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For Chartered AccountantsRates reviewed September 2026

CMA Data and MPBF Calculator for a Working Capital Limit

CMA data is the pack a bank asks for before it sanctions or renews a working capital limit. In practice it runs to six statements: the existing and proposed limits, the operating statement, the analysis of the balance sheet, the comparative position of current assets and current liabilities, the computation of maximum permissible bank finance, and the fund flow statement. That six-form layout is a banking convention traceable to the Tandon Committee report of 1974, not a format notified by anyone, and individual banks still circulate their own spreadsheets built on it.

Form V, the MPBF computation, is the sheet the credit officer turns to first. It applies the Tandon lending norms: the working capital gap is total current assets less current liabilities other than bank borrowing, Method I funds 75 percent of that gap, and Method II funds the gap after the borrower has met 25 percent of total current assets from its own long-term sources. The two produce different numbers and, more importantly, different current ratios.

The Reserve Bank withdrew the MPBF prescription and its 1.33:1 minimum current ratio in 1997, and its Master Circular on Management of Advances records that banks are now free to decide the minimum current ratio and to assess working capital as they see fit. Most have kept the Tandon arithmetic anyway, because it is the shared language of a credit note. Treat every benchmark on this page as the market convention it is rather than as a rule you can cite back at a banker.

Aalekh generates CMA data and project reports from a client's books, which is why the arithmetic is set out here in full rather than hidden behind a spreadsheet. CMA preparation is a paid CA deliverable and it should be: the judgement sits in the projections that feed Form II and Form IV, not in the two lines of Form V that this page computes for you.

CMA Data and MPBF Calculator

Inventory, receivables, advances and cash, as they appear in Form IV of the CMA pack.

₹

Creditors, statutory dues and advances from customers, but not the working capital limit itself.

₹

Used only for the turnover method cross-check at 25 percent of turnover.

₹

Maximum permissible bank finance

₹1,40,00,000

Method II, on a working capital gap of ₹2,40,00,000

Working capital gapcurrent assets less current liabilities other than bank borrowing
₹2,40,00,000
MPBF under Method I75% of the gap, leaving a margin of ₹60,00,000
₹1,80,00,000
Current ratio under Method Icurrent assets over the other current liabilities plus the limit
1.18
MPBF under Method II75% of current assets less other current liabilities, margin ₹1,00,00,000
₹1,40,00,000
Current ratio under Method II1.33 by construction whenever Method II gives a positive figure
1.33
Turnover method finance20% of turnover, against an assessed requirement of ₹2,50,00,000
₹2,00,00,000
Promoter margin the applied method needs25% of current assets, brought as net working capital from long-term sources
₹1,00,00,000
Method the bank would apply
Method II
  • Method II leaves a current ratio of exactly 1.33 whenever it gives a positive figure, because it caps total current liabilities at 75 percent of current assets.
  • The Reserve Bank withdrew the MPBF prescription and its 1.33:1 minimum current ratio, so these are bank-level conventions rather than notified requirements.

The formula

Working capital gap = Current assets - Current liabilities other than bank borrowing; MPBF (Method I) = 75% × Working capital gap; MPBF (Method II) = (75% × Current assets) - Current liabilities other than bank borrowing

Current assets
Total current assets as classified in Form IV: inventory, receivables, advances to suppliers, cash and other current assets, taken at projected levels.
Current liabilities other than bank borrowing
Creditors, statutory dues, advances from customers and other current liabilities, but excluding the working capital limit itself, which is what is being sized.
Working capital gap
The part of the current assets that the other current liabilities do not already fund, which is what has to be financed by the bank and the promoter together.
MPBF
Maximum permissible bank finance, the ceiling on the fund-based working capital limit the norms allow.
Net working capital margin
The borrower's own long-term contribution to current assets, being the working capital gap less the MPBF.

Method II always leaves a current ratio of exactly 1.33 because it caps total current liabilities at 75 percent of current assets. Method I leaves a lower ratio, and the lower the larger the other current liabilities are, so the widely quoted figure of 1.17 for Method I holds only for one particular mix.

How to calculate it

  1. 1

    Build the current assets and current liabilities schedule first

    Form IV is where the argument is won. Project inventory, receivables and creditors on holding periods that the last three audited years support, and exclude anything that is not genuinely current. Investments in group concerns, long-term security deposits and disputed receivables get pushed out of current assets by the credit officer if you leave them in, and the gap shrinks by the same amount.

  2. 2

    Strip existing bank borrowing out of the current liabilities

    The working capital gap is measured against current liabilities other than bank borrowing. If you leave the existing cash credit outstanding in the figure, the gap collapses and the computation sizes the limit you already have rather than the one the business needs. Instalments of term loans falling due within twelve months stay in current liabilities for the ratio, but the fund-based working capital limit itself comes out.

  3. 3

    Compute the gap and the Method I number

    Subtract other current liabilities from current assets to get the working capital gap. Method I funds 75 percent of it and asks the promoter for the remaining 25 percent as net working capital. This is the softer of the two norms and was originally aimed at smaller borrowers; used on its own today it is mainly a reference point against which the Method II figure is read.

  4. 4

    Compute the Method II number and check the ratio

    Method II asks the promoter to fund 25 percent of total current assets, not 25 percent of the gap, so MPBF is 75 percent of current assets less the other current liabilities. Because total current liabilities then come to exactly 75 percent of current assets, the current ratio lands on 1.33 every time. If the Method II figure comes out negative, other current liabilities already exceed 75 percent of current assets and the proposal has a structural problem the limit cannot fix.

