CMA & Banking Terms Glossary — 40+ Definitions

A B C D E F G I L M N O P R S T U W

Accrual Basis: Accounting method where revenue and expenses are recorded when earned or incurred — not when cash is received or paid. All CMA financial statements use accrual basis.
AGF (Annual Guarantee Fee): Fee charged by CGTMSE for providing credit guarantee on MSME loans. Typically 0.75–1.5% per annum on the guaranteed amount, passed on to the borrower by the bank. Must be included in CMA projections as a finance cost.
Amortisation: Spreading the cost of an intangible asset (e.g., pre-operative expenses, goodwill) over its useful life in the P&L. Typically 5 years for pre-operative expenses in CMA projections.
APG (Advance Payment Guarantee): A bank guarantee issued to the government/client equal to the mobilisation advance received. The bank guarantees that if the contractor fails to deliver, the advance will be returned. Required alongside mobilisation advance payment.

Balance Sheet: Statement of financial position showing assets, liabilities, and net worth at a point in time. In CMA Data (Form III), projected for each historical and future year. Must balance: Total Assets = Total Liabilities + Net Worth.
BG (Bank Guarantee): A non-fund-based facility where the bank guarantees payment to a third party on behalf of the borrower. Common types: Performance BG, EMD BG, Advance Payment BG. Shown as contingent liability in the Balance Sheet.
Break-Even Point: The level of sales/production at which total revenue equals total costs — no profit, no loss. In CMA sensitivity analysis, expressed as % of installed capacity. A break-even below 60% capacity signals a robust project.

Capital Adequacy: The amount of equity (own funds) relative to the risk of assets. For a borrower, this translates to promoter margin — the minimum equity contribution required before the bank finances the rest.
Cash Credit (CC): A revolving working capital facility where the bank allows the business to withdraw up to a sanctioned limit, secured by stock and book debts. Interest charged on the daily utilised balance. Limit is determined by MPBF from CMA. → Full guide
CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises. A government-backed trust that guarantees bank loans to MSMEs, enabling collateral-free lending up to ₹5 crore. → Full guide
CIBIL Score: Credit score issued by TransUnion CIBIL (0–900). Banks typically require 700+ for business loan promoters. A separate CMR (Company/Firm Credit Report) applies for business entities. Checked at every loan application and renewal.
CMA Data / CMA Report: Credit Monitoring Arrangement — a standardised set of 6 RBI-prescribed financial statements submitted to banks for working capital and term loan applications. Includes historical and projected P&L, Balance Sheet, MPBF, Fund Flow, DSCR, and Ratio Analysis. → Full guide
Contingent Liability: An obligation that may or may not crystallise depending on a future event — e.g., bank guarantees, disputed tax demands, pending litigation. Shown below the Balance Sheet as a note; not included in the main liabilities unless invoked.
Current Ratio: Current Assets ÷ Current Liabilities. Measures short-term liquidity. Banks require a minimum of 1.17 under Tandon Method 2. Below 1.0 means current liabilities exceed current assets — technical insolvency.

Debtor Days (DSO): Days Sales Outstanding — how many days of sales are outstanding as unpaid debtors. Formula: (Debtors ÷ Net Sales) × 365. Higher days = more working capital locked in receivables = higher MPBF. → Full guide
Depreciation: Systematic allocation of the cost of a fixed asset over its useful life. Reduces the book value of assets and is an expense in the P&L — but is added back in DSCR calculation as it is a non-cash charge. WDV (Written Down Value) method most commonly used in India.
DLOD (Demand Loan / Overdraft): A term loan structured as an overdraft account — the borrower draws and repays within a fixed limit over a defined term. Common for working capital term loans converted from CC accounts.
DPD (Days Past Due): Number of days a loan EMI or interest payment is overdue. 0 DPD = regular account; 1–30 DPD = Special Mention Account (SMA-0); 31–60 DPD = SMA-1; 61–90 DPD = SMA-2; 90+ DPD = NPA.
Drawing Power: The actual amount a borrower can draw on a CC account on a given date, based on the value of eligible stock and debtors (typically 75–80% of stock + 75% of debtors). Can be lower than the sanctioned limit if stock/debtors are low.
DSCR (Debt Service Coverage Ratio): Measures the ability to repay term loan EMIs from operating cash flow. Formula: (Net Profit + Depreciation + Interest on TL) ÷ (Principal Repayment + Interest on TL). Minimum 1.25 per year, average 1.50 required. → Full guide

