This is short term credit facility (not to exceed one year) arrangement under which the Bank extends credit up to a maximum amount (called overdraft limit) against which a current (checking) account customer can write cheques or make withdrawals. It is a revolving borrowing facility repayable on demand.
This facility is provided by the bank for a fee and interest is charged on the excess amount that is withdrawn for the length of the time. Once the limit is utilized interest will be charged on outstanding utilization on a daily basis.
The purpose of this type of facility is to assist clients with temporary cash flow gaps. Overdrafts must not be used to finance the acquisition of fixed assets.