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    Bank Finance For Working Capital

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    Ajilal Kadakkal
    This document discusses various forms of bank financing for working capital in India. It explains that banks are a major source of working capital financing after trade credit. There are several ways firms can draw funds from banks within an approved credit limit, including overdrafts, cash credits, purchasing or discounting bills, letters of credit, and working capital loans. Cash credit is described as the most popular method of bank financing for working capital in India, as it allows borrowers to withdraw funds up to a sanctioned limit.

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    Bank Finance For Working Capital

    Uploaded by

    Ajilal Kadakkal
    142 views12 pages
    This document discusses various forms of bank financing for working capital in India. It explains that banks are a major source of working capital financing after trade credit. There are several ways firms can draw funds from banks within an approved credit limit, including overdrafts, cash credits, purchasing or discounting bills, letters of credit, and working capital loans. Cash credit is described as the most popular method of bank financing for working capital in India, as it allows borrowers to withdraw funds up to a sanctioned limit.

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    bank Finance for Working Capital

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    This document discusses various forms of bank financing for working capital in India. It explains that banks are a major source of working capital financing after trade credit. There are several ways firms can draw funds from banks within an approved credit limit, including overdrafts, cash credits, purchasing or discounting bills, letters of credit, and working capital loans. Cash credit is described as the most popular method of bank financing for working capital in India, as it allows borrowers to withdraw funds up to a sanctioned limit.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    142 views12 pages

    Bank Finance For Working Capital

    Uploaded by

    Ajilal Kadakkal
    This document discusses various forms of bank financing for working capital in India. It explains that banks are a major source of working capital financing after trade credit. There are several ways firms can draw funds from banks within an approved credit limit, including overdrafts, cash credits, purchasing or discounting bills, letters of credit, and working capital loans. Cash credit is described as the most popular method of bank financing for working capital in India, as it allows borrowers to withdraw funds up to a sanctioned limit.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 12

    WELCOME

    BANK FINANCE
    FOR WORKING
    CAPITAL

    HARIKRISHNAN
    INTRODUCTION
    Banks are the main institutional sources of working
    capital finace in india. After trade credit,bank credit
    is the most important source of financing working
    capital requirements. A bank considers a firms sales
    and production plants and the desirable levels of
    current assets in determining its working capital
    requirements .The amount approved by the bank for
    the firms for the working capital is called credit
    limit.credit limit is the maximum funds which a
    firm can obtain from the banking system.
    WORKING CAPITAL
    Working capital are refers to the funds invested in
    current assets i.e, investment in sundry debtors ,
    cash and other current assets.
    current assets are essential to utilize facilities
    provided by plant and machinery,land and
    buildings. In case of the manufacturing
    organisation, a machine cannot be used without
    rawmaterials. The investment in the purchase of
    rawmaterials is identified as working capital.
    DEFENITION
    According to shubin working
    capital is the amount of funds
    necessary to cover the cost of
    operating the enterprise.

    FORMS OF BANK FINANCE
    A firm can draw funds from its bank within the
    maximum credit limit sanctioned. It can draw
    funds in the following forms;
    (a) Overdraft
    (b) Cash credit
    (c) Purchase or discounting of bills
    (d) Letter of credit
    (e) Working capital loan

    (A) OVERDRAFT


    under the overdraft facility, the borrower is
    allowed to withdraw funds in excess of the balance in
    his current account upto a certain specified limit
    during a stipulated period though overdrawn amount
    is repayable on demand,generally continue for a long
    period by annual renewals of the limits.
    (B) CASH CREDIT
    The cashcredit facility is similar to the
    overdraft arrangment. It is the most popular
    method of bank finance for working capital in
    india. Under the cash credit facility, a borrower
    is allowed to withdraw funds from the bank upto
    the sanctioned credit limit. Cash credit limits are
    sanctioned aganist the security of current assets .
    Cash credit is a most flexible arrangement from
    the borrowers point of view.


    (C) PURCHASE OR DISCOUNTING OF BILLS


    under the purchase or discounting of bills, a borrower
    can obtain credit from a bank aganist its bills . The
    bank purchases or discounts a borrowers bills. The
    amount provided under this agreement is covereded
    within the overall cash credit or overdraft limit .
    (D) LETTER OF CREDIT

    Suppliers , particularly the foreign suppliers , insit
    that the buyer should ensure that his bank will
    make the payment if he fails to honour its
    obligation. These is ensured through a letter of
    credit arrangement . A bank opens and letter of
    credit in favour of a customer to facilitate his
    purchase of goods.
    (E) WORKING CAPITAL LOAN

    A borrower sometimes require adhoc for temporary
    accomadation in excess of sanctioned credit limit to
    meet un forseen contigencies . Banks provide such
    accomadation through a demand loan account or
    separate non-operable cash credit account . The
    borrower is required to pay higher rate of interest
    above the normal rate of interest on such additional
    credit.

    THANK YOU

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