Drawing Power Calculation :
Working capital borrowal account, drawing power calculated from stock statement older than 3 months has to be considered as “irregular” (overdue). If such “irregular” continues for 90 days, account has to be classified as NPA, even though the account is otherwise operated regularly.
The stock statements, quarterly returns and other statements submitted by the borrower to the bank should be scrutinised in detail.
The audited Annual Report submitted by the borrower should be scrutinised properly. The monthly stock statement of the month for which the audited accounts are prepared and submitted should be compared and the reasons for deviations, if any, should be ascertained.
It needs to be examined whether the drawing power is calculated as per the extant guidelines formulated by the bank, which should also be in line with RBI guidelines/directives. Special consideration should be given to proper reporting of sundry creditors for the purposes of calculating drawing power. As a general principle, and with the objective of avoidance of double financing, the unpaid stocks should not be considered while computing the DP available in the borrowal accounts.
The stock audit should be carried out by the bank for all accounts having funded exposure of more than Rs.5 crores. Auditors can also advise for stock audit in other cases if the situation warrants the same. Branches should obtain the stock audit reports from lead bank or any other member, as decided in consortium in the cases where the Bank is not leader of the consortium of working capital. The report submitted by the stock auditors should be reviewed during the course of the audit and special focus should be given to the comments made by the stock auditors on valuation of security and calculation of drawing power.
The drawing power needs to be verified carefully in case of working capital advances to entities engaged in construction business. The valuation of work in progress should be ensured in consistent and proper manner. It also needs to be examined whether the mobilization advance being received by the contractors is reduced while calculating drawing power. Further is respect of certain businesses such as diamond merchants and jewellers, the auditor should exercise due caution while verifying realisable value of the inventory of precious metals, diamonds, jewellery etc. The auditor may also consider obtaining assistance of an expert in case circumstances so warrant.
In case of consortium accounts, the drawing power calculation and allocation is made by the Lead Bank and is binding on the Member Banks.