Services
Working Capital & Cash Credit
Working capital finance keeps the operating cycle moving: raw material, work in progress, finished goods and receivables. Getting the limit right, and keeping drawing power in line with it, matters as much as the term loan.
Methods banks use to assess the limit
Turnover method (Nayak Committee)
Working capital requirement is taken as a proportion of projected annual turnover: 25% of turnover, of which the bank funds 20% and the promoter brings 5% as margin. Commonly applied to smaller MSE limits, subject to bank policy.
Tandon Committee: second method
Maximum Permissible Bank Finance (MPBF) is 75% of total current assets less current liabilities other than bank borrowings. The borrower funds 25% of current assets from long-term sources.
Cash budget method
Used for seasonal businesses such as rice mills and agro-processing, where peak and off-peak requirements differ sharply. Limits follow the month-wise cash deficit.
Holding-period norms
Whichever method is used, the bank tests your projected holding periods for stock and receivables against your past performance and industry experience.
Drawing power and operations
- Drawing power is calculated from periodic stock and book-debt statements, after applying the margins in the sanction letter and excluding receivables beyond the permitted age.
- Persistent over-drawing, delayed stock statements or a mismatch between stock statements and audited accounts are among the most common reasons for adverse remarks at renewal.
- Stock audits, where stipulated, are easier when inventory records and the stock statement are reconciled every month.
Our support
- Assessment of the right method and limit, with CMA data prepared in the bank's format.
- Enhancement proposals justified by actual and projected turnover, utilisation and the operating cycle.
- Monthly drawing-power and stock-statement discipline, renewal reviews and responses to stock-audit observations.
Want a structured view of your project?
Share the outline. We review it against our five-step approach and come back with the incentive scope, viability risks and capital gaps we see.