Vinu: Manu, stock statements are submitted every month, but why do banks treat them so seriously?

Manu: Because stock statements decide drawing power. If stock is inflated, the bank ends up funding non-existent assets.

Vinu: What is the first thing you check in a stock statement?

Manu: Consistency. I compare current stock with last month and with sales. Sudden jumps without sales growth are the first red flag.

Vinu: Can you give an example?

Manu: If monthly sales are ₹40 lakh and closing stock suddenly rises from ₹60 lakh to ₹1.2 crore, it indicates possible inflation or slow-moving inventory.

Vinu: How do debtors link with stock inflation?

Manu: Many borrowers inflate both. Sales are booked to increase debtors, and the same goods continue to appear as stock. That’s classic window dressing.

Vinu: Do valuation methods matter?

Manu:  Very much. Stock should be valued at cost or net realizable value, whichever is lower. Valuing obsolete stock at full cost overstates drawing power.

Vinu: How do you cross-check stock statements?

Manu: By matching them with GST returns, sales in the P&L, and bank account credits. If numbers don’t align, the statement is unreliable.

Vinu: What about negative stock or abnormal margins?

Manu: Negative stock indicates data manipulation. Abnormally high gross margins may mean purchases are understated to inflate profits and stock.

Vinu: How effective are stock audits?

Manu: Very effective if done properly. Physical verification often reveals slow-moving or non-existent stock funded by the bank.

Vinu: What is the biggest risk for bankers here?

Manu: Lending against paper stock. Once default happens, inflated stock has no recovery value.

Vinu: So what’s the key lesson?

Manu: Treat stock statements as risk indicators, not routine paperwork. Window dressing today becomes NPA tomorrow.

Vinu: That’s a strong message.

Manu: And a critical one for every credit officer.

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