What is Drawing Power in Banking ?
Drawing Power (DP) refers to the maximum amount a borrower can withdraw from a bank under a Cash Credit (CC) or Working Capital loan limit.
In simple terms, it means “the borrowing capacity within the sanctioned limit”.
Banks use Drawing Power to ensure that borrowers withdraw only the amount supported by their current business assets, such as stock and debtors.
If drawing power sounds a bit confusing, don’t worry ! Just scroll to the end of this article — you’ll see a download button there. Click on it to get an Excel sheet where the drawing power formula is already set up for you.
Once you open the sheet, enable editing and fill in the yellow cells — that’s it! You’ll instantly get your drawing power.
But if you’re curious and want to understand how the formula actually works, keep reading this article carefully. Good luck, and feel free to drop a comment if there’s anything you don’t understand!
Importance of Drawing Power in CC Loans
In banking, Drawing Power is most commonly used in Cash Credit (CC) loan accounts, a type of working capital loan given to businesses for daily operations.
Under a CC limit, the borrower can withdraw money anytime, up to the Drawing Power determined by the bank.
This limit:
- Helps maintain liquidity in business,
- Ensures control over the loan usage,
- Keeps the loan secured against actual stock and receivables.
Typically, a CC limit is sanctioned for one year and must be renewed annually.
Meaning of Margin in Drawing Power
Margin represents the borrower’s own contribution to the business.
Banks do not finance 100% of the value of stocks or receivables. They finance a part of it after deducting the margin.
For example:
- Stock Margin: 25%
- Debtors Margin: 40%
These percentages may vary depending on the bank’s policy and the nature of the business.
Drawing Power Formula
The standard formula for calculating Drawing Power is:
Drawing Power (DP) = (Eligible Stock + Eligible Debtors) – Margin
Where :
- Eligible Stock = (Total Stock – Creditors) × (100% – Stock Margin %)
- Eligible Debtors = (Debtors – Debtors Over 90 Days) × (100% – Debtors Margin %)
Example of Drawing Power Calculation
Let’s understand with a practical example :
Hindustan Traders has been sanctioned a Working Capital Limit of ₹10,00,000.
The stock statement for October 2025 is as follows:
| Particulars | Amount (₹) |
| Total Stock | 12,00,000 |
| Creditors | 3,00,000 |
| Debtors | 5,00,000 |
| Debtors Over 90 Days | 1,00,000 |
Drawing Power step-by-step calculation :
| Step | Description | Amount (₹) |
| A | Total Stock | 12,00,000 |
| B | Less Creditors | 3,00,000 |
| C = A – B | Net Stock (A–B) | 9,00,000 |
| D = C * 25% | Margin on Stock (25%) | 2,25,000 |
| E = C – D | Eligible DP from Stock (C–D) | 6,75,000 |
| F | Total Debtors | 5,00,000 |
| G | Less Debtors over 90 days | 1,00,000 |
| H = F – G | Net Debtors (F–G) | 4,00,000 |
| I = H * 40% | Margin on Debtors (40%) | 1,60,000 |
| J = H – I | Eligible DP from Debtors (H–I) | 2,40,000 |
| K = E + J | Total Drawing Power (E+J) | 9,15,000 |
So, the Drawing Power for Hindustan Traders = ₹9,15,000.
RBI Guidelines for Drawing Power –
- Drawing Power must be calculated based on the latest stock statement submitted by the borrower.
- Banks do not accept stock statements older than three months.
- If a borrower fails to submit stock statements for more than three consecutive months, the CC account is considered irregular.
- The bank may then classify the account as NPA (Non-Performing Asset).
Key Points to Remember
- Drawing Power is always less than the sanctioned CC limit.
- It ensures the loan is secured by real business assets.
- Borrowers must update stock statements regularly to avoid irregularity.
- DP helps the bank control over-financing risks.
Conclusion
Drawing Power (DP) in banking represents the maximum amount a borrower can utilize from a Cash Credit account, determined based on current assets (stock and receivables) after deducting the margin set by the bank.
It is an essential concept for both banks and business owners, ensuring a balance between financial support and credit discipline.
Here’s the pre-set Excel sheet with the drawing power formula — just click on it, fill in the cells, and get your drawing power instantly! Go ahead and give it a try!