C Working Capital Finance Part2
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Advanced Bank Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is the primary purpose of working capital finance provided by banks?
Working capital finance is provided to meet the day-to-day operational requirements of a business, covering the gap between current assets and current liabilities in the operating cycle.
What is the concept of 'Permissible Bank Finance' under the Tandon Committee's first method?
75% of working capital gap after 25% NWC contribution by borrower.
What does the Tandon Committee recommend regarding the Maximum Permissible Bank Finance (MPBF)?
The Tandon Committee recommended that MPBF should be computed as 75% of the net working capital (current assets minus current liabilities other than bank borrowings), ensuring borrowers contribute at least 25% margin from long-term sources.
What is the third method of lending as recommended by the Tandon Committee?
Borrower finances core current assets from long-term funds entirely.
What is the second method of lending as per the Tandon Committee norms?
Under the second method, MPBF is calculated as 75% of (current assets minus current liabilities other than bank borrowings), requiring borrowers to maintain a minimum current ratio of 1.33:1.
What are 'Core Current Assets' in the context of working capital finance?
Minimum irreducible level of current assets always needed in business.
How is the Net Working Capital (NWC) defined in the context of bank lending?
Net Working Capital is defined as the excess of current assets over current liabilities (excluding bank borrowings), representing the long-term funds deployed in working capital by the borrower.
What is the meaning of 'Holding Level' in working capital assessment?
Number of days stock or debtors are held before conversion to cash.
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