The cash credit system is a prominent feature of the Indian banking system, offering businesses and enterprises a flexible line of credit to meet their short-term financing needs. Under this system, banks extend a credit limit to eligible borrowers based on their creditworthiness and the collateral provided.

Borrowers can withdraw funds from their cash credit account up to the approved limit as and when required, similar to a revolving credit facility. Interest is charged only on the amount withdrawn, making it a cost-effective financing option for managing working capital requirements, purchasing inventory, or meeting operational expenses.

Repayments are flexible, allowing borrowers to deposit surplus funds into the cash credit account to reduce interest costs. The cash credit system plays a crucial role in supporting the growth and liquidity needs of businesses across various sectors, contributing to economic development and financial stability in India.