Bank Stock Statement for a CC Limit — How to Prepare It, Value Stock, Age Debtors and Compute Drawing Power

A cash credit (CC) limit is a working-capital loan secured primarily by hypothecation of your stock and book debts; the property you mortgage is only collateral. The bank therefore needs to know, every month or quarter, how much paid stock and how many recoverable debtors actually stand behind the limit. That is the stock statement — and from it the bank computes your Drawing Power (DP), the amount you may draw. If the DP falls below the outstanding, the account is treated as irregular; if the statement is late, wrong or contradicts your audited accounts, the account can be flagged and, in the worst case, classified as a non-performing asset.

Every CC limit also has an annual renewal date. Before it, the bank expects the current stock statement, the year's projections, the last audited financials and the ITR. The banker will remind you, but the responsibility to know the renewal date and file on time is yours.

The three blocks of every statement

• •Stock — what you hold, where, in what quantity and at what value.
• •Debtors (book debts) — who owes you, how much and for how long.
• •Creditors — whom you owe for purchases, including letters of credit and buyer's credit.

A trader or a service provider with a CC limit has only finished goods — the shirts, trousers and other items in the shop — so the statement lists each product line with quantity, rate and value and totals them. A manufacturer has to show the full chain: raw material, work-in-progress, finished goods and stores and spares, each with opening stock, purchases or receipts, consumption or sales and closing stock. The opening figure must match the closing figure of the previous statement; a break in the chain is what auditors and inspecting bankers catch first.

Book debts are the second primary security, so the bank asks for them by age: up to 90 days, 90 to 180 days and above 180 days (some formats use up to six months and above six months). Only the current bucket — usually debts up to 90 days — counts towards Drawing Power; older debts are listed but ignored. Give the total on the statement and attach the party-wise list as an annexure.

Creditors for purchases are deducted in full before the margin is applied, because stock bought on credit is not yet your paid stock. Never show creditors as nil to lift the DP: your own balance sheet will show them, the stock auditor will find them, and the mismatch is worse than the lower DP. Include letters of credit opened, buyer's credit and unpaid bills where the format asks. If you genuinely buy everything against advance payment, say so and be ready to satisfy the banker.

Sales and purchases

Most formats ask for sales and purchases during the month and cumulative for the financial year. Fill them from the books; they let the banker test whether the stock movement makes sense.

1. 1Paid stock = total stock (at the lower of cost and market) − creditors for purchases.
2. 2Stock component = paid stock × (100% − stock margin). The stock margin is usually 25%, so 75% of paid stock counts.
3. 3Debtor component = eligible debtors (usually up to 90 days) × (100% − debtor margin). The debtor margin is usually 40%, so 60% counts.
4. 4Drawing Power = stock component + debtor component.
5. 5You may draw the lower of the Drawing Power and the sanctioned limit. If the outstanding exceeds the DP, the account is out of order until you regularise it or the DP rises.

• •Opening stock that does not match last month's closing stock.
• •A 31 March statement showing ₹50 lakh of stock while the audited balance sheet, finalised months later, shows ₹55 lakh — reconcile before the audit is signed, or draw the year-end statement on 29 or 30 March as some banks allow.
• •Stock stored at an address not on the insurance policy; update the insurer and the bank whenever the unit moves.
• •Creditors shown as nil.
• •Valuing stock at selling price.
• •Debtors above 90 or 180 days counted as current.
• •Missing signatures, seal or annexures.