Cash Credit Loan Glossary: 91 Terms Explained
Cash Credit Loan Glossary: 91 Terms Explained
Plain-English definitions of the cash credit, working capital and banking terms you will meet when applying for a ₹1 crore+ business limit in India. Need help with your proposal? CreditCares charges zero upfront fee. Talk to us.
A
Ad-hoc Limit (Ad hoc limit, temporary limit, TOD (temporary overdraft))
Core Facility & Account TermsAn ad-hoc limit is a temporary increase over a borrower's sanctioned working capital limit, given for a short period to meet an unforeseen or seasonal need. RBI guidance for urban co-operative banks says it should be released only after the existing limit is fully used, and RBI discourages repeated ad-hoc renewals. Banks usually charge extra interest on ad-hoc limits.
Average Utilisation (Average outstanding; utilisation level)
Tax, Accounting & Everyday JargonAverage utilisation is the typical outstanding balance in a cash credit account over a period, usually expressed as a percentage of the sanctioned limit. It shows the bank how much of the limit the business actually needs. Persistently low utilisation may prompt a reduction at renewal, and some banks levy a commitment or non-utilisation charge on unused limits.
B
Bank Guarantee (BG, performance guarantee, bid bond)
Security, Guarantees & SchemesA bank guarantee is a bank's promise to pay a beneficiary a stated amount if its customer fails to meet a financial or contractual obligation. Common types are financial guarantees, performance guarantees and bid or tender bonds. It is a non-fund-based limit, widely used by contractors for tenders and projects, and is usually sanctioned with margin money and security.
Example: A civil contractor gives a performance BG to a government department after winning a tender.
Bank Loan Rating (External credit rating; BLR; facility rating)
Credit Assessment & Financial RatiosA bank loan rating is an independent opinion from an RBI-accredited credit rating agency, such as CRISIL, CARE, ICRA or India Ratings, on a borrower's ability to repay specific bank facilities like cash credit and term loans. Under RBI capital rules, banks can use eligible ratings to set risk weights. A better rating can lower the capital a bank must hold and support better pricing.
Bill Discounting (Bill purchase, bills discounting limit)
Security, Guarantees & SchemesBill discounting is a short-term trade finance facility in which a bank pays the seller the value of a bill of exchange, less a discount, before its due date and collects the full amount from the buyer at maturity. The buyer's acceptance of the bill is what makes it financeable. Banks often sanction it as a sub-limit alongside cash credit.
Book Debts (Receivables, debtors, trade receivables)
Core Facility & Account TermsBook debts are amounts owed to a business by its customers for goods or services already supplied on credit, recorded as receivables in its books. In cash credit, banks hypothecate book debts and include eligible ones in drawing power after a margin. Banks usually exclude debts older than a cut-off period set in the sanction letter, commonly 90 days.
Example: Debtors of ₹3 Cr, of which ₹40 L are over 90 days: only ₹2.6 Cr counts before margin.
C
Cash Budget Method (Cash budget system of assessment)
Credit Assessment & Financial RatiosThe Cash Budget Method is a way of assessing working capital in which the bank sizes the limit from the borrower's month-wise projected cash inflows and outflows, usually over 12 months. The limit covers the peak cash deficit. Indian banks use it mainly for seasonal businesses such as tea, sugar and rice mills, and for contractors and real estate developers.
Cash Credit (CC, CC limit, CC loan, CC account)
Core Facility & Account TermsCash credit is a short-term, revolving working capital facility in which a bank lets a business draw funds up to a set limit against stock and receivables. It works as a running account: you withdraw and repay any number of times, and interest is charged only on the amount used. Limits are usually sanctioned for 12 months and renewed after review.
Example: With a ₹5 Cr CC limit and ₹2 Cr drawn, interest is charged on ₹2 Cr only.
CC Account (Cash Credit Account; OCC (Open Cash Credit) account)
Tax, Accounting & Everyday JargonA CC account is the running bank account through which a cash credit limit is operated: sales proceeds are deposited into it and payments to suppliers are made from it. Withdrawals are allowed up to the lower of the sanctioned limit and drawing power, which is usually backed by hypothecated stock and receivables. Some banks call it an Open Cash Credit (OCC) account.
CC Full Form (Cash Credit; CCL (Cash Credit Limit))
Tax, Accounting & Everyday JargonIn banking, CC stands for Cash Credit, a short-term working-capital limit that lets a business withdraw funds up to a sanctioned amount and repay them as cash comes in. On a bank statement or sanction letter, 'CC' or 'CC A/c' refers to this facility, not a credit card. Interest is charged only on the amount actually drawn.
Example: A line reading 'CC A/c interest debit' on a statement is interest charged on the business's cash credit account.
CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises)
Security, Guarantees & SchemesCGTMSE is a government-backed trust that guarantees collateral-free loans, including working capital, given by eligible lenders to micro and small enterprises. For guarantees approved from 1 April 2025, the ceiling rose from ₹5 crore to ₹10 crore per borrower for banks and select financial institutions. The borrower pays an annual guarantee fee that rises with the loan slab.
