State Bank of India
State Bank of India
WORKING CAPITAL
WC Assessment is outcome of two variables: The volume of activity – Production & Sales Required level of current assets (Inventory & Receivables) to enable the unit to carry on operations without interruptions
State Bank of India
WORKING CAPITAL ASSESSMENT
Working Capital Assessment Methods:
Operating Cycle Method
Traditional method
Projected Balance Sheet method
State Bank of India
What are Working Capital Sources? Own funds Bank borrowings Sundry Creditors Advances from customers Deposits due in a year Other current liabilities
State Bank of India
Working Capital Limit
Generally for 12 months,
or
Seasonal industry – short duration / Peak & Nonpeak level,
or
Subject to specific repayment schedule, viz EPC
WORKING CAPITAL ASSESSMENT
State Bank of India
OPERATING CYCLE: PERMISSIBLE BANK FINANCE
Operating cycle is 120 day (4 months) or 3 cycles in a year Sales (P.A.) Rs. 200000/Operating expenses Rs.180000/What is Working Capital requirement? Operating Expenses 180000 --------------------------= ---------- = Rs 60000/No of cycles per annum 3 Thus, Working Capital requirement is influenced by: (a)Level of operating expenses or Level of Operations. (b)Length of operating cycle. Reduction in either will bring down WC requirement. Reduction also indicates improved efficiency in WC Mgt.
Renewal necessary (within 180 days to avoid its becoming NPA)
State Bank of India
Renewal of Limits
For Renewals/Enhancements: (Put a clause in the sanction letter itself) Send an intimation 2 months prior to renewal. Call for: Audited Financial Statements for 2 years (for noncorporate T.O. Rs. 60 lac & above / G P < 8% of T.O.)
Break up of various items
Projected Balance Sheet and P&L A/c Funds Flow Statement
State Bank of India
WORKING CAPITAL LIMIT
A note containing major developments in :
Cash Budget method
Projected Annual Turnover method (Nayak Committee)
State Bank of India
QUANTUM AND ASSESSMENT METHOD
SEGMENT SSI SBF LIMITS (Rs. Cr) Upto 5 Above 5 All loans Upto 1 Trade & Services Above 1 upto 5 Above 5 SUGGESTED METHOD Traditional & Nayak Committee (PAT) Project Balance Sheet Traditional & Nayak Committee (PAT) Traditional & Nayak Committee (PAT) Projected Balance Sheet & Nayak Committee (PAT) Projected Balance Sheet
Ø Production facilities Ø Marketing Ø Expansion Plan
Ø Industrial Relations
Ø Prospects of the Industry Ø Management set-up Ø Major shareholders etc. Assumptions & assessment of Credit Requirement
Below 0.25 C&I Industrial
Above 0.25 & over upto 5 Above 5
Traditional & Nayak Committee (PAT)
Projected Balance Sheet & Nayak Committee (PAT) Projected Balance Sheet
State Bank of India
OPERATING CYCLE
30 Days Bills Receivable Cash
60 Days
OPERATING CYCLE
Raw Material
20 Days
Finished Goods
Stock in Process
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10 Days
Length of Operating Cycle = 60+10+20+30 = 120 days i.e. 3 Cycles in a year (365 / 120)