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SESSION 2011
Programme : MBA- 4th Sem.
Submitted To : Submitted By :
Mrs. Shipra Pandey Ali Muddin Ahmad
(Faculty Falcon !n"osys# $oll
%o:&')&*'+
ST, /0%T$0
P$0FA/0
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Summer training is a very important part of an MBA (BA) curriculum. It provides an
optimistic iconography for Future eistence through !hich students are a"le to see the real
industrial environment !hich gives an opportunity to relate theory !ith practice.
I undertoo# t!o months training programme at Oriental Bank of Commerce(Bhadra#) and
!or#ed on the pro$ect Capital Budgeting at OBC.%his report is the #no!ledge ac&uired "y
me during this period of training.
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ACKNOWLEDGEMENT
Before I get into the depth of the thing' I !ould li#e to add a fe! heartfelt !ords forthe people !ho at various stages of the pro$ect development helped me "y their valua"le
guidance.
First and foremost I !ould li#e to pay my sincere gratitude !hich I o!e toMrs. HEMA
MIRZI(course coordinator' and !r. "IR#I $%A(pro'ect guide' for their valued help
and guidance !hich they gave me !hen I needed it the most. It !as only due to their sincere help
and efforts that I !as a"le to end up !ith this pro$ect.
I o!e special than#s to !r.I#I AI"' irector of I*S%I%+%, -F
MA*A,M,*% / ,*%0,10,*,+0S2I1 ,34-1M,*%'5 1une and Mr. &RA!EE&
"%MAR &A!A (Branc) Manager* B)adrakfor his valua"le co6operation and guidance in
completing the pro$ect !or#.
4ast "ut not the least7 I !ould li#e to pay our gratitude to my &ARE#+' !ithout their
help and "lessing I cant ta#e a single step in right direction.
student name
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DECLARATION
I 8handra#anta 1anigrahi' a student of I*S%I%+%, -FMA*A,M,*% / ,*%0,10,*,+0S2I1 ,34-1M,*%5' 1une' andsession (9::;6
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I!E,
S.%1. /2APT0$S PA30 %1.1. Int)odu't+on o" t(e su-e't !1/
2. Coman &)ole 1341
Int)odu't+on o" t(e Coman 1!Mana,ement &)ole 15Comet+to)s 20
&)odu't and Se)6+'es 227utu)e o" #an*+n, +n Ind+a 25A'(+e6ements and A8a)ds 40
Coman M+ss+on9 +s+on and alue 414. Resea)'( Met(odolo, 424!
Statement o" t(e )o-lem 4;
O-e't+6e 4/
Samle S+
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8apital "udgeting is a re&uired managerial tool. -ne duty of a financial manager is to choose
investments !ith satisfactory cash flo!s and rates of return. %herefore' a financial manager must
"e a"le to decide !hether an investment is !orth underta#ing and "e a"le to choose intelligently
"et!een t!o or more alternatives. %o do this' a sound procedure to evaluate' compare' and select
pro$ects is needed. %his procedure is called capital -udgeting.
I. CA&I#A I+ A IMI#E! RE+O%RCE
In the form of either de"t or e&uity' capital is a very limited resource. %here is a limit to the
volume of credit that the "an#ing system can create in the economy. 8ommercial "an#s and
other lending institutions have limited deposits from !hich they can lend money to individuals'
corporations' and governments. In addition' the Federal 0eserve System re&uires each "an# to
maintain part of its deposits as reserves. 2aving limited resources to lend' lending institutions
are selective in etending loans to their customers. But even if a "an# !ere to etend unlimited
loans to a company' the management of that company !ould need to consider the impact that
increasing loans !ould have on the overall cost of financing.
In reality' any firm has limited "orro!ing resources that should "e allocated among the "est
investment alternatives. -ne might argue that a company can issue an almost unlimited amount
of common stoc# to raise capital. Increasing the num"er of shares of company stoc#' ho!ever'
!ill serve only to distri"ute the same amount of e&uity among a greater num"er of shareholders.
In other !ords' as the num"er of shares of a company increases' the company o!nership of the
individual stoc#holder may proportionally decrease.
