Comparing overdraft facilities from different banks

Managing daily finances can at times appear like walking a tightrope, particularly when there is a sudden monetary mismatch before payday, or an exigency expense comes knocking. In such scenarios, overdraft (OD) options provided by financial institutions can be an actual lifesaver. They permit you to withdraw more funding than you have in your bank account, up to a specific limit. This will assist you in meeting short-term requirements without borrowing from any informal sources or utilising high-interest credit cards.

Let’s break this down, so that you can better understand what overdraft facilities are and then compare what major banks like SBI, ICICI, HDFC, Axis and a few others offer in this area.

What is an overdraft facility?

An overdraft is a financial arrangement where your bank allows you to withdraw money even when your account balance is zero or insufficient. Think of this as a short-term credit option tied to your current or savings account. You just make payment of interest on the amount you use not the completely sanctioned limit. And the moment you put the funds back, the interest stops. It is cost-effective and flexible way of managing immediate expenditure.

SBI overdraft loan – A trusted option from India’s largest bank

The SBI Overdraft Loan is one of the most sought-after OD facilities in India. It is especially useful for salaried individuals, pensioners, and even self-employed customers. SBI allows you to avail overdraft against your fixed deposits, salary account, or savings account, depending on your eligibility.

Here's what exactly makes this stand out:

● Overdraft against salary account: If your salary account is with SBI, you may be eligible for an overdraft limit of up to 2–3 times your monthly salary.

● Overdraft against fixed deposit: SBI gives you up to 90% of your FD value as an OD limit. It’s a great way to get funds without breaking your FD prematurely.

● Flexibility in repayment: You can make repayment of OD as per convenience, either in lump sum or parts.

● Interest only on utilised amount: You are charged interest only on what you use, not on the full sanctioned limit.

This facility is ideal for those who need instant funds but do not want to go through the lengthy personal loan process. As it is associated with a prevailing account or deposit, approval is generally quicker.

ICICI overdraft facility – Smart banking

The ICICI Overdraft Facility caters to both individuals and businesses and is especially known for its ease of use through digital channels. ICICI has several variants of overdraft services including Insta OD, business overdrafts, and OD against property or FD.

Here’s what makes ICICI’s offering appealing:

● Insta overdraft: This is a pre-approved OD that can be availed instantly through ICICI’s net banking or mobile app. Perfect for tech-savvy users who want funds without visiting a branch.

● OD against FD: You can avail up to 90 per cent of your ICICI FD amount in the form of overdraft, same as SBI.

● Business overdraft: Small as well as medium-sized businesses can benefit from flexible credit limits, which can help in managing working capital needs.

● Digital management: The whole overdraft, from application right up to management can be performed online. This saves plenty of time as well as effort.

ICICI’s OD option is useful for professionals, freelancers, and entrepreneurs who require instant access to liquidity with zero paperwork, which is a must in the scenario of traditional loans.

Other popular bank overdraft facilities in India

While SBI and ICICI dominate a major share of the OD market, other financial institutions even provide competitive features, which is worth factoring in:

HDFC Bank overdraft facility

● Offers both secured and unsecured OD.

● Personal account holders can get OD against salary or FD.

● Interest is calculated daily and only on the used amount.

Axis Bank overdraft

● Offers OD against savings account or fixed deposit.

● Attractive rates as well as repayment flexibility.

● Can be best for salaried as well as self-employed professionals.

Punjab National Bank (PNB) OD facility

● OD facility for pensioners, farmers, and even against NSCs and KVPs.

● More paperwork required but flexible for rural customers.

Kotak Mahindra Bank

● Offers a “Smart OD” feature with pre-approved limits.

● Good for salaried individuals with high monthly transactions.

Key points to compare before choosing an overdraft facility

Before you go ahead and apply for any overdraft, here are a few important things to check:

1. Eligibility criteria: Some ODs are only available to salary account holders or people with fixed deposits.

2. Interest rate: Even though you pay interest only on the used amount, the rate can vary between 9% to 15% depending on the bank and type of overdraft.

3. Processing time: Digital-first banks like ICICI or Kotak offer instant approvals. Others may take longer.

4. Minimum monthly balance: Some banks might require you to maintain a balance in the linked account.

5. Limit and tenure: OD limits usually depend on income, deposit value, or property pledged.

When should you use an overdraft facility?

Overdrafts are great for managing cash flow problems. For example:

● When you need to pay rent or EMIs before your salary gets credited.

● When an urgent medical expense pops up.

● When you don’t want to break your FD but need immediate cash.

● If you’re running a small business and need short-term working capital.

But remember, it’s not free money. Interest accrues daily. So it’s best to use it for short durations and repay as soon as possible.

Final thoughts

Overdraft facilities can be a handy tool in your personal or business finance toolkit. The SBI Overdraft Loan is ideal for traditional account holders looking for low-risk options with the trust of a nationalised bank. On the other hand, the ICICI Overdraft Facility shines for its digital ease, speed, and flexibility, especially for working professionals and entrepreneurs.

Before choosing, compare terms, interest rates, and repayment options across banks. And always use the facility wisely, because while it offers liquidity, it also carries a cost if not managed well.