Estimation of Working Capital 283(CMA) in 1988. Banks continue to obtain CMA forms for funded working capital limits of Rs 1 crore and
above, as these facilitate computation of MPBF.
The CMA comprises of six forms:
Form I: This form contains particulars of existing credit from the entire banking system including term
loan facilities availed from banks/financial institutions.
Form II: Also called as operating statement, Form II contains data relating to gross sales, net sales, cost of
raw materials, power and fuel, direct labor, selling and administration expenses, interest, etc. It also covers
information on operating profit and net profit.
Form III: A complete analysis of various items of last year’s balance sheet, current year’s estimate and
following year’s projections are given in this form. The details of current liabilities, term liabilities,
net worth, current assets, fixed assets, non current assets as per classification accepted by banks are
included.
Form IV: This form provides details of various items of current assets and current liabilities as per the
classification explained above. The figures given in this form must tally with those given in Form III,
where details of all liabilities and assets are given.
Form V: On the basis of the details of current assets and current liabilities provided in Form IV, the cal-
culation of MPBF is done in this form to obtain the fund-based credit limits to be granted to the borrower.
Form VI: This form provides the details of fund flow of long-term sources and uses to indicate whether
long-term funds are sufficient to meet the borrower’s long-term requirements. The increase/decrease of
current assets is also indicated in the form.Once the MPBF is arrived at, on the basis of inventory and receivable norms and the appropriate method
of lending, banks decide the various fund and non-fund based limits. The fund-based limits should not
exceed the MPBF. In the loan system for delivery of bank credit devised by RBI in April 1995, borrowers
having working capital limits of more than Rs 10 crore or above from the banking system, the cash credit
component should not be more than 20 percent. The balance 80 percent may be provided as demand loan.
RBI has since done away with this bifurcation and has left the decision of cash credit and demand loan
components of the working capital to be decided mutually between the bank and the borrower.
ASSESSMENT OF OTHER LIMITS
Letter of Credit (L/C)
While sanctioning the letter of credit limits, the following particulars are required to be estimated:
- Value of raw materials projected to be consumed during the year.
- Value of raw materials to be purchased on credit out of the above.
- Time taken for advising establishment of L/C to the beneficiary.
- Time for shipment and the consignment to reach the location of the customer for whom the L/C is to be
opened. Credit (usance) period agreed between the beneficiary and the customer. - Credit period projected as available by the borrower in the CMA format and reckoned for calculation of
MPBF during sanction of fund-based limits.