Bank Stock Statements and Drawing Power: How to Keep Your Cash Credit Limit Working
Banks set drawing power on a cash credit limit from your monthly stock and book debts statement: stock plus eligible debtors (usually under 90 days) minus creditors, less a margin. Old debtors, high creditors and late or inconsistent statements reduce drawing power.
A ₹2 crore cash credit (CC) limit can turn into ₹1.2 crore of usable money if your monthly stock statement is weak. Banks lend against what your statement shows, so your accounting quality decides how much you can draw.
How drawing power works
Each month, you submit a stock and book debts statement. The bank works out drawing power (DP), typically:
| Item | Amount |
|---|---|
| Stock (raw material, work in progress, finished goods) | A |
| Add: eligible receivables (usually not older than 90 days) | B |
| Less: trade creditors for goods | C |
| Paid-up stock and debtors | A + B − C |
| Less: margin (often 25% on stock and 25 to 40% on debtors) | D |
| Drawing power | A + B − C − D |
You can draw the lower of the sanctioned limit and drawing power. Margins and the age limit for debtors are set in your sanction letter.
Why drawing power falls
- ✓Old debtors. Receivables over the age limit are excluded.
- ✓High creditors. Unpaid suppliers reduce paid-up stock.
- ✓Late statements. Banks may freeze or reduce DP if statements are not submitted on time.
- ✓Stock that does not match GST data. Banks increasingly compare declared sales with GST returns.
A worked example
A Jamnagar brass components maker has a ₹2 crore CC limit.
| September statement | |
|---|---|
| Stock | ₹1.6 crore |
| Debtors up to 90 days | ₹1.0 crore (another ₹40 lakh is older) |
| Creditors | ₹60 lakh |
| Paid-up stock and debtors | ₹2.0 crore |
| Margin (25%) | ₹50 lakh |
| Drawing power | ₹1.5 crore |
By collecting ₹30 lakh of the old debtors and moving them into fresh sales on time, it raised DP towards the full limit within two months.
Good practice
- Prepare the statement from your books, not estimates.
- Reconcile sales in the statement with GSTR-1 and GSTR-3B.
- Submit before the bank's due date every month.
- Chase debtors before they cross 90 days.
- Keep stock records that will stand up to a bank's stock audit.
Frequently asked questions
Do banks check stock physically?
Yes, through periodic stock audits for larger limits.
Can receivables from related parties be counted?
Usually not. Check your sanction terms.
What if drawing power is below the amount used?
The account becomes irregular, and you must bring it within DP quickly to avoid it being classified as overdue.
Sources
This is a practical guide. Terms vary by bank; read your sanction letter.
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
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