%he argument that capital is a limited resource is true of any form of capital' !hether de"t or
e&uity (short6term or long6term' common stoc#) or retained earnings' accounts paya"le or notes
paya"le' and so on. ,ven the "est6#no!n firm in an industry or a community can increase its
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"orro!ing up to a certain limit. -nce this point has "een reached' the firm !ill either "e denied
more credit or "e charged a higher interest rate' ma#ing "orro!ing a less desira"le !ay to raise
capital.
Faced !ith limited sources of capital' management should carefully decide !hether a
particular pro$ect is economically accepta"le. In the case of more than one pro$ect' management
must identify the pro$ects that !ill contri"ute most to profits and' conse&uently' to the value (or
!ealth) of the firm. %his' in essence' is the "asis of capital "udgeting.
/O% +HO%! REMEMBER
8apital "udgeting is investment decision6ma#ing as to !hether a pro$ect is !orth
underta#ing. 8apital "udgeting is "asically concerned !ith the $ustification of capital
ependitures.
8urrent ependitures are short6term and are completely !ritten off in the same year that
epenses occur. 8apital ependitures are long6term and are amorti@ed over a period of
years are re&uired "y the I0S.
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II. Basic Steps of Capital Budgeting
. Accept the pro$ect if 13 of inflo!s C costs.I00 C 2urdle 0ate andDor
pay"ac# E policy
!efinitions0
Independent versus mutually eclusive pro$ects.
*ormal versus nonnormal pro$ects.
Basic !ata
E1pected et Cas) 2lo3
/ear&ro'ect &ro'ect +
:
/
10
?/0
44
1=
?;0
2=
20
/0
;0
40
20
10
0
10
/ 10 1/ 20 2/
*$>%
Crossover Point = 8.7%
IRRS= 23.6%
IRRL= 18.1%
N&
$?%
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2. WHY THE NPV AND IRR SOMETIMES SELECT DIFFERENT PROJECTS
Ohen comparing t!o pro$ects' the use of the *13 and the I00 methods may give different
results. A pro$ect selected according to the *13 may "e re$ected if the I00 method is used.
Suppose there are t!o alternative pro$ects' P and Q. %he initial investment in each pro$ect is
9'>::. 1ro$ect P !ill provide annual cash flo!s of >:: for the net
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10-R,8% SI, A* 4IF,
%here are reasons !hy the *13 and the I00 are sometimes in conflict= the si@e and life of the
pro$ect "eing studied are the most common ones. A
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enerally spea#ing' you can use and rely on "oth the *13 and the I00 if t!o conditions are
met. First' if pro$ects are compared using the *13' a discount rate that fairly reflects the ris#
of each pro$ect should "e chosen. %here is no pro"lem if t!o pro$ects are discounted at t!o
different rates "ecause one pro$ect is ris#ier than the other. 0emem"er that the result of the
*13 is as relia"le as the discount rate that is chosen. If the discount rate is unrealistic' the
decision to accept or re$ect the pro$ect is "aseless and unrelia"le. Second' if the I00 method
is used' the pro$ect must not "e accepted only "ecause its I00 is very high. Management
must as# !hether such an impressive I00 is possi"le to maintain. In other !ords'
management should loo# into past records' and eisting and future "usiness' to see !hether an
opportunity to reinvest cash flo!s at such a high I00 really eists. If the firm is convinced
that such an I00 is realistic' the pro$ect is accepta"le. -ther!ise' the pro$ect must "e
reevaluated "y the *13 method' using a more realistic discount rate.
@O SBOLD REMEM#ER
T(e +nte)nal )ate o" )etu)n $IRR% +s a oula) met(od +n 'a+tal -ud,et+n,. T(e
IRR +s a d+s'ount )ate t(at ma*es t(e )esent 6alue o" est+mated 'as( o8s eual
to t(e +n+t+al +n6estment. Bo8e6e)9 8(en us+n, t(e IRR9 ou s(ould ma*e su)e
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Modified IRR (MIRR
%he MI00 is similar to the I00' "ut is theoretically superior in that it overcomes t!o
!ea#nesses of the I00. %he MI00 correctly assumes reinvestment at the pro$ects cost of
capital and avoids the pro"lem of multiple I00s. 2o!ever' please note that the MI00 is not
used as !idely as the I00 in practice.
