Corporate finance

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Mayur Ejrekar

Mayur Ejrekar (Querist)
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26 September 2014 What is the Drawing Power? How is it calculated?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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26 September 2014 drawing power is the maximum amount of working capital loan that the borrower can draw from the bank

the computation depends on the conditions prescribed by the lender in the sanction letter.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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26 September 2014
For eg: the bank say it will cover only 3 months debtors at 25% margin.

The borrower has Rs 200 debtors but only 150 are 3 months old with remaining Rs 50 o/s for more than 3 months.

So DP will be calculated at 75% of Rs 150 = Rs 112.5

Mayur Ejrekar

Mayur Ejrekar (Querist)
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26 September 2014 Then what is MPBF? How are the two different?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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26 September 2014 MPBF is Maximum Permissible Banking Finance Limit. The borrower is not eligible for sanction limit in excess of this amount. Once the sanctioned amount is decided, DP is used to compute the maximum amount allowed to be drawn by the borrower within the sanctioned limit