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Question
Define explain the following concept.
Cash credit
Solution
Cash credit: In the system of cash credit, the banks first estimate the value of the assets held by the borrower. Based on this estimation, a credit limit is then decided by the bank for the borrower. The credit limit decided by the bank is the upper limit for the borrowings by the borrower. However, the actual utilization of credit by the borrower depends on his/her withdrawing power. The borrower is liable to pay interest only on the withdrawn portion of the credit.
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