment Through Draft The draft is a cheque like instrument but unlike the cheque it is drawn on the issuer instead of on a bank. A draft is presented to bank for collection like a cheque. The bank does not debit the amount of the business on its presentation. Rather is sends to issuer for confirmation. The business gets additional tie for transferring the funds 80 that the draft is honored. This results in lengthening of the float and also enables the business to keep a nominal amount in the bank till the time a draft is presented. * Special Disbursement Account This is dedicated account meant for disbursements only. Under this system, one central account is operated. For catering to the requirements of a number of special disbursement accounts. As and when need arises, specific amount is transferred from central account to special disbursement account of the central and the special disbursement account are in the same bank, then the disbursement account will have zero balance at the end of the day. It is also known as Zero Balance Account. Some of the benefits under this system are: a. It is excellent blending of centralized pooling of cash and decentralized disbursement. b. Dealing with only the centralized cash account is easy and convenient. c. Disbursements being decentralized, good deal of autonomy at the unit level is ensured. d. There is no requirement to maintain minimum cash at various scattered bank accounts. e. It achieves the objective of lengthening of the float. 30 | P a g e

2.1.14.Cash Forecasting
Cash forecasting is used for projecting future operational results of all the activities of a business marketing, production, personal, finance etc. All these activities have a chainlink effect. A successful business has to anticipate the demand of the product by making sales forecast. As Second step, estimating the requirements of material, men and machinery makes production forecasts. And finally, the requirement for finance are assessed to execute all these activities which lend us to make cash forecasting because in a business anything done or to be done financially major difference business forecasting covering other functional activities and cash forecasting. All other forecast are on cash basis where as cash forecasts are on cash basis. Once the financial management has identified the firms policies on cash flow management, he must face the problem of predicting the amounts and timing of future inflows and outflow of cash. This is a difficult process but the mistakes the high. The basic tools of cash management are cash forecasts. Without them, a company has not sure way of knowing how much money would be needed for its operations or how much financing would be required support its future growth. Objectives of cash forecast. The following are the objectives of cash forecasting. ? Preventing bankrupt. ? Avoiding casual mistakes. ? Assisting Management control. ? Confidence to the lender. ? Proper utilization of capital. ? Planing cash inflows and outflows. ? Ensure availability of adequate finance at the appropriate time. ? Facilities utilization of any anticipated cash surpluses to meet the best advantage. ? Exercise of appropriate control action to maintain financial stability is made possible.

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Introduction Ratio analysis is one of the most important and powerful tool of financial analysis. It is the process of establishing and interpreting various ratios and revels the working results. It implies the process of computing, determining and presenting the relationship of items or group of items of financial statements. It also involves the comparison and interpretation of these ratios and the use of them for future projections.

Concept of ratios A ratio is an arithmetical expression of the relationship between figures which are connected each other. It may be defined as the indicated quotient of two mathematical expressions. According to the accountant hand book by Wixon Kelo and Bed Ford, A ratio is expression of the quantitative relationship between two numbers. It is the techniques of calculating accounting ratios from the data in the financial statement and the comparison of these accounting ratios in the previous year of those of the other related activities or with those of standards. Ratio analysis serves the purpose of various parties interested in financial statement. The object of ratio analysis is to help the management in analyzing and interpreting the financial statements, to get the adequate information useful for the performance of various functions like planning, co-ordination. Control forecasting etc For the purpose of financial statement analysis, the ratios can be classified in to the following categories. They are: 1. Liquidity ratio 2. Leverage ratio 3. Turn over ratio 4. Activity ratios 5. Profitability ratios 6. Valuation ratios 32 | P a g e

The effective operation of a business concern resulting in to the excess of income over expenditure fully depends upon as to what extend the management follows proper planning effective coordination and dynamic control. This requires that management must plan for future financial and physical requirements just to maintain profitability and productivity of the business concern. The procedure for preparing plan in respect of future financial and physical requirements is generally called Budgeting. Thus budgeting is a forward planning and involves the preparation in advance of the quantitative as well as financial statement to indicate the intention of the management in respect of various aspects of the business. In the words of W.J Vatter, budgeting is a kind of future accounting in which the problems of future are met on the paper before the transaction actually occur

Nature of budget Budget is based on future plan of action and is prepared in advance. Budget is based on objective to be attained during a defined future period. Budget is a method of rationalization by which control function in respect of total activities of the business is given effect. Budget is a tool for developing in cooperation, coordination and control.

Advantages of budgeting It forces basic policies to initiatives. It sets responsibilities of employees in relation to each function. It forces all levels of management to participate in the process of setting and fulfillment of targets

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It creates the feeling of cooperation and understanding between different departments of the business. It forces the management to take necessary step for getting satisfactory results. It is a process of self-examination and self-criticism which is essential for the success of any business. It leads to maximum and most economical utilization of material, and other resource with a view to ensure maximum return. Budget help in preventing waste, reducing expenses and attaining the desired return on investments. It forces the management to keep adequate and correct historical data in the business. It highlights upon the efficiency or lack of it in the business and thus help the management to take remedial action. Limitation of budgeting Budget plan is based on estimates. There is a danger of rigidity. Budget is not a suitable for management. Budget is a costly affair Budget execution is not automatic.

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Non-Banking Financial Institutions
Non-banking Financial Institutions carry out financing activities but their resources are not directly obtained from the savers as debt. Instead, these Institutions mobilize the public savings for rendering other financial services including investment. All such Institutions are financial intermediaries and when they lend, they are known as Non-Banking Financial Intermediaries (NBFIs) or Investment Institutions.

UNIT TRUST OF INDIA (UTI ) LIFE INSURANCE CORPORATION (LIC) GENERAL INSURANCE CORPORATION (GIC) Apart from these NBFIs, another part of Indian financial system consists of a large number of privately owned, decentralized, and relatively small-sized financial intermediaries. Most work in different, miniscule niches and make the market more broad-based and competitive. While some of them restrict themselves to fund-based business, many others provide financial services of various types. The entities of the former type are termed as "non-bank financial companies (NBFCs)". The latter type is called "non-bank financial services companies (NBFCs)".

Post 1996, Reserve Bank of India has set in place additional regulatory and supervisory measure that demand more financial discipline and transparency of decision making on the part of NBFCs. NBFCs regulations are being reviewed by the RBI from time to time keeping in view the emerging situations. Further, one can expect that some areas of co-operation between the Banks and NBFCs may emerge in the coming era of Ecommerce and Internet banking.

