Post on 10-Apr-2018
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Submitted by:
SEEMA GUPTA
UIM (UTTARANCHAL INSTITUTE OF MANAGEMENT)
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LIST OF CONTENTS
Preface 1
Executive Summary 2
Acknowledgement 3
Certificate 4
Objectives of the Report 5
Introduction to Banking 6 - 7
Banking system in India 8 - 10
Guide lines of R.B.I. 11 - 12
Chronology of Banks in India 13 - 16
Future of Banking 17
About Standard Chartered Bank 13 - 15
Banking Profile of SCB 16
SCB Structure Over View 17
Operations in IPC 23 - 30
Operation in Internal services 31 - 57
Risk Management System 58 - 64Credit Risk Management 65 - 66
Introduction to Managing Credit Risk 67- 69
Introduction to Cash flow Analysis 70
Introduction to Ratio analysis 71 - 74
Introduction to Credit Scoring Models 75
Introduction to Financial Services of SCB 76 - 80
Introduction to Small & Medium Enterprises Banking of SCB 81 - 85
Customers of SCB banking 86
Workings on Petroleum Company & It's Analysis 87 - 103
Workings on Metals Company & It's Analysis 109 - 129Workings on Motors Company & It's Analysis 130 - 159
Conclusion 160 - 162
Bibliography 163
PREFACE
As a part of MBF program, a student has to peruse a project duly approved by the Director o
the institute. I had privileged of undertaking the project on the study and critical analysis of
the Operation Procedures of consumer banking and Analysis of financial statements and of th
customers of SME banking and measuring the credit risks at Standard Chartered Bank, 10
Parliament Street, New Delhi - 110001 during the period (15th April To 15 June).
It encompasses the entire operation unit in Delhi & consists of three Departments namely:-
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ITEM PROCESSING CENTRE
INTERNAL SERVICES
SME BANKING
My project is divided into five Chapters and they are given as under.
1) Chapter one of this study contains, concepts of banking and importance of the subject in
present sc enario.
2) Chapter two deals with Introduction of Standard Chartered Bank which consists history a
well as the present scenario of the bank.
3) Chapter three deals with the Banking operations of item processing centre of Slandered
Chartered Bank.
4) Chapter four deals with the Banking Operations of internal services of Slandered Chartere
Bank
5) Chapter five deals with Introduction of SME Banking and of Management of credit risk.
6) Chapter six deals with the analysis of Financial Statements and measuring risk
7) Chapter seven deals with the Conclusion and the Bibliography Part.
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EXECUTIVE SUMMARY
I have done my summer internship in Standard Chartered Bank. I have devoted around
one month in Item Processing Centre and Internal Services and around one month in
SME Banking. In the first section of summer training I was in operation department,
thereafter I was moved to SME Banking to learn the processing's of that department.
During my stint, I was exposed to theoretical as well as practical learning.
My project starts with an overview of the banking sector and the profile and
History of STANADRD CHARTERED. It lists the various activities handled by IPC. A loss o
any document can cause us lots of problem and hence we have to be very cautious about the
same. The project contains the workflow of the operation unit of standard chartered.
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ACKNOWLEDGEMENT
The summer training project in STANDARD CHARTERED bank was a very wonderful
experience for me. No matter what one achieves in life, he/she is always guided and helped b
someone. I got a good exposure of the industry, both in theoretical as well as practical groun
This project is a sincere effort to have an in-depth knowledge of various "Banking operation
and credit risk management of SME ".
With profound sense of gratitude and regards I convey my sincere thanks to Mr. ARUN
OBEROI ( Head--IPC) , Mr. Prashant (SME s), Miss Rachna (SMEs ) and all colleagues of
standards chartered bank for not only giving me an opportunity to pursue the project, but alshelping and guiding me through out in this project.
I would like to Express my Sincerest thanks to Prof. J.D.Agarwal And Prof. Aman Agarwal.
would also like to express my sincerest thanks to Miss. Yamini Agrawal, Prof.Chaterjee, MR
Pushpendra Raghav, Mr. Deepak Bansal and all the faculty members of IIF for guiding me
with their knowledge and guidance throughout my project work and also very graceful to al
my IIF colleagues for their helpful nature.
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OBJECTIVE OF THE PROJECT
During the course of my project, I had covered the below-mentioned objectives:
1) To Review & Analyze the work process in operation unit in a bank.
2) To understand the importance of the backend operation unit.
3) To review the analysis of Financial Statements of Small & Medium Enterprises to minimiz
Credit Risk.
4) To review the significance of process normalization towards saving Processing time &
enhancing productivity/ Output..
INTRODUCTION TO BANKING
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BANKING SYSTEM
After the nationalization of Banks, increasing adoption of technology, continuous mergers in
the banking, modernizing backroom operation in the banks and competition pave the path of
growth of Indian banking. By the mid-1990, the near monopoly of public sector banks faced
the competition by the more customer-focused private sector entrants. This competition force
older and nationalized banks to revitalize their operations.
Year 1992 was the golden period of Indian Banking system due to the scam-tainted stock
market. Large proportion of household saving moved into the banking system, which recorde
an annual growth of 20 percent in deposit
But along with the continuous growth and modernization, there are several challengesconfronting the banking sector. The main challenges facing the banking sector is the
deployment of funds in quality assets and the management of revenues and costs. The proble
of NPA (non- performing assets), overall credit recovery system still exist. There is a
continuous reforms and modernization is in process. A number of recon mediations of two
Narasimham committees have been implemented.
Foreign Banks are focusing on corporate and on the middle class consumer and providing the
better service. Nationalized Banks are also attempting to get on the path of automation. Stron
Banks will acquire the weaker banks. The numbers of foreign banks operating in India has
increased significantly and their share of total assets has also increased. In the year 2001
estimated foreign bank account for 14.7 percent of the total net profit of commercial bankin
sector in India.
In spite tangible progress and the contribution of Narasimham I and Narasimham committee
reports the banking sector in India suffering from systemic and structural problem.
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BANKING SYSTEM IN INDIA
The modern banking system in India started with establishment of the first joint stock bank
The General Bank of India in the year 1786. After this first bank, Bank of Hindustan and
Bengal Bank came to existence. In the mid of 19th century East India Company established
three banks The Bank of Bengal in 1809, The Bank of Bombay in 1840, and bank of Madras
1843. These banks were independent units and called Presidency banks. These three banks
were amalgamated in 1920 and new bank Imperial Bank of India was established.
After Independence the Imperial Bank of India was nationalized with a new name State Bank
of India by passing State Bank of India act 1955. The Reserve Bank of India as a Central ban
was nationalized in the year 1935 by an act the Reserve bank of India act passed in the
parliament. Several new banks as Punjab National Bank, Bank of Baroda, Canara Bank, India
Bank, Bank of India etc were established after independence. On July 19, 1969 14 major bank
were nationalized. Later on more banks were nationalized. At present the numbers of
nationalized banks are 20. Several Foreign banks were allowed to operate as per the guidelin
of RBI. At present the banking system can be classified in following categories:
1. PUBLIC SECTOR BANKS
Reserve Bank of India
State Bank of India and its 7 associate BanksNationalized Banks (20 in number)
Regional Rural Banks sponsored by Public sector Banks2. PRIVATE SECTOR BANKS
Old Generation Private BanksNew Generation Private Banks
Foreign Banks in IndiaScheduled Co-operative Banks
Non Scheduled Banks
3. CO-OPERATIVE SECTOR BANKS
State Co-operative BanksCentral Co-operative Banks
Primary agriculture Credit SocietiesLand Development BanksUrban Co-operative Banks
State Land Development Banks4. DEVELOPMENT BANKS
Industrial Finance Corporation of India (IFCI)
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Industrial Development bank of India (IDBI)Industrial Credit & Investment corporation of India (ICICI)
Industrial Investment Bank of India (IIBI)Small Industries Development Bank of India (SIDBI)
National Bank for Agriculture & Rural Development (NABARD)Export-Import Bank of India
SCICI Ltd
All the types of banks have a centralized control of RBI. All the banks have to follow the guidelines of RBI.
Government used banks to provide credit and loan to weaker sections. This all lead to a serious crisis of
unrecoverable debt. At the end of 1990 banks were saddled with NPA (Non Performing Assets) as bad and
recoverable debts touched to Rs.75, 000 crores.
Foreign Banks in India started to lure customers by good services. These banks were more automated, providin
more faster information, kept flexible working hours and introduced 24 hrs ATM's.
Today Private Indian Banks as well as Nationalized Banks offering better services and attempting to get on to th
path of comprehensive automation.
Guidelines of RBI
The RBI issued guidelines regarding the formation and functioning of private sector banks in January 1993.The guidelines are as follows:
The Banks shall be governed by the provisions of The Reserve Bank of India Act 1934, The Banking
Regulations Act 1949, and other relevant statuaries.Private Sector Banks are required to be registered as Public limited Companies in India.
The shares of banks are required to be listed on Stock Exchanges.Preference will be given to those banks whose headquarters are proposed to be located in a center which
does not have headquarters of any other bank.