Example: A small manufacturer with no property obtains a CC limit backed by CGTMSE cover instead of collateral.
CIBIL MSME Rank (CMR) (CMR, CV CMR, CreditVision CIBIL Commercial Rank)
RBI Rules, Pricing & Credit RiskThe CIBIL MSME Rank (CMR) is a 1-to-10 risk ranking that TransUnion CIBIL assigns to eligible MSMEs, where CMR-1 indicates the lowest and CMR-10 the highest likelihood of the business becoming an NPA in the next 12 months. Lenders use it to screen and price business loans, and some banks have offered lower interest rates to MSMEs with better ranks.
CIBIL Score (Credit score, consumer credit score)
RBI Rules, Pricing & Credit RiskA CIBIL score is a three-digit number from 300 to 900 that TransUnion CIBIL assigns to an individual based on their repayment history and credit usage, with higher scores signalling lower risk. For business loans, banks check the CIBIL scores of promoters, partners, directors and guarantors alongside the company's commercial credit report, so a weak personal score can hold back a cash credit sanction.
CMA Data (Credit Monitoring Arrangement data; CMA report)
Credit Assessment & Financial RatiosCMA (Credit Monitoring Arrangement) data is a standard set of financial statements that Indian banks require for appraising working capital and term loans. It shows the borrower's past, current-year estimated and projected performance. It usually includes existing limits, operating statement, balance sheet analysis, current assets and liabilities, fund flow, MPBF calculation and key ratios. Banks set their own thresholds for when CMA data is mandatory.
Collateral Security (Collateral, additional security)
Security, Guarantees & SchemesCollateral security is an additional asset, separate from what the loan finances, that the borrower pledges or mortgages to cover the bank's risk. For working capital it is commonly residential, commercial or industrial property, fixed deposits or other assets. RBI bars banks from taking collateral on micro and small enterprise loans up to a set limit, and CGTMSE cover can replace collateral above it.
Commercial Credit Report (CCR) (Company Credit Report, company CIBIL report)
RBI Rules, Pricing & Credit RiskA Commercial Credit Report (CCR) is a credit bureau report on a business entity, such as a company, LLP or partnership firm, that lists its credit facilities, outstanding balances, overdue amounts and repayment track record with lenders. TransUnion CIBIL's company report includes the CIBIL MSME Rank (CMR) for eligible businesses instead of a 300–900 score, and banks review it before sanctioning or renewing working capital limits.
Commitment Charge (Commitment fee, unutilised limit charge)
Core Facility & Account TermsA commitment charge is a fee a bank levies on the unused portion of a sanctioned working capital limit when utilisation falls below a level set by the bank. It compensates the bank for capital set aside for undrawn funds. RBI leaves the levy to each bank's discretion, so whether it applies, the threshold and the rate depend on your sanction letter.
Consortium Lending (Consortium arrangement, consortium finance)
RBI Rules, Pricing & Credit RiskConsortium lending is an arrangement where two or more banks jointly finance a single borrower under common terms, shared security documents and one lead bank that coordinates appraisal, documentation and monitoring. It is common for large working capital requirements that exceed one bank's appetite, and each member bank funds an agreed share of the total cash credit or non-fund limits.
Corporate Guarantee (CG)
Security, Guarantees & SchemesA corporate guarantee is an undertaking by a company, often a group or holding company, to repay another entity's loan if that borrower defaults. Banks seek it when a group's financial strength sits in a different entity from the one borrowing. If the guarantor company fails to honour the guarantee, the lender can proceed against it, including under the Insolvency and Bankruptcy Code.
Example: A parent company guarantees the cash credit limit of its newly formed manufacturing subsidiary.
Creditor Days (Payable days; creditors payment period; days payable outstanding (DPO))
Credit Assessment & Financial RatiosCreditor days are the average number of days a business takes to pay its suppliers. They are calculated as trade creditors divided by annual credit purchases, multiplied by 365. Supplier credit funds part of the operating cycle, so banks deduct creditors when they calculate the working capital gap and drawing power.
Example: Trade creditors ₹2.4 Cr ÷ annual purchases ₹29.2 Cr × 365 = 30 days.
Current Ratio (Working capital ratio)
Credit Assessment & Financial RatiosThe current ratio is current assets divided by current liabilities, and it measures a business's short-term liquidity. In Indian working capital lending, Tandon Method II implies a minimum of 1.33:1, and many banks still use this as a benchmark in projections. Each bank sets its own acceptable level by sector.
Example: Current assets ₹13.3 Cr ÷ current liabilities ₹10 Cr = 1.33:1.
D
Debt Service Coverage Ratio (DSCR)
Credit Assessment & Financial RatiosThe debt service coverage ratio (DSCR) measures whether a business's cash accruals can cover its loan repayments and interest. Banks commonly calculate it as (PAT + depreciation + interest on term loans) divided by (term loan principal repayment + interest on term loans). Indian banks use DSCR mainly to appraise term and project loans. The minimum acceptable average varies by bank.
