Contents

WORKING CAPITAL FINANCE .......................................................................................................... 2

1. What is Working Capital: ...................................................................................................... 2
2 Sources of working capital: ................................................................................................. 2
3 Factors Influencing Working Capital Requirement: ......................................................... 2
4 Concept of Operating Cycle:................................................................................................ 3
5 Concept of Net Working Capital (NWC): ............................................................................ 3
6 Methods of Assessment of Working Capital Limits: ........................................................ 4
7 Turnover Method: .................................................................................................................. 4
8 Flexible Bank Finance: (FBF) .............................................................................................. 7
9 Collection of Financial Data: ............................................................................................... 8
10 Cash Budget Method: ...................................................................................................... 13
11 Net owned Funds Method: ............................................................................................. 15
12 Loan System of Delivery of Bank Credit ...................................................................... 15
13 Working Capital Finance to Information Technology and Software Industry …….16
14 Scheme for finance to Cotton Ginners and Traders……………………………...............17

15. INTERNATIONAL TRADE: ................................................................................................. 18

14.1 Packing Credit........................................................................................................... 18
14.2 Post-Shipment Credit: ............................................................................................. 20
Annexure: ...................................................................................................................................... 21
CMA DATA, QPR, HOS, Stock Statement, Book Debt Statement, Declaration.

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WORKING CAPITAL FINANCE

1. What is Working Capital:

1.1 Any enterprise whether industrial, trading or other, requires two types of
assets to run its business. It requires fixed assets which are necessary for
carrying on the production/business such as land and buildings, plant and
machinery, furniture and fixtures, etc. For a going concern these assets
are of permanent nature. The other types of assets required for day to day
working of a unit are known as current assets which are floating in nature
and keep changing during the course of business. It is these ‘total current
assets’ which are generally referred to as ‘gross working capital’.
1.2 The working capital is employed in purchasing those items, which are
transformed into saleable goods by way of production process or by
delivery of services (In case of non-manufacturing unit).
1.3 Current assets are assets which normally get converted into cash during the
operating cycle of the unit. The different components of the current assets
/ working capital are Cash & bank balances, Inventory, Receivables,
Advances to suppliers, Other Current assets etc.

2 Sources of working capital:

2.1 Own funds
2.2 Bank borrowings
2.3 Sundry Creditors
2.4 Advance from customers
2.5 Other current liabilities

3 Factors Influencing Working Capital Requirement:

3.1 Nature of business – service/trade/manufacturing
3.2 Seasonality of operations – peak/non peak
3.3 Production Policy of the unit – constant/seasonal
3.4 Market conditions – competition / credit terms
3.5 Level of activity – quantum of production / turnover
3.6 Prevailing guidelines of RBI

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3.7 Trade and industry practices
3.8 Operating Cycle of the concerned entity
3.9 Level of Current assets to be maintained
3.10 Financial and relevant parameters of the borrowers
3.11 Available margin in the business (Net Working Capital)

4 Concept of Operating Cycle:

4.1 It is the average time taken by the enterprise in manufacturing the goods
and selling them for cash so that the funds can be deployed in starting
another batch of production.
4.2 In other words, the operating cycle commences when cash is initially
injected into the system for purchase of the basic raw material components
required for production. The system completes one cycle when cash is
realized out of the sale proceeds of finished goods including those from the
receivables/debtors.
4.3 Every rupee invested in current assets at the beginning of the cycle comes
back with the profit element added, after a lapse of a specific period of
time. This length of time is known as ‘Operating Cycle’ or ‘Working Capital
Cycle’.
4.4 The period of the operating cycle is measured by the aggregate of the
holding period of all the major components of the current assets viz., raw
material, work in process, finished goods, receivables.
4.5 The time allowed by the trade creditors does not reduce the total
operating time i.e. from the time of purchase of raw materials to the final
realization of receivables. Trade credit is essentially a financing concept
and it does not impact the total operating cycle.

5 Concept of Net Working Capital (NWC):

5.1 NWC is the entrepreneur’s margin towards day to day operations, made
available in the system from Long Term funds.
5.2 NWC is also referred to as ‘liquid surplus’ and is the margin available for
working capital requirements of the unit.
5.3 This is worked out as surplus of long term sources over the long term uses.

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5.4 It is also calculated as under:

NWC = LTS – LTU, which is also equal TCA – TCL

Where NWC: Net working capital, LTS: Long Term sources of funds, LTU:
Long term uses of funds, TCA: Total Current Assets, TCL: Total Current
Liabilities.