%here are "asic steps of the MI00=
(
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MI00S
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E. &RO2I#ABII#/ I!E, (&I
%he profita-ilit6 inde1' or 1I' method compares the present value of future cash inflo!s !ith
the initial investment on a relative "asis. %herefore' the 1I is the ratio of the present value of
cash flo!s (138F) to the initial investment of the pro$ect.
investmentInitial
PVCFPI =
In this method' a pro$ect !ith a 1I greater than < is accepted' "ut a pro$ect is re$ected
!hen its 1I is less than
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coastinitial
flo!scashof131I =
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2. E8%I9AE# A%A A%I#/
Ohat do you do !hen pro$ect lives vary significantlyN An easy and intuitively appealing
approach is to compare the e&uivalent annual annuity5 among all the pro$ects. %he
e&uivalent annuity is the level annual payment across a pro$ects specific life that has a
present value e&ual to that of another cash6flo! stream. 1ro$ects of e&ual si@e "ut different
life can "e ran#ed directly "y their e&uivalent annuity. %his approach is also #no!n as
e&uivalent annual cost' e&uivalent annual cash flo!' or simply e&uivalent annuity approach.
%he e&uivalent annual annuity is solved for "y this e&uation=
,&uivalent Annuity 13(8ash Flo!s) D (present value factor of n6year annuity)
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I9. &RO:EC# !ECI+IO AA/+I+
A. MA"I$ $O;O
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demand) and thus permit us to operate more efficiently than "efore !e had the
machineN Oill the machine create other "enefits (e.g.' higher &uality' more
operational flei"ility)N %he #ey economic &uestion as#ed of pro$ect proposals
should "e' 2o! !ill things change (i.e.' "e "etter or !orse) if !e underta#e the
pro$ectN5
. Account for time. %ime is money. Oe prefer to receive cash sooner rather than later.
+se *13 as the techni&ue to summari@e the &uantitative attractiveness of the
pro$ect. Tuite simply' *13 can "e interpreted as the amount "y !hich the mar#et
value of the firms e&uity !ill change as a result of underta#ing the pro$ect.
. Account for ris#. *ot all pro$ects present the same level or ris#. -ne !ants to "e
compensated !ith a higher return for ta#ing more ris#. %he !ay to control for
variations in ris# from pro$ect to pro$ect is to use a discount rate to value a flo! of
cash that is consistent !ith the ris# of that flo!.
#)ese = precepts summari>e a great amount of economic t)eor6 t)at )as stood t)e
test of time. Organi>ations using t)ese precepts make -etter in4estment decisions t)an
organi>ations t)at do not use t)ese precepts.
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B. #HE &ROCE++ O2 &RO:EC# E9A%A#IO
(+uggestions -6 R. Bruner
?. Carefull6 estimate e1pected future cas) flo3s.
@. +elect a discount rate consistent 3it) t)e risk of t)ose future cas) flo3s.
. Compute a -ase
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Flei"ility
Tuality
?no!6ho!
4earning
D. !ecide
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C. CA&I#A RA#IOI$
(+uggestions -6 R. Bruner
,ists !henever enterprises cannot' or choose not to' accept all value6creating investment
pro$ects. 1ossi"le causes=
Ban#s and investors say *-5
Managerial conservatism
Analysis is re&uired. -ne must consider sets of pro$ects' or "undles5' rather than
individual pro$ects. %he goal should "e to identify the value6maimi@ing "undle of
pro$ects.
%he danger is that the capital6rationing constraint heightens the influence of nonfinancial
considerations' such as the follo!ing=
8ompetition among alternative strategies
8orporate politics
Bargaining games and psychology
%he outcome could "e a su"6optimal capital "udget' or' !orse' one that destroys value
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Some remedies are the follo!ing=
0ela and eliminate the "udget constraint.
Manage the process rather than the outcomes.
evelop a corporate culture committed to value creation.
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I#RO!%C#IO
-riental Ban# of 8ommerce India !as esta"lished in the year : trusted "rands in India.
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-riental Ban# 8ommerce India maintains relationship !ith more than 9:: leading international
"an#s !orld!ide. -B8 India has 0upee ra!ing Arrangements !ith echange companies in
+A, and < in Singapore.
