WELCOME

BANK FINANCE
FOR WORKING
CAPITAL

HARIKRISHNAN
INTRODUCTION
Banks are the main institutional sources of working
capital finace in india. After trade credit,bank credit
is the most important source of financing working
capital requirements. A bank considers a firms sales
and production plants and the desirable levels of
current assets in determining its working capital
requirements .The amount approved by the bank for
the firms for the working capital is called credit
limit.credit limit is the maximum funds which a
firm can obtain from the banking system.
WORKING CAPITAL
Working capital are refers to the funds invested in
current assets i.e, investment in sundry debtors ,
cash and other current assets.
current assets are essential to utilize facilities
provided by plant and machinery,land and
buildings. In case of the manufacturing
organisation, a machine cannot be used without
rawmaterials. The investment in the purchase of
rawmaterials is identified as working capital.
DEFENITION
According to shubin working
capital is the amount of funds
necessary to cover the cost of
operating the enterprise.

FORMS OF BANK FINANCE
A firm can draw funds from its bank within the
maximum credit limit sanctioned. It can draw
funds in the following forms;
(a) Overdraft
(b) Cash credit
(c) Purchase or discounting of bills
(d) Letter of credit
(e) Working capital loan

(A) OVERDRAFT


under the overdraft facility, the borrower is
allowed to withdraw funds in excess of the balance in
his current account upto a certain specified limit
during a stipulated period though overdrawn amount
is repayable on demand,generally continue for a long
period by annual renewals of the limits.
(B) CASH CREDIT
The cashcredit facility is similar to the
overdraft arrangment. It is the most popular
method of bank finance for working capital in
india. Under the cash credit facility, a borrower
is allowed to withdraw funds from the bank upto
the sanctioned credit limit. Cash credit limits are
sanctioned aganist the security of current assets .
Cash credit is a most flexible arrangement from
the borrowers point of view.


(C) PURCHASE OR DISCOUNTING OF BILLS


under the purchase or discounting of bills, a borrower
can obtain credit from a bank aganist its bills . The
bank purchases or discounts a borrowers bills. The
amount provided under this agreement is covereded
within the overall cash credit or overdraft limit .
(D) LETTER OF CREDIT

Suppliers , particularly the foreign suppliers , insit
that the buyer should ensure that his bank will
make the payment if he fails to honour its
obligation. These is ensured through a letter of
credit arrangement . A bank opens and letter of
credit in favour of a customer to facilitate his
purchase of goods.
(E) WORKING CAPITAL LOAN

A borrower sometimes require adhoc for temporary
accomadation in excess of sanctioned credit limit to
meet un forseen contigencies . Banks provide such
accomadation through a demand loan account or
separate non-operable cash credit account . The
borrower is required to pay higher rate of interest
above the normal rate of interest on such additional
credit.

THANK YOU