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Non-Banking Financial Companies

Non-bank financial companies (NBFCs) also known as a non-bank or a non-bank bank, are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. Operations are, regardless of this, still exercised under bank regulation. However this depends on the jurisdiction, as in some jurisdictions, such as New Zealand, any company can do the business of banking, and there are no banking licenses issued. Non-bank institutions frequently acts as suppliers of loans and credit facilities, supporting investments in property, providing services relating to events within peoples lives such as funding private education, wealth management and retirement planning however they are typically not allowed to take deposits from the general public and have to find other means of funding their operations such as issuing debt instruments. In India, most NBFCs raise capital through Chit Funds. In recent times non-banking finance companies have emerged as substantial contributors to the Indian economic growth by supplementing the efforts of the banks and other development financial institutions. They play a key role in the direction of savings and investment. In the wake of rapid industrial development and liberalization of the financial sector, key financial institutions and professionals have promoted financial institutions to create a diversified and competitive financial system. NBFCs intermediate between the savers and the investors. These companies are also known as finance companies, finance corporations etc. These companies with very little capital of their own have been raising deposits from the public by offering attractive rates of interest and other incentives. They advance loans to wholesale and retail traders, small-scale industries and self-employed persons. Bulk of their loans is given to parties which do not either approach commercial banks or which are denied credit facilities by the latter. The finance companies give loans which are generally unsecured and the rate of interest charged is much higher than the banking companies. Besides giving advances, the finance companies run chit funds, purchase and discount bundies, and have also taken up merchant banking, mutual funds, hire-purchase, leasing etc.

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NBFCs Defined
Section 45-(b) of Chapter III B of Reserve Bank of India Act, 1934 defines NonBanking Financial Company as : (a). a financial institution, which is a company; (b). a non-banking institution, which is a company and which has as its principal business the receiving of deposits under any scheme or arrangement or in any manner or lending in any manner ; (c). such other non-banking institutions or class of such institutions, as the bank may with the previous approval of the Central Government and by notification in the official gazette, specify. NBFCs Acceptance Public Deposits (Reserve Bank ) Directions, 1998, non-banking financial company as only the non-banking institution which is a loan company or an investment company or a hire-purchase finance company or an equipment leasing company or a mutual benefit finance company.

Categorization of NBFCS
NBFCs can be classified in to different categories according to the function they perform. Investment Companies : Acquisition of securities and trading in such securities to earn profit. Loan Companies : Providing finance by making loans and advances. Hire-purchase Finance Companies: Hire-purchase transaction or the financing of such transaction. Equipment Leasing Companies : Equipment leasing or the financing of such activity Nidhi or Mutual Benefit Finance Companies : Notified by the Central Government u/s 620A of the Companies Act 1956. Housing Finance Companies : Financing of the acquisition or construction of houses. Residuary Non-banking Companies. : Companies which receives deposits under any scheme or arrangement and do not belong to any of the category stated above. 37 | P a g e

Chit Funds or Miscellaneous Non-banking Companies : Managing, conducting, or

supervising as promoter / foreman or agent of any transaction or arrangement by which the company enters in to an agreement with a specified no. of subscribers.

Chit Funds or Miscellaneous Non-Banking Companies ( MNBCs)

Miscellaneous non-banking companies (MNBCs) are the non-banking companies which are engaged in chit fund business. MNBCs are more popular in the state of Kerala and Tamil Nadu. The members of chit funds make regular subscriptions to fund. Out of the members only a manager is selected who looks after the chit funds and maintain accounts of the collected subscriptions. Provisions of Chapter III B of the RBI Act are not applicable to chit fund finance companies. The credit involved is totally unregulated. However, the reserve Bank regulates only the deposits accepted by these companies. Directions of deposit acceptance issued by RBI allow chit funds to accept deposits for a period of six months to thirty six months. With the effect from November 1, 2001, MNBCs are required to pay an interest at the rate of 12% per annum on all deposits accepted by it. This type of NBFC is engaged in the activities of managing, conducting, or supervision as a promoter, foreman or agent of any transaction or arrangement by which the company enters to an agreement with specified number of subscribers that every one of them shall subscribe a certain amount of installment over a definite period of time and that every one of such subscribers shall in turn, as determined by lot or by auction or by tender or in such manner as may be provided for in the arrangement be entitled to the prize amount. Kerala State Financial Enterprises Ltd is a MNBC, registered under the Companies Act, 1956 and subjected to the directions of the Reserve Bank of India. The company was promoted by the Government of Kerala and it is the first public sector undertaking in the whole of India running chit fund business. KSFE was incorporated on 6-11-1969, with its registered office in Thrissur and started functioning with the effect from April 1970.

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The Kerala State Financial Enterprises Limited (KSFE) was incorporated in November 1969 as a Government Company with a view to socializing Chitty business in the State, so as to ensure safety, security and better service to the public thereby protecting them from exploitation by private financial institutions.

The company with an authorized capital of Rs. 25 crore and paid up capital of Rs. 10 crore earned an operational profit of Rs. 44.12 crore based on an annual turnover of Rs 268.32 crore during 2005-06 as per the certified annual accounts.

With a view to overcome the threat of efficient customer service by financial institutions like banks, non banking financial institutions and other local chitty institutions with their computerized environment, the Company decided (1999), to go in for complete automation to be implemented in three phases starting with the front office automation of its branch offices. The company selected (July 2000), Accel Limited for analyzing the business requirement, preparing feasibility study of the project and for developing the application software for the Front Office automation of the branch offices.

The branch automation software developed by Accel Limited., installed at the two branches, viz. Thrissur Main (November 2001) and Kesavadasapuram (August 2002) was accepted by the company on 17 June 2004 after testing and was rolled out to 12 out of 269 branches as on May 2007.The Branch Automation Software (BAS) in use in the company has been developed in Red Hat Linux Enterprise edition 3 with Visual Basic as front end and Oracle 9i / 10g as back end.

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The corporate office of KSFE is at Thrissur. It has five regional offices at: i. ii. iii. iv. v. Thiruvananthapuram Kollam Ernakulam Thrissur and Kozhikode, for coordinating and controlling the branches. Thus KSFE: Is a Miscellaneous Non-Banking Financial Company (MNBFC). Is fully owned by the government of Kerala. Is one of the most profit-making public sector undertaking of the state. It was created by the Government of Kerala with the objective of providing an alternative to the private chit promoters in order to bring in social control over the chit fund business, so as to save the public from the clutches of unscrupulous fly-by-night chit fund operators. Has been registering impressive profits every year, without fail since its inception. Organization Structure

The Managing Director, the Chief Executive of the Company, is assisted by a Business Manager and a Finance Manager at the Head Office (H.O.) located at Thrissur. The Senior Manager (IT) reports to both General Manager (Finance) and General Manager (Business) based on functions. The Company has five Regional Offices (R.O.) located at Ernakulam, Kollam, Kozhikode, Thrissur and Thiruvanathapuram, managed by respective Regional Managers and the business is carried out through a network of 269 branch offices (as on 30 April 2007) spread all over the State.

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Human Resources Development

The company regards human resources as the most valuable asset. In order to equip the employees with the latest developments in the business area, training and development programmes are conducted on a regular and continuous basis. The total staff strength of the company as on March 2007 was 4111 numbers consisting of 1120 officers, 2243 assistants and 535 subordinate staff besides 213 part time employees.

