Sir thanks for another very useful video. Sir going by the video don't we have the flexibility of assuming a different operating cycle other than that assumed under Turnover method or the bank restricts us from doing so due to the uncertain nature of small businesses ? Please also cite an example in future where we can precisely estimate a business's operating cycle and how to go about it.
1. We don't have the flexibility of assuming different operating cycle and alter the formula of turn over method as per our requirement. 2. If turn over method is the accelerator. Drawing Power is the brake. So you need both of them to drive the car. 3. Most of the small loans are done by sixth sense of branch manager and credit officer. Where they first fixes a limit in the mind and then tries to justify it through some method of assessment. That is fine as long as you understand the business. 4. Your last point is very interesting "estimating operating cycle". My answer is going to surprise you. A tentative period of operating cycle can be understood from MPBF method. SURPRISED ? Actually it is our misfortune that books and guidelines are not throwing much light about the same. If you know about holding level of stock and debtors you will understand how to arrive at operating cycle tenures. I will definitely cover once I enter MPBF. Learning is a team effort, I am happy that someone has raised so many meaningful questions. If I have left out anything feel free to write back. I have inadvertently left out few important tips for turnover method in this video. I am working on a hindi version of the same where I will cover them. Stay tune for the that.
@@ShuddhDesiBanking Sir kudos to your effort, my takeaway is that when we add the stock and debtor holding period and subtract the creditors holding period from it we arrive at the operating cycle .The operating cycle gives important insight as evident from your earlier video on Turnover Method. Eagerly waiting for your next lesson on MPBF method to understand operating cycle's impact on MPBF calculation.
@@sudhakarparihar4477 sure.. meanwhile you can watch the 'Margin in Term Loan' series..it covers some very important concepts of project finance. You can find the links of the videos in the description of this video. Let us know if those videos were helpful..
Very helpful video Sir. Nicely explained for young bankers like us. Sir I request you to kindly make a videos on how to calculate DSCR for small retail loan or even MSME loan and also fishery loans in rural areas.
Surely. But credit and debit summation are useful only for borrowers who are routing transactions through account. Unfortunately in India majority of business is doing business in cash.
Please go through MPBF tutorial at 3.23 to 4.00 minutes we have covered. ua-cam.com/video/SsBwmPbTXAY/v-deo.html . Thanks for being a regular viewer. Kindly introduce us to your friends and colleagues if you like our efforts.
One doubt, u said working capital is 33% of projected sales(PS). However, the revised working capital requirement under turnover method for MSME is as under For digital transaction: WCG=37.50% of PS, Margin 7.50%(20% 0f PS), Hence Bank Finance=30.00% of PS For non digital transaction=WCG=31.25% of PS,, Margin=6.25% of PS,(20% of PS) Hence Bank Finance=25.00% of PS. I am confused, Kindly guide and correct if i am wrong. Thnx
Don't get confused by looking at the percentage of 33% or 37% whatever it is. Please understand that these are nothing but how many days of operating cycle each bank is ready to accept as working capital requirement. When I started applying the turnover method eight years back it was around 25%. This digital transaction finance came recently after GST was implemented. The portion of transactions that are conducted digitally might be considered under same. RBI issued overall guidelines to all the banks for increasing the working capital limit. Based on that every bank has framed its own policy. You want me to guide you specifically on your banks guidelines, let us chat in FB facebook.com/shuddhdesibanking/ You will appreciate that specific bank guideline cannot be discussed in an open forum.
Sometimes while assessing od limit under t/o method, it comes negative due to high NWC, especially in renewal of existing limits. What should be the next step then? Can I consider ewcl?
MPBF or EWCL or Cash budget is always a solution theoritically. My question is why you want to increase your work load? Turnover method works on projections. NWC will be high in case the creditors are low in projections (most probably). Advise him to increase it. Your problem is solved. We must choose MPBF selectively in case of higher operating cycle of more than 120 days.
Thank you for the reply sir. Mostly NWC is high due to high stock. They used to purchase huge stock in march for availing discounts. Can I include this point while assessing? In case I advise to increase creditors, should they change the projected financials, or a declaration from the borrower that he wl do it would suffice?
In case of seasonal industry its always better to avoid turnover method. I have already explained if your operating cycle is more than 120 days this will not work. But the loan should be of a sizable amount. In my liking the borrower should be eligible for GST registration and audited financials should be available. I hope you understand that I don't want you to waste your time on Mudra loan of Rs 5K or 10K . In case you want to increase the creditors you have to take fresh projections. Be little cautious while doing so because if you increase creditors keeping the stock and debtors constant what your customer is likely to do is increase cash and bank balance. So eventually you end up in a situation where CC balance is less than cash in hand for one particular year. That is weird, isn't it? Why should someone use CC balance when he is having enough cash in hand. I hope this clarifies your doubt. I will be hungry for more :)
@@ShuddhDesiBanking Sir, if the available NWC as per last audited BS is also higher, how can we allow him to reduce it. And if NWC is to be taken from project BS, analysis of CA and CL to be done again then the work load is same as in MPBF. What is your opinion, through some light.
A very important topic and the video was extremely helpful to understand the essential basics. Wonderful video sir.
Thank you.
you are really clear and stick to point . good
Glad you think so!
Sir thanks for another very useful video. Sir going by the video don't we have the flexibility of assuming a different operating cycle other than that assumed under Turnover method or the bank restricts us from doing so due to the uncertain nature of small businesses ? Please also cite an example in future where we can precisely estimate a business's operating cycle and how to go about it.
1. We don't have the flexibility of assuming different operating cycle and alter the formula of turn over method as per our requirement.
