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Questions
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.
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Solution 1
- An overdraft allows a current account customer to withdraw more than their credit balance up to a specific limit.
- Overdrafts are temporary and come with interest charges.
- Commercial banks offer overdraft facilities based on asset security or the account holder’s personal security.
Solution 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 The bank charges interest only on the extra amount withdrawn (the overdrawn amount).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.
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