To become a significant player in the financial services sector by Providing a whole range of quality services and products. Adopting technology and benchmark standards in customer and performance. Spreading our wings beyond the border of Kerala, on a global level.

Retaining the pre-eminent role in Chitty business.

Sustaining commitment to the weaker sections of society, as the neighborhood institution for support, trust and security.

Save and grow with KSFE Making KSFE a fully computerized Company. Opening more and more new branches, including chitty units to establish its presence in all major centers and backward areas, aiming at effective rural penetration. Introducing value additions in chitty schemes - for coping with the fierce competition in the financial market, for more popularity and widening our customer base.

Future plans KSFE contemplates:

1. Making KSFE a fully computerized Company. 2. Opening more and more new branches, including chitty units to establish its presence in all major centers and backward areas, aiming at effective rural penetration.

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3. Introducing value additions in chitty schemes - for coping with the fierce competition in the financial market, for more popularity and widening our customer base. 4. Acting as the collection agent for KSEB, KWA, etc., throughout the state. 5. To construct a multi-storied building in KSFE's own premises in Kakkanad, Cochin and to house among others a Staff Training College for itself. 6. Introduction of new schemes like, Educational Loan, Agricultural Overdraft and Cumulative Deposit Scheme. 7. Expanding its door collection facility to loan accounts and deposit schemes suitably, this is expected to create considerable employment opportunities as part of its social objective. 8. Introduction of chitties with simultaneous draw and auction which can be offered as an incentive to regular customers for whom it will be a great attraction, particularly for those with saving attitude. 9. Introduction of Daily/Weekly draw/auction chitties, which is expected to have a wide scope among traders, will raise the Company's market share considerably. 10. Enter the arena of Credit/Debit Card business - immediately after branch networking the Company plans to launch the 'Debit Card' business. 11. Starting of Virtual Branch through net worked computer systems for the benefit of NRIs particularly Malayalees in the Gulf & other countries is on the anvil. This will obviate the need for "brick and mortar branches" and will enable customers who have internet access, to transact with the Company through virtual branches. KSFE today is synonymous with chit funds and is presently the biggest chit promoter in India. KSFE's vision is to become a 'financial supermarket', a 'One stop Shoppe' for all financial services.

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A) Product departments
1. Chitty Department This is headed by the Chitty officer, who is directly responsible for the Chitty administration of the company, subject to the control and guidance of Business Manager. 2. Hire Purchase Department This is headed by the Hire Purchase officer, who is directly responsible for the Hire Purchase administration of the company, subject to the control and guidance of the Business Manager

B) Functional Department

1. Accounts Department. This department is headed by the Accounts Officer (Central Accounts), subject to the control and guidance of the Finance Manager. The main functions of this department are Planning, Budgeting, and Control, compilation of Accounts, reconciliation and preparation of Annual accounts, administration of the Bhadratha Scheme and other Deposit Schemes of the Company. 2. Administration Department This is headed by the Administrative Officer to be in charge of personnel administration, Salary, industrial relations, man power planning, etc. 3. Secretarial Department This Department is headed by the Company Secretary, who is responsible for the functions conferred on him by Companies Act 1956. He is also responsible for the General Administration including purchase, printing, etc.

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4. Legal Department This Department is headed by the part time Legal Advisor assisted by a Legal Superintendent. He is responsible for advising the Company on routine legal matters and securities.

5. Internal Audit Department This Department is headed by the Internal Audit Officer assisted by 3 audit teams to exercise internal check and control. The Department heads, (Administrative Officer, Legal Superintendent and Internal Audit Officer) report directly to the Managing Director. The Chitty Officer and Hire Purchase Officer report directly to the Business Manager and the Accounts Officer reports directly to the Finance Manager.

C) Regions
The activities of the Regional Manager are grouped functionally as well as Product wise. They are mainly responsible for the proper and healthy functioning of the branches and to be in charge of the overall growth and development of the branches under their jurisdiction. The Regional Manager report directly to the Business Manager and the Finance Manager cum Secretary for the respective functions and to the Managing Director relating to the other functions

At the base level the units are graded into 3 categories viz. i) major branches having a Chitty sala of Rs. 9 Lakhs ad above or Chitty sala of Rs. 8 Lakhs and Hire Purchase Business of Rs. 10 Lakh and unit doing exclusively Hire Purchase Business, ii) medium branches having a Chitty sale of Rs. 4.5 lakh and above but below Rs. 9 Lakh and subject to other terms relating to major branches and iii) small branches (other than major and medium).

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Each Unit is headed by Unit head viz. the Manager and its activities are grouped under Junior Executives. The Unit Heads report directly to the Regional Managers concerned and to the Departmental heads in the Head Office on matters pertaining to the Departments concerned. In exceptional circumstances the Unit Heads can report directly to the Business Manager, Finance Manager and Managing Director.

Schemes of KSFE
Chitty New Chitty Loan Pass Book Loan Hire Purchase (General) Employment oriented Hire Purchase Trade Finance New Housing Finance Gold Loan Fixed Deposit Loan on Fixed Deposit Sugama Deposit Reliable Customer Loan. Consumer Vehicle Loan.

Chitty is the main product of KSFE. Chitty is intended to provide a measure of savings for people who aspire to save for the future by setting apart a portion of their income. It is a unique financial product which blends the advantages of both investment and advance. It is risk free for the public as KSFE conducts only chitties fully governed by the provisions of Kerala Chitties Act, 1975. the installment per month for chitties range from Rs.500 to Rs. 25000 and the usual duration of chitties are 30 months, 40 months, 50 months, 60 months and 100 months. A chitty is conducted by a person or an

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institution and this entity is called the foreman. In the case of KSFE chitties, KSFE is the foreman. A chitty is basically a contract between the foreman and the Subscribers.

In chitty, the subscriber has an opportunity to bid and avail of advance which amounts to a certain percentage of the total denomination of the chitty (sala), whereas in recurring deposit the advance can be availed only on the paid up amount. In case bidding is delayed due to draw of lots in the initial installments, one can resort to availing of chitty loan, which is a loan that bridges the gap between the need of the subscriber for money and the delay in the chitty getting prized. Chitty Prize Money The total of the periodic subscription, called the chitty amount, will be given out as prize money to the person who bids by allowing for the maximum reduction in the prize money. The maximum reduction possible is 25% as per the prevailing Chitty Act and if there is more than one subscriber interested in bidding at 25% reduction, the numbers of the such bidders will be put to a draw. Thus each subscriber gets an opportunity to receive the prize money once during the tenure of the chitty. Foremans Commission The foreman is entitled to a certain percentage of the chitty amount (not more than 5% of the chitty amount) as his commission from each member

Service Rendered The Company has appointed daily door collection agent who will come and collect the amount towards monthly installment daily from a subscribers office/ residence. Customer can remit the chitty installment in any of the Branches of KSFE.A person can enroll in a chitty either by visiting the Branch or through the agents of KSFE.

