Executive Summary
- Form 4 calculates MPBF using Tandon Committee Method II
- Borrower must fund at least 25% of current assets from owned working capital
- The formula uses figures pulled directly from Form 3's current asset data
- This is the single form most directly responsible for your sanctioned CC limit
The Method II Formula, Step by Step
Under Tandon Committee Method II — the standard most PSU banks apply — MPBF is calculated as: 75% of (Total Current Assets minus Other Current Liabilities), representing the maximum bank finance, with the remaining 25% required from the borrower's own Net Working Capital. This formula is computed explicitly within Form 4, not estimated separately by the bank.
A Worked Calculation
Illustrative MPBF Calculation
| Item | Amount (₹ Lakh) |
|---|---|
| Total Current Assets | 180 |
| Other Current Liabilities | 30 |
| Working Capital Gap | 150 |
| Minimum owned contribution (25%) | 37.5 |
| MPBF (75% of Working Capital Gap) | 112.5 |
Figures are illustrative. Actual MPBF depends on your specific Form 3 data and bank-specific norms.
Where Each Input Figure Comes From
Total Current Assets and Other Current Liabilities are pulled directly from the projected figures in Form 3 — meaning any inaccuracy or overstatement in that earlier form flows directly into an incorrect MPBF here, which is exactly why the forms must be prepared as a coherent, internally consistent set rather than independently.
Why This Is the Most Consequential Form for CC Limits
For a working capital application specifically, Form 4 is arguably the single most consequential form in the entire CMA submission — it directly determines your sanctioned Cash Credit limit. Errors elsewhere in the CMA file affect credibility; an error here directly changes the rupee amount the bank will sanction.
Frequently Asked Questions
What is CMA Form 4 and how does it determine my MSME CC limit?
CMA Form 4 is the MPBF (Maximum Permissible Bank Finance) Calculation — the form that mathematically derives the maximum working capital your bank will finance. Using Tandon Committee Method II, it computes: Total Current Assets minus Other Current Liabilities equals Working Capital Gap, of which 75% is MPBF and 25% must be your own Net Working Capital. The CC or OD limit your bank sanctions is directly equal to the MPBF derived in Form 4 — making it the single most consequential form for working capital applicants.
What are the most common errors in CMA Form 4 that reduce CC limits for Karnataka MSMEs?
The most common Form 4 errors: understating current asset projections (particularly debtor days or stock holding periods) which directly reduces MPBF; including ineligible current assets (advance tax paid, prepaid expenses) in the total; applying wrong margin percentages to different current asset categories; and not separately computing each current asset category (raw material, WIP, finished goods, debtors) with its own holding period and margin. Each of these errors reduces the computed MPBF and therefore the sanctioned CC limit.