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    Question

    A manufacturing borrower is sanctioned Cash Credit limit

    of ₹60 crore. During inspection, it is found that long-term investments of ₹15 crore have been made out of CC account, while current assets are only ₹70 crore and current liabilities are ₹55 crore. What is the most serious credit concern in this case?
    A Over-financing by bank Correct Answer Incorrect Answer
    B Low current ratio Correct Answer Incorrect Answer
    C Diversion of short-term funds to long-term uses Correct Answer Incorrect Answer
    D Inadequate margin Correct Answer Incorrect Answer
    E Temporary liquidity mismatch Correct Answer Incorrect Answer

    Solution

    Using working capital for long-term investment = classic funds diversion, high risk.

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