March 17, 2020


What is overdraft facility? When a bank allows the account holder to draw funds in excess of his sanctioned limit is known as overdraft facility. This is not permanent measure to enable the account holder to meet his urgent funds requirement. In another way we say An Overdraft facility allows you to write cheques or with draw cash from your current account up to  the overdraft limit approved. It can be authorized ( agreed to in advance of retrospect) OR unauthorized ( where the bank has not agreed to the overdraft either because the account holder represents too great risk to lend to in this way or because the account holder has not asked for an overdraft facility) It is short term (usually up to 12 months) standby credit facility which is usually renewable on a yearly basis. It is repayable on demand by the bank at any time. Interest is calculated on daily balance overdrawn and debited to the account monthly. The interest rate on an overdraft account is usually charged at a percentage over the Bank's prime lending rate.                    

What is prime lending rate? PLR is the the benchmark lending rate previously used by banks to price their different loans. This pricing mechanism has now been replaced by the base rate of lending.                 

Now We should know that what is base rate? Base rate is the minimum lending rate that banks can charge its customers. It is the floor rate for all loans that banks provide barring a few exceptions like loans against deposits, staff loan to bank employees and some agricultural loans. 

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