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Maximum voting rights of an individual shareholder will be limited to 1% of total voting rights.The new bank will not be allowed to have as its Director any person who is already a Director in a
banking company.The bank will be subject to prudential norms in respect of banking operations, accounting policies, and
other policies as laid down by RBI. The bank will be required to adhere` to the following: Minimum
paid-up capital of Rs.1 billion. Promoter's contribution as determined by the RBI capital adequacy of 8%
of the risk weighted assets. Single borrower and group borrower exposure limits in force priority sector
lending Export Credit Loan policy within overall policy guidelines laid down by RBI.The banks will be free to open Branches anywhere once they satisfy the capital adequacy and prudential
accounting norms.The banks will not be allowed to have investments in subsidiaries, mutual funds and portfolio
investments in other companies in excess of 20% of the bank's own paid-up capital and reserve.The banks would be require to use the modern infrastructural facilities in office equipments, computer,
telecommunications etc.With the recommendations of Narasimham Committee, the Government has now allowed the entry of
Private Banks.
The RBI will grant approvals for entry of private sector banks provide such banks offer competitive,
efficient and low cost financial intermediation services, result in up gradation of technology in the
banking sector, are financially viable and do not resort to unfair means like preemption and concentration
of credit, monopolization of economic power, cross holding with industrial groups etc.Non Residential Indians are allowed to have primary equity in a new banking company to the extent
of 40%. In the case of a foreign banking company or a finance company acting as a technical
collaboration or a co-promoter, equity participation is restricted to 20%.
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CHRONOLOGY OF BANKS IN INDIA
January 1, 1949 : The Reserve Bank of India is Nationalized and made a Central Bank in India
by an act of Parliament.
September 4, 1951 : The Government of India planned to seek loan from World Bank.1956 : Life Insurance Companies were Nationalized.
July 3, 1964 : IDBI was set up.July 6, 1966 : First time the Rupee was devalued by 36.5 percent, one Dollar became Rs.7.50
from Rs.4.75.July 19,1969 : Fourteen major banks were nationalized by Mrs. Indira Gandhi the then Prime
Minister of India.1973 : The Foreign Exchange Regulation Act came into existence. (Now Foreign
Exchange Management Act)
January 11, 1978 : Currency notes in denomination of Rs.1000, Rs.5000 and Rs.10, 000 werewithdrawn from circulation.
November 19, 1986 : Government of India Launched Indira Vikas Patra.1987 : Government of India introduced 9 % Tax free relief bonds, to mobilize
resources for meeting draught related expenditure.April 1988 : National Housing Bank was set up with a share capital of Rs.100 crores
subscribed entirely by the R.B.I.July 1 and 3, 1991 : R.B.I devalued the rupee downward by 17.38 percent.November, 1991 : M. Narsimham committee on reforming the financial system submitted its
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report suggesting phased reduction of SLR to 25 percent in three years and
CRR to 10 percent in four year.March, 1992 : Dual Exchange rate system was instituted under liberated rate management,
enabling orderly transition from a managed floated regime to a market
determined one.
April, 1992 : RBI introduced Risk-Assets-Ratio for Banks as a Capital adequacy measure.January 8, 1993 : FERA was amended and subsequently repealed and replaced by Foreign
Exchange Regulation Act 1993.January, 1993 : Guidelines for setting up private sector banks are issued.March, 1993 : Process of convertibility is started and Rupee is made convertible on the trade
account.September, 1993 : New Bank of India was merged into Punjab National Bank.
March, 1994 : UTI Bank became the first private sector bank to start its operation.
June 13, 1994
: RBI issued guidelines on Prudential norms. Banks should achieve minimum
capital adequacy ratio 6 percent on their risk weighted assets and off Balance
Sheet exposures by march31, 1995 and 8 percent by march 1996.July 15,1994 : Amendment in Banking Companies Act 1970 enabled the Nationalized bank to
tap the capital market. The Nationalized banks are allowed to strengthen their
capital base to contribute to their capital up to 49 percent in the capital market.August, 1994 : Full convertibility was taken by making the Rupee convertible on the current
account.October, 1994 : Oriental Bank of Commerce became the first Nationalized bank to access the
capital market to raise Rs.387.24 crore capitals.
October 1995 : Banks are allowed to fix their own interest rates on domestic term deposits with
maturity of two years.July, 1996 : The insurance regulatory authority was set up to privatize the insurance sector
May 9, 1997 : RBI issued new norms for Non Banking Finance companies to improve their
financial health and viability. The financial companies are required to apply for
registration with RBI by July 8, 1997.December 7, 1997 : RBI constituted a working group under the Chairmanship of S.H.Khan to
examine the harmonization of role and operations of development of Financial
Institutions and Banks.
April 24, 1998 : The S.H.Khan committee on the harmonization of the role and operations of
development of Financial Institutions and Banks submitted its recommendation
to move towards universal banking.August 9, 2000 : Banks having a minimum net worth of Rs.500 crore and satisfying other
criteria regarding capital adequacy were allowed to enter insurance business
through a joint venture.November 10, 2000 : Guidelines to Bank for financing of equities and investment in shares were
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India Banking Summit, an international conference examining the future of banking and
financial services in India will bring together leaders in the field of banking, wealth
management, insurance, and IT to discuss growth opportunities in retail, community, rural,
and commercial banking.
The summit will be held in Mumbai from Tuesday 7th December until Wednesday 8th
December 2004 at the Renaissance Mumbai Hotel and Convention Centre.
The event has been endorsed by Dr. Manmohan Singh, Prime Minister of India, and sponsore
by Intellect Suite by Polaris, SunTec, PSI Data Systems, Carreker Corporation, Red Hat,
Aviva Life Insurance and SDG Software Technologies. It brings together over 150 senior
executives to evaluate the latest developments in banking technology, risk management, reta
and rural financial services, capital markets, and regulation.
Opening this year's event, Chief Executives from ING Vyasa Bank, Bank of Baroda, IDBI
Bank, ICICI Bank, Bank of Maharashtra, Yes Bank, and the Development Bank join the Worl
Bank and Polaris Software Lab to explore new growth opportunities in retail banking. The
program also features participation from Citigroup, Bank of America, HDFC Bank, Kodak
Investment Banking, Bank of India and the Reserve Bank of India.
ABOUT STANDARD CHARTERED BANK
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Even within this period of apparent retrenchment Standard Chartered expanded its network, r
opening in Vietnam in 1990, Cambodia and Iran in 1992, Tanzania in 1993 and Myanmar in
1995. With the opening of branches in Macau and Taiwan in 1983 and 1985 plus a
representative office in Laos (1996), Standard Chartered now has an office in every country
the Asia Pacific Region with the exception of North Korea. In 1998 Standard Charteredconcluded the purchase of a controlling interest in Banco Exterior de Los Andes (Extebandes
an Andean Region bank involved primarily in trade finance. With this purchase Standard
Chartered now offers full banking services in Columbia, Peru and Venezuela. In 1999,
Standard Chartered acquired the global finance trade business of Union Bank of Switzerland
This acquisition makes Standard Chartered one of the leading clearer of dollar payments in th
USA. Standard Chartered also opened a new subsidiary, Standard Chartered Nigeria Limited
Lagos, acquired 75 percent of the equity of Nakornthon Bank, Thailand; and agreed terms to
acquire 89 percent of the share capital of Metropolitan Bank of the Lebanon.
Standard Chartered Today
Today Standard Chartered is the world's leading emerging market bank employing 30,000
people in over 500 offices in more than 50 countries primarily in countries in the Asia Pacifi
Region, South Asia, The Middle East, Africa, United Kingdom, and the Americas. The new
Millennium has brought with it two of the largest Acquisition in the history of bank with the
purchase of Grindlays bank from the ANZ Group and the acquisition of the Chase Consumer
Banking operation in Hong Kong in 2000.
These acquisitions demonstrate Standard Chartered firm committed to the emerging markets
where it has a strong and established presence and where it sees its future growth. It is one o
the world's most reputed international banks, with a management team comprising 70
nationalities. Standard Chartered is listed on both the London Stock Exchange and the stock
exchange of Hong Kong and is in the top 25 FTSE-
100 companies, by Market Capitalization. It serves both consumer and Wholesale banking
customers. Consumer Banking provides Credit cards, personal loans, mortgages, deposit takin
and wealth management services to individuals and small to medium sized enterprises.
Wholesale banking provides corporate and institutional clients with services in trade finance
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cash management, lending, custody, foreign exchange, debt capital markets, and corporate
finance.
Standard Chartered is well established in growth markets and aims to be the right partner fo
its customers. The Bank combines deep local knowledge with global capability. The bank is
trusted across its network for its standard of governance and its commitment to making adifference in the communities in which it operates.
BANKING PROFILE OF SCB
SCB has some different types of banking:-
Priority Banking
Personal Banking
Door Step Banking
Retail Services
Additional Services
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SCB STRUCTURE OVERVIEW
Standard CharteredBank
Internal
Services
Central OpsMetro Ops
Service qualitySalesSharedDistribut-ion
ServiceBIUService Delivery
Whole Sale BankingConsumer Banking
Item Processing
Centre
Account Services
rvices
Safe CustodyDisbursement Unit
Asset OperationLiabilitiesOperation
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CLEARING
INTRODUCTION
Clearing is a way adopted by the banking system to enable the exchange of negotiable
instruments like cheques, drafts etc... I .e. drawn in any bank in favor of another branch or it
customers and the subsequent settlement of the amounts due between banks on account of suc
exchange of these instruments.
