munimlyEasy English · 9 minute read
Drawing power calculation in simple words
Drawing power is the amount you can use from a cash-credit account after the bank checks eligible stock and debtors.
Bank har stock aur debtor ko poora nahi maanta. Pehle ineligible amount aur margin ghataaya jaata hai.
Cash credit (CC) is borrowing for daily business needs. Your drawing power (DP) can change as your stock and debtor balances change.
By Munimly · Updated
Six words to know first
- Stock
- Goods kept for sale or production.
- Debtors
- Customers who still have to pay you.
- Creditors
- Suppliers whom your business still has to pay. Some creditor balances include service bills or other non-stock items.
- Margin
- The part the bank does not fund.
- Sanctioned limit
- The highest limit approved for the account.
- Outstanding
- The amount already used from the account.
Debtor se paisa aana hai. Creditor ko paisa dena hai.
How do you calculate DP?
Remove items the bank excludes before applying the margins to your reported stock and debtors.
Eligible means the bank accepts an item for this calculation. Ineligible means the bank leaves it out.
- Reported stock and debtors
- Remove ineligible items
- Subtract margins
- Add net values
- Compare with limit
Net value means the amount left after these deductions. Add the two net values to get gross DP.
Gross DP = (eligible stock − stock margin amount) + (eligible debtors − debtor margin amount)
The account drawing ceiling is the maximum total use allowed here. It includes money you have already used.
Account drawing ceiling = lower of gross DP and sanctioned limit.
This is a simple example with no other lender deductions. Your bank may require more deductions before setting its ceiling.
Pehle eligible amount nikalein, phir us par margin ghataayein. Dono net amounts jodkar sanctioned limit se compare karein.
Which stock and debtors can you count?
Count only the stock and debtors the bank allows under your sanction.
In this fictional example, Kaveri Office Supplies sells paper, files, and other office supplies.
Unpaid stock means goods for which the supplier is still unpaid. Obsolete stock means goods no longer useful or saleable.
Debtor age shows how long a customer bill remains unpaid. Your sanction states which dates and age limit to use.
A disputed bill is one the customer has questioned. The bank checks whether such bills can be counted.
Counted in Kaveri's example
- Paid, saleable stock allowed by its sanction.
- Undisputed customer bills within the allowed age.
Left out of Kaveri's example
- Unpaid stock and obsolete stock.
- Old customer bills and disputed bills.
The Reserve Bank of India (RBI) discusses excluding unpaid stock. See its 2023 urban co-operative bank guidance, section 2.3.
Check how much stock is unpaid
Do not assume the full creditor balance equals unpaid stock. Check purchase records and exclude unpaid stock according to the bank's rule.
For example, Kaveri may owe money for both paper and repairs. The repair bill does not show the value of unpaid paper.
Saare creditors ko stock se seedha mat ghataayein. Unpaid stock ka amount records aur bank ke rule se nikalein.
Follow Kaveri's DP calculation
Compare Kaveri's gross DP with its ₹40 lakh sanctioned limit. This example uses different figures from the sample CMA report.
Use your own sanction letter for margins. Kaveri's example uses 25% stock margin and 40% debtor margin.
All amounts below are in lakh. ₹1 lakh equals ₹1,00,000.
- Reported stock
- Less unpaid and ineligible stock
- Eligible stock
- Less 25% stock margin
- Stock value for DP
- Reported debtors
- Less old and disputed debtors
- Eligible debtors
- Less 40% debtor margin
- Debtor value for DP
- Gross drawing power
- Sanctioned limit
- Account drawing ceiling
The stock margin is 25% of ₹40 lakh, or ₹10 lakh. The debtor margin is 40% of ₹22 lakh, or ₹8.80 lakh.
Add ₹30 lakh and ₹13.20 lakh to get ₹43.20 lakh. The sanctioned limit caps the account drawing ceiling at ₹40 lakh.
Real schemes can use different margins
Bank of Baroda's textile scheme lists at least 25% for stock and debtors. Its sanctioning authority may set a higher margin.
State Bank of India's agri enterprise scheme lists 20% stock and 40% debtor margins. Different margins apply for its specified corporate tie-ups.
These public examples show why you must check your sanction. Neither scheme supplies the fictional 25%/40% combination used above.
