Banky’s Understanding: 7 Cs: (1) Character: Integrity, honesty, track record, willingness to repay. (2) Capacity: Ability to repay — income, business profitability, management capability. (3) Capital: Net worth, own funds, stake in business. (4) Collateral: Security offered — primary and secondary. (5) Conditions: Economic environment, industry outlook, market conditions. (6) Cash flows: Source of repayment — projected inflows vs outflows. (7) Creditworthiness: Overall assessment combining all factors + credit rating.

Banky’s Understanding: Nayak Committee (Turnover Method): WC requirement = 25% of projected annual turnover. Bank finance = minimum 20% of turnover. Borrower margin = 5% of turnover. Suitable for: small and medium enterprises. For WC limits up to ₹5 crore. Simple and quick method. Does not require detailed CMA data. Banks may use for higher limits too based on their policy.

Banky’s Understanding: Tandon Committee (July 1974): PL Tandon, Chairman PNB. Introduced MPBF concept. Method 1: 75% of Working Capital Gap (WCG = CA – CL excl bank). Borrower: 25% of WCG from LT funds. Current Ratio = 1.17. For new/weak units. Method 2: Total CA – 25% of TCA – OCL = MPBF. Borrower: 25% of TCA from LT funds. CR = 1.33. Standard method. Method 3: Core CA fully from LT + 25% of balance CA from LT. Highest borrower contribution. CMA Data: 6 forms — particulars of limits, operating statement, balance sheet, current assets/liabilities, MPBF computation, fund flow.

Banky’s Understanding: Operating Cycle Method: WC = Annual operating expenses ÷ Number of operating cycles per year. Operating cycle = RM storage + conversion time + FG storage + collection period. Number of cycles = 360 ÷ total cycle days. Considers: RM holding, WIP, FG holding, receivable collection, payable credit. More accurate than turnover method. Suitable for manufacturing. Creditors NOT set off against stock (for SMEs). Debtors >180 days excluded.

Banky’s Understanding: DSCR (Debt Service Coverage Ratio): Key parameter for term loan assessment. Formula: (Net profit after tax + depreciation + interest on TL) ÷ (Principal repayment + interest on TL). Minimum acceptable: typically 1.5 to 2.0 (varies by bank/industry). Average DSCR over repayment period considered. Year-wise DSCR checked — first year often lowest (new project). If low, restructure repayment (moratorium/balloon). Project cost: land + building + plant + preliminary expenses + contingency + WC margin.

Banky’s Understanding: Cash Budget Method: Monthly projected cash inflows (sales, collections, other receipts) vs cash outflows (purchases, wages, overheads, loan repayments). Cash surplus/deficit computed monthly. Bank finances the peak cash deficit. Best for: seasonal industries (sugar, tea, rice mills). Also for: borrowers with irregular cash flows. Requires detailed month-wise projections. More complex but most accurate for seasonal businesses.