MPBF Calculator
Three inputs, three answers. See the bank finance each Tandon method allows and the current ratio it leaves behind.
Maximum Permissible Bank Finance (MPBF) is the most a bank will lend a borrower for working capital under the Tandon Committee's methods. Enter a borrower's figures below to get the MPBF under all three methods at once, with the current ratio each one leaves behind.
For the history of the Tandon Committee and why each method asks the borrower for a different share, see the full MPBF and Tandon Committee page.
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MPBF Calculator
Enter current assets, other current liabilities (current liabilities excluding bank borrowings) and core current assets, in the same unit. Core current assets are needed only for the third method.
Excluding bank borrowings.
Used by Method III only.
Working capital gap (CA less other current liabilities): 110.00
| Method | Borrower's minimum margin | MPBF |
|---|---|---|
| Method I | 27.50 | 82.50 |
| Method II | 37.50 | 72.50 |
| Method III | 60.00 | 50.00 |
Margin: Method I is 25% of the gap; Method II is 25% of current assets; Method III is core current assets plus 25% of the rest. MPBF is the gap less the margin. Use any one unit (₹ or ₹ lakh) for every field.
The Three Formulas the Calculator Uses
I
Borrower brings
25% of the working capital gap
MPBF
75% × (CA − OCL)
II
Borrower brings
25% of total current assets
MPBF
(75% × CA) − OCL
III
Borrower brings
Core current assets + 25% of the remaining current assets
MPBF
75% × (CA − CCA) − OCL
| Method | Borrower brings | MPBF |
|---|---|---|
| I | 25% of the working capital gap | 75% × (CA − OCL) |
| II | 25% of total current assets | (75% × CA) − OCL |
| III | Core current assets + 25% of the remaining current assets | 75% × (CA − CCA) − OCL |
Worked Example
A trader's projected figures, in ₹ lakh: current assets 200, other current liabilities 60, core current assets 40. Working capital gap = 200 − 60 = 140.
Working capital gap
Method I
140
Method II
140
Method III
140
Borrower's share
Method I
25% × 140 = 35
Method II
25% × 200 = 50
Method III
40 + 25% × (200 − 40) = 80
MPBF
Method I
140 − 35 = 105
Method II
140 − 50 = 90
Method III
140 − 80 = 60
Current liabilities after bank finance
Method I
60 + 105 = 165
Method II
60 + 90 = 150
Method III
60 + 60 = 120
Current ratio
Method I
200 ÷ 165 = 1.21
Method II
200 ÷ 150 = 1.33
Method III
200 ÷ 120 = 1.67
| Step | Method I | Method II | Method III |
|---|---|---|---|
| Working capital gap | 140 | 140 | 140 |
| Borrower's share | 25% × 140 = 35 | 25% × 200 = 50 | 40 + 25% × (200 − 40) = 80 |
| MPBF | 140 − 35 = 105 | 140 − 50 = 90 | 140 − 80 = 60 |
| Current liabilities after bank finance | 60 + 105 = 165 | 60 + 90 = 150 | 60 + 60 = 120 |
| Current ratio | 200 ÷ 165 = 1.21 | 200 ÷ 150 = 1.33 | 200 ÷ 120 = 1.67 |
MPBF and working capital problems. No signup.
Using the Result
- 1
Compare MPBF with the limit asked for
If the borrower requests ₹100 lakh and the bank follows Method II, the eligible limit is ₹90 lakh. The extra ₹10 lakh must come from the borrower's long-term funds.
- 2
Check the borrower's actual contribution
If the borrower's net working capital is already above the required share, the bank lends only the gap that remains. If it is below, the shortfall is a gap the borrower must fill, or the limit is cut.
- 3
Set drawing power separately
MPBF fixes the ceiling. Month to month, the borrower can draw only against stock and receivables after margins, which is the drawing power.
Before You Enter the Numbers
Take existing bank borrowings out of current liabilities first. Only other current liabilities, such as trade creditors and expenses payable, go into the gap. Term loan instalments due within 12 months stay in current liabilities, because they are not working capital finance from the bank.
FAQs
Which MPBF method gives the highest loan?expand_more
The first method, because the borrower brings only 25% of the working capital gap. The third method gives the lowest, because the borrower must also fund all core current assets.
Why does Method II always give a current ratio of 1.33?expand_more
The borrower funds 25% of current assets from long-term money, so current liabilities can be at most 75% of current assets. 100 ÷ 75 = 1.33.
Is MPBF still used by banks?expand_more
RBI withdrew the mandatory MPBF requirement in 1997, but many banks still use the second method, or a version of it, for larger working capital limits under their own loan policies.
What are core current assets?expand_more
The minimum level of current assets a business always carries, such as a base stock of raw material. Only the third method uses them.
Access exam-specific mock tests directly from your Android device.Next steps
- DSCR Calculatorarrow_forward
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- Working Capital Assessmentarrow_forward
- Drawing Power & CMAarrow_forward
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