Lecture 22: MPBF norms of tandon committee covering both method 1 and Method 2

[@tubelesssudeep]

again i am mesmerized ...initially i was watching it as routine mpbf method video.. but wn i watched it completely u r vision is rarest of rear ...u r unique and doing greatest services to bankers....

[@AnkushJain]

Thank you 👍

[@AnkushJain]

Thank you 👍

[@rupalimalviya8391]

Thanks ankush

[@AnkushJain]

👍👍

[@sudhirjatt-w8n]

Sir , Very well explained with the help of example taken ..one must to read and understand about current assets , liabilities ,Short term Finance and Working capital Gap ...to get logic behind the methods.. thanks Ankush sir it will help to credit managers whomsover want to move in WC departments in various banks

[@AnkushJain]

👍👍

[@AnkushJain]

Thank you

[@raizadsouza7921]

Hi Ankush, you explain really well! I wish I had found your channel earlier 😊

[@AnkushJain]

Thank you

[@sachinpathak8394]

Sir I am a Banker working as Relationship Manager in Working capital finance, have started following your videos which gives me basic as well as dip knowledge about B/Sheet...

[@AnkushJain]

Right Sachin. 👍

[@sachinchoudhary92]

Thank you, Sir, Very Knowledgeable video... I respect your dedication and hard work in making such an educational video, For a long time, I was looking for these series but not available on KZbin just like you made it.

[@AnkushJain]

Thank you 👍

[@siddheshthavre738]

Very Informative video. Useful for Quality Analyst role also to testing Banking domain software 😊

[@AnkushJain]

Thank you

[@lathasoundaryadonepudi3000]

Thank you so much for these videos sir.due to these only I got placed in credit manager role.❤️

[@AnkushJain]

Great 👍

[@manishagarwal2521]

Hi Ankush, Would like to highlight one interesting fact here that in II method of MPBF calculation if one has term loan then we break it in short term and long term portion and accordingly present in CMA so for WCG calculation under current liabilities we exclude short term bank borrowing including that short term portion of term loan also so in that case even if the current ratio is less than 1.33 but client would be eligible for same amount.

[@MONUKUMAR-xu7xg]

Right in our Bank CMA Format, this formula is inbuilt.

[@AnkushJain]

👍

[@MDVaashir]

Thanks for your valuable contribution

[@AnkushJain]

👍

[@ankursri5167]

I'm assessing same for WCTL and EPC ..My query resolved now. Thanks..🤝.

[@AnkushJain]

👍

[@jyotigupta5350]

Thanku so much sir 🙏ur videos are really very helpful for freshers

[@AnkushJain]

Your welcome

[@vickyparmar3371]

Excellent lecture! I have one question. Why bank finance is excluded to calculate WC gap?

[@AnkushJain]

@@vickyparmar3371 bcz we are calculating eligiblity for bank finance only

[@sudhanshukaushik1986]

Informative but bank usually apply slightly different computation for MPBF tandon method 2 where working capital gap-(25% of CA or actual WC gap whichever is higher)

[@AnkushJain]

Some banks even exclude export debtors from current assets while computing promoter margin.. there can be slight differences but overall concept we can understand through the video

[@amitkarmhe]

Hi Ankush, Very knowledgeable videos. Learnt a lot, it would be great if you provide the link of the corresponding topics covered in the videos in the description. It will provide ease to the viewer to navigate through the topics and will also increase your views. You are doing great work, I am sure you will achieve great heights...

[@AnkushJain]

Thank you Amit. Sure will work on the suggestion given by you 👍

[@vikashchoudhary6148]

Thanks 🙏 for giving lot of knowledge

[@AnkushJain]

👍👍

[@DEVOTIONALSLOKAS0414]

Hi, Many thanks for your videos. You have explained about Current ratio must be 1 in method-1 & 1.33 for 2nd method. Can you please explain if it is below the required level means how to correct the same. Thanks in advance

[@AnkushJain]

kzbin.info/www/bejne/poTFind9ppubnNU

[@DEVOTIONALSLOKAS0414]

@@AnkushJain I saw the video. Thanks. You said in the last long term funds from banks, again he has to put his margins. Please explain

[@anuragpareek6121]

Thanks for sharing your knowledge😀

[@AnkushJain]

Your welcome

[@aditisharda620]

Nice work sir. I think banks should start formal induction session for credit managers and call you as trainer.

[@AnkushJain]

Thank you Aditi 👍

[@gurpreetSingh-pz7bo]

Thanks sir, If possible, plz share the link of excel formula in decription... So.that we can undrrstand it better... And plz do live on every sunday for q/ans ...