6 Methods of Assessment of Working Capital Limits: The assessment of Working

Capital of the borrower can be done under anyone of the following four
methods:
6.1 Turnover Method
6.2 Flexible Bank Finance (FBF) Method
6.3 Cash Budget Method
6.4 Net Owned Funds Method for Residuary Non- Banking Companies.

7 Turnover Method:
7.1 Under this method, the working capital limit shall be computed at 20% of
the projected sales turnover accepted by the Bank. In case of MSE
borrowers seeking / enjoying fund based working capital facilities up to
Rs.500 lacs from banking system, the limits shall be assessed on the basis of
turn over method.
7.2 The turnover method shall be applied for sanction of fund based working
capital limits to the non MSE borrowers requiring working capital facilities
upto Rs.100 Lacs from the banking system.
7.3 In case of accounts sanctioned under Union Trade Scheme, the turnover
method is applicable for working capital requirements upto Rs.200 lacs.
7.4 This system shall be made applicable to traders, merchants, exporters who
are not having a predetermined manufacturing/trading cycle.
7.5 The actual withdrawal of funds should be allowed only to the extent of
permitted level of drawing power.

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7.6 The projected level of current assets or current liabilities is not analyzed in
same way as in FBF method. Hence, it is preferable to take the available
margin based on the latest audited balance sheet.
7.7 Under this method, projected annual sale is to be justified. The realistic
projection of annual sales is absolutely essential, which minimizes the
possibility of over financing or under financing.
7.8 The level of projected sales is analyzed and considered at a level accepted
to the Bank based on the information provided by the borrower/applicant.
The reasonableness of the projected/ accepted sales may be verified
based on the following factors with proper justification:
7.8.1 Year – on – Year growth for the last three years
7.8.2 Achievement of projections by the unit in the last three years
7.8.3 Annualizing the sales based on the actual sales made during past months in
the accounting year.
7.8.4 Additional orders / expansion
7.8.5 Marketing potential
7.8.6 Future production, any increase in the capacity utilization, etc.
7.8.7 Experience and capability of the borrower
7.8.8 Scope for expansion like additional distributorship/ orders/ franchise, etc.
7.9 Under this method, the total working capital requirements are pegged at
25% of the projected annual sales, which assumes an average working
capital cycle of 3 months i.e. working capital would be turned over 4 times
in a year.
7.10 Under the turnover method, branches/offices shall ensure maintenance of
a minimum margin on the projected and accepted annual sales turnover.
(i.e. 5% of the projected and accepted annual sales)
7.11 In case of seasonal activities, the seasonality of the sales and production
are to be taken into account. The sales during the peak season and non
peak season periods are to be annualized separately and two different
limits are to be arrived as peak level and non-peak level limits.

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7.12 Under this method, the working capital limit is arrived as under:

1. 25% of the accepted projected annual sales …….

2. Less (a) minimum margin at 5% of

accepted projected annual sales …….
(or)

Actual margin (NWC) available ..……

(Whichever is higher )
The resultant (Difference between 1 & 2)is the eligible working capital limit.

7.13 If the actual margin available is less than the minimum stipulated margin at
5% of the projected sales, then either (1) the borrower is to be advised to
bring in the additional capital to the extent of the shortfall or (2) limit may
be fixed at the 4 times of the margin available till the margin is improved
to the minimum stipulated margin.
7.14 Wherever the production cycle is longer than 3 months, the customer has
to bring in additional margin in addition to the minimum margin of 5%.
7.15 Generally the assessment of working capital credit limits is done both as
per FBF and Turnover method. If the credit requirement based on FBF
method is higher than the one assessed as per turnover method, the higher
limit may be sanctioned.
7.16 On the other hand if the assessed limit as per FBF method is lower than the
one assessed as per Turnover method , while the limit can be sanctioned
upto 20% of the projected sales, actual drawals may be allowed on the
basis of the drawing power.
7.17 The minimum of 20% of the projected sales as per the turnover method
may not be treated as maximum.
7.18 In certain cases of traders like grains dealers, petrol bunks, commission
agents, travel agents, turnover methods would not be appropriate as it may
end up in over financing. In such cases, average stock holding level, storing

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 capacity and the normal book debts level should be taken into
consideration while determining the eligible working capital finance.
Similarly, for traders dealing in perishable goods like vegetables, fruits,
food products, milk and bakery products, not more than 15 days sales and
debtors put together may be considered as working capital limit. Hence, in
case of borrowers desiring facilities having a WC cycle of more/less than 3
months in a year, the WC requirements could also be funded after assessing
his requirements on the basis of his WC cycle, after fixing proper margins.
7.19 Further the quantum of loan has to be assessed based on the nature of
business and type of goods dealt. For small kirana shops engaged in retail
trade the quantum of WC loan should be fixed at not more than 2 months
average sales (IC : 10038 dated 27/08/2014).
7.20 In order to mitigate the constraints faced by MSEs and to support Digital
Push of Government of India, Bank has introduced a new scheme ‘Union
Turnover Plus’ to fund the need based requirement of MSEs having working
capital cycle of above 3 months based on projected / accepted sales
turnover and which are adopting digital cashless channels for their business
transactions. Under this scheme, Bank finance upto 30% of Digital portion
and 25% of balance portion of projected sales will be provided.

