Question

Which of the following is considered a primary operational weakness of the Cash Credit lending system for a bank?

Q: Answer-Which of the following is considered a primary operational weakness of the Cash Credit lending syste...

A major drawback of the Cash Credit system is that credit limits are prescribed once a year, which can lead to large unutilized gaps and challenges for the bank in verifying the actual end-use of funds, enabling potential diversion without the bankers knowledge.

A It requires the borrower to maintain multiple accounts for daily transactions.

B It forces borrowers to keep their surplus funds idle, increasing their interest cost.

C Banks are legally prohibited from taking any personal guarantees or tangible assets as security.

D Credit limits are typically fixed once a year, making it difficult for banks to verify the real-time end-use of funds.

E It is a rigid system that doesn't allow the borrower to recycle funds efficiently.

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Which of the following is considered a primary operational weakness of the Cash Credit lending system for a bank?

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