MPBF calculator
Compare maximum permissible bank finance for working capital across the three Tandon Committee methods and the turnover method. Enter figures in ₹ lakh.
MPBF under Tandon Method II
Method I: 75% of (TCA − OCL). Method II: 75% of TCA − OCL. Method III: 75% of (TCA − core current assets) − OCL. Turnover method (Nayak Committee): 20% of projected annual turnover, with the borrower bringing in another 5% as margin.
This calculator is for learning. Banks apply their own policies, margins and benchmarks, so treat the result as a guide, not a credit decision.
What MPBF is
Maximum permissible bank finance (MPBF) is the largest working capital limit a bank is prepared to give against a borrower's current assets. The idea comes from the Tandon Committee (1975): the bank finances part of the working capital gap, and the borrower funds the rest from long-term sources. RBI stopped making MPBF compulsory in 1997, so banks now choose their own method, but the Tandon methods are still widely used for larger limits and taught in every working capital course.
How to use this calculator
- Enter total current assets (TCA) from the projected balance sheet or CMA data.
- Enter other current liabilities (OCL): current liabilities other than bank borrowings, such as creditors and provisions.
- Enter core current assets: the permanent minimum level of current assets, needed only for Method III.
- Enter projected annual turnover for the turnover method.
The formulas
- Method I: 75% × (TCA − OCL)
- Method II: 75% × TCA − OCL
- Method III: 75% × (TCA − core current assets) − OCL
- Turnover method: 20% of projected annual turnover, with the borrower bringing a further 5% as margin
Worked example
TCA of ₹400 lakh, OCL of ₹100 lakh, core current assets of ₹60 lakh and projected turnover of ₹1,200 lakh:
- Working capital gap: 400 − 100 = ₹300 lakh
- Method I: 75% × 300 = ₹225 lakh
- Method II: 300 − 100 = ₹200 lakh (75% of 400 is 300)
- Method III: 75% × 340 − 100 = ₹155 lakh
- Turnover method: 20% × 1,200 = ₹240 lakh
Method II is the most commonly used of the three. It makes the borrower fund at least 25% of total current assets from long-term sources, which keeps the current ratio at 1.33 or above.
The turnover method for MSMEs
For working capital limits of up to ₹5 crore to micro and small enterprises, RBI asks banks to assess the requirement at a minimum of 20% of projected annual turnover. This method came from the Nayak Committee. The total requirement is taken as 25% of turnover, with the bank funding 20% and the borrower bringing in 5%.
Frequently asked questions
Which method gives the highest MPBF? Method I gives the highest of the three Tandon methods and Method III the lowest, because each asks the borrower to fund a larger share.
Is MPBF the same as the limit sanctioned? Not necessarily. MPBF is the upper bound. The bank may sanction less based on the borrower's track record, security and its own policy. Once a limit is sanctioned, day-to-day use is controlled by drawing power.
What is the current ratio under Method II? At least 1.33. You can check it with the current ratio and TOL/TNW calculator.
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