In case of Indian banks, 'RESERVE BANKS OF INDIA' is the intermediary between various
banks R.B.I. derives the power of setting up and managing clearing house from section 58(2
(p) of R.B.I. act. For the above purpose, all banks maintain an account with R.B.I. which is
used for the settlement of inter-bank dues. In case, where R.B.I. does not maintain a clearin
house, a specified local branch of the 'State Bank of India' or its subsidiaries is used for this
purpose.
Clearing can be grouped under two heads:
1) INWARD CLEARING: - Inward clearing is a process wherein each member bank
receives payments.
2) OUTWARD CLEARING: - Outward clearing is a process wherein each member bank
the clearing house delivers cheques for realization instruments, drawn on the other
banks.
INWARD CLEARING
CLEARING MECHANISM
MICR CLEARING: MICR Clearing concept is basically introduced by R.B.I.
MICR band consists of -
- Serial number of the instruments.
- City drawn cheques.
- Bank code.
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- Branch code.
- Transaction code.
- Amount.
The step by step procedure of clearing:
STEP 1: From R.B.I. clearing house, the inward clearing instruments, the input forms, the
floppy and the reports has been picked up. Similarly from the S.B.I. , the hard copy as well a
the soft copy of the input statement has been picked up.
STEP 2: I.T personnel is handed over that floppy and tapes from the clearing house through
ICSMERGE.
STEP 3: After merging they generate a report of the total number of items and the value,
in the listing of the R.B.I., tallies with the report. The file is uploaded to the host
for processing and posing of the debits into the customer accounts.
NEXT AT SINGAP ORE:-
STEP 4: After uploading at Singapore, the support team runs a program which debits the
customer accounts.
This program has two entries:-
CR - Clearing Settlement.
DR - Inward Clearing computer surpass.
This program pass-- Debit to customer.
- Credit to ICCS (IPC cost center).
This program simultaneously generates reports for-
- Items that have been posted (90 Q).
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- Items that have not been posted (90 V).
-items with hard hold (XS 14)
The reports downloaded to local "IPC control D-ID".
NEXT AT IPC CENTRE:-
STEP 5: R.B.I. Report will be ticked back against the cheques. If any differences found, it
will captioned in clearing differences.
STEP 6: Three reports generated here:
XS0014 - Late posting (i.e. manual posting transaction).
XS0090V- Rejected items by items sequence numbers.
XS0090Q- Posted items.
STEP 7: Technical verification having checking of six different entries:
- Cheque is postdated/ outdated/ having no date.
- Have signature or not.
- Cheque has crossing stamp of the presenting bank.
- Any unauthorized signature.
- Having payers name.
If any point is missed, that cheque would be considered as rejected items.
STEP 8: Signature Verification of those cheques having amount:
> INR 10,000/- will be done.
> INR 50,000/- will be scanned by U.V.Rays.
STEP 9: Total value of Inward Clearing received from the R.B.I. are reported for finance.
STEP 10: Now Inward Balancing takes place like below:
+ Total auto posted items (90Q).
- Total of XS14.
+ Manual posted rejected items (90V).
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+ XS14 (Returned un-posted items).
+ CRS (Returned un-posted items).
+ GL payments.
+ CDDTV.
= Total = Total IC as per R.B.I. Schedule.CLEARANCES OF HIGH VALUE CHEQUES:-
The high-value cheques will be collected from the R.B.I. at the proper given time .The
cheques are in lot and arranged in lots with the listing attached to it .Inward clearing of high
value cheques are completely manual as against HICR Inward-Clearing. Cheques will be add
listed "presenting bank" lot-wise and verified against the total of the listing.
Verification of signature is done on CT-Dos. All customer cheques will be posted manually
through transfer withdrawal option in CT-Dos and high-value posted journal is a check to an
wrong posting by the teller.
At the time of posting, the details of the cheques have been matched to identify any wrong
position. Then technical verification takes place.
Then high-value limex report has been generated.
The transaction refers to the concerned branch.
Then totaling of the following:-
1. Posted transaction total.
2. Un-posted returned total.
3. Drafts sent to total.
4. Differences if any.
INTER-BANK INWARD CLEARING :
1. Cheques and lists are collected from R.B.I.
2. Verification of the technical error.
3. Signature verification of the Bank officer.
4. Posting of pay-order through CT-Dos.
5. Checking and verification of entries takes place with the R.B.I. Settlement
sheet.
6. Then GL has been generated.
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OUTWARD CLEARING:
This department receives outward clearing cheques and deposit slip from the customers from
branches or bo xes.
# Two sets of cheques are received here:
- One accepted at the counter.
- One accepted at the cheque collection boxes.
Then cheques are segregated into:-
* Local cheques.
* Outstation cheques.
* Dollar cheque.
* Transfer cheque.
* High amount cheque.
* Discrepancies cheques.
The instruments having high-value > 6 lacs have been reported to senior officials according t
"money laundry guidelines".
In the meanwhile, in the Technical Verification, the NC and BC cheques are segregated.
Clerk reviews the instruments to see if there are any doubtful deposits.
While clearing, clerk checks that:
- Beneficiary details are same as the account number.
- The cheque is not post-dated.
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- Any deposit slip having any discrepancy are considered as rejected items and then
finally returned to concerned branch.
Now the cheques are batched together separately for MICR and payable at par cheques .Then
total of each batch note down. Then all cheques encoded by outward clearing houses. The dul
encode cheques will be checked against the total of various deposit slips.Then the 'block ticket" at the end of the day are prepared through the machine for the sum of
total of all the batches. Simultaneously MSA OCCS credit voucher will be totaled. Then the
cheques are posted through CT-Dos.
To credit the GL a/c of the bank, the entries that has been passed are
- Dr.-to- OCCS -to- IPC cost centre
- Cr. -to- Respective GL a/c.
Then balancing takes place. Two types of balancing are there:
1) MICR clearing.
2) Non MICR clearing.
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O U T P U T C O N T R O L
F IN A N C IA L
C H E C K IN G
C A S H TR A N S A C T IO N S
TR A N S F E RT R A N S A C T I O N S
A L L TH E V O U C H E R SA N D IN S TR U C T IO NA B O V E T E L L E R L IM IT SM U S T B E A U TH O R IS E DB Y C O M P E T E N TP E R S O N . ( TS M /B M )
N O N F IN A N C IA L
T R A N S A C T I O N S
A C C O U N T L A S
A M E N D M E N T S O NH O G A N
A M E N D M E N T S O N C TD O S
R E S TR A IN T S
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R E P O R T S
X C 0 0 8-1
X C 0 0 8-2
C R 0 2 9 0
D R 0 2 9 0
D R 0 1 0
C R 0 1 1
D R 0 2 6
X S 0 0 3 1 B
X S 0 0 0 8 X S 0 0 1 3
C R 0 0 3-T
G L B S C 0 1 9
G L B S C 0 2 0
G L B S C 0 1 0
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C A S H T R A N S A C T IO N S
C A S H D E P O S I T S
T O C U S T O M E RA C C O U N T
T O C R E D I T C A R D
T O P S G L A C C O U N T
C A S H W IT H D R A W L
B Y C H E Q U E
T H R O U G H C A S HW IT H D R A W A L S L IP
A G A I N S T C R E D I TC A R D
A G A I N S T I D
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C A S H D E P O S IT T O C M A /C
T x nR s. 2 5 0 0 0 0 /- a n d a b o v e .
P A N / G I R N o t o b e m e n t i o n e do n c a s h d e p o s i t s a b o v e 5 0 k . If n o t a v a i la b le F o rm 6 0 d u lyfi l l e d u p t o b e a n n e x e d .
If t h r u A T M A T MC a s hD e p o s i t E n ve l o p e w i t h c o p y o f J P e n c l o s e d .
A m o u n t s i n w o rd s & fig u r e s t ot a l l y .
A l t e ra t i o n s o n t h e d e p o s i t s l i pt o b e a u t h e n t ic a t e d .
P o s t in g in t o c o r r e c t a c c o u n ta n d w i t h c o r r e c t a m o u n t .
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C A S H D E P O S IT IN C R . C A R D
A l l C a s h d e p o s its tob e c h e c k e d
ir r e s p e c t iv e o f a m o u n t .
T a l ly C r e d it C a rd A /cN o w ith in p u t c a rd n o .
S ta te m e n t C o u n te r f o i l
a t t a c h e d
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DESERTATION
C A SH D E P O S IT T O P S G L
Al l Transa ct ions i rrespe c t ive o f
amount .
Amo unt and Account Nu mber to
be tal lied.
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DESERTATION
C A S H W IT H D R A W A L B Y
C H E Q U E T x nR s. 5 0 0 0 0 /- a n d a b o ve . R e p e r fo rm a n c eo f S i g . V e r i fi c a t i o n
fo rT xn. > =R s. 5 0 0 0 0 /- a n dT xn.= =R s. 5 0 0 0 0 0 /- i f n o t d o n e b yT S M / B M
T x n. > =R s. 5 0 0 0 0 0 /- U /V S c a np e r fo rm e d .
