CMA data is often prepared as a formality: a set of forms the bank asks for, filled in at the last minute, with projections chosen to produce the limit the borrower wants. Credit officers see a great many of these, and they read them very differently from the way they are written. This note explains what a bank actually looks at when it opens your CMA, and where proposals usually run into trouble.
What CMA data is
CMA stands for Credit Monitoring Arrangement. The format is a set of forms that present past, current and projected financials in a way the bank can assess:
- Form II: operating statement (sales, costs, profit)
- Form III: analysis of the balance sheet
- Form IV: comparative statement of current assets and current liabilities, with holding levels
- Form V: computation of maximum permissible bank finance (MPBF)
- Form VI: fund flow statement
Typically the bank wants two or three years of audited figures, the current year as estimated, and one or more years of projections. Each bank has its own template, but the structure is broadly the same.
How the limit is worked out
Banks generally use one of two methods to size a working capital limit.
Turnover method. For smaller borrowers, typically micro and small enterprises with working capital limits up to ₹5 crore, banks assess the requirement at 25% of projected annual turnover. Of that, the borrower brings in 5% as margin and the bank finances the remaining 20%. It is simple, and it puts all the weight on one number: the projected turnover. That is exactly why the bank will test that number hard.
MPBF, Tandon Method II. For larger limits, the bank works out the working capital gap (current assets minus current liabilities other than bank borrowings), and expects the borrower to fund 25% of total current assets from long-term sources. The bank finances the rest, up to the gap. The arithmetic produces a minimum current ratio of 1.33. RBI stopped prescribing MPBF as mandatory in 1997, but most banks still use it as their own credit policy, so the 1.33 benchmark remains very much alive.
What the credit officer checks
Are the projections believable?
The first thing anyone reads is the growth rate. A business that grew 8% and 11% in the last two years and now projects 35% needs a reason: a new customer contract, added capacity, a new product line. Put that reason in the covering note, with evidence. Projections that simply assume the limit asked for are easy to spot, because the turnover is the number that makes the formula work, and nothing else in the statements has moved to support it.
Banks also check turnover against GST returns. If the CMA shows sales of one figure and the GSTR-3B filings for the same period show another, the bank will ask why before it asks anything else.
Do the holding levels make sense?
Form IV shows stock and debtors in terms of days or months of sales. A bank compares these with your own history and with what is normal in your trade. If debtors were 60 days in the audited years and the projection suddenly shows 90 days, the requirement goes up, and so does the question of whether the business is losing control of collections. The reverse is also a red flag: projecting a sharp fall in inventory days to make the current ratio look better, with no operational change to explain it.
Does the current ratio hold?
Under Method II, a current ratio below 1.33 means the borrower is not bringing enough long-term money into working capital. The usual fixes are a capital infusion, converting promoters’ unsecured loans into subordinated quasi-equity with an undertaking not to withdraw them during the loan period, or moving term liabilities out of current liabilities where they have been wrongly classified. Each of these should actually happen, not just be shown.
Can the business service the debt?
For term loans, the debt service coverage ratio is the central test: the cash available for debt service divided by principal and interest falling due. Many banks look for a DSCR comfortably above 1.25, and higher for riskier sectors. Banks also look at total outside liabilities to tangible net worth, and the interest coverage ratio. A healthy DSCR built on aggressive sales projections will not survive the first set of questions.
Do the numbers reconcile?
Provisional figures for the current year should tie back to the books. Stock in the CMA should be close to what was declared in the last stock statement submitted to the bank. Loans in the CMA should match the bank’s own records of your existing facilities. Small inconsistencies get noticed, and they cost credibility that the rest of the proposal then has to win back.
Common mistakes
- Projecting growth with no capacity, customers or funding to support it
- Showing promoters’ loans as long-term funds without any subordination undertaking
- Ignoring seasonality, so that the projected peak requirement is understated
- Leaving the existing term loan instalments due in the next 12 months out of current liabilities
- Preparing the CMA and the project report separately, with different assumptions in each
- Copying last year’s CMA forward and changing only the year columns
After sanction
The CMA does not stop mattering once the limit is sanctioned. Drawing power each month depends on the stock and debtors statements you submit, after the bank’s margins, and those statements are compared against the holding levels in your CMA. At renewal, the bank will compare your actual results with what you projected. A business whose actuals come close to its projections finds renewals and enhancements much easier. That is the real reason to keep projections realistic.
We prepare CMA data and project reports for working capital, term loans and renewals, and work through the bank’s queries with you after submission. We do not charge any fee linked to the loan amount. If you have a proposal coming up, send us the last two years’ audited financials and the bank’s format, and we will tell you what limit the numbers can realistically support.
Related service: Project reports and CMA data.
This note is general information on common banking practice as of November 2026. Each bank applies its own credit policy, and the norms in your sanction will depend on the bank and the proposal.
One small styling point: