WorkingCapital.doc

8/14/2019 WorkingCapital.doc

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TANDON, CHORE, KANNAN AND CERTAIN OTHER

COMMITTEES RECOMMENDATION

Financing of working capital had always been an exclusive domain of commercial banks.Too much emphasis on security by the banks directed the flow of credit to affluentsection of society with the result that economic resources of the country wereconcentrated in a few hands. Projects promoted by technically qualified entrepreneurswith no tangible security to offer found it difficult to raise finance for the working capitalrequired by them from banks. With the nationalisation of the banks an entirely new breedof entrepreneurs made a demand on bank credit. mall sector and other segments ofpriority sector were to be the major beneficiary of nationalisation and were preferredclaimants of credit. This resulted in an unexpected demand on lendable funds of banksand naturally called for a reform in the policies of banks to orient them to the newdevelopmental role assigned to the banking industry.!nother important factor which called for reforms was the inbuilt weakness in the cashcredit system linked with emphasis on security. The limits were directly fixed on thebasis of security available in the account which in many cases resulted in double finance."anks also had no control over the level of advances at any particular time. #t was notrelated to how much a bank can lend at a particular time but was linked to the decision ofthe borrower to borrow at that time. ! major part of credit limits sanctioned by the bankremained unutilised and there was a strong tendency within the banks to oversell thecredit. #t was noted as at the end of $une% &'() that total limits sanctioned by the bankingindustry was far in excess of its total deposits. "ank could afford this overselling as )*+of the limits sanctioned by them remained unutilised. !ny unexpected demand within thesanctioned limits could prove disastrous and had the capacity to put the entire bankingindustry out of gear. The fear was proved true in late &'(* when a sudden demand onbank credit was made due to unprecedented rate of inflation and the banks had toarbitrarily free,e the credit limits of their borrowers.#n view of such a situation obtaining at that time% -eserve "ank of #ndia constituted atudy /roup with hri Prakash Tandon as 0hairman in $uly% &'() to frame necessaryguidelines on bank credit with the following terms of reference 1

To suggest guidelines for commercial banks to follow up and supervise credit

from the point of view of ensuring proper end2use of funds and keeping a watchon the safety of the advances and to suggest the type of operational data andother information that may be obtained by banks periodically from suchborrowers and by the% -eserve "ank of #ndia from the lending banks%

To make recommendations for obtaining periodical forecasts from borrowers of

3a4 business5production plans% and 3b4 credit needs% To make suggestions for prescribing inventory norms for different industries

both in the private and public sectors and indicate the broad criteria for deviatingfrom these norms%

To suggest criteria regarding satisfactory capital structure and sound financial

basis in relation to borrowings%

To make recommendations regarding the sources for financing the minimum

working capital requirements%


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To make recommendations as to whether the existing pattern of financing

working capital requirements of cash credit5overdraft system etc.% requires to bemodified% if so% to suggest suitable modifications% and

To make recommendations on any other related matter as the /roup may

consider relevant to the subject of enquiry or any other allied matter which maybe specifically referred to it by the -eserve "ank of #ndia.

"ased upon these terms of reference the /roup attempted to identify the variousconstituents of working capital that could be financed by the banks and suggested normsfor build up of inventory. Far reaching recommendations on the style of lending andimprovement in the present system of 0ash 0redit were also made. Theserecommendations were mostly accepted by -eserve "ank and were referred to banks forimplementation in late &'(6. 7any modifications have since been suggested by 0hore0ommittee. 8evertheless the basis of the recommendations of Tandon 0ommittee havebeen retained. The recommendations of the group related to four important aspects asdiscussed in the following paragraphs.Level of Current Assets

Working capital requirement of any unit is directly related to the level of current assetswith the unit. !s the main emphasis by the banks had been on security% the limits weresanctioned on the basis of the value of inventory held by the unit and no attemptwhatsoever was made to assess the requirement of the unit. The /roup analysed theinventory build up of various units and classified the inventory as under

Flabby inventory comprising finished goods% raw materials and stores held

because of poor working capital management and inefficient distribution.

Profit2making inventory representing stocks of raw materials and finished goods

held for realising stock profits.

afety inventory providing for failures in supplies% unexpected spurt in demandetc.% in effect% an insurance cover.

8ormal inventory based on a production plan% lead time of supplies and

economic ordering levels. 8ormal inventories will fluctuate primarily withchange in production plan. 8ormal inventory also includes reasonable factor ofsafety.

ome excessive inventory may also have to be built up sometimes due to factors beyondthe control of management as in case of bunched imports etc. Flabby and profit2makinginventory are both non2productive and should be discouraged. 8ormal inventory includesan element of safety and it should be the endeavour of any management not to hold anyexcess inventory over its normal requirements. To arrive at this normal level of

inventory% Tandon /roup suggested norms for &6 different kind of industries covering amajor part of all industries in the country and the norms related to

-aw materials

tocks in process5semi2finished goods

Finished goods

-eceivables

which together make for bulk of the current assets of any unit.


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-eserve "ank also appointed various 90ommittees of :irection9 to makerecommendations regarding any changes to be brought in the norms suggested by the/roup. 0ommittee of :irection had also recommended norms for other industries notincluded in the initial report of the /roup. With the passage of time it was felt by tradeand industry that these norms have become outdated and needed immediate review in the

changing economic scenario. !n ;#n a,% ?xecutive :irector% -eserve "ank of #ndia% was constituted in $anuary &''* toreview the need for continuing with the norms for holding of inventory5 receivables asalso allocation of credit to industry by fixing 7aximum Permissible "ank Finance37P"F4 based on such norms.!s per the recommendations of the #n


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D"st"ller"es

I if the allotment of molasses is on monthly basis% the norms should be suitably reduced% say to one month.


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D"&ond E='orter

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*. 0omputersincluding

0alculators B

). 0ontrolinstrumentationC electronics e.g.electronic meters%oscilloscopes

testers% measuringinstruments etc.&. 0omponents e.g.

resistors%capacitors%connectors% relaysetc.

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Let%er "ndustry

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The various components of working capital as suggested by the /roup have already been

assessed by us in the last chapter. egetablesand


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ofbroad indicators

-aw7aterials B&.AA 6E&.&Btores &. &.

tocks2in2process AAA.'B AAA.'BFinishedgoods )(E.6 &&(.)B"ills receivables5debtors E&A.6B NNNNNNN NNNNNNNN

Total -s. A&**.(' -s.&'A&.6E lacs

NNNNNNN NNNNNNNN

The excess level of inventory and receivables projected by the unit is thus -s. A&**.(' 2-s. &'A&.6E M -s. A&A.A& lacs. !s per the broad indicators the unit should be allowed tohold inventory and receivables upto -s. &'A&.6E lacs only and the unit must make effortsto reduce its holding.

A''ro#% to Lend"n$

The second aspect of the recommendations of the /roup related to approach to lending. #twas stipulated that the unit should finance a part of its current assets from owned fundsand term liabilities. #t prescribed a minimum margin of A6+ to be brought in by the unitfrom its owned funds and long2term liabilities and suggested * different methods of

lending to arrive at the contribution of the borrower in the above manner. The threemethods of lending as suggested by the /roup were as under1Met%od I1 The borrower should bring in A6+ of the net working capital 3current

assets2current liabilities excluding bank borrowing4 from its ownedand long2term liabilities.

Met%od II1 The borrower should finance A6+ of all current assets from owned fundsand long2term liabilities and the balance he financed by the bank.

Met%od III1 The hard core current assets i.e.% the current assets which are permanentlyrequired by the unit for its functioning must be exclusively financed bythe borrower. The borrower should also provide A6+ of the remainingcurrent assets and only the balance will be financed by the bank.

