CMA Data(Credit Monitoring Arrangement) is a very important document which HSBC Bank mandatorily asks for from the borrower, whenever it intends to sanction a new loan / renew an existing credit limit / during takeover or there are important developments / updates happening in a company.
CMA Data basically provides a detailed Historical & Projected Financial Statements (Income Statement, Balance Sheet, Cash Flows, Fund Flows, Working Capital, Ratio Analysis, etc.) about the borrowing firm so that the HSBC Bank can take the decision of how much limit to sanction and at what terms.
Moreover, the Bankers at HSBC Bank or any other bank, also reviews and compares the past CMA Data to cross check whether the borrower has been able to perform in line with what was projected earlier.
Hence, CMA Data is a very crucial document to extract a good deal from HSBC Bank or any other bank. Accordingly, the same needs to be prepared properly with full details and complete justification since lots of queries from the Credit / Risk Committee flows from the CMA Data itself.
For a normal MSME borrower, preparing a CMA Data report is a nightmare. They or their staff are not equipped enough to prepare CMA Data and reports as required by the HSBC Bank guidelines. Even if they try it takes a lot of their time, effort and energy ~ thereby compromising their other areas of work.
It is in this situation, that your friend “BankKeeping” comes to rescue and supports you to prepare CMA Data that shall meet the needs of the HSBC Bank as per their guidelines and requirements – and that too in a very prompt manner.
CMA Data – Meaning
Credit Monitoring Arrangement (CMA) Data and Reports have been in existence since 1988, making them one of the crucial instruments of credit control and being used by the RBI to regulate bank credits exceeding the prescribed credit limits directly. This scheme involved obtaining prior permission from the Reserve Bank of India for above certain limits, which are subject to renewal from time to time.
Originally, the credit assessments were implemented as a mechanism to avoid the ill-usage of scarce financial resources by larger borrowing businesses. Later, the suggestions placed forth by the Chore Committee and Tandon Group brought substantial changes in the CAS scrutiny of credit proposals by banks, including longer delays in getting RBI approvals and a credit monitoring system to disburse bank credit.
A credit monitoring arrangement report, or CMA data report is a presentation offering a true and transparent picture specifying the financial health of a business including its current economic status and its viability through future projections. The report thoroughly studies the effective application of funds and their management by the borrower entity toward the envisioned business goals. Normally, whenever an entity seeks a business loan, HSBC Bank asks for a CMA report apart from other documents to get a better picture of the cash inflows and outflows of the business.
Need to prepare CMA Data for HSBC Bank
In accordance with the RBI directions, all lending institutions, including HSBC Bank, need to ask for CMA data reports for loans such as project-based loans, working capital loans, overdraft facilities, and other long-term loans.
Further, such CMA data is gathered along with the requisite financial metrics to help bankers and analysts at HSBC Bank, analyze the financial soundness of businesses. Hence, lending institutions are only allowed to sanction credit proposals for larger sums of business after submission and a comprehensive examination of the past performance of a CMA data report.
Additionally, HSBC Bank also needs to comply with the RBI directions by submitting any larger credit proposals from borrowers for their verification and approval from the Reserve Bank of India. Such proposals should be for certain working capital limits (for instance up to 5 Cr or above for working capital and up to 2 Cr for term loans). This may be revised from time to time as per the internal working arrangements of different banks.
Steps Involved in Preparation of CMA Data for HSBC Bank
Prepare and Collect Key Documents
The first step to prepare CMA data for HSBC Bank or any other bank, would be to gather the various financial statements, like – Income Statement, Balance Sheet, Cash Flows, Fund Flows, Working Capital, Ratio Analysis, etc. These documents should be up-to-date and give a clear image of the financial health of the borrower entity.
A Comprehensive Evaluation of Critical Metrics
The CMA report building now requires to conduct a detailed examination of the financial soundness and the viability of the business by going through metrics under the segments i.e. liquidity, profitability, and business solvency respectively. It is equally important to pay attention to all these financial aspects in preparation of the CMA report, to get a loan sanction or renewal from HSBC Bank without hiccups.
Business Projections
On the basis of the available data and market drifts, the prepared CMA report will make short-term and long-term business projections by taking into account the sales, profits, expenses and the business cash-flows.This is a critical aspect, giving the HSBC Bank and other lenders a peek into the future growth prospect of the borrowing company.
Determine Working Capital Requirements
Finally assess the working capital requirements and the repayment ability of the borrower on the basis of the working capital cycle, stock management, and trade receivables and payable ratios, determining the adequate funds to run a business.
All this financial data will finally help in compilation of a fully structured CMA Report for the HSBC Bank.
Components of CMA Report for HSBC Bank Loan
The CMA data has various components that enables HSBC Bank to analyse the company’s financial performance and status during the loan evaluation process. Listed hereunder are the main constituents of the CMA report.
Current limits and proposed limits Statement
This segment of the CMA data report provides a description of the prevailing fund- and non-fund-based credit limits, their usage, and their history. Additionally, the statement also comprises the application made and the proposed credit limit to the concerned borrower. This is among the preliminary documents necessary to be provided to the HSBC Bank.
