Lecture 24: What is Drawing power in cash credit limit, its calculation, meaning & detailed analysis

[@deepakchaudhari9891]

Seriously sir, you are giving too efforts to share knowledge of credit domain. Your video should have millions of views.

[@AnkushJain]

Thanks Deepak. Getting positive feedback like this makes me feel motivated. 😀

[@shubhamchoudhary7847]

​​​@@AnkushJainwe agree sir, these videos have helped me a lot. Thankyou so much sirji Keep sharing your knowledge and enlightening us

[@AnkushJain]

Thank you

[@ananyasrivastava04]

Sir Thankyou so much for this Every thankyou is less for the amount of knowledge you give us and amount pf efforts you give in, given the fact you also have a full time job. You deserve all the appreciation for this💐💐💐💐

[@AnkushJain]

Thank you Ananya ji

[@pankajjain4275]

Ankush ji, bahut bahut dhanyawad for these videos, which are great

[@AnkushJain]

Thank you

[@gunsahibsingh8820]

Very informative videos sir. Enhanced my knowledge through your videos. Thanks.

[@AnkushJain]

Your welcome

[@CAkeshav_lohia99]

Thankyou Sir ❤ As a CA student, in my Ideal time, I used to watch your Working Capital series to boost my knowledge, and its veryy veryy Informative.. Plz Keep posting such conceptual videos ❤💯

[@AnkushJain]

Thank you

[@R.Mandar]

Thanks for informative video sir it's very will be going to veryhelpful for me.

[@AnkushJain]

Thank you

[@akashvijay6920]

Very informative videos shared by you sir,It's very useful for candidates working on credit profiles

[@AnkushJain]

Thank you

[@rohitpaliwal6885]

Nicely explained drawing power concept...keep it up

[@AnkushJain]

Thank you

[@Sharedare]

Amazing teaching

[@AnkushJain]

Thank you

[@MDVaashir]

My dream is to join Corporate Banking. I am into retail banking presently(Loan against Property). In another two months, I will be joining Business Banking (Working Capital) RM. From there within a year or two, would like to join corporate Banking. The knowledge required for that I will take from your great videos. I am so thankful to you. You are my Guru.

[@AnkushJain]

Thank you 👍

[@AnkitSharma-br2in]

Thank you sir🤝

[@AnkushJain]

Your welcome

[@jyotigupta5350]

Thank u so much sir🙏very informative videos

[@AnkushJain]

👍👍

[@ashishijardar1334]

Awesome lecture

[@AnkushJain]

Thank you

[@mohitvaidya4691]

Well done Sir😊🙏🙏... Very Nicely taught 👍

[@AnkushJain]

Thank you

[@yogeshtangade1877]

Hi, first I would like to thank to you for your such valuable contribution. Can you please guide can we consider advances paid to supplier under debtors for drawing calculations

[@AnkushJain]

Thank you Yogesh. Yes we can consider the same

[@anshumangupta3694]

VERY WELL EXPLAINED SIR.

[@AnkushJain]

Thank you Anshuman

[@amitdhanuka1099]

Very useful content If possible also make a video on Reporting at various platform like RBI-CRILC,UNSCR and cibil

[@AnkushJain]

Sure. As you must have noticed I am making the videos in a particular sequence. Idea is to make people ready to do credit manager job. The video on reporting in various platforms is also part of my agenda. I will release it soon.

[@nsd1001]

Hello Sir, very informative lecture! Just one doubt, how often does the bank do stock audit?is it every month?or is it random basis?thank you.

[@AnkushJain]

Usually it is done once a year but for bigger clients usually with exposure of 5-20 crores it is done half yearly. For even large customers, bank may stipulate quarterly also. But in no case it is stipulated monthly. Overall it is bank to bank call.

[@nsd1001]

@@AnkushJain thank you so much sir for the prompt response. Ur videos are so helpful. God bless.

