Bank Theory

Working Capital Management | Bank Theory Working Capital Management Working Capital refers to the capital required for the day-to-day operations of a business. It is defined as the difference between current assets and current liabilities. Effective management of working capital ensures liquidity, solvency, and profitability. Working Capital Cycle (WCC) The Working Capital Cycle represents the time it takes for a business to convert its net current assets into cash. It is the sum of the inventory holding period and receivables collection period minus the payables payment period. Example: A firm holds inventory for 60 days, receives payment from customers in 30 days, and pays suppliers in 45 days. WCC = 60 + 30 - 45 = 45 days. Cash and Marketable Securities Firms hold cash for transactional, precautionary, and speculative purposes. Marketable securities are short-term instruments that are easily convertible to cash, like T-bills and CPs. ...

Finance to MFIs, NBFCs, and Co-Lending Arrangements Finance to MFIs/Co-Lending Arrangements with NBFCs Background Microfinance Institutions (MFIs) and Non-Banking Financial Companies (NBFCs) play a critical role in extending credit to underserved sectors. Banks have increasingly collaborated with these institutions to improve credit penetration through co-lending models and direct financing. Bank Borrowings: Source of Finance for NBFCs Banks act as a major source of funds for NBFCs by extending term loans, working capital facilities, and other structured finance instruments. This enables NBFCs to on-lend to small borrowers who may not be directly serviced by banks. Bank Finance to NBFCs Banks finance NBFCs based on risk assessment, credit rating, capital adequacy, asset quality, and regulatory compliance. Typically, NBFCs borrow for: On-lending to retail or MSME clients Infrastructure developm...