Stock Audit: Safeguarding the Quality of Collateral
For a lender, the stock statement submitted by a borrower is just a piece of paper until it is verified. At Diwakar and Associates, we provide the rigorous physical and financial inspection required to validate the "Drawing Power" and ensure the bank’s interests are fully secured.
Why, When & Where is it done?
- Why : To prevent "Double Financing," detect the siphoning of funds, and ensure that the inventory is properly valued, insured, and stored. It helps the bank identify early warning signs of stress in a borrower's business.
- When: Conducted annually or half-yearly as per the bank’s audit policy, or specifically when a borrower requests a limit enhancement.
- Where: Performed at the borrower's factory, godowns, warehouses, and corporate offices where records are maintained.
- What is it Done: A physical verification of raw materials, work-in-progress (WIP), and finished goods, matched against the borrower’s books and the bank’s stock statements.
Applicability Limits (The Numbers)
Exposure Limits
Borrowers enjoying Working Capital limits (CC/OD) of ₹5 Crore or more (this threshold varies by bank).
NPA Management
Mandatory for accounts showing signs of stress or those classified as Special Mention Accounts (SMA).
High-Risk Sectors
Industries with high price volatility (like Commodities, Jewellery, or Steel) often require audits even for lower limits.
How we provide this service at Diwakar and Associates
We deliver a foolproof assessment of the borrower's security through a structured four-stage process:
1
Physical Inspection
We conduct a surprise visit to the borrower’s premises to perform a sample physical count. We look for signs of "slow-moving" or "obsolete" stock that should be excluded from the Drawing Power.
2
Financial Reconciliation
We reconcile the physical stock found on-site with the Stock Register, Purchase/Sale Invoices, and the latest GST Returns to ensure the numbers are consistent
3
Debtors Analysis
We analyze the aging of Book Debts. We identify "Over-90 day" debtors that must be excluded as per the sanction terms to ensure the bank isn't over-financing old receivables.
4
Drawing Power (DP) Recalculation
We provide a revised DP statement. We check for adequate insurance coverage (with the bank clause), proper storage conditions, and ensure that unpaid stocks (creditors) are deducted to arrive at the true "Paid Stock" value.
The Impact
We perform a physical count of stocks and a deep-dive into the book debts of borrowers to ensure the security is sufficient to cover the bank's outstandings.
Our Commitment to You
Accuracy is the cornerstone of our practice. At Diwakar and Associates, we commit to providing an uncompromising, high-integrity report. We promise to look beyond the surface, alerting the bank to any discrepancies in valuation or storage that could jeopardize its security. Our goal is to give your credit team the "Ground Reality" they need to manage risk effectively.
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