Corporate Finance

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Corporate Finance

4. Projected statement of production/sales/CA/CL to be submitted quarterly within a week prior to
   commencement of quarter. This statement is used for fixing the quarterly drawing level.


5. Actual statement of production/sales/CA/CL to be submitted quarterly within 6 weeks from the closure of
   the quarter it relates to.


6. The actual and projected operating statement for the earlier half-year and the current half-year to be
   submitted within 2 months after the close of the earlier half-year.


7. The actual and projected funds flow statement for the earlier half-year and the current half-year to be
   submitted within 2 months after the close of the earlier half-year.

Appendix 6 contains the Quarterly Information Statements—1 and 2. A real-life illustration is shown in
Exhibit 14.3 (at the end of the chapter).
Under the old system, the borrower could draw upon the sanctioned limit at his own option. Under the
new system, quarterly operative limits are fixed on the basis of quarterly budget and performance data.
RBI has introduced two forms. Form 1 contains estimates of production, sales, level of current assets and
liabilities for the ensuing quarter based on which operative limits are fixed for the quarter. Form 2 contains
actual achievement of production, sales and level of current assets and current liabilities. In addition, half-
yearly operating and fund flow statements are to be submitted.
The working capital assistance provided by banks can broadly be classified as fund and non-fund based.
The difference between the fund and non-fund based assistance lies mainly on the cash outflow. Fund-based
assistance involves an immediate cash outflow. The latter may or may not involve cash outflow from the
bank. The grant of any of the fund-based facilities to a borrower would result in depletion of actual liquidity
of the bank, whereas the grant of non-fund based facility may or may not affect the bank’s liquidity.

Working capital

Inland

Inland

Bank guarantee

Pre-shipment Post-shipment Foreign

Fund Non fund

Export Letter of credit

Consistent with the liberalization of the financial environment in the country, greater operational freedom
has been progressively provided to banks in dispensation of credit. In April 1997, RBI decided to withdraw
the prescription pertaining to the assessment of working capital needs based on the MPBF concept. Banks
are required to lay down, through their boards, a transparent policy and guidelines for credit dispensation.
However, most banks continue to follow the erstwhile RBI guidelines based on the concept of MPBF, to
assess working capital requirements of borrowers. The proper assessment of working capital requirements is
described here.

Credit Monitoring Arrangement

In 1975, RBI prescribed the format to obtain the necessary data from borrowers, assess working capital
requirement under the credit authorization scheme. This scheme was changed to credit monitoring arrangement