CS Professional · Banking and Insurance - Laws and Practice · Advances, Securities and Documentation
Ravi Traders has a limit under which it can withdraw up to Rs 10 lakh from its current account and deposit surplus funds at will, with interest charged only on the daily debit balance. Which type of advance is this?
This is a cash credit facility. It is a revolving, limit-based advance where the borrower may draw and repay repeatedly within the sanctioned limit, and interest is charged only on the daily debit balance actually used.
- ATerm loan
- BCash creditCorrect
- CDemand loan
- DBill discounting
Explanation
Cash credit is a running facility with a sanctioned limit, where the borrower draws and repays repeatedly and interest is charged on the daily outstanding debit balance. A term loan is disbursed and repaid on a fixed schedule. A demand loan is a one-time disbursal repayable on demand.
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