7.21 CMA format may not be insisted upon for the credit limit upto Rs.1 crore
covered under turnover method.

8 Flexible Bank Finance: (FBF)

8.1 Flexible Bank Finance Method is an extension of permissible Bank Finance
Method with customer friendly approach in as much as the scope of Current
Assets is made broad based and for evaluating projected liquidity,
acceptable level of Current Ratio is taken at 1.17:1.
8.2 Flexible Bank Finance method is normally applicable for account with
credit limits of above Rs.5 Crores for MSE advances & above Rs. 1 Crore for
other advances.

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8.3 Under the FBF system, an uniform classification for Current Assets and
Current Liabilities shall be adopted on the terms given in CMA data format.
8.4 The working capital finance is to bridge the gap between Current Assets
and Current Liabilities.
8.5 FBF method is based on the assessment of limit as the difference between
Working Capital Gap and Projected Net Working Capital.
8.6 The gap in required level of resources to maintain the projected level of
current assets and the manner in which the current assets are managed
need to be examined.
8.7 The assessment of credit requirement of a party shall be made based on
the projected study of the borrower’s business operations vis-à-vis the
production / processing cycle of the industry. The projected level of
inventory and receivables shall be examined in relation to the past trend,
market developments and industry trend.
8.8 Detailed circular on Flexible Bank finance was issued by the Bank vide
IC5637 dt.09-03-1998, which is to be scrupulously adhered to.

9 Collection of Financial Data: The required financial data are obtained from the
borrower in CMA format (Credit Monitoring Arrangement).It consists of the
following 6 parts/forms:
9.1 Form I:
9.1.1 It gives the particulars of existing / proposed limits from banking system
including limits from all financial institutions as on the date of the
application.
9.1.2 Information relating to Working capital and Term loan borrowing (existing
and proposed) are captured.
9.1.3 Additional information regarding borrowings from NBFCs, Term Lending
Institutions for Working Capital purposes, Inter Corporate Deposits taken,
etc. are all collected in Form I.

9.2 Form II: It is the Operating Statement and the Manufacturing/Trading &
Profit & Loss account is provided in this form to arrive at the details on
Raw Materials consumed during the year, Cost of Production, Cost of Sales,

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 Operating Profit, details on other income and expenses, and finally the
Retained Profit after necessary appropriations.

9.3 Form III:

9.3.1 It is the analysis of Balance Sheet.
9.3.2 Analysis of balance sheet and profit & loss account over a period of years
is an important tool in assessing the financial position of the borrower and
his requirements
9.3.3 Audited financial statement for the last 3 years should be obtained and
analyzed in case total exposure to the party from all Banks / FIs is
Rs.10.00 lakh and above.
9.3.4 If the latest financials available is more than one year old, a certified
unaudited provisional balance sheet and profit and loss account as at the
end of the last accounting year to be obtained.
9.3.5 Analysis should be prepared in the lines as per Form III.
9.3.6 Total liabilities are captured with sub-totals of detailed entries under the
heads Current Liabilities, Long Term Liabilities and Net Worth.
9.3.7 Similarly, total assets are captured with subtotals of detailed entries
under the heads Current Assets, Fixed Assets, Non- Current Assets and
Intangible Assets.
9.3.8 The auditor’s certificate and the report of Board of Directors (in case of
Limited Companies) together with the notes of the auditors on the
financial statement should be carefully examined as they may have
bearing on the borrower’s financial position.
9.3.9 The borrower may be requested to furnish the required information if the
same is not available in the financial statements.
9.3.10 By this method of analysis, uniformity across all the financial years in
classification of various assets and liabilities mainly, current assets and
current liabilities is adopted for assessing the working capital limit.
9.3.11 After ensuring the correctness of total liabilities and assets as per the
Balance Sheet, Tangible Net Worth, Net Working Capital, Current Ratio,
etc. are computed in Form III.

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9.3.12 Additional details based on the notes on accounts attached to the audited
statements, the information on the contingent liabilities if any, like
disputed excise/customs/tax liabilities, arrears of cumulative dividends,
gratuity liabilities, etc. are also provided.

