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MPFB METHOD
—Used for AboveRs. 5 crores of WC finance.
—Working Capital Gap is computed
=Current Assets less Other Current Liabilities.
(Other Current Liabilities does not include working capital loans from other banks )
Less 25% of the Current assets is the margin that borrower has to bring
OR
Actual margin in the borrower's balance sheet
(Whichever is more of the two)
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What is modified MPBF system in Indian context?
MPBF stands for Maximum Permissible Banking Finance in Indian Banking Sector. MPBF guidelines were suggested in Tandon commettee which were being followed by Indian Banks with lot of stringency. Corporates faced lot of problem in getting Finance from banks on account of stringency of the norms and they had to resort to other sources of finance at a higher cost these norms were dissolved. Consequently SBI, India's largest bank came out with its own guidelines which were on the similar lines but with relaxed norms which are being followed by all banks with slight personalisation and referred to as modified MPBF System in Indian context.
How the mpbf be calculated?
.75(CA-CL) (.75 of CA)-CL .75(CA-CCA)-CL
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What is the role of tandon committee on working capital?
•RBI stipulated that the working capital needs of all borrowers enjoying fund based credit facilities of more than Rs. 10 lacs should be appraised (calculated) under this method.••Concept of working capital finance is introduced by the committee. WCG should be met partly from the borrower's long term sources (margin money) and the balance by bank finance•• Concept of MPBF was introduced . This committee has given three different methods for calculation of MPBF•Core current assets defined in third method is the minimum stock levels which a company carries through all the year••In 1997 RBI withdrew the instructions regarding following of Tandon committee recommendations to assess the MPBF and permitted all banks to follow their own methods with in prudential guidelines .MPBF•Tandoncommittee suggested the following threealternatives for calculating MPBF•First Method:MPBF = 0.75 (CA - other current liabilities)This method ensures the minimum current ratio of 1.17:1•Second Method:MPBF = (0.75 X CA) - other CLThis method ensures the minimum current ratio of 1.33:1•Third Method:MPBF = 0.75(CA-CCA) - CLCCA means core current asset= CURRENT ASSET -OTHER SHORT TERM LIABILITIES
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What is modified MPBF system in Indian context?
MPBF stands for Maximum Permissible Banking Finance in Indian Banking Sector. MPBF guidelines were suggested in Tandon commettee which were being followed by Indian Banks with lot of stringency. Corporates faced lot of problem in getting Finance from banks on account of stringency of the norms and they had to resort to other sources of finance at a higher cost these norms were dissolved. Consequently SBI, India's largest bank came out with its own guidelines which were on the similar lines but with relaxed norms which are being followed by all banks with slight personalisation and referred to as modified MPBF System in Indian context.
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