EBITDA: Earnings Before Interest, Tax, Depreciation, and Amortisation. A proxy for operating cash flow. Often used to assess debt-servicing capacity. EBITDA Margin = EBITDA ÷ Revenue × 100.
EMD (Earnest Money Deposit): A refundable deposit (1–2% of tender value) submitted by contractors when bidding for government tenders. Usually secured via a BG rather than cash. Returned to unsuccessful bidders and converted to Performance BG for winners.

Fixed Assets (Gross Block / Net Block): Long-term tangible assets used in the business — land, building, plant & machinery, vehicles, computers. Gross Block = total cost of all fixed assets. Net Block = Gross Block − Accumulated Depreciation.
Fund Flow Statement: CMA Form VI — shows how funds moved into and out of the business during the year. Sources: profit, depreciation, new loans, capital infusion. Uses: capital expenditure, working capital increase, loan repayment. Must reconcile with Balance Sheet changes. → Full guide

Gross Block: The total original cost of all fixed assets, before deducting accumulated depreciation. Gross Block increases when new assets are purchased and decreases when assets are disposed of.
Gross Profit Margin: Gross Profit ÷ Net Sales × 100. Measures the profitability of core operations before administrative and finance costs. Banks compare this to industry benchmarks — deviations above or below norms trigger scrutiny.

ICR (Interest Coverage Ratio): EBIT ÷ Interest Expense. Measures how easily interest is covered by operating profit. A ratio below 1.5 signals difficulty in meeting interest payments. Different from DSCR — ICR covers only interest, DSCR covers EMI (principal + interest).

LAP (Loan Against Property): A term loan or overdraft secured by mortgage of residential or commercial property. LAP-OD is a popular working capital tool — limit typically 50–75% of property value, subject to MPBF norms for business use.
LC (Letter of Credit): A non-fund-based facility where the bank guarantees payment to a seller on behalf of the buyer, subject to submission of specified documents. Commonly used for import of raw materials. When devolved (bank pays), it converts to a fund-based loan.
Leverage: The ratio of debt to equity. High leverage (more debt relative to equity) amplifies returns in good times but increases default risk in bad times. TOL/TNW is the primary leverage metric in CMA-based credit assessment.

Margin Money: The promoter's own contribution (equity) towards a project. Typically 25–30% of the total project cost for term loans; 25% of working capital gap as NWC margin for CC accounts. Banks do not finance 100% of any project.
Mobilisation Advance: An upfront payment by the government/client to a contractor to help mobilise resources before starting work. Typically 10–15% of contract value. Shown as a current liability in the contractor's Balance Sheet until recovered from running bills.
Moratorium: A grace period at the start of a term loan during which principal repayment is deferred — only interest is paid. Typically 12–24 months for new projects. Allows the business to reach operational stability before EMIs begin.
MPBF (Maximum Permissible Bank Finance): The maximum working capital the bank will finance, computed using the Tandon Committee Method. Method 2: MPBF = 75% of TCA − (CL excluding bank borrowings). The CC/OD limit cannot exceed MPBF. → Full guide
MSME (Micro, Small and Medium Enterprise): Business classification under the MSMED Act based on investment in plant & machinery (manufacturing) or equipment (services) and annual turnover. Micro: turnover up to ₹5 crore; Small: up to ₹50 crore; Medium: up to ₹250 crore. Udyam Registration is mandatory for MSME classification.

Net Worth / Tangible Net Worth (TNW): Owners' equity in the business. Net Worth = Paid-up Capital + Reserves − Losses. TNW = Net Worth − Intangible Assets (goodwill, preliminary expenses). Banks use TNW for leverage ratio computation. → Full guide
NPA (Non-Performing Asset): A loan where the borrower has not paid interest or principal for 90+ days. Once classified NPA, banks must provision for the loss. NPA status severely impacts the borrower's future creditworthiness and CIBIL score.
NWC (Net Working Capital): Current Assets − Current Liabilities (excluding short-term bank borrowings). NWC represents the portion of working capital funded by long-term sources. A positive NWC is required for a healthy current ratio.

