C Working Capital Finance

Working capital finance refers to short-term credit facilities extended by banks to meet a borrower's day-to-day operational needs, covering the gap between current assets and current liabilities.

Creditors divided by purchases multiplied by 365 days.

MPBF is the maximum amount of bank credit permissible to a borrower for working capital, computed as 75% of the net working capital gap (current assets minus current liabilities excluding bank borrowings), as recommended by the Tandon Committee.

Borrower's own contribution to current assets, reducing bank exposure.

The three methods are: Method I (25% of current assets net of current liabilities), Method II (25% of current assets minus current liabilities excluding bank borrowings), and Method III (which introduced a core current assets concept, though rarely used today).

Total current assets of a firm before deducting current liabilities.

Cash Credit is a revolving credit facility where a borrower can withdraw funds up to a sanctioned limit as needed, and interest is charged only on the amount actually utilised, making it a flexible working capital instrument.

Kapur Committee (1996) recommended this bifurcation for large borrowers.