[@AnkushJain]

Thank you Nitin

[@sushantkumar6510]

Nicely Explained sir...keep it up 👍

[@AnkushJain]

Thank you

[@sushantkumar6510]

It's really good to see such indepth analysis for each topic so nicely...I have started watching ur videos & will apply while auditing of banks

[@AnkushJain]

Yes, they will benefit you a lot

[@ragstargupta7845]

Sir, outstanding from other utilised working capital limits mein LC, BG include nahi include nahi karenge? You are subtracting outstanding of other working capital limits from maximum drawing Power. So outstanding of what all facilities to be subtracted?

[@AnkushJain]

LC and BG are non fund based limits so inka balance sheet pe impact nhi aata. Therefore Inko deduct nhi krege

[@GurpreetSingh-sg7ri]

Sir, MPBF loan eligibility me hum short term funding reduce kar dete hai after that apni funding karte hai. Thus apni loan eligibility reduce ho jati hai. Then again at the time of computing DP calculations why we again reduce the shirt term funding like export limit, packaging limits. Es se to do baar deduction ho jayegi

[@AnkushJain]

MPBF and drawing power are two separate things and not related to each other. MPBF is calculated on total current assets and liabilities while drawing power consider only portion of current assets and current liabilities

[@Ajay_Kumar14]

What is the timeline of advances from customers and advances paid to suppliers. Do we consider it for money paid or received of past 6 months or any other duration

[@AnkushJain]

No timeline. Consider them anytime.

[@gurpreetSingh-pz7bo]

Thanks sir...

[@AnkushJain]

Your welcome

[@ananyasrivastava04]

Sir stock+debtors - creditors se jo requirement aati hai that is final DP ? matlab first we calculate by MPBF method the amount of loan to be sanctioned and then using above formula we calculate the DP?

[@AnkushJain]

Yes

[@ananyasrivastava04]

thankyou sir

[@AnkushJain]

@@ananyasrivastava04 your welcome

[@keshavsahu3037]

if stock statements are taken monthly then Dp is also required to be calculated monthy and debtors and creditors details is also requried to be obtained monthly? please answer

[@AnkushJain]

Yes

[@thekrish2186]

Sir Agar vo mpbf jitna dp use ker chuka ho to or able Mahone using dp as per stock statements issued case me kya krenge

[@AnkushJain]

Main samjha nahi.. example se btao

[@midhunm1227]

Sir, if the drawing power is calculated based purely on value of stock and not on debtors, then are we still required to make an adjustment where we reduce the advance received from customers?if so why is that? Thank you in advance

[@AnkushJain]

Yes we will since advance from customers is a fund based support to our borrower to manage working capital

[@midhunm1227]

@@AnkushJain Sir in that case the value of stock will be reduced by the advance received from customers and the outstanding creditors right? and since we are already receiving the amount from our customers to fulfill the orders hence no working capital will be provided from the Banks side to take care of the order to the extent of such advance received right?

[@AnkushJain]

Post deducting, if any positive balance remains then we can give 75% of that

[@caarchanachoudhary]

For DP calculation..we will deduct channel financing limit from Net DP?

[@AnkushJain]

Yes we will since it has funded stock which is included in our DP

[@art_soul_words]

What is the impact of sale discounting loan on calculation on MPBF and while calculating gross DP.

[@AnkushJain]

Since it is debtor discounting, if discounted debtors are included in total debtor figures while calculating DP then utilisation of sales discounting to be reduced from DP

[@art_soul_words]

@@AnkushJain can we exclude the same from total debtor and utilisation? Also while calculating MPBF, we don't have give any impact in current assest. Right?

[@AnkushJain]

@@art_soul_words yes, you can exclude the debtors discounted from total debtors then you don't need to deduct utilisation separately. In that scenario, your mpbf shall be adjusted accordingly

[@roshnijoshi3323]

Sir agar purchase 2 cr ka kiya during 6 months aur at the end of 6 months 1.5 cr ka stock bacha to 1.5 cr ka stock kyun count hoga? 2 cr ka kyun nahi? Total stock Purchase to 2 cr ka hua tha?