Get us now consider the following example to illustrate the application of all the abovethree methods1

0urrent liabilities 0urrent !ssets


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0reditors for purchase A -awmaterial *

Dther current liabilities E tocks inprocess &"ank borrowings ) Finished/oods &6 -eceivables and bookdebts &

Dther 0urrentassets 6

BE (

#n this exampleTotal 0urrent !ssets 3T0!4 M -s. ( lacsDther current liabilities 3D0G4 M -s. AE lacs3?xcluding bank borrowings4Lend"n$ under Met%od I

Total current assets (Gess1 Dther current liabilities AEWorking capital gap )AA6+ of the above as margin from long2term sources &67aximum permissible bank finance 37.P.".F.4 *&6?xcess borrowings E6Met%od II

Total current assets (Gess1 A6+ of above as margin from long2term sources &(6 6A6Gess 1 Dther current liabilities AE 7aximum permissible bank finance 37P"F4 A)6?xcess borrowings &66Met%od III

Total current assets (Gess 1 0ore current assets 3assumed figure4 from long2term sources &B"alance current assets 6)Gess 1 A6+ of above from long2term sources &*6 )6Gess 1 Dther current liabilities AE7aximum Permissible "ank Finance 37P"F4 &A6?xcess borrowings A(6#t would he noticed from above that contribution from long2term sources is to be nProgressively increased as we move from &st method of lending to the * rdmethod oflending and the ideal set up the group was to bring all the borrowers to *rd method in aphased manner. !ll the existing and new borrowers were to conform to &st method to


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start with. :ue to various difficulties in assessing the core assets% the *rd method oflending had been discarded and as per recommen dations of 0hore 0ommittee3discussed in later part of this chapter4 all the borrowers have now to conform to Andmethod of tending. #t would also be noticed that &st method corresponds to a minimumcurrent ratio of &. &(1& while the And method ensures a minimum current ratio of &.** 1&

!s a first step now the existing units have to adjust the excess borrowings by bringing inadditional capital or arranging the funds from long2term sources.


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Cl#ult"on of or+"n$ C'"tl Reu"re&ents under Met%od I

I II3i4 Total current assets &'6(.)A A&B'.B*3ii4 Total current liabilities excluding banking

"orrowings BA).'' BA).''3iii4 Working capital gap &**A.)* &6)).B)3iv4 7inimum required margin being A6+ of

Working 0apital gap i.e. of 3iii4 ***.&& *EB.&B3v4 !ctual5Projected 8etworking 0apital A.'E A.'E3vi4 3iii4 2 3iv4 '''.*A &&6E.)E3vii4 3iii4 2 3v4 &&*&.)6 &*)*.BB3viii4 7aximum permissible bank finance 3minimum of vi or vii4 '''.*A &&6E.)E3ix4 ?xcess bank borrowings &*A.&* &E6.&E

Cl#ult"on of or+"n$ C'"tl Reu"re&ents under Met%od II

I II

3i4 Total current assets &'6(.)A A&B'.B*3ii4 Total current liabilities other than bank borrowings BA).'' BA).''3iii4 Working capital gap &**A.)* &6)).B)3iii4 7inimum required margin being

A6+ of total current assets i.e. of 3i4 )E'.*B 6)A.)3v4 !ctual5projected net working capital A.'E A.'E3vi4 3iii423iv4 E)*.( &A.A)3vii4 3iii423v4 &&*&.)6 &*)*.BB3viii4 7aximum permissible bank finance 3minimum of ># or >##4 7P"F E)*.( &A.A)3ix4 ?xcess bank borrowings AEE.*E *)&.)AThe margin of A6+ under both the methods is the minimum requirement. #f a borrowerhas more liquid surplus% the 7P"F will be reduced accordingly. To illustrate this pointlet us consider the following exampleTotal current assets &Total current liabilities excluding bank borrowings A8et working capital E7P"F under method ## will be calculated as under13i4 Total current

assets &3ii4 Total current liabilities excluding bank borrowings A


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3iii4 Working capitalgap E

3iv4 7inimum margin of A6+ of total currentassets A6

3v4 !ctual net working capital *3vi4 iii 2

iv 663vii4 iii2v 63viii4 7P"F 37inimum of vi or vii4 63ix4 ?xcess bank borrowing 2!s per the erstwhile guidelines of -eserve "ank of #ndia% sanction of aggregate fundbased working capital limits of -s. & crore and above from the banking system would besubject to the second method of lending so as to ensure maintenance of a minimumcurrent ratio of &.**1&. !s regards borrowers enjoying aggregate fund based workingcapital limits of less than -s. & crore from the banking system% a new summary procedurefor assessment of working capital requirements had been prescribed. "anks are requiredto ensure maintenance of minimum margin of 6 per cent of the annual turnover. Knder

this method% A6 per cent of the output value should be computed as working capitalrequirement of which at least four fifth i.e. E+ should be provided by the banks and thebalance one2fifth i.e. A+ should be by way of promoters contribution towards marginmoney. Get us illustrate the above method by considering the following example 1

3-s. in lacs4AA2* A*2)3!ctual4 3?stimated4

!nnual turnover *A.B& )E6.8et working capital A6.A6 A(.37argin for working= capital4Total working capital requirements E.&6 &A&.A6

IA6+ of turnover7inimum margin to be brought by the borrower &B.* A).A63Dne2fifth or A+ of total working capitalrequirement or 6+ of total turnover4!ctual 8W0 available with unit 2 A6.A6Working capital 3fund based4 limits 2 '(.to be sanctioned by bank2E+ oftotal requirement or A+ of turnoverThe bank in this case will sanction total fund based working capital limit of -s. '( lacs. #tmay be noted that assessment of total working capital is to be based on the basis ofestimated turnover while the margin is to be taken at actual level. #n case actual 8W0

with the borrower is less than the minimum required% while the full limit as assessed inthis method may be sanctioned by the bank% a stipulation to arrange for additional marginmay be made by the bank. Dr limit in that case may be released in phases depending uponaccumulation of profit during the current year so that necessary margin is available withthe borrower. This method is generally referred to as Turnover 7ethod.The actual drawings in the ale will% however% be permitted on the basis of :rawing Power3:.P.4 in the account.


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#t may further be noted that if the borrower needs higher limits than assessed as perturnover method% the bank will be required to assess the working capital requirements byconventional method. The higher of the two limits may be allowed to the borrower andactual disbursement will be regulated through availability of drawing power in theaccount. #n other words the assessment of working capital requirements for credit limitupto -s. &. crore may be made under the conventional method and as well as under

turnover method.


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A. !dditional credit needs of exporters arising out of firm orders5confirmed letters of

credit 3and which am not taken into account while fixing regular credit limits ofborrowers4 are to be met in full even if sanction of such additional credit limitsexceeds 7P"F.

*. "orrowing units marketing5trading exclusively 3& per cent4 the products and

merchandise manufactured by village% tiny and # units will be subject to thefirst method of lending while assessing their 7P"F provided dues of the saidvillage% time and # units have been settled by such borrowers within amaximum period of * days from the date of supply. This relaxation is alsoavailable to that portion of marketing business related to the productsmanufactured by village% tiny and # units in respect of cases% where borrowingunits also market products manufactured by medium and large industries and5orhave manufacturing activity of their own.

). 0redit limits of the borrowing units in the sugar industry may be determined onthe basis of a current ratio of &1&.

6. ick5Weak units under rehabilitations will be exempted from the applications ofAnd method of tending.

Tret&ent of /"lls ne$ot"ted under essen#e letters of #red"t s re#e"v/les 3

-eceivables arising out of domestic5inland sales by drawing bills of exchange underusance letters of credit and negotiated in accordance with the terms of letters of creditmay be shown separately under 90urrent !ssets9 for arriving at 7aximum Permissible"ank Finance 37P"F4 and stipulated minimum networking capital maybe reckoned afterexcluding quantum of such bills.#n other words domestic receivables covered by bills of exchange under usance letters ofcredit shall be accorded the same treatment as export receivables and no margin on suchreceivables will have to be brought.

