CMA data — preparing the bank's working-capital proposal

When you ask a bank for a working-capital limit, the conversation runs on one document: the CMA data. It is the standardised pack that translates your financials into the format a credit officer appraises — past performance, projected performance, and a computation of exactly how much the bank can lend against your working-capital cycle. Prepare it well and the sanction is a formality; prepare it carelessly and you either get less than you need or a stack of queries that drags the file for months. Having arranged limits across several banks, here is what the CMA actually is and how to build one that gets funded.

What CMA data actually is

CMA stands for Credit Monitoring Arrangement — the RBI-origin framework banks use to appraise and monitor credit. In practice “CMA data” means a set of linked statements, usually seven, that a bank asks for with any working-capital or term-loan proposal. It is not a form you fill blindly; it is your own financials re-cast into the lens the bank lends through.

The seven statements

They are linked: change a sales projection in the operating statement and the current assets, the MPBF and half the ratios move with it. That interlock is why a spreadsheet built by hand is easy to get subtly wrong.

MPBF — how the bank sizes your limit

The heart of the CMA is the computation of Maximum Permissible Bank Finance, still built on the Tandon Committee logic most banks use. The idea: the bank funds most of your working-capital gap, but you must bring a margin of your own.

First, the working-capital gap = current assets − current liabilities (other than bank borrowing). Then, under the standard Method II, the bank expects you to fund 25% of current assets from long-term sources, and finances the rest of the gap. A worked example:

That 1.33:1 is not a coincidence — Method II is designed to land there. It is the number a credit officer glances at first.

The ratios the bank actually reads

Beyond MPBF, a handful of ratios decide how comfortable the bank is:

• Current ratio — the working-capital cushion; 1.33:1 is the working benchmark.
• TOL/TNW (total outside liabilities to tangible net worth) — how leveraged you are; lower is safer.
• Inventory and receivable days — whether your projected current assets are realistic or padded.
• Interest coverage / DSCR — whether the business can service what it borrows.

Fund flow — where the money went

The fund-flow statement is where banks catch diversion. It reconciles sources and uses of funds year on year, and its job is to show that long-term funds went into long-term assets and working capital — not that a cash-credit limit quietly financed a promoter withdrawal or a fixed-asset purchase. If your fund flow shows short-term money funding long-term uses, expect questions.

Projections — the assumptions that get challenged

The projected years carry the proposal, and they are exactly where credit officers push back. A sales jump with no capacity or order-book to back it, receivable days that suddenly improve, margins that expand for no reason — each invites a query. Project what you can defend: tie sales growth to capacity and pipeline, keep the operating cycle consistent with history, and let the numbers be ambitious but explainable.

Common mistakes

• Asking for more than the gap supports — the MPBF caps it; a bigger ask just triggers a cut.
• Inconsistent statements — projections that don't tie back to the operating statement or balance sheet.
• Ignoring the fund flow — leaving an unexplained short-term-funds-into-long-term-assets gap.
• Round-number projections — suspiciously neat growth with no operating basis.

Doing it well

Because the seven statements are interlinked and rule-bound, CMA preparation is a natural thing to systematise: feed in the financials and assumptions once, and let the working-capital gap, MPBF, fund flow and ratios compute and stay consistent. That removes the arithmetic errors that generate bank queries and lets you spend your time on the one part that needs judgement — defending the assumptions.

The principle

CMA data is not paperwork you hand over — it is the argument for your limit, written in the bank's own language. Size the ask to the working-capital gap, make every statement tie to the next, keep the ratios defensible, and let the projections be ambitious but explainable. Do that, and the credit officer's job becomes saying yes.