How does a bank read your working capital renewal and money forecast (CMA)?

Every year, around the same time, a file lands on a bank desk with a short label: renewal. For you it can feel like a formality — the limit was approved last year, the business is running, interest has been paid. On the bank’s side it is a full re-check of whether the bank should keep lending. I spent years deciding renewals and increases of cash credit, overdraft, demand loans, letters of credit and guarantees — and later, when looking at property loans, I still checked how the working-capital accounts behaved. Full career on the About page.

This is the first article in From the credit desk, a weekly series in which I explain how a bank actually reads a loan file. I am starting with the working capital renewal because it is the decision business owners see most often and understand least.

What is in a renewal file?

When the bank’s relationship manager sends a renewal for review, the officer who decides usually has:

• Audited accounts for the last completed year (or provisional figures with a date for the audited set).
• Money-forecast papers (CMA data) — past audited years, this year’s estimate and next year’s forecast.
• Monthly stock and unpaid-bill lists submitted during the year, and how much you could draw from them.
• The stock audit report, for limits large enough to need one.
• An account behaviour summary — how much of the limit you used, money in and out, problems, interest paid on time.
• The original approval letter and a list of conditions, with their status.
• Credit reports for the company and guarantors, and loans from other banks.

That officer’s job is to write a renewal note that tells the approving authority whether this limit is still the right size, still well secured, and still used for its purpose. Everything below is how that note gets written.

Step 1: Did you do what you said you would do last year?

The first thing I opened was last year’s money forecast, not this year’s. Last year’s forecast for the current year is the closest thing a bank has to a promise from you. I put it next to the actuals:

Example numbers only, not a client case.

A table like this is not fatal. Businesses miss forecasts all the time. What matters is whether the file explains the gap before the bank asks — a lost customer, a raw-material price swing, a delayed factory addition — and whether the new forecast has learned that lesson. Someone who missed by 15% and now forecasts 35% growth with no new capacity or orders has a trust problem, not a numbers problem.

Step 2: Is this year’s forecast believable?

Only after the gap check does the bank read the new forecast. I tested it against three things:

1. Track record. Growth should line up with the audited years, unless there is a clear, written reason to expect a break.
2. Capacity and orders. For a maker, can the plant actually produce the forecast volume? For a trader, do supplier deals and the customer base support it? An order book or a new distribution deal carries weight.
3. GST returns. Forecast sales are always read against the GST sales actually filed. A large gap between the two is one of the quickest ways to lose the bank’s trust.

The forecast drives the assessed limit — through the sales method for smaller limits, or the maximum bank-loan-limit method on forecast current assets and liabilities for larger ones. (If you want the mechanics, see how banks assess cash-credit and overdraft limits.) An inflated forecast does not get you a bigger limit; it gets you a doubtful renewal note.

Step 3: What do stock and bill days say about the business?

Days money sits in stock, unpaid bills and supplier credit are where the bank looks for stress that the profit and loss account hides.

• Rising stock days may mean slow-moving or unsaleable stock. The question in my mind was always: is this stock saleable at the book value?
• Rising unpaid-bill days may mean a weak customer, a dispute, or sales to related parties. I asked for an ageing list and looked hard at anything beyond 90 days.
• Rising supplier-credit days can look like good cash management, but it may also mean suppliers are not being paid on time — which shows up later in the market.

The bank also checks whether owner money left in the business to fund daily work (net working capital) has been kept up. If profits were taken out or used to buy property, net working capital falls, and so does the cushion supporting the limit.

Step 4: Do the stock lists hold together?

This is where many renewals quietly go wrong. How much you could draw during the year was worked out from your monthly stock and unpaid-bill lists. At renewal, I compared the list for the last month of the financial year with the audited balance sheet for the same date.

If the stock list showed ₹9 crore of stock and ₹11 crore of unpaid bills, and the audited balance sheet showed ₹7 crore and ₹8.5 crore, the bank has been letting you draw against assets that may not have existed in that form. It does not matter whether the gap came from valuation differences, timing or careless prep — the bank has to record it, and it casts doubt on every list submitted during the year.

The stock audit report, where there is one, is read the same way: differences between reported and checked stock, unpaid bills included beyond the allowed age, and the auditor’s comments on records and controls.

Step 5: How has the account behaved?

The account behaviour summary is the bank’s own evidence, and it often carries more weight than anything you submit.

• Use of the limit. A limit used at 20–30% month after month invites the question of whether it is needed at all. A limit always at or above how much you can draw suggests stress or a limit set too low.
• Money through the account. If the business turns over ₹40 crore a year but the cash-credit account sees only a small share of that, the bank concludes sales are going to other banks — and asks why it should carry the risk without the business.
• Problems. Drawing above the allowed amount, returned cheques and late interest feed the bank’s early-warning lists. Repeated problems are the fastest route from a routine renewal to a watch-list discussion.
• End use. Large transfers to group firms, property buys or machine spends out of the cash-credit account are read as using day-to-day money for the wrong purpose.

Step 6: Are the approval conditions met?

Every approval letter carries conditions — insurance of stock and assets with the bank’s clause, registration of charges, periodic valuation and legal updates on security, submission of accounts and stock lists by set dates, financial promises, and sometimes specific undertakings. At renewal, each one is listed with its status.

Pending conditions rarely stop a renewal by themselves, but they change its shape: the renewal may come with a list of conditions to meet before the next draw, or a shorter validity. They also tell the approving authority how the relationship is managed.

Step 7: What the renewal note concludes

Putting it together, the bank recommends one of a small number of outcomes:

• Renew as is — the business is on track, the limit is the right size, the file is clean.
• Renew with conditions — pending compliance, a stock-audit query or a promise to be met.
• Increase — growth, use of the limit and owner cushion support a higher limit.
• Reduce or restructure — low use, falling sales, weak drawing power, or part of the need better suited to a longer working-capital term loan.

Timing matters too. Under Reserve Bank of India rules, banks must label loans as good or bad. If your running limit is not reviewed or renewed within 180 days of the due date, the bank can treat the account as a bad loan. Drawing power based on old stock lists is also treated as a problem. The RBI master circulars set out the detail. Starting late gives you less time to answer bank questions.

What should you do before the renewal file reaches the desk?

• Start early — two to three months before the due date, while there is time to fix gaps.
• Write the gap explanation yourself — one page, plain language, before the bank asks.
• Match the March stock list with the audited balance sheet and explain any difference.
• Route business through the limit account in proportion to the limit.
• Clear pending approval conditions — insurance, charge registration, valuation updates.
• Decide on an increase in advance and support it with numbers, rather than asking for a temporary extra limit at the peak.

If you would like help with any of this, our working capital renewal & compliance support covers the yearly cycle for existing borrowers, and our working capital service covers fresh limits and takeovers. Working capital is usually a case where the lender does not pay advisors, so you may pay us a fee. We tell you the amount in writing before we start.

Tools that help you pack the same file

• CMA data maker — Forms I–VI + MPBF · Year 1 free · ₹999
• Stock statement for CC — monthly DP pack · ₹199 / ₹2,999 year
• CC / OD limit enhancement — old limit vs new ask · ₹1,499
• WC renewal navigator — renewal checklist

Next week in From the credit desk: another decision from the lender’s side of the table. — CA Jitendraa Rathi

Written and reviewed by CA Jitendraa Rathi, Chartered Accountant (CA membership number 217936) · Ex-banker, 20 years of experience in credit and lending · LinkedIn
Last reviewed 5 Oct 2026 · Expert review: CA Jitendraa Rathi (ICAI 217936)