Explain the following methods used by banks to assess working capital requirements of a borrower : (b) Turnover Method (Nayak Committee).

b) Turnover Method (Nayak Committee): This method of assessing working capital requirement of a firm is given by "Nayak Committee". The committee headed by Mr. P.R. Nayak examined the adequacy of institutional credit to SSI sector and gave its recommendations which are as under: Under this method, bank credit for working capital purposes for borrowers requiring fund based limits up to ₹5 crore for Small Scale Industries borrowers and ₹2 crore in case of other borrowers, may be assessed at minimum of 25% of the projected annual turnover of which should be provided by the borrower (i.e. minimum margin of 5% of the annual turnover to be provided by the borrower) and balance 4/5th (i.e. 20% of the annual turnover) can be extended by way of working capital finance. The projected turnover or output value may be interpreted as projected gross sales which will include excise duty also. Since the bank finance is only intended to support the need based requirement of a borrower, if the available Net Working Capital (net long term surplus funds) is more than 5% of the turnover the former should be reckoned for assessing the extent of bank finance.