When it comes to securing working capital for your business, one of the most important concepts to understand is Maximum Permissible Bank Finance (MPBF). It helps determine how much loan or credit facility a business can get from a bank based on its financial position. Knowing this helps business owners plan their funding efficiently and avoid over-borrowing or under-financing.

What is Maximum Permissible Bank Finance?

MPBF is a method used by banks to calculate the maximum amount of working capital loan that a borrower can obtain. It is usually calculated under the Tandon Committee Norms, which were established by the Reserve Bank of India (RBI) to ensure fair and secure lending practices.

In simple terms, MPBF helps banks assess how much finance a business genuinely needs to meet its operational requirements without excessive reliance on borrowed funds.

Methods of Calculating MPBF

The Tandon Committee suggested three methods for calculating MPBF, but most banks use the Second Method as a standard approach.

1. First Method:

• Borrower should bring 25% of the Working Capital Gap (WCG) from their own funds.
• Working Capital Gap = Current Assets – Current Liabilities (excluding bank borrowings).
• So, the bank can finance up to 75% of the WCG.

2. Second Method (Most Common):

• Borrower should bring 25% of the Total Current Assets (TCA) from their own funds.
• The remaining 75% of TCA – Current Liabilities is financed by the bank.
• This ensures a stronger liquidity position for the borrower.

3. Third Method:

• Borrower should bring 25% of the Total Current Assets from long-term sources, such as equity or long-term debt.
• This method is used rarely, for large corporates or specific cases.

Why MPBF Matters for Businesses

Understanding MPBF helps businesses in several ways:

• Financial Discipline: Ensures businesses maintain a healthy balance between own funds and borrowed funds.
• Better Planning: Helps assess how much external finance is realistically available.
• Improved Creditworthiness: Banks view borrowers with clear financial planning more favorably.

By aligning working capital requirements with MPBF norms, businesses can avoid liquidity issues and strengthen their financial credibility.

How Direct Credit Helps You

At Direct Credit, we simplify the entire process of business financing — from understanding your MPBF eligibility to connecting you with banks and NBFCs that offer the best loan terms. Our team helps you:

• Calculate your working capital needs accurately.
• Prepare necessary financial documents and projections.
• Find the right lender offering maximum permissible finance at competitive interest rates.

Whether you’re a growing SME or an established enterprise, Direct Credit ensures you get the funding you deserve — quickly and transparently.

In summary, understanding your Maximum Permissible Bank Finance can make all the difference between running short of funds and running your business smoothly. With expert support from Direct Credit, you can turn this technical calculation into a practical financing solution for your growth.