Calculate the Maximum Permissible Bank Finance for your working capital (CC/OD) limit using the Tandon Committee method — the formula mandated by RBI for all Indian bank working capital assessments.
Method I (less common)
MPBF = 0.75 × (TCA − OCL)
Bank finances 75% of the net working capital gap. Borrower must self-finance 25% of NWC plus the entire OCL from own funds.
Method II (RBI standard)
MPBF = (0.75 × TCA) − OCL
Bank finances 75% of Total Current Assets, after deducting all other current liabilities. Borrower self-finances the remaining 25% of TCA as own NWC margin.
| Item | Mfg | Trading |
|---|---|---|
| Raw Material | 1–2 months | — |
| Work in Progress | 0.5–1 month | — |
| Finished Goods | 0.5–1 month | 1–2 months |
| Debtors | 1–2 months | 1–1.5 months |
| Creditors | 1–1.5 months | 1–2 months |
Actual norms vary by industry and bank policy. Use industry-specific data in your CMA report.
MPBF (Maximum Permissible Bank Finance) is the maximum working capital loan (Cash Credit or Overdraft limit) a bank is allowed to sanction, calculated using the Tandon Committee Method. It is a mandatory section in CMA data submitted with any bank project report for working capital or CC limits. MPBF = (75% × Total Current Assets) − Other Current Liabilities (Tandon Method II, which most banks use).
Method I: MPBF = 75% × (TCA − OCL). Method II: MPBF = (75% × TCA) − OCL. Method II generally allows higher bank finance when OCL is low, and is the method prescribed by RBI and most PSU banks. Method I results in a lower MPBF and requires the borrower to contribute more from own funds. Banks use Method II for most MSME working capital assessments.
Total Current Assets = Raw Material Stock + Work in Progress + Finished Goods Stock + Receivables (Debtors) + Advance payments to suppliers + Other current assets. Raw material is usually calculated as (monthly consumption × holding period in months). Debtors = (annual sales ÷ 12) × credit period in months.
Other Current Liabilities (OCL) excludes all bank borrowings (CC, OD, bank overdraft). OCL includes: Trade creditors (supplier credit), advance from customers, statutory liabilities (GST payable, TDS payable), other accrued expenses. Bank borrowings are excluded because MPBF is what determines how much bank can lend — you can't include the very thing you're calculating.
Your Cash Credit (CC) or Working Capital (OD) limit cannot exceed the MPBF calculated by the bank. If your project report shows you need ₹8L working capital but MPBF comes to ₹5L, the bank will sanction only ₹5L and require you to contribute the remaining ₹3L as own margin. Increasing current assets (by holding more stock or receivables) or reducing current liabilities increases MPBF.
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