Maximum Permissible Bank Finance or MPBF is calculation of financing possible by a bank. Tandon committee recommended methods of calculating MPBF. MPBF is calculated by evaluating working capital of a business. MPBF depends on working capital. Value of current assets determines the maximum working capital banks can finance.
The most important ratio considered by banks for providing financing is Current Ratio. Current ratio is difference between current assets and current liabilities.
MPBF is used to calculate maximum finance banks can provide. Banks calculate MPBF with following formula.
Formula to calculate MPBF = (Current Assets - Current Liabilities)*75%
Banks can provide upto 75% of current ratio as loan. There are 2 methods to calculate MPBF. One method when loan is upto Rs. 10 lakhs and another for loans more than Rs. 10 lakhs.
Under first method MPBF is calculated where finance requirement is less than Rs. 10 lakhs. In this case 75% of working capital can be finance.
Working capital is calculated with formula, Current Assets - Current liabilities except bank borrowings.
If financing requirement is more than Rs. 10 lakhs. In this case 25% of financing is to be done by promoters and current liabilities including bank finance should not exceed 75% of current assets.
While preparing project report, make sure current ratio is above 1.5 to avail maximum financing possible from banks.
This calculator calculates MPBF under method 1. Would be better if Method 2 calculation is also added.Posted on: Dec. 8, 2021, 12:43 p.m. by Pulkit Sharma
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