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CA Intermediate · Financial Management and Strategic Management · Financing of Working Capital

Under the Tandon Committee's lending norms for assessing bank finance for working capital, which method requires the borrower to finance at least 25% of total current assets from long-term sources, with the bank financing the balance after deducting current liabilities other than bank borrowings?

Method II is correct. The Tandon Committee's second method requires the borrower to fund 25% of total current assets from long-term sources, and the bank lends the remaining amount after deducting other current liabilities. Method I applies the 25% only to the working capital gap.

  1. AMethod I
  2. BMethod IICorrect
  3. CMethod III
  4. DTurnover method

Explanation

Under Method II the borrower contributes 25% of total current assets from long-term funds (net working capital). Maximum permissible bank finance = 75% of current assets minus other current liabilities. Method I applies the 25% to the working capital gap instead, and Method III applies 25% to only the core-excluded (non-core) current assets.

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