Page 41 - Banking Finance October 2022

ARTICLE

sound. The statement gives a detailed analysis of
current& non-current assets and liabilities, cash position
of the borrower. In other words, the analysis of the
balance sheet provides a clear insight into the
applicant's financial position and the net worth.
Generally, creditors require at least two years of audited
balance sheets and upcoming three years projected and
estimates for effective analysis.
4. CHANGES IN WORKING CAPITAL: This is the fourth
statement that provides the comparative analysis of the
movement of current assets& liabilities. This analysis
gives an idea regarding the ability of the applicant to
meet their daily working capital requirements. Besides,
indications regarding the working capital requirement
(actuals) along with future projected cycle growth are
made. ratio, stock & asset turnover ratios, debt-equity ratio,
etc. help the bankers to make the credit decision
5. CALCULATION OF MPBF: As per the recommendations
regarding approval of funds.
of the Tandon committee, calculation of Maximum
Permissible Bank Finance helps us to know the
Steps involved in drafting CMA data.
difference between the working capital requirement &
Past performance and actuals should be exactly as per
permissible finance in the borrower's enterprise i.e.
Audited Financial.
capacity of the applicant to borrow money.
All assumptions and estimates mentioned in preparation of
There are generally two ways to calculate MPBF:
CMA data should be mentioned separately with valid
o In the first method, the permissible limit of funding
justifications.
shall be 75% of the networking capital gap which
means 75 % (current assets less current liabilities Future projections should be realistic and not merely
other than bank borrowings). arithmetic multiples of current year figures.
o Under the second method, MPBF shall allow (75% The borrower has to prepare reports for existing loans,
of the current assets) less current liabilities other credits, repayment status, and any other liabilities in any
than bank borrowings. form.
Thus, the MPBF limit is only the cash credit component The borrowing concern need to submit all the financial
of the borrower which is generally known as the reports& statements, including Balance sheet and Profit and
drawing limit (DP), and this is the reason why this loss accounts and also Audit Report.
statement forms the basis of the CMA report.
Calculation of MPBF and preparation of changes in working
6. FUND FLOW STATEMENT: Generally a fund flow capital along with ratio analysis.
statement of the borrower's enterprise is given to
Fluctuations in performance should be justifiable with valid
evaluate if there are sufficient funds available with the
reasons.
entity or if the concern is utilizing its funds properly or
All the data pertains to fixed assets, depreciation and loan
not.
repayment history along with schedules should be annexed
7. RATIO ANALYSIS: Last but not the least, analysis of
and linked to CMA Data.
operational and financial ratios gives an overall
The entity should be able to justify the performance and
summary of the entity's growth, performance & loan
numbers projected
repayment capacity. Some of the important ratios like
current ratio, net profit ratio, net worth ratios, quick In case of multiple businesses activities or locations, detailed
BANKING FINANCE | OCTOBER | 2022 | 41