  5. 5

    Cross-check against the turnover method

    For smaller limits the Reserve Bank's turnover method assesses working capital at 25 percent of projected turnover, with the borrower contributing 5 percent of turnover as net working capital and the bank funding a minimum of 20 percent. The circular applies it to fund-based limits up to ₹5 crore for micro and small enterprises and up to ₹1 crore for others. Run both and be ready to explain the difference, because the credit officer will.

  6. 6

    Sanity check the projections behind the numbers

    A limit computed off a turnover projection that the order book does not support will be cut at the sanction stage, and a limit computed off inflated inventory holding will be cut at the first stock statement. Keep the holding periods in the projections within touching distance of the audited history, and explain any step change in a note rather than leaving the banker to find it.

Tandon Method I and Method II compared

Tandon Method I and Method II compared
ItemMethod IMethod II
Margin the borrower brings25 percent of the working capital gap25 percent of total current assets
MPBF75 percent of the working capital gap75 percent of current assets, less other current liabilities
Current ratio it leavesBelow 1.33, and lower the larger the other current liabilities areExactly 1.33, whatever the other current liabilities are
Effect on the promoterLighter contribution, so more of the current assets are bank fundedHeavier contribution, which is why banks treat it as the working norm
Status todayA reference point since the 1997 withdrawalA bank-level convention, not a notified requirement

Worked example

Projected total current assets
₹4,00,00,000
Current liabilities other than bank borrowing
₹1,60,00,000
Projected turnover
₹10,00,00,000
  • Working capital gap = ₹4,00,00,000 - ₹1,60,00,000 = ₹2,40,00,000
  • Method I: MPBF = 75% × ₹2,40,00,000 = ₹1,80,00,000, leaving a margin of ₹60,00,000
  • Current ratio under Method I = ₹4,00,00,000 ÷ (₹1,60,00,000 + ₹1,80,00,000) = 1.18
  • Method II: MPBF = (75% × ₹4,00,00,000) - ₹1,60,00,000 = ₹1,40,00,000, leaving a margin of ₹1,00,00,000
  • Current ratio under Method II = ₹4,00,00,000 ÷ (₹1,60,00,000 + ₹1,40,00,000) = 1.33
  • Turnover method cross-check: 25% of ₹10,00,00,000 is ₹2,50,00,000 of working capital, of which the bank funds 20% of turnover, ₹2,00,00,000

MPBF ₹1,40,00,000 under Method II against ₹1,80,00,000 under Method I, and Method II is the one a bank would apply

Frequently asked questions

CMA stands for credit monitoring arrangement. It is the standardised pack of past and projected financials a bank asks for when sanctioning or renewing a working capital limit, usually running to six forms covering existing limits, the operating statement, the balance sheet analysis, the current assets and liabilities schedule, the MPBF computation and the fund flow. There is no statutory requirement to have it prepared by a chartered accountant, but banks expect projections that tie back to audited figures, so in practice it is a paid CA deliverable.
The working capital gap is total current assets less current liabilities other than bank borrowing. The existing cash credit or overdraft limit is deliberately excluded, because the gap is the amount that has to be funded by the bank and the promoter together and including the limit would make the calculation circular. On projected current assets of ₹4,00,00,000 against other current liabilities of ₹1,60,00,000, the gap is ₹2,40,00,000.
Method I funds 75 percent of the working capital gap and asks the borrower for 25 percent of the gap as net working capital. Method II funds the gap after the borrower has contributed 25 percent of total current assets, so MPBF is 75 percent of current assets less the other current liabilities. Method II always asks for the larger promoter contribution, which is why the limit it produces is lower and why banks treat it as the working norm.
Under Method II the total current liabilities, being the other current liabilities plus the MPBF, come to exactly 75 percent of current assets by construction. Dividing current assets by 75 percent of themselves gives 1.333 regardless of the mix, so the ratio is a consequence of the formula rather than a separate test. Method I has no such property: its ratio falls as the other current liabilities grow, which is why the figure of 1.17 often quoted for Method I holds only where those liabilities are about 40 percent of current assets.
No. The Reserve Bank withdrew the MPBF prescription based on a minimum current ratio of 1.33:1 recommended by the Tandon Working Group, and its Master Circular on Management of Advances records that banks are now free to decide the minimum current ratio and to assess working capital according to their own perception of the borrower. Most banks have kept 1.33 as an internal benchmark, so it still governs what gets sanctioned, but it is a bank-level convention and not a notified rule.
The Reserve Bank's turnover method assesses working capital at 25 percent of projected annual turnover, with the borrower bringing 5 percent of turnover as net working capital and the bank funding a minimum of 20 percent. The master circular applies it to fund-based working capital limits up to ₹5 crore for micro and small enterprises and up to ₹1 crore for other borrowers. Above those thresholds the bank assesses the requirement on its own methodology, which in practice usually means Method II.
A negative Method II figure means the other current liabilities already exceed 75 percent of total current assets, so on the norms there is no room for any bank finance at all. That is a structural signal rather than an arithmetic quirk: the business is running on supplier credit and statutory dues, and the answer is usually a capital infusion or a restructuring of the current liabilities rather than a working capital limit. Treat the MPBF as nil and rework the projections.

Sources

Rates and rules on this page come from the following. This is a working aid, not professional advice: confirm anything material with your Chartered Accountant before you act on it.

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