Tret&ent of ter& lon Instl&ents&

Term loan instalments failing due for repayment within the next twelve months aretreated as items of current liabilities for assessing the 7P"F. !s term loan instalmentsare generally repaid out of cash generated during the year% and treating this as resourcefrom the beginning of the year reduces the quantum of working capital finance% it has%therefore% been decided by the -eserve "ank that such term loan instalments payablewithin the next twelve months should not be treated as #tems of current liabilities for thepurpose of arriving at the 7P"F. The following changes will thus take place as per thisstipulation1

3i4 Term loan instalments payable within the next twelve months will not be treated asitems of current liabilities.


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The treatment of term loan instalments as above will thus affect only the 7P"F and otherfactors will remain the same. Get us illustrate the effect of this provision and calculate7P"F of the given exercise as under1 -s in lacs3i4 Total current assets 3including export receivables of -s. *A6.AB lacs4 A&B'.B*

3ii4 Total current liabilities BA).'' other than bank borrowings Gess1 8on2overdue term loan instalments payable within the next &A months 3-s. &).6 2 *B.4 BE.6

0urrent liabilities to be taken for calculationsof 7P"F 3BA).''2BE.64 66B.)'

3iii4 Working capital gap &B&*.&)3iv4 7inimum required margin being A6+ of total current

assets excluding export receivables )B&.'3v4 !ctual projected net working capital A.'E3vi4 3iii423iv4 &&6A.6

3vii4 3iii423v4 &)&A.&B3viii4 7P"F 3lower of vi or vii4 &&6A.67P"F has thus increased to -s. &&6A.6 lacs as compared to -s. &E*.66 lacs calculatedearlier.

STLE O- CREDIT

The third important aspect of /roups recommendations related to the style of credit.-ecommendations in this regard have four basic ingredients as under13i4 Financing inventories which is already in excess of stipulated norms.3ii4 Treatment to be given to borrowings in excess of maximum permissible bank

finance.3iii4 8ew structure of cash credit facility.

3iv4 Financing the sales receivables.

-"nn#"n$ Inventor"es "n E=#ess of St"'ulted Nor&s2/rod "nd"#tors ##e'ted

/y t%e /n+s

The banks would not normally extend any credit facilities against inventories in excess ofnorms and the units might be granted a short time say A months to B months to liquidatethose excess stocks. This will result in the unit holding inventories as per the broadindicators accepted by the banks.

Tret&ent to /e $"ven to t%e e=#ess /orro!"n$s

!ll units would first of all be brought to conform to first method of lending.


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brought in the new concept of ;operating limits= is now will established though theunderlying proformae have been suitably modified subsequently.

#t is important to note that recommendations of the /roup formed the basis of first everattempt to fix and operate credit limits on a scientific basis. 7ost of the recommendationsof the /roup were accepted and implemented by -eserve "ank of #ndia. 7any

modifications5changes have also since been accepted but the basic 2format of lending assuggested by the /roup has remained intact.C%ore Co&&"ttee

The quality of lending improved considerably but the cash credit system continued topose few difficulties. "ifurcation of working capital limit in two parts as demand loanand a fluctuating cash credit component% as suggested by Tandon /roup% was not done bymany banks. #t was% therefore% considered necessary by -eserve "ank to review thesystem of cash credit in all its aspects and for this purpose a Working /roup headed byh. . ". 0hore was appointed in &'('. The terms of reference to the /roup were asfollows1

To review the operation of cash credit system in recent years% particularly with

reference to the gap between sanctioned credit limits and the extent of theirutilisation@

#n the light of the review% to suggest1

3a4 modifications in the system with a view to making the system more amenableto rational management of funds by commercial banks% and5or3b4 alternative types of credit facilities% which would ensure greater creditdiscipline and also enable banks to relate credit limits to increases in output orother productive activities% and

To make recommendations on any other related matter as the /roup may consider

germane to the subject.The /roup gave its recommendations in &'('. #mportant recommendations which areaccepted by -eserve "ank and have a direct bearing on credit limits of the borrowers arediscussed below.No Stru#turl C%n$eCont"nut"on of Cs% Cred"t, Lon nd B"lls -#"l"t"es

8o structural changes in the lending system are considered necessary and working capitalcredit limits are to be sanctioned as a combination of cash credit% loans and bills facilitiesas hitherto.


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B"fur#t"on of Cs% Cred"t L"&"t

The scheme of bifurcating the cash credit limit in two parts as demand loan and variablecash credit portion as recommended by Tandon /roup and accepted by -eserve "ank isscrapped as it did not find any acceptance either at borrowers level or at banks level. Thescheme was basically suggested to enable the banks to have proper credit planning. The

objective is now desired to be achieved by streamlining and strengthening theinformation system.

!ll borrowers enjoying working capital credit limits of -s.& lacs and above from theentire banking system are now required to submit the following statements indicating inadvance at the commencement of each quarter the requirements of funds during thatquarter1Est"&tes for t%e ensu"n$ urter3This statement is to be submitted in Form & in theweek preceding the commencement of the quarter to which the statement relates. #t givesthe level of current assets and current liabilities as are estimated for the ensuing quarteron the basis of which operating limits will be fixed by the banks. The discipline on the

borrowers will be exercised on the strength of this operating statement. !s from !pril&''&% the Performa of this form has been revised. eparate proformae have since beenprescribed for traders5merchant exporters and manufacturers 3!ppendix &B.& C &B.&&4.6erfor&n#e dur"n$ t%e 'rev"ous urter3This statement is to be submitted in Form&& 3!ppendix &B.&&& C #>4 within B weeks from the close of the quarter to which thestatement relates. #n fact Form # submitted by the borrower for the ensuing quarter is tobe followed by Form < after the end of that quarter. Form # gives the estimates whereasForm ## gives the actual during the quarter. "y making comparisons between thesestatements the quality of credit planning by the borrower and his efficiency to translatehis plans into actual production can be effectively ascertained.

8ew forms effective from !pril &''& have been prescribed by -eserve "ank. eparateproformae for 3a4 traders and merchant exporters and 3b4 manufacturers have been given.The revised formats are given as !ppendix &B &&& C &B #>.


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have to contribute a minimum of A6+ of total current assets from long2term sourcesensuring a minimum current ratio of &.** 1 &.?xemptions from And method of lending now permitted have already been discussedearlier.

or+"n$ C'"tl Ter& Lon! few borrowers on being placed on And method of lending may not be able to bring inthe additional contributions immediately. The banks may sanction Working 0apital TermGoan 3W0TG4 which may be placed on liquidation basis within a maximum time of 6years. The method to be adopted for segregating excess borrowings on this accountwould be the same as already discussed under Tandon /roup.


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B"ll d"s#ount"n$ syste&3Knder this system the buyers bank will himself discount

the bills drawn by the seller and will keep the liability in a separate account againstthe buyer. Dn due date the amount will be debited in the account of the buyer.

Knder both the above systems the seller gets the payment immediately after supply ofgoods. The liability for acceptance5discount of bills is held in a separate account by the

bank 3buyers4 on account of the buyer under the scheme and the bill amount is eventuallydebited to buyers account on due date.The stocks represented by accepted5discounted bills are to be shown separately andaccounted for as such while determining the drawing power in an account. The methodthat will be adopted by the bank to determine the drawing power is illustrated below1Gimit sanctioned against raw material -s.) lacs!mount earmarked for drawee bills I A6+ of the limit -s.&lacs!mount available for drawings in cash credit account -s.*lacs

7argin on stocks A6+tocks with the borrower are as follows1 Total stocks -s.*lacs

Dut of which unpaid stocks represented by accepted5 discounted bills -s.&lacsThe drawing power can now be determined as under1Total stocks -s.*6 lacs:rawing power I (6+ -s.ABA lacs!mount earmarked for accepted5discounted bills -s.&lacs

:. P. available against stocks -s.&BA lacs

#n the calculation of drawing power as above it must be noted that margin requirementsfor drawee bill facility has also been considered in advance which has considerablyreduced the available drawing power against stocks.The second method of calculating drawing power which is more liberal could be asunder1Total stocks -s.*6 lacstocks earmarked for accepted5discounted bills -s.&lacstocks paid for -s.A6 lacs

:rawing power I (6+ -s.&E(.6lacs

Knder this method borrower is entitled for a higher :. P. but will have to provide themargin of A6+ on the due date of the bill when it is debited to the account otherwise thecash credit account will become irregular at the time of debit.While announcing the 7onetary and 0redit Policy. for the econd


38/72

should be through bills drawn on them by the sellers. This mandatory provision willcome into effect from &st $anuary% &''E.The most notable contributions from% 0hore 0ommittee can be summed up as under1

!pplication of And method of lending to all borrowal accounts enjoying working

capital credit limits of -s.6 lacs and above from the entire banking system. Thelimit has now been raised to -s.& lacs.

crapping of the scheme of bifurcation of cash credit limit into two parts as demand

loan and fluctuating cash credit account.