Example: (PAT ₹2 Cr + depreciation ₹1 Cr + interest ₹0.5 Cr) ÷ (principal ₹2 Cr + interest ₹0.5 Cr) = DSCR of 1.4.
Debtor Days (Receivable days; debtors collection period; days sales outstanding (DSO))
Credit Assessment & Financial RatiosDebtor days are the average number of days a business takes to collect payment from customers after a credit sale. They are calculated as trade receivables divided by annual credit sales, multiplied by 365. Banks finance receivables only up to an age limit set in the sanction letter, so rising debtor days can reduce drawing power.
Example: Receivables ₹6 Cr ÷ annual credit sales ₹36.5 Cr × 365 = 60 days.
Drawing Power (DP)
Core Facility & Account TermsDrawing power is the amount a borrower can actually withdraw from a cash credit account at a given time, based on current assets. Banks usually calculate it as eligible paid stock plus eligible receivables, minus the applicable margins, and cap it at the sanctioned limit. RBI's IRAC norms say stock statements used for DP should not be older than three months.
Example: Paid stock ₹14 L + debtors ₹9 L = ₹23 L; less 25% margin = DP of ₹17.25 L.
E
ECLGS 5.0 (Emergency Credit Line Guarantee Scheme 5.0)
Security, Guarantees & SchemesECLGS 5.0 is a government guarantee scheme, approved in May 2026 and run by NCGTC, that lets lenders give existing borrowers extra working capital of up to 20% of their peak fund-based working capital use in January–March 2026. The cap is ₹100 crore per borrower, with 100% guarantee cover for MSMEs. Accounts must have been standard on 31 March 2026.
Equitable Mortgage (Mortgage by deposit of title deeds)
Security, Guarantees & SchemesAn equitable mortgage is a mortgage created by depositing the original title deeds of a property with the lender, with the intention that they secure a debt. It is recognised under Section 58(f) of the Transfer of Property Act, 1882, in Kolkata, Mumbai, Chennai and towns notified by state governments. Banks widely use it to take property as collateral for CC and term loans.
External Benchmark Lending Rate (EBLR) (EBLR, External Benchmark Based Lending Rate, EBR)
RBI Rules, Pricing & Credit RiskThe External Benchmark Lending Rate (EBLR) is a floating loan rate that a bank links to an external benchmark such as the RBI policy repo rate or a Treasury Bill yield, plus a spread. RBI made external benchmarking mandatory for new floating-rate MSME loans from commercial banks from 1 October 2019, with the rate reset at least once every three months, so policy rate changes reach borrowers faster.
F
Fund-based Limit (FB limit)
Core Facility & Account TermsA fund-based limit is a credit facility in which the bank actually lends money to the borrower, creating a direct outstanding on which interest is charged. Cash credit, overdraft, WCDL, term loans and bill discounting are fund-based. In a working capital sanction, fund-based limits are listed separately from non-fund-based limits such as letters of credit and bank guarantees.
G
GST-based Cash Credit (GST OD; working capital on GST returns)
Tax, Accounting & Everyday JargonGST-based cash credit is a working-capital limit sized mainly from the turnover reported in a business's GST returns, rather than a full CMA-based assessment. Some banks set the limit as a percentage of GST-reported sales; others use their own assessment. These schemes are generally aimed at smaller limits, so larger requirements usually go through a regular assessment.
H
Hypothecation (Charge on current assets)
Core Facility & Account TermsHypothecation is a charge created on movable assets, such as stock, receivables or machinery, as security for a loan while the borrower keeps possession of them. It is the standard security for cash credit in India: the business keeps using and selling its inventory, and the bank's charge floats over the changing pool. The SARFAESI Act, 2002 defines the term.
Hypothecation Deed (Deed of hypothecation; composite hypothecation deed)
Tax, Accounting & Everyday JargonA hypothecation deed is the security document by which a borrower creates a charge over movable assets, usually stock and book debts, in favour of the bank while keeping possession of them. It is the standard security document for a cash credit limit and lets the bank take control of those assets if the borrower defaults.
I
Interchangeability (Interchangeable limits, two-way interchangeability)
Core Facility & Account TermsInterchangeability is a sanction term that lets a borrower move part of one credit limit into another, most often between fund-based and non-fund-based limits, without changing total exposure. It gives flexibility when, for example, more bank guarantees and less cash credit are needed in a season. It applies only if, and up to the amount, stated in the sanction letter.
Interest Coverage Ratio (ICR; times interest earned)
Credit Assessment & Financial RatiosThe interest coverage ratio (ICR) shows how many times a business's operating profit covers its interest cost. It is usually calculated as EBIT, or sometimes EBITDA, divided by total interest expense. Indian banks and rating agencies use ICR to check whether a borrower can service cash credit and term loan interest from operations. A higher ratio means lower credit risk.
Example: EBIT ₹6 Cr ÷ interest ₹2 Cr = interest coverage of 3 times.
