Q.A commercial bank receives an initial fresh deposit of ₹50,000. If the Cash Reserve Ratio (CRR) fixed by the RBI is 20%, calculate

Overdraft lets a current-account customer withdraw more than the balance in his account, up to a fixed limit, with interest only on the amount overdrawn.

Explanation

Overdraft is one of the methods by which commercial banks lend money. Under this facility, a customer who has a current account with the bank is permitted to draw amounts over and above the credit balance in his account, up to a sanctioned limit. The extra amount drawn is called the overdraft. Interest is charged only on the amount actually overdrawn and only for the period for which it is used, not on the whole limit. It is usually a short-period arrangement granted to trustworthy custo …

An overdraft is an arrangement under which a bank permits a current-account customer to overdraw the account, i.e. to withdraw more than the available balance up to a sanctioned limit. It is a short-term loan facility, and interest is charged only on the amount actually overdrawn.

Meaning

An overdraft is a credit facility granted by a commercial bank to its current-account holders. Under it, the customer is allowed to withdraw from the account an amount greater than the balance standing to their credit, up to a limit agreed with the bank.

• It is mainly given to businesspeople and reliable customers to meet short-term working-capital needs.
• Interest is charged only on the amount overdrawn and for the period for which it remains overdrawn, not on the full sanctioned limit. …

An overdraft is a short-term credit facility by which a bank allows a current-account customer to withdraw more than the balance in his account up to a sanctioned limit; interest is charged only on the amount actually overdrawn.

Meaning

An overdraft is one of the ways in which a commercial bank lends money (advances credit). Under this facility, a customer who holds a current account is permitted by the bank to withdraw more money than he actually has in his account, up to a pre-sanctioned limit.

The extra amount withdrawn is the overdraft. Important features are:

• it is given mainly to current-account holders;
• it is allowed up to an agreed limit, usually against some security;
• interest is charged only on the amount actually overdrawn, not on the whole limit; …