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Participation in the Auction A subscriber can participate in the auction, which will be conducted in the Branch where the chitty pertains to, either in person or through proxy.

Proxy A subscriber can authorize the concerned branch manager to be a proxy to his ticket by signing on a proxy form specifying the amount up to which the ticket has to be bid. This proxy will be valid for a maximum of 12 months. Alternatively subscriber can authorize any person, above 18 years of age, to participate in any of the auctions by forwarding a proxy form duly signed and stamped in the format prescribed at the last page of passbook.

Securities acceptable for payment of prize money The type of securities acceptable for chitty prize money payment, belong to various categories like personal sureties (of employees of government, aided schools, public undertakings, banks etc.), financial documents (like fixed deposits with banks and reputed organizations, Deposit-in-Trust, LIC policies, bank guarantees, National savings certificates etc.) Sugama security, landed property or Gold ornaments.

The conditions are:

1. Remittances should be up to date. On genuine reasons relaxation on default up to 3 installments may be allowed. 2. The deceased subscriber, had he be alive, should not have crossed 65 years of age on the date of termination of chitty. 3. Cause of death can be natural or accidental. In the case of suicides, there should be a minimum gap of one year between the date of registration of related chitty and the date of committing suicide. 4. Applicable to both original and substituted/assigned subscribers. In the case of substituted/assigned subscriber the liability waiver is allowed only if there is minimum gap of one year in between the date of substitution/assignment and the date of death. 5. No liability waiver is allowed in the case of prized unpaid subscriber.

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6. The benefit of the scheme shall be limited to those prized subscribers who opt for the scheme at the time of availing the prize money by remitting a nominal fee of Rs.100/per financial year. However advance remittance of fee towards the scheme will not be allowed.

Chitty Loan
Chitty loan is a bridge between actual financial need and delay in chitty getting prized in favor. If a person is non-prized subscriber in a chitty and remitted 10% of the total number of installments promptly, he is eligible for an advance up to 50% of the total chitty amount or sala (gross subscription to be remitted per month multiplied by the number of installments in the chitty). In the case of 100 months chitties, the maximum loan amount will be 30% of the sala. The principal and the interest of the chitty loan settled. The principal of the advance is settled by adjustment form the Chitty prize money and the interest has to be remitted every month. The interest rate of the advance is 14.5% (simple) and for defaulted accounts 16.5%.

Pravasi Bandhu Chittikal 2008 This Scheme was introduced, to honor the contributions of this non-resident Keralites group, under the title of Pravasi bandhu chittikal. It primarily targeted the family members, relatives and friends of NRK's residing inside Kerala and helped the NRK's to fulfill their dreams in their native land. It was a grand success, by the active participations of the relatives of NRK's and collected far more than the target fixed. Now we have introduced a new edition of Pravasi Bandhu Chitties, under the title Pravasi Bandhu Chittikal 2008, from 1st November 2008, the fifty second birth anniversary of Kerala State. The significance of the date selected closely depicting the commitment of KSFE to the NRK's so that they are the inevitable part of Kerala though they live most of the days outside the state physically. Their dreams, sprit etc., all are vested inside the land. It is a special scheme consisting of a series of chitties ranging the monthly remittance from 25 to 100 months. So one can easily pick the desirable one from the series, depending upon their financial back ground and repaying capacity. The whole 48 | P a g e

benefits of chitty, as a financial product, tested by the heritage of many years, will be automatically reached them by simply joining in the scheme. But besides the strong support of the financial product called chitty, Pravasi bandhu chitties, 2008 offers certain more benefits to them. First of them are prizes inbuilt. Prize Scheme Three types of prize schemes are attached with Pravasi Bandhu Chittikal 2008. First, a bumper prize of 10 Maruthi Alto cars at the State level for the selected members. To regulate the distribution of prizes all over Kerala uniformly, it has already decided that the draw will be such that each of the five regions of KSFE will get 2 cars. The second prize is good in number, 100 air tickets to Dubai with the additional facility of returning. Actually this is intending for 50 families, in a view that, the air voyage can be made a joyful one with one additional family member. The third one is more penetrative which ensure the probability of getting prize in every chitties. In every chitty the selected 3 subscribers will get a chance to receive gold coins with the first auction of the chitty. Other Benefits The building up of Pravsai Bandhu chitties are such that it provides various options to the customers. It has a built in mechanism which offers a multi purpose project wrapped under a single name Pravasi Bandhu chittikal 2008. For example the following benefits can be availed by a customer by simply joining in the Pravsai Bandhu chittikal. One can choose a loan scheme for marriage purpose, for building a residential home, to own a vehicle etc. The terms and conditions are too simple. More over one non prized chitty subscriber can avails a credit line of Rs. 1,00,000 or 50% of Sala , which ever is less , by the completion of first auction itself. The surety norms are too liberal to avail the above said loans. If the prize money is deposited in the company, the fixed deposit will get more interest than ordinary deposit.

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Since an uncertainty factor pertains within the course of life of every person, we have introduced a liability waiver scheme to absorb the shock of uncertainty factor. According to this liability waiver scheme, in case a prized subscriber who meets with unfortunate death in an accident, the company will write off the future liability or rupees one lakh which ever is less. KSFE offer four special loans under this package exclusively for Pravasi Bandhu Chitty subscribers, in order to fulfill all types of credit needs of the customer. They are:

1. OD Facility A Pravasi Bandhu Chitty subscriber can avail of an OD facility of up to Rs. 1 lakh or 70% of sala, whichever is less. In case of chitties with tenure of 100 months the loan amount will be up to 30% of sala or Rs. 1 lakh, whichever is less, for the first 10 months. The interest is 13.5% simple. If the chitty installment is remitted every month promptly, this will be reduced to 12.5%. The OD availed, along with interest thereon (if not remmited monthly) will be set off from the prize money, at the time of payment of the same. Thus after the prize money is adjusted towards the loan account no interest remittance will be required.

2. Marriage Loan This loan will be available for meeting the expenses towards the marriage of the subscriber himself/herself or the marriage of near relatives. The subscriber will be eligible for an advance up to 70% of the sala ( 50% of the sala for the first 10 installments) or Rs. 5 lakhs,which ever is less. The rate of interest is 13.5% simple and will be reduced to 12.5% if the chitty installment is remitted every month promptly.

When the subscriber becomes eligible for the payment of prize money, the the same will be set of against the principal and interest due to be remitted and after this the subscriber will be relieved of all the loan (principal and interest) remittances. This loan facility will be available for subscribers entrolling in Pravasi Bandhu Chitties with 50 | P a g e

duration of 40 to 60 months. All the securities applicable to chitty and NCL will be accepted for covering the future liability of chitty at the time of availing of the loan

3. Loan Facility for purchase of a car Subscribers, who are in need of a car before getting the chitty prized, can avail of this loan facility. The maximum advance that can be availed is 85% of the on-road cost of the vehicle or 70% of the sala, whichever is less.50% of the value of the vehicle will be adjusted towards the future liability of the chitty concerned at the time of availing of the loan and only security to cover the remaining liability need be brought in by the subscriber. The rate of interest is 13.5% simple and will be reduced to 12.5% if the chitty installment is remitted every month promptly.