D a te o f C h e q u eV a l i d B e a r e r In s t r u m e n t
A l te r a t i o n s a u th e n t i ca t e d
R u b b e r S ta m p fo r n o n i n d i v i d u a la c c o u n t s
C a s h R e ce i p t A c k n o w l ed g e m e n to n r e v e r s e o f c h e q u e.
C o r r e c t A /c N o , Am o u n t a n dC h e q u eN u m b e r i n p u t .
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DESERTATION
C a s h W it h d r a w a l S l ip / C o u n t e r
C h e q u e
R e q u is i t io n S l ip /L e t te r
h e l d
ID D o c u m e n t s o b t a in e d ,C u s t o m e r Id e n t i f ie d b y
b r a n c h s t a f f d u lys ig n e d o n t h e r e v e r s e . .
A /c N o . o nC h e q u e
H a n d W r it t e n /S ta m p e d
N o t Is s u e d t o N o n
In d iv id u a l A /c
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DESERTATION
C r e d i t C a r d A d v a n c e S l i p
A l l T r a n s a c t io n sir r e s p e c t iv e o f
a m o u n t .
C h e c k th e c o r r e c ta m o u n t p o s te d .
C a s h A d v a n c e S l ipp u t th ru a m a n u a l
im p r in te r /P O S
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DESERTATION
C a s h P a y m e n t A g a in s t I D
R e c e ip t A c k n o w le d g e d b y ID H o ld e r
S w if t /IT T M a s s a g ea u t h o r i s e db y P a y m e n ts
ID D o c u m e n ts o b t a in e d
A m o u n t a s p e r i n s tr u c t io n
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DESERTATION
F o r e ig n C u r r e n c y T r a n s a c t io nU S D / G B P / E U R O
F C Y C a s h D e p o s it
T C D e p o s it F C Y C a s h W it h d r aw a l T C S a le C u r r e n cy U S D , G B P a n d E U R O P A F ( 2 c o p ie s ) m u s t b e a t t a c h e d to t h e v o u c h ers
F o r m A 4 a n d F E M A d e c la r a t io n m u s t b e o b ta in e d d u l y f ille d u p a n d s ig n ed / s t a m p e d E n s u r e th a t F C Y le g is p o s t e d N e c e s s a ry d o c u m e n t s C o p y o f P a s s p or t / C D F / C o p y o f V is a / C o p y o f A ir T r a v e l
T ic k e t / P u r p o s e o f T r av e l m u s t b e o b t a in e d F o r m A-2 ( 2 c o p ie s ) a n d d o c u m e n t s a s a b o v e m u s t b e s e p a ra t e d f ro m th e vo u c h e r s
a n d b e h a n d e d ov e r t o t h e p e rs o n d o in g r e c o nc i lia t io n o f F C Y A /c s
E n s u r e r e c e ip t o f F C Y ac k n o w le d g e d by c m & e n c as h m e n t c e r tif ic a te i s s u e d in c as eo f F C Y T C /C u r r e n c y pu rc h a s e . A ny b r a n c h c a n d e a l in F C Y h ow ev e r t h e F C Y ac c o u n t c a n o n ly b e po s t e d in t h r e e
C a t A b r a nc h e s 1 7P s t, 1 0 E C P a n d 1 0 S M G . In m o s t o f t h e c a s e s a ll th e b r an c h e s w h ic h r ec e i v e /s a l e in F C Yp o s t the L C Y le g in
th e i r b r a nc h a n d f o r F C Y le g t h ey s e n d m a s s a g e to 1 0 E C P b r a n c h .
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DESERTATION
T r a n s f e r T r a n s a c t i o n s
T y p e s
A / c t o A /c T r a n s fe r B yC h e q u e/ L e t t e r e t c .
S a la ry T r a n s f e r
C h a rg e s R e v e r s a l
D D / P O Is s u a n c e
T D Is s u a n c e ( Q A O ) / T DB r e a k s
R e m e m b e r
If A / c t o A / cT r fd o n e o n L e t t e r I t m u s t b ea u t h o r i s e db y t h eB M . A l lt ra n s a c t i o n s m u s t b ec h e c k e d
R e v e r s a l o f C h a rg e s fr o mw a i v e r A / c ( P S G L ) c a n o n l yb ea u t h o r i s e db y B M . A l l
t ra n s a c t i o n s m u s t b e c h e c k e d Q u i c k A / c O p e n in g F o r m m u s t
b e s e p a r a t e d f ro m t h ev o u c h e rs a ft e r c h e c k in g a n ds e n t to A C S
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A / c t o A / c T r a n s f e r b yC h e q u e
T x n> =R s. 5 0 0 0 0 /-
S i g n a tu re R e P e r fo r m a n c e fo r T x n> =R s. 5 0 0 0 0 /-a n d =
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DESERTATION
A / c t o A / cT r f. b y L e t t e r
M u s t b ea u t h o r i s e db y t h e T S M / B M .
D ia r y n o t e i n d i c a t i n g c a l l b a c k t o c m .
A l lo w e d o n ly i f t h e r e i s c o m m o n A / c h o l d e r
b e t w e e n D e b i t & C r e d i t A / c h o ld e r .
N o t h i r d P a r t y t r a n s f e r s a llo w e d o n le t t e r . A l l t r a n s a c t io n s a r e r e q u i r e d t o b e
c h e c k e d .
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DESERTATION
D D / P O Is s u a n c e
T x n sa b o v eR s. 5 0 0 0 0 /- to b e c h e c k e d .
A lt e r a t io n s a u t h e n t ic a te d
D D /P O n u m b e r a n d a /c n o lo a d e d c o r r e c t ly
R e c e ip t a c k n o w l e d g e d b y c m o r a u t h o r i s e dr e p r e s e n t a t i v e
I f c m h a s p r o v id e d ac h e q u ea g a in s t is s u a n c e o f D D /P O i t m u s t b e c a n c e l le d b y d e b i t o r c ro s s e df o r c a n c e l la t io n a f te r c h e c k in g fo r s to p p a y m e n t sb y th e T S M .
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DESERTATION
A c c o u n t C l o s u r eD D A
A ll t r a n s a c t io n s m u s t b e c h e c k e d . S ig nr e p e r f o r m a n c ef o r > =R s.
5 0 0 0 0 /- & = < 5 0 0 0 0 0 /- a n d f o r h ig h e r a m t s i f n o ta u t h o r i s e db yT S M / B M .
C h e q u eB o o k / D e b it C a r d t a k e nb a c k a n d d e s t r o y e d . ( p r o p e r r e m a r k s g iv e n )
S ig n a t u r e s o f a l l a c c o u n t h o ld e r s .
If c o m p a n y a c c o u n t B o a r dR e s o lu t io n a t ta c h e d . B R m u s t b e
s ig n e d b ya t l e a s ttw oa u t h o r i s e dr e p r e s e n t a t iv e w h o a r e n o ts ig n a t o r y t o c lo s u r e l e t t e r .
O n lyK a r t ai n H U F a n d P r o p r ie t o r inP r o p r i e t o r s h i p f ir m c a n s ig n th ec lo s u r e i n s t r u c t io n n o t t h e P O Ah o l d e r .
N o T h ir d p a r ty p a y o u t b e m a d e f o r p r o c e e d s .
C D A
T h re s h o ldR s. 5 0 0 0 0 /-. S i g nr e p e r fo rm a n cen o t r e q u i r e d .
A l te r a ti o n s a u th e n t i c a t e d . C r e d i t to A /c o f s a m e a c c o u n t
h o l d e r .
N o t h i r d p a r ty c r e d i ts a l l o w e d . N o c a s h p a y m e n ts i f th e
r e l a t i o n s h ip a m o u n t ( a c r o s s a l lC D A a c c o u n t s ) e xc e e d sR s.2 0 0 0 0 /- i n c l u s i ve o f i n te r e s t
a c c r u e d . T h is is IT r e q u i r e m e n ta n d m u s t b e a d h e r e d t o s tr ic t l y .
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DESERTATION
N o n F i n a n c i a l T r a n s a c t i o n s
I s s u a n c e o f O T CC h e q u eB o o k .
S t o p P a y m e n t s .
P la c e m e n t / r e m o v a l o f H o l d s / L i e n s .
A m e n d m e n ts i n D e b it / A T M C a r d S t a t u s .
A m e n d m e n t s a t i d /a c c o u n t le v e l .
N e w A c c o u n t s e t u p
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A c c o u n t C l o s u r eD D A
A ll t r a n s a c t io n s m u s t b e c h e c k e d . S ig nr e p e r f o r m a n c ef o r > =R s.
5 0 0 0 0 /- & = < 5 0 0 0 0 0 /- a n d f o r h ig h e r a m t s i f n o ta u t h o r i s e db yT S M / B M .
C h e q u eB o o k / D e b it C a r d t a k e nb a c k a n d d e s t r o y e d . ( p r o p e r r e m a r k s g iv e n )
S ig n a t u r e s o f a l l a c c o u n t h o ld e r s .
If c o m p a n y a c c o u n t B o a r dR e s o lu t io n a t ta c h e d . B R m u s t b e
s ig n e d b ya t l e a s ttw oa u t h o r i s e dr e p r e s e n t a t iv e w h o a r e n o ts ig n a t o r y t o c lo s u r e l e t t e r .
