An Overdraft facility allows the customer to withdraw the money even if the amount to be withdrawn is in excess of the credit balance available. This facilitates the customer to honor the payment to be made to the party though the account may not have sufficient balance. The maximum overdraft limit is sanctioned by the bank and is agreed upon by the customer. The excess amount withdrawn is charged interest upon and must be settled by the customer on demand from the bank.

Based on the security provided to the bank, a certain limit is fixed to the extent of which the customer is allowed drawing. The securities which are preferred by the banks or lending institutes.

A customer offers a kind of collateral security in terms of shares or mutual fund units or bonds to the bank or lending institute to obtain overdraft facility. The bank can sell or liquidate these securities to cover up the overdrawn amount and the interest thereon if a customer fails to settle the obligation.

Insurance Policy is another type of security against which Overdraft facility can be obtained. The bank or lending institute determines the actual amount of premium paid and the amount on maturity to set the Overdraft limit. In case of the death of customer the overdrawn amount is recovered from the claim settlement from the Insurance Company.

Property can also be mortgaged with the bank or lending institute to get overdraft facility. Properties generally have appreciating value in the market and hence are preferred as securities. On defaulting on the settlement of overdrawn amount the bank or lending institute may sell the property to recover the overdrawn amount with interest thereon and balance, if any, is returned to the customer.

Any kind of authenticated receivables like Bills Receivable, Rent Receivables can be the taken as security for the overdrafts. The proceeds of all receivables are routed through the overdraft account and immediately settled against the overdrawn amount. However drawings can be allowed against fresh receivables. Thus the amount of receivables remains as a continuing security for all drawings. The bank or lending institute ensures that no other loan or obligation is availed by the customer using the same receivables. The amount of receivables and the time required to honor or materialize the receivables are the key factors to determine the limit of overdraft.

Traders and manufacturers prefer availing the CASH CREDIT facility against the stock. The value of the stock of goods is assessed by the bank or lending institute and against; the cash credit limit is sanctioned. The amount is gradually settled against the amount of sale of the stock. The value of stock is assessed by physically verification and from the purchase invoices and is ensured that it is fully paid for. The bank will fix a margin amount that has to be brought by the borrower.

Car is also a security accepted by the bank or the lending institute to provide overdraft/loan facility. In this case the amount of loan is determined from the purchase invoice and in case of used car the value of car is determined by the approved valuer appointed by the bank or lending institute to determine the limit of overdraft/loan. The car or vehicles have depreciating values and hence the loan amount is determined by keeping a margin as decided by the bank.

Gold can be immediately converted into cash and has always increasing value. This makes the gold one of the most preferred security to obtain the overdraft facility. Banks or lending institutes assess the cost of gold offered by the customer as security and determine the limit of overdraft. Once the gold is assessed by the bank or lending institute the overdraft the sanctioning process can be completed quickly.

Documents to be furnished by the borrower or the applicant for Over Draft

The borrower and/or the guarantors have to provide the following documents to the banks or the lending institutions while submitting the Loan Application. Certain documents may be demanded by the bank or the lending institutions in post sanction phase or on periodical basis.

The General Documents

Address Proof

Address proof is documentary evidence confirming the current address of residence or work place. Any one of the following address proofs is valid

• Latest or current Electricity Bill
• Latest or current Telephone Bill
• Receipt of Maintenance Charges
• Valid Passport
• Voter’s Identity Card
• Purchase/Lease Deed/ Leave & License Agreement of Residence or Office Premises
• Identity Proof

Identity Proof is a document containing the clear photograph of the concerned person or individual. Identity proof includes the following documents

• Valid Passport
• PAN Card
• Voter’s Card
• Bank approved photo identity
• Any other photo identification issued by Government Agencies

Business Proof
Business Proof establishes the record of your business with the government authorities like Sales Tax, Income Tax, Central Excise, Municipal Corporation etc. The Business proofs include

• VAT/CST Registration No.
• MIDC Agreement
• SSI Permanent Registration Certificate
• Warehouse Receipts
• Shop & Establishment Act Certificate
• Copy of Lease Agreement along with the latest Rent paid Receipt
• Business Document

Business Documents are the paper evidences which confirm the nature, scope and the status of the business. The business documents include

• Business Profile
• Detailed Project Report ( for new ventures)
• Last three years’ Trading and Profit & Loss A/c. (duly signed by a Chartered Accountant wherever applicable)
• Last three years’ Balance sheets (duly signed by a Chartered Accountant wherever applicable)
• Individual/Firm/Company PAN Cards
• Individual Income Tax Returns of the Partners/Directors for last three years’
• Last years’ Bank statement of an Individual and Firm
• Statements or record of the last years loan repayment including all types of loans
• Documents or record of current loans or liabilities

The Salaried persons are supposed to furnish (in case of Private Limited or Limited Company)

• The pay slips or salary slips of the last three months
• Copy of the last three years Form 16 (Income Tax Returns filed)
• The Bank Statement of last 3-12 months (optional)

Additional documents
These are the documents may be demanded by the bank or the lending institution depending upon the process requirements.

• Partnership deed in case of partnership firms
• Certificate of incorporation, Date of Commencement of Business and Memorandum of Title Deeds, Form 32 in for Addition or Deletion of Directors in case of companies
• SEBI formalities in case of listed companies
• Share Holding pattern of Directors duly certified by a Chartered Accountant
• List of the Existing Directors of the company from the Registrar of the Companies
• Written & approved confirmation of having No Legal Suit filed against any of the directors. If any such legal suit or proceedings are pending then the details of such legal suit or proceeding

Against Property

• All Title Documents of the property including Chain of Documents from first purchase from the Builder or Society
• Legal opinion of an Advocate regarding the title of the property

Against Government Securities

• Copies of Government Securities to be pledged

Against LIC Policies

• Policy Document
• Receipt of the latest Premium paid
• Surrender Value Statement from LIC
• NOC from the Nominee/s of the LIC policy.