What a CMA report is really telling your banker
Credit Monitoring Arrangement data is the document most promoters sign without reading. It is also the one that decides the size of their working capital limit.
Ask a promoter what their CMA report says and the answer is usually 'whatever the accountant put in it'. That is a missed opportunity. The CMA — Credit Monitoring Arrangement data — is the lens through which an Indian bank assesses a working capital requirement, and the way it is built frequently decides whether a company receives the limit it needs.
Where it comes from
The format descends from the Tandon Committee of 1975, which introduced the concept of Maximum Permissible Bank Finance: banks would fund only part of a borrower's working capital gap, with the promoter contributing a margin from long-term sources. Under the committee's widely used second method, that margin is twenty-five per cent of total current assets — which is why a current ratio of about 1.33 is still treated as a benchmark.
The Reserve Bank withdrew the mandatory MPBF system in 1997, leaving banks free to adopt their own assessment methods. Many still use it as a reference, alongside cash-budget methods for seasonal businesses and the Nayak Committee's turnover method for smaller limits — under which working capital is estimated at twenty-five per cent of projected turnover, with at least twenty per cent financed by the bank and five per cent by the promoter.
What is inside
A standard CMA presents two years of audited figures, the current year's estimate and several years of projections, across an operating statement, an analysis of the balance sheet, a comparative schedule of current assets and liabilities, the computation of permissible bank finance, a fund-flow statement and key ratios. Projections are expected to reconcile — to each other, and to the actuals that precede them.
Where companies lose their limit
The most common failures are internal inconsistency and unrealistic holding periods. Projecting receivables at forty-five days when the audited accounts show ninety invites a credit officer to disbelieve the whole document. So does a sharp jump in turnover with no corresponding growth in inventory, or a current ratio that improves every year without a source of long-term funds to explain it.
A well-built CMA does the opposite. It shows the business as it actually runs, explains any deviation from industry norms, and demonstrates that the promoter's margin is genuinely available. That is also why we prepare CMA data together with the loan proposal rather than as a separate exercise — the numbers and the narrative must tell the same story.
This article is general information about the financing landscape, current as of its publication date. It is not financial, legal or tax advice; regulations change, and every company’s position is different.
