CMA Report

What it means

A CMA report (Credit Monitoring Arrangement data) is a set of financial statements and projections in a standard format that banks use to decide how much to lend to a business. It shows the bank how the business has performed in the past and how it expects to perform. Most importantly, it shows whether the business can repay the loan. It is usually prepared by a CA from the audited accounts and the business plan.

How it works

A typical CMA report covers 2 years of actual figures, the current year’s estimate, and 3 to 5 years of projections. It contains:

• Operating statement: sales, costs, profits

• Analysis of the balance sheet

• Comparison of current assets and current liabilities

• Calculation of maximum permissible bank finance (MPBF), meaning the working capital loan the business is eligible for

• Fund flow statement

• Key ratios: current ratio (banks usually expect about 1.33 or more), DSCR (usually 1.25 to 1.5 or more), debt-equity, interest coverage, and inventory and debtor days

It is needed for new or renewed cash credit (CC) and overdraft (OD) limits, enhancement of limits, term loans, and project finance.

Example

Konark Garments projects next year’s sales at ₹6 crore and wants a cash credit limit. From the CMA projections:

• Total current assets (stock and debtors): ₹1,80,00,000

• Current liabilities other than bank borrowing (creditors and others): ₹40,00,000

• Working capital gap: ₹1,80,00,000 minus ₹40,00,000 = ₹1,40,00,000

• Promoter margin at 25% of total current assets: ₹45,00,000

• MPBF: ₹1,40,00,000 minus ₹45,00,000 = ₹95,00,000

So the bank may sanction a CC limit of up to about ₹95 lakh, subject to ratios, security and its own policy. For smaller MSME limits, many banks instead use the turnover method, taking about 20% of projected sales as the limit.

Key points to remember

• Projections must be realistic and match past trends. Banks compare them with your GST returns and bank statements.

• Figures for actual years must tie exactly to the audited balance sheet.

• Stock and debtor levels in the CMA should match what you report in monthly stock statements.

• A weak current ratio or DSCR is the most common reason for a lower limit. Fix it by adding promoter funds or by restructuring loans.

• Prepare the CMA well before the renewal date so the limit does not lapse.