Interest Servicing (Interest debit; servicing of interest)
Tax, Accounting & Everyday JargonInterest servicing means bringing enough credits into a cash credit account to cover the interest the bank debits to it, usually monthly. Under RBI norms, a CC or OD account is treated as 'out of order' if there are no credits continuously for 90 days, or if credits are not enough to cover the interest debited during the previous 90 days.
Inventory Holding Period (Inventory days; stock holding period; days inventory outstanding)
Credit Assessment & Financial RatiosThe inventory holding period is the average number of days a business holds raw materials, work-in-progress and finished goods before sale. It is usually calculated as inventory divided by cost of goods sold, multiplied by 365. Indian banks compare the projected holding period in the CMA data with past trends and industry norms when assessing working capital.
Example: Inventory ₹4 Cr ÷ annual cost of goods sold ₹29.2 Cr × 365 = 50 days.
Invoice Discounting (Invoice financing, receivables discounting)
Security, Guarantees & SchemesInvoice discounting is a financing method in which a business receives an advance against its unpaid sales invoices instead of waiting for the buyer's credit period to end. The financier pays a portion of the invoice value upfront and is repaid when the buyer settles. It complements cash credit for MSMEs that sell on credit to large buyers, and is available on TReDS.
Example: A supplier with a 90-day invoice on a large FMCG company discounts it to fund raw material purchases now.
IRAC Norms (Income Recognition, Asset Classification and Provisioning norms; IRACP)
RBI Rules, Pricing & Credit RiskIRAC norms are RBI's prudential rules that tell banks when to recognise income on a loan, how to classify it (standard, sub-standard, doubtful or loss) and how much to provision against it. For cash credit borrowers, IRAC sets the 90-day out-of-order test, the rule that drawing power must rest on stock statements not older than three months, and timelines for renewing limits.
Irregular Account (Irregularity, overdrawn account)
RBI Rules, Pricing & Credit RiskAn irregular account is a loan or cash credit account that is not being run within its sanctioned terms, for example when the balance exceeds the drawing power or limit, interest is unpaid, or drawings rest on a stock statement older than three months. Irregularity is a bank-practice term rather than a separate RBI category, but if it continues for 90 days the account can become an NPA.
K
Key Facts Statement (KFS) (KFS)
RBI Rules, Pricing & Credit RiskA Key Facts Statement (KFS) is a standardised summary of a loan's main terms, including interest rate, fees, charges and the annual percentage rate, that the lender must give the borrower before signing. RBI's April 2024 circular made it mandatory for all retail and MSME term loans sanctioned from 1 October 2024; any fee not shown in the KFS cannot be charged without the borrower's explicit consent.
Example: Because the circular covers term loans, check with your bank whether a KFS is issued for a revolving cash credit limit.
Key Loan (Pledge-based cash credit, lock-and-key advance)
Core Facility & Account TermsA key loan is a cash credit facility secured by a pledge of goods kept in a godown that is locked by the bank, which holds the keys. Stock is released only when the borrower repays or deposits the corresponding amount. It gives the bank tight control but restricts the borrower's access to inventory, so most businesses now prefer the open, hypothecation-based cash credit.
L
Letter of Credit (LC, documentary credit)
Security, Guarantees & SchemesA letter of credit is a bank's written undertaking to pay a seller on the buyer's behalf, provided the seller presents documents that match the LC's terms. LCs can be inland or foreign and payable at sight or after a set period (usance). Banks sanction LC limits as non-fund-based facilities, often alongside cash credit, to support raw material purchases.
Limit Enhancement (CC limit increase; enhancement of working capital limit)
Tax, Accounting & Everyday JargonLimit enhancement is a request to the bank to raise an existing cash credit limit, usually because turnover, inventory or receivables have grown. Banks typically ask for updated CMA data with projections, recent audited and provisional financials, and the purpose of the extra limit, and approve only what the assessed working-capital gap and account conduct support.
Loan Component (Loan System for Delivery of Bank Credit)
Core Facility & Account TermsLoan component is the minimum share of a large borrower's working capital limit that banks must disburse as a loan, such as a WCDL, rather than as cash credit. RBI applies it to borrowers with aggregate fund-based working capital limits of ₹150 Cr and above, setting the loan component at 60% from July 2019. Drawings above that share may be allowed as cash credit.
Loan System for Delivery of Bank Credit (Loan component norm, WCDL norm)
RBI Rules, Pricing & Credit RiskThe Loan System for Delivery of Bank Credit is an RBI rule that requires borrowers with aggregate fund-based working capital limits of ₹150 crore and above from the banking system to draw a minimum part of those limits as a working capital loan instead of cash credit. The minimum loan component has been 60% since 1 July 2019; drawings above it may be allowed as cash credit.
Example: A group with ₹200 crore of fund-based working capital limits must draw at least ₹120 crore as a working capital demand loan.
M
Margin (Promoter's margin, stock margin, book-debt margin)
Core Facility & Account TermsMargin is the portion of the security value that the borrower must fund from its own resources and the bank will not lend against. In cash credit it is deducted from stock and receivables when computing drawing power. RBI does not prescribe a fixed figure; each bank sets margins in its own policy, often higher on receivables than on stock.
