Page 37 - Banking Finance April 2023

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proposal, taking all measures to mitigate the possible risks mandatory scrutiny by the RBI after the approval of loan is
while arriving at the eligibility of funding. required.

Thus bankers require a comprehensive tool to know the Applicability of CMA report.
existing financial position and projected financial position of
Through the CMA report, banks evaluate the eligibility of
the borrowing concern using all the financial information
funding borrower based on the careful evaluation of the
provided by the borrower.
CMA data, as it allows bankers & financial analysts to take
the financial pulse of the undertaking. For this reason,
What is CMA? How it originated? borrowers are required to submit CMA data while getting
The Credit Monitoring Arrangement data or CMA report is loans from the bank every year for business loans like short
an analytical tool of the current and projected financial term or long term loans, project loans& even for meeting
statements of a loan application by the banker. It showcases working capital requirements for day-to-day business.
a systematic analysis of the financial operations and
management aspects of the borrower i.e. the way the entity As per RBI guidelines, banks should ask for CMA data and
manages its funds in an efficient way, application of the submit the same to RBI, if the amount of term loan is above
funds, business probabilities, etc. INR Two crore (2 Cr) and working capital finance of INR five
crores (5 Cr).
The concept of CMA came into existence in 1975 with the
recommendations of the Chore Committee & Tandon group Components of a CMA report
in 1974. Introduced in 1988, the CMA system aimed to
Typically, there are seven components/statements that
prevent delays in loan approvals & loan disbursements which
together constitute a CMA report which helps bankers to
earlier required RBI's approval. Prior to the introduction of
evaluate the financial aspects of a business entity.
CMA, Credit Authorization scheme was in place. Under this
1. EXISTING & PROPOSED LIMITS: This is the first
practice, an authorization from RBI was mandatory for
constituent of a CMA report, through which the banker
credit above the specified limit as fixed by RBI.
wants to know about the present fund& non-fund based
credit limits of the borrower along with their credit limit
This is to ensure curtailing the mismanagement of the limited
usage and their credit history. Also, other details like
capital available for credit. But, this process was
current outstanding along with proposed limits are
cumbersome, time-consuming, and inefficient. Hence the
required to be mentioned in the statement. It is always
Government initiated to introduce the system of the CMA
advised that the applicant should have a clean credit
report. CMA has simplified the credit decision process as the
history with no defaults and the proposed amount
financial institutions are given authority to sanction the
should match with the fund limits.
credit after self-assessment of the CMA report submitted
2. OPERATING STATEMENT: Secondly, every banker
by the client. Although now the process is much simplified,
requires the borrower enterprise to present a profit&
loss statement which contains details like current sales,
direct& indirect expenses, PBTA, PAT, sales projections,
expenses, profitability projections for the coming 3 to 5
years based on the capability of borrower's business. In
other words, this statement is a scientific analysis of the
current & projected financial growth potentiality of the
borrower.
3. BALANCE SHEET ANALYSIS: Analysis of the balance
sheet is the third statement in the CMA report, which
gives the indication that the company is financially
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

32 | 2023 | APRIL | BANKING FINANCE