How much more can Kaveri use?
Kaveri can use ₹13 lakh more before any other holds or interest. It has already used ₹27 lakh of its ₹40 lakh ceiling.
- Gross drawing power
- Sanctioned limit
- Account drawing ceiling: lower amount
- Outstanding: already used
- Available before other holds or interest
The bank's account records may include interest or blocked amounts. These holds and other conditions can change the actual amount available.
Check the bank's available balance before making a payment. If DP falls later, the usable amount may fall too.
₹40 lakh ceiling mein se ₹27 lakh pehle hi use hua. Bache ₹13 lakh, par bank ke holds aur interest bhi check karein.
Common mistake
“DP is always equal to sanctioned limit.”
Remember instead
You can draw only within the lower applicable ceiling after bank checks.
The RBI's 2024 guidance, section 8.2, compares account use with the lower limit. The sanctioned amount and drawing power remain separate checks.
Maximum Permissible Bank Finance (MPBF) is a separate working-capital assessment. Read the simple MPBF calculation lesson for that calculation.
Prepare the stock and debtor statement
Use the bank's format to list the stock you hold and customer bills still unpaid on the statement date.
Match the amounts with your books before sending the statement.
Amounts and date
- Statement date: the date these balances belong to.
- Reported values: stock and debtor totals from your books.
- Exclusions: items left out, with amounts and reasons.
Rules and proof
- Debtor age: bill dates and days unpaid.
- Margins: stock and debtor percentages from your sanction.
- Supporting records: stock lists, invoices, and customer and supplier records.
RBI's 2023 urban co-operative bank guidance, section 2.4, calls for timely monthly statements. It also describes bank checks against physical stock.
Follow the bank's submission dates and current requirements. Old balances may no longer show the stock and debtors available.
Read Kaveri's fictional statement
Find the inputs used in Kaveri's DP calculation. Its fictional sanction allows debtor bills up to 90 days old.
Kaveri Office Supplies: stock and debtor statement
Date and reported values
| Statement date | 31 October 2026 |
|---|---|
| Reported stock | ₹50.00 lakh |
| Reported debtors | ₹30.00 lakh |
Exclusions and debtor age
| Unpaid stock | ₹8.00 lakh |
|---|---|
| Obsolete stock | ₹2.00 lakh |
| Allowed debtor age | Up to 90 days |
| Debtors over 90 days | ₹6.00 lakh |
| Other disputed debtors | ₹2.00 lakh |
Margins and supporting records
| Stock margin | 25% |
|---|---|
| Debtor margin | 40% |
Records to match: stock list, purchase bills, and supplier balances.
Also match customer bills, days unpaid, and details of disputes.
- Date and values: use balances from the same statement date.
- Exclusions: ₹10 lakh stock and ₹8 lakh debtors are removed.
- Margins: apply the sanction percentages after removing those exclusions.
Here, unpaid stock and obsolete stock are separate amounts. Old debtors and other disputed debtors are also counted separately.
This prevents the same amount from being deducted twice. Your bank may ask for further details or different exclusions.
Ek hi amount ko do baar mat ghataayein. Statement ke totals ko apne records se milaayein.
What Munimly helps you prepare
Use Munimly to bring your business figures together in a Credit Monitoring Arrangement (CMA) report.
The current product does not calculate lender-specific drawing power. Use the CMA preparation guide and Munimly methodology to understand the report.
Drawing power recap
- Remove ineligible stock and debtors before applying the margins.
- Compare gross DP with the sanctioned limit and use the lower ceiling.
- Subtract money already used, then check bank holds and interest.
Common questions about drawing power
What does drawing power mean?
Drawing power comes from the stock and debtors your bank accepts. Margins and bank rules reduce the amount you can use.
Is drawing power always the sanctioned limit?
No. You can draw only within the lower applicable ceiling after bank checks.
Should I subtract all creditors from stock?
No. Creditors may include bills unrelated to stock; identify unpaid stock and follow your lender's rule.
Do all banks use the same margins?
No. Check your sanction letter for stock margin, debtor margin, allowed debtor age, and other deductions.
Does Munimly calculate drawing power?
Munimly explains DP and prepares CMA information. The current product does not calculate lender-specific drawing power.