Overdraft facility is the credit provided by the lending institution when the balance in the account reaches zero. It allows to withdraw money from the account even if there are no funds in the account or not enough to cover the amount to be withdrawn. We can say it is a type of loan provided by banks without any collateral while the interest rate charged on the overdrawn amount is a little bit higher than normally charged interest rates.

The overdraft facility is generally provided to current account holders while is also provided in some other cases. Some banks provide an overdraft facility to employees while the government is also providing an overdraft facility of 10,000 (it is increased recently from 5,000 t0 10,000) rupees under Pradhan Mantri Jan Dhan Yojana (PMJDY).

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Overdraft under PMJDY

Purpose of providing overdraft facility under PMJDY is to provide hassle-free credit to low-income group individuals and underprivileged customers to help them in meeting their short-term exigencies without demanding any collateral. To be eligible for overdraft facility an individual should have an aadhaar seeding bank account which should have been operated satisfactorily for at least six months. The age of applicant should be between 18 to 65 years (previously it was 18 to 60 years) to be eligible, while minors and KCC holder are not eligible under this facility. Only one member of a family is eligible, preferably women.

Amount of loan/overdraft provided

  • 4 times of average monthly balance
  • or, 50 per cent of credit summations in the account during the last six months
  • or, an amount of 10,000 rupees whichever is lower

The Aadhaar number of the overdraft receiver will remain seeded with NPCI during the period of the loan/overdraft. Moving out of aadhaar number from such overdraft accounts will be restricted by the National Payments Corporation of India. The account on which overdraft is taken will be the primary account to receive subsidies or other benefits. The Direct Benefit Transfer to such accounts will be frozen until the overdraft is paid back. The total time period for overdraft facility under PMJDY is 36 months.

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