Question
XYZ Ltd. has furnished the following details to the bank
while seeking working capital finance for the upcoming financial year: • Total Current Assets (TCA): ₹1,200 lakh • Current Liabilities (other than bank borrowings): ₹400 lakh • The company follows the Second Method of Lending as per Tandon Committee norms Additionally, the company has proposed a bank borrowing of ₹900 lakh, citing seasonal cash flow fluctuations. Based on the above, what is the Maximum Permissible Bank Finance (MPBF) the bank can sanction under the Second Method of Lending? What would be the correct observation regarding the company's funding request?Solution
Under Second Method, MPBF = 75% of (TCA–CL) = 75%× (₹1,200–₹400) Company requested ₹900 lakh, which exceeds the MPBF by ₹300 lakh.
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