Module: General Practice
Q112: Consider the following statements regarding the "Turnover Method" (Nayak Committee) and "Maximum Permissible Bank Finance" (Tandon Committee):
The Nayak Committee norms are generally applicable for working capital limits up to 50 million rupees (5 Crores).
The Tandon Committee Method II calculates MPBF as 75% of (Current Assets minus Current Liabilities).
The Nayak Committee assumes a minimum borrower margin of 5% of the annual turnover.
Which of the statements given above are correct?
The Tandon Committee Method II calculates MPBF as 75% of (Current Assets minus Current Liabilities).
The Nayak Committee assumes a minimum borrower margin of 5% of the annual turnover.
Which of the statements given above are correct?
✅ Correct Answer: B
Statement 1 is Correct: The Nayak Committee suggested a simplified method for the MSME sector.
Under this method, Working Capital is assessed as 25% of the projected Annual Turnover.
This is typically used for limits up to ₹5 Crores (though some banks may apply it to higher limits per internal policy). Statement 3 is Correct: Of this 25% requirement, the bank provides 20% of the turnover as a loan, and the borrower must bring in 5% as margin.
Statement 2 is Incorrect: The Tandon Committee Method II (the more conservative method) calculates MPBF as: (0.75 * Current Assets) - Current Liabilities.
Clarification: It is Method I that calculates it as 0.75 * (Current Assets - Current Liabilities). Method II requires the borrower to finance 25% of the Total Current Assets, not just the gap.
Under this method, Working Capital is assessed as 25% of the projected Annual Turnover.
This is typically used for limits up to ₹5 Crores (though some banks may apply it to higher limits per internal policy). Statement 3 is Correct: Of this 25% requirement, the bank provides 20% of the turnover as a loan, and the borrower must bring in 5% as margin.
Statement 2 is Incorrect: The Tandon Committee Method II (the more conservative method) calculates MPBF as: (0.75 * Current Assets) - Current Liabilities.
Clarification: It is Method I that calculates it as 0.75 * (Current Assets - Current Liabilities). Method II requires the borrower to finance 25% of the Total Current Assets, not just the gap.