Maximum Permissible Bank Finance (MPBF)
Credit Assessment & Financial RatiosMaximum Permissible Bank Finance (MPBF) is the highest amount of working capital a bank will lend against a borrower's working capital gap, after the promoter contributes a set share from long-term funds. It comes from the Tandon Committee (1975). RBI withdrew MPBF as a mandatory norm in April 1997, but many Indian banks still use it to size cash credit limits.
Example: Current assets ₹10 Cr, non-bank current liabilities ₹3 Cr: under Tandon Method II, MPBF = ₹7 Cr − 25% of ₹10 Cr = ₹4.5 Cr.
MCLR (Marginal Cost of Funds based Lending Rate)
RBI Rules, Pricing & Credit RiskMCLR (Marginal Cost of Funds based Lending Rate) is an internal, tenor-linked benchmark that a bank calculates from its marginal cost of funds, negative carry on CRR, operating costs and a tenor premium. Introduced by RBI from 1 April 2016 to replace the base rate, it now mainly applies to older loans and non-MSME borrowers, since new floating-rate MSME loans must use an external benchmark.
MSME Classification (Micro, small and medium enterprise definition)
Security, Guarantees & SchemesMSME classification is the government's test that sorts enterprises as micro, small or medium using both investment in plant and machinery and annual turnover. From 1 April 2025 the limits are: micro up to ₹2.5 crore investment and ₹10 crore turnover; small up to ₹25 crore and ₹100 crore; medium up to ₹125 crore and ₹500 crore. Crossing either limit moves a business up a category.
Multiple Banking Arrangement (MBA) (MBA, multiple banking)
RBI Rules, Pricing & Credit RiskA multiple banking arrangement is when a borrower takes credit facilities from several banks independently, each under its own sanction, security and documentation, without a formal consortium. RBI requires banks in such cases to exchange information on the conduct of the borrower's accounts, at least quarterly, and to obtain borrower declarations and professional compliance certificates to reduce fraud risk.
N
Nayak Committee Turnover Method (Turnover Method; Nayak Committee norms)
Credit Assessment & Financial RatiosThe Nayak Committee Turnover Method sets a business's working capital need at 25% of its projected annual turnover. The bank funds at least 20% of turnover and the promoter brings 5% as margin. RBI applies it to MSE borrowers with fund-based working capital limits up to ₹5 crore. The committee reported in 1992.
Example: Projected turnover ₹4 Cr: working capital need ₹1 Cr, bank finance at least ₹80 lakh, promoter margin ₹20 lakh.
Net Working Capital (NWC)
Credit Assessment & Financial RatiosNet working capital is current assets minus current liabilities, including bank borrowings. It shows how much of the current assets the business funds from long-term sources such as capital, reserves and term loans. Indian banks treat adequate NWC as the borrower's margin or stake in working capital, and check that it does not fall over the projection years.
Example: Current assets ₹10 Cr minus total current liabilities ₹7 Cr = NWC of ₹3 Cr.
NOC (No Objection Certificate) (No Dues Certificate, NDC, closure letter)
Security, Guarantees & SchemesAn NOC or No Dues Certificate is a letter from a lender confirming that a loan has been fully repaid and nothing remains outstanding on that account. It is needed to close a limit, complete a takeover and release a charge on security. RBI requires regulated lenders to return original property documents within 30 days of full repayment of personal loans, or pay compensation.
Non-fund-based Limit (NFB limit, letter of credit limit, bank guarantee limit)
Core Facility & Account TermsA non-fund-based limit is a credit facility in which the bank gives a commitment on the borrower's behalf instead of lending cash, such as a letter of credit or bank guarantee. It is a contingent liability for the bank and earns commission rather than interest. If the guarantee is invoked or the LC devolves, the exposure becomes a fund-based outstanding.
Non-Performing Asset (NPA) (NPA, bad loan, stressed asset)
RBI Rules, Pricing & Credit RiskA Non-Performing Asset (NPA) is a loan or advance that has stopped generating income for the bank. Under RBI's IRAC norms, a term loan becomes an NPA when interest or principal stays overdue for more than 90 days, and a cash credit or overdraft account becomes an NPA when it remains 'out of order' for more than 90 days. NPA status damages the borrower's credit record and future bank access.
Example: A CC account whose balance stays above its drawing power continuously for more than 90 days is classified as an NPA.
O
Operating Cycle (Working capital cycle; cash conversion cycle (net))
Credit Assessment & Financial RatiosThe operating cycle is the time a business takes to turn cash into raw materials, finished goods and receivables, and back into cash. Banks build it from inventory days plus debtor days. Subtracting creditor days gives the net cycle, also called the cash conversion cycle. A longer cycle means a higher working capital need and, usually, a larger cash credit limit.
Example: Inventory 50 days + debtors 60 days − creditors 30 days = net operating cycle of 80 days.
