Calculation of Drawing Power

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Shiv om Jindal (Querist)
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29 November 2009 Hello members, i have a query regarding calculation of DP in case of Cash Credit Facility. If a party has availed a limit against Stock and Book Debts whether unpaid stock i.e. creditors will be deducted from Stock or Book Debts as margin in case of Book debts is higher. Whether it will make any difference if Sanctioned Limit is bifurcated against Stock and Book Debts in one account or for that matter if two C/C accounts are opened. Please someone clarify on this matter and whether we have to look at sanction note if a banker contends that unpaid stock is to be deducted from debtors only.

Kishanlal Paliwal

Kishanlal Paliwal (Expert)
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30 November 2009 AS a matter of practice, one should read sanction letter carefully.

In normal course, the banks are insisting on to deduct the amount of unpaid stock. The computation of margin will be applied on the amount net-off unpaid stock.

For the bifurcation purpose, please refer to the limits sanctioned to you and overall permissible amount under each limit/heads.

Regards