1. The bank which we are auditing has got the practice of not to deduct the sundry creditors while calculating the drawing power in the Cash Credit Account. According to the circulars issued by the Head Office only the creditors which are above the estimated level of creditors are to be excluded (which information is never available with the branch at the time of allowing monthly drawing power). Our opinion of allowing Drawing Power*only against the paid stock as prescribed by the Reserve Bank of India is not acceptable to the bank.
If the drawing power calculated from paid stocks is significantly lesser than the outstanding on a continuous basis, the account can be classified as an NPA. The same can be done taking the fall in drawing power as not temporary. Further, the shortfall in draw power due to reduction in creditors could imply fund divergence, which should be brought out. However most of the banks do not deduct creditors to arrive at paid stocks and thus calculate drawing power ignoring creditors. This issue has also not been qualified by RBI till date. Many Chartered Accountants have also ignored this fact and classified the same as Standard. However in my opinion, you can classify the same as an NPA & if the branch head is not agreeing to sign the MOC, leave it to the Central Statutory Auditor to decide giving the MOC & bringing out all facts clearly. *