2. If turn over method is the accelerator. Drawing Power is the brake. So you need both of them to drive the car.
3. Most of the small loans are done by sixth sense of branch manager and credit officer. Where they first fixes a limit in the mind and then tries to justify it through some method of assessment. That is fine as long as you understand the business.
4. Your last point is very interesting "estimating operating cycle". My answer is going to surprise you. A tentative period of operating cycle can be understood from MPBF method. SURPRISED ? Actually it is our misfortune that books and guidelines are not throwing much light about the same. If you know about holding level of stock and debtors you will understand how to arrive at operating cycle tenures. I will definitely cover once I enter MPBF.
Learning is a team effort, I am happy that someone has raised so many meaningful questions.
If I have left out anything feel free to write back.
I have inadvertently left out few important tips for turnover method in this video. I am working on a hindi version of the same where I will cover them. Stay tune for the that.
@@ShuddhDesiBanking Sir kudos to your effort, my takeaway is that when we add the stock and debtor holding period and subtract the creditors holding period from it we arrive at the operating cycle .The operating cycle gives important insight as evident from your earlier video on Turnover Method. Eagerly waiting for your next lesson on MPBF method to understand operating cycle's impact on MPBF calculation.
thank u somuch,very helpful kindly teach us Tandon committee method and cash budget method
Coming soon..
useful video on important topic. nicely explained
Thank you so much.. encouragements like this means a lot to us
Nice, also make a video on project finance
@@sudhakarparihar4477 sure.. meanwhile you can watch the 'Margin in Term Loan' series..it covers some very important concepts of project finance. You can find the links of the videos in the description of this video. Let us know if those videos were helpful..
Thank you.very easy to understand
Glad it was helpful!
Very helpful video Sir. Nicely explained for young bankers like us. Sir I request you to kindly make a videos on how to calculate DSCR for small retail loan or even MSME loan and also fishery loans in rural areas.
Thank you so much. Here is the DSCR tutorial - ua-cam.com/video/lgNdCUOBFYI/v-deo.html
Sir, please make a presentation on analysis of credit debit summations in borrowal account.
Surely. But credit and debit summation are useful only for borrowers who are routing transactions through account. Unfortunately in India majority of business is doing business in cash.
Sir why do we take whichever is higher while comparing with nwc? Please guide..
Please go through MPBF tutorial at 3.23 to 4.00 minutes we have covered. ua-cam.com/video/SsBwmPbTXAY/v-deo.html .
Thanks for being a regular viewer. Kindly introduce us to your friends and colleagues if you like our efforts.
Hi pls remove the subtitle for few minutes at 7:15 so as to see the chart clearly
You can control the usage of subtitle from right top corner of your screen.
Hi sir nayak commetti ke kitne formule he
Nayak commetti ke kitne method diye he
One doubt, u said working capital is 33% of projected sales(PS). However, the revised working capital requirement under turnover method for MSME is as under
For digital transaction: WCG=37.50% of PS, Margin 7.50%(20% 0f PS), Hence Bank Finance=30.00% of PS
For non digital transaction=WCG=31.25% of PS,, Margin=6.25% of PS,(20% of PS) Hence Bank Finance=25.00% of PS.
I am confused, Kindly guide and correct if i am wrong. Thnx
Don't get confused by looking at the percentage of 33% or 37% whatever it is. Please understand that these are nothing but how many days of operating cycle each bank is ready to accept as working capital requirement. When I started applying the turnover method eight years back it was around 25%. This digital transaction finance came recently after GST was implemented. The portion of transactions that are conducted digitally might be considered under same. RBI issued overall guidelines to all the banks for increasing the working capital limit. Based on that every bank has framed its own policy. You want me to guide you specifically on your banks guidelines, let us chat in FB facebook.com/shuddhdesibanking/ You will appreciate that specific bank guideline cannot be discussed in an open forum.
Sometimes while assessing od limit under t/o method, it comes negative due to high NWC, especially in renewal of existing limits. What should be the next step then? Can I consider ewcl?
MPBF or EWCL or Cash budget is always a solution theoritically.
My question is why you want to increase your work load?
Turnover method works on projections. NWC will be high in case the creditors are low in projections (most probably). Advise him to increase it. Your problem is solved.
We must choose MPBF selectively in case of higher operating cycle of more than 120 days.
Thank you for the reply sir. Mostly NWC is high due to high stock. They used to purchase huge stock in march for availing discounts. Can I include this point while assessing?
In case I advise to increase creditors, should they change the projected financials, or a declaration from the borrower that he wl do it would suffice?
In case of seasonal industry its always better to avoid turnover method. I have already explained if your operating cycle is more than 120 days this will not work.
But the loan should be of a sizable amount. In my liking the borrower should be eligible for GST registration and audited financials should be available. I hope you understand that I don't want you to waste your time on Mudra loan of Rs 5K or 10K . In case you want to increase the creditors you have to take fresh projections. Be little cautious while doing so because if you increase creditors keeping the stock and debtors constant what your customer is likely to do is increase cash and bank balance. So eventually you end up in a situation where CC balance is less than cash in hand for one particular year. That is weird, isn't it? Why should someone use CC balance when he is having enough cash in hand.
I hope this clarifies your doubt.
I will be hungry for more :)
@@ShuddhDesiBanking Sir, if the available NWC as per last audited BS is also higher, how can we allow him to reduce it.
And if NWC is to be taken from project BS, analysis of CA and CL to be done again then the work load is same as in MPBF. What is your opinion, through some light.
Sir, please make a video on bill discounting limit computation in detail. Thnx
Good one
👌👌
Poorly described
May we know the reason?