#current assets

For businesses seeking working capital finance, understanding how banks determine lending limits is crucial. One of the most important concepts in business financing is Maximum Permissible Bank Finance (MPBF), a framework used by banks to assess the maximum amount of working capital credit that can be extended to a business. MPBF helps ensure responsible borrowing while maintaining financial discipline for both lenders and borrowers.

What is Maximum Permissible Bank Finance (MPBF)?

Maximum Permissible Bank Finance, commonly known as MPBF, refers to the maximum amount of working capital finance a bank can provide based on a company's current assets, current liabilities, and net working capital contribution. It serves as a benchmark for determining how much external funding a business can obtain for its day-to-day operational requirements.

The concept was introduced through the recommendations of the Tandon Committee to promote efficient utilization of bank credit and encourage businesses to contribute their own funds towards working capital requirements.

Why MPBF Matters for Businesses

Many business owners assume that banks will approve the amount they request. In reality, banks conduct a detailed financial assessment and calculate MPBF before sanctioning any working capital facility.

Understanding MPBF helps businesses:

Estimate their borrowing capacity accurately.

Plan working capital requirements more effectively.

Improve financial discipline and cash flow management.

Enhance their chances of loan approval.

Avoid over-dependence on external financing. Key Components Used in MPBF Calculation

Banks typically evaluate:

Current Assets (inventory, receivables, work-in-progress, cash, etc.)

Current Liabilities (excluding bank borrowings)

Working Capital Gap

Net Working Capital contribution by the business

In this article, I’m going to write about the current assets investment policies that every company has to adopt in its operational activities.

In financial management, the way a company handles its current assets—cash, marketable securities, receivables, and inventories—significantly impacts its profitability and risk profile. The decision to allocate resources among these assets determines the firm’s liquidity, turnover ratios, and ultimately, its return on equity (ROE).

All those assets that a company or a business can easily convert into cash within a short period are known as current assets, and typically this occurs within a 12-month period. They can be utilized to fund business operations and to cover short-term liabilities. These assets continually fluctuate and are updated periodically on the balance sheet.

The assets that cannot be quickly converted into cash or cash equivalents to pay for debts or short-term liabilities are known as non-current assets. These assets are not liquid by nature (in other words, they take longer to sell and realize their value into cash) and include long-term investments that cannot be used as a source of quick cash to cover current obligations. For example, investment in property and real estate, office furniture, manufacturing equipment or machines, business trademarks, and fixed financial securities. Moreover, any investment that is not expected to turn into cash within a year is also defined as a non-current asset of the company.