## Essential Banking Terminology for Bank Auditors
Auditors working on bank assignments must be fluent in banking-specific vocabulary. These terms appear in audit reports, RBI circulars, and internal bank documents.
### Core Terms
Stock Audit
An audit of the borrower client of a bank, carried out at the bank's request, to independently verify the borrower's current assets (primarily inventories/stock). Banks commission stock audits to confirm that the drawing power being granted to a borrower is backed by sufficient eligible stock.
Drawing Power (DP)
The limit up to which an entity can actually withdraw under a sanctioned working capital facility (e.g., Cash Credit). Drawing power is computed based on the value of eligible current assets (stock + book debts) minus margins and creditors. It may be lower than the sanctioned limit.
> Sanctioned Limit vs. Drawing Power: The bank fixes a sanctioned limit (maximum permissible credit). The drawing power is the actual operative ceiling at any point in time, derived from the borrower's current asset base. The borrower cannot draw beyond whichever is lower.
Set-Off
A statutory right of a creditor (bank) to adjust a debit balance in the debtor's (borrower's) account against any credit balance lying in another account of the same debtor held with the same bank. For example, if a borrower has a loan account showing ₹10L overdue AND a savings account with ₹3L credit, the bank may exercise set-off to reduce the loan outstanding.
Equitable Mortgage
Creation of security in favour of a bank by mere delivery of title deeds (documents of title to property) by a prospective borrower. No registered deed is required — the deposit of title deeds itself creates the charge. Contrast with a registered mortgage which requires formal registration.