O n lyK a r t ai n H U F a n d P r o p r ie t o r inP r o p r i e t o r s h i p f ir m c a n s ig n th ec lo s u r e i n s t r u c t io n n o t t h e P O Ah o l d e r .
N o T h ir d p a r ty p a y o u t b e m a d e f o r p r o c e e d s .
C D A
T h re s h o ldR s. 5 0 0 0 0 /-. S i g nr e p e r fo rm a n cen o t r e q u i r e d .
A l te r a ti o n s a u th e n t i c a t e d . C r e d i t to A /c o f s a m e a c c o u n t
h o l d e r .
N o t h i r d p a r ty c r e d i ts a l l o w e d . N o c a s h p a y m e n ts i f th e
r e l a t i o n s h ip a m o u n t ( a c r o s s a l lC D A a c c o u n t s ) e xc e e d sR s.2 0 0 0 0 /- i n c l u s i ve o f i n te r e s t
a c c r u e d . T h is is IT r e q u i r e m e n ta n d m u s t b e a d h e r e d t o s tr ic t l y .
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DESERTATION
O T CC h e q u eB o o k s Is s u a n c e
I s s u e d o n ly t o i n d iv i d u a l a c c o u n t s .
R e q u i s i t i o n s l i p / c u s t o m e r le t t e r o b t a in e d .
M u s t b ea u t h o r i s e db y T S M / B M .
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S t o p P a y m e n t s
A l l t r a n s a c t io n s to b e c h e c k e d .
C u s to m e r L e t te r .
S ig n a tu re s V e r i f ie d .
D a te & T im e o f re c e ip t m e n t io n e d o n t h ei n s t r u c t i o n .
C h e q u eN o a n d A /c n o c o r re c t ly lo a d e d . C h a rg e s t a k e n a n d i f w a iv e d t h e n d u ly
a u t h o r i s e d.
T h e g a p b e tw e e n r e c e ip t a n d p o s t in g t im es h o u ld b e r e a s o n a b le .
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O t h e r N o n F i n a n c i a lT x n s
A l l t r a n s a c t i o n s to b e c h e c k e d .
C u s to m e r I n s t r u c t i o n / D i a r y n o t e d u l ya u t h o r i s e d/ c o p y o f o r d e r so f r e g u l a to r y b o d i e s .
I f n o t i n i t i a te d b y c m a s i g n o f f b y th e B M S p e c i fi c a l ly i n c a s eo f c h a n g e o f A R M c o d e a p p r o v a l b y r e g i o n a l h e a d / A R M c o d eo w n e r a t ta c h e d .
C u s to m e r I D d o c s o b ta i n e d w h e r e v e r a p p l i c a b le a s i n c a s e o f D e b i t / A T M c a r d a c t i v a t i o n , r e m o v a l o f H o l d 6 0 / 2 0 e t c .
P l a c e m e n t / R e m o v a l o f H o l d 2 0 m u s t b ea u t h o r i s e db y B M . A p p r o p r i a t e H o l d p l a c e d .
A c c o u n t O p e n i n g F o r m f o r L A S .
D e t a i l s o f h o l d a r e m e n t i o n e d o n t h e re v e r s e o f h o l d v o u c h e r s .
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T r a n s a c t io n o n D o r m a n t A /c & U n c la im e d A / c
ID a n d A d d r e s s o f th e c u s to m e r to b e v e r i f i e d in s u c h c a s e s .
C o p ie s o f ID d o c s o f a ll a c c o u n t h o l d e rs /a u t h o r i s e ds ig n a t o ri e s ta k e n a n da n n o ta t e d w i th O r i g in a l S e e n b y th e T S M / M S S / B M . ID p r o o f n o t r e q u i re d i f th e c u s t o m e r is m a in t a i n i n g a n o th e r tr an s a c ti n g ( S / B
o r C /A ) a c c o u n t ( s ) u n d e r th e s a m e ID A N D t h e a c c o u n t is b e in gc l o s e dw h e r e th etxna m o u n t i n v o l ve d i s le s s th a nR s5 0 0 . 0 0 .
In c a s e t h e ID c o u ld n o t b e o b ta i ne d a d ia r y n o t ea u t h o r i s e db y th e B M t h a tth e ID d o c s w o u ld b e o b t a in e d i n d u e c o u rs e m u s t b e a t ta c h e d tov o u c h e r s .
M a i l to A C S f o r d e f e r r a l fo r o b t a in in g ID d o cs . M u s t b e a t ta c h e dto th ev o u c h e r s .
H o l d 6 0 m u s t b e m a r k e d in c a s e o f d e f e r ra l . B M c a n w a i ve o b t a i n i n g ID d o cs . i f h e /s h e is s a t is f ie d th a t th ec u s t o m e r h a s
b e e n id e n t i f ie d . T h e s a m e m u s t b e c l e a r ly a n n o ta t e d o n t h e i n s tr u c t i o n . In c a s e o f D o rm a n t A /c c lo s u r e w h e re t h e I D p r o o f c o u ld n o t b e ob t a i n e d ,
p a yo u t c a n b e m a d e b y P O o n l y a n d th e P O m u s t b e s e n t th r uc o u r i e r /r eg is te r e d p o s t a t th e a d d r e s s r e co r d e d i n o u r s ys te m .
U n c la i m e d a c c o u n t s
U n c l a im e d A /c c a n o n l y b e c l o s e d a n d a f r e s h a c c o u n t i s o p e n e d af t e r o b ta i n i n g K Y C d o c s .
S i g n a tu re s m u s t b e ve r i f i e d b y T S M /B M .
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O t h e r N o n F i n a n c i a lT x n s
A l l t r a n s a c t i o n s t o b e c h e c k e d . C u s to m e r I n s t r u c t i o n / D i a r y n o t e d u l ya u t h o r i s e d/ c o p y o f o r d e r s
o f r e g u l a t o r y b o d i e s .
I f n o t i n i t i a t e d b y c m a s i g n o f f b y t h e B M S p e c i fi c a l l y i n c a s eo f c h a n g e o f A R M c o d e a p p r o v a l b y r e g i o n a l h e a d / A R M c o d eo w n e r a t t a c h e d .
C u s to m e r I D d o c s o b t a i n e d w h e r e v e r a p p li c a b le a s in c a s e o f D e b i t / A T M c a r d a c t i v a t i o n , r e m o v a l o f H o l d 6 0 / 2 0 e t c .
P l a c e m e n t / R e m o v a l o f H o l d 2 0 m u s t b ea u t h o r i s e db y B M .
A p p r o p r i a t e H o l d p l a c e d . A c c o u n t O p e n i n g F o r m f o r L A S .
D e t a i ls o f h o l d a r e m e n t i o n e d o n t h e re v e r s e o f h o l d v o u c h e r s .
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SUGGESTIONS
Standard Chartered Bank has over the years maintained its services and relationship. It runs over 88 branches a
over the country. It has created a name for itself in the banking sector. As far as my views are concerned,
Standard Chartered as a model has a well-defined banking structure and gives satisfactory business to its client
Moreover I have observed some drawbacks in the short span in this department; I strongly believe that if these a
done away with in the Standard Chartered, its family would definitely see a better future. The key areas of
concern are:
- the main problem area of this department is the outdated software package being used across all the branches f
business. It simply reduces the efficiency of this organization. As we know, Cost minimization and profit
maximization is the main and common aim for any organization. The software which is being used here directl
or indirectly hampering the work-efficiency and minimizes profit. It should be replaced by advanced software a
soon as possible. It will double the efficiency of this firm as well as across all branches.
- Use of Dot-Matrix printer should be replaced by "Laser Printer ". It will save "30-45 minutes" of each employ
employed as a clerk here. They use to get their ledger through ink-jet. If Laser-printer will be introduce
here, each day, at least '10 hrs.' can be saved and again it will directly minimize the cost and maximize the
profit.
- Automation of simple jobs:-
Technology Up gradation- Sama Shodhan should be upgraded to enhance the efficiency and supportoutstation cheques also, so that it works as a safe-guard for future problems. At present Sama Shodhan
processed only local cheques not outstation cheques. Out-station cheques are processed through CT-Do
But there are limitations with this package. It cannot provide further details of the cheques which had
been processed. So any queries occurs, then we have to search the overall records processed cheques
manually to answer and if any cheques are misplaced or damaged intentionally or unintentionally, the
the bank may have to face a bigger problem.
Solution : Shama Shodhan can be advanced by having an option for outstation cheques. It works a saf
guard for coming problems if any and works as a cousin for this bank.
Expenditure Analysis : Absenting is a disease to a flourishing company hence such employees, who fa
to constraints to an organization should be relieved.
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Excess of employees in department : In my view, the no. of employees are more than required, as I
noticed in 2 weeks that each day, 1 or 2 employees remain absent throughout the week but the operatio
is going on without any hindrances.
Securitisation of risk: Securitisation of risk should be there which actually lacking here. In clearancedepartment what I felt is the job of a clerk need much concentration because of a single mistake can
resulted into financial loss may be Lakhs or Crores. But they are actually working in a disturbed
environment they are not able to pay much attention and concentration as required and lastly difference
occurs which takes a long time to solve. So my opinion is, Clerks should be separated by small cabins
then only they can pay much concentration and finally it will helpful for bank as it minimizes the chanc
of risk and financial loss and can some time also.