[@AnkushJain]

Will look into it for sure

[@art_soul_words]

MPBF is applicable for od&cc? Or all the facilities should be within MPBF? Another question- is fund based facilities include term loans and all?

[@AnkushJain]

MPBF is applicable mainly for CC. But we check it for OD and packing credit also but not give too much hard and fast emphasis on it. Mpbf not applicable on other facilities. Fund based facilities include TL as well

[@mahitractorhousehouse]

Sir have worked with one of Bank in RM profile while calculating MPBF as per second method they used to follow following approach A. Total Current asset B. current liablity less sort term debt obligation C.WC GAP (A-B) D.25% OF A E. ACTUAL Promtoers contribution in NWC- this is as per bank sheet is WC Gap less sort term debt MPBF is lower of F. C less D or G. C less E Can you explain logic behind point E. What does it mean when we deduct sort term debt from wc gap and considet it as promoter contribution in wc.?

[@AnkushJain]

E is equal to WC gap - short term debt? So how short term is part of promoter contribution since it is reduced from it?

[@mahitractorhousehouse]

@@AnkushJain sir i made mistake...in my question sheet E is equal to existing actual promoters contributions in wc gap less short term debt...? What does it mean

[@keshavsahu3037]

Current assets and current liability as on which date ke hone chahiye Yaa phir forcasted figures hone chahiye

[@AnkushJain]

Balance sheet date or projected.. as per banks call

[@nareshz999]

Short term bank finance includes Term loans payable within 12 months to calculate mpbf?

[@AnkushJain]

Yes but mpbf shall not done for term loan exposures

[@HardikPatel-wj8wo]

Hi..can you please suggest like for which sector the bank uses mpbf 1 and mpbf 2 method?

[@AnkushJain]

It is not linked with sectors but with exposure amount

[@merasafar8644]

Sir 3 year ki working capital gap nikalna padega like idfc me program ke according karna padta jaise gst, rapid,turbo, enterprise, enterprise plus in per bhi banayenge sir

[@AnkushJain]

Ok

[@nareshz999]

whether these mpbf promotor margins are set by RBI or individual bank?

[@AnkushJain]

These are recommended by RBI tandon committee

[@AnkitSharma-br2in]

Thank you sir👌

[@AnkushJain]

Your welcome

[@MONUKUMAR-xu7xg]

Hiii, In our Bank CMA Fomat, For Working Capital Gap calculation, it is deducting both- Bank Borrowings (WC Limit proposed for the case) and Short term Debt i.e. Current Maturity of Long term debt which is repayable in next 12 months (classified under Current liability) thus WC Gap comes on Higher side and eventually Borrower is eligible for same amount of WC Limit in MPBF-2 Method even if Current Ratio is less than 1.33x. Please check if we are doing wrong as per our Bank CMA Inbuilt Formula.

[@AnkushJain]

Hi please check i think you have written something incorrect. Working capital gap calculation exclude bank borrowing itself. Further instead of increased gap it will decrease. Kindly recheck the ques

[@MONUKUMAR-xu7xg]

Point No 1. Example- Total Current Assets= 1000 (A) Total Current Liabilities= 900 (B) Working Capital i.e. CC Limit = 1 (C) Current Maturity of Long Term Debt which is repayable in next 12 months included in Total Current Liabilities above = 150 (D) Current Liabilities other than Short Term Bank Finance (E)= (B)- (C)- (D) = 900- 1- 150 = 749 Working Capital Gap Calculated as per our Bank CMA Format comes to be at 1000- {900-(1+150)} i.e. 1000- 749 i.e. (A)- (E) 251say (F) So WC Gap comes 251 as above in CMA Automatically. MPBF-2 Eligibility computed by CMA Fomat comes to as under- WC Gap- (25% of Total Current Assets excluding Export Debtors) =251- (1000*25%) =1 ( i.e. equal to Proposed CC Limit of INR 1/- ) In above case, Current Ratio is less than 1.33x which is here 1.11x in this example. Point No 2. Further as discussed previously in one Query, here if it is exporter profile case, Promoter margin is deducted only 25% of (Total Current Assets excluding Export Debtors) so exporter will be eligible for Higher MPBF-2 in above case depending on Figure of Export Debtors. Point No 3- Under MPBF Method 1, Borrower would get eligible for WC Limit as follows- = 251*75% = 188.25 So in some cases even Current Ratio less than 1, Borrower would become eligible for WC Limit under MPBF- 1 Method, all it depends on the Figure of Current Maturity of Long term debt which is repayable in next 12 months i.e (D) Point 4- Crux is that CMA is passing on the benefit of Current Maturity of Long term Debt which is repayable in Next 12 months (Included in Total Current Liabilities) to increase Working Capital Gap of Borrower thus giving Higher eligibility to Borrower for WC Limits under both methods of MPBF as per tondon committee. Practically, what we does, So in cases where MPBF is not justified for CC Limit, we push Borrower for reducing our CC Limit and concert a portion into WCTL for 12 months (if Borrower not ready for upfront reduction) then some WCTL goes in Current Maturity of Long Term Debt and thus increases our WC Gap and Higher eligibility for WC Limits in the form of CC which was not eligible earlier. Please go through above and give your views for our Bank CMA Formula, Thanks. All it will depend on how much is Current Maturity of Long term Debt repayable in Next 12 months in our case, will decide MPBF Eligibility and Current Ratio as well.

