Doing the branch as statutory auditor? Work from the bank branch statutory audit checklist.
Drawing power (DP) is the amount a borrower may actually draw in a cash-credit account at a point in time — the sanctioned limit is only the ceiling. Banks compute DP monthly from the borrower's stock statement: take stock, deduct sundry creditors for goods (because unpaid stock is effectively financed by suppliers, not the bank) to get paid stock, and apply the stock margin from the sanction. Add book debts within the sanctioned cover period (debtors older than the cover period — commonly 90 days — are excluded), less the debtor margin. The total, capped at the sanctioned limit, is the DP against which the day's outstanding is tested. Margins of 25% on stock and 40% on book debts are typical, but they are sanction-specific — always read the sanction letter.
This is why the stock statement drives everything. An inflated stock figure, unreported creditors, or debtors quietly ageing past the cover period all overstate DP and let the borrower draw against security that is not really there. The stock auditor's core job is to re-perform the DP working from verified figures — physical stock (net of old, obsolete, slow-moving and rejected items), creditor confirmations, and a debtor ageing — and compare it with the DP the branch actually allowed. The difference is the finding.
DP also feeds asset classification. Under RBI's IRACP Master Circular, a CC/OD account is "out of order" — and hence NPA — if the outstanding balance remains continuously in excess of the sanctioned limit or drawing power for 90 days. Separately, drawings permitted against DP computed from stock statements older than three months are deemed irregular, and 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 account otherwise looks satisfactory. An excess-drawing observation in a stock audit is therefore not a housekeeping point: left unresolved for 90 days, it reclassifies the account.
A borrower's month-end stock statement shows stock of ₹180 lakh and sundry creditors of ₹40 lakh. Book debts are ₹120 lakh, of which ₹30 lakh are older than the 90-day cover period. The sanction stipulates margins of 25% on stock and 40% on book debts, with a CC limit of ₹150 lakh. The account's outstanding is ₹160 lakh.
