Drawing power in banking: meaning and calculation

Formula

DP = (paid stock less stock margin) + (eligible receivables less receivables margin)

Paid stock is stock less trade creditors. Margin is the share of asset value the borrower funds. This is working practice, not a regulatory formula. Margins vary by institution.

Example, made-up numbers

How it gets read

The limit is fixed; DP moves with each stock statement, the borrower’s declaration of stock and receivables. The borrower can draw the lower of the two.

Common practice, not regulation: receivables past the lender’s ageing cut-off drop out, a stock audit can cut DP when physical stock falls short of the statement, and lapsed insurance can take stock out of DP. Cut-offs and triggers vary by institution.

The Reserve Bank of India (Commercial Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025 (updated October 01, 2026) cover commercial banks other than small finance, payments and local area banks (paragraph 3).

• Paragraph 15: drawings must be covered by current assets, with DP based on a current stock statement. For large borrowers, statements should not be older than three months; outstanding based on older ones is deemed irregular.
• Paragraph 5(7): one out-of-order test is a balance continuously above the sanctioned limit or DP for 90 days.
• Paragraph 45: a temporary DP shortfall or missing stock statement alone should not make an account a non-performing asset. Classification rests on the record of recovery.