27 January 2011
Cash Credit and Overdraft, both fulfill the requirement of Working Capital of the borrowers. However, Cash Credit is for specific use of limit which is given on the basis of value of book debt and value of paid up stock. Limit of 75% is given calculated on (Value of book debt+Stock-Creditors). For this borrower is supposed to furnish the stock statements in given format of the bank on monthly basis based on which limit will be sanctioned.
Overdraft - An extension of current account in which the customer is allowed to withdraw more than the credit balance lying in the account. This may be a temporary accommodation to tide over temporary cash crunch or on a regular basis. If permitted on a regular basis, withdrawals are allowed up to a ceiling (called a limit), subject to availability of sufficient security with the bank.
Overdraft is generally for small working capital requirement but where larger funds are required C/C limit is preferred.
27 January 2011
Overdraft The word overdraft means the act of overdrawing from a Bank account. In other words, the account holder withdraws more money from a Bank Account than has been deposited in it. The Bank allow overdrawing. if there is a prior agreement with Bank and charge interest on the amount overdrawn. Overdraft is allowed against many securities including financial instruments like shares, units of mutual funds, surrender value of LIC policy and debentures etc. Some overdrafts are even granted against the perceived "worth" of an individual.
Cash Credit This account is the primary method in which Banks lend money against the security of stock and debt. It runs like a current account except that the money that can be withdrawn from this account is not restricted to the amount deposited in the account. Instead, the account holder is permitted to withdraw a certain sum called "limit" or "credit facility" in excess of the amount deposited in the account. Cash Credits are, in theory, payable on demand
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