When the subscriber becomes eligible for the payment of prize money, the same will be set off against the principal and interest due to be remitted and after this the subscriber will be relieved of all the loan (principal & interest) remittances. This loan facility will be available for subscribers enrolling in Pravasi Bandhu Chitties with duration of 40 to 60 months. All the securities applicable to chitty and NCL will be accepted for covering the future liability of chitty at the time of availing of the loan.

4. Purchase of a Plot with a House /Construction of a House The maximum advance that can be availed of a loan facility for outright is 85% of the document value of plot with house to be purchased/estimate for the construction of the house or 70% of the sale, whichever is less.50% of the document value of plot with the house to be purchased/estimate for the construction of the house will be adjusted towards the future liability of the chitty concerned at the time of availing of the loan and only security to cover the remaining liability of the chitty concerned at the time of availing of the loan and only security to cover the remaining liability need be brought in by the subscriber.

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The Kerala State Financial Enterprises Limited (KSFE) was incorporated in November 1969 as a Government Company with a view to socializing Chitty business in the State, so as to ensure safety, security and better service to the public thereby protecting them from exploitation by private financial institutions.

The company with an authorized capital of Rs. 25 crore and paid up capital of Rs. 10 crore earned an operational profit of Rs. 44.12 crore based on an annual turnover of Rs 268.32 crore during 2005-06 as per the certified annual accounts. There are various other schemes and loans offered by KSFE. 1. Loans and Advances Although chitty is in essence a loan/advance scheme, for subscribers whose chitties are not getting prized and, at the same time they are in need of money, relief has been provided by two loan schemes built within the chitty scheme, viz. chitty Pass Book Loan and New Chitty Loan. KSFE offers other loan/advance schemes, comparable to those given by banks and other financial institutions, and the same includes: Reliable Customer Loan Gold Loan Schemes Consumer/Vehicle Loan Special Car Loan New Housing Finance Scheme Trade Finance Scheme Flexy Trade Loan Tax Planning Loan Scheme Fixed Deposit Loan Scheme Sugama ( Akshya) overdraft Scheme.

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Reliable Customer loan Scheme If you have been customer of KSFE, with a good track record, for one year or more, you are eligible for the advance. The maximum amount of advance is Rs.1,00,000/- on personal security, and property security and Rs.5,00,000/- on financial documents security. The maximum duration of advance is 48 months. The interest rate is 12% (yearly diminishing) and for defaulted accounts 18% p.a. Car Loan For enabling salaried persons and self employed professional/ Businessmen / Income tax assesses to acquire new cars availing of advances, with moderate rates of interest. Period of Loan : Minimum 6 months & maximum 60 months. Rate of Interest : Upto 35 months Exceeding 35 months Gold Loan Scheme 12 % (monthly diminishing) 12.5% (monthly diminishing)

This facility is for meeting any type of contingent requirements, thus harnessing the yellow metal, which is usually a non-sweating asset, for productive purposes. The advance is for duration of six months. But it can be renewed, if necessary, up to an aggregate period of 24 months by remitting interest in every six months. The interest rate is 12% per annum (simple) to a loan up to and including Rs5000/-.Interest rate for loans above Rs 5000/- and up to & including Rs 25000/- is 12.5% per annum(simple).Interest rate for a loan of above Rs 25000/- is 13% per annum(simple). The maximum amount of loan is Rs.3-lakhs. The special feature for this loan is that the interest is charged for the actual number of days for which the gold is pledged, subject to the condition that minimum interest of Rs.25/- will be charged for an advance exceeding Rs.5000/-

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Consumer Vehicle Loan (CVL) KSFE CVL Scheme helps you in acquiring white articles, vehicles etc., which you have always dreamed of owning The articles for which CVL is made available include all consumer durable articles including computers, motor vehicles -two & four wheelers, certain durable medical equipments for clinics, agricultural equipments/ appliances etc. Types of security acceptable for chitty prize money are acceptable in the case of CVL also. 13.5% (simple) is the interest rate applicable and for defaulted accounts 15.5% (simple) . The duration of the advance is between 12 months and 60 months. Pass Book Loan A non-prized chitty subscriber, without any default in remittances of installments, is eligible for a passbook loan, the ceiling of which is based on certain discounts from the paid up amount in the respective chitty. No security, other than the passbook is required for the advance. The interest rate is 13% (simple) and for defaulted accounts 15%. Housing Finance Loan The Housing Finance Scheme of KSFE is similar to the schemes of other institutions. Unlike, other institutions, the Housing Finance Scheme of KSFE is designed to cater to the needs of all segments of the populations such as Traders, NRIs, Business persons, Professionals, Salaried class etc. The duration is a maximum period of 180 months (i.e., 15 years). Flexi Trade Loan Flexi trade loan is intended to provide financial assistance to small traders/businessmen for supplementing their working capital requirements with overdraft facility

Limit of Advance The amount of overdraft is limited to Rs. 10 lakhs or 20% of the previous years turnover (sales) whichever is less. Rate of Interest is 12% (Diminishing) on product basis with quarterly rests

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Repayment Period The overdraft facility will be available for an initial period of 24 months from the date of sanction. At the end of the initial period of two years if the OD facility has been cleared or the account shows a credit balance and if interest has been remitted as and when due it can be renewed. Security The stock in trade and cash in the shop will be the primary security for the loan and the same should be hypothecated to the company. Landed property, Fixed Deposits, Other Financial documents and Gold Ornaments can be accepted as collateral security Processing Fee 0.2% of the advance amount applied for subject to a minimum of Rs.250/- which is refundable if the loan is not availed. Repayment of Loan Loanee is free to make any remittance to this overdraft account. There is no fixed date or fixed repayment installment. In addition to the above, the Chitty Scheme, which is the backbone of the Company, has an advance aspect built into it. The payment of prize money in chitties is actually an advance given to the subscriber by the Company. Advances under all the above mentioned schemes can be made only against security of one type or the other, so as to ensure the repayment of the advance, along with interest. Thus in the context of KSFE advances, or for that matter; in the context of advances by any other institutions, securities can be defined as follows: The various types of securities accepted by the KSFE for its different schemes are the following: Personal Security (Not Applicable to Flexi Trade Loan and Special Car Loan) Fixed Deposits of KSFE and other Bank Deposits Short Term Deposits of KSFE Deposit-in-Trust of KSFE L.I.C Policy Bank Guarantee Pass book of Non-Prized Chitties of KSFE

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National Savings Certificates VIII Issue Kissan Vikas Patra NRI Deposits Property Security Gold Ornaments Sugama Security Combined Security

Personal Security Personal security is accepted for future liability up to Rs.3-lakhs. Employees of Central/ State/ Quasi-Government Departments/ Undertakings, employees of

Government / Aided schools/ Plus two schools, colleges and employees of Nationalized/ Scheduled Banks and certain Co-operative institutions are generally accepted as sureties by the Company for its various schemes. Private practicing professionals having taxable annual income of Rs.1 lakhs and below the age of 65-years shall be treated at par with the SRNEG employees. Taxable income means gross income less standard deduction, profession tax and HRA, if applicable. Monthly income will be 1/12th of the taxable income.

