What is the role of tandon committee on working capital?

Answer 1

•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.

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•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

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• 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 three

alternatives 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 CL

This method ensures the minimum current ratio of 1.33:1•Third Method:

MPBF = 0.75(CA-CCA) - CL

• CCA means core current asset= CURRENT ASSET -OTHER SHORT TERM LIABILITIES