9.4 Form IV:

9.4.1 This is the comparative statement of Current Assets and Current
Liabilities.
9.4.2 The entire break up of current assets and current liabilities based on Form
III is provided.
9.4.3 The holding level in days/month of the major components in both current
assets and current liabilities are computed.
9.4.4 The holding levels may be studied in comparison with the holding levels of
similar units in the industry, wherever available. The study of the
requirements / holding levels of raw materials, finished goods, stores,
stocks in process etc. should be based on the past trend of the concern.
9.4.5 The levels of projection to be examined with reference to the borrower’s
specific operational strengths and weakness, their need to hold the
current assets at the levels projected and their ability to absorb cost of
carrying inventory / receivables at the levels proposed.
9.4.6 In cases where the projections of current assets reflect excessive and
inefficient levels of inventory and receivables, or where the projected
level of creditors is low and does not bear adequate explanation, the
question of revising the projected values of Current Assets and Current
Liabilities will arise and will have to be discussed with the borrower
thoroughly.
9.4.7 Divergence in the holding levels as compared to past trend may be allowed
with justification. Some of the reason for variation in holding levels is
detailed herein below:
9.4.7.1 Bunched receipt of raw materials including imports.
9.4.7.2 Power cuts, strikes and other unavoidable interruption in the process
of production.

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 9.4.7.3 Accumulation of finished goods due to non-availability of shipping
space for exports or other disruptions in sales (but not under
circumstances where a sales stimulation is needed through reduction
in prices).
9.4.7.4 Build up of stocks of finished goods such as machinery, due to failure
on the part of purchasers for whom these were specifically
manufactured to take delivery.
9.4.7.5 Need to cover full or substantial requirements of raw materials for
specific export contracts of short duration.
9.4.7.6 Care to be taken to ascertain the actual reasons for the excessive
inventory before accepting the validity or deviations.
9.4.8 Variations have to be brought into the process note stating past levels and
justification for accepting the same.
9.4.9 Normally the holding period is calculated for the following items of
current assets and current liabilities for examining the projected level of
inventory and receivables and creditors.
Current Assets -
Raw materials consumed
Other consumable spares
Stocks in process
Finished Goods
Export Receivables
Other Receivables
Current Liabilities -
Creditors for purchases

9.5 Form V:
9.5.1 In this form, the overall eligible limit for working capital purpose under
flexible bank finance method is computed in the following manner:
Total Current Assets (TCA) ……..
Less Current Liabilities (other than Bank Borrowings) ……..
The resultant is Working Capital Gap (WCG) ……..
Less Actual / Projected Net Working Capital (NWC) …….

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 The resultant is eligible finance (FBF) …….

9.5.2 No minimum margin (NWC) is stipulated and the actual or projected

margin as computed in the CMA data as per the Form IV is taken for the
respective years i.e. previous year, current year, next year, etc. Branch to
ensure classification of current assets and current liabilities as per bank’s
guidelines on flexible bank finance.
9.5.3 The projected bank borrowing shown in Form III which reflects the finance
sought by the borrower, will be validated with reference to the operating
cycle of the borrower, projected level of operations, nature of projected
build up of Current Assets and Current Liabilities, Profitability, liquidity
etc. When these projected parameters are acceptable, the projected
bank borrowing will stand validated for sanction.
9.5.4 To find out whether there is sufficient margin in the system, the following
calculations in % terms are also made immediately after the arrival of
Flexible Bank Finance.

1. NWC (margin) to Total Current Assets (TCA) (%)

2. FBF (Limits) to Total Current Assets (TCA) (%)
3. Other Current liabilities to TCA (%)

9.6 Form VI-A:

9.6.1 It is the analysis of the flow of funds between two accounting years and
whether there is diversion of funds, internally or externally.
9.6.2 How much funds have been raised by way of long term sources, how much
spent on long term uses and whether there is surplus or deficit between
long term sources and long term uses.
9.6.3 If it is deficit / negative, it is implied that the short term funds have been
used for long term uses i.e. diversion of funds, which leads to negative
NWC and lower Current Ratio.
9.6.4 In case of internal diversion, Borrower is to be advised suitably to infuse
funds by way of long term sources.

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9.6.5 If the deficit is because of diversion of funds outside the system, the entity
should be advised to bring back the funds to shore up working capital.

