Bank Overdraft Facility

Bank Overdraft Facility is a short-term credit facility given to Savings Bank and Current Account holders, wherein they are allowed to withdraw the amount to the extent of pre-determined limit even when the balance in the account is zero.

For instance, if a Savings or Current Account holder issues a cheque for an amount over and above the balance available in the account, the cheque will be passed and the amount in excess of the available funds in the account is considered as an overdraft for that account.

Banks extend overdraft facilities to longstanding customers with a good track record. This will help the customers to take care of emergency fund requirements. The amount overdrawn in the account will attract interest as decided by individual banks. The interest will be calculated from the date of availing of the overdraft till the same is regularised. If a limit is assigned to an account, then the amount deposited into the account will again be available for utilisation.

How Does the Overdraft Account Work?

Overdraft facility to savings bank and current account holders is given depending on the customer's profile, credit score, and repayment history. The regulation of RBI has stipulated a maximum overdraft of 50,000 to current account and cash credit account holders to take care of temporary cash-flow deficit. However, this does not apply to a personal overdraft facility. For businessmen who depend on the receivables, a temporary cash-flow deficit normally exists until the payment made for their services and products comes through.

Types of Overdraft Facility

There are three types of overdraft facilities:

  • Overdraft Against Salary Account
  • Overdraft on Savings Bank Account
  • Overdraft Against Fixed Deposit

Overdraft Against Salary Account

  • This facility is extended to Salary Accounts opened by Corporates and Business Establishments for their employees.
  • The Corporates and Business Establishments must be in the approved list of the bank and the salary should be credited regularly month after month into the account.
  • Overdraft facility to the extent of 3 times the current salary credited to the account of the customer will be provided.
  • The documentation for this facility is minimal and it has the advantage of easy repay feature
  • The customer can prepay the amount at any time without any prepayment charges. Interest will be applied only to the extent of the amount utilised and for the period utilised.
  • The minimum salary requirement for this facility is 15,000 to 25,000
  • Some of the banks offer overdraft facility to the extent of 4 Lakhs

Overdraft on Savings Bank Account

  • This facility is extended to all accounts opened under Pradhan Mantri Jan Dhan Yojana (PMJDY)
  • An overdraft facility of 10,000 will be permitted for the accounts opened under PMJDY
  • The customer opening the account under PMJDY should be in the age group of 18 years to 65 years.
  • The account should be operated satisfactorily for 6 months to avail the overdraft facility
  • Only one member of a family will be provided with this facility
  • The earning member of the family, preferably women, will be provided with this facility
  • Aadhaar linking is a mandatory requirement to be eligible for this facility
  • The person having an account under PMJDY should also have another account which complies with the RBI Directive.
  • Kisan Credit Card holders and minors are not eligible for this facility
  • The rate of interest for this facility should not exceed 2% above the base rate
  • No processing fees will be collected for this facility

Overdraft Against Fixed Deposit

  • Overdraft against fixed deposits can be availed under this facility
  • If you opt for closure of the fixed deposit when in need of funds, i.e., closing of the fixed deposit before the maturity, you will not be paid the contracted rate of interest but only the interest applicable for the period the deposit was with the bank minus a penalty as stipulated by the respective bank.
  • Instead of losing out on the interest you can avail an overdraft facility against the fixed deposit. This will keep the principal amount intact while earning the contracted rate of interest.
  • An overdraft facility to the extent of 90% of the deposit will be permitted
  • An interest either at 1% or 2% over and above the contracted rate of interest of the fixed deposit, depending upon the bank where you have the fixed deposit will be collected.
  • You can close the overdraft limit whenever you choose to without any prepayment charges
  • This overdraft facility will not attract any processing charges
  • The fixed deposits that are either in an individual name or in joint names will be eligible for the facility.

Details of Overdraft Facilities from Top Indian Banks

5 Top Indian Banks that offer overdraft facilities are:

HDFC Bank Smartdraft Overdraft Against Salary

Features of HDFC Bank Smartdraft Overdraft Against Salary

  • Eligibility: All HDFC Bank Corporate Salary Account Holders are eligible for this facility. The Corporate Company should be in the approved list of the bank. A minimum salary credit of 15,000 p.m. is required to be eligible for the facility.
  • Quantum: A quantum up to 3 times the salary credited will be provided
  • Repayment: The overdraft amount need not be paid in equated monthly instalments (EMIs). It is a revolving facility which can be renewed after 12 months of regular repayment. Repayment will be by way of any deposits made to the account. The amount repaid will be available for utilisation again when in need of funds.
  • Interest: Interest will be charged at a competitive rate and will be applied only on the amount utilised and for the period utilised.
  • Processing charges: Nil. A nominal fee of 250 will be collected if the account is renewed after 12 months.
  • Prepayment charges: No prepayment charges will be collected. The customer has the option to repay the entire amount utilised and close the overdraft facility. However, if the customer intends to continue, the amount fully repaid will again be available for usage since the overdraft limit will be replenished.

