An overdraft facility is an agreement made between the financial instruments i.e. a bank and the account holder. It is a facility which allows the account holder to withdraw money from their account when there is zero balance in their account. This facility is usually given to account holders who have good credit history with the bank. Also there is a set limit to the amount that can be withdrawn as an overdraft. This limit is set by the financial body keeping in account the previous history of the account holder. However this amount needs to be cleared within a specified time that has been set by the financial body.
What are the benefits that one can avail under overdraft in Jan Dhan Yojana?
- If a person is given an overdraft facility in Jan Dhan Yojana it can really benefit their business. For eg. If there is an urgent cheque that has been received by a vendor and the customer payment is yet not deposited in the bank account, the cheque does not bounce. Instead it is cleared by the bank. This does not harm the image of the businessman and also there are no charges levied towards the cheque bounce.
- A specific interest rate may be charged by the bank for making an overdraft. This charge is not as large as compared to the cheque bounce charges.
- This rate may or may not be disclosed to the account holder.
- Sometimes overdraft also helps when ATM withdrawals are made at an emergency without knowing the balance in the debit card.
- Once the amount has been returned to the bank the account is shown as zero balance.
To summarize, this kind of facility helps in a lot of emergencies and other business transactions. These business can be small time or large scale business. It works similar to a loan that can be taken from the bank based on the credibility of the account holder.
Is there a particular scheme where a normal salaried person can enjoy this facility?
To start with yes, there is a scheme known as Jan Dhan Yojana where a common man can avail the overdraft facilities as mentioned below:-
- An overdraft facility of INR5000.00 is available to any one account holder per household. i.e. only one member of a particular family can avail the overdraft facility. It is preferred though not obligatory that the member who avails the overdraft facility is a female member.
- The facility will be available to the customer/account holder only after the account is functional for six months.
- The account holder should have a good transaction record to avail this facility.
- The amount that can be availed in an overdraft facility is upto INR. 5000.00. This amount can be extended to a maximum of INR.15,000 by the bank if the transaction history of the account holder has been remarkably good in the past six months.
- There is a nominal interest rate that is charged to the account holder on availing the facility of overdraft. Usually the interest rate in India is between 12%p.a. to 20%p.a. which is set by the bank.
Let us demonstrate the above with the help of an example to help one understand better.
So Mr. Hari and Mrs Hari, opens a bank account on 1st of January, 2015. They use this account for 6 months without making any negative reputation on the account like cheque bounce or misusing the RuPay card till 30th June, 2015. On 1st of July, 2015 Mr. Hari has INR.500 balance in his account and Mrs. Hari has INR.1000 balance in his account. Since only one member can avail the overdraft facility and that member preferably should be a female member, the family decides to avail an overdraft facility in the name of Mrs. Hari. Now the maximum that can be made available is INR.5000, so the family decides to withdraw INR. 6000 from Mrs. Hari’s account. The account now shows a balance of INR.-5000 on 1st of July, 2015. This will become zero only once INR5000 is returned to the bank. There will be an interest that will be levied on INR5000. The interest rate will be charged as per the bank norms. Also not to forget that INR.5000 also needs to be returned to the bank within a specified period as agreed between the account holder and the bank.