Cash credit

PANKAJ GOEL (rudrapur) (105 Points)

07 August 2011  


                                         CASH CREDIT

These loans are granted in the form of overdrafts on the security of stock in trade /process /raw materials. These facilities are extended on pledge or hypothecation of security. The Limits are essentially based on drawing power which is arrived at after deduction of margin fixed by the bank over the stocks. It is ensured that the balance outstanding does not exceed the drawing power. For this purpose , stock statements are regularly submitted by the cash credit customers.

Purpose of the loan:

This cash credit facility is granted for providing working capital assistance to a business/unit.

Security for the loans:

Before granting loans our banking officials will visit the the premises of the business / unit and assess the nature of goods , marketability , and the working capital requirement with reference to the process involved . If the security is not enough for the loan required bank may ask additional collateral security of immovable property .

Opening of the account and Rules :

  Before opening of the account the necessary documents must be filled by the account holder / concern. 

  The account holder must submit the stock statement  showing the value of the stocks held in a particular day once in a month.

 The stock statement must be signed by the proprietor or the partners or authorised signatory of the concern .

 Drawing power for operating the cash credit account is calculated by deducting the margin stipulated by the bank from the total value of the stock shown in the stock statement. 

 Margin of cash credit limit against security of stocks depends upon the type of unit, nature of commodity and stipulations of Reserve Bank of India from time to time.

 Where the Drawing Power is lesser than the limit sanctioned then the borrower must remit the balance in excess of the Drawing power.

 It is necessary that the borrower must route all his transactions through the cash credit account. The borrower also submit the statement of sales along with the stock statement to enable the bank to ascertain whether the sales proceeds have been credited to the cash credit account.

 Non submission of Stock statement shall entail charging of penal rate of interest at 2% per annuam.

 The goods stored should not be other than the place actually the hypothecation agreement made .If the storage place is other than the noted place in agreement then it will be informed to the banker and necessary document is executed for that. The borrower also maintain the stock register updated and shown to the bank officials while visiting/inspecting the storage place.

 The stock should be insured for their full values. The bank clause should be incorporated in the insurance policy. If the stocks are transferred to different place of storage necessary  changes in insurance policy is effected.