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Answer Posted / sarvjeet
Concept of drawing power is generally applicable on CC accounts. CC accounts are opened on the basis of Debtors minus Creditors or/and Stock-in-hand at the month end. After deducting its margin (which can vary from bank to bank but is generally 40% of net debtors and 25% of stock in hand as on the last day of the month) bank reaches a figure up to which it allows its customer to utilize the limit for one month (as of course next month its debtors and stock would change and consequently that figure would also change). Banks also however do not allow its customers to utilize more than sanctioned amount too. So, this figure (calculated on the basis of debtors and stock) which bank allows to its customer to use as limit utilization subject to maximum of sanctioned amount is called drawing power (usually called DP).
Further for clarification; sanctioned amount is maximum amount which a bank allow the customer to use out of CC account; no matter what the DP is. In other words if sanctioned amount is less than DP then customer can not utilize more than sanctioned amount and in that case practical DP for customer is sanctioned amount.
To save its customers from capital crunch due to limited stock or debtors (as in that case DP get reduced) most banks finance its customers with Temporary Overdrafts (usually called TOD)which carries higher interest rates. TODs are normally extended for 5-10 days.
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