Loan Origination

&
Appraisal Techniques

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Mathew Joseph
Senior General Manager

Housing Development Finance Corporation Limited - India

AUHF - 2007 AGM & Conference Program, Ghana - September 2007

 Why do we appraise?

Is a Selection Tool

Quantifies Risk

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Aids Decision Making

Ensure Good Quality business with

excellent creditworthiness
 What is Credit Appraisal?

ABILITY INCLINATION

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OBJECTIVE SUBJECTIVE

KNOWLEDGE EXPERIENCE
 What are we Appraising?

PERSON:

Capacity - The ability to service the loan by

financial resources/ income streams.

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Inclination - Willingness to pay.

PROPERTY:

To check documents for creation of security.

To ensure end use.

 Basis of Appraisal

Security Based

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or
Repayment Capacity Based
 Appraisal Process
Involves Risks:
Identification
# Information Acquisition
# Documentation

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# Customer Interface Techniques

Assessment
# Identifying key risks
# Identifying Mitigating mechanisms
# Integration , Collation of data along with
information gathered at the personal interview
 Appraisal Process

Controls/ Risk Mitigants

# Policy related
# System related

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# Level/ Limit related

Case Representation
# Culmination of the appraisal process
 Identification
Information Acquisition Stage
# Carefully designed Application Form
# Standard Document List
# Credit Bureau Report
# Customer Credit Verification Reports

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Documentation
# Standard Check-lists
# Standard Approach to Scrutiny, Perusal

Customer Interface Stage

# Rapport Building
# Probing Techniques
 Assessment
Involves Extensive Evaluation of the following parameters

1] Current Financial Condition & Paying capacity

# Income Source # Income Frequency
# Income Consistency # Income Continuity

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2] Inclination to repay
# Family Background # Savings History
# Repayment trend on other liabilities
# End use of property
# Authenticity of information &
documentation provided
 Assessment

3] Specific Characteristics which may affect

loan repayment

4] Current value and relaisability of security

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5] Confirmation of the proposal with laid
down credit norms

6] Adherence to Financial Ratios

 Case Representation

Has to be comprehensive as the representation

captures the essence of the loan and forms the
basis of approval

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1] Output of the appraisal process in a standardized
format

2] Describes the result of the credit assessment

3] Details the credit quality and risks

4] Makes the recommendation

 Controls - The Need

The credit appraisal process involves multiple

steps to arrive at the final decision.

It is imperative that the scope for errors/

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omissions is minimized/ eliminated.

Our controls operate in the current business

environment and have to be dynamic in order
to be effective.
 Type of Controls

Credit Controls:
1] Written polices & procedures for credit risk

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systems & controls

2] Standard Credit measures

3] Policies designed to identify problem loans

 Controls

System Controls:
1] Validations and prompts inbuilt into the loan

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processing systems

2] System safe guards

3] Escalation mechanisms

4] Exhaustive Information Systems

 Controls

Limit Controls:

1] Delegation of Approval powers

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2] Mandatory Approvals of senior personnel in
cases of loan amounts being greater than loan
approvers sanctioning powers
 Pre-Sanction

Appraiser’s Responsibility:

Data Discipline

Document Validity

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Financial Terms & structure of loan

Loan Feasibility

Case Representation
 Pre-Sanction

Appraiser’s Responsibility:

Review of Verification Reports
 Residence

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 Employer
 Tele-checks on above

Validates disclosure made by applicant

 Pre-Sanction

Appraiser’s Responsibility:

Review of Credit Bureau Report

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 Comprehensive Credit Information
 Provides details pertaining to credit
facilities already availed of by a borrower
as well as his/ her payment track record.
 External Agent Reports

External Reports validate 4 Basic Types of Information

Identification Information

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Employment Information

Residence Information

Payment History

Inquiries raised by other lenders
 Pre-Sanction

Double-Checker’s Responsibility:

Review of Quality of Appraisal of Appraiser

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 Document/ Information Reliability &
Compliance
 Compliance with established norms &
policies.

Second Level Credit Check
 Pre-Sanction

Approver’s Responsibility:

Final Sanctioning Authorities

Review of all aspects of loan w.r.t.

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 Financial Terms
 Property Assessment
 Business Risk
 Government Policy
 Industry Outlook
 Post-Sanction Processes

Critical as these processes are a key to customer

service and maintenance of a quality portfolio

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Legal Due Diligence

Technical Due Diligence

 Post Sanction Processes

Legal Due Diligence:

Specialized in-house team to whet and
scrutinize Property Master File documents.

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Post Approval, Generation of a unique
property master which can be referred to by
any office all over India.

Property Database maintained exclusively by
the specialized team.
 Post Sanction Processes

Technical Due Diligence:

Specialized in-house team to assess property
structure and compliance with statutory

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approvals, plan.

Outdoor, Indoor assessment of property.

Disbursement subject to the Technical
Approval.
 Preliminary Approval

Generation of File No CONTROLS

INCORPORATED

On Line & Physical file created

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Process of Scanning

Detailed Data Entry

Updation of Field Credit Investigations

The recommendation process commences by scrutiny
of the loan file and all supporting documents

Customer credit verification reports & Credit

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Bureau reports assessed & evaluated

Income & property assessment – Simultaneous

procedure. Initiation of technical site visit if the
property has been identified
Income , Obligations , assets , sources of
own contribution updated on line

Updation of special conditions , remarks.

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Review of case with respect to data
authencity , policy compliance

File recommended
Physical file handed over to the double checker

Files reviewed for the following :

1] Document validity , reliability

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2] Data Discipline
3] Quality of appraisal
4] Adherence to norms & polices

File Double checked

Approval Pool sanctions the double-checked loans

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Post sanction process initiated
Thank You!
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