Stock statements and drawing power: the number that decides what you can actually draw

Short answer: the sanction letter fixes a ceiling. What you can actually draw each month is drawing power, computed by the bank from the stock and book-debt statement you file — paid stock less the margin, plus eligible debtors less their margin, capped at the limit. A late or careless statement does not just cost penal interest. Under the RBI's norms it can make the account irregular, and ninety days of that makes it an NPA with no default at all.

The two numbers, and why they differ

Drawing power is almost always lower than the limit, and it moves. A month of slow collections, a supplier who extends credit, a debtor who slips past ninety days — each one changes the number without anything changing on the sanction.

How the bank computes it

The arithmetic is standard even though the margins are not:

A worked example, on a ₹50 lakh limit with 25% and 40% margins:

The borrower holds ₹70 lakh of current assets and a ₹50 lakh limit, and can draw ₹39 lakh. Nothing is wrong. That is the design: the bank funds the part of the working capital cycle you own outright, at a margin.

The three things that quietly reduce it

Creditors. Stock bought on credit is deducted before the margin is applied. A business that negotiates 60-day supplier terms — sound commercially — finds its drawing power falling as a result. The two are not independent, and a supplier-credit decision is also a drawing-power decision.

Ageing. Receivables past the eligible period drop out entirely, not partially. A ₹10 lakh debtor at 95 days contributes nothing. Statements that report total debtors without an ageing are recomputed by the branch on whatever ageing it holds, which is rarely to your advantage.

The cut-off. Statements received after the bank's cut-off leave the previous month's drawing power in force. A good month reported late is a good month the account never sees.

What a late statement actually costs

The visible cost is the penal interest most sanction letters attach to a late statement. It is small and it is not the point.

The point is the RBI's asset-classification norms for cash credit and overdraft accounts. Drawings permitted against a stock statement that is more than three months old are treated as irregular. Where that irregularity continues for ninety days, the account is classified as a non-performing asset — with every instalment paid and every interest debit honoured.

That reclassification has consequences well beyond the bank: it reaches the credit bureau, it reaches every other lender's covenant checks, and it is disclosed. A borrower who has never missed a payment can acquire an NPA history by leaving three stock statements in a drawer.

The same norms treat an account as out of order where the outstanding stays above the drawing power for ninety days continuously — which is how a falling drawing power, uncorrected, turns a healthy limit into an irregular one without a single fresh drawing.

The statement is evidence, not a formality

The bank holds every stock statement you have filed, and it reads them again at renewal — against the CMA data that supported the limit in the first place.

The CMA asserted holding periods: so many days of inventory, so many days of receivables. The stock statements are the monthly proof of whether that was true. A CMA that projected 60 days of stock beside twelve statements showing 120 is read at renewal, and the CMA loses. That renewal exercise, and what the branch compares, is set out in CMA data for a cash credit renewal; the Form IV holding periods the statements have to agree with are in the CMA data format, form by form.

Before the next statement goes in

1. Take the figures from the books, on the date the sanction specifies, not from an estimate.
2. Deduct creditors yourself and apply the margins, so the drawing power the bank arrives at is the one you expected.
3. Age the debtors and exclude what is past the eligible period before the branch does.
4. Check the outstanding against the drawing power — not against the limit — and reduce it if it is above.
5. Diarise the cut-off, because a statement filed on the 12th when the cut-off was the 10th is a month lost.
6. Keep the statements consistent with the CMA you gave the bank, or be ready to explain why the business changed.

The worksheet below reproduces the computation — enter stock, creditors, the debtors ageing and your sanction margins, and it produces the drawing power the bank should arrive at, alongside a monthly log so the trend is visible before the branch sees it.

This is a working reference on general practice and the RBI's classification norms as they stand. Margins, the eligible debtor age, cut-off dates and penal terms are set by your own sanction letter, which is the authority for your account.