Out of Order Account (Out of order status (CC/OD))
RBI Rules, Pricing & Credit RiskAn out of order account is a cash credit or overdraft account that breaches RBI's conduct test for revolving limits. It is out of order if the balance stays continuously above the sanctioned limit or drawing power for 90 days, or if, while within limits, there are no credits for 90 days or credits do not cover the interest debited. Beyond 90 days, it becomes an NPA.
Overdraft (OD, secured overdraft, OD limit)
Core Facility & Account TermsAn overdraft is a facility that lets an account holder withdraw more than the balance in a current account, up to a pre-approved limit, paying interest only on the amount overdrawn. Business overdrafts are commonly secured against fixed deposits, property or other collateral. Unlike cash credit, the limit is not usually tied to monthly stock and receivables statements.
Overdraft Against Property (LAP OD, OD against property, LAP-backed overdraft)
Security, Guarantees & SchemesAn overdraft against property is a running credit line secured by a mortgage of residential, commercial or industrial property, where interest is charged only on the amount used. Unlike a cash credit, its limit is set by property value rather than stock and receivables, so it suits service firms and traders with thin inventory. Banks review the limit periodically.
P
Packing Credit (Pre-shipment credit, PCFC (in foreign currency))
Security, Guarantees & SchemesPacking credit is a pre-shipment loan given by a bank to an exporter to finance the purchase, processing and packing of goods against a confirmed export order or LC. RBI's export credit rules govern it. It is normally repaid from the proceeds of the export bill, which converts it into post-shipment credit. It is available in rupees or foreign currency.
Paid Stock (Unpaid stock, net stock)
Core Facility & Account TermsPaid stock is the value of inventory for which the business has already paid its suppliers, calculated as total stock minus trade creditors for goods. Banks usually lend only against paid stock, because unpaid goods are effectively funded by suppliers. It is the starting figure for the stock portion of drawing power, before the bank's margin is deducted.
Example: Stock ₹6 Cr less creditors ₹2 Cr = paid stock of ₹4 Cr.
Peak Utilisation (Peak drawal; maximum utilisation)
Tax, Accounting & Everyday JargonPeak utilisation is the highest amount a business has drawn from its cash credit limit during a period, often measured in its busiest season. Banks look at it alongside average utilisation when reviewing a limit: repeatedly touching the limit can support an enhancement request, while a peak far below the limit can lead the bank to question the sanctioned amount.
Penal Charges (Penalty charges (formerly penal interest))
RBI Rules, Pricing & Credit RiskPenal charges are fees a lender levies when a borrower breaches material loan terms, such as delayed payment or non-submission of stock statements. Under RBI's 18 August 2023 Fair Lending Practice circular, effective for fresh loans from 1 April 2024, these must be flat charges, not extra interest added to the rate, must not be capitalised, and must be reasonable and disclosed in the loan agreement.
Personal Guarantee (PG, promoter guarantee)
Security, Guarantees & SchemesA personal guarantee is a promise by an individual, usually a promoter, director or partner, to repay the business's loan if the business defaults. Indian banks routinely ask for promoter guarantees on working capital limits. The guarantor's liability runs alongside the borrower's, and the Supreme Court has held that a company's insolvency resolution does not automatically release the personal guarantor.
Pledge (Bailment for security)
Core Facility & Account TermsA pledge is the delivery of movable goods or securities to a lender as security for a loan, with the lender holding physical possession until repayment. Ownership stays with the borrower. Pledges are governed by the Indian Contract Act, 1872. Unlike hypothecation, the borrower cannot freely use or sell pledged goods, so pledge-based cash credit suits commodities stored in a godown.
Primary Security
Security, Guarantees & SchemesPrimary security is the asset created directly out of the bank's finance, which for a cash credit means the borrower's stock and book debts (receivables). Banks usually hypothecate these assets and set the drawing power against their value after margin, so the stock statement you submit each month determines how much of your sanctioned limit you can actually use.
Example: A distributor's CC limit is secured primarily by hypothecation of its inventory and receivables.
Projected Balance Sheet (Projected financials; estimated balance sheet)
Credit Assessment & Financial RatiosA projected balance sheet is a forecast of a business's assets, liabilities and net worth at the end of future financial years, built on assumptions about sales, holding periods and funding. Indian banks assess cash credit and term loan limits from projected balance sheets and estimates for the current year in the CMA data, and test them against past audited figures.
R
Renewal / Annual Review (Limit renewal, review of limits)
Core Facility & Account TermsRenewal, or annual review, is the bank's periodic reassessment of a working capital limit, based on fresh financials, stock statements and account conduct, before continuing it for another period. RBI expects limits to be reviewed at least once a year. Under IRAC norms, an account whose limit is not reviewed or renewed within 180 days of the due date is treated as an NPA.
Repo Rate (Policy repo rate)
RBI Rules, Pricing & Credit RiskThe repo rate is the interest rate at which the Reserve Bank of India lends short-term funds to banks against government and other approved securities under its Liquidity Adjustment Facility. It is set by RBI's Monetary Policy Committee and is the most common external benchmark for MSME loans, so a repo rate cut or hike usually changes the rate on a repo-linked cash credit limit at its next reset.
