Drawing Power Calculation: Stock, Book Debts and Margins Explained for CAs
Drawing power (DP) is the amount a borrower can actually draw from a cash credit or overdraft account on a given day. It is calculated from the current security, usually the stock and book debts in the latest stock statement, after deducting margins and ineligible items, and it can never exceed the sanctioned limit. The borrower may draw only up to the lower of the two.
The exact formula, margins and ageing cut-offs come from each borrower's sanction letter, not from a single RBI rule. This guide shows the commonly used method, a worked example, and what a CA doing a stock audit, concurrent audit or DP certificate should test. Facts about RBI norms are as of 26 September 2026.
What is the drawing power formula?
A commonly used formula, and the one in the CORAA drawing power calculator, is:
DP from stock = (Stock - Sundry creditors for goods) x (1 - stock margin)
DP from book debts = (Book debts - Debts beyond cover period) x (1 - debtor margin)
Gross DP = DP from stock + DP from book debts
Applicable DP = lower of Gross DP and Sanctioned limit
Excess drawing = Outstanding - Applicable DP (if positive)
Stock is taken after excluding old, obsolete, slow-moving and rejected items. Deducting creditors gives "paid stock", because stock still unpaid for is effectively financed by the supplier. Whether creditors are netted, which creditors qualify, the margins and the debtor cover period are all sanction-specific. Read the sanction letter first.
How is drawing power calculated in practice? A worked example
The figures below use the calculator's default inputs (Rs lakh), so you can reproduce them there.
| Line | Rs lakh |
|---|---|
| Stock per stock statement (after excluding old/obsolete) | 180 |
| Less: sundry creditors for goods | 40 |
| Paid stock | 140 |
| Less: stock margin at 25% | 35 |
| DP from stock | 105 |
| Book debts, total | 120 |
| Less: debts beyond the 90-day cover period | 30 |
| Eligible book debts | 90 |
| Less: debtor margin at 40% | 36 |
| DP from book debts | 54 |
| Gross DP (105 + 54) | 159 |
| Sanctioned CC limit | 150 |
| Applicable DP (lower of 159 and 150) | 150 |
| Outstanding in the account | 160 |
| Excess drawing (160 - 150) | 10 |
The 25% and 40% margins and the 90-day cover period are illustrative. Here the stock statement supports Rs 159 lakh, but the limit caps drawing at Rs 150 lakh. The account is Rs 10 lakh overdrawn, which is a reportable irregularity.
Which receivables and stock are ineligible?
The sanction letter defines eligibility. Commonly seen exclusions:
- Stock: old, obsolete, slow-moving, damaged and rejected stock; stock not covered by insurance where the sanction requires cover; stock held at locations not approved in the sanction.
- Book debts: debts older than the cover period stated in the sanction (90 days is common; some sanctions specify 120 or 180); debts from group or associate companies, and disputed or contra debts, where the sanction excludes them.
The calculator treats a single "beyond cover period" figure as excluded. Anything else must be identified from the sanction terms and the debtor ageing.
What do RBI norms say about drawing power and NPA classification?
Two points in RBI's Master Circular on Income Recognition, Asset Classification and Provisioning (IRACP) matter to a DP review:
- A CC/OD account is "out of order", and therefore an NPA, if the outstanding balance remains continuously in excess of the sanctioned limit or drawing power for 90 days.
- The outstanding in the account based on drawing power calculated from stock statements older than three months is deemed irregular. A working-capital account becomes NPA if such irregular drawings are permitted for a continuous period of 90 days, even if the unit is working and the borrower's financial position is satisfactory.
An excess drawing that stays unresolved is therefore an asset-classification issue, not only a stock-audit observation. Check the current edition of the Master Circular (or any RBI directions that have consolidated it) before quoting paragraph numbers in a report. Test classification with the NPA classification calculator.
What should a CA check in a stock audit or DP certificate?
Re-perform the DP working from verified figures, not from the borrower's own statement.
Auditor checklist
- Obtain the sanction letter and latest renewal. Note the margins, cover period, creditor treatment, insured locations and the stock statement frequency.
- Tie the stock figure to the books, then to a physical verification. Exclude old, obsolete and rejected items using the ageing report.
- Check valuation: cost or net realisable value, whichever is lower, consistently with the accounts.
- Reconcile sundry creditors for goods to the ledger and to creditor confirmations. Look for unrecorded purchases and for stock received but not booked.
- Tie the book debts figure to a debtor ageing, not to the ledger total. Remove debts beyond the cover period, and any excluded categories.
- Confirm debtor balances are genuine: sample invoices, dispatch proof and subsequent receipts.
- Apply the sanction margins and recompute DP. Compare with the DP the bank actually allowed.
- Compare the outstanding with DP day by day for the period, not only at month end.
- Check submission dates of stock statements against the three-month staleness rule.
- Check insurance cover, its validity and the bank's interest noted on the policy.
- Note whether excess drawings were regularised, and how long they persisted.
Keep the recomputation as a working paper with source references. The stock audit report template can hold the structure.
What are the most common drawing power errors?
- Computing on gross stock. Skipping the creditor deduction where the sanction requires it overstates DP.
- Using ledger debtors. Debtors quietly ageing past the cover period keep DP inflated.
- Default margins. Applying 25% and 40% from habit rather than the sanction letter.
- Stale statements. Carrying forward an old DP after statements stop arriving.
- Ignoring the limit cap. Reading Gross DP as the amount available when it exceeds the limit.
- Sanction changes. Using pre-renewal margins after the limit or terms were revised.
- Month-end testing only. Missing intra-month peaks when the account was overdrawn.
How does CORAA help with this work?
DP recomputation is a working-paper exercise: figures from the stock statement, ageing, creditor listing and sanction terms, all tied to sources. CORAA's internal audit workspace is built to keep engagement working papers and evidence together, so the recomputation and its supporting documents stay in one reviewable place. The calculator linked above is free and generates a PDF working you can attach to a report.
Frequently asked questions
Is drawing power the same as the sanctioned limit?
No. The sanctioned limit is the maximum the bank has agreed to lend. Drawing power is what the current security supports, recalculated from the latest stock statement. The borrower can draw only up to the lower of the two.
Why are creditors deducted from stock?
Because stock that has not been paid for is financed by the supplier. Lending against gross stock would fund the same inventory twice. Many sanctions therefore compute DP on paid stock, but confirm this against the sanction letter.
Are 25% and 40% the standard margins?
No. They are common in practice but sanction-specific. Margins depend on the industry, the quality of security and bank policy, and may be fixed across banks in a consortium. Always use the margins in the sanction.
Which debtors are excluded from drawing power?
Debtors older than the cover period in the sanction (commonly 90 days) are excluded, along with any category the sanction excludes, such as group company or disputed debts. Test this against a debtor ageing.
When does excess drawing make a CC account an NPA?
Under RBI's IRACP norms, a CC/OD account is out of order if the outstanding stays continuously above the sanctioned limit or drawing power for 90 days. Drawings against DP based on stock statements older than three months are irregular, and 90 continuous days of them also lead to NPA classification.
Who certifies drawing power?
It depends on the sanction. Banks may require the borrower's management, a stock auditor or a chartered accountant to certify the stock statement or DP. The engagement letter should state what is being certified and on what basis.
Does the calculator replace the bank's own DP computation?
No. It applies the formula above with your inputs. Use it to re-perform and challenge a working, and always confirm the terms against the sanction letter.
Last reviewed: 26 September 2026. RBI norms cited are from the IRACP Master Circular; confirm the current edition before relying on them in a signed report.
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