Fixed Deposit Fixed deposits with Nationalized Banks, Scheduled Banks, District Co-operative Banks, Co-operative Banks or any other Banks, having deposit insurance coverage and fixed deposits with KSFE. Ltd., either in the name of the subscriber/applicant or in the name of another person will be accepted as security for all our schemes.

Short Term Deposit Short Term deposits with KSFE. Ltd., either in the name of the subscriber/applicant or in the name of another person will be accepted as security for all our schemes.

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L.I.C Policy LIC Policies, the surrender value of which, are equal to the future liability of the loan/chitty can be accepted as security. The LIC policy accepted as security in such cases can be in the name of applicant/subscriber or in the name of spouse or in the name of any other person. In such cases the policy should be assigned in favour of the company and the policy holder should be a co-bounden in the agreement. Bank Guarantee Government Securities and Bank Guarantee can be accepted as valid security. The Bank Guarantee should cover an amount equal to one installment more than the future liability. Also it should be valid for a period not less than three months after the termination of the liability. Pass Book of Non-Prized Chitties The Passbook of non-prized chitties can be accepted as security for the future liability of schemes. The paid up gross subscription minus full Foremans Commission is the paid up value. The paid up value should be sufficient to cover the future installments in the scheme together with interest on the future installments up to the date of termination of the pledged non-prized chitty. National Savings Certificate (Viii Issue) NSC will be accepted as valid security, on the following conditions: At the time of acceptance, the issue price (face value) of the NSCs (VIII issue), should cover the future liability, ie. principal plus interest in case of advances and sum total of future installments in the case of chitties. The interest for the loan amount is to be calculated till the maturity of the instrument or the remaining period of loan, whichever is longer. Forms prescribed by the Post Office are used for noting the lien.

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KISSAN VIKAS PATRA The future liability for which Kisan Vikas Patra can be accepted as security is determined as follows: 1. In case the Kissan Vikas Patra is offered as security before the expiry of 30 months after the issue of the same, the certificate will be accepted for a future liability not

exceeding 75% of the value of the certificate (i.e, purchase price). 2. If the Kissan Vikas Patra is offered as security after 30 months (i.e, expiry of lock in period) of the issue of the same, the certificate will be accepted as security for future liability worth the premature closure value of the certificate on the date of acceptance of the same as security. N.R.I. DEPOSITS The NRI, NRO, FCNR and NRNR deposits can be accepted as security to our various schemes,provided. a) The deposit receipts are properly discharged and companys lien noted on it. b) The Bank, in which the deposit is kept, agrees to close it and make required payment to KSFE. Even before maturity, on demand.

Gold Security
Gold ornaments can be accepted as security towards future liability in all schemes. 1gm of gold (18carat) will cover a future liability of Rs.400/-, 1gm of 19 carat & above will cover Rs.425/-. In exceptional cases gold ornaments will be accepted up to Rs.475/- per gm. There is provision for partial redemption if 25% or more of original amount secured is remitted

Sugama Security
Outstanding balance in Sugama account can be accepted as security for future liability in chitty/loan schemes. The deposit amount should at least cover the future liability. For the balance in Sugama Security account, interest @ 5.5% will be allowed. Monthly installment can be adjusted from the account. The main advantage of the scheme is that the customer can release his documents pledged and also earn interest on the amount outstanding in this account. The Kerala State Financial Enterprises Limited (KSFE) was 58 | P a g e

incorporated in November 1969 as a Government Company with a view to socializing Chitty business in the State, so as to ensure safety, security and better service to the public thereby protecting them from exploitation by private financial institutions.

The company with an authorized capital of Rs. 25 crore and paid up capital of Rs. 10 crore earned an operational profit of Rs. 44.12 crore based on an annual turnover of Rs 268.32 crore during 2005-06 as per the certified annual accounts. With a view to overcome the threat of efficient customer service by financial institutions like banks, non banking financial institutions and other local chitty institutions with their computerized environment, the Company decided (1999), to go in for complete automation to be implemented in three phases starting with the front office automation of its branch offices. The company selected (July 2000), Accel Limited for analyzing the business requirement, preparing feasibility study of the project and for developing the application software for the Front Office automation of the branch offices.

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4.1. Data analysis and interpretation

Interest earned to total income ratio

year interest earned total income Interest earning ratio









2007 1735357058 2946195553 58.90










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64 62 60 58 56

52 50 2005 2006 2007 2008 2009

Chart.4.1.1 Interpretation From the above table and graph interest earned to total income ratio during 2005-63.04%, 2006-60.37%, 2007-58.90%, 2008-56.97%, interest earned is decreasing during year.

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Year other income total income 2658712934 Other income earning ratio 8.54




















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12 10 8 6 4 2 0 2005 2006 2007 2008 2009

Chart 4.1.2.

Interpretation From the above table and graph other income to total income ratio during the year 2005-8.54%,2006-10.38%, 2007-11.64%, 2008-10.56%, 20097.08%. Other income is increasing from 2005-2007 and decreased in 20082009.

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Interest expended to total expenditure ratio

Year interest expended total expenditure Interest expended ratio 2005 1063439568 2221693682 47.86

















Table 4.1.3

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2005 35 40
Table 4.1.3.



Interpretation From the above table and graph interest expended to total expenditure ratio during the year 2005-47.86%, 2006-46.14%, 2007-42.87%, 200841.39%, 2009-43.82%. Interest expended is decreasing it means expenses is decreasing and profit is increasing.

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operating expenses 1094064222

total expenditure 2221693682




















Table 4.1.4

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60 50 40

20 10 0 year 2005 2006 2007 2008 2009

Chart 4.1.4. Interpretation From the above table and graph operating expenses to total expense ratio during the year 2005-49.24%, 2006-51.11%, 2007-52.56%, 2008-52.13%, 2009-47.37%.operating expense is increasing. But decrease in 2009.

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Year Cash in hand 7258930082 Total asset 12027820192 Ratio



















Table 4.1.5.

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70 60

40 30 20 10 0 year 2005 2006 2007 2008 2009

Chart 4.1.5. Interpretation From the above table and graph cash to total asset ratio during the year 2005-60.35%, 2006-66.44%, 2007-63.72% , 2008-44.94%, to total asset ratio is increased up to 2007 and decreased in 2008 and 2009.