Formalisation of the system of operative limit and strengthening of submission of

quarterly information by the borrowers.

! new direction to implementation of :rawee "ill cheme by making it

compulsory to allocate A6+ of the cash credit limit against raw materials to beutili,ed by way of drawee bills.

These methods have not only brought in better financial planning by the banks but have

also helped the borrowers to have a planned and budgeted approach to their productionand operating schedules.8ote1 These guidelines have since been withdrawn by -eserve "ank and banks are free toframe their own policies in this regard. ome relaxations are likely to be granted by thebanks in the matter.Non Su/&"ss"on of IS stte&ents

The drawings in credit accounts of all borrowers enjoying total working capital limits of-s.6 lacs 3now -s.& lacs4 and above from the entire banking system are to beregulated by fixing operative limits based upon the data furnished on Form & ofQuarterly #nformation ystem 3Q#4. #t is% therefore% absolutely necessary that thesestatements are submitted in time. The system adopted for fixation of operative limits is asunder13i4 For borrowers dealing exclusively with one bank1 The limit will be@ fixed by that

bank based upon the data furnished by the borrower.3ii4 For borrowers having consortium arrangement1 The limit will be fixed by the

lead bank along with the bank having the next largest shares. The individualbanks share will also be intimated by the lead bank to all the member banks intheconsortium.

3iii4 For borrowers having multiple banking arrangement1 !ll the banks financing theborrower must obtain the data under Q# and fix the operative limits accordingly.

!ny default in submission of statements under Q# shall attract penalty and the bankswill charge penal interest of at least & + per annum for a period of one quarter on entireoutstanding under various working capital limits sanctioned to the borrower. Thecharging of additional penal interest which was hitherto mandatory has now been left tothe discretion of banks. Further instructions in this regard are as under1


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3i4 Where default is of a serious nature or persists for two consecutive quarters%banks may charge rate of interest higher than the normal lending rate determinedfor a borrower on his entire outstandings under working capital limits sanctioned%until such time as the position relating to timely submission of various statementsis regularised.

3ii4 #n case of continuous5persisting defaults% banks may further consider free,ing the

operations in the a5c after giving notice to the concerned borrower.3iii4 ick units% borrowers effected by political disturbances% riots and natural

calamities are exempted from the discipline of the timely submission ofstatements under Q#.

-eserve "ank of #ndia has since given full freedom to banks to frame their own policiesregarding obtention of data under Q# and fixation of operative limits. The matterregarding charging of penal interest etc. has also been left at the discretion of banks.Sl"' B#+ "n Current Rt"o

The borrowers who have a current ratio higher than &.**1& should normally be not

allowed any slip back in current ratio.


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3i4 #nvestments made in shares% debentures% etc. of a current nature% units of KnitTrust of #ndia and other mutual funds% and in associate companies5subsidiaries% aswell as investments made and5or loans extended as inter corporate deposits shallbe excluded from the build up current assets at the time of assessing of 7P"F. #naddition no corresponding adjustment in the projected net working capital shallbe made for such investments.

3ii4 0urrent ratio of &.**1& is only the minimum required to be maintained by aborrower and a slip back in current ratio upto this level is permissible only for thepurposes already explained elsewhere in this chapter. "ank finance for workingcapital purposes is not intended to support long term investments.

3iii4 teps as indicated in 3i4 C 3ii4 above are to be taken not only at the time ofassessment but also at the time of fixing quarterly operative limit on the basis ofstatements received under Q#.

3iv4 #n case a borrower has diverted finance granted for working capital purposes forother activities such as inter corporate deposits5investments made in associatecompanies5subsidiaries5real estate etc. banks must recall the amounts so diverted.#n addition banks should charge penal interest of not less than A per cent over andabove the lending rate on the amounts diverted.

3v4 Where borrowers fail to repay the amount diverted from cash credit accounts foruses other than for which working capital finance was sanctioned% the banksshould reduce the limits to the extent of amounts so diverted.

3vi4 ?ach drawal of -s.6 lacs and above in respect of borrowers with 7P"&( of-s.& crores and above from the entire banking system should be scrutinised bythe banks to ensure that the amount is drawn for the purposes for which credithas been sanctioned.

KANNAN COMMITTEE RE6ORT ON ORKIN. CA6ITAL -INANCE AND

ITHDRAAL O- 6RESCRI6TION RELATIN. TO M6B-

#ndian "ank !ssociation 3#"!4 constituted a /roup on Working 0apital Finance

including !ssessment of 7aximum Permissible "ank finance 37P"F4. The group washeaded by h. . annan% 0hairman and 7anaging :irector of "ank of "aroda. The/roup studied all the aspects of working capital finance and gave far reachingrecommendations on the modalities of assessment% of working capital. #t urged that morefreedom be given to bank to evolve their own system in this regard and also frame theirown credit policy. The final report of the group was submitted to -eserve "ank of #ndiafor its consideration in 7arch% &''(. The main recommendations of the group were asunder1

&. 7odality of working capital assessment of the borrowers will be left with each

"ank who may devise a flexible system under the overall regulatory guidelines of-"# taking into account 3a4 i,e of the "ank and whether it is a domestic private

bank or a foreign bank or a public sector bank% 3b4 "anks Prudential exposurelimit and core resource base% 3c4 "anks 0redit 3Goan4 Policy guidelines% 3d40redit kill 7anagement in the "ank and development of specialised cadre ofcredit officer% 3e4 "anks thrust for business priorities. Goan Policy of a "ankshould cover its 0orporate Policy on 0redit :eposit -atio% #ndustry5ectoral?xposure% /roup ?xposure etc.


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A. While framing internal guidelines for working capital assessment by each bank%the following methods of assessment as suggested by the /roup may be kept inview 1

3a4 For borrowers with total working capital requirement 3funded and non2

funded4 upto -s. A6 lacs from the banking system% the assessment may be

made upon an overall study of borrowers existing and projected businessperformance% overall financial parameters etc.% after discussion with theborrower.

3b4 For borrowers with total working 0apital requirement 3funded and nonfunded4 over -s.A6 lacs but upto -s.6 crores% turnover assessment assuggested by 8ayak 0ommittee may be considered. Knder the said systemA+ of the projected gross sales turnover of the borrower can be set up ascredit limit.

3c4 "orrowers with workingcapital requirement 3funded and non2funded4 over-s.6 crores% 0ash "udget system may be considered. :raft of 0ash "udget asmentioned in the report may be adopted with modifications% as may beconsidered necessary% by the financing bank. Wherever necessary% the

concerned bank may also suitably abridge 0ash "udget format to facilitateneed2based assessment of credit requirements of a particular borrower.

3d4 The above cut off limit is only indicative. ?ach bank may decide appropriatecut off limit depending upon si,e of the "ank and other allied factors.

3e4 0orporate borrowers may be allowed to issue hort Term Working 0apital:ebentures of & to &2&5A year maturity. "ank may subscribe to suchdebentures as working capital assistance.

*. Gine of 0redit 3confirmed5unconfirmed4 system of working capital 3funded4

facilities by way of 005P05P0F05":5D:5"P5F"P5Goan etc. and Working0apital 3non2funded4 facilities such as G505/uarantee% may be introduced byeach bank taking into account its corporate Goan Policy for drawings under

unconfirmed Gine of 0redit.


