MPBF stands for maximum permissible bank finance. It is the idea that a bank should fund only part of a borrower’s working capital gap, with the borrower bringing the rest from long-term money.
It comes from the Tandon Committee, which reported in August 1975 and set out three methods:
| Method | MPBF |
|---|---|
| I | 75% × (current assets - current liabilities) |
| II | (75% × current assets) - current liabilities |
| III | 75% × (current assets - core current assets) - current liabilities |
Here, current liabilities exclude bank borrowings.
Example, made-up numbers
Current assets 100, current liabilities excluding bank finance 40.
| Method | Working | MPBF |
|---|---|---|
| I | 75% × (100 - 40) | 45 |
| II | (75% × 100) - 40 | 35 |
Method II expects the borrower to fund more, so it allows less bank finance.
RBI no longer mandates this method, but the framework stayed in wide use after the mandate ended. Check which method your institution applies, and read the current directions for what applies today.
Sources
- Tandon Committee report on working capital: norms and recommendations, MBA Knowledge Base (secondary source), accessed 6 Nov 2026