Question

What is meant by an overdraft facility given by a commercial bank?

What do you mean by overdraft facility given by banks?

Explain the overdraft facility given by banks.

Explain the overdraft facility given by a commercial bank.

Answer 1

1. An overdraft allows a current account customer to withdraw more than their credit balance up to a specific limit.
2. Overdrafts are temporary and come with interest charges.
3. Commercial banks offer overdraft facilities based on asset security or the account holder’s personal security.

Answer 2

Banks offer overdraft facilities to customers who maintain a current account with them. An overdraft allows a customer to withdraw more money than the actual balance in their account, up to a limit set by the bank. For example, if a bank gives an overdraft limit of ₹10 lakh to a businessman, he can issue cheques that exceed his account balance, up to ₹10 lakh. The bank charges interest only on the extra amount withdrawn (the overdrawn amount). For businessmen, the overdraft is a simple and convenient way of borrowing from banks. However, overdraft facilities are usually given to trusted customers who provide suitable security to the bank. Overdrafts are generally granted for a short period of time.