CREDIT MONITORING ARRANGEMENT - Working Capital Management

With a view to ensuring certain levels of credit discipline both by banks and borrowers, the Central Bank should direct all banks to submit for post-sanction scrutiny all proposals. The Central Bank should subject such proposal to close scrutiny and if they consider the limits sanctioned as unjustified, they may reduce the limits. The Central Bank gives various directions to banks and borrowers with a view to ensuring credit discipline. Some of the more important provisions are indicated below:

A borrower should maintain basic financial discipline as under:

  1. estimates of current assets, current liabilities and working capital should be reasonable in the light of past trends.
  2. classification of current assets and current liabilities should conform to Central Bank guidelines.
  3. minimum stipulated current ratio to be maintained.
  4. borrowers should submit his annual audited accounts in time and banks should review them annually.

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Working Capital Management Topics