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Permanent working capital

 - Sharp conversion of one year revolving working capital (RWC) loans into permanent working capital (PWC) loan

- however, can business model of those business justify those PWC loans

-[ (a) Permanent working capital: This type of working capital is known as Fixed Working Capital. Permanent working capital means the part of working capital which is permanently locked up in the current assets to carry out the business smoothly. The minimum amount of current assets which is required to conduct the business smoothly during the year is called permanent working capital.

Fixed working capital can further be divided into two categories as under: 

1. Regular Working capital: Minimum amount of working capital required to keep the primary circulation. Some amount of cash is necessary for the payment of wages, salaries etc. 

2. Reserve Margin Working capital: Additional working capital may also be required for contingencies that may arise any time. The reserve working capital is the excess of capital over the needs of the regular working capital is kept aside as reserve for contingencies, such as strike, business depression etc.](https://www.srcc.edu/sites/default/files/B.A.(Hons.)%20Eco_Sem-II_Finance(GE)_WorkingCapital_RuchikaChoudhary.pdf)


- can we say??

1. even for traders and importers- to sustain demand they must maintain certain level of WC to meet immediate demand else they will go out of business

2. but except for meeting those demands, all else WC must be circulating 

3. for manufacturer there will always be WC requirement need as process of production will take time and it must run smoothly. however, there too as per demand required WC will be fixed as long as demand is fixed. As i/p-o/p ratio will be fixed and demand for new and innovative products will show increasing trend of demand or in new geographical or other market areas


We can say that PWC then, to be measurable fact and it depends upon the business model of the borrower. Also, PWC can not be higher than RWC unless and until banks decide to provide loan to wine like product manufacturers. 


can we say if PWC > RWC then, such firms have trouble in managing liquidity and also business model is kind of failure as (hypo):

for traders leverage work to expand volume as they are in low cost strategy margin is fixed. fixed margin push to increase volume to accumulate more wealth. if they are fixing leveraged WC in fixed way then when they are going to expand volume and maximize their profit.

for manufacturers too, ratio must be kept fixed to demand (hence sales revenue) else they too will collapse by liquidity problem


risk of wrong classification:

RWC in Nepal are already of permanent nature, they lack principal movement and are source of interest movement alone, by legalizing them as PWC without assessing their business model will further postponed their recovery. 

Guideline of PWC must be prepared by sound people in every bank according to their risk profile and NRB should also have sound monitoring and provisioning guidelines for PWC. Accountants should also develop model to assess nature of assets based on their underlying nature than legal forms. 

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