Bank cash credit limit
Deepak
(Querist) 27 August 2013
This query is : Resolved
Please clerify me about difference between Bank overdraft and Bank credit limit??????
V R SHROFF
(Expert) 27 August 2013
STUDENTS may pl ask in FORUM.
Academic Q
Guest
(Expert) 27 August 2013
Academic queries by students should be discussed in the Forum section only.
malipeddi jaggarao
(Expert) 30 August 2013
You should have explained why you are interested to know the difference. However, as a banking expert, though it is academic query, with due respects to my colleague experts I clarify answer your query.
Basically these two facilities are running loan facilities. That means once a limit say Rs.1 lakh is sanctioned, you can withdraw part amounts and repay whatever amount you have. Again you can withdraw and repay. Whereas in loan (not running accounts), you can only withdraw either fully or partly but once you repay, you cannot withdraw the amount from the loan account. Hope you could understand.
The overdraft facility is need not a business running loan facility. It can be either clean (without any security) or secured by property or paper securities like NSCs etc. It is a sort of personal running loan facility - a limit is fixed basing on the individual networth and security offered and a cheque book is given . Within that limit the individual(even business units also if security is not their stocks) can run the account withdrawing and redeposting and again wtihdrawing.
Though cash credit is also more or less same as overdraft the basic difference is cash credit will be given only for business purpose for business units or proprietor. It is backed by security of stocks available with the unit. Though a limit is fixed say Rs.1 lakh, it is available only if the stocks are sufficient. In this case margin around 15 to 25% will be the bank. Hence in a cash credit account also stocks should be available for that the unit has to submit the stock statement periodically to the Bank to determine the drawing limit. If the stocks are less; say in a cash credit with a limit of RS.1 lakh and margin of 25%; stocks are also Rs.1 lakh, entire one lakh can not be utilised; only 75000 can be drawn. Excess drawings should be deposited immediately. Again if the stock position improves the drawing limit will be determined on the basis of sanction limit of say Rs.1 lakh and the stocks availabe (should cover the margin).
Overdraft is hassle-free and cash credit requires some accounting system and submission of periodical statements to the Bank.
malipeddi jaggarao
(Expert) 30 August 2013
You should have explained why you are interested to know the difference. However, as a banking expert, though it is academic query, with due respects to my colleague experts I clarify answer your query.
Basically these two facilities are running loan facilities. That means once a limit say Rs.1 lakh is sanctioned, you can withdraw part amounts and repay whatever amount you have. Again you can withdraw and repay. Whereas in loan (not running accounts), you can only withdraw either fully or partly but once you repay, you cannot withdraw the amount from the loan account. Hope you could understand.
The overdraft facility is need not a business running loan facility. It can be either clean (without any security) or secured by property or paper securities like NSCs etc. It is a sort of personal running loan facility - a limit is fixed basing on the individual networth and security offered and a cheque book is given . Within that limit the individual(even business units also if security is not their stocks) can run the account withdrawing and redeposting and again wtihdrawing.
Though cash credit is also more or less same as overdraft the basic difference is cash credit will be given only for business purpose for business units or proprietor. It is backed by security of stocks available with the unit. Though a limit is fixed say Rs.1 lakh, it is available only if the stocks are sufficient. In this case margin around 15 to 25% will be the bank. Hence in a cash credit account also stocks should be available for that the unit has to submit the stock statement periodically to the Bank to determine the drawing limit. If the stocks are less; say in a cash credit with a limit of RS.1 lakh and margin of 25%; stocks are also Rs.1 lakh, entire one lakh can not be utilised; only 75000 can be drawn. Excess drawings should be deposited immediately. Again if the stock position improves the drawing limit will be determined on the basis of sanction limit of say Rs.1 lakh and the stocks availabe (should covr the margin).
Overdraft is hassle-fre and cash credit requires some accounting system and submission of periodical statements tothe Bank.
Deepak
(Querist) 30 August 2013
very much thanx to Mr. malipeddi jaggaroa.............
Sudhir Kumar, Advocate
(Expert) 28 August 2013
