DONE BY

A.V.K.NITHARSHINI
ANUPAMA KUMAR SAKINA BHAGAT

SANCHANA.S

WORKING CAPITAL FINANCE

It is an operating liquidity available to a business. Along with fixed assets such as plant and equipment,

working capital is considered a part of operating capital.

BANK CREDIT
The borrowing capacity provided to an individual by

the banking system, in the form of credit or a loan.

In effect, bank credit is a measure of how much in the

way of cash loans may be issued, based on the credit history and the assets of the company or person.
The total bank credit the individual has is the sum of

the borrowing capacity each lender bank provides to the individual.

THE COMMITTEEs
Various committees were formed to give guidelines and recommendations to the bank on lending loans to their customers. They are : Tandon committee Nayak committee Chore committee

TANDON COMMITTEE
Constituted in the year 1974 under the chairmanship of

Mr.P.L.Tandon.
The group submitted its report in August 1975, which

came to be popularly known as Tandon Committees Report.

MAIN AIM:- (i) To reduce rigidity.

(ii) Need Based Credit.

ITS Purpose
To suggest guidelines for commercial banks to follow up

and supervise credit from the point of view of ensuring proper end use of funds and keeping a watch on the safety of advances. To suggest the type of operational data and other Information that may be obtained by banks periodically from the borrowers and by the Reserve Bank of India from the leading banks. To make suggestions for prescribing inventory norms for the different industries, both in the private and public sectors and indicate the broad criteria for deviating from these norms.

 To make recommendations regarding resources for

financing the minimum working capital requirements. To suggest criteria regarding satisfactory capital structure and sound financial basis in relation to borrowings. To make recommendations as to whether the existing pattern of financing working capital requirements by cash credit/overdraft system etc., requires to be modified , if so, to suggest suitable modifications.

ITS RECOMMENDATIONS
Assessment of need based credit of the borrower on a

rational basis on the basis of their business plans. Bank credit would only be supplementary to the borrowers resources and not replace them, i.e. banks would not finance one hundred percent of borrowers working capital requirement. Bank should ensure proper end use of bank credit by keeping a closer watch on the borrowers business, and impose financial discipline on them.

 Working capital finance would be available to the

borrowers on the basis of industry wise norms (prescribe first by the Tandon Committee and then by Reserve Bank of India) for holding different current assets, viz. Raw materials including stores and others items used in manufacturing process. Stock in Process. Finished goods. Accounts receivables. Credit would be made available to the borrowers in different components like cash credit; bills purchased and discounted working capital, term loan, etc., depending upon nature of holding of various current assets. In order to facilitate a close watch under operation of borrowers, bank would require them to submit at regular intervals, data regarding their business and financial operations, for both the past and the future periods.

THE NORMS
Raw materials as so many months consumption.
Stock-in-process, as so many months cost of

production. Finished goods and accounts receivable as so many months cost of sales and sales respectively. Stock of spares was not included in the norms. In financial terms, these were considered to be a small part of total operating expenditure. Banks were expected to assess the requirement of spares on caseby-case basis. However, they should keep a watchful eye if spares exceed 5% of total inventories.

METHODS OF LENDING
Three methods of lending were adopted to calculate MPBF (Maximum Permissible Bank Finance). There were : Method 1: MPBF=0.75(CA-CL) Method 2: MPBF=0.75(CA)-CL Method 3: MPBF=0.75(CA-CCA)-CL Where, CA current assets; CL current liability and; CCA - core current assets (permanent component of working capital)