Overdraft (OD): A revolving credit facility allowing withdrawal beyond the bank account balance up to a sanctioned limit. Interest charged on daily utilised balance. Secured by property, FD, shares, or clean. → Full guide

PAT (Profit After Tax): Net profit remaining after deducting all expenses including interest, depreciation, and income tax. PAT is added to reserves in the Balance Sheet each year, increasing net worth.
PBG (Performance Bank Guarantee): A bank guarantee issued to the client (often government) guaranteeing that the contractor will complete the project as per contract terms. Typically 5–10% of contract value. Forfeited if the contractor defaults.
PCFC (Pre-Shipment Credit in Foreign Currency): A rupee or foreign currency loan to exporters for financing raw material purchase, production, and packaging before shipment. Similar to CC but specifically for export orders. Lower interest rate than domestic CC.

Ratio Analysis: Computation of 20+ financial ratios from the CMA Balance Sheet and P&L — liquidity (current ratio, quick ratio), profitability (ROCE, net margin), solvency (TOL/TNW, debt-equity), and efficiency (asset turnover, debtor days). Banks use these as a scorecard for credit quality. → Full guide
Retention Money: A percentage (typically 5–10%) of each bill withheld by the client (often government) until project completion and the defect liability period. Long-term receivable for the contractor — not included in current assets for MPBF calculation.

Sensitivity Analysis: Stress-testing financial projections by varying key assumptions (revenue, costs, interest rates) to see how DSCR and profitability hold up under adverse conditions. Often mandatory for project finance above ₹5 crore. → Full guide
SMA (Special Mention Account): A bank account where repayment is overdue but not yet NPA. SMA-0: overdue 1–30 days; SMA-1: 31–60 days; SMA-2: 61–90 days. Banks are required to report SMA status to RBI's CRILC database. SMA-2 triggers immediate review and corrective action.

Tandon Committee: RBI committee chaired by P.L. Tandon in 1975 that established the norms for bank lending to industry. Introduced the concept of MPBF computation (Methods 1, 2, and 3) and the 6-form CMA Data format. Forms the basis of working capital assessment in India to this day.
Term Loan: A fixed-term loan repaid in equated monthly or quarterly instalments (EMIs). Used to finance capital expenditure — plant, machinery, land, buildings. DSCR assessment is mandatory for term loans.
TOL/TNW: Total Outside Liabilities to Tangible Net Worth ratio. Measures leverage — how much external debt backs each rupee of owners' equity. Acceptable norm: below 4:1 for most industries. Above 4:1 triggers enhanced scrutiny. → Full guide

Udyam Registration: Mandatory online registration for MSMEs on the Udyam portal (udyamregistration.gov.in). Required for CGTMSE loans, priority sector benefits, and MSME-specific government schemes. Classification based on investment and turnover thresholds.
UDIN (Unique Document Identification Number): A unique number generated by a CA for each signed document (including CMA reports) through the ICAI UDIN portal. Allows banks to verify the authenticity of CA-certified documents online. Mandatory for all CA certifications since 2019.

WDV (Written Down Value): Depreciation method where assets are depreciated as a % of the remaining book value each year. Results in higher depreciation in early years (reducing tax burden) and lower in later years. Most common method used in India for Income Tax purposes.
WIP (Work-in-Progress): For manufacturers: goods partially manufactured but not yet finished. For service companies/contractors: work executed but not yet invoiced. Shown as a current asset in Form IV of CMA Data. → Full guide
Working Capital: The funds required to run day-to-day operations — purchasing raw materials, funding debtors, holding stock. Net Working Capital = Current Assets − Current Liabilities. The gap between NWC and bank-permissible finance (MPBF) must be funded by the promoter (NWC margin).
Working Capital Days: The holding period (in days) for each component of the working capital cycle — Raw Material, WIP, Finished Goods, Debtors, and Creditors. These are the primary inputs for Form IV of CMA Data and drive the MPBF computation. → Full guide

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