Page 40 - Banking Finance October 2022

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history, timely repayment, etc. The banks rely very much term or long term loans, project loans& even for meeting
on these reports for their credit decisions by carefully working capital requirements for day-to-day business. As per
evaluating the proposal, taking all measures to mitigate the RBI guidelines, banks should ask for CMA data and submit
possible risks while arriving at the eligibility of funding. the same to RBI, if the amount of term loan is above INR
Two crore (2 Cr) and working capital finance of INR five
Thus bankers require a comprehensive tool to know the crores (5 Cr).
existing financial position and projected financial position of
the borrowing concern using all the financial information Components of a CMA report
provided by the borrower. Typically, there are seven components/statements that

together constitute a CMA report which helps bankers to
What is CMA? How it originated? evaluate the financial aspects of a business entity.
1. EXISTING & PROPOSED LIMITS: This is the first
The Credit Monitoring Arrangement data or CMA report is
constituent of a CMA report, through which the banker
an analytical tool of the current and projected financial
wants to know about the present fund& non-fund based
statements of a loan application by the banker. It showcases
credit limits of the borrower along with their credit limit
a systematic analysis of the financial operations and
usage and their credit history. Also, other details like
management aspects of the borrower i.e. the way the entity
current outstanding along with proposed limits are
manages its funds in an efficient way, application of the
required to be mentioned in the statement. It is always
funds, business probabilities, etc.
advised that the applicant should have a clean credit
The concept of CMA came into existence in 1975 with the history with no defaults and the proposed amount
recommendations of the Chore Committee & Tandon group should match with the fund limits.
in 1974. Introduced in 1988, the CMA system aimed to
2. OPERATING STATEMENT: Secondly, every banker
prevent delays in loan approvals & loan disbursements which
requires the borrower enterprise to present a profit&
earlier required RBI's approval. Prior to the introduction of
loss statement which contains details like current sales,
CMA, Credit Authorization scheme was in place. Under this
direct& indirect expenses, PBTA, PAT, sales projections,
practice, an authorization from RBI was mandatory for
expenses, profitability projections for the coming 3 to 5
credit above the specified limit as fixed by RBI. This is to
years based on the capability of borrower's business. In
ensure curtailing the mismanagement of the limited capital
other words, this statement is a scientific analysis of the
available for credit.
current & projected financial growth potentiality of the
borrower.
But, this process was cumbersome, time-consuming, and
inefficient. Hence the Government initiated to introduce the 3. BALANCE SHEET ANALYSIS: Analysis of the balance
system of the CMA report. CMA has simplified the credit sheet is the third statement in the CMA report, which
decision process as the financial institutions are given gives the indication that the company is financially
authority to sanction the credit after self-assessment of the
CMA report submitted by the client. Although now the
process is much simplified, mandatory scrutiny by the RBI
after the approval of loan is required.

Applicability of CMA report.
Through the CMA report, banks evaluate the eligibility of
funding borrower based on the careful evaluation of the
CMA data, as it allows bankers & financial analysts to take
the financial pulse of the undertaking. For this reason,
borrowers are required to submit CMA data while getting
loans from the bank every year for business loans like short

40 | 2022 | OCTOBER | BANKING FINANCE