cash credit

This query is : Resolved 

21 May 2009


what is the meaning of cash credit & what is the diff betn bank od & cash credit??

CA CS CMA Srinivasan N (Expert)
21 May 2009

The basic difference is that Cash Credit is sanctioned against securities and the limit for withdrawal is not restricted to deposits. Instead there will be an agreed limit. In case of Overdraft its mere excess drawals from account to the extent deposits with Bank.
Read the Below for more info:
Cash credit Account
This account is the primary method in which Banks lend money against the security of commodities 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 It runs like a current account except that the money that can be withdrawn from this account is not restricted to the amount deposited in the account.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. These are, therefore, counter part of demand deposits of the Bank.a major part of working capital requirement of any unit would consist of maintenance of inventory of raw materials, semi finished goods, finished goods, stores and spares etc. In trading concern the requirement of funds will be to maintain adequate stocks in trade. Finance against such inventories by banks is generally granted in the shape of cash credit facility where drawings will be permitted against stocks of goods. It is a running account facility where deposits and withdrawals are permitted. Cash credit facility is of two types (depending upon the type of charge on goods taken as security by bank.)

(i) Cash credit - pledge: when the possession of the goods is with the bank and drawings in the account are linked with actual movement of goods from/to the possession of the bank. The physical control of the goods is exercised by the bank.

(ii) cash credit- hypothecation: when the possession of the goods remains with the borrower and a floating charge over the stocks is created in favour of the bank. The borrower has complete control over the goods and the drawings in the account are permitted on the basis of stock statements submitted by the borrower

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.
Overdraft may be permitted without any security as 'clean overdraft' for temporary periods to enable the borrower to tide over some emergent financial difficulty. 'Secured overdraft' facility is against fixed deposits, NSC, and other securities

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