Overdraft facility to employees

An online survey conducted by Times of India (ToI) has revealed that 89 per cent have cut spending during Covid-induced lockdown. The lockdown has forced spendthrift culture to take backseat and frugality is emerging a lifestyle choice.

This is a general trend picked by the online poll in which 10000 respondents belonging to various segments of population were recorded for their comments and 89 per cent of them revealed their cut back on spending during the lockdown.

Actually, if we take this survey as an indicator, people have started giving serious thought to tailor domestic budgets to run their routine affairs and stay afloat in the given lockdown-induced financial crisis.

However, there are certain emergencies, mostly unforeseen, which don’t fit in forced austerity measures. Such emergencies demand immediate remedial measures which mostly include availability of cash-in-hand. So, in the Covid induced crisis access to cash is an issue for those who are trapped in emergencies.

Let me specifically talk about the salaried class who, during these testing times of the Coronavirus pandemic, are in need of some additional liquidity for various emergent expenditures in a hassle-free manner.

Basically, there was an interesting query from a government employee about any such mechanism in banks where salaried class can have funds available for very short term purpose. He was actually talking about overdraft facility which banks extend to businesses at the time of urgent need on short term basis. Why can’t banks extend this overdraft facility to employees as salary is disbursed to the employees through the banks.

Some time back he was badly in need of emergency cash of around Rs.10,000 and had approached some of his acquaintances for help, but in vain. However, one of his friends, a businessman by profession, extended him the finance facility to meet his emergency cash requirement. His friend obtained overdraft facility from his bank and asked him to pay the interest on the overdraft facility.

Remarkably, various banks have a scheme in place which allows overdraft facility. Very recently, ICICI Bank launched overdraft facility for salary account customers who are facing a cash crunch. The bank has designed the scheme‘to protect its Salary Account customers from missing their Equated Monthly Instalments (EMIs) or cheque bounces due to insufficient funds by providing short-term instant credit. Customers of the bank can easily avail of this facility by initiating their application online’.

What is bank overdraft?

Among other loan facilities which banks provide to their customers is overdraft facility. It enables a person to spend more than what is actually in his bank account. This is the money which belongs to the bank and the person has to pay back the money received as overdraft.

Normally, the amount as overdraft gets automatically repaid when money goes into the person’s account.

For a banker, overdraft is a temporary advance granted by bank to its customers. It is a type of demand loan. A bank charges higher interest rate while granting this facility. Generally it is meant for traders to meet their short term liabilities. The facility is even granted to individuals against their fixed deposit receipts with the bank.

So, overdraft is yet another mode of financing. Mostly, the facility is usually provided in current account – it’s the account which is exclusively meant for businesses – when businesses make payments from their account exceeding the available cash balance. 

Needless to mention that overdraft facility is generally meant to cover short-term financing requirements and not a permanent source of finance for the businesses.

Who is eligible to avail this facility?

Usually, businessmen having a good track record of transactions with the bank are eligible to avail the facility. Mostly, financing through overdraft mode is bearing high risk, but banks take this risk on account of earning high interest income.

Over a period of time, the competition among banks led to the extension of the overdraft facility to the accounts other than the current accounts. Some banks have tailored this facility for their savings bank account holders, especially for salaried class people.

So in today’s scenario, there’s no need to panic when you urgently need cash. You don’t have to lookout for financial support from a friend or an acquaintance. You should immediately check out options for obtaining emergency cash facility from your bank. You will be offered reasonably priced, small loans that enable you to withdraw more than what you have in your savings bank account and repay the money later.

Is J&K Bank providing such facility to its customers who have salary accounts in the bank?

J&K Bank also extends short term finance facility to the government employees maintaining their salary accounts with the bank through temporary overdraft facility in their accounts. This is in addition to other loan facilities like personal consumption loan, consumer loan etc. Based on the average quarterly balance (AQB), the bank has categorized the savings bank salary accounts of all government employees into general salary accounts and deluxe salary accounts.

Those accounts with Rs.5,000 average quarterly balance are eligible to get temporary overdraft (ToD) facility equivalent to the 50 per cent of their net salary, but to the maximum of Rs.20,000. While as, the employees having general salary accounts with average quarterly balance less than Rs.5,000 are entitled to overdraft facility of Rs.10,000 or 50 per cent of the net salary, whichever is lower.

The overdraft has to be necessarily adjusted in one month and the bank charges a rate of interest of 12.75% on such facility.

 The facility is hassle free, as the accountholder can approach his branch where he maintains his salary account and fill in an application form. Overdraft facility will be allowed only after ascertaining that his salary has been credited regularly in the account for at least immediate three preceding months. It is notable that no document other than the completed ‘Overdraft Application Form’ is required to be submitted for availing this overdraft facility. After submitting the application form, the overdraft facility shall be granted instantly. It is a sort of on-the-spot finance facility, though for one month only.