Bank Overdraft Limit

There is no formula to determine the Bank OD Limit.

Bank OD can be two types - Secured or Unsecured.

1. Secured one depends on the value of the asset pledged.

2. Unsecured one depends on the Salary(In case of Salaried Employee) or based on the previous year account transactions (In Case of Business).

For Eg, Credit card is a Bank OD granted with a limit of 3-5 times of your salary. It normally depends on the Bank.

I assuming your question does not pertains to Cash Credit Limit/Working Capital Limits. Hope this helps!

Thanks for reply... Pls could explainbank overdraft limit in aspect of a Pvt Ltd Company

For Unsecured O.D,

Banks have their own eligibility criteria such as - Financial Health of the Company, No.of years of successful operations, Profits. Bankers may insist on Financials and Income tax returns. 

Also you should be holding account in the bank for atleast 2- 3 years.

For Secured O.D, it depends on the Margin. For example your asset pledged is Rs.100. Bankers Margin is 30%. Then you might be eligible to Rs.60-70

Intro: Cash Credit is allowed for Working Capital Purpose. It is calculated on the Book Debts or Stock or Both of the Company.

Normally, the margin Varies from Bank to the bank.

Generally,

For Book Debts, Margin is 40%

For Stock, Margin is 25%

Illustration:

So, If Book Debts is 100 and Stock is 100, then CC is Determined as below:

Book Debts ---> 100*(1-40%)=60

Stock ---> 100 * (1-25%) = 75

Total =135 is CC Limit.

Note: Stock and Book Debts Statement is to be submitted on monthly basis. Banks also require to provide the Balance Sheet on quarterly or Half Yearly Basis.

Apart from the above hypothecation of Stock and Book Debt, Bankers might insist for any Collateral Securities.

Hope this helps!