Restructuring (Loan restructuring, resolution plan)
RBI Rules, Pricing & Credit RiskRestructuring is a change in a loan's terms, such as a longer tenor, revised repayment schedule, lower interest rate or conversion of part of the dues, that a lender grants because the borrower is in financial difficulty. RBI governs it through its stressed-asset resolution framework; a restructured account is reported as such and normally attracts tighter asset classification and provisioning than a regular standard account.
S
Sanction Letter (Sanction advice; loan approval letter)
Tax, Accounting & Everyday JargonA sanction letter is the lender's written approval of a credit facility, setting out the limit, interest rate, margins, security, fees, validity and conditions to be met before disbursement. For a cash credit limit, it also states the review or renewal period and reporting duties such as stock statements. The loan agreement and security documents signed afterwards make these terms binding.
Sanctioned Limit (CC limit, credit limit, operative limit)
Core Facility & Account TermsThe sanctioned limit is the maximum amount a bank approves for a cash credit or overdraft account in its sanction letter. Banks fix it after assessing the borrower's working capital need, turnover and financials, less the promoter's margin. You can never draw above this ceiling, and on any given day you can draw only the lower of the sanctioned limit and drawing power.
Example: Sanctioned limit ₹10 Cr, drawing power ₹8.5 Cr: the usable amount is ₹8.5 Cr.
Section 43B (Payment-basis deduction (bank interest))
Tax, Accounting & Everyday JargonSection 43B of the Income-tax Act, 1961 allows interest payable to scheduled banks to be deducted only in the year it is actually paid, not merely when it is provided for. Interest converted into a fresh loan is not treated as paid. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026; confirm the corresponding provision with your tax adviser.
Short-term Borrowings (Current borrowings)
Tax, Accounting & Everyday JargonShort-term borrowings are loans repayable on demand or within 12 months or the operating cycle, shown under current liabilities in a company's balance sheet under Schedule III of the Companies Act, 2013. Cash credit and overdraft limits from banks are normally classified here, as loans repayable on demand, which affects the current ratio banks review at renewal.
Special Mention Account (SMA-0, SMA-1, SMA-2) (SMA, early warning classification)
RBI Rules, Pricing & Credit RiskA Special Mention Account (SMA) is an early-warning label RBI requires banks to apply to loans showing signs of stress before they become NPAs. For cash credit and overdraft accounts, classification is based on how long the balance stays continuously above the sanctioned limit or drawing power, whichever is lower: SMA-0 up to 30 days, SMA-1 from 31 to 60 days, and SMA-2 from 61 to 90 days.
Example: A CC account in excess of drawing power for 45 straight days would be tagged SMA-1 and reported to credit bureaus and CRILC where applicable.
Spread (Margin over benchmark, credit spread, mark-up)
RBI Rules, Pricing & Credit RiskThe spread is the percentage a bank adds to a benchmark rate, such as the repo rate or MCLR, to arrive at the actual interest rate on a loan. For externally benchmarked MSME loans, RBI allows the credit-risk part of the spread to change only when the borrower's credit assessment changes, while other spread components can be altered once in three years.
Example: If a bank prices a cash credit limit at repo rate plus a spread, a better credit rating at renewal can justify a lower spread.
Stock Audit (Inventory audit; receivables audit)
Credit Assessment & Financial RatiosA stock audit is an independent check, usually by a chartered accountant firm appointed by the bank, that physically verifies the inventory and receivables a borrower declares in stock statements for drawing power. RBI sets no single threshold. Each bank's policy decides which cash credit accounts need periodic stock audits, typically larger working capital limits.
Stock Register (Inventory register; stock records)
Tax, Accounting & Everyday JargonA stock register is the borrower's own record of goods received, issued and held, item by item, typically maintained in Tally or an ERP. Banks and stock auditors compare it with physical stock and with the monthly stock statement submitted for drawing power, so gaps between the register, the statement and the warehouse are a common audit observation.
Stock Statement (Stock and book-debt statement, DP statement)
Core Facility & Account TermsA stock statement is a periodic declaration a cash credit borrower submits to the bank, showing the value of inventory, receivables and trade creditors as on a date. The bank uses it to calculate drawing power. It is usually monthly, as the sanction letter requires. Under RBI IRAC norms, drawings based on statements older than three months are treated as irregular.
Sub-limit (Inner limit, sublimit)
Core Facility & Account TermsA sub-limit is a capped portion carved out of a larger credit facility that can be used only for a specified purpose, such as a letter of credit within a cash credit limit. Any amount used under the sub-limit reduces what is available under the main limit. It does not add to total exposure. Indian banks often call it an inner limit.
Example: An LC sub-limit of ₹1 Cr within a ₹5 Cr CC leaves ₹4 Cr for cash drawings if the LC is fully used.
Sundry Creditors (Trade payables; accounts payable)
Tax, Accounting & Everyday JargonSundry creditors are suppliers to whom the business owes money for goods or services bought on credit, shown under current liabilities in the balance sheet. In a drawing power calculation, banks usually deduct trade creditors from stock, because stock that has not been paid for is effectively financed by suppliers rather than by the borrower.
