If your business has a cash credit or overdraft limit secured against stock and debtors, the bank does not lend only on your word. It sends an independent stock auditor, usually a Chartered Accountant or a Cost Accountant on its panel, to check that the stock and debtors you report actually exist and are valued correctly. The auditor's report decides how much you can draw from your limit.
How drawing power is calculated
| Item | Example (₹ lakh) |
|---|---|
| Raw material, work in progress and finished goods (paid stock) | 200 |
| Add: debtors within the age limit set by the bank (often 90 days) | 150 |
| Less: trade creditors for stock | (60) |
| Net current assets offered as security | 290 |
| Less: bank margin, say 25% | (72.5) |
| Drawing power | 217.5 |
You can draw the lower of this drawing power and your sanctioned limit. Margins and debtor age limits differ by bank and are written in your sanction letter.
What the stock auditor checks
- Stock statements. The monthly stock and book-debt statements you submitted, compared with your books, GST returns and sales and purchase registers.
- Physical verification. A count of stock at the plant or warehouse, usually on a sample basis, compared with the stock register.
- Valuation. Whether stock is valued at the lower of cost and net realisable value, and whether slow-moving, obsolete or damaged items have been excluded.
- Debtors. The ageing of debtors, debtors older than the bank's limit, related-party and disputed debtors, and receipts after the statement date.
- Creditors. Whether trade creditors for stock have been deducted fully, since leaving them out inflates drawing power.
- Insurance and hypothecation. Whether the stock is insured for its full value with the bank's clause, and whether the bank's hypothecation board is displayed at the premises.
- End use and turnover. Whether sales are routed through the cash credit account, and whether limits are being used for the business they were given for.
Checklist to keep ready before the audit
- Stock statements submitted to the bank for the last three to six months.
- Stock register or ERP stock report, item-wise, with quantities and rates.
- Purchase and sales registers, and GSTR-1 and GSTR-3B for the same months.
- Debtors and creditors ageing as on the audit date.
- Insurance policy and premium receipt, with the bank's clause.
- Sanction letter, showing the margin, debtor age limit and other terms.
- Details of stock lying with job workers or at other locations.
Where businesses usually get caught
- The stock statement is prepared from an estimate, not from the books, and does not match GST returns.
- Old and unsaleable stock is still counted at full value.
- Debtors include amounts that are a year old or are under dispute.
- Stock at a job worker's premises is reported but there are no challans or confirmations.
A short internal review a month before the bank's audit fixes most of these and avoids an adverse report.
Frequently asked questions
What is a stock audit by a bank?
It is an independent check, done for the bank, that the stock and debtors you report in your stock statements exist and are valued correctly. The report is used to fix your drawing power.
Who can do a bank stock audit?
Banks appoint auditors from their own panel, usually Chartered Accountants or Cost Accountants with experience in inventory and working capital audits.
How is drawing power calculated?
Paid stock plus eligible debtors, minus trade creditors, minus the bank margin. You can draw the lower of this amount and the sanctioned limit.
How often is a stock audit done?
Usually once a year, and more often for larger limits or weak accounts. The frequency is set by the bank and is stated in your sanction terms.
How Vitt-Marg helps
We carry out stock audits, inventory verification and internal audits at plants and warehouses, and help businesses prepare stock statements, CMA data and project reports for their banks. If your stock audit is due, we can do a pre-audit review so that the bank's auditor finds no surprises.
General information, current as of 11 November 2026, not advice for a specific case. Due dates and fees change with MCA and CBDT notifications. Check with us before acting on it.