Operating statement (Form II)
This is another significant section of the CMA data report, which uses metrics such as sales attained by the business, profit before and after tax, direct and indirect business costs, profits achieved by the business, and sales projections for the upcoming period of a certain timeline (say, three to five years). This gives an idea to the lender, or in this case, HSBC Bank, about future profit-generation ability of the business. The method is scientific and logical, as it offers a brief idea regarding the prevailing and future profit-generation ability of the business.
Balance Sheet Statement (Form III)
Next, the balance sheet statement shows a true picture of the financial health of the borrower by assessing the current financials and future forecasts. It helps in providing a comprehensive analysis of current and non-current assets, current and non-current liabilities, and the cash and bank position of the borrower. Apart from this, this statement also lays down the net worth of the borrower entity for the projected period. This is a crucial part of the CMA report to be submitted to HSBC Bank.
Current assets and current liabilities statement (Form IV)
This statement in the CMA report essentially compares the current assets and liabilities of the borrower business, which shows the borrowing capacity to fulfill the day-to-day requirements of a business and the working capital for the projected period.
Maximum Permissible Bank Finance (MPBF) (Form V)
This statement specifies the upper ceiling for the credit limit which could be permitted by the HSBC Bank based on the borrowing capacity. This gives an understanding to the borrowers to manage their operating cycle and cash flow patterns effectively.
Fund Flow Statement (FFS) (Form VI)
The Fund Flow Statement is a statement that specifies the funds inflows and outflows of the borrower entity concerning the projected balance sheets and MPBF calculations for a certain period. The main objective of this statement submitted to the HSBC Bank is to give an insight of the movement of funds for the said period.
Ratio Analysis (Key Indicators)
Lastly, ratio analysis is another key component of a CMA report to be submitted to the HSBC Bank. It includes various ratios assessing the overall financial health of the organization under various segments like solvency ratio, liquidity, and profitability encompassing ratios like net profit, gross profit, stock turnover ratio, working capital turnover, debt-equity ratio, etc. presenting a summary of the business financials.
Benefits of CMA Data Report for SME
Overall Financial Overview:
The CMA data provides a snapshot of the financial performance of the SME or borrower company over a specified period of time, enabling the lending bank, like HSBC Bank, in understanding the value of the company for quicker processing and disbursement of loan.
Creditworthiness:
Once all your financials are in place and well managed it gives HSBC Bank a detailed financial picture of the SME/ borrower. The CMA data report prepared for HSBC Bank loan, further facilitates in negotiating favourable terms and improved credit worthiness of the company.
Risk Mitigation:
Knowing your weaknesses is the first step towards corrective actions. A well drafted CMA Data Report for HSBC Bank loan, clearly indicates the financial health of the company and helps in developing strategies that can mitigate financial risk arising from financial uncertainties.
Efficient Process of Loan Sanctioning:
The CMA data assists HSBC Bank in getting a fuller picture of the financial health of the borrower entity, it reduces time and effort for loan sanctioning, reducing the stress and managing continuous funds for the day to day functioning of the company.
Higher Chances of Approval:
Since the CMA data measures the repayment ability of a business on various parameters such as liquidity, profitability, and business solvency, it increases the possibility of a HSBC Bank loan sanction.
Regulatory and Compliant:
Regular updation and timely preparation of CMA data for the HSBC Bank loan, ensures that the company is compliant with all regulatory frameworks and hence derives the benefits associated with timely documentations and submission. This also avoids penalties if any.
Enhanced Investor Relation:
CMA data builds trust with financial institutions, lenders, investors, and other stakeholders by demonstrating financial transparency and accuracy. It also helps in negotiating better terms with vendors. This sole document may not just attract better terms on your borrowings from HSBC Bank but also attract investors for overall business growth.
Conclusion
Therefore, the CMA data report is an effective measure for the borrower and lender to establish the financial soundness, viability of the business, and repayment ability of the lender to fulfil his loan obligations, assisting them in better borrowing decisions. Though any individual or business may prepare a CMA data report on their own if they encounter any issue, they may seek professional assistance for better accuracy and to meet the lending criteria of HSBC Bank.
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How BankKeeping Can Help you with CMA Data Reports
Looking for experts to handle your banking needs, look no further! We are a team of experts in the banking and financial industry. We help the SME’s deal with their banking requirements on a day to day basis. The daunting task of preparing a CMA Data for HSBC Bank loan and renewal, can be cumbersome to handle for the SME or a proprietor alone. It is here where the BankKepping team can help you through its dedicated team, for preparation, presentation and even negotiations with the HSBC Bank or any other lender..
We are challenging the Status Quo of how SMEs & Banks work together. We use our expertise to empower your business by preparation of a full fledged CMA data report in the manner required by the Banks. We not just help you in report preparation but also presentation to the banks. The BankKeeping team even helps you in negotiating better terms with the HSBC Bank by either lowering the interest rates or getting better bank credits. We help you consolidate your banking, create a banking compliance calendar so that you never miss a deadline and even help you reduce the banking costs.
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