Benefits of HDFC Smartdraft Overdraft Against Salary

  • No elaborate procedure. Only HDFC Corporate salary account with regular salary credit every month is required.
  • Simple and minimal documentation
  • The interest will be applied only on the amount utilised
  • The overdraft facility can be renewed after 12 months and the amount will be available for usage again.
  • No prepayment charges and processing charges
  • Only a nominal fee of 250 will be collected if the facility is renewed
  • No need of paying back the amount in EMIs

Citibank Ready Credit Advantage

Citibank Ready Credit Advantage is an instant cash facility to meet any unplanned expenses for the Citibank Suvidha Salary account holders.

Features of Citibank Ready Credit Advantage are:

  • Eligibility: The account holder should be in the age group between 21 years to 65 years. A minimum net salary credit of 25,000 is required.
  • Quantum: Quantum up to 5 times the monthly salary credited to the account with a maximum of 5 Lakhs will be provided.
  • Interest: Interest in the range of 16% to 19% will be collected. The exact interest will be communicated to the customer at the time of fixing the line of credit. Interest will be applied on the daily balance in the account.
  • Repayment: The tenure of the loan is 1 year, but the facility can be renewed provided the salary is credited regularly to the account.
  • Processing charges: A minimum fee at 2% of the overdraft amount with a minimum of 750 will be collected at the time of renewal of the facility after 12 months of providing the facility.
  • Prepayment charges: No prepayment charges will be collected

Benefits of Citibank Ready Credit Advantage

  • Once the Ready Credit Cash Line is fixed, you will have access to the funds whenever required
  • The tenure is not fixed. It is a revolving facility and can be renewed every year provided the salary credits are regular.
  • Interest will be applied only on the amount utilised and for the period utilised
  • You can access the account through a cheque, ATM, Mobile banking, Internet banking, and phone banking.
  • You can opt to pay any amount over and above the 5% stipulated without any prepayment charges. The amount so repaid will again be available for usage.
  • To apply for the facility, you will have to just access your net banking facility and click on the ready credit offer and a credit line to the extent of eligibility will be fixed and made available to you.

HSBC Smart Money Account

With HSBC Smart Money Account, you can get a greater benefit for your Fixed Deposit Account while keeping the principal amount intact while earning the contracted rate of interest for the Fixed Deposit.

Features and Benefits of HSBC Smart Money Account

  • All you need to open an HSBC Smart Money Account is a minimum fixed deposit of 25,000. The Smart Money Account can be opened only by a Resident Indian who is above 18 years of age.
  • An overdraft facility up to 90% of the fixed deposit will be provided
  • You will earn interest on the entire fixed deposit amount while you pay interest only to the extent of the overdraft limit utilised. Interest for the overdraft facility will be at 2% above the contracted rate of interest on the fixed deposit.
  • There is no fixed tenure for repayment
  • You can access the Smart Money Account through ATM, Internet banking, mobile banking, and through a cheque. A personalised cheque book will be issued to this account.
  • HSBC Credit Card will be issued free of cost
  • An International Debit Card will be issued to the account
  • Free online bill payments can be done through the account

SBI Overdraft Facility in Corporate Salary Package Account

Corporate Salary Package (CSP) is a facility offered for employees of Corporate Companies, including service organisations like transport corporations, hotels, hospitals, etc. Overdraft facility is provided for the salary accounts under this package.

Features of SBI Overdraft Facility in CSP Account

  • Eligibility: Employees of Corporate Companies maintaining their salary account with SBI under the CSP. A minimum of 6 consecutive salary credits to the account is a mandatory requirement. Even with a minimum of 6 months residual service with regular salary credits to the salary account maintained with the bank, the customer will be eligible for the overdraft facility.
  • Quantum: An overdraft facility up to 2 times the monthly net salary will be set to the existing CSP Account.
  • Interest: Interest will be charged at a competitive rate on the daily outstanding balance. Interest need not be paid on the entire limit that has been set for the account. Interest has to be paid on the amount that has been utilised.
  • Tenure: The overdrawn amount has to be repaid within 6 months
  • Processing charges: No processing charges will be collected
  • Prepayment charges: No prepayment charges will be collected

Benefits of SBI Overdraft Facility in CSP Account

  • Simple procedure with minimal documentation
  • The overdraft facility can be accessed through cheque, internet banking, phone banking, ATM, etc.
  • Interest has to be paid only on the amount utilised
  • Repayment need not be done in EMIs. However, the amount utilised has to be repaid within 6 months.

ICICI Bank Salary Overdraft

ICICI Bank Salary Overdraft is a facility extended by ICICI Bank to its customers maintaining a salary account with the bank.

