# Stock statement drawing power: how to read and work it out

> Test a stock statement line by line, strip out ineligible assets, work out drawing power and spot when a cash credit account turns irregular.

Source page: https://creditbrief.in/posts/stock-statement-drawing-power
Published: 2026-11-06
Publisher: CreditBrief

## Outcome

You end with a drawing power figure you can defend, and a clear answer on whether the outstanding is covered by it. Drawing power (DP) is the amount a borrower may draw at a point in time, based on current assets. It is worked out from a stock statement, the borrower's periodic declaration of stock and, usually, debtors and creditors.

The usual working method is:

**DP = (eligible stock less trade creditors, less stock margin) + (eligible debtors, less debtor margin)**

The borrower may then draw up to the lower of DP and the sanctioned limit. Margin is the share of the asset's value the borrower must fund.

This formula is working practice. Paragraph 15 of the Reserve Bank of India (Commercial Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025, updated as on October 1, 2026, sets the principles but gives no formula or margin. Margins, eligibility rules and age cut-offs vary by institution and sit in the sanction terms.

The regulatory points in this piece come from those Directions. They cover banking companies other than small finance banks, payments banks and local area banks, plus corresponding new banks and the State Bank of India. If you work at any other lender type, check the direction that applies to you.

## Prerequisites

- Sanction terms for the cash credit (CC) or overdraft (OD): limit, margins, eligibility rules, statement frequency, charged locations.
- The current stock statement and the previous few, to see the trend.
- Debtor and creditor ageing schedules, if not part of the statement.
- Insurance cover details, and the last stock audit or inspection report, if any.
- The account statement from the core banking system (CBS), showing outstanding, credits and interest debits.
- The due date for the limit's review or renewal.

## Steps

1. **Check the statement's date and identity.** Confirm the borrower, the as-on date, the authorised signature and the locations. Under paragraph 15(2), DP must rest on a current statement. Paragraph 15(3) then adds that, considering the difficulties of large borrowers, statements relied on should not be older than three months. Under 15(4), the outstanding is deemed irregular if DP comes from a statement older than three months. So treat current as the rule and three months as the outer limit, not the normal frequency. *Good looks like:* the as-on date and receipt date are both recorded, and the statement is within the frequency in the sanction terms.

2. **Test the stock schedule.** Check that quantity times rate gives value and that the totals add up. Split the stock by raw material, work in progress, finished goods, and stores and spares. Compare the valuation basis with the sanction terms. *Good looks like:* the arithmetic holds, rates are tested against recent purchase or sale invoices, and any large move between categories has an explanation.

3. **Remove ineligible stock.** Typical candidates are obsolete, damaged or slow-moving items, stock held for third parties, and stock at uncharged or uninsured locations. The exact list varies by institution. The Directions define security as tangible security properly charged to the bank (paragraph 5(10)), so check that the charge covers what is declared. *Good looks like:* every excluded amount has a stated reason.

4. **Deduct trade creditors.** These are amounts owed to suppliers for the stock, which the borrower has not yet paid for. The order of deduction and the treatment of particular creditors vary by institution. *Good looks like:* the creditor figure fits the purchase pattern, and any sharp fall while purchases hold steady has been queried.

5. **Remove ineligible debtors.** Apply the age cut-off in the sanction terms. Look for related-party, disputed and non-trade amounts. *Good looks like:* the ageing schedule ties to the statement total, and the largest debtors are identified.

6. **Apply margins and calculate DP.** Use the margins in the sanction terms, separately for stock and debtors. *Good looks like:* another person can rebuild the figure from your working sheet.

7. **Compare DP with the limit and the outstanding.** Take the lower of DP and the sanctioned limit, then compare the outstanding with it. Paragraph 15(1) requires drawings to be covered by adequate current assets. *Good looks like:* any excess is stated in rupees, with a plan and a date to clear it.

8. **Test the account for irregularity.** Run the out-of-order tests below, and check the limit review date. *Good looks like:* you can state which test, if any, is running, and since when.

9. **Record the result and watch the trend.** Paragraph 28 asks banks to have a robust management information system for early detection of distress at account level. In practice, compare stock, debtors and creditors with earlier statements, and with credits through the account. Stock rising while credits fall deserves a question. *Good looks like:* DP updated in the system under maker-checker control (paragraph 40(2)(iv)), with exceptions escalated.