9.7 Form VI-B: It is analysis of cash flow of the concern based on cash budget.

10 Cash Budget Method:

10.1 Cash Budget is a forecast of receipts and payments of an enterprise drawn
at small intervals of time say monthly or quarterly.
10.2 It consists of all cash receipts and cash payments (either month wise or
quarter wise) to arrive at the final closing cash balance at the end of the
month/quarter after adjusting the opening cash balance.
10.3 It is drawn for a specific period in near future in order to ascertain the
liquidity position of an enterprise at prescribed intervals during this period.
10.4 An enterprise with an ideal funds flow position may face severe liquidity
crunch during a specific period of the year. In order to find out the
specific reasons behind the strain on liquidity during the period, the
enterprise would have to draw a realistic cash budget and it is only on the
basis of the pragmatic cash budget that an enterprise would be in a
position to decide when and how to meet the short term cash deficit so
that it can tide over a temporary liquidity crisis.
10.5 Under this method, the required finance is quantified from the projected
cash flows and not from the projected values of assets and liabilities.
10.6 The working capital limit/cap is fixed based on the maximum deficit of the
cash balance (negative cash balance) based on the projected cash budget
submitted either monthly or quarterly for the next accounting year.
10.7 The operations in the account are allowed based on the liquidity
requirement of the enterprise subject to the working capital limit fixed and
subject to the availability of the drawing power.
10.8 Though the working capital limit is determined by the peak level of deficit
in the cash budget, the availability of finance is limited to the extent of
deficit in the cash budget for the respective months.
10.9 No capital expenditure may be included in the cash budget without
providing for a matching item of cash inflow to ensure that funds provided

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 for working capital is not utilized for funding acquisition of capital assets or
for other purposes.
10.10 In case there is a significant change in the pattern of inflows and outflows
vis-à-vis the figures originally worked out in the projected cash budget, the
cash budget may be revised subject to validation by the bank and
operations may be allowed as per the revised cash flow within the
maximum limit fixed.
10.11 In this method of assessment, besides the cash budget, other aspects like
the borrower’s projected profitability, liquidity, gearing, funds flow, etc,
are also to be analyzed.
10.12 Cash Budget Method may be adopted in case of specific Industries/Seasonal
activities such as Software Development, Construction Industry, Film
Industry, Sugar, Fertilizers etc., and all working capital short term loans.
Hence, the Cash budgeting method may be used in the following
circumstances when:
10.12.1 A business enterprise requests the banker for a short-term loan.
10.12.2 Before issuing Letter of Credit, the banker has to ensure that a
comfortable liquidity position exists in the client’s account when the bills
against LC are presented for payment.
10.12.3 A borrower applies for an adhoc working capital credit facility which is to
be repaid by the end of a specific period, say 3 months. It is necessary to
analyse that adequate cash surplus is likely to accrue in the borrower’s
books during this period which would take care of the repayment of the
adhoc working capital limit.
10.12.4 Credit proposals involving financing of bills, issue of Deferred Payment
Guarantee.
10.12.5 Credit proposals for financing construction activities would require
application of realistic cash budgeting in order to ascertain the level of
projected requirements at specified intervals. The amount and
periodicity of repayment may also be ascertained by cash budgets drawn
for the purpose.
10.12.6 Peak and non-peak levels of working capital credit requirements for
seasonal activities can be effectively worked out by employing cash

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 budgeting method. Activities depending on agriculture are generally
seasonal in nature. Activities like firecracker manufacturing, printing &
publication of text books, etc. are also seasonal in nature. Credit
decisions in respect of these activities are usually taken on the basis of
carefully drawn cash budgets for a year. Limits may go high during the
peak activity period of a year and may go down during the non-peak
period.
10.12.7 Financing agro-based seasonal activities like sugar/
tea/coffee/rubber/cardamom/rice milling etc. and software
development activities are essentially financing of cash gaps.
10.12.8 Cash budget method can be used for assessment while lending to NBFCs.

10.12.9 Working capital requirements of above Rs. 5.00 crore assessment is to be

done under cash budget method under Union Liqui Property Scheme.
10.13 Bank has to monitor the end use of the advance with the help of a cash
budget and also to ensure that the outstanding balance of bank loan is
covered by the value of the primary security less margin stipulated.

