Page 39 - Banking Finance April 2023

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- over borrowing is un-favorable and cannot be justified such entities who are already sick or where chances of
through mere projecting some financial ratios. survival are few.

Why is it important to prepare a cma Conclusion:
report? As mentioned above, a professionally crafted CMA data
report could really make the loan approval process simple,
A. Significance of CMA Data for Borrowers
quick& hassle-free. Even though a CMA Data is a very
CMA data gives a financial blueprint of an entity's
detailed analysis of the Profit and Loss statement and
performance year-on-year basis. The overall financial
balance sheet of an entity, the key to prepare a good CMA
position, performance and health, loan eligibility,
Data is to present a healthy financial projection to analyze
repayment capacity, etc., can be determined with the
the past & proposed flow of funds and viability of the project
use of CMA data report. CMA data clearly marks out
of the borrower. Therefore, someone with vast experience
the flow of & application of funds in a concerned
and in-depth knowledge of finance should study & prepare
business. A properly planned and well drafted CMA Data
CMA report.
is sufficient to establish eligibility for loan as it is the
mirror of creditworthiness for borrower who wants to From a banker's perspective CMA data is a systematic
enjoy credit facility from banks. analysis of working capital management of a borrower and
the main objective is to ensure the usage of long term and
B. Significance of CMA Data for Banks short term funds for the given purpose. Though, the Banks
Bank and financial institutions do employ various have been given liberty by RBI not to follow CMA for deciding
measures to mitigate the chances of risks and further the eligibility and magnitude of working capital finance, yet
wants to decrease the impacts of the risks if happens many are relying on the CMA data, as the CMA system is so
like default of loan. With the help of CMA data and its scientific and systematic, that it transpires the whole activity
components banks will know the financial position, the of the firm and shows the errors of the borrower and their
changes in the balance sheet's components, knowing ill intention to misuse the Banks' funds.
the flow of funds, knowing the performance of the
borrowing concern and also understand the earning Another key area where proper knowledge about CMA data
cycle for paying the expenses. is imperative is avoiding creative accounting. In the recent
past banks have been in news mostly in wrong sense because
It also helps them to know short term solvency of of the frauds happened mostly financial statement frauds.
borrowing concerns. With ratio analysis, bank will A deeper analysis of those cases reveals that somewhere
understand the position and efficiency of the entity down the line bankers lack the skills to identify the red-flags
more clearly within few minutes. Compilation of CMA thrown by the CMA. Hence a thorough knowledge and
report helps the banks to find out the financial health proper interpretation of the CMA data is needed for effective
of the enterprise as it is unworthy to provide funds to credit assessment and decision making.

Govt appoints ex-RBI official Mohanty as PFRDA Chairman
The government has appointed Deepak Mohanty, former Reserve Bank official, as the Chairperson of the Pension
Fund Regulatory & Development Authority (PFRDA). Mohanty will hold this post from the date of assumption of charge
till attaining the age of 65 years or until further orders, whichever is earlier, according to an order issued by the
Department of Financial Services (DFS), Finance Ministry.
Prior to this, Mohanty was the Whole-Time Member (Economics) of PFRDA for two years overseeing areas of
development and regulation of pension funds. PFRDA regulates the National Pension System (NPS), subscribed by
employees of the Central government, State governments and by employees of private institutions, organizations
and unorganised sectors. He was an Executive Director at the Reserve Bank of India (RBI) overseeing areas of
enforcement of banking regulation, risk management, internal audit and inspection, financial stability, monetary policy,
economic research and statistics. He had also worked as Senior Adviser at the International Monetary Fund (IMF).

34 | 2023 | APRIL | BANKING FINANCE