Page 232 - DCOM505_WORKING_CAPITAL_MANAGEMENT

Pavitar Parkash Singh, Lovely Professional University Unit 14: Working Capital Management Practices in India

Unit 14: Working Capital Management Practices in India Notes

CONTENTS
Objectives
Introduction

14.1 Working Capital Financing by Banks
14.2 Security Required in Bank Finance
14.3 Regulation of Bank Credit

14.4 Recent RBI Guidelines Regarding Working Capital Finance
14.5 Working Capital Management in Domestic and Multinational Enterprises
14.6 Working Capital Management under Inflation
14.7 Working Capital and Small Scale Industries
14.8 Summary

14.9 Keywords
14.10 Review Questions
14.11 Further Readings

Objectives

After studying this unit, you will be able to:
Discuss the regulation of bank credit
Explain the recent RBI guidelines regarding working capital finance

Describe the working capital management in domestic and multinational enterprises
Explain working capital management under inflation
Discuss working capital and small scale industries

Introduction

Working capital is the fund invested in current assets and is needed for meeting day to day
expenses. Working capital is the fund invested in current assets. It occupies an important place
in a firm’s Balance Sheet. Working capital financing is a specialized area and is designed to meet
the working requirements of a business. The main sources of working capital financing are
trade credit, bank credit, factoring and commercial paper.
The firms generally enjoy easy access to the bank finance for meeting their working capital
needs. But from time to time, Reserve Bank of India has been issuing guidelines and directives
to the banks to strengthen the procedures and norms for working capital financing.

14.1 Working Capital Financing by Banks

A commercial bank is a business organization which deals in money i.e. lending and borrowing
of money. They perform all types of functions like accepting deposits, advancing loans, credit
creation and agency functions. Besides these usual functions, one of the most important functions

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