Fund based working capital

assessment with MPBF

method

Date - OCTOBER 8,2013

Presented By: Mr. Abinash Biswal

INDEX
PART1

Brief about working capital.

Methods of lending.
Illustration
PART2
Live Project 1.

Butterfly Gandhimathi Appliances Limited

History of the company
CMA file analysis for MPBF calculation
PART3
Live Project 2.

Eversendai Constructions Private Limited

History of the company
CMA file analysis for MPBF calculation

Definition
A business organisation needs financing not only to
acquire fixed assets but also for its day -to-day
operations. It has to obtain raw materials, process
the same, pay wage bills, transport finished goods,
provide credit to customers.
Capital or funds required for the 'day to day'
operations of an organisation is called the 'Working
Capital.

Operating Cycle
Operating cycle is the time that elapses between the
company's outlay raw materials, wages and other
expenditures and the inflow of cash from sale of
goods.

Classification
The working capital assistance provided by banks
can broadly be classified as
Fund based
Non-fund based.
The difference between fund and non-fund
assistance lies mainly in the cash outflow.
Fund based assistance involves an immediate cash
outflow
While non fund based may or may not involve cash
outflow from the bank.

Tree Diagram

Computation of MPBF
Once the estimation of the reasonable level of
current assets required for the operation of the unit
is completed the source of financing the same is
decided.
A part of the total current assets can be financed by
credit for purchases and other current liabilities.
The funds for financing the working capital gap is
bridged from the borrower's owned funds and long
term borrowings and partly from borrowings from
the bank.
Below is the three methods suggested by Tandon
committee.

First Method of Lending:

Finance a maximum of 75% of the working capital
gap (total current assets minus current liabilities
other than bank borrowings),
Balance to come out of long-term funds, namely
owned funds and term borrowings.
The borrowers contribution of long term funds
described is called the minimum stipulated Net
Working Capital (NWC).

Second Method of Lending:

Borrower to provide for a minimum of 25% of
total current assets out of their long term funds, i.e.
owned funds and term borrowings.
Credit for purchases and other current liabilities
will be available to finance a part of the remaining
amount of current assets with banks financing the
remaining portion.
Thus total current liabilities inclusive of bank
borrowings will not exceed 75% of the current
assets.

Third Method of Lending:

Core current assets are excluded from total current
assets. Core current assets are expected to be
financed by long term funds.
Under this method, long term funds are required to
finance core current assets and an additional 25% of
the remaining current assets.
RBI did not accept this method for implementation.

Illustration, Method 1
First Method

Total current assets

740

Current liabilities (other than bank borrowings)

300

Working capital gap

440

(NWC - 25% of above from long term sources)

110

MPBF

330

Current ratio

1.17:1

Illustration, Method 2
Second Method

Total current assets

740

NWC- 25% of above from long term sources

185

Less

555

Current liabilities (other than bank borrowings)

300

MPBF

255

Current ratio

1.33:1

Turnover Method
The genesis of the Turnover Method of assessment
is based on the recommendations of Nayak
Committee for ensuring adequate flow of credit to
small borrowers.
Under this method, the working capital
requirements are estimated at 25% of the projected
turnover.
Of the working capital requirement, banks can
finance to the maximum extent of 20% of the
projected turnover and the balance 5% is the Net
Working Capital to be brought in by the borrower as
his margin.

Cash Budget Method

Cash budgets are submitted by the borrower for the
future period.
Bank finance is limited to cash deficit i.e the excess
of payments over receipts.
While assessing under this method, the profitability
statement, balance sheet and cash flow statement for
future period is taken into account to prepare the
cash budget.
The operating cycle is also considered for cash
flow assessment from cash flow statement on how
cash was generated and used.
Generally this method of assessment is used for
seasonal industries like tea, sugar.

INDEX
PART1

Brief about working capital.

Methods of lending.
Illustration
PART2
Live Project 1.

Butterfly Gandhimathi Appliances Limited

History of the company
CMA file analysis for MPBF calculation
PART3
Live Project 2.

Eversendai Constructions Private Limited

History of the company
CMA file analysis for MPBF calculation

Butterfly Gandhimathi Appliances Limited.

Background and business description

BGAL is the flagship entity of the Butterfly group
and manufactures traditional kitchen appliances,
such as liquefied petroleum gas(LPG) stoves, mixergrinders and table-top wet grinders.
BGAL was originally incorporated as a Private
Limited Company on 24th February, 1986 and was
converted into a Public Limited Company on 25th
April, 1990.

Present banking arrangement

Currently BGAL has consortium banking
arrangement with IDBI, ING, AXIS, State Bank of
Travancore and Bank of Baroda.
The total exposure taken is 800 million Fund based
limit and 2530 million of Non fund based limit.
`

Proposed Exposure:
Facility

Amt (` in million)

Fund Based Limits

Cash Credit
WCDL

100.0
(100.0)

Non-Fund Based Limits

LC

500.0

BG

(500.0)

Total

600.0

Financial Statements
BUTTERFLY

Conclusion
The projected values for the client is not that
exciting without the Tamilnadu Governments order
which contributes nearly 45% to companys revenue
in earlier years.
But the good news is that the client has recently
bagged the Governments order once again which
will add that much required cushion to the projected
value.

INDEX
PART1

Brief about working capital.

Methods of lending.
Illustration
PART2
Live Project 1.

Butterfly Gandhimathi Appliances Limited

History of the company
CMA file analysis for MPBF calculation
PART3
Live Project 2.

Eversendai Constructions Private Limited

History of the company
CMA file analysis for MPBF calculation

Eversendai Constructions Private Limited

Background
and businessPvt.
description
Eversendai Construction
Ltd. (ECPL) is a
wholly owned subsidiary of Eversendai Corporation
Berhard (ECB), Malaysia was established in the
year of 1984.
ECPL commenced its operations in Chennai in the
year 2009.
The company is into engineering and construction
business and has been involved in some of the
landmark projects in India and abroad like Mumbai
international airport, Petronas twin towers in
Malaysia, Burj Al Arab Hotel in Dubai to name a

Current and Executed Projects

Following are some of the projects executed by
ECPL.
Mumbai International Airport Ltd.
Oberoi Tower
Khatau Mills Byculla, Mumbai
BWE Energy India (P) Lt
And some of the power plants executed by ECPL in
Tamilnadu and Maharastra.d,Chennai

Present banking arrangement

Currently ECPL is banking exclusively with
Standard Chartered Bank (SCB).
The total exposure taken is as follows the Bank
`

Name of the Bank

SCB

Present limits
FB

NFB

70.0

1980.0

Proposed Exposure:
Facility

Amt (` in million)

Cash Credit

(100.0)

FCNR(B)

(100.0)

WCDL

(100.0)

STL (One time)

(100.0)

LC

(100.0_

BG

250.0

Derivative
Total

50.0
300.0

FINANCIAL STATEMENTS
Eversendai

Conclusion
As we are projecting a positive figure for 2014
onwards and the parent entity has a very good track
record in the market we are going ahead with the
proposal despite having a negative PAT in the year
2013.

THANK YOU