Employees Satisfaction level: As far as my views are concerned, the employees satisfaction is one of t
most important factor and what I found here is that Employees are not working with enthusiasm but
working under pressure of work load. It effects the growth of the firm adversely. So an enthusiastic
environment should provide there so that they simply enjoy their work. It definitely increase their
efficiency to work.
Proper Utilization of Resources : For any firm, Manpower is the biggest resources. Here, manpower
more than enough but the way, they are doing should be slightly change. Work-distribution and time
management should be modified. Then only the firm will properly utilize its resources and proper
management can only prove economic for this.
In my point of view, the above points of considered favorably will definitely prove as leverages to this
organization and will be 100% helpful in the growth of this firm.
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. I RISK MANAGEMENT SYSTEM
RBI Guidelines
1) Introduction
Banks in process of financial intermediation are conforme3ed with various kinds of financia
and non financial risks viz. credit interest rate, foreign exchange rate, liquidity, equity price
commodity price, legal, regulatory, reputation, operational, etc... These risks are highly
interdependent and events one area of risks can have ramification of risks for a range of othe
risks categories.
The broad parameters of risks management system should encompass:
Organizational structure
Comprehensive risk management approach
Risk management policies
Guidelines & other parameters
Strong MIS for controlling , monitoring & controlling risks
Well laid out procedures , effective control & comprehensive risk reporting framewor
Separate risk management framework
Periodical review and evaluation
2) Risk management structure
A major issue in establishing an appropriate risk management organization structure i
choosing between a centralized & decentralized structure. The board should set a risk
limits by assessing the banks risk & risk bearing capacity. At organizational level, ove
all risk management should be assigned to an independent risk management committee
or executive committee of the top executives that reports to the boards of director.
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3) Credit Risk
The management of credit risk should receive the top managements attention and the
process should en compass:
Measurement of risk through credit rating Quantifying the risks through estimating expected loan losses i.e. the amount of loan
losses that bank would experience over a chosen time
Risk pricing on a scientific basis
Controlling the risk through effective Loan Review Mechanism and Portfolio
Management
Instruments of credit risk management
Credit approving authority
Prudential limit
Risk Rating
Risk Pricing
Portfolio Management
Loan Review Mechanism
4) Credit risk & investment banking
Significant magnitude of credit risk, in addition to market risk, is inherent in investment
banking. The proposals for investments should also be subjected to the same degree of credi
risk analysis, as any loan proposals. The proposals should also be subjected to detail appraisa
and rating framework those factors in financial and non-financial parameters of issuers,
sensitivity to external developments, etc.
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5) Credit Risk in Off-balance Sheet Exposure
Banks should evolve adequate framework for managing their exposure in off-balance sheet
products like forex forward contracts, swaps, options, etc as a part of overall credit toindividual customer relationship and subject to the same credit appraisal, limits and
monitoring procedures. Banks should classify their off-balance sheet into three broad
categories-full risk, medium risk and low risk.
6) Inter-bank Exposure and Country Risk
A suitable framework should be evolved to provide a centralized overview on the aggregate
exposure on other banks. Bank-wise exposure limits could be set on the basis of assessment o
financial performance, operating efficiency, management quality, past experience, etc.
7) Market Risk
Market risk arising from adverse changes in market variables, such as interest rate, foreign
exchange rate, equity price and commodity price has become relatively more important.
Market risk takes the form of
Liquidity Risk
Interest rate Risk
Foreign exchange rate(forex) risk
Commodity Price Risk and
Equity Price Risk
8) Market Risk Management
The Boards should clearly articulate market risk management policies, procedures, prudentia
risk limits, review mechanisms and reporting and auditing systems. The policies should
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address the banks exposure on a consolidated basis and clearly articulate the risk
measurement systems that capture all material sources risk and assess the effects on the bank
9) Interest Rate Risk (IRR)
The management of Interest rate Risk should be one of the critical components of market rismanagement in banks. Deregulation of interest rates has, however, exposed them to the
adverse impact of interest rate risk. The net Interest Income (NII) or net Interest Margin
(NIM) of banks is dependent on the movement of interest rates.
10) Foreign Exchange (Forex) Risk
Forex risk is the risk that a bank may suffer losses as a result of adverse exchange rate
movements during a period in which it has an open position, either spot or forward, or a
combination of the two, in an individual foreign currency.
Forex risk Management Measures
(a) Set appropriate limits- open positions and gaps.
(b) Clear-Cut and well-defined division of responsibility between front, middle, and back
offices.
11) Capital for market Risk
The base Committee on banking supervision (BCBS) had issued comprehensive guidelines to
provide an explicit capital cushion for the prices risk to which banks are exposed, particularl
those arising from their trading activities.
12) Operational risk
Managing operational risk is becoming an important feature of sound risk management
practices in modern financial market in the wake of phenomenal increase in the volume of
transactions, high degree of structural changes, and complex support systems.
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13) Risk Aggregation and capital Allocation
Most of internally active banks have developed internal processes and techniques to assess anevaluate their own capital needs in the light of their risk profiles and business plans. Such
banks take into account both qualitative and quantitative factors to access economic capital
CREDIT RISK MANAGEMENT
Credit risk management today
Banks are in the business of making loans, and it is credit officers responsibility to peruse
that business by making sound credit decisions. This requires more judgments than technica
skills. Reviewing financial statement may yield preliminary findings, but these fail to assess
the numerous variables that must be weighed. The loan officer must understand the
information, not merely crunch the numbers.
Further, unless credit analysis standards are clearly defined, valuable time and efforts are
wasted, not to mention the bottom line consequences of reaching the wrong deci8sion.
If a loan officer determines that the borrowing firms expectations exceeds its repayments
ability, does this mean all possible repayments sources are exhausted? Since the key is to
increase profitability through sound credit judgment, the analyst must always evaluate
repayment judgment; the analyst must always evaluate repayment potential from all alternativ
sources.
In turn if the bank is confident of repayment based of additional findings, the appropriate
pricing consideration are issued & monitored. The net effect is future profits of the banks du
to a meticulous credit investigation. Other wise the loan will probably be lost to a better
prepared competitor.
Since lenders are in business of taking risks, why banks are are so concerned about losing
money / briefly stated, a bank can never price an individual loan at a loss even if the
probability of default decreases. For ex., if the bank net interest margin is 4% annually, it wi
take 25 years to recoup 100% of the loss, not including related overheads costs.
Thus the core of credit analysis is evaluating the borrower's ability to repay debt.
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Critical risk assumption plays a critical role in finalizing lending decision. To calculate risks
comprehensive information is needed. Further we must understand how much information is
enough. In other words, identifying what is and is not significant is critical to reliable credi
judgment.
On way to do this is to assign a risk rating (above average, avg., & below avg.) to all facts.Weights of importance will then assigned to details regardless of a positive or a negative
rating.
The important components of this model should be:-
1) Management
2) Management / Administration
3) Bank Relationship
4) Financial Reporting
5) Intention (purpose)
Components of credit risk
i) Personal or consumer risks
ii) Corporate or company risks
iii) Sovereign or country risks
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Managing Credit Risk
This section describes credit analysis for real estate lending, consumer and small businesslending, mid-market commercial and industrial lending, and large commercial and industrial
lending. It also provides insights into the credit risk evaluation process from the perspective
of a credit officer evaluating a loan application.
Risk State Len ding
Because of the importance of residential mortgages to banks, savings institutions, credit
unions, and insurance companies, residential mortgage loan applications are among the mos
standardized of all credit applications.
Two ratios are very useful in determining a customers ability to maintain mortgage payment
the GDS (gross debt service) and the TDS (total debt service) ratios.
Gross debt service ratios are the customers total annual accommodations expenses (mortgag
lease, condominium, management fees, real estate taxes, etc) divide by annual gross incom
Total Debt ratios is the customers total annual accommodation expenses plus all other debt
service payments divided by annual gross income.
FIs often combine the various factors affecting the ability and willingness to make loan
repayments into a single credit score. A credit-scoring system is a quantities model that use
observed characteristics of the applicant to calculate a score representing the applicants
probability of default (versus repayment). Credit scoring systems are developed by using
borrower characteristics (e.g., income, age, loan repayment history) for some past period. Th
credit scoring model weights each characteristics to identify a boundary number (score) or
range such that if past loan customer had an overall credit score (derived from the weighted
characteristics) greater than the boundary number they defaulted on the loan.
If the FI uses a scoring system, the loan officer can give an immediate answer- yes, maybe, o
no- and the reasons for that answer. A maybe occurs in borderline cases or when the loan
officer is uncertain of the classification of certain input information. A credit scoring system
allows an FI to reduce the ambiguity and turnaround time and increases the Transparency of
the credit approval process.
A loan customer listing the following information on the loan application receives the
following points:
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To analyze the loan applicant's credit risk, the account officer must understand the custome
character, capacity, collateral, and capital (sometimes referred to as the five Cs of credit).
Measures of capacity and conditions
Measures of character and condition
Measures of conditions
Measures of capital and Collateral.
