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Question
Justify the following statement:
Overdraft facility is given only to current depositors?
Solution
1) A bank overdraft is an arrangement by Which a customer, usually a current account holder, is allowed to overdraw, i.e. withdraw money in excess of his own balance, up to a certain limit sanctioned by the bank for a specified period. By an agreement, the banker undertakes to honors cheques up to a certain limit. This is a kind of temporary loan for which the bank charges interest on the actual amount overdrawn and only for the period for which it is used.
(2) This facility is extended only to current account holders on the basis of collateral (additional) security of goods, raw materials. Shares, bonds, etc. or sometimes even on the personal guarantee of the customer. Businessmen meet their temporary working capital requirements by taking advantage of this facility. The overdrawn amount gets reduced as and when the deposits are made by the account holder. If required, the overdraft facility can be renewed from time to time because every time it is granted for a short duration like a couple of months, or so.
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