Working Capital Finance Ques
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Advanced Bank Management — CAIIB.
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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, including procurement of raw materials, payment of wages, and funding of work-in-progress and debtors.
What is the Dahejia Committee recommendation regarding working capital assessment?
Recommended lending based on cash flow and not assets.
Which RBI committee recommended the Maximum Permissible Bank Finance (MPBF) method for assessing working capital limits?
The Tandon Committee (1975) recommended the MPBF method, which was later modified by the Chore Committee (1979) to strengthen credit discipline.
What is the minimum Net Working Capital (NWC) margin required under Tandon Committee Method II?
Borrower must contribute at least 25% of total current assets.
How is the Maximum Permissible Bank Finance (MPBF) calculated under Method II of the Tandon Committee norms?
Under Method II, MPBF = 75% of (Current Assets - Current Liabilities other than bank borrowings), meaning the borrower must bring in at least 25% of net working capital from long-term sources.
What is Method I under the Tandon Committee for computing MPBF?
Bank finances 75% of net working capital gap (CA minus CL excluding bank borrowings).
What is the Net Working Capital (NWC) and why is it significant in credit assessment?
NWC is the excess of current assets over current liabilities (excluding bank borrowings); a positive NWC indicates a liquidity cushion and the borrower's ability to fund part of working capital from owned funds.
What is Method III under the Tandon Committee norms for MPBF?
Borrower funds entire core current assets and 25% of balance current assets from own funds.
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