Margin

The key part in the entire overdraft facility is the extent of security that is taken by the bank. There are various limits based upon the security that is being offered and banks will make sure that their position is adequately protected because this is required in case the borrower does not pay back the amount. The percentage figure for security will vary widely, depending not only upon the bank involved but also the nature of the security.

The percentage can range from a high around 90% for several kinds of deposits and bonds to a figure of around 60%-70% when it comes to debt-oriented mutual fund. If there is some fixed asset that is involved then the figure can dip further, even less to around 40%. This shows the extent to which a borrower will be able to get the overdraft for the extent of security that is provided.

There will be various changes that take place over a period of time in the features of the security. So, for example, if a deposit had a maturity period of 3 years at a certain point of time then this would become 2 years till maturity after a year. At this point of time, the overdraft facility will once again come up for review and the bank will then use a different percentage figure for the allotment of the necessary limit.