A lending institution maintains a portfolio of working capital facilities secured against stock and receivables. Each borrower submits a monthly stock statement. The drawing power is calculated from that statement. The facility is utilised against that drawing power.
Pratham Sharma has conducted 15+ stock and receivable audits across credit portfolios worth Rs 500+ crore. The finding that recurs is not fraud. It is drift: the stock statement drifts from physical reality over months, each month’s overstatement small enough to seem immaterial, until the cumulative gap between what the borrower claims and what exists becomes a significant proportion of the lender’s security.
The Credit Portfolio Health Check applies a verification methodology across a lender’s borrower portfolio, not one account at a time but systematically, identifying the accounts where the gap between claimed security and actual security has widened beyond the tolerance the lender would accept if it knew.
How the gap develops
A borrower with Rs 3.5 crore of claimed stock submits the statement on the 7th of each month. The statement is prepared from the accounting system on the 5th. Between the 5th and the 7th, goods are dispatched. Between the 7th and the next month’s statement, goods are sold but the statement is not updated. Returns are received and added to stock but not always to the statement. Damaged goods are removed from the godown but remain in the books because nobody processed the write-off.
Each month, the gap widens by Rs 5 lakh to Rs 15 lakh. After 12 months, the claimed stock of Rs 3.5 crore may correspond to physical stock of Rs 2.1 crore. The drawing power was calculated on Rs 3.5 crore. The actual security is Rs 2.1 crore. The lender has extended Rs 1.4 crore more than the security supports.
In one engagement across a textile trading borrower, Pratham’s physical verification found exactly this pattern. The stock statement had claimed Rs 4.2 crore. The godown held Rs 2.8 crore. Rs 90 lakh of the gap was goods sold but not removed from the statement. Rs 45 lakh was consignment stock the borrower did not own but had included as owned inventory. The remainder was a combination of damaged goods, goods in transit and accounting timing differences.
The drawing power was recalculated on verified stock. The excess drawing was Rs 1.4 crore.
The methodology
Step 1: Select the verification population. Not every borrower is verified simultaneously. The selection prioritises: accounts where the facility utilisation is consistently above 90% of sanctioned limit (leaving no buffer), accounts where the stock-to-turnover ratio has changed without explanation, accounts where the borrower has requested limit enhancement, accounts approaching renewal and accounts where the previous verification (if any) identified discrepancies.
Step 2: Concurrent financial and physical verification. Pratham extracts the borrower’s inventory data from Tally or the ERP and reconciles it to the stock statements submitted to the lender. Simultaneously, Rishabh Koli conducts the physical count at every storage location: every material item counted, recorded, photographed and compared to the book balance.
The concurrent approach is deliberate. A physical count conducted after the borrower knows the financial analysis is underway gives the borrower time to adjust. A count conducted simultaneously with the data extraction captures the position as it actually stands.
Step 3: Condition and ageing assessment. Stock that exists physically but has no realisable value is not security. Rishabh assesses the condition of every material inventory category: damaged goods, expired products, obsolete items, slow-moving stock that has not turned in the borrower’s normal sales cycle. In a food distribution borrower, Rs 65 lakh of physically present stock was past expiry date. It existed. It had no market value. The stock statement included it at full cost.
Step 4: Receivable verification. Pratham initiates direct confirmation with the borrower’s top 20 debtors, independently of the borrower’s records. Each debtor confirms the balance outstanding, the ageing and any disputes. In one engagement, the borrower’s ageing report showed a 45-day average. Direct confirmation revealed a 95-day average. The borrower had been issuing replacement invoices to reset the ageing clock, creating an artificially young receivable book that overstated the quality of the lender’s receivable-backed security.
Step 5: Drawing power recalculation. The verified stock value and verified receivable balance produce a recalculated drawing power. The difference between the borrower’s claimed DP and the verified DP is the excess drawing: the amount by which the facility utilisation exceeds the actual security.
Who does the work
Ashish Chaudhary designs the verification programme and presents the portfolio-level findings to the lender’s credit team.
Pratham Sharma leads the financial analysis: data extraction, stock statement reconciliation, receivable ageing validation and drawing power recalculation. His 15+ stock and receivable audits across Rs 500+ crore of credit exposure mean the methodology is not theoretical. It is the same process he has executed dozens of times.
Rishabh Koli leads the field verification: physical counts, condition assessment, location verification and evidence collection.
Gopal Banka is engaged where the verification findings trigger a facility review, a restructuring discussion or a security rebalancing negotiation with the borrower.
What the lender receives
A verification report for each borrower covering: physical stock position versus claimed position, receivable confirmation results versus borrower-reported ageing, recalculated drawing power based on verified values, discrepancy analysis with categorisation (timing differences versus substantive gaps versus potential misrepresentation) and red flags for immediate attention.
A portfolio-level summary showing: which accounts are within tolerance, which require monitoring, which require immediate facility review and the aggregate excess drawing across the verified portfolio.
Mobilisation within 72 hours. Single-location verification completed in 3 to 5 days. Multi-location in 7 to 14 days. Report delivered within 5 days of completing field work.