Credit Management

S.P.Mohanty
Scope

Loan Policy

Adherence to Delegated Authority

Credit Appraisal

Credit Supervision

NPA Management

Portfolio Management

Credit Risk Management
Loan Policy

Should have a policy for all major activities

Should articulate the business model /
thrust of important areas – negative lists

Should have a detailed operational
guidance / Manuals

Policy should be adhered to – exception
ratification procedures

Frequent change of policy guidelines, risk
limits, ‘fit’ between policies and business
plans / risk appetite, deliberate flexibility
Common Irregularities – Loan
Policy

Lack of articulation – overall approach –

category wise thrust

Which comes first – activity or policy?

Areas which get low coverage –
Derivatives, Securitization, sale of NPAs,
compromise settlements, ALM, IPO
financing

Flexibility vs. rigidity

Scope for exit
Adherence to delegated authority

Delegated powers – delegation vs centralisation

Overdelegation leading to credit indiscipline and
NPAs?

Over centralisation leading to lack of focussed
monitoring, delays in decision making and NPAs / loss
of business? Big ticket lending to have centralised
decision making and SME / Retail to have flexible ,
branch level flexibility

Adherence to delegation – reporting of excesses,
analysis , ratification , action on lapses.

Tendancy to resort to frequent adhocs – difficulty in
justifying enhancements – unorganized borrowers
preferring high cost adhocs to more disciplined /
planned growth of business and bank lending –
camouflaging of NPAs and delaying the slippages

Practices in PSBS – Old Pvt. Sector banks and
NPvtSBs

Distribution of sanction powers among Board, its
committees, committee of executives, top
functionaries – Credit Governance Standards
Credit Management Model
Credit Appraisal – selection of borrowers dictated by policy,
portfolio, rating profile, cross selling benefits /overall account
income, take over norms, hurdle rating, minimum benchmarks,
rating and pricing etc with an objective to maintain and increase
asset quality

Credit supervision – Monitoring the quality- retaining good quality

customers - steps to identify incipient sickness - provide timely
finance –prevent slippages – exit policy

NPA management – focus on recoveries,

restructuring/rescheduling, upgradations of sub standard assets,
technical write off for tax planning – pursuing legal cases
Credit Appraisal

Methods of assessment of working
capital

Project finance

Rating – design issues, coverage,
consistency , skills , independent
review

Pricing – whether aligned with rating
– extent of Sub – PLR lending –
process of BPLR determination
Credit Supervision

Direct monitoring vs outsourcing

Tools of monitoring – unit visits,
analysis of returns, stock audits,
review/ renewals, drawing power

Tools of securing bank’s interest –
documentation, adherence to terms
of sanction , insurance

Monitoring of impending NPAs
NPA Management & Compliance

Review of NPAs

Recovery Management

Write off and Compromise

Analysis of ageing

Analysis of quick mortality

Legal cases
Compliance

Adherence to IRAC norms –
Misclassifications, Underprovisioning,
Evergreening, repeated restructuring

Priority sector lending targets –
misclassifications, misinterpretations

Prudential norms – wrong calculation
of risk weights, wrong treatment of
capital items, single/group exposure
limits, sensitive sector exposures
Portfolio Management

Portfolio buyouts

Securitization of assets

Sale of assets /NPAs
Credit Risk Management

Architecture

Identification

Measurement

Control

Basel II
Thank you