What is an OD/CC?

An OD/ CC refers to Overdraft and Cash Credit facilities offered by banks to businesses or individuals for ease and convenience of financial needs.

An overdraft facility is offered on a current account where the account holder can withdraw an excess amount over and above their account balance up to the sanctioned limit. Repayment is then made through deposits in the said current account.

A cash credit refers to an arrangement where the bank extends a cash loan against a tangible security up to a limit specified within a specified time period. The customer can then repay when they have a surplus amount. The interest is charged only on the withdrawn amount.

What are the differences between an overdraft and Cash Credit?

In Cash Credit the account holder can borrow money from the bank. But, the borrower can receive an amount only up to a specified limit, against some tangible securities. The overdraft, on the other hand, is an arrangement with the banks through which a current account holder can withdraw money in excess of the balance available in the account subject to a specified limit.

Banks provide overdraft facilities to the current account holders and other individuals against self-liquidating investments. A cash credit facility is offered to the customer who opens a cash credit bank account.

Cash Credit is a type of funding catering to the short term to benefit self-employed persons and business owners. With cash credit they can meet their working capital needs. Whereas overdraft can be utilized by both individuals and businesses.

For availing cash credit, the business has to provide some tangible security. But, in the case of an unsecured overdraft, there is no requirement for security. But, the limit will depend on credit history, average balance and past relationship with the bank. However, secured overdrafts are provided by banks against self-liquidating investments.