Question

When the cash credit is not supported by any security, it is called as clean cash credit.

• A. True
• B. False

Answer 1

The correct option is A True

Cash Credit-

• It is an arrangement under which a customer is allowed an advance up to certain limit granted by bank.

• In simple words, it is a facility to withdraw money from a current account without having credit balance but limited to borrowing limit as fixed by the bank.

• Under this type of source of finance, he (customer) can only draw to the extent of his requirements which means he need not borrow the entire amount of advance at one time.

• Generally, cash credit limits are sanctioned against the security by way of pledge or hypothecation. However, clean cash credit is one of the forms of cash credit where no charge is required to be created against any security.

• Interest is charged only on the amount availed by the customer and not on the amount actually sanctioned to him.