[@AnkushJain]

Purchase 2 crore ka kia aur bacha hua hai 1.5 crore ka. Iska matlab 0.50 crore ka sale kr dia. Agar sale kr dia to uske tmhare debtors stand kr rhe honge. So vo 0.50 tmne debtors mein count kr lia. Therefore tm stock 1.5 ka logi aur debtors 0.50, total ho gya 2 cr

[@rajanshah2507]

Sir, if dp not set as per outstanding balance, i.e. outstanding cc balance is greater then dp calculated, then will it be negative impact in credit score(cibil) or credit rating ??

[@AnkushJain]

It will become overdue amount and if client does not clear it then eventually becomes delinquency and will impact cibil as well

[@bombayglazes6427]

LC margin shall be reduced from creditor?

[@AnkushJain]

Yeah should be

[@pankajjain4275]

Sir, ek query thi meri, DP jo calculate hoti hai vo usi respective month end ke loan drawing par apply hoti hai ya succeeding month ke liye

[@AnkushJain]

Succeeding month

[@rahulwagh6070]

Very nice video. I doubt sir. While calculating eligibility as per TO method, shall we deduct SCF limit taken from any other bank? Exm sales 35 crs. Supplier channel finance taken of 3 crs from other bank. Now borrower eligible for cc of 7 cr or 4 cr? Pls guide?

[@AnkushJain]

Additional 4 crores

[@rahulwagh6070]

But sir why we can't give 7 cr cc/od apart from SCF. Because SCF is just replacing creditors. NWCC yet remains 90 days after considering credit period of scf. Then why we cant sanction full 20% apart from scf? Its practical case wherein one bank has offered him 7 cr full cc apart from scf. Pls guide. Will be greatfull to explain customer.

[@AnkushJain]

Then that bank must have used MPBF method for funding, not turnover method. In MPBF if overall working capital gap post considering the scf impact is justified and then proposed funding can be given

[@rahulwagh6070]

@@AnkushJain ok thanks great

[@AnkushJain]

👍

[@rajanshah2507]

Sir, is there any effect of LC (non fund) opened on calculation of DP ?? (All purchase through opening LC)

[@AnkushJain]

By opening LC, stock and creditors will increase presuming that LC is opened for full value of purchase therefore in nutshell, no impact

[@soumyaroy808]

@@AnkushJain Sir, 1)instead of deducting the other wc loan utilisation to arrive at net DP can we not earmark the utilisation of other wc loans against the gross dp ? 2) Incase there is devolvement of LC outstanding, then how do we ensure that gross dp is not breached since if the borrower is unable to arrange funds then the LC obligation will be honoured to the debit of the CC account and as a consequence the drawings may exceed the DP ?

[@AnkushJain]

@@soumyaroy808 for first question, i think i have shown calculations tht if we deduct from gross dp and then overall dp will be higher due to promoter margin impact. It is accurate to deduct it from net dp only. Further as far as LC point Is concerned, LC creditors are already deducted while calculating DP so even if LC is devolved we have already taken its impact on DP

[@emnsandeep]

Sir how to find outstanding of other facilities, should we ask it seperately

[@AnkushJain]

In the cibil report

[@AnkushJain]

In the cibil report

[@satpalsingh-21]

sir one question if we allowed limit with 40% margin on Book debts and 25 % margin on stock and creditors suppose are 200 stock 100 and book debts 100 how do we arrive to DP please explain

[@AnkushJain]

Pl note that for DP, always paid stock is considered. Paid stock is calculated by deducting creditors from stock. In your case, paid stock is negative by rs. 100 and now there will not be any benefit of 25% margin on negative value. Now we will apply 60% on debtors value and deduct that negative 100 rupees from it straight away. So the DP will be nil

[@rohitrawat4295]

What if in any situation, the amount of creditors is more than the amount of both Stock and debtors. Then the DP will be zero??

