# Computation of Drawing Power (DP)
## What is Drawing Power?
Drawing Power (DP) is the limit up to which a company can withdraw from the working capital limit sanctioned by the bank.
## DP vs Sanctioned Limit — Critical Distinction
| Sanctioned Limit | Drawing Power |
|---|---|
| Total exposure that a bank can take on a particular client for facilities like Cash Credit, Overdraft, export packing credit, non-funded exposures, etc. | Amount calculated based on Primary Security LESS Margin as on a particular date |
| Static — set at the time of sanction | Dynamic — changes based on the value of stock/debtors |
| Upper ceiling | Actual permissible withdrawal at any given time |
Formula concept:
> DP = Value of Primary Security (e.g., stocks + debtors) − Margin
Whichever is lower — DP or Sanctioned Limit — is the operative limit for withdrawal.
## Bank's Duties Regarding DP
1. Banks should ensure that drawings in working capital accounts are covered by adequacy of current assets.
2. Stock statements relied upon by banks for determining DP should NOT be older than 3 months.
## Auditor's Concern
- The monthly stock statement of the month for which audited accounts are prepared and submitted should be compared by the auditor.
- Reasons for deviations, if any, should be ascertained.
- Where stock statements are older than 3 months and DP has not been revised, this is a red flag — the account may need to be classified differently or DP reconsidered.
## Why DP Matters for NPA Classification
Recall: An account is 'out of order' if:
- Outstanding balance continuously exceeds sanctioned limit / DP.
So: if DP is computed based on an outdated stock statement (older than 3 months), the DP itself may be inflated → an account that should be 'out of order' might appear regular → wrongly classified as Standard instead of NPA.