11 Net owned Funds Method:

11.1 RBI has withdrawn Net Owned Funds Method for NBFCs except for Residuary
Non Banking Companies (RNBC). Hence, the cash budget method can be
used for assessment while lending to NBFCs.
11.2 The Bank’s exposure shall be normally restricted to NBFC sponsored by
reputed Group clients with the proven track record, sound financials and
those complying with the RBI stipulated norms/usual lending norms
prescribed by the Bank from time to time.
12 Loan System of Delivery of Bank Credit
As per recent RBI guidelines, loan system of delivery of bank credit shall
be applicable in respect of borrowers having Aggregate Fund Based
Working Capital (FBWC) limit of Rs.150.00 crore and above from
the banking system excluding the export credit limits (pre-shipment
and post-shipment) and bills limit for inland sales from the
working capital limit. A minimum level of 'loan component' of 40%
of FBWC exposure including adhoc limit & TODs has to be maintained
for identified / eligible accounts with effect from
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 1st April 2019 and will be subsequently revised to 60 percent
with effect from 1st July 2019. Drawings in excess of minimum ‘ loan
component’ threshold may be allowed in the form of cash credit facility.
Further, Investment by the banking system in the commercial
papers issued by the borrower shall form part of the loan
component, provided the investment is sanctioned as part of the
working capital limit. The amount and tenor of loan component may be
fixed in consultation with borrower subject to the tenor being not less
than 7 days. Banks will have discretion to stipulate repayment of loan
component in installments or by way of bullet payment, subject to IRAC
norms. Bank may consider roll over of the loan component at the request
of the borrower subject to compliance of extant IRAC norms.

The undrawn portion of cash credit overdraft limits sanctioned to

the aforesaid large borrowers, irrespective of whether
unconditionally cancellable or not, shall attract a credit
conversion factor of 20 percent w e f 01.04.2019.

13 Working Capital Finance to Information Technology and Software Industry

(RBI guidelines):Following the recommendations of the “National Task Force on
Information Technology and Software development“, Reserve Bank of India has
framed guidelines for extending working capital to the said industry. Banks are
however free to modify the guidelines based on their own experience without
reference to the Reserve Bank of India to achieve the purpose of the guidelines
in letter and spirit. The salient features of these guidelines are set forth below:
13.1 Banks may consider sanction of working capital limits based on the track
record of the promoter’s group affiliation, composition of the management
team and their work experience as well as the infrastructure.
13.2 In the case of the borrowers with working capital limits of up to Rs 2 crore,
assessment may be made at 20 percent of the projected turnover.
However, in other cases, the banks may consider assessment of Bank
Finance on the basis of the monthly cash budget system. For the borrowers
enjoying working capital limits of Rs 150.00 crore and above from the
banking system the guidelines regarding the loan system of Delivery of Bank
Credit would be applicable.
13.3 Banks can stipulate reasonable amount as promoters’ contribution towards
margin.

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13.4 Banks may obtain collateral security wherever available. First/ second
charge on current assets, if available, may be obtained.
13.5 The rate of interest as prescribed for general category of borrowers may be
levied. Concessional rate of interest as applicable to pre-shipment/post-
shipment credit may be levied.
13.6 Banks may evolve tailor-made follow up system for such advances. The
banks could obtain quarterly statements of cash flows to monitor the
operations. In case the sanction was not made on the basis of the cash
budgets, they can devise a reporting system, as they deem fit.
14. Scheme for Finance to Cotton Ginners & Traders: (IC 95-2015 dt.
01.06.2015)
14.1 All existing profit making units which are involved in cotton ginning and /
or trading with credit rating of CR-4 or better are eligible for finance
under the scheme. Accounts with rating of CR-5 or below will not be
eligible under the scheme.
14.2 Take over of units is also covered subject to observance of take over
norms.
14.3 Technical , economic and financial feasibility of the proposal and repaying
capacity of the borrower is to be assessed.
14.4 Assistance in the form of Cash Credit (Hyp.) for day to day running of
business and/or in the form of medium to long term loan for
acquiring/maintenance of assets necessary to smooth running of the
business.
14.5 Margin should be 20% on stock and 40% on book debt for working capital
facility and minimum 25% for term loan.
14.6 Term loans are repayable within 7 years including maximum 2 years of
moratorium.
14.7 Rate of interest is based on the credit rating and is lower than the general
advances. No separate term premium is charged for term loans.
14.8 Collateral security of at least 125% of the aggregate facility shall be
stipulated.
14.9 Third party guarantee/personal guarantee of partners/promoters/directors
and owners of the properties offered as collateral security to be obtained.

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14.10 Key benchmark ratios are Current Ratio = 1.10 or above, DER = 3.00 or
below, Average DSCR = 1.50 or above and minimum DSCR in any year =
1.20. Any deviations can be considered by the respective ZLCC on case to
case basis incorporating justification in the process note.

