that it transpires the whole activity of the firm and also the way of using the working capital finance by the borrower. Credit monitoring arrangement is a data to submitted to banker for fresh working capital finance or renewal of working capital limits. . CMA system is so scientific and systematic. Ratio Analysis. assets & liabilities which is required to be given in a specific format to the bank by applicant. estimates of current year & projections of next at least 2 years are provided to bank by the applicant along with Funds Flow Statement. CMA provides information about income. . This specific format is referred to as CMA Report / CMA Data. Comparative Statement of Current Assets & Current Liabilities & Statement of Maximum Permissible Bank Finance. expenses. Audited P & L A/c & Balance Sheet of at least last 1 year. RBI prescribed two sets of formats viz (i) Assessment of working capital requirements and (ii) Monitoring through Quarterly Information System (QIS). Under CMA system. RBI introduced Credit Monitoring Arrangement (CMA) after discontinuing Credit Authorization Scheme (CAS) in 1988. ‘General Category’ and ‘Traders & Merchant Exporters’. .e. to cover borrowers i. RBI has been issuing guidelines and directives to the banking sector toward this end. .Regulation of bank finance Implemented by RBI in mid 1960’s in order to 1.Redirect credit to the priority sector of the economy. Measure of discipline among industrial borrowers. 2. The Credit Monitoring Arrangement (CMA) under which banks were required to report to RBI the details of credit facilities sanctioned to large borrowers from the banking system for post sanction scrutiny was also discontinued in December 1997 And in lieu thereof a new reporting system was put in its place. . Where assessment of working capital limits is done as per Simplified Turnover method (Nayak Committee). information on Credit Monitoring Arrangement (CMA) data base forms is not required. Committee was under the chairmanship of Mr. RECOMMENDATIONS: 1. P. Norms of Current Assets 2. Committee submitted its report in August 1975.L. Periodic information and Reporting System . Tandon. Emphasis of Loan system 4. Committee was form in year 1974. Maximum permissible Bank Finance 3. Balance Sheet Assets • • • • • Current Assets Fixed Assets Receivables Export receivables Inventories Profitability Statement Sales Projection Liabilities • • • • • • • Bank Finance Channel Finance Sundry Creditors Income Tax Provision Term Loan Investment Other Current Liabilities Term Liabilities Level of FG/WIP Profit After Tax . . Sales Projection. There are some points which are to be taken care of while preparing a case for working capital because of the reason that various Banks differ on the treatment of certain items in the CMA.The level of FG/ WIP in profitability statement has direct link with the projected/ estimated profitability. it should be decided accordingly. PROFITABILITY STATEMENT: 1. therefore. Level of finished goods/work-in-progress.Sales should be kept at an achievable level and on conservative basis because it is directly connected with the rating of proposal. 2. To avail more working capital finance and to improve the net worth of the firm. Bank Finance.3.This column shows the amount of loan which is expected from the Bank. Profit After Tax. 2.many companies works for the other corporate and provide channel financing through their Bankers to their dealers/ distributors on the corporate guarantees of such corporate. CURRENT LIABILITIES: 1. Channel Finance. projected profit should not be overstated. If there is a sub limit against the book debts that can be shown under brackets. Only the profit which is likely to be shown should be estimated/ projected. . Provision for income tax can be net off with the advance income tax deposited. there are certain Banks who insist to show the term loan instalments which are payable in the next FISCAL as current liability whereas some other Banks allow the borrower to show full amount as term loan in the long term liability.If borrower has taken some term loan from the Bank/ FI. 4. 5. . This will improve the current ratio/ NWC and TOL/ TNW too. Sundry Creditors-against goods –if the creditors against the goods are shown on a lower level this will amount to improve current ratio and net working capital and also better drawing power. Term Loan Investments.3. Income tax provision. Other current Liabilities.6. Any statutory dues which are overdue for more than six months from the date of the end of the financial year. .When the Bank does not insist to show the term loan instalments in current liabilities. full amount of term loan can be shown under this head.These may be towards sales tax liability or any other outstanding expenses. Term Loan. Car loans/ other private loans like LAP etc. TERM LIABILITIES: 1. can be shown under the category of deferred payment credits. shall compel the Bank to reduce the rating of the borrower to the next lower level which will adversely affect the eligibility of the working capital finance. Unsecured Loans-Loans taken from the promoter directors/ partners of the firm whether interest free or interest bearing can be shown under this head. which will adversely affect all ratios including current ratio. Equity share capital. Instead the share application money is treated as current liability if the same is over and above the authorized share capital. . Net Worth: 1.Share application money cannot be shown as equity.2. General Reserve/Share Premium.Sometimes to save on the cost of ROC fee for increase in authorized share capital. 3.Preference Shares to be redeemed within one year should be treated as current liability and beyond that.Profit & Loss. should be categorized as long term liability. the equity shares are issued on premium. . This amount can be shown as general reserve. 4. Preference Share Capital.This amount will reflect the profit earned during the year. This amount sometimes is shown under General Reserve too.2. CURRENT ASSETS: 1.there is serious disagreement of a few banks for treatment of fixed deposits which are kept by them against the margin of letter of credit/ bank guarantee. Cash & Bank Balance-Cash and bank Balance should be shown at the lowest level as the bank will not finance these items. . 2. The bank shall finance against the drawing power which is based on stock and debtors less creditors and the balance of cash and bank shall form the part of the current asset and will govern the MBPF. Fixed deposits. Thus even if MPBF is higher. whereas for CMA margin at 25% is provided.) .3. the drawing power is lower. (Note:. The debtors beyond six months are normally not considered as current assets.Normally Banks provide 35% to 50% margin on the receivables while calculating the drawing power. Receivables ( Other then discounted under LC)Book debts other than discounted against LC can be shown as current assets. yet 100% recovery is expected in such cases as such matters are closely kept under surveillance under RBI. All these should be placed carefully to make a Good CMA.The projected/ estimated level of RM/ WIP/FG/ Debtors can be justified with the holding levels at the month end for the past 12 months. .these are given a period of 180 days and no margins are prescribed. Inventory. These all items are necessary while preparing a CMA Report. 5.4. Exports Receivables. .Banker would be able to understand how the unit is performing depending on the various Ratios derived from CMA data.