General Studies · Working Capital Assessment

A diversified manufacturing conglomerate named 'Vanguard Industrial Solutions' has been sanctioned a consolidated working capital limit of fifteen hundred lakh rupees by a lead bank in a consortium arrangement. The sanction terms specify that the bank will maintain a margin of twenty-five percent on inventory and a margin of forty percent on trade receivables. Furthermore, the bank has stipulated that only receivables aged up to ninety days from the date of the invoice will be considered eligible for the calculation of drawing power. For the month ending December 2025, the company has submitted a detailed stock statement with the following particulars: raw materials in the warehouse are valued at eight hundred lakh rupees, but this includes a specific lot of fifty lakh rupees currently in transit from a sea port for which the title documents have not yet been delivered to the bank. The work in process is valued at three hundred lakh rupees. The finished goods are recorded at six hundred lakh rupees, which includes an identified stock of one hundred lakh rupees consisting of older models that have remained unsold for over six months and are categorized as slow moving by the internal auditors. The company also holds spares and consumables worth fifty lakh rupees which are not generally considered as primary security under the bank policy. The total trade receivables are reported as twelve hundred lakh rupees. Upon scrutiny of the age wise analysis of these receivables, it is found that two hundred lakh rupees are outstanding for more than one hundred and twenty days, and another one hundred and fifty lakh rupees are outstanding for exactly one hundred days. Additionally, the company has received a mobilization advance of one hundred lakh rupees from a major client specifically against the finished goods currently held in the factory. The trade creditors for the raw materials are reported as two hundred lakh rupees and there are unpaid statutory dues like GST and employee provident fund amounting to thirty lakh rupees. Based on the operational guidelines for loan accounts and the credit monitoring framework, calculate the accurate drawing power and evaluate the following summary statement: 'The bank can effectively permit the utilization of the entire fifteen hundred lakh limit because the margin adjusted value of total current assets, comprising raw materials, process stocks, and qualified receivables, surpasses the limit by a significant buffer.'