Cash flow Analysis
FI's require corporate loan applicants to provide cash flow information, which provides the F
with relevant information about the applicant's cash receipts and disbursements that are
compared with the principal and interest payments on the loan. Cash receipts include any
transaction that result in an increase in cash assets (i.e., receipt of income, decrease in a non
cash asset, increase in a liability, and increase in an equity account). Cash Disbursements
include any transactions that result in a decrease in cash assets. The cash flow statement
reconciles changes in the cash account over some period according to three cash flow
activities: operating, investing, and financial activities. When evaluating the cash flow
statement, FI's ant to see that the loan applicant can pay back the loan with cash flows
produced from the applicants operations.
Ratio Analysis
In addition to cash flow information, an applicant specific level of credit substantiates these
business needs by presenting historical audited financial statements and projections of futur
needs. Historical financial statement analysis can be useful in determining whether cash floand profit projections are plausible on the basis of history of the applicant and in highlightin
the applicants risks.
Financial ratios are useful when performing financial statement analysis on a mid-market
corporate applicant. Although stand-alone accounting ratios are used for determining the siz
of the credit facility, the analyst may find relative ratio more informative when determining
how the applicants business is changing over time. Hundreds of ratios could be calculated
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from any set of accounting statements. The following are a few that most credit analysts find
useful.
Liquidity ratios
Current ratio = Current assets
Current Liabilities
Quick ratio (acid-test ratio) = Cash + Cash Equivalents + Receivables
Current liabilities
Liquidity provides the defensive cash and near-cash resources for firms to meet claims for payment. Liquidity
ratios express the variability of liquid resources relative to potential claims.
Assets Management ratios
Number of days sales in receivables = Accounts receivables X 365
Credit sales
Number of days in inventory = Inventory X 365
Cost of goods sold
Sales to working Capital = Sales
Working capital
Sales to fixed assets = Sales
Fixed Assets
Sales to total Assets = Sales
Total assets
The asset management ratio gives the account officer clues to how well applicant uses its assets relative to its pa
performance and the performance of the industry.
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Debt & Solvency Ratio
Debt asset ratio= Short Term Libilities+Long Term liabilitiesTotal Assets
Fixed Charge Coverage Ratio=Earning Available To meet Fixed Charges
Fixed Charges
Cash Flow to Debt Ratio= EBIT + Depreciation
Debt
Where EBIT represents Earning before income &tax.
Debt solvency ratio give the account manager an idea of the extent to which the applicant finances its assets wit
debt verses equity.
Profitability Ratio
Gross margin = Gross profit
Sales
Operating Profit Margin = Operating Profit
Sales
Return on Assets = EAT
Average Total Assets
Return on Equity = EAT
Total Equity
Dividend Payout = Dividend
EAT
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Where EAT represents earning after tax, or net income.
For all Dividend payout Ratios, the higher the value of the ratio, the higher is the
profitability of the firm.
Cautions with Ratio Analysis
While ratio analysis provides useful information about loan applicant's financial
conditions, it also has the limitations that require care and judgments in its use. For
example many firms operate in more than one industry .For these companies it is
difficult to construct a meaningful set of industry averages.
Credit Scoring Models
Credit scoring models use data on observed borrower characteristics either to calculate
profitability of default or to sort borrowers into different default risks classes selecting &
combining different borrowers economic & financials Characteristics, an FI manager may be
able to:
Numerically Establish which factor is important in explaining default risks
Evaluate the relative degree or importance of these factors
Improve the pricing of default risks
Screen high risk loan applicants
Calculate any reserve needed to me expected future
To employ credit scoring models in this manner, the FI manager must identify objective
economy & financial measures of risks for any particular class of borrower. After data ar
identified, a statistical technique quantifies or scores the default risks probability or
default risk classification.
Financial Services of SCB
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Business Financial address the complete financial needs of Professionals, Professional Firms
Small & medium enterprises (SME) engaged in services or manufacturing by offerings a rang
or multiple product proposition to the target segment. The constitution of the target is:-
Individual comprising of Professional or Business
Proprietorship or HUF
Partnership firm & Private Ltd. Companies
Public Ltd. Companies
BFS facilities generally structured as multiple products or single products facility depending
upon customer requirement. The process of Overdrafts Facility against single products & loan
backed by property of INR 5M or less are decentralized, and has been detailed in Asset
Circular Nos. Assest/SCB/2003/12 and Asset/SCB/2003/15.
Where the credit line extends to the customer is for multiple products and / or against multip
securities, the operational activities are centralized at CLC, Chennai for the following
purposes:
o Preparing and documenting the banking Arrangement letter (LOBA) as per the
approved terms of the credit approval. This involves documenting the limits availabl
against various credit lines; Extend and type of security required; specifying the
security information; specifying any preconditions.
o Review of documentation received after acceptance of facility received from custome
based on the condition set ou t for the facility.
o Evaluate the eligible operating credit limits based on valuation of securities and
lodgment of the same.
o Limit set-up in various TP systems
o Revaluation of security periodically and monitoring the exposure levels across variou
credit lines.
1 Sourcing
BFS facilities are relationship based and the sourcing will be done By th
business financial manager )BFM) in each cities
The BFM will conduct interview or do a site visit At the customer tradin
address/ production site to understand and obtain basic information on th
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owner, manager, nature of business. This will be documented in a fast
sheet or basic information report.
The application Cum AOF will be obtained at the time of Customer
requesting the credit facility even though the customer may have an
existing current account with SCB. The following Information will beobtained
Nature of fac ility requested
Limit account
Borrower details
Security holder details
Guarantor details
Relationship with SCB
2 Approvals
Based on the basic information of the customer of the customer obtained through th
interview & the Financials , a detailed limit Application Will be prepared which wi
broadly include the following :
Customer Profile: ownership, management , banking relationship, business
operation
Purpose : New application/ renewal/ increase/structure/review/Amount
Pricing/Risk Rating/ Total Credit facilities
Facilities description: Amount, pricing, risk rating, total credit facilities.
Net Worth: Financial Analysis & personal Finance Statements of Guarantor
Borrower
Operational Sheet : Description & Valuation of security / collateral , terms &
conditions of the facility , LTV & any Deviation.
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Prior to Submission for Approval , BFM will check the applicants & guarantor
profile from the following database :
RBI lists of Willful Defaulters
Search on register of companies( ROC) books for all registered business
Dedup against Hogan & RLS
All Limit application (LA) initiated by BFM will be Supported by Regional Manage
(RM) put approval to Senior Manager , Credit- BFS or to the delegated lending
authority
For proposal outside senior manager's authority, the LA will be Supported
by Business head, BFS and approved by head- Credit CB.
For proposal referred to group credit , will be retained the Original LA & sen
a scanned copy of the LA to Officer CLC for preparing the LOBA
3) Acceptance of Letter of Banking Arrangement (LOBA)
Once the approved LA is sent by CLC , the officer CLC refuse the LA approvals
condition & prepares the LOBA giving the following details:
Sanctioned Limit
Products Cap ( inner limits)
Interest rates
Documentation
Security & margin
Pre Condition ( if any)
LOBA is sent to the concerned BFM by e-mail with a copy to manager CLC. A hard
copy is signed by the manager CLC after review of the sanctioned terms & condition
The BFM will review the sanctioned terms & send to LOBA. The LOBA is delivered t
the customer & on customer acceptance collects the documents including the securin
documents as stipulated in LOBA
A credit file will be created by the BFM & the documents will be sent to CLC by
courier with an e-mail confirmation sent to officer.
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Small & Medium Enterprises Banking
Definition of "SME" varies from bank to bank. For Standard Charted Bank, Broadly all
entities with turn over of Rs.5.00 - Rs.150.00 Crore come under SME.
SME contributes more than 40% of Industry output of India.
SME enjoys bank Finance of less than 15% of total credit outstanding of banks.
Comprises mainly of small and mid sized Manufactures, Exporters Importers Traders
distributors, dealers, OEM's, etc.
Quick Overview
SME Characteristics
Closely held owner managed
Not highly ca pitalized
Significant personal wealth of promoters- property liquid assets
Geographically dispersed
Low financial transparency due to historical tax issue.
COMPETITION
Entrenched Nationalized banks & Aggressive Private Banks
Wide Spread branch network
Relatively liberal credit policies , but lower services level
Economic Environment
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Significant growth in industrial and services sectors >10%
SME growth Rate (last 2 yrs) - 10%
Sharp growth in international trade (esp. Exports) > 15%
Stable currency outlook
CUSTOMERS NEEDS
Facilities for regular / one off business needs i.e. working capital expenditure financin
Transaction Banking needs viz. Trade, Cash, Treasury services
SME SECTOR IS VITAL TO THE ECONOMY
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Customer of SME Banking
CONDITIONS
Turn over
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PRODUCTS OFFERED
Following Products are offered to multi-product customers, i.e. customers with annual turn over of > US$1Mn
FUND BASED
Over Draft
Term Loan
WC Demand Loan (INR / FCY )
Export Credit ( INR / FCY)
Domestic Bill Discounting
OD against Credit Card Receivables
NON FUND NBASED
Letters of Credit
Guarantees
Co acceptance of Bills
LC confirmation
TRANSACTION BKG
Trade Services
Inward / Outward Remittances
Fixed Deposits
ITTS
In January 2005, SME Banking has launched the business installment loans product offered to small
establishments with turn over less than USD 1M.