Example: Stock bought on credit from a supplier who is still unpaid is netted off, so it does not fully count towards drawing power.
Sundry Debtors (Trade receivables; book debts)
Tax, Accounting & Everyday JargonSundry debtors are customers who owe the business money for goods or services sold on credit, shown under current assets in the balance sheet. In a cash credit account they are one of the two main securities for drawing power, after the bank's margin; many banks exclude debtors older than a set age, often 90 days, as stated in the sanction terms.
T
Takeover / Balance Transfer (Loan takeover, CC takeover, BT)
Security, Guarantees & SchemesA takeover, or balance transfer, is when a new bank pays off a borrower's existing loans or working capital limits with another lender and sanctions fresh limits in its own books. Businesses do this to get a lower rate, a higher limit or better terms. The new bank typically asks for account statements and a conduct report from the existing lender.
Tandon Committee Methods (Tandon Committee norms; Method I, II, III of lending)
Credit Assessment & Financial RatiosThe Tandon Committee methods are three RBI-era formulas (1975) for setting bank working capital finance. Method I funds up to 75% of the working capital gap. Method II requires the borrower to fund 25% of total current assets, which gives a minimum current ratio of 1.33:1. Method III also excludes core current assets. Banks now pick their own method, as RBI withdrew the mandate in 1997.
Example: Current assets ₹10 Cr, other current liabilities ₹3 Cr: Method I gives ₹5.25 Cr (75% of ₹7 Cr) and Method II gives ₹4.5 Cr.
TOL/TNW (Total Outside Liabilities to Tangible Net Worth)
Credit Assessment & Financial RatiosTOL/TNW is the ratio of a business's total outside liabilities (bank loans, creditors, provisions and other payables) to its tangible net worth, which is net worth excluding intangible assets. It measures overall leverage more fully than debt-equity. Indian banks and rating agencies treat a higher TOL/TNW as higher credit risk. Acceptable levels vary by bank and sector.
Example: Total outside liabilities ₹30 Cr ÷ tangible net worth ₹10 Cr = TOL/TNW of 3:1.
TReDS (Trade Receivables Discounting System, Trade Receivables electronic Discounting System)
Security, Guarantees & SchemesTReDS is an RBI-authorised online platform where MSMEs sell their invoices on corporate, government or PSU buyers to banks and NBFCs through competitive bidding, without recourse to the MSME. Authorised platforms include RXIL, M1xchange, Invoicemart, C2treds and DTX. Companies with turnover above ₹250 crore and all CPSEs were required to onboard as buyers by 31 March 2025.
U
Udyam Registration (Udyam, MSME registration, URN)
Security, Guarantees & SchemesUdyam Registration is the official, free online registration that identifies a business as a micro, small or medium enterprise in India. Launched on 1 July 2020 on udyamregistration.gov.in, it replaced Udyog Aadhaar, is based on Aadhaar and self-declaration, and needs no document uploads. Banks generally ask for the Udyam certificate to give MSME benefits such as CGTMSE cover.
Unsecured Cash Credit (Collateral-free cash credit; clean CC)
Tax, Accounting & Everyday JargonUnsecured cash credit is a cash credit or overdraft limit given without property or other collateral, though the bank may still hypothecate stock and receivables or use a CGTMSE guarantee. Lender and fintech pages show such limits are usually smaller and priced higher than secured cash credit, so larger requirements generally need collateral or a guarantee.
W
Wilful Defaulter (WD, wilful default)
RBI Rules, Pricing & Credit RiskA wilful defaulter is a borrower or guarantor who deliberately fails to repay despite having the capacity to pay, diverts or siphons loan funds, or disposes of secured assets without the lender's knowledge, with an outstanding amount of ₹25 lakh or more. Under RBI's 2024 Master Direction, effective 1 November 2024, wilful defaulters are barred from additional credit and from restructuring.
Working Capital (WC, net working capital)
Core Facility & Account TermsWorking capital is the money a business needs to fund day-to-day operations, measured as current assets minus current liabilities. Current assets include inventory, receivables and cash; current liabilities include trade creditors and short-term dues. Banks finance part of the gap through cash credit, overdraft, WCDL or bill finance, and expect the promoter to fund the rest as margin.
Working Capital Demand Loan (WCDL)
Core Facility & Account TermsA working capital demand loan is a short-term loan for a fixed amount and fixed tenor, drawn out of a borrower's working capital limit and repaid in a bullet on maturity. Unlike cash credit, the full amount is disbursed at once. RBI guidance on the loan system says the tenor should not be less than seven days; banks set the rest of the terms.
Working Capital Gap (WCG)
Credit Assessment & Financial RatiosThe working capital gap is total current assets minus current liabilities other than bank borrowings. It is the part of the operating cycle that trade credit does not fund, and so has to come from the promoter's margin and bank finance. Under the Tandon methods, banks calculate MPBF from this gap.
Example: Current assets ₹10 Cr minus non-bank current liabilities ₹3 Cr = working capital gap of ₹7 Cr.