[@AnkushJain]

Point is simple, short term portion of long term debts should not come under purview of MPBF since they will be paid out of cash profits and not with realisation of current assets. I had myself got one case sanctioned of 36 crores few days back with this treatment even where current ratio was less than 1.33 technically since short term portion was included in it. For export debtors point, RBI allows banks to give leverage to exporters by excluding export debtors. It is done just to promote the business of exporters and ease of finance for them

[@MONUKUMAR-xu7xg]

@@AnkushJain Sorry could not understand your revert, so is our Bank CMA Format, showing correct calculation of WC Gap by passing on the benefit of Short term potion of Long term debts, as mentioned above 251 Lakhs in my calculation. Further what do we mean to say that current Maturity of Long term debt will be paid out of Cash profits and not by realisation of Current Assets, Cannot we use cash realised from Debtors to pay this current Maturity of Long term debt during the year, please elaborate.

[@MONUKUMAR-xu7xg]

@@AnkushJainI mean to say, is calculation of WC Gap as done by me above in our Bank CMA Format is same as suggested by Tondon committee.

[@shahnawazalam6320]

Excellent video

[@AnkushJain]

Thank you

[@shashikantpathak1783]

Great Learning experience sir

[@AnkushJain]

Thank you Shashikant.

[@amanbhardwaj1000]

Sir, short term bank finance me cash credit bhi included hota hai kya?.... Because if I'm renewing a CC of a customer, then I need to include CC also in current liability so that I can arrive at right calculation?. Right sir?

[@AnkushJain]

Short term bank finance include cc limit

[@TheSuresh2022]

We can fund OD also from these 3 method, and OD os not subjected to DP, DP is only subjected to CC..i think 🤔

[@AnkushJain]

Yes correct

[@sunilkumarkamra9815]

If promotor margin is more than 25% of current asset/WCG then will it help to increase the eligibility of borrower, where client has around 50% of WCG/CA.

[@AnkushJain]

👍👍

[@sunilkumarkamra9815]

Ankush, I dont get you, please guide how it will help if promotor margin is above 25% of WCG or it will restrict maximum eligibilty as MPBF methods

[@AnkushJain]

@@sunilkumarkamra9815 MPBF is a combination of how much bank is ready to contribute to borrower working capital requirement. Bank is willing to extend 75 percent but provided that promoter is also ready to infuse his share. If promoter is not ready to infuse his margin then bank will also lower his loan thus higher the promoters contribution the higher will the bank loan. This is all subject to turnover trends and requirement.

[@maajisha03760376]

Very well explained 👍👍

[@AnkushJain]

Thank you

[@MONUKUMAR-xu7xg]

Hiiii, in our Bank CMA Format, while calculating MPBF-2 Method, it automatically calculates MPBF as Working Capital Gap Less 25% of (Total Current Assets- Export Receivables) and Not the 25% of Entire Current Assets. Please suggest what is exactly correct formula for MPBF-2 menthod. This mainly impacts our calculation in exporter profile and mix of Exporter and Domestic Sales Profile.

[@AnkushJain]

Benefit can be given for export debtors and therefore while calculating MPBF, export debtors are deducted. Many banks use this. It is perfectly fine. It is just that RBI wants to benefit those clients who are doing exports

[@MONUKUMAR-xu7xg]

Thanks for the prompt reply but what is exactly correct formula to calculate MPBF-2 as per tondon committee

[@AnkushJain]

Tandon committee originally recommended what is taught in the video. However by change of time, export debtors are excluded from formula

[@MONUKUMAR-xu7xg]

Thanks

[@AnkushJain]

👍

[@abhinavcharles]

Thank you

[@AnkushJain]

Your welcome

[@meenaagarwal6352]

Hi Ankush If MPBF as per your formula is 200 and short term bank finance is 200. Do it mean that we are eligible for 200 and we have already took short term bank finance of 200 or it mean that we are eligible for additional 200 in addition to short term bank finance of 200 ? Please clear the doubt

[@AnkushJain]

It means that we are eligible for 200. For additional 200, MPBF of 400 would be required

[@avinvashisht5979]

Sir please let me know ki mpbf method mein jo working capital Gap- net working capital capital ko minus Kar ke jo amount aata hai , oos amount ko kya bolte hai and what is the relevance of that amount. And secondly what is the meaning of MBBF lower of two. Please explain me in detail.

