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CAIIB Paper 1: Advanced Bank ManagementModule D: Credit ManagementUnit 22: Working Capital Assessment & MPBF
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Q1. Under Tandon Committee Method II, a borrower has Total Current Assets of Rs. 600 Lakhs and Current Liabilities (other than bank borrowings) of Rs. 50 Lakhs. What is the Maximum Permissible Bank Finance (MPBF)?
Incorrect Answer
Formula: MPBF = 0.75 * (Total CA - Non-Bank CL)Under Method II of Tandon Committee recommendations, MPBF = 0.75 * (Current Assets - Non-Bank Current Liabilities) = 0.75 * (600 - 50) = 0.75 * 550 = Rs. 413 Lakhs. Minimum NWC requirement is 25% of Current Assets (25% of 600 = Rs. 150 Lakhs).
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