When we let you withdraw funds this way, it results in an imbalance in the 50-50 cash-collateral margin. Because of this imbalance, Zerodha will end up charging you an interest for non maintenance of adequate cash balance. This is almost similar to letting you withdraw funds with the intent of charging interest, something we’re not in favour of doing.
The system is designed in a way to let you withdraw as much, without putting the burden of interest. For example,
say you’ve pledged the following:
non cash collateral - 7L
cash collateral - 1L
cash balance - 3L
margin - 4L
the margin of 4L is charged to - 2L non cash collateral, 1 L cash collateral and 1 L cash balance, thereby leaving 2 L as withdrawal balance. We prioritize cash collateral over cash balance thereby letting you withdraw max funds from your account.