Loading the calculator…
Show formula & working
Working capital gap (WCG) = Current assets (CA) − Other current liabilities (OCL, excluding bank borrowings)
Method I: MPBF = 75% × WCG
Method II: MPBF = 75% × CA − OCL
Method III: MPBF = 75% × (CA − Core current assets) − OCL
75% = 100% − the borrower's 25% margin; change the margin under Method settings. The borrower's required net working capital is 25% of WCG (I), 25% of CA (II), or core CA + 25% of the rest (III).How this works
The Tandon Committee asked how much of a business's working capital gap a bank should fund. Its answer: the business funds a margin from long-term money, and the bank funds the rest — the maximum permissible bank finance.
Method I keeps a 25% margin on the gap; Method II on all current assets, so the bank finances less; Method III also requires the permanent 'core' level of current assets to come from long-term funds.
These methods are no longer compulsory, but lenders still use MPBF as a reference alongside the cash budget and operating-cycle methods.
Frequently asked questions
Which method do banks use?
Method II was the one most banks adopted. Today each bank follows its Board-approved policy; MPBF is often shown as a cross-check in appraisal notes.
Why are bank borrowings excluded from current liabilities?
Because MPBF is the bank finance being worked out. Including it would be circular. Actual NWC is then the gap less existing bank borrowings.
What are core current assets?
The minimum level of raw material, stock and receivables a business always carries. Method III expects them to be funded from long-term sources.
What if my borrowings are above MPBF?
Lenders usually ask for the excess to be brought down — by bringing in long-term funds, converting part to a working capital term loan, or reducing current assets.
Working capital limits up for renewal?
Assessment method, drawing power and the right mix of CC, OD and bills change what you can draw. Talk to Rytvae.