Corporation Bank

( )
, .. .- 88
- 575001

Head Office, PB No.88,

Mangalore 575 001

( A Premier Public Sector Bank )

- e-CIRCULAR
Credit Division
[Credit Policy & Planning Section]
Email : CPMS@corpbank.co.in

.. . HO Circular No.

178/2015

Index No. 11.00/19/2015

Date : 09-March-2015

/ TO ALL THE BRANCHES / OFFICES

Subject : COMPUTATION OF DRAWING POWER
HIGHLIGHTS
IBA has revised methodology for calculating Drawing Power in respect of
Working Capital limit.
1. Attention of the Branches/Other Offices is invited to HO Circular No. 169/2014 dated 10.03.2014,
communicating the methodology for computation of Drawing Powers in respect of Cash Credit against
Stock / Book Debts, Working Capital Fixed Loans, Packing Credit etc.,
2. On the basis of views / comments received from various banks, IBA vide their letter C&I/Circular/
2014-15/689 dated 29.09.2014, has advised the Banks to have a uniform methodology for
computation of the drawing power. Accordingly, Board at its meeting held on 22.12.2014, has
approved the methodology for calculating Drawing Power in respect of Working Capital limit.
3. The revised method for calculating Drawing power is as under:
3.1 Computation of Drawing Power in Cash Credit Hypothecation Limit against security of
stocks
Total Value of Stocks (Closing balance of Stocks, their value as per
market rates or cost price, whichever is lower)

Excess of Sundry Creditors (Stocks), over the level assumed at the

time of assessment

Excess of Other Sundry Creditors, over the level assumed at the

time of assessment

Less

Value of Stock
Less: Stipulated Margin
Net Value of Stocks

D = A-B-C
E
F = D-E
2

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3.2 Computation of Drawing Power in Cash Credit Hypothecation Limit against book debts
Eligible Trade Debtors including advance for Stocks*

Less: Outstanding under Bills Discounted

Value of Debtors

I = G-H

Less: Stipulated Margin

Net Value of Debtors

K = I-J

*the eligible debtors should include advances for stocks and expenses as envisaged at the
time of assessment. However, it shall be restricted to actual level of Sundry Debtors
including advances for stocks as a refinement in calculating the drawing power by excluding
debtors relating to expenses as envisaged at the time of assessment.
3.3 Computation of Drawing Power in Cash Credit Hypothecation Limit against combined security
of Stock & book debts
Drawing Power

L = F+K

4. Stock/Book Debt Statement are required to be submitted within 10 days of the close of the
month to which the statement pertains to or at such other periodicity as permitted by the
Sanctioning Authority. Book Debts Statement shall be certified by the Chartered Accountants on halfyearly basis.
5. Stock/Book debt statements are to be submitted in the prescribed format within stipulated
time. Barring those cases where prior permission of the sanctioning authority is obtained, all other
accounts where the delay in submission of stock/ book debt statement is observed, penal rate of
interest is to be applied unfailingly. The sanctioning authority may permit the borrower additional
time to submit the above statements where compilation of the statement requires extended time for
the reasons, such as distant locations of the branches/factories/godowns/ units etc.
6. The drawing power under cash credit against stock/ book debts, working capital demand loan,
packing credit etc., shall be regulated based on the monthly stock statement submitted on the basis
of actual level of holding of inventories and receivables, by adopting the aforesaid procedure.
7. Even though, other current assets such as advance against purchases, duty draw backs/ export
incentives/VAT receivables, advance payment of taxes, cash and the bank balances, including cash
margin on LC/ BG etc. are also reckoned for the purpose of assessment, the same are excluded while
calculating the drawing power, except receivables in the nature of duty drawback, export
incentive/VAT with the specific permission from the sanctioning authority.
3

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8. While arriving at the drawing power,
a. the following stocks to be declared in the Stock Statements and the related amount of
creditors also to be shown:
1. Goods received on Credit
2. Value of goods to the extent of bills liability under usance LCs (net of cash margin
held against LCs issued).
3. Value of goods to the extent of bills liability under documents against
acceptance/ co-acceptance.
4. Value of goods received under bank guarantee.
b. The following items shall not be included in the Stock Statement;
1. Value of goods hypothecated/pledged under packing credit, pledge loan, where
separate credit facility is available, goods released under trust, good under
clearance and goods hypothecated/ pledged to other banks.
2. Obsolete stock and non-moving stock.
3. Stock received on consignment
4. Items in the nature of scrap and low value bi-products which does not fetch
definite sale value
5. Advances received from the customer against their purchase orders
6. Stocks received for job work.
9. In the case of advances under Consortium/Multiple Banking Arrangement, the consortium
leader shall allocate on the basis of pro-rata exposure assumed by the Banks. In the absence of
such information from the bank having major share in working capital, Bank shall follow the revised
method of computation of DP as enumerated herein above.
10. Drawing power should be calculated on the eligible stock, by adding the amount paid by the
borrower as advances towards the purchase of raw materials and applying the stipulated margin and
deducting the liabilities under working capital demand loan. Branches shall ensure to note the
level of Debtors/Creditors envisaged at the time of assessment of the limit on top of the DP
register in order to regulate the Drawing Power and for easy monitoring.
11. Drawing power so arrived at, should be recorded in the Register for recording drawing power
and verification of stocks hypothecated and in the system. The drawings in the cash credit limits
should be regulated within the drawing power recorded every month. In case, on the date of receipt
of the stock statement, the balance outstanding in the account exceeds the drawing power, the
resultant excess amount should be recovered immediately apart from reporting the excess in ADN02
and ADF02. In addition to the above, if any excess resulted in the account due to reduction in the
drawing power, during the intervening period [i.e. from the beginning of the month till the date of
submission of the stock statements should also be observed.

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12. Further, the branches are advised to adopt the following to monitor the receipt of stock/BD
statement and while calculating DP:
Ensure that, stocks hypothecated to the Bank are insured and Banker's clause is duly
noted in the policy.
Verify the stock statement submitted for March, with audited Balance Sheet figures in
respect of inventory, Book Debts and Creditors. If any wide variations, call for reasons
from the borrower and inform the sanctioning authority.
File all the stock/ Book Debt statements with DP calculations in a separate file and make
it available to the auditors at the time of inspection.
Wherever Book debts are obtained as security, the age-wise details of book debts, duly
certified by the Chartered Accountant to be obtained on half-yearly basis.
Ensure that the Bank's Hypothecation board is displayed in a prominent place in
godown/business premises of the borrower.
13. All our branches and other offices are advised to note the above for guidance and strict
adherence.

[P PARAMASIVAM]
GENERAL MANAGER
Note: Hindi version of the Circular follows.