[@AnkushJain]

Will explain in separate video

[@avinvashisht5979]

@AnkushJain Kab sir 🙏

[@TheSuresh2022]

Sir, What is the formula or assessment method for calculating the OD limit amount??

[@AnkushJain]

Method is same. Turnover method and MPBF method

[@AJ-ll9kz]

What will be the effect after considering current maturities of long term borr

[@AnkushJain]

If considered as current liabilities then it will reduce eligibility

[@AnkushJain]

If considered as current liabilities then it will reduce eligibility

[@dineshkhurana665]

Hi Ankush could u please explain is it compulsory to calculate MPBF in dropline OD limits . (LAP product). If yes which method would be most suitable.

[@AnkushJain]

Hi Dinesh, for Dropline limit, we don't use MPBF. We check DSCR of the client

[@dineshkhurana665]

Thanks Ankush

[@AnkushJain]

👍

[@swapneelpaul3383]

Can you once make a video on the programs of icici bank for blg?

[@AnkushJain]

No as these are internal guidelines of the banks

[@Sanidhya-n4b]

sir but in book it given 1.17:1 current ratio for method 1

[@AnkushJain]

Pl check the excel working..

[@ashajain1894]

Sir, can you pls tell about the vacancies in rajasthan for credit manager.

[@AnkushJain]

Pl check the community tab on my youtube page. I post vacancies daily

[@TheSuresh2022]

Sir, this method is applicable for OD limit assessment also..

[@AnkushJain]

No. Usually not. However ideally bank should see if there is actual need of OD or not by the client as per working capital requirements

[@MDVaashir]

I have heard that while calcualting the Working Capital Gap....Banks only consider Creditors as Current Liabilities. And in current asset, Banks only consider Stocks & Debtors. Banks dont consider Cash or cash equivalents in Current asset while calculating MPBF. The formula used by banks is (Stocks + Debtors) - Creditors = Working Capital Gap. Kindly if you can throw some light on it.

[@AnkushJain]

This is DP formula. Working capital gap is different. It is difference between current assets and current liabilities excluding bank borrowing

[@MDVaashir]

@@AnkushJain Does it mean If Current Asset (Cash - $300, Stock - $500, Debtors - $200) = $1000 Current Liabilities excluding short-term Bank loans = $500 WC Gap = 1000 - 500 = $500 By MPBF method 1 MPBF will be = 500*0.75 = $ 375 Banks will give the customer $375 as CC limit. But DP will be (Stock + Debtor) - Creditor = (500+700) - 500 = 200*0.75 = $150. Did I understand correctly??

[@AnkushJain]

Correct 👍

[@roshnijoshi3323]

Sir i have one question. If current assets are higher than current liabilities, then what is the need of obtaining loan for working capital? As per committee calculation bank is giving loan based on wcg which is nothing but the excess part of current assets. So why is bank giving loan on the amount of remaining assets ( that is remaining after deducting liabilities) ??

[@AnkushJain]

That excess amount shows that owner's funds are getting blocked in current assets and if this remains how can he meet the increased business requirements, how can he achieve higher sales, how can he increase production and do capex investment if he can't retrieve his funds back from existing working capital. That is when banks come into play by releasing promoters investments through bank loan thereby relieving his partial capital (75%) invested in current assets

[@kimtonsing1067]

@@AnkushJain the above answer cleared so much doubts sir!!!

[@AnkushJain]

Thank you 👍

[@subhasengupta4699]

Sir. I am interested in a crash course for credit appraisal in India. Currently doing for UK customers. Have some experience in Indian scenario, but that is outdated. Or even if I can access the materials? I must say that these are extremely helpful.

[@AnkushJain]

Hi, i don't have any access to specific material for the same. You can use my videos to learn and I think they will help you better than books itself

[@art_soul_words]

In case of BT, short term bank finance will be zero or the actual limit amount for calculation of MPBF

[@AnkushJain]

Couldn't get your question. Why would short term finance be zero in BT?