### What the Directions treat as irregular

| Trigger | Condition | Paragraph |
|---|---|---|
| Out of order, excess | Outstanding continuously above the sanctioned limit or DP for 90 days | 5(7)(i) |
| Out of order, no credits | Outstanding below the limit or DP, with no credits continuously for 90 days | 5(7)(ii) |
| Out of order, thin credits | Outstanding below the limit or DP, with credits not enough to cover interest debited during the previous 90 days | 5(7)(iii) |
| Irregular drawings | Irregular drawings permitted continuously for 90 days, even if the unit is working or the borrower's finances are satisfactory | 42(3) |
| Review lapse | Limits not reviewed or renewed within 180 days of the due date or ad hoc sanction date | 42(5) |

Each of these is a condition for NPA (non-performing asset) classification under paragraph 42. Three other paragraphs affect how you read them:

- **Paragraph 45:** an account should not be classified as NPA merely because of temporary deficiencies. Its examples include inadequate DP on the latest available statement and non-submission of stock statements.
- **Paragraph 46:** the availability of security should not be taken into account in treating an advance as NPA, except to the extent paragraph 67 provides. Good stock cover does not cure the account.
- **Paragraph 44:** classification is borrower-wise, so all facilities to that borrower are treated as NPA, not only the irregular one.

Paragraphs 15(4), 42(3) and 45 need reading together when a statement is overdue. If a case sits between them, take it to your credit policy or compliance team.

On reviews, paragraph 16 asks for limits to be reviewed or regularised within three months of the due date or ad hoc sanction date. Paragraph 17 asks for evidence that a delayed review is under way, and paragraph 21 says delay beyond six months is not considered desirable as a general discipline.

## Worked example, made-up numbers

All figures are invented and in ₹ lakh. The margins, cut-offs and exclusions are illustrations, not a norm. The sanctioned limit is 200 and the outstanding is 168.

| Stock | Declared | Excluded | Eligible |
|---|---|---|---|
| Raw material | 90 | 0 | 90 |
| Work in progress | 40 | 0 | 40 |
| Finished goods | 70 | 10 (slow-moving) | 60 |
| Stores and spares | 15 | 15 (not eligible under the sanction terms) | 0 |
| **Total** | **215** | **25** | **190** |

Debtors are declared at 120. Remove 30 older than the example's 120-day cut-off and 10 owed by a related party, which leaves 80 eligible.

| Working | Amount |
|---|---|
| Eligible stock | 190 |
| Less trade creditors | 50 |
| Paid stock | 140 |
| Stock after 25% margin | 105 |
| Eligible debtors after 40% margin (80 x 60%) | 48 |
| **Drawing power** | **153** |
| Sanctioned limit | 200 |
| Available to draw (lower of the two) | 153 |
| Outstanding | 168 |
| **Excess over DP** | **15** |

The tests matter here. On the declared figures, with no exclusions or creditor deduction, DP would be 233.25 (215 x 75% + 120 x 60%). The account would look comfortably covered. After the tests, it is 15 over.

The next questions are how long the excess has run and how it will be cleared. An excess that stays continuous for 90 days makes the account out of order under paragraph 5(7)(i).

The statement's date matters too. If this statement is dated 30 September and no newer one arrives, it passes three months at the end of December. DP based on it would then fall under paragraph 15(4).

## Common errors

- **Taking declared totals into DP.** The statement is the borrower's declaration. It needs testing before it drives a limit.
- **Using the sanctioned limit as the ceiling.** When DP is lower, DP is the figure to test the outstanding against.
- **Skipping the creditor deduction.** This funds the same stock twice, once by the supplier and once by the bank.
- **Watching only the statement date.** The account can be out of order with a fresh statement, for example when credits do not cover the interest debited.
- **Carrying a stale DP forward.** Once the statement is older than three months, the outstanding is deemed irregular under paragraph 15(4), even if the amounts look fine.
- **Keying errors in the system.** Paragraph 40(1)(iii) names margin setting and security valuation among incorrect entries generally seen, and asks for validation checks on manual entries. Check the margin in the system against the sanction terms.
- **Assuming a stock audit will catch it.** Paragraph 22 makes annual stock audit by external agencies mandatory for NPAs with a balance of ₹5 crore and above. Do not assume any other account has had one. Check the file.

## Sources

- [Reserve Bank of India (Commercial Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13146), rbi.org.in, accessed 2026-11-06

Indicative only. Verify against your institution's policy.