[@AnkushJain]

Yes Dp will be zero and client will not be able to use the limit

[@rohitrawat4295]

@@AnkushJain thank you Sir

[@AnkushJain]

👍

[@pranjalsoni4382]

Sir kisi kisi jagah Jo cc loan hoti h wo loan against property per di jaati h toh ye all bank ki alag alag policies hoti h kya

[@AnkushJain]

Cc nahi OD hogi vo

[@pranjalsoni4382]

Ok sir

[@AnkushJain]

👍

[@nitinsoni390]

Sir when we were calculating limit through MPBF then we deducted promoters margin to arrive at the limit. Is there any reason to deduct promoter margin at the time of calculating drawing power?

[@AnkushJain]

Pl watch this video and you will get the required answer kzbin.info/www/bejne/mWGoh4qDYptjh6M

[@nitinsoni390]

@@AnkushJain got it sir

[@AnkushJain]

👍

[@soumyaroy808]

Sir if possible please teach a lesson on cash budget method of wc assessment including the revenue and capital surplus/deficit and the procedure to derive monthly drawing power in case of cash budget method ? Thanks in advance.

[@AnkushJain]

I thought about it but it is not much in use in most of the cases. But ok will cover that in future

[@sudarshanahanjara7120]

How to calculate DP when creditors are more than stock?

[@AnkushJain]

kzbin.info/www/bejne/r2itm51pfrCWnK8

[@art_soul_words]

Why drawing power is not applicable on od limit. Is it because it is usually based on turnover method?

[@AnkushJain]

OD is separate product designed for those businesses wherein financials does not support DP requirement. There is no linkage to turnover method, even small cc limits are assessed on turnover method but still has to satisfy DP. It is just a diff. Loan product.

[@art_soul_words]

Isn’t od facility is also a WC limit? Suppose customer is having od and cc facility both then both the facility should be within DP?

[@AnkushJain]

@@art_soul_words there can not be both od and cc. Only one of them can be given at one point of time.

[@abhinavnair2093]

What if customer has taken raw material based on letter of credit and stock is in transit . It will not be included in stock

[@AnkushJain]

It depends, if customer thinks that all risks are transferred to him then he will book it as stock and in that case creditor will also appear and net effect will be nil. Please understand that, for DP purpose, only paid stock is relevant and helpful

[@lisusamal4877]

how is DP allocation made in consortium arrangement

[@AnkushJain]

In proportion to the working capital share of each bank

[@MONUKUMAR-xu7xg]

Hiii, I think we should deduct entire creditors Figure net of Advance to Suppliers, rather than allowing 25% margin as allowed on Stock. Is it correct, same differs on bank to bank, I guess.

[@AnkushJain]

Yeah it differs from bank to bank.

[@MONUKUMAR-xu7xg]

@@AnkushJain What us your views on this, we should give 25% margin on creditors or should deduct complete figures without any margin, correct method !!

[@AnkushJain]

For big ticket loans, entire creditors should be deducted without giving 25% margin since anyway we want to follow MPBF-2 for those cases wherein we expect promoters to contribute 25% of current assets as margin. For medium and small cases, benefit of 25% should be allowed

[@MONUKUMAR-xu7xg]

@@AnkushJain Thanks for Clarification

[@AnkushJain]

👍

[@Abhishekwolfonwall]

Sir how to finance CC to a new firm??

[@AnkushJain]

@@Abhishekwolfonwall basis project report and start of business operations and milestone basis

[@caaman93]

👏👏

[@AnkushJain]

Thank you

[@msbalwa0]

SIMPLE METHOD HAI CALCULATION KE DP] Drawing power Total stock 200 Total creditors 100 Total debitors 300 {Stock- creditor= (200 - 100=100) 100×75%= 25} {Total debitors 50% (200×50%=100)} (25 + 100=75)

[@AnkushJain]

👍👍

[@DINESH-vx5oe]

Sir, can we get your hand written notes. Pls sir

[@AnkushJain]

Hi Dinesh, I have not saved any such written notes with ne

[@DINESH-vx5oe]

@@AnkushJain OK sir.

[@AnkushJain]

👍

[@therahulsharmashow3831]

Very nice lecture sir I want your number

[@AnkushJain]

Rahul you can connect with me on LinkedIn, I am hardly available on my phones