Professional Documents
Culture Documents
Jyoti Kumar Pandey Deputy General Manager & MOF CAB, Pune
Credit Opportunity
Credit Creation
Credit Completion
Credit Management
Agenda
Basics of credit management Introduction of credit risk management Other issues
Introduction
Credit refers to
Short Term Loans & Advances Medium / Long Term Loans Off-Balance Sheet Transactions
Management refers to
Pre-sanction appraisal Documentation Disbursement and Disbursal Post-lending supervision and control
Credit Management
Credit Management now includes
Capital adequacy norms Risk Management including ALM Exposure Norms Pricing policy and credit risk rating IRAC norms Appraisal, credit-decision making and loan review mechanism
Post-Sanction control
To ensure proper documentation, follow-up and supervision
Pre-Sanction appraisal
Concerned with measurement of risk(iness) of a loan proposal
Requirements are:
Financial data of past and projected working results Detailed credit report is compiled on the borrower / surety Market reports Final / audited accounts Income tax and other tax returns / assessments Confidential reports from other banks and financial institutions
Post-Sanction appraisal
Depends to large extent upon findings of presanction appraisal
Requirements are:
Documentation of the facility and after care follow- up Supervision through monitoring of transactions in loan amount Scrutiny of periodical statements submitted by the borrower Physical inspection of securities and books of accounts of the borrower Periodical reviews etc.
Loan for setting up new project, expansion and diversification of existing project etc.
Short term or medium term
Impersonal
Created by way of a charge (pledge, hypothecation, mortgage, assignment etc.)
Preconditions of loans
Willingness or intention to repay as per agreement
Relatively easier to assess Determined by good track record of payments and debt servicing Uncertain / uncontrollable events could affect the judgment
Credit Risk
RBI defines credit risk as:
the possibility of losses associated with diminution in the credit quality of borrowers or counterparties. In a banks portfolio, losses stem from outright default due to inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, settlement and other financial transactions. Alternatively, losses result from reduction in portfolio value arising from actual or perceived deterioration in credit quality.
IRAC norms Credit rating system and risk pricing policy ALM Norms for setting up loan policy
Policy Framework
Strategy and Policy:
Credit policies and procedures of banks should necessarily have the following elements:
Written policies defining target markets, risk acceptance criteria, credit approval authority, credit origination and maintenance procedures and guidelines for portfolio management and remedial management Systems to manage problem loans to ensure appropriate restructuring schemes A conservative policy for the provisioning of nonperforming advances should be followed
Risk Mitigants
Credit risk mitigation means reduction of credit risk in an exposure by a safety net of tangible and realisable securities including third-party approved guarantees/insurance Various risk mitigants are:
Collateral (tangible, marketable) securities Guarantees Credit derivatives On-balance-sheet netting
Restriction on advances to real estate sector only for genuine constriction and not for speculative purposes
Thank You