Indian Banks’ Methods for Assessing Working Capital
Working Capital is the capital required for by a firm to sustain its day to day activities. Different firms have different approaches to finance their working capital needs. After receiving proposals for working capital loans, as a precaution banks need to assess the amount of working capital loan which can be granted and also to determine the interest rate at which the loan can be provided. The RBI and its committees have introduced new methods for the calculation of credit eligibility for the working capital financing of firms. The newer methods are firmer on risk management front and also the stability of economy in case of any excessive default rate. This research paper empirically analyses these methods like turnover method, inventory method, operating cycle method, cash budget method used for SME Working Capital financing, primarily from Indian Government Banks' point of view.
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