Question
Which of the following best describes “Drawing Power
(DP)” in the context of a Cash Credit facility given by a bank?Solution
• Drawing Power (DP) refers to the maximum amount a borrower can actually withdraw from the sanctioned Cash Credit (CC) limit. • It is calculated on the basis of the latest stock and receivables statement submitted by the borrower, after applying the margin requirements of the bank. • For example, if a borrower has a sanctioned CC limit of ₹1 crore but the DP calculated from stocks and receivables is ₹70 lakh, then only ₹70 lakh can be drawn, not the entire limit. • This ensures that withdrawals remain linked to actual working capital needs and adequately secured. Thus, Drawing Power = Sanctioned Limit subject to availability of drawing based on stock/receivables position.
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