42/72

per cut off limit5modality as may be decided by each bank. #t may be desirablethat Working 0apital :emand Goan with short5medium term maturities arerepaid out of internal cash inflows5infusion of external short term funds. Gongterm Working 0apital :emand Goan is to be repaid preferably out of internalcash generations.

Where implementation of modality of Goan delivery system as mentioned aboveis not feasible looking to the nature of business% banks may not implement thesame. The percentage of Goan component and 0ash 0redit component assuggested above for different cut off limits is only indicative and may be left tothe discretion of each "ank.

6. !s an incentive to the borrowers availing of &+ of working capital finance by

way of loan component% rate of interest for working capital facility may be fixedby each financing bank broadly on following basis1

3a4 0ash 0redit component to be at PG- or PG- plus3b4 Goan component to be at 7inus P#- or PG- or PG- plus

3c4 #t may also be considered by financing as an incentive to a borrower 3fortransferring a portion of loan proceeds to 0urrent !ccount with the same"ank4 to allow some credit by way of interest in die Goan account.

3d4 ?ach bank to charge rate of interest on working capital facility 3includingGoan component4 based on individual 0redit -ating ystem. Term Goan foracquisition of fixed assets may carry different rate of interest or higher rate ofinterest in comparison to loan component for working capital.

3e4 #ndividual bank may also decide to have separate PG- and spread for Goancomponent and 0ash 0redit component as per its Goan Policy.

B. 7argin and holding level of tocks% "ook :ebts etc. as security for working

capital facility may entirely be left to die discretion of financing bank. #f any

"ank so desires% it may continue to follow Tandon50hore 0ommittee guidelines.(. -easonableness of 0urrent -atio5:ebt ?quity ratio may be decided by individual

"anks as per their Goan Policy.


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Financing banks may review their existing credit decision making process toensure speed in the credit disposal. -eporting of branches direct to thesanctioning authority 3under whose power the relative proposal falls4 withoutundergoing the usual administrative tier may be explored by the banks dependingupon its corporate policy to avoid delay in credit decisionmaking.

&&. !s 0ash "udget ystem has been recommended for borrowers with workingcapital requirement over -s.6 crores there is no necessity for their submittingseparate cash flow projections to the financing bank from whom working capitalfacilities are availed.


44/72

Participation5without -isk Participation as are prevalent in advanced countries.Gegal aspects of syndication lending if adopted by any bank are to be thoroughlycomplied with.

&E. :epending upon the si,e and area of operation each "ank may maintain data base

of large borrowal accounts including /roup !ccounts at 0entral5Ronal Dffice.

0ut off limit for data base and coverage of information range may be decided byeach bank.

&'. ?ach bank may decide its policy guidelines about issue of 0ommercial Paper bythe borrowers.A. Quarterly #nformation ystem 3Q#4 and 0redit 7onitoring !rrangement 307!4

may cease to be a -egulatory requirement.


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Prudential exposure norms as per the guidelines of -eserve "ank of #ndia&provide thatthe maximum exposure of a bank for all its fund based and non fund based creditfacilities% investments% underwriting% investment in bonds and commercial paper and anyother commitment should not exceed &6 per cent of its 3banks4 capital funds to anindividual borrower and ) per cent of its capital funds to a group. For arriving at

exposure limits the sanctioned limits or outstandings which ever is higher shall bereckoned. #t may however% be noted that while calculating exposure% the non fund basedfacilities are to be taken at & per cent of the sanctioned limit or outstandings whicheveris higher. To illustrate the point let us consider the following examples1?xample&. -s.in crores

0apital Funds of thebank E(6.7aximum exposure permitted for anindividual &*&.A6

borrower 3&6+ of capital funds of the bank47aximum exposure permitted for allborrowers *6.under the same group 3)+ of capital funds of the bank4

?xample A.

Gimits sanctioned to a borrower3i4 Fund"ased (6.3ii4 8on Fund"ased A6.

Total&.

Total ?xposure3i4 For fund "ased limits2I & c5v of limits or outstanding whichever ishigher (6.3ii4 for 8on Fund "ased Gimits2I &+ of limits or

outstandingsAwhichever is higher A6.

&.

Total credit limits to the above borrower are -s.& crores which are within the

maximum exposure norms of -s.&*&.A6 crores.!s advised by the -eserve "ank% loans and advances against banks own deposits maynot be included while arriving at overall exposure to a borrower.Total exposure to group is permitted upto 6 per cent if the additional exposure is onaccount of finance to infrastructure finance relating to power% telecommunication% roadsand ports.


46/72


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new system is% therefore going to be slow and perhaps no #ndian "ank has adopted thissystem of assessment of working capital needs so far in the real sense.7any banks have however% adopted turnover method for assessment of working capitalneeds upto -s.A. crores in respect of all borrowers.

Re#o&&endt"ons of or+"n$ .rou' on D"s#ount"n$ of B"lls

! Working /roup under the 0hairmanship of hri . -amamoorthy% 0hairman% >ysya"ank Gtd. was set up by the -eserve "ank of #ndia in :ecember &''' to examine thepossibility of extending bills discounting facility to services sector especially industriessuch as information technology% software services% travel and tourism% etc. The Working/roup submitted its report to the -eserve "ank of #ndia on eptember (%A.#n view of services sector transforming the economic profile of the country and beingpoised to register tremendous growth and contribute significantly to overall strength ofthe economy% the /roup undertook a detailed scrutiny of the key issues involved in billfinancing and examined the possibility of strengthening the existing bill discounting

mechanism and extend its scope to services sector.The important recommendations in brief are1

"ill finance being the preferred style of credit from the bankers point of view should

carry interest lower than loan or cash credit% which is in line with internationalpractice.

#n respect of bill transactions% individual bank should be given the freedom to lay

down norms for satisfying themselves about the genuineness of underlyingcommercial transactions and5or the movement of goods.

"anks should evolve the system of 9value2dating9 of clients account.

tamp duty for all bills of usance upto &EA days may be abolished.

The exemption from stamp duty should be made available to bills discounted byFinancial #nstitutions and -egistered 8on2"ank Finance 0ompanies.

!ll corporate and other commercial entities who have a turnover above a threshold

level may be mandated to disclose the 9aging schedule9 of their overdue payables intheir annual reports as well as in their periodical reports to their banks.

"orrowers may be permitted to discount bills drawn under Getters of 0redit with any

bank of their choice% outside the existing consortium5 multiple banking arrangements.

8ew alternatives to bill financing like #nvoice Financing and ecured Fixed -ate

8ote on the lines of asset 2 backed 0ommercial Paper% prevalent in developedmarkets may be introduced. Factoring services could also be revitali,ed.

! 0redit #nsurance cheme for ensuring domestic receivables on lines similar to the

ones prevailing abroad may be introduced.

"ankers !cceptance 3"!4 may be introduced in the #ndian market to finance import%export and domestic trade transactions.


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"anks may be permitted to entertain purchase5discount of bills drawn by service

providers on their debtors% subject to the satisfaction of the banker that the service hasbeen rendered.

The /roup has also considered it appropriate to briefly advert to one of the key emergingtrends in the world of business% vi,. the use of internet as a potent cost effective tool for

electronic commerce 3e2commerce4. Gooking at the wave of optimism being shared in thedeveloped markets on the future potential of e2commerce and their preparedness to meetthem% the /roup has recommended that an expert group drawn from the fields oftechnology% banking and corporate finance may be constituted to prepare the blue2printfor meeting the e2commerce challenges that may be thrown up in the financial sector ofthe country.

