WORKING CAPITAL ASSESSMENT

OCTOBER,2013

IMPORTANT ASPECTS
Working Capital Cycle :
Analyse holding period of each item of Current assets Comparison with past trend Study the Business Model

Promoters Margin Money :

Tandon / Chore Committee Recommendations

Nayak Committee Recommendations

TANDON COMMITTEE
RECOMMENDATIONS (09/08/1975): I. Suggested Inventory & Receivable Norms for 15 major industries norms are maximum levels of holding of inventory & receivables, expressed as holding period.
a) Inventory : RM expressed as so many months of cost of purchases WIP expressed as so many months of COP FG - expressed as so many months of Cost of Sales

b) Receivables expressed as so many months of Sales

TANDON COMMITTEE
II. Lending Norms : Suggested 3 Methods of Lending own as
1st Method : 25% of the WCG to be financed by Long term funds. 2nd Method : 25% of the TCA to be financed by long term funds. 3rd Method : 100% of the core CA and 25% of the TCA to be financed by long term funds.

MPBF is to be worked out based on the above.

However, w.e.f. 15/04/1997, all instructions relating to MPBF were withdrawn and banks are allowed to decide their own methods of lending

CHORE COMMITTEE
MAJOR RECOMMENDATIONS (April,1979) : Periodically Review cash credit levels. To fix peak levels & non-peak levels where seasonal factors affect the business activity substantially. Quarterly statements of Budgets & Performance be submitted by all borrowers enjoying WC limits beyond a prescribed limit. To discourage borrowers who depend upon adhoc assistance over & above the sanctioned limits.

NAYAK COMMITTEE
During April,1993, Committee headed by Shri P R Nayak was set up by RBI ti look into the WC needs of the SSI sector. Committees recommendations are applicable to the borrowers enjoying WC limit of Rs.5 crs. & below. Major Recommendations : Suggested Inventory & Receivable levels and applicability of 1st method of lending suggested by Tandon Committee will not be applicable to these borrowers.

25% of the projected turnover to be the WC limits for such borrowers, of which 5% to be contributed by the promoters as margin.

METHODS OF ASSESSMENT
Turnover Method MPBF Method
Cash Budget Method

THANK YOU