15. INTERNATIONAL TRADE: E-Manual of Domestic Foreign Business

&International Banking Divisionon UBINET explains in detail various types of
import and export transactions together with exchange control
requirements to be observed by bank’s officials as also the systems and
procedure prescribed for handling such transactions at branch level. The
following paragraphs explain in brief, credit facilities usually extended to
the exporter/importer customers.
15.1 Packing Credit
15.1.1 Packing credit advance is granted to exporters or manufacturers or sub-
suppliers for financing the procurement of raw materials, processing,
manufacturing, packing, transporting, warehousing and shipping of goods
meant for export. This limit is sanctioned in accordance with RBI
guidelines, usual credit norms, Bank’s policies and internal procedures.
15.1.2 Manual of foreign exchange contains guidelines regarding granting of
packing credit advance to manufacturers / exporters.
15.1.3 While assessing export credit requirements of such customers, special
aspects of this type of facility should be taken into consideration in
arriving at need based finance.
15.1.4 Since packing credit loans have to be liquidated out of export proceeds,
they are considered along with appropriate and adequate post shipment
facilities.
15.1.5 Packing credit advance is to be sanctioned/ disbursed to exporters or the
manufacturers against evidence/ lodgement of irrevocable letter of credit
established through prime banks or confirmed orders placed by overseas
buyers for export of goods from India.
15.1.6 Permissions to be obtained from competent authority, if L/Cs is opened
by non prime banks.

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15.1.7 At the limit processing stage a careful study of the customers’
requirements vis-à-vis the procurement, production and shipment
schedule is to be made and need based limits are to be fixed.
15.1.8 The mode of payment to the suppliers viz., either by cheque or by cash is
to be assessed e.g. payment of wages which can be predetermined can be
allowed to be drawn in cash for manufacturers / exporters.
15.1.9 Branch need to look into the eligibility criteria and check points as per
RBI guidelines before sanctioning export credit limits to the customer.
15.1.10 Methods of assessment of export credit limit is same as assessing for
domestic credit limit and are to be assessed by applying appropriate
methods of assessment (Turnover/ FBF/ Cash budget).
15.1.11 As per RBI guidelines, sanctioning authority to adopt flexible approach in
terms of stipulating margin, current ratio, collaterals etc. while
sanctioning export credit limits.
15.1.12 Since packing credit loans extended at concessional rate are specific
purpose advance, it is the responsibility of branch to ensure proper end
use of the amount disbursed to the exporters.
15.1.13 Advance should be disbursed in a phased manner taking into account
specific purpose and needs of the borrower, viz., shipment schedule,
procurement and production schedule, warehousing, insurance and
freight requirements and other aspects related to procurement processing
and ultimate exports.
15.1.14 Bank has advised branches to follow uniform procedure in operation of
packing credit account, which is to be adhered to.
15.1.15 Under packing credit advance drawing power is based on the value of
export order/ L/Cs submitted by the exporter and is arrived at as follows:
CIF value of the order
Less: Insurance, Freight (i.e. FOB Value)
Less: Margin (as per existing guidelines)
= Amount eligible for advance.
15.1.16 The stock is to be inspected periodically and M-6 statement is to be
submitted to the controlling office.

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15.1.17 Customer is required to submit copies of final invoices received from
supplier evidencing purchase of raw material/ goods for exports.
15.1.18 Suitable documentary evidence of end use of funds in case of cash
payment should also be obtained from the customers.
15.1.19 Risk of failure of customer in repaying the packing credit advance is
covered by the bank under Whole Turnover policy issued by Export Credit
Guarantee Corporation (ECGC) taken by our bank. It is the responsibility
of the branch to ensure that exporter is not on Specific Approval List of
ECGC, exporting country is not under restricted cover country of ECGC
(Branch to refer latest circulars/ ECGC website and all the terms and
conditions of the policy as informed by ECGC/Bank to be scrupulously
complied with.)

15.2 Post-Shipment Credit: Post-shipment finance is a short term working

capital finance extended against export receivables. Bank has to liquidate
the PC advance, allowed against the particular order, once exporter
submits export documents to the bank on shipment.

15.2.1 Post-shipment finance is granted under the following heads-

15.2.1.1 Purchase of bills against confirmed orders on sight (DP) basis controlled
under foreign documentary bills purchased (FDBP)
15.2.1.2 Discounting of bills against confirmed orders on usance (DA) basis
controlled under foreign usance documentary bills purchased (FUDBP)
15.2.1.3 Negotiation of bills under letter of credit (sight/ usance) and controlled
under FDBP/ FUDBP depending upon the tenor.
15.2.1.4 Advance against export bills sent for collection (AFDBC).

