Drawing power

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This query is : Resolved

Sankar Chakraborty (Querist)

16 May 2012
Dear Experts,

In a monthly bank stock statement I saw
ODBD A/C
Book debt : 29003863.00
Drawing power 174.00 lac margin 116.03 lac
Limit : 75.00 lac margin 30.00 lac (viz. 40% margin)
Balance outstanding 41.26 lac (closing balance of bank statement Apr’12)

Kindly help me to understand this

Sankar Chakraborty

Sankar Chakraborty (Querist)

06 June 2012 what is drawing power ?

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)

21 July 2024 The information you provided appears to be related to an Overdraft (OD) account, specifically the details of drawing power and limits associated with it. Let's break down the terms and what they signify:

1. **ODBD A/C**: This likely stands for "Overdraft Against Book Debts Account". It indicates that the overdraft facility is secured against the book debts (accounts receivable) of the company.

2. **Book Debt**: This is the total amount of outstanding invoices or receivables owed to the company by its customers.

3. **Drawing Power**: This is the maximum amount that the company can withdraw from the overdraft account, based on the security provided (in this case, the book debts). Drawing power is usually a percentage of the book debts, and in your case, it's ₹17.4 crore

4. **Limit**: This refers to the total overdraft limit sanctioned by the bank. It's ₹7.5 crore, which means the maximum amount the company can borrow under the overdraft facility.

5. **Margin**: The margin is the difference between the drawing power and the limit. It ensures that there is a cushion between the amount secured by the book debts and the maximum limit. In your case, the margin is ₹11.603 crore.

6. **Balance Outstanding**: This is the amount actually utilized or drawn under the overdraft facility. As of the end of April 2012, it's ₹4.126 crore.

**Interpretation:**

- The overdraft facility is secured against book debts
- The drawing power (maximum amount available) against these book debts is ₹17.4 crore.
- The bank has sanctioned a limit of ₹7.5 crore, allowing the company to borrow up to this amount.
- The margin (security or cushion) is ₹11.603 crore, indicating the difference between the drawing power and the limit.
- The company has utilized ₹4.126 crore of the overdraft facility as of April 2012.

This information is crucial for the company to manage its cash flow and working capital effectively. It allows the company to borrow against its receivables to meet short-term funding requirements. It's important to monitor these figures regularly to ensure compliance with the terms of the overdraft facility and to manage liquidity efficiently.

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