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Year Cash& bank balance Total asset ratio





















Table 4.1.6.

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60 50

30 20 10 0 year 2005 2006 2007 2008 2009

Chart 4.1.6.
Interpretation From the above table and graph cash and bank balance to total asset ratio during year 2005-58.99%, 2006-65.03%, 2007-62.71%,2008-43.93%, and bank with other banks to total asset ratio is decreasing.

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Cash 7258930082

Total liabilities 16275140277




















Table 4.1.7.

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2009 2008

2006 2005 year 0 20 40 60

Chart 4.1.7. Interpretation From the above table and graph cash to total liabilities ratio during year 2005-44.60%, 2006-50.01%, 2007-42.25%, 2008-45.58%, 2009-39.93%. Cash to total liabilities is fluctuating.

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Earning per share ratio

Year Net profit 194666376 No: of shares 1000000 ratio



















Table 4.1.8.

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250 200 150 100 50 0 year 2005 2006 2007 2008 2009

Chart 4.1.8.
Interpretation From the above table and graph investment to total asset ratio during the year 2005-194, 2006-21.29, 2007-131, 2008-54, 2009-124.investment is decreasing up to 2008 and increase in 2009.

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year advances 21095544224 Total asset 12027820192 ratio 175.38


















Table 4.1.9.

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200 180 160

120 100 80 60

20 0 year 2005 2006 2007 2008 2009

Chart 4.1.9. Interpretation From the above table and graph advances to total asset ratio show that the firm is lending advances more than the assets held by the firm.

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year Reserve and surplus interest Total liability Ratio





















Table 4.1.10.

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6 5 4 3

1 0 year 2005 2006 2007 2008 2009

Chart 4.1.10. Interpretation From the above table and graph reserve for overdue interest to total liability ratio during the year 2005-4.4.22%, 2006-5.26%, 2007-5.33%, 2008-5.31%, 2009-4.38%.reserve and surplus is increasing from 05-07 and decreasing in 2008 and 2009.

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year Current asset 7530529670 Current liability 16275140277 ratio 46.27


















Table 4.1.11.

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60 50 40 30

10 0 year 2005 2006 2007 2008 2009

Chart 4.1.11. Interpretation From the above table and graph current ratio during the year 200546.27%, 2006-51.57%, 2007-43.91%, 2008-46.31%, 2009-40.73%.current ratio is almost constant..

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Profit margin ratio

Year Net profit 194666376 Tatal income 12027820192 ratio 1.62


















Table 4.1.12.

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3 2.5 2 1.5 1 0.5 0 year 2005 2006 2007 2008 2009

Chart 4.1.12. Interpretation:

Net profit shows an increasing trend in the first 2 years. Then next 2 years net profit shows a decreasing trend. And last year net profit shows an increasing trend.

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year cash & bank balance Total current asset Ratio





















Table 4.1.13.

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120 100 80 60 40 20 0 year 2005 2006 2007 2008 2009

Chart 4.1.13. Interpretation From the above table and graph cash to total current asset ratio during the year 2005-96.39%, 2006-96.97%, 2007-96.21%, 2008-98.42%, to total asset ratio is increasing.

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Cash flow statement Cash flow for the year ending 31.03.2005
Particulars Current year 2004-05 [Rs] Previous year 2003-04 [Rs]

Cash flow from operating activity Cash flow from investment activity Cash flow from financial activity







Cash at the beginning of the 7561626904 year Cash at the end of the year 7258900082



Tables 4.1.15.

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4E+09 2004-05 3E+09 2003-04



0 Cash flow from Cash flow from Cash flow from Cash at the Cash at the end operating activity investment financial activity beginning of the of the year activity year

Chart 4.1.15.

Interpretation :
Cash at the end of the year is satisfactory.In 2004 cash balance was 7561626904 and in year 2005 it has come to 7258900082.A decrease in cash balance shows that the firm is having some difficulty.

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Cash flow statement for the year ending 31-03-2006

Particulars Current year 2005-06 [Rs] Previous year 2004-05 [Rs]

Cash flow from operating activity Cash flow from investment activity Cash flow from financial activity







Cash at the beginning of the 7258930082 year Cash at the end of the year 8576551868



Table 4.1.16.

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1E+10 9E+09 8E+09 7E+09 6E+09 5E+09 2005-06 4E+09 3E+09 2E+09 1E+09 0 Cash flow from Cash flow from Cash flow from Cash at the Cash at the end operating investment financial activity beginning of the of the year activity activity year 2004-05

Chart 4.1.16. Interpratation :

As we can that cash flow statement of 31.03.2006 is more positive than 31.01.2005. we can say that firms current position is positive. So that firm has enough fund to expand and increase its profitability.

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Cash flow for the year ending 31.03.2007

Particulars Current year 2006-07 [Rs] Previous year 2005-06 [Rs]

Cash flow from operating activity Cash flow from investment activity Cash flow from financial activity







Cash at the beginning of the 8576551868 year Cash at the end of the year 8005968030



Table 4.1.17.

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1E+10 9E+09 8E+09 7E+09 6E+09 5E+09 2006-07 4E+09 3E+09 2E+09 1E+09 0 Cash flow from Cash flow from Cash flow from Cash at the Cash at the end operating investment financial activity beginning of the of the year activity activity year 2005-06

Chart 4.1.17. Interpratation :

We can see that cash flow statement as on 31.03.2007 is having negative trend when compaired with 2006 cash flow statement.This will affect the financial performance of the firm.

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Cash flow for the year ending 31.03.2008

Particulars Current year 2007-08 [Rs] Previous year 2006-07 [Rs]

Cash flow from operating activity Cash flow from investment activity Cash flow from financial activity







Cash at the beginning of the 8005968030 year Cash at the end of the year 8944968426



Table 4.1.18.

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1E+10 9E+09 8E+09 7E+09 6E+09 5E+09 2007-08 4E+09 3E+09 2E+09 1E+09 0 Cash flow from Cash flow from Cash flow from Cash at the Cash at the end operating investment financial activity beginning of the of the year activity activity year 2006-07

Chart 4.1.18. Interpratation :

We can see that cash flow statement as on 31.03.2008 is positive when compared with last four year . So we can say that firm has got efficient cash management system . This Will also help in improving the firms performance.

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Cash flow statement for the year ending 31.03.2009

Particulars Current year 200809 [Rs] Previous year 2007-08 [Rs]

Cash flow from operating activity Cash flow from investment activity Cash flow from financial activity







Cash at the beginning of the 8944968426 year Cash at the end of the year 10440588435



Table 4.1.14

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6E+09 2008-09 2007-08 4E+09


0 Cash flow from Cash flow from Cash flow from Cash at the Cash at the end operating investment financial activity beginning of the of the year activity activity year

Chart 4.1.14. Interpratation :

From the above table we can see that cash at the end as on 2009 is more than cash at end on 2008.A high cash at the end indicates that firm is liquid and has the ability to meet its current liability.