A66ENDIX 091I

urterly Infor&t"on Syste& -or& I -or Trders nd Mer#%nt E='orters

To be ubmitted in the Week Preceding the 0ommencement of the Quareterto Which the tatement -elates

Est"&tes for t%e ensu"n$ urter end"n$ 111111111111111111111111111111111111111

3!mount1

-s.inGacs

4


49/72

N&e of /orro!er3

3!4 ?stimates for the currentaccounting year indicated in theannual plan

3"4 ?stimates for the ensuing quarterending

3"4 ?stimates of current

assetsHHand current liabilities for the

ensuing quarter ending Current Assets

#. tocks2in2Trade 37onths ;cost of

sales4I

##. 3a4 -eceivables other than deferred

and exports 3including billsPurchased C discounted by

bankers4UU37onths= :omestic

ales4I

3b4?xport receivables 3includingbills purchase 5discounted by

bankers4UU37onths= ?xport sales4I

###. !dvance to suppliers of merchandise#>. Dther current assets including cash

and bank balances 3specify majoritems4

>. Total 3estimated4 current

assets

Current L"/"l"t"es

>#. hort term bank borrowingsincluding billspurchased5discounted

........................................"ank

3a4 ales Turnover i. :omesticales ii. ?xports iii. Total3b4 Dther #ncome

3:uty drawback%cash assistance%commission Cbrokerage received43c4 /ross #ncome3Total a U b4.3a4 ales Turnover i. :omesticales ii. ?xports

iii. Total3b4 Dther #ncome3:uty drawback% cashassistance%commission Cbrokerage received4

3c4 /ross #ncome3Total a U b4
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Notes3

i4 #nformation in these forms is to be furnished for each line ofactivity5units separately as also for the company as a whole andwhere the different activities5units are financed by different banks%the concerned activity5unit2wise data and data relating to thewhole company should be furnished to each financing bank.

ii4 The valuation of current liabilities in these forms should be on the

same basis as adopted for the statutory balance sheet and shouldbe applied on a consistent basis.

iii4 #n cases where 0o2acceptances% guarantees% us letter of creditsetc.% for acquiring current assets are established over and abovethe levels determined and not forming part of creditors levelindicated at the time of assessment of working capitalrequirement% available from these sources should be taken intoaccount for the purpose of working out% operative limits.

A66ENDIX 091II

urterly Infor&t"on Syste&-or& I )-or Mnuf#turers(

To "e ubmitted in the week preceding the commencement of the% Quarter to which thetatement -elates

Est"&tes for t%e ensu"n$ urter end"n$ 11111111111111111111111111111111111111111111111111111

3!mount1 -s. in lacs4
http://www.rushabhinfosoft.com/Webpages/BHTML/CH-16.HTM#_msocom_27%23_msocom_27


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N&e of Borro!er

3!4 ?stimatesfor thecurrent accounting yearindicated

in theannual plan

3"4 ?stimatesfor theensuing

quarter ending

.

304 ?stimatesof current

assetsHHand

currentliabilities

for theensuingquarterending.

Current Assets

#. #nventory3i4 -awmaterial 3including

sum Cspares used in theprocess ofmanufacture4

3a4 #mpor

ted V

3monthsconsumptio

3a4 Production 13b4 /ross ales 1 #. :omestic 1

##.?xports 1 NNNNNNNNNNN

NNNNNNNNNNN3c4 8et ales 1

3a4 Production 13b4 /ross ales 1 #. :omestic 1 ##. ?xports 1 NNNNNNNNNN NNNNNNNNNN3c4 8et ales 1

NNNNNNNNNN
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Notes3

3i4 #nformation2should be furnished for each line of activity5unit separatelyas also for the company as a whole. #n cases where the differentactivities5units are financed by different banks% the concernedactivity5unit2wise data and data relating to the 0ompany as a wholeshould be furnished to each financing bank.

3ii4 The valuation of current% assets or current liabilities in these forms

should be on the same basis as adopted for the statutory balance sheet%and it should be applied on a consistent basis.

A66ENDIX 091III

urterly Infor&t"on Syste& -or& II -or Trders ? Mer#%nt E='orters

To be ubmitted Within ix Weeks from the 0lose of the Quarter to Which the tatement

-elates6erfor&n#e dur"n$ t%e urter ended 11111111111111111111111111111111111111111111111

3 !mount -s. in lacs4

N&e of Borro!er3

3!4 ?stimatesfor the current accounting year indicated in the !nnual Plan 3a4 ales Turnover i. :omestic ii. ?xports iii. Total 3b4 Dther income 3:utydrawback% cash

assistance% commission Cbrokerage received4

3c4 /ross income 3Total a U b4

3"4 !ctual/ross #ncomeduring the currentaccounting year 3data to hefurnished for thecompleted quarters4

& st quarter ended &' And quarter ended &'

*rd quarter ended &' )th quarter ended &'

:uring theQuarter

/ross #ncome

0ummulativeposition

/ross #ncome
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54/72

Add"t"onl Infor&t"on

Cont"n$ent l"/"l"t"es

a. !rrears of cumulative dividends." :isputed excise5customs5liabilities

0. "ills accepted5guarantees extended to accommodate associate5sisterconcers or other third parties.d. Dther liabilities not provided for

NOTES3i4 #nformation in these forms is to be furnished for each line of activity unitseparately as also for the concerned an as a whole. #n cases where of thedifferent activities units are financed by different banks% the concernedactivity5 unit2wise data and data relating to the company as a whole shouldbe furnished to each financing bank.ii4 The valuation of current assets or current liabilities in these forms should

be on the same basis as adopted for the statutory balance sheet and shouldbe applied on a consistent basis.

A66ENDIX 091I@

urterly Infor&t"on Syste& -or& II

)-or Mnuf#turers(

To be ubmitted Within ix Weeks from the 0lose of the Quarter to

Which the tatement -elates 6erfor&n#e dur"n$ t%e urter ended3...................... 3!mount-s. in lacs4

N&e of /orro!er3!. ?stimates for the current

accounting year indicated inthe !nnual Plan.

". !ctualproduction5sales during thecurrent accounting year 3datato be furnished forthe completed quarters4

& st quarter ended &'And quarter ended &'*rd quarter ended &')th quarter ended &'

0. :ata relating to latestcompleted quarterended ................

3a4 Production3b4 /ross ales i. :omestic ii. ?xportsc4 8et ales

:uring the

QuarterProduction ales

?stimate3!s given inForm #

1111 NNNNNNNNNN NNNNNNNNNN10umulative position

Production ales

!ctuals
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Production/ross alesi. :omesticii. ?xports NNNNNNNNN

NNNNNNNNNTotal8et ales

:. 0urrent assets and current

liabilitiesHH for the latestcompleted quarterended

Current Assets

# #nventory3i4 -aw materials 3including

stores C spares used in theprocess of manufacture4

3a4 #mportedV

3months consumption4I

3b4 #ndigenousV


3ii4 tocks2in2process 3months

cost of production4I

3iii4 Finished goods 3months

cost of sales4

I

3iv4 ales excluding those

under #tem #3i4 above


##. -eceivables 3other than

exports C deferred4including bills purchased C

discounted with bankersU

U 37onths domestic

sales4 I

###. ?xport receivables%

including bills purchased C

discounted with bankersU

U 37onths export sales4

#>. !dvances to suppliers ofraw materials C stores5 spares

at the beginningof

the quarter4

?stimate3!s given inForm # at thebeginning of thequarter4

!ctuals
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C consumables>. Dther current assets

including cash and bankbalances 3pecify majoritems4

>#. Total current assets.

Current L"/"l"t"es

>##. hort term bank borrowingsincluding bills purchased5discounted

.."ank% ................ "ank% etc.

>###. 0reditors for purchases of rawmaterials and stores5spares Cconsumables 3including thoseunder Ksance Getters of0redit5 0o2acceptance facilityfrom the

banks4HHH

3a4 #mported

3months purchases4I

3b4 #ndigeneous 3months

purchases4Iof which

:ues to small units

#S. !dvance payments fromcustomers

S. tatutory liabilities

S#. Dther current liabilities3pecify major items4

S##. Total current liabilities

Add"t"onl Infor&t"on

Cont"n$ent l"/"l"t"es

NNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNN

?stimate

NNNNNNNNNNNNNNNNNNNNNNNNNNNNNN

NNNNNNNNNNNNNNNNNNNNNNNNNNNNNN

!ctuals

NNNNNNNNNNNNNNNNNNNNNNNNNN
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i4 !rrears of dividendii4 :isputed excise customs5

tax liabilitiesiii4 Dther liabilities notprovided for

NOTES3

)i4 #nformation should be furnished for each line of activity5unit separately andalso for the company as a whole. #n cases where the different activities5unitsare financed by different banks% the concerned activity5unit2wise data anddata relating to the company as a whole should be furnished to eachfinancing bank.

