MPBF CalculatorMaximum Permissible Bank Finance — Tandon Committee
Calculate your working capital loan eligibility using RBI-mandated Tandon Committee Methods I & II. Used by all PSU banks, private sector banks, and NBFCs for sanctioning Cash Credit (CC) and Overdraft (OD) limits.
Current Assets (₹)
Raw materials, work-in-progress, finished goods at cost
Outstanding payments from customers within 90 days
Advances paid to suppliers for upcoming deliveries
Cash in hand + current/savings account balance
Short-term investments, prepaid expenses
Current Liabilities (₹)
Exclude existing bank CC / OD limits — they are the output, not the input.
Amount payable to your suppliers for goods / services
Advance payments received from your customers
Accrued wages, tax provisions, unpaid bills
Calculated Results
Method I — MPBF
₹4,87,500
Method II — MPBF
₹4,00,000
Working Capital Analysis
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How MPBF is Calculated
The Reserve Bank of India mandated the Tandon Committee recommendations (1975, revised 1997) for computing bank finance for working capital.
MPBF = 75% × Working Capital Gap
= 75% × (Total Current Assets − Current Liabilities)
Owner contributes: 25% of Working Capital Gap
This method requires the borrower to bring in 25% of the working capital gap from own sources (Net Working Capital). Banks find this relatively lenient and commonly apply it for MSME limits.
MPBF = Working Capital Gap − 25% × Total CA
= (Total CA − CL) − (25% of Total Current Assets)
Owner contributes: 25% of Total Current Assets
More conservative than Method I. Owner margin is 25% of Total current assets (not just the gap), making it stricter. RBI requires this for all limits exceeding ₹2 crore. Results in a higher Required NWC.
Why Current Ratio must be ≥ 1.25 after lending
RBI norms require that after the bank extends CC/OD, the borrower's Current Ratio (Total CA ÷ Total CL including CC) should be at least 1.25. This ensures the company can meet its short-term obligations. A ratio below 1.25 signals liquidity stress and will trigger a loan rejection or a reduced sanction.
What counts as Current Assets?
Current Assets are assets expected to be converted into cash within 12 months or one operating cycle.
Inventory / Stock
Raw materials, WIP, finished goods at cost (not MRP). Supported by stock statement.
Sundry Debtors
Trade receivables within 90 days (not NPA or old dues). Book debts from genuine sales.
Advance to Suppliers
Mobilisation advances for delivery of goods — short-term only.
Cash & Bank
Cash on hand, current account, savings account, short-term FD (maturing < 12 months).
Loans & Advances
Advances to staff, security deposits due within one year.
Pre-paid Expenses
Insurance prepaid, rent paid in advance — current portion only.
Do NOT include:
- Fixed assets (land, building, machinery)
- Debtors > 180 days (considered sticky / bad)
- Long-term investments and capital WIP
- Deferred tax assets
What counts as Current Liabilities (excl. CC/OD)?
Current Liabilities are obligations due within 12 months. Critically, exclude existing bank CC/OD — those are the output of the MPBF formula, not an input.
Sundry Creditors
Trade payables to suppliers for raw material / goods purchased on credit.
Customer Advances
Advance payments received from customers against orders not yet fulfilled.
Statutory Dues
GST payable, TDS payable, PF/ESI dues, advance tax outstanding.
Accrued Expenses
Salaries payable, electricity dues, rent payable — accrued but unpaid.
Short-term Borrowings
Unsecured loans from directors / promoters due within 12 months.
Current Portion of TL
The principal instalment of term loan due in the current year (CPLTL).
Why exclude bank CC/OD?
MPBF tells you the maximum bank can lend. Including the CC limit in CL would create a circular dependency — the answer would depend on itself. Banks add CC post-sanction for ratio verification only.
Frequently Asked Questions
Everything a business owner or CA needs to know about MPBF norms
What is MPBF and why do banks calculate it?
MPBF (Maximum Permissible Bank Finance) is the upper limit of working capital credit — Cash Credit (CC), Overdraft (OD), WCTL — that a bank can extend to a borrower as per RBI guidelines. It was introduced by the Tandon Committee in 1975 and is still mandatory for all commercial bank lending.
The purpose is to ensure the borrower maintains a minimum stake in their own working capital and does not become entirely dependent on bank credit for day-to-day operations. This protects the bank and ensures credit discipline.
What is the Tandon Committee and why is Method II used?
The Tandon Committee (P.L. Tandon, 1975) was set up by RBI to study bank credit for working capital. It recommended three methods. Method III was dropped. Method I and II remain in use.
Method II is the preferred approach because it demands a higher borrower contribution — 25% of total current assets (not just the WCG). This results in a more conservative (lower) MPBF, strengthening the borrower's current ratio. RBI made Method II mandatory for working capital CC limits exceeding ₹2 crore vide its guidelines in the 1990s.
Today, all public sector banks (PSUs) and all major Indian lenders use Method II for all assessments in CMA data and project reports.
Why must I exclude existing bank CC/OD from current liabilities?
The MPBF formula is designed to calculate the bank's permissible lending limit. If you include the existing CC/OD limit in current liabilities, you create a circular calculation — the MPBF answer becomes dependent on itself.
Practically: Enter your trade creditors, customer advances, GST/TDS payables, accrued expenses, and unsecured loans in CL. The bank will add the CC limit to CL only after sanctioning, for the purpose of verifying that the resulting Current Ratio ≥ 1.25.
Why must the Current Ratio be at least 1.25 after bank lending?
RBI's prudential guidelines require a minimum Current Ratio of 1.25:1 post-lending. This means for every ₹1 of current liability (including the new CC limit), the borrower must have ₹1.25 of current assets. This buffer of 25 paise per rupee acts as a liquidity cushion.
If your CR falls below 1.25, the bank will either reduce the CC limit, ask for additional security, or reject the application. Method II is designed to automatically produce a CR ≥ 1.33 when correctly applied — providing headroom above the RBI minimum.
How does MPBF relate to CMA Data submitted to the bank?
CMA (Credit Monitoring Arrangement) Data is the standard format prescribed by the Indian Banks' Association (IBA) for submitting working capital loan applications to banks. MPBF is one of the core outputs of CMA Data — it appears in Form IV (Assessment of Maximum Permissible Bank Finance).
A complete CMA Data report includes: operating statement (P&L projections), balance sheet projections, comparative statement of current assets & liabilities, MPBF computation (Method I & II), funds flow statement, and ratio analysis. Banks require CMA for all CC/OD limits above ₹10 lakh at most PSU lenders (₹25 lakh at some private banks).
MudraReady generates complete, bank-ready CMA Data in IBA format with MPBF, DSCR, Current Ratio analysis and all required annexures — ready for submission to all major Indian banks and lenders.
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This calculator is for estimation and educational purposes only. Actual MPBF sanctioned by a bank may vary based on banker's discretion, security available, credit history, industry norms, and internal bank policy. Always consult a Chartered Accountant for formal CMA preparation.