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Trend analysis of KSFE between the period 2004-2008

Year 2005 Amount 7258900082 Trend value 84.6













Table 4.1.19.

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1.2E+10 1E+10 8E+09 6E+09 4E+09 2E+09 0 1 2

Chart 4.1.19.

Interpratation :
From the above table and chart we can see that the firm is having upward and downward Trend.In 2006,2008,2009 firm is having upward trend but in 2005,2007 having downward trend.

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Cash budget for the year ending 31.03.2005

Particulars Foremans commission Finance charges Interest Other income Interest &finance charges Staffs expenses Administrative exp Promotional exp Bad debt written off Provision for bad debts Depreciation

Receipts amount 715456683 39981989 1676137344 227136918

Payments amount


850139027 243925195 43367255 8406929



2658712934 Table 4.1.21.


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1,800,000,000 1,600,000,000 1,400,000,000 1,200,000,000 Amount 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0

Chart 4.1.21.

From the above table and chart we can say that receipt is more than the payment. So we can say that firms are having strong cash management.

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Cash budget for the year ending 31.03.2006

Particulars Foremans commission Finance charges Interest Other income Interest &finance charges Staffs expenses Administrative exp Promotional exp Bad debt written off Provision for bad debts Depreciation

Receipts amount 766824535 17762895 1619986216 278695798

Payments amount


909003316 237378730 49268900 108005



2683269444 Table 4.1.22.


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1,800,000,000 1,600,000,000 1,400,000,000 1,200,000,000 Amount 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0

Chart 4.1.22.

From the above table and chart we can see that the firms receipt is more than the payment. So firms financial credibility is strong.

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Cash budget for the year ending 31.03.2007.

Particulars Foremans commission Finance charges Interest Other income Interest &finance charges Staffs expenses Administrative exp Promotional exp Bad debt written off Provision for bad debts Depreciation

Receipts amount 860013098 7784664 1735357058 343040733

Payments amount


1068416443 274178939 81424227 612369



2946195553 Table 4.1.23.


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2,000,000,000 1,800,000,000 1,600,000,000 1,400,000,000 1,200,000,000 Amount 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 0

Chart 4.1.23.

From the above table and chart we can see that receipt is more than the payments .So we can say that firms cash management is in strong position.

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Cash budget for the year ending 31.03.2008.

Particulars Foremans commission Finance charges Interest Other income Interest &finance charges Staffs expenses Administrative exp Promotional exp Bad debt written off Provision for bad debts Depreciation

Receipts amount 1127213650 3727606 1985071999 368017603

Payments amount


1366834995 370854319 184883418 1385594



3484030858 Table 4.1.24.


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1,500,000,000 Amount 1,000,000,000 500,000,000

Chart 4.1.24. Interpretation:

From the above table and chart we can see that firms financial performance will not be affected because the receipt is more than the payments.

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Cash budget for the year ending 31.03.2009

Particulars Foremans commission Finance charges Interest Other income Interest &finance charges Staffs expenses Administrative exp Promotional exp Bad debt written off Provision for bad debts Depreciation

Receipts amount 1629897908 2777686 2388767828 306390998

Payments amount


1412253498 489837829 326277924 26604216



4327834420 Table 4.1.20.


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2,000,000,000 Amount




Chart 4.1.20. Interpretation:

From the above table and chart we can see that receipt is more than the payments. Receipt is 4327834420 and payment is 4015219529 so we can say firm is having strong cash management.

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The project entitled an organization study of Trichur KSFE ltd was done to find out the various functions taking place in the organization with special reference to cash management .the study undertake various efforts to analyze all of them in details. The researcher gives clear ideas of entire department functions in the bank and also able to find the financial efficiency of the bank through a detailed analysis of the ratio and cash management for the last five years. The main objective of the study is to find out the cash management system implemented at Trichur KSFE ltd. The study spreads over a period of 45 days from 1st April to 15th May. Datas are collected from the financial statement and annual report. This study gives us clear idea of the financial position of the bank over last five years. Calculations of the different ratios give us an indication about the financial position of the bank. From this study it becomes clear that the overall financial position of the bank have to be improved.

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Interest earned shows a decreasing trend and it is the main source of income. Other income (rent, sundries, and reserve release) is having increasing trend from 2005-2007, but in 2008 it starts declining.

Out of total expenditure expenses on interest is getting decreasing so profit level improves.
Last five year operating expenses to total expenses increased from 40% to52% in 2005-2008, but it decreases as 47% in 2009. Cash in hand shows a good position during 2005 to 2006 but in 2007-2009 it starts declining. Cash and bank balance position shows a decreasing trend in the last five years so it shows a good position. Liquidity shows an increasing trend during 05 -06 but now started declining. EPS ratio is show a declining trend. Advances show an increasing trend. Reserve for overdue interest is increasing during 2005-08, but in 2009 it shows decreasing trend. Current asset is stable and it is almost constant in the last five years. Profit margin ratio shows an increasing trend during 2005-06 but then starts declining in 2007-08. And increase in 2009. Cash to total current asset ratio is increasing that show company is having good cash management. Profit margin ratio shows that firm is having a negative profit earning ratio. Cash flow statement of last five year shows that the firms cash position is varying, but Last year cash flow shows an increasing nature.

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Since the main source of income is interest earned and present situation shows a decreasing trend. So it is better increase the present interest rate. If possible, suitable measures should be taken to reduce the present increasing trend of operating expenses. Try to maintain present increasing trend of other income. Measure should be taken to maintain good position of cash & bank balance. But liquid cash should not exceed standard limit. Measures should be taken to increase EPS along with payment of dividend that is maintaining a trade-off between EPS and pay off dividend. Cash flow statement of the firm is having a decreasing trend during last two years so measures should be taken to improve present cash management.


Only financial statements are available The reliability of the analysis is depending up on the accuracy of the data provided in the financial report Only secondary data is used.
The period of study is taken for only five years, which restrict the researcher to know about the cash management of the company.

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Cash is indispensable for every business. The primary objective of any company is to earn maximum profit by optimum utilization of resources. Profit determines the financial position of the firm. This study has been conducted in order to find out the financial position of KSFE.Cash management manages cash inflows and cash outflows. The bank collects cash from individuals as deposit and interest and gives loans. The bank also deposits cash to the other banks. They kept cash reserve and statutory liquid cash according to banking regulation act.


Cash is a key operational and financial driver, holding strong business risk and potentially huge opportunities. Optimum cash will guide business along the road to achieving their strategies while minimizing these risks and realizing the opportunities. in most markets, competition and innovation are a fact of life that means no firm can afford to stand still for long. It is a key responsibility of senior management to assess risk and opportunities and form company strategy. Another researcher can make study on effect of cash management on firm profitability, cash management policies of the firm and how the effectiveness of strategic initiatives can be enhanced by closer consideration of working capital. It attempts to identify the negative and positive impacts of strategic initiatives on cash processes.

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