Page 43 - Banking Finance December 2022

ARTICLE

Hence banks started devising their own way of financing financial due diligence, sanctity of data and information
working capital and thus came an innovative method submitted by the prospective borrower. Assessing
"Flexible Bank Finance Method" which is being used by some authorities now insist upon obtaining financial statements,
banks like Union Bank of India. various certificates etc issued by Chartered Accountants
(CA).
Features of Flexible Bank Finance
For assessment of working capital limit under FBF method,
Method
there is need to understand and evaluate three components
Flexible Bank Finance Method is an extension of permissible as under-
Bank Finance (PBF) Method with customer friendly approach 1) Obtaining financial data in CMA format (Credit
in as much as the scope of Current Assets is made broad Monitoring Arrangement).
based and for evaluating projected liquidity, acceptable level
2) Operating cycle of the business.
of Current Ratio (Current assets/ Current liabilities) is taken
at 1.17:1 3) Holding period of current assets and creditors in the
business.
Flexible Bank Finance (FBF) method shall be
CMA format consists of the following 6 parts/
applicable as per amount of exposure as under-
forms-
1) MSE accounts- Above Rs.5.00 Cr
Form-I: Particulars of existing/ proposed limits from the
2) Non MSE accounts- Above Rs.1.00 Cr
banking system
Form-II: Operating statement
Under FBF method, there is uniformity in classification of
current assets and current liabilities as per CMA format. Form-III: Analysis of balance sheet
Form-IV: Comparative statement of Current assets/ Current
The assessment of credit requirement of a party shall be
liabilities
made based on the projected study of the borrower's
Form-V: Computation of MPBF for working capital
business operations vis-à-vis the production / processing cycle
of the industry. The projected level of inventory and Form-VI: Funds Flow statement
receivables shall be examined in relation to the past trend
of unit, market developments and industry trend. Information provided in Form II, III, IV, and VI serves the
detailed financial analysis. Form V shall be used for
FBF method is based on the assessment of limit as the computation of FBF. In Form-I information relating to
difference between Working capital gap and Projected Net working capital and term loan borrowings (existing and
working capital. proposed) is obtained. Additional information regarding
borrowings from Non Bank Finance Companies (NBFC),
The GAP in required level of resources to maintain the borrowings from Term Lending Institutions for working
projected level of current assets and the manner in which
the current assets are managed need to be examined.

Assessment under Flexible Bank Finance
(FBF) method
Firstly, we need to analyse non financial parameters of
borrowing entity, like proper due diligence including KYC
compliance of borrowers, guarantors, property/ ies offered
as security, audit observations and operational aspects (in
case of existing accounts).

Alongside, we need to focus on financial parameters like

BANKING FINANCE | DECEMBER | 2022 | 43