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Financial Management

Notes = 75% of 480 – 180 lakhs

= 360 lakhs – 180 lakhs
= 180 lakhs
3rd Method = 75% (current assets – core current assets) – current
liabilities
= 75% ( 480 lakhs – 30 lakhs) – 180 lakhs
= 75% ( 450 lakhs) – 180 lakhs

= 337.5 lakhs – 180 lakhs
= 157.5 lakhs
2. Calculation of current Ratios after MPBF limits from the bank under the different methods:

Current Assets
1st Method = Current Liabilities including cash credit limits

705 ( 480 + 225) lakhs
=
405 ( 180 + 225)
= 1.74: 1

660 ( 480 + 180) lakhs
2nd Method =
360 ( 180 + 180)
= 1.83: 1

637.5 ( 480 + 157.5) lakhs
3rd Method =
337.5 ( 180 + 157.5)
= 1.89: 1
Comment: In all the three instances, the position of current ratio is, therefore, satisfactory and
more than the minimum limits as prescribed by the Committee.

10.7.3 Recent Changes in Maximum Permissible Bank Finance (MPBF)

Banks have always been important providers of funds in Indian scenario. Two important changes
in credit policy have been effected in beginning of 1997.

First, the RBI scrapped the concept of MPBF and the Indian Banks’ Association (IBA) group
proposed a new system. The MPBF was scrapped in order to facilitate need-based working
capital without sticking to age-old policies, which might have outlived their utility. The salient
features of new system are:
 For borrowers with requirements of up to 25 lakhs, credit limits will be computed after
detailed discussions with borrower, without going into detailed evaluation.
 For borrowers with requirements above 25 lakhs, but up to 5 crores, credit limit can be
offered up to 20% of the projected gross sales of the borrower.
 For large borrowers not selling in the above categories, the cash budget system may be
used to identify the working capital needs.

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