Criteria followed by SME Banking
Age of should be more than 3 years, in case of professionals, it should be more than 5 years.
Companies with a Turn over criteria of less than 92 crores falls in SMEs
Working Capital Cycle will be = Debtors + Stock turn over - Creditor turnover
They offer their products by keeping collaterals such as RBI bonds, Fixed deposits, property commercia
residential mutual funds, India millennium deposits.
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They required 3years audited financials and calculating this MFA report is generated in which differen
ratios occur And MPBF( MAXIMUM PERMISSEBLE BANK FINANCE ) is calculated by preparing
one page summary according to which bank finally decides whether to finance the company or not.
They charge 2% of sectionals limit, 10% is earned of cash collaterals or marketable securities.
Term loan can be provided Maximum For 5 Years and minimum for 3 years.
Over draft can be provided for 1 year.
Letter Of credit depends on customer maximum for 180 days.
Inter coverage ratio i.e. PBIT/ Interest should be Greater than 1.5%.
Gearing Ratio i.e. Secured loans / Equity should be less than 3%.
I have got the opportunity to analyze the financial statements And Measure thcredit risks of three companies who had approached standard charted bank fo
loans. Those Companies are:-
M/S BAJRANG PETROLEUM
RANJIT METALS
WESTERN INDIAN MOTORS COMPANY
M/S. BAJRANG PETROLEUM
BALANCE SEET AS ON 31ST MARCH,2001
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M/S. BAJRANG PETROLEUM
TRADING AND PROFIT & LISS ACCOUNT FOR
Liabilities (Amt. In Rs.) Assets (Amt. In Rs.)
CAPITAL ACCOUNT
Balance as per ledger
4,400,238,81 FIXED ASSETS:(As per Annexure-E)
460,568.00
Add:-Net profit during the year
179,310.094,579,548,90
CURRENT ASSETS , LOANS& ADVANCES:-
Closing Stock(As Certified & valued by
Prop.)
2,001,661.00
SECURED LOANS:(As per Annexure-A)
2,005,616,48 Sundry Debtors(As per Annexure-F)
6,003,524.38
UNSECURED LOANS:(As per Annexure-B)
2,455,000,00 Security DepositsSAIL Bokaro
10,000.00
CURRENTLIABILITIES :
(As per Annexure-C)
1,015,753,00 Loans & Advances(As per Annexure-G)
1,568,553.00
OTHER LIABILITIES:
(As per Annexure-D)
258,886,00 CASH & BANK BALANCES:
Bank Balance 212,191.00Cash inHand 58,307.00
270,498.00
Total Rs 10,314,804,38 10,314,804.38
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THE YEAR ENDED 31
ST
MARCH, 2001
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Opening Stock 1,260,568.56 By sales 100,315,040.50
To Purchases 97,836,047.00 By Closing Stock 2,001,661.00
To Freight & Cartage 1,933,080.00
To Gross Profit C/D 1,287,005.93
Total Rs 102,316,701.50 Total Rs. 102,316,701.50
To Salary 246,900.00 By Gross Profit B/DMisc. Income
1,287,005.931,048.00
To Office Exp. 15,855.51
To Bank Charges 136,700.00To Postage & Telephone
Exp14,176.00
To Audit Fees 5,000.00
To Printing & StationaryExp.
15,771.00
To Accounting Charges 30,000.00
To Electricity Expenses 41,597.00
To Repair &Maintenance Exp.
21,898.00
To traveling Exp. 3,678.00
Interest 368,593.83
To Advertisements 1,000.00
To Business PromotionExp.
17,034.00
To Insurance Exp. 26,817.00
To Fee & Taxes Exp. 1,000.00
To staff Welfare Exp. 27,459.00
To Conveyance Exp. 63,605.00
To Depreciation 71,659.50
To Net Profit Trfd To
Prop Capital Account
179,310.09
Total Rs 1,288,053.93 Total Rs.. 1,288,053.93
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M/S. BAJRANG PETROLEUM
BALANCE SEET AS ON 31ST MARCH,2002
Liabilities (Amt. In Rs.) Assets (Amt. In Rs.)
CAPITAL ACCOUNTBalance as per ledger
2759051.00
FIXED ASSETS:Car a/c as per Ledger
Less: Depreciation during theyear
Fax Machine As per ledgerLess: Dep. During the Year
215,500.0043,000.00172,000.0010990.00
2747.508242.50
Add:-Net profit during the year
15417.812774468.81
CURRENT ASSETS , LOANS& ADVANCES:-
Closing Stock(As Certified & valued by Prop.)
1260568.57
SECURED LOANS:(As per Annexure-A)
-------------- Sundry Debtors
Reliance India Ltd.(Advance)
398,145.00
29.810.00
UNSECURED LOANS:Mrs. Madhu Agrawal
Car Loan From City BankSundry Creditors
55000.0092951.28159313.00
Cash & Bank Balances
Canara BankPunjab National Bank
Cash in Hand
1317494.504900.0018057.00
1340451.50
Expenses Payable:Audit Fee 3,150.00
124,334.50
Loans & Advances -------------
OTHER LIABILITIES: --------------
--------------------- -----------------
Total Rs . 3209 217.57 Total Rs 3209,217.57
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M/S. BAJRANG PETROLEUM
TRADING AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2002
Particulars Amount (Rs.) Particulars Amount (Rs.)
To Opening Stock 60384.00 By sales 16447828.00
To Purchases 17032,915.00 By Closing Stock 1260568.57
To Freight & Cartage 410290.00
To Gross Profit C/D 204807.57
Total Rs 17,708,396.57 Total Rs. 17708396.57
To Salary 46800.00 By Gross Profit B/D
Misc. Income
204807.57
To Office Exp.
To Bank Charges 14092.00
To Postage & TelephoneExp
3322.00
To Audit Fees 3150.00
To Printing & StationaryExp.
3270.00
To Accounting Charges 9000.00
To Electricity Expenses 13598.00
To General expenses 4290.00
To traveling Exp. ----------
Interest 26991.99
To Advertisements -------------
To Legal Expenses 725.00
To Insurance Exp. ---------------
To Fee & Taxes Exp. ---------------
To staff Welfare Exp. 4924.00
To Conveyance Exp. 6980.00
To Depreciation 45747.00
To Net Profit Trfd To
Prop Capital Account
15417.81
Total Rs 204807 Total Rs.. 204,807.57
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Projected Balance Sheet:-
STANDARD CHARTERED BANK
Petroleum Company (petroleumc) SCB ISIC Code: 3530 Date Prepared:6/11/2005
Detailed Balance Sheet - Actual and % Page 1Thousands
Statement Date 3/31/2001 3/31/2002Months Covered 12 12
Analyst Monika MonikaSource Currency: INR Target Currency: INR Segment Type: Company Account
CURRENT ASSETS
Cash and Bank Deposits 1,340 41.8 270 2.6Trade Debtors (Gross) 398 12.4 6,003 58.2Stock: Trading 1,260 39.3 2,002 19.4
Other Op Current Assets 30 0.9 1,578 15.3TOTAL CURRENT ASSETS
3,028 94.4 9,853 95.5
FIXED ASSETS
Plant & Machinery 8 0.2 6 0.1Motor Vehicles 172 5.4 455 4.4Gross Fixed Assets 180 5.6 461 4.5
TOTAL FIXED ASSETS 180 5.6 461 4.5TOTAL TANGIBLE ASSETS 3,208 100.0 10,314 100.0
WORKING CAPITAL 2,742 - 6,572 - NET WORKING ASSETS 1,499 - 6,989 - NET CASH ASSETS 1,340 - (1,736) -
CURRENT LIABILITIES
Due to Banks(O/D,T/R etc) - - 2,006 19.4Trade Creditors 159 5.0 1,016 9.9Provisions: Other Current 127 4.0 - -
Other Op. Cur Liabilities - - 259 2.5TOTAL CURRENT LIABILITIES 286 8.9 3,281 31.8
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TERM LIABILITIES
Hire Purchase Loans(1 Year+) 93 2.9 - -Loans from Subs (1 Year+) - - 1,000 9.7Loans from Assoc. Co.(1 Year+) 55 1.7 455 4.4
Loans from Dir/Shareholders (1 Yr+) - - 1,000 9.7TOTAL TERM LIABILITIES 148 4.6 2,455 23.8TOTAL LIABILITIES 434 13.5 5,736 55.6
EQUITY
Share Capital - Ordinary 2,774 86.5 4,578 44.4TOTAL EQUITY 2,774 86.5 4,578 44.4NET WORTH 2,774 86.5 4,578 44.4EFFECTIVE EQUITY 2,774 86.5 4,578 44.4
TOTAL LIABS & NET WORTH 3,208 100.0 10,314 100.0
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STANDARD CHARTERED BANK
Petroleum Company (petroleumc) SCB ISIC Code: 3530 Date Prepared:6/11/2005
Detailed Profit & Loss Statement - Actual and % Page 2Thousands
Statement Date 3/31/2001 3/31/2002Months Covered 12 12
Analyst Monika MonikaSource Currency: INR Target Currency: INR
PROFIT & LOSS STATEMENT
Sales