[@art_soul_words]

@@AnkushJain because we are going to take over that loan... Normal case or second line of credit 100 is short term bank finance and MPBF is 200... Then we will find 100 only In BT we can fund complete 200 Right

[@AnkushJain]

@@art_soul_words Hi. Sorry but I haven't understood your question in full yet. I believe you are speaking about the projections that we do in CMA data wherein we calculate projected MPBF. If your projections are realistic and acceptable and then you can go for projected MPBF sanction limit. However it is to be noted that short term bank finance can't be zero in BT if the client has availed it.

[@art_soul_words]

@@AnkushJain got it...

[@ayushjain6303]

thanku for sharing this knowledge in so easy ways

[@AnkushJain]

👍👍

[@arnabganguly5634]

Sir one of customers has mentioned in cma data mpbf both according to tandon and naik 20 lakhs. Can we recommend more or we need to stick to 20 lakhs only.

[@AnkushJain]

You have to stick to mpbf only

[@archanaagarwal57]

Sir, I want to ask if a fresher CA or MBA joins bank as credit manager, does bank provide training to him for first few months?

[@AnkushJain]

They try but ultimately not effective.. after 1 or 2 months they ask for performance but actually learning is not done during that period by candidate. That is why this channel can help for beginners

[@archanaagarwal57]

@@AnkushJain ok they must be patient with fresher CAs or MBAs

[@AnkushJain]

Yes

[@archanaagarwal57]

@@AnkushJain which is more busy or involves working weekends - working capital finance or business loan?

[@AnkushJain]

Business loans

[@rajwardhankurdukar4093]

Nice

[@AnkushJain]

Thank you

[@shankygupta2418]

Technically in both the methods current ratio should not be less than 1. Because in second method 25% promotion margin is already included in current assets if we calculate current ratio by deducting promotors margin from current assets it will come 1 only in case of 1.33 current ratio scenario.pls tell of i am wrong

[@AnkushJain]

Yeah in second method it will come @1.33 itself.

[@rahulwagh6070]

Sir practically, how should we know that how much % of promoters margin is there in business? ATNW/ CA correct ?

[@AnkushJain]

Current ratio

[@rahulwagh6070]

@@AnkushJain sir in one my case - CR is 1.37x but ATNW is only 10% of Current assets. This CR is high due to BLs taken by customer. Then our concept of 25% promoters margin at 1.33x current ratio is wrong. I am confused. Pls guide.

[@AnkushJain]

Yes you are right. Please combine gearing and leverage ratio alongside with it

[@rahulwagh6070]

@@AnkushJain ok. But sir promoter ka Kitna % margin WC me hai wohh kaise calculate karge practically?

[@AnkushJain]

25% of working capital gap should be promoter margin

[@kailashverma6566]

Sir , i am little bit confused THAT If company wants to take long term loan then MPBF = PROMOTER OWN CAPITAL -25%=LONG TERM LOAN if company wants to obtain short term loan or working capital loan then MPBF=WORKING CAPITAL GAP -25% of WORKING CAPITAL GAP = WORKING CAPITAL LOAN Is my understanding is ok or not sir

[@AnkushJain]

No, for long term loans there is no such MPBF formula. Pl watch my video on machinery term loans and building term loans. For MPBF, there are two methods, you have written only method 1 which is used for medium ticket size loans like upto 7-8 crores. But method 2 for which this video is made is used for large ticket loans

[@kailashverma6566]

@@AnkushJain ok sir thq😊😊

[@AnkushJain]

👍

[@raj0936]

Various type of ratio left to be taught sir...plz upload them like... Gearing ratio leavrage ratio...

[@AnkushJain]

Yes they are. I am following a particular sequence. Earlier ratios were necesary before understanding mpbf norms that's why made lecture on them earlier. Rest ratios shall come later. Around 2 months time.

[@ankursri5167]

@@AnkushJain Absolutely right, But My senior /RM wants to login this type case with in 3 days TAT , for Renewal with enhancement, NTB and smart renewal , while I'm only 1month old in WCTL segment..To much pressure ..How should I handle it..Pls suggest.

[@AnkushJain]

You can't. Only vintage and experience in this line can teach you. For the time being just go with the flow and do your best. Forget other things happening in office

[@merasafar8644]

Atnw kya hota hai

[@AnkushJain]

Adjusted total/tangible net worth

[@vikashchoudhary6148]

Sir job bhi provide krao apny students ko

[@AnkushJain]

No i just post the vacancies but do not provide any personal reference

[@merasafar8644]

Sir 3 year ki working capital gap nikalna padega like idfc me program ke according karna padta jaise gst, rapid,turbo, enterprise, enterprise plus in per bhi banayenge sir

[@AnkushJain]

Ok