Stock statement and drawing power: why your ₹60 lakh limit may only allow ₹54 lakh
A cash-credit limit is a ceiling, not a balance: the monthly stock statement decides how much of it you can use, and the answer is often lower than the sanction letter suggests.
By CA Ankit Shah · B.Com., F.C.A., DISA(ICAI)
19 October 2026·5 min read·ગુજરાતીમાં વાંચો
In this article
What is a stock statement?What is drawing power?How is drawing power calculated?What happens if the account goes above drawing power?Stock statement format and stock audit: what banks look atKey points- A cash-credit limit is the most the bank will lend; drawing power is what you may actually use today, worked out from your stock and debtors. You can only draw the lower of the two.
- Drawing power = (stock, less creditors where the bank deducts them) after the stock margin + (debtors under 90 days) after the debtor margin. The margins and the statement frequency are fixed in your sanction letter.
- Example: a ₹60 lakh limit, but stock and debtors support only ₹54 lakh. With ₹58 lakh already used, the account is ₹4 lakh overdrawn.
- Submit the statement on time, from the same books your GST return is filed from. A stale or mismatched statement can freeze the drawing power.
A Ring Road saree trader was sanctioned a ₹60 lakh cash-credit limit and, one Friday, found a supplier's cheque for ₹6 lakh returned. His account showed ₹58 lakh used and ₹2 lakh "free". Nobody had told him that the free ₹2 lakh existed only on the sanction letter. On the bank's own sheet, his drawing power was ₹54 lakh.
What is a stock statement?
A stock statement is a short monthly (or as your sanction letter says) declaration you give the bank: the value of your closing stock, your debtors, and your creditors on a given date. In plain terms, it is the bank's way of checking that the goods and receivables it lent against are still there. Example: a Surat grey-cloth trader submits it by the 10th of each month for the previous month-end; the bank branch feeds it into the account.
It is different from the annual CMA data. CMA decides the limit once a year. The stock statement decides, month by month, how much of that limit is open.
What is drawing power?
Drawing power (DP) is the amount the bank allows you to use today against the security it holds: your stock and debtors. In plain terms, the limit is the size of the glass, drawing power is how full the bank will let you pour. You can use the lower of the limit and the DP. Example: limit ₹60 lakh, DP ₹54 lakh, so ₹54 lakh is the ceiling this month.
The sanction letter sets the ceiling. The stock statement sets how much of it is open today.
Not sure what your bank deducts before the margin, or how often your statement is due? Your sanction letter has the answer — we can read it with you.
WhatsApp usHow is drawing power calculated?
The method is set in the sanction terms and differs by bank, but the common pattern is below. The 25% and 40% margins are illustrations; your letter may say otherwise.
- Stock: closing stock, less creditors for that stock where the bank deducts them, then less the stock margin. (Some banks lend against "paid stock" only.)
- Debtors: debtors under 90 days old only, then less the debtor margin. Older debtors are left out.
- Cap: drawing power can never exceed the sanctioned limit.
Worked example, ₹ lakh. Stock 70, creditors 30, so net stock 40; at a 25% margin, 30 counts. Debtors 50, of which 10 are over 90 days, so 40 eligible; at a 40% margin, 24 counts. Drawing power: 30 + 24 = 54.
Notice what moved it. The ₹10 lakh of old debtors cost ₹6 lakh of drawing power, and the ₹30 lakh of unpaid creditors cost ₹22.5 lakh. Collecting an old debtor or paying a supplier on time raises the DP directly.
What happens if the account goes above drawing power?
The excess is called an overdrawn or irregular position. Banks commonly stop honouring further cheques, charge penal interest, and, if it continues, classify the account as stressed (SMA) under RBI's asset-classification norms, which also affects your CIBIL record. Example: the trader above owed 58 against a DP of 54, so the ₹6 lakh cheque had no room.
Stock statement format and stock audit: what banks look at
Banks give their own format, usually listing stock by category (raw material, work in progress, finished goods), debtors by age, and creditors. It is signed by the proprietor or a partner. For larger limits, banks also appoint a stock auditor who physically verifies stock and compares it with the statement and your books. Example: a processor who reports ₹70 lakh stock to the bank but ₹55 lakh in its balance sheet will be asked to explain the ₹15 lakh gap.
The practical rule is simple: one set of numbers. The statement, your accounts and the GST returns should tell the same story, with differences explained (for example, goods in transit).
Account already close to its drawing power? Talk to us before the next statement, not after the bank writes.
WhatsApp usKey points
- Limit and drawing power are different; you can use the lower.
- Read margins, creditor treatment and due dates in your own sanction letter (see how to read a sanction letter).
- Old debtors and unpaid creditors reduce drawing power.
- Submit on time, from the same books as your GST return.
Sources
- Ankit Shah and Co., How to read a bank loan sanction letter and CMA data explained.
- Efinancemanagement, What is Drawing Power? (general method; margins shown here are illustrative).
- Quicko, How is drawing power calculated for a cash credit account.
- Reserve Bank of India, Master Directions on income recognition, asset classification and advances (overdrawn and irregular accounts). Exact margins and statement dates are contractual and appear in each bank's sanction letter.
This article is general information, not professional advice. Rules change; verify current provisions or contact the office for advice on your situation.