15.2.2 Risk of failure of the customer / non realization of the export bill is
covered by the bank under ECIB(PS) policy issued by Export Credit
Guarantee Corporation (ECGC) taken by our bank. It is the responsibility
of the branch to ensure that the overseas importer is not in the Buyer
Specific Approval List (BSAL) of ECGC, exporting country is not under
restricted cover country of ECGC (Branch to refer latest circulars/ ECGC

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 website and all the terms and conditions of the policy as informed by
ECGC/Bank to be scrupulously complied with.)
15.3 The detailsof pre-shipment and post-shipment credit facilities is available
in E-Manual of Domestic Foreign Business & International Banking Division
may be referred to for guidance)

Annexure:
- CMA Format
- Stock & book Debt statement & QPR, Operating Fund Flow statement format
(IC5637 dt.09-03-1998)
- Cash Budget format for Sugar Units (C-1/2)

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 Form C I

(Actuals for the Previous Year)

Name of the Borrower :

Date of Commencement of crushing :

Installed crushing capacity in tonnes :

No. of working days :

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Total
I General
Information
1. Opening
stock
A Levy
Sugar
B Free
Sugar
C Total
2. Cash
crushed
during the
month
3. Recovery
percentage
4.
Production
A Levy
Sugar
B Free
Sugar
C Total
5. Releases
A Levy
Sugar
B Free
Sugar
C Total
6. Stocks at
the end of
month
A Levy
Sugar
B Free
Sugar
C Total
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 7. Average
cane price
paid per
tonne
8. Cane
dues
including
those of
previous
year(s)

II Receipts and Payments.

Receipts
1. Sugar Sales
A Levy Sugar
B Free Sugar
C Exports
D Total
2. Sale of by produces.
A. Molasses
B. Bagasse
C. Alcohol, spirit etc.
D. Others
Total
3. Advances recovered
from cane growers.
4. Interest from cane
growers on advances.
5. Rebate on excise duty
6. Public deposits
received during the
month
7. Increase in paid up
capital
8. Term Loans from
Banks / FIs
9. Debentures.
10. Other Income
11. Total
Payments
12. Purchase of cane
13. Stores, packing
materials
14. Power, fuel and
water
15. Salaries, wages and
bonus
16. P F Gratuity etc.
17. Repairs and
maintenance
18. Interest on public
deposits and other loans.
Page 51 of 55
 19. Rent, rates and taxes
20. Other administrative
expenses.
21. Advances to cane
growers
22. Cane growers’ bills
paid
23. DPG installments.
24, Term Loan
installment.
25. Public deposits
refunded
26. Dividends
27. Capital expenditure
28. Others
29. Total
III Summary
1. Monthly
surplus/deficit
2. Opening Cash balance
3. Closing cash balance
4. Cash credit Balance.

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 Form C II

(Estimates for the current year)

Name of the Borrower :

Date of Commencement of crushing :

Installed crushing capacity in tonnes :

No. of working days :

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Total
I General
Information
1. Opening
stock
A Levy
Sugar
B Free
Sugar
C Total
2. Estimate
of Cash
crushed/ to
be crushed.
3. Recovery
percentage
4.
Estimated
Production
A Levy
Sugar (%)
B Free
Sugar (%)
C Total
(100%)
5.
Estimated
Releases
A Levy
Sugar
B Free
Sugar
C Total
6. Stocks at
the end of
month
A Levy

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 Sugar
B Free
Sugar
C Total
7. Average
cane price
paid per
tonne
8. Cane
dues
including
those of
previous
year(s)

II Receipts and Payments.

Receipts
1. Sugar Sales(net of
excise duty)
A Levy Sugar
B Free Sugar
C Exports
D Total
2. Sale of by produces.
A. Molasses
B. Bagasse
C. Alcohol, spirit etc.
D. Others
Total
3. Advances recovered
from cane growers.
4. Interest from cane
growers on advances.
5. Rebate on excise duty
6. Public deposits
received during the
month
7. Increase in paid up
capital
8. Term Loans from
Banks / FIs
9. Debentures.
10. Other Income
11. Total
Payments
12. Purchase of cane
13. Stores, packing
materials
14. Power, fuel and
water
15. Salaries, wages and
bonus
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 16. P F Gratuity etc.
17. Repairs and
maintenance
18. Interest on public
deposits and other loans.
19. Rent, rates and taxes
20. Other administrative
expenses.
21. Advances to cane
growers
22. Cane growers’ bills
paid
23. DPG installments.
24, Term Loan
installment.
25. Public deposits
refunded
26. Dividends
27. Capital expenditure
28. Others
29. Total
III Summary
1. Monthly
surplus/deficit
2. Opening Cash balance
3. Closing cash balance
4. Cash credit Balance.
IV Total value of stocks
1. Levy
2. Free
3. Less: Margin
4. Drawing Power
5. Less: amount
earmarked for cane
dues*.
6. Net drawing power

* The amount represents cane dues payable in respect of current season’s purchases. As regards the
arrears of cane dues relating to the previous years, it should be ensured that they are gradually
reduced.

In case the sugar mill submits the proposal after the current season’s crushing has commenced, it
should give the month-wise actuals for the period already over in the current season.

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