Features of ICICI Bank Salary Overdraft

  • Eligibility: The main eligibility criterion is maintaining a salary account with ICICI Bank. The overdraft facility is provided for accounts where the salary is being credited regularly.
  • Quantum: An overdraft facility to the extent of twice the net monthly salary credited to the salary account with a maximum of 4 Lakhs will be provided.
  • Interest: Interest will be charged at a competitive rate on the utilised part of the overdraft limit. The interest is charged on the daily outstanding balance in the account.
  • Repayment: The facility is revolving in nature. The overdrawn amount will get regularised to the extent of the salary credited to the account every month. The amount so credited will be available for usage once again as the limit gets replenished. The account will be renewed after 12 months provided the conduct of the account is satisfactory.
  • Processing charges: No processing charge will be collected
  • Prepayment charges: No prepayment charges will be collected

Benefits of ICICI Bank Salary Overdraft

The following are the benefits of ICICI Bank Salary Overdraft:

  • Simple documentation
  • No security is required for this facility
  • The interest charged is minimal and has to be paid only on the amount utilised
  • Quick processing

What is the Difference between Bank Overdraft Facility and Personal Loan?

The following are the differences between Bank Overdraft Facility and Personal Loan:

Overdraft Facility Personal Loan

Overdraft is a facility given to an individual or a Company in the savings bank account or current account. The amount withdrawn is not a fixed amount but will vary according to the requirement.

A Personal Loan is a fixed amount borrowed for a fixed period with monthly repayments.

A credit limit is set to the savings account or the current account and withdrawals can be made to the required extent up to the credit limit. This is similar to the Credit Card transactions wherein the utilisation is as per requirement, but should not go beyond the credit limit. Interest is charged on the amount that is withdrawn or utilised.

In a loan account, the interest will be charged on the entire sanctioned amount whether the amount is utilised or not.

Overdraft is for short duration and large amounts cannot be borrowed since credit limits are set and you cannot borrow beyond the limit that is fixed for the account.

In the case of a loan, larger amounts can be availed based on individual capacity. The repayment period is also longer. It will be in the range from 1 year to 5 years.

Repayment in the case of overdraft, is flexible and can be made in a lump sum. The facility can be closed at any point in time without any pre-closure charges.

Repayment for the loan accounts is for a fixed period and has to be done in EMIs month on month. Pre-closure of the loan account will attract pre-closure charges that vary from bank to bank.

FAQs on Bank Overdraft Facility

What is the Citibank Ready Credit Facility?

Ready Credit facility provided by Citibank is an overdraft facility that gives access to an amount over and above that is available in the Citibank Suvidha Salary Account. The amount can be utilised for any unplanned expenditure, for expenses incurred during festival seasons, for education, travel, etc.

What are the documents required for the Ready Credit Facility?

If all the KYC documents have been provided for the Citibank Suvidha Salary Account, there is no requirement for any additional documents for Ready Credit Facility.

What is the maximum amount provided under the Ready Credit Facility?

The quantum provided is 5 times the net salary credited to the Suvidha Account with a maximum of 5 Lakhs.

Name the locations where Smartdraft HDFC Overdraft against salary available?

The Smartdraft facility of HDFC is available in Bangalore, Chennai, Hyderabad, Kolkata, Pune, Nasik, Gurgaon, Secunderabad, Jaipur, Indore, Bharuch, Baroda, Silvasa, Patiala, Surat, Trichur, Ludhiana, Coimbatore, Lucknow, Ahmedabad, Cochin, Chandigarh, Delhi, Cochin, and Noida.

Can the HSBC Smart Money Account be opened if the savings account and the fixed deposit are in two different branches?

Yes, the HSBC Smart Money Account can be opened even if the savings account and the fixed deposit are in two different branches.

How is an overdraft limit different from a Personal Loan?

An overdraft limit is a credit limit fixed for a savings bank or current account which can be utilised as per requirement. Interest has to be paid only to the extent of the amount utilised. The duration of the facility is short-term. The repayment is flexible and can also be made in a lump sum. The facility can be pre-closed without any charges.

A Personal Loan is a long-term credit facility which is released in a lump sum and is credited to the savings/current account. Interest has to be paid on the entire sanctioned amount whether the amount is utilised or not. The loan has to be repaid within a fixed period and in monthly EMIs. Pre-closure of the Personal Loan account will attract charges which vary from bank to bank.

Is overdraft facility provided in any other way other than by way of overdraft in salary accounts in proportion to the salary credited?

An overdraft facility can be given against fixed deposit. A limit up to 90% of the fixed deposit will be provided and a lien will be marked on the fixed deposit. In the event of non-payment of the overdraft amount, the fixed deposit will be closed and the proceeds will be adjusted to the outstanding balance in the overdraft account. 

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