3ii4 The valuations of current assets or current liabilities in the form should be on

the same basis as adopted for the statutory balance sheet and it should beapplied on a consistent basis.

3iii4 The period should be shown in relation to the annual projection for therelative item. #f the levels of inventory5receivables are higher than thestipulated norms% reasons therefor should be given.

3iv4 #f the canalised items form a significant part of raw materials inventory%

these may be shown separately.3v4 !mount of bills discounted with bankers included in item ## of part : should

be indicated separately.3vi4 !mount of bills discounted with bankers in respect of purchase% included in

item >## or item >### of Put : should be indicated separately.

3vii4 The classification of current assets or current liabilities should be made as

per the usually accepted approach of bankers and not as per definitions is inthe 0ompanies !ct.

A66ENDIX 091@

Hlferly O'ert"n$ Stte&ent-or& III)A(

)-or Trders nd Mer#%nt E='orters(

To be ubmitted Within Two 7onths from the 0lose of the


58/72


59/72

A66ENDIX 091@I

Hlfyerly -unds -lo! Stte&ent -or& III )B(

)-or Trders ? Mer#%nt E='orters(

3!mount -s. in lacs4

&. DK-0?3a4 Profit beforetax3b4 :epreciation

3c4 #ncrease incapital3d4 #ncrease in

:eferredGiabilities3incl. public

deposits4H

3e4 :ecrease in1 i4 Fixedassets ii4Dther n

on2current assets3f4 Dthers3g4 TDT!G 3!4

A. K?3a4 8et loss3b4 :ecrease in

:eferredGiabilities 3incl.

publicdeposits4HH

3c4 #ncrease in1i4 Fixed assetsii4 Dthernon2current assets

3d4 :ividend

Gast year3!ctuals4

NNNNNNN&

NNNNNNN

0urrent year3"udget4

NNNNNNNNNNA

NNNNNNNNNN


60/72

payments3e4 Taxes paid

3f4 Dthers3g4 TDT!G 3"4

*. Gong Term urplus

3U45:eficit 3243!2"4). #ncrease5decrease in

current assets6. #ncrease5decrease in

current liabilities otherthe "ank borrowings

B. #ncrease5decrease inworking capital gap

(. 8et surplus 3U45deficit324 3:ifference of * C B4

E. #ncrease5decrease in

"ank borrowings

NOTE1 #ncrease5decrease under items ) to E should be indicated by 3U45324 signs.

3i4 #nformation should be furnished for each line of activity5unit separately as

also for the company as a whole. #n cases where the different activities5unitsare financed by different banks% the concerned activity5unit2wise data anddata relating to the company as a whole should be furnished to eachfinancing bank.

3ii4 The valuation of current assets or current liabilities and recording of income

and expenses should be on the same basis as adopted for the statutorybalance sheets% and it should be applied on a consistent basis.

3iii4 #ncrease in carry of various items of current assets which is disproportionate

to percentage rise in sales turnover should be explained in detailseparately.

3iv4 imilarly% a decrease in current liabilities which is not commensurate with

percentage rise or fall in sales turnover should be explained in detailseparately.

3v4 #tem ( 3net surplus5deficit4 and item E 3increase5decrease in bank

borrowings4 would be algebraical opposite figures and these should agreewith each other


61/72

A66ENDIX 091@II

Hlferly O'ert"n$ Stte&ent -or& III)A(

)-or Mnuf#turers(

To be ubmitted Within Two 7onths from the 0lose of the


62/72

includingdepreciationub2total!dd1

Dpeningstocks2in2process% Cfinishedgoodsub2total:educt10losing%stocks2in2process C

finishedgoods

6. Total cost ofgoods sold

B. elling% general

C administrativeexpenses

(. #nterest.

E. ub2Total 36 U BU (4

'. Dperating

Profit5Goss4 3* 2 E4&. Dther

non2operatingincome5expenses 8et

&&. Profit beforetax5Goss

3' U &4

A66ENDIX 091@III

Hlferly -unds -lo! Stte&ent -or& III)B(

)-or Mnuf#turers(

3!mount -s. in lacs4


63/72

&. ources3a4 Profit before tax3b4 :epreciation3c4 #ncrease in 0apital3d4 #ncrease

in term

liabilitiesH3incl.

Public deposits43e4 :ecrease in 3i4 Fixed assets 3ii4 Dther

non2current assets3f4 Dthers3g4 TDT!G 3!4

A. Kses

3a4 8et Goss3b4 :ecrease in

term liabilitiesHH3incl. public deposits4

3c4 #ncrease in1 i4 Fixed assets

ii4Dther non2currentassets

3d4 :ividendpayments

3c4 Taxes paid3f4 Dthersg4 TDT!G 3"4

*. Gong term surplus 3H4 5

deficit 324 3!2"4

). #ncrease5decrease incurrent assetsH3as per

details given below46. #ncrease5decrease in

current liabilities otherthan "ank borrowings

B. #ncrease5decrease inworking capital gap

Gast year3!ctual4

NNNNNNNNNNN&

NNNNNNNNNNN

NNNNNNNNNN

0urrent year3"udget4

NNNNNNNNNNA

NNNNNNNNNN

NNNNNNNNNN

Previous


64/72

(. 8et surplus 3U4 5deficit324 3:ifference of*CB4

E. #ncrease5decrease in"ank borrowings

H"reak2up of 3)4

i4 #ncrease5:ecrease in

-aw 7aterialsii4 #ncrease5:ecrease in

tock in Processiii4 #ncrease5:ecrease in

Finished /oodsiv4 #ncrease5:ecrease in

tores C paresv4 #ncrease5:ecrease in

-eceivables

3a4 :omestic. 3b4 ?xportvi4 #ncrease5:ecrease in

other current assets

NOTE3#ncrease5decrease under items ) to E% as also under break2up of 3)4 should beindicated by 3U45324 signs.

3i4 #nformation should be furnished for each line of activity5unit separatelyas also for the company as a whole. #n cases where the different

activities5units are financed by different banks% the concernedactivity5unit2wise data and data relating to the company as a wholeshould be furnished to each financing bank.

3ii4 The valuation of current assets or current liabilities and recording of

income and expenses should be on the same basis as adopted for thestatutory balance sheets% and it should be applied on a consistent basis.

3iii4 #ncrease in carry of various items of current assets which isdisproportionate to percentage rise in sales turnover should be explainedin detail separately.

3iv4 imilarly% a decrease in current liabilities which is not commensuratewith percentage rise or fall in sales turnover should be explained in detailseparately.

3v4 #tem ( 3net surplus5deficit4 and item E 3increase5decrease in bank

borrowings4 would be algebraical opposite figures and these shouldagree with each other.


65/72

A66ENDIX 0910X

DRA-T CASH BUD.ET

Particulars

!udited FiguresPrevious A Lrs

&''..2'..&''..2'..