MAA$EME# &RO2IE
%ame esignation
Sh.T.. Prabhu C(a+)man and Mana,+n, d+)e'to)
Sh. 2 $atnaara 2egde EFe'ut+6e D+)e'to)
Sh. S./ Sinha EFe'ut+6e D+)e'to)
5 5i7ay Sai $eddy D+)e'to)
$ S Maharishi D+)e'to)
, 8 8haitan D+)e'to)
8 B $ %aidu D+)e'to)
Sumita a9ra D+)e'to)
Sh. S.8 %e9ley D+)e'to)
5i7ay agirdar D+)e'to)
T 5alliappan D+)e'to)
/ 8 Sabhar9al D+)e'to)
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+CHE!%E! COMMERCIA BA"+ I I!IA (Competitors
%he commercial "an#ing structure in India consists of=
Scheduled 8ommercial Ban#s in India
+nscheduled Ban#s in India
Scheduled Ban#s in India constitute those "an#s !hich have "een included in the Second
Schedule of 0eserve Ban# of India (0BI) Act' )' private sector "an#s (9)' co6
operative "an#s and regional rural "an#s.
UScheduled "an#s in IndiaU means the State Ban# of India constituted under the State Ban# of
India Act' > (9 of >)' a su"sidiary "an# as defined in the State Ban# of India (Su"sidiary
Ban#s) Act' J (; of J)' a corresponding ne! "an# constituted under section of the
Ban#ing 8ompanies (Ac&uisition and %ransfer of +nderta#ings) Act' of
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Ban# of Baroda
Ban# of India
Ban# of Maharashtra
8anara Ban#
8entral Ban# of India
8orporation Ban#
ena Ban#
Indian -verseas Ban#
Indian Ban#
-riental Ban# of 8ommerce
1un$a" *ational Ban#
1un$a" and Sind Ban#
Syndicate Ban#
+nion Ban# of India
+nited Ban# of India
+8- Ban#
3i$aya Ban#
#)e follo3ing are t)e +c)eduled Banks in India (&ri4ate +ector0
I* 3ysya Ban# 4td
Ais Ban# 4td
Indusind Ban# 4td
I8I8I Ban# 4td
South Indian Ban#
2F8 Ban# 4td
8enturion Ban# 4td
Ban# of 1un$a" 4td
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IBI Ban# 4td
Q,S BA*?
#)e follo3ing are t)e +c)eduled 2oreign Banks in India0
American ,press Ban# 4td.
A* ridlays Ban# 1lc.
Ban# of America *% / SA
Ban# of %o#yo 4td.
Ban&uc *ationale de 1aris
Barclays Ban# 1lc
8iti Ban# *.8.
eutsche Ban# A..
2ong#ong and Shanghai Ban#ing 8orporation
Standard 8hartered Ban#.
%he 8hase Manhattan Ban# 4td.
resdner Ban# A.
&RO!%C#+ A! +ER9ICE+
Sa;ing Accounts
Ho3 to Open an Account
!o3nloador o"tain Account Opening 2orm from the nearest "ranch' fill it upproperly and deposit the same !ith the "ranch of your choice along !ith the
follo!ing =6
?. Furnish proof of 0esidence (In the form of a copy of 0ation 8ardD 1assportD
https://www.obcindia.co.in/obcnew/site/Download.aspxhttps://www.obcindia.co.in/obcnew/site/Download.aspxhttps://www.obcindia.co.in/obcnew/site/Download.aspxhttps://www.obcindia.co.in/obcnew/site/Download.aspx8/11/2019 Capital Budget in Oriental Bank of Commerce
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riving 4icenseD ,lectricity BillD %elephone BillD Identity 8ard issued "y any
reputed institution. -0II*A4S "e sho!n only at the time of scrutiny of
papers)D Business address.
@. Furnish 9 photographs of all the prospective account holder(s).
.. Introduction a"out you from a person #no!n to the "an# prefera"ly "y an
Account 2older of the Branch' !hose account has run satisfactorily at least for
the past si months.
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=. Furnish 1A* or declaration of 2orm o. DFDD?as the case may "e. %he
minimum "alance !ill "e=6
#6pesIn Rural ;
+emi %r-an
-ranc)es
In %r-an ; Metropolitan
-ranc)es
Oithout 8he&ue Boo# Facility 0s. ::
Oith 8he&ue Boo# Facility 0s. >:: 0s. : 0s. 9>:
Current Account G
2o9 to 1pen an Account
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