Funds required to acquire current assets during the operating cycle to enable the business/industry to operate at the projected

levels.

GROSS WORKING CAPITAL refers to the total Current Assets which are in the system and used/ consumed on a day to day basis. NET WORKING CAPITAL (NWC) refers to the Current Assets net of Current Liabilities NWC is the entrepreneur's margin available in the system from Long term Funds and can be represented as (SHF + TL) (NFA + NCA)

Current Assets are those assets which normally get converted into cash during the operating cycle of the business. x Cash & Bank balances x Inventory x Receivables x Advances to suppliers/others x Other Current assets

Own funds Bank borrowings Creditors Advances from customers Deposits due in a year Other current liabilities

CASH

DEBT ORS

CREDI TORS RM SALES

WIP FG

Depends upon

Nature of business activity service/trade/manufacturing. Seasonality of operations peak/non peak Production Constant/seasonal Market conditions- demand & supply/credit terms / competitors Conditions of supply of RM/stores/spares etc. Quantum of production/Turnover(level of activity) Operating Cycle Current Assets to be maintained

A) Fund Based
x Inventory finance x Bill / Receivable Finance

B) Non Fund Based

x Letter of Credit (LC) x Bank Guarantee

Projected Turnover Method Permissible Bank Finance Method Cash Budget Method Maximum Permissible Bank Finance Method Retail or Wholesale Traders under UCO Trader Scheme

Borrowers in Industry & Trade segments whose WC limit would be below Rs 2 crores All SSI units whose FB limits are up to Rs 5 crores WC requirement is assessed to be 25% of projected Sales Turnover with 5% margin from the borrower. The projected turnover value may be interpreted as projected Gross Sales which will include excise duty also

Higher of the limits assessed as per traditional method or as per turnover method should be considered Scrutinise the projection with actuals during the last two years and reasonable and achievable projection is to be accepted. In case of new units. The capacity, no of working days, no of shifts, capacity utilisation etc should be scrutinised before accepting the projection.

A B C D

Sales Turnover 25% of sales Turnover 5% of Sales Turnover projected as margin Limit B C

Borrowers in Trade / Industry category whose WC requirement is Rs 2 cr and above and for SSI units Rs 5 cr and above Second Method of lending will generally be followed Current Ratio shall be 1.33:1 which may be relaxed up tp 1.17:1

Current Assets

B C D

Current Liab. other than Bank Borrowings Working Capital gap (A-B) Minimum Stipulated NWC (25% of CA excluding export receivables) Actual/projected NWC CD CE MPBF (F or G whichever is less) Excess borrowings/short fall in NWC (D-E)

E F G H I

For Existing Business Inventory/Receivable Norms to be compared with Intra firm Estimates with previous years Actuals. For New Business Comparison of estimates with similar units in the area of operation. Higher projections needs to be justified.

Estimates of Production /Sales / Profitability Norms for Inventory/receivables / creditors Build up of current assets and current liabilities

Seasonal Industries such as Sugar, Tea, Real Estate construction, Contractors, Software Ad-hoc sanctions based on bunching of sales etc The system of assessment is to arrive at the maximum cash deficits at various intervals viz., monthly / quarterly / half yearly

Changes in various current assets and liabilities will not be reflected Profitability will not be indicated Funds flow statement is required to detect diversion of funds if any

Months-- - -> Cash Receipts Cash Payments Surplus/deficit Cash creditop bal Cash credit-cl bal

1 2 3 4 5 6 7 8 9 10 11 12 Total

Leasing & Hire Purchase Companies Strictly II method of lending and the policy guidelines framed by the bank is followed

For limits of Rs 1 lac and above but upto and inclusive of Rs 10 lacs 20% of Gross annual sales as reflected in the last Sales Tax Assessment Order/ Sales Tax Return / VAT assessment order or Return / Service Tax assessment order or Return / as declared by the borrower

Letter of credit
 ILC/FLC  Usance/Sight

Bank Guarantee
 Performance  Financial
Bid Bonds/Security Deposits / Mobilisation advance /Retention Money

FLC/IL C

1 2 3 4 5 6 7

Annual purchase/import Out of (1) on credit basis Out of (2) on usance LC basis Average of (3) per month Lead time (no. of months) Usance period (no. of months) Usance LC requirement (5+6) X (4)

Application Form Audited Financials for the last Two Years Sales Tax / VAT/ Service Tax assessment orders or Returns CMA data Estimates & Projections

Current Ratio CR =

current Assets current Liabilitie s

Total Outside Liabilitie s Debt Equity Ratio = Tangible Net Worth

Inventory Holding Debtor Velocity Creditor Velocity