!ctual5Projection0urrent Lear

&st And *rd )th

Qtr. Qtr. Qtr. Qtr.&. 0ash Flow from "usiness Dperations

!. -eceipts 1

0ash ales 0ollection from trade debtors

3!nnexure to contain figures ofoutstanding trade debtors 1

with age upto ' days

with age between '& C &E

days

with age more than &E days

Total Dutstanding :ebtors4

Dthers 3specify4Total 3!4

". Payments 1

0ash purchases 3of inventoryitems4 Payments to tradecreditors 3!nnexure to contain

figures of outstanding tradecreditors 1

with age upto% ' days@

with age between '& C &E

days@

with age more than &E days@

Total Dutstanding 0reditors4

Dther 7anufacturing expenses%!dministrative C elling expenses%interest on business borrowings hortterm C long term 1

3!nnexure to contain total paymentsmade to each payee having received&+ or more of total interestpayments4Dthers 3specify4Total 3"40ash From "usiness Dperations i.e.%


66/72

8et of ! C "

##. 0ash from 8on2"usiness Dperations0. -eceipts 1

:ividend5interest on investments3!nnexure to contain details for3i4 from associates@ 3ii4 fromother companies@3iii4 onbonds5shares of F.#.s and banks@3iv4 others 3specify4% ale ofinvestments 3specify4% ?xchangefluctuations Profits%

Dthers 3specify4

Total 304

:. Payments 1

:ividend5interest on investments3!nnexure to contain details for3i4 to associates@ 3ii4 to othercompanies1 3iii4 others 3specify4%Purchase of investments 3specifynature and annex details ifnecessary4% ?xchangefluctuations% Gosses

Dthers 3specify4 Total 3:4

0ash Flow from 8on2"usinessDperations i.e.% 8et of 304 C 3:4

###. 0ash flow From 0apital !ccounts1

?. -eceipts..

#ssue of shares 3and receipts on

allotments% calls% forfeiture etc.4issue of debentures5 bonds% #ssueof 0ommercial Papers%"orrowings from2

:irectors% friends C relatives%

associates@

public 3specify nature4

others 3specify4


67/72

"orrowings from F.#.s."orrowings from banks3term loans borrowings for capitalexpenses40apital subsidy

7argin money loan 3specify4ale of Fixed assetsDthers 3pecify4Total 3?4

F. Payments 1

-epayments of borrowings3principal amount4 to 1

:irectors% friends C relativesetc.

associates

public

7argin money loan

others 3specify4-epayments of borrowing 3principal4to F.#.s. 1-epayments of borrowing 3principal4to banks 1

for term loans 3taken for capital expenditure4

for working capital finance

and othersPurchase of Fixed !ssets3details to be annexed4Dthers 3specify4Total 3F40ash Flow on 0apital !ccounti.e.% 8et of 3?4 and 3F4

#>. 0ash Flow on undry #tems1

/. -eceipts 1-efund of tax5duty 3specify orannex details4others 3specify4Total 3/4


68/72

Payment of other tax5duty5penalty 3specify or annex details4 Dthers 3specify4 Total 3


69/72

Profitability statement.3A4 -easons5justification of 9year to year Yand Yquarter to quarterZ variance of

more than% say% &+% in respect of any of the above said items should befurnished by way of footnote.

3*4 #n case of sale5purchase of #nvestments and fixed assets% necessaryparticulars% source of funding% justification should be stated by way ofannexure.

:&XT%e follo!"n$ "te&s !ould nor&lly fll under t%"s $rou' 3

0( Ad%es"ves 4( Ru//er #%e&"#ls 5( Te=t"le Au="l"r"es nd &"s#ellneous S'e#"lty 6ro#ess"n$

C%e&"#ls 7( Let%er C%e&"#ls 8( foundry ? s&elt"n$ #%e&"#ls 9( Surf#e -"n"s%"n$ nd

Ele#tro'lt"n$ C%e&"#l :( Industr"l E='los"ve

:AXT%e nor& of >18> &ont% &y /e llo!ed to /e dev"ted for te&'orry 'er"od u'to one &ont% to

t+e #re of te&'orry ##u&ult"on of 'ro#ess sto#+s due to "ndeute 'o!er su''ly et# fter

effe#t"n$ #orres'ond"n$ redu#t"on "n t%e 'er&"ss"/le v"l&ent $"nst f"n"s%ed $oods1

:*XF41>> &ont%s for &"lls us"n$ /$sses s r! &ter"l nd su''ly"n$ Col to Su$r M"lls for 'ro#ur"n$

/$sses1

:)XR! &ter"l "n#ludes sto#+ "n 'ro$ress s t%e trde 'r#t"#e "n t%e d"&ond "ndustry "s to 'y

l/our #%r$es for 'ro#ess"n$ fter t%e Go/ "s e=e#uted , sto#+ "n 'ro#ess s%ould /e vlued on t%e/s"s of #ost of r! &ter"l only1

:6XDur"n$ t%e 'e+ 'er"od !%en re#e"v/les re t t%e &="&u& t%e /n+s &y llo! n dd"t"onl

0> over t%e e="st"n$ #o&/"ned nor& for f"n"s%ed $oods nd re#e"v/les "n res'e#t of s"= 'rodu#t

$rou's "n t%e Ele#tron"#s "ndustry1

:BXLevel of s'res s%ould not e=#eed ; of t%e "nstlled /se )"1e1 #o&'uters #tully "nstlled dur"n$

t%e 'er"od(

:(XL"st of "ndustr"es f"l"n$ under vr"ous su/ $rou's /sed on Nt"onl Industr"l Clss"f"#t"on

)NIC( s 'er #"r#ulr dted Guly 0, 0


70/72

:&*XT%e level of f"n"s%ed $oods "n t%e #o&/"ned level &y not e=#eed 41>> &ont%s1

:&)XT%e level of f"n"s%ed $oods "n t%e #o&/"ned level &y not e=#eed 41>> &ont%s1

:&6XInventor"es re t+en s 'er /rod "nd"#tors ##e'ted /y /n+s1

:&BXInventor"es nd re#e"v/le on ver$e /s"s s 'er 'st trend1

:&(XRefer RBI UBD No1 )6CB(DC 7>2051>8>>2


71/72

:*6X T%e 'er"od "s to /e s%o!n "n relt"on to t%e nnul 'roGe#t"on for t%e relt"ve "te&1 If t%e levels

of "nventory 2re#e"v/les re %"$%er t%n t%e st"'ulted nor&s, resons t%erefore s%ould /e

$"ven1

:*BXT%e #lss"f"#t"on of #urrent ssets or #urrent l"/"l"t"es s%ould /e &de s 'er t%e usully

##e'ted ''ro#% of /n+ers nd not s 'er def"n"t"ons "n t%e Co&'n"es A#t1

:*(X T%e 'er"od "s to /e s%o!n "n relt"on to t%e nnul 'roGe#t"on for t%e relt"ve "te&1 If t%e levelsof "nventory 2re#e"v/les re %"$%er t%n t%e st"'ulted nor&s, resons t%erefore s%ould /e

$"ven1

:*EXA&ount of /"lls d"s#ounted !"t% /n+ers, "n#luded "n "te& II of 6rt C s%ould /e "nd"#ted se'rtely1

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$"ven1

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'rt C s%ould /e "nd"#ted se'rtely1

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:)*XT%e #lss"f"#t"on of #urrent ssets or #urrent l"/"l"t"es s%ould /e s, 'er d"e usully

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:))XT%e 'er"od "s to /e s%o!n "n relt"on to t%e nnul 'roGe#t"on for t%e relt"ve "te&1

:)6XA&ount of /"l+ 'ur#%sed2d"s#ounted !"t% /n+ers, "n#luded "n "te& II of 6rt D s%ould

/e "nd"#ted se'rtely1

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/e "nd"#ted se'rtely1

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:6XT%e #lss"f"#t"on of #urrent ssets or #urrent l"/"l"t"es s%ould /e s, 'er d"e usully ##e'ted

''ro#% of /n+ers nd not s 'er "n t%e Co&'n"es A#t1

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:6(XT%e 'er"od "s to /e s%o!n "n relt"on to t%e nnul 'roGe#t"on for t%e relt"ve "te&1

:6EXA&ount of /"l+ 'ur#%sed2d"s#ounted !"t% /n+ers, "n#luded "n "te& II of 6rt D s%ould /e

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:6'XT%e 'er"od "s to /e s%o!n "n relt"on to t%e nnul 'roGe#t"on for t%e relt"ve "te&1

:BXA&ount of /"l+ 'ur#%sed2d"s#ounted !"t% /n+ers, "n#luded "n "te& III of 6rt D s%ould /e

"nd"#ted se'rtely1
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