LENDING ACTIVITIES

VITBS JULY 2011

Bank Credit
60% of Assets side of Balance sheet Key contributor to Bank Profitability Bank credit management crucial to its existence and growth

Two facets of Credit Management

1. Credit Appraisal 2. Credit Monitoring
Operates at the Formal and Informal level. Formal - Circulars, notifications, guidelines, Manual of instructions etc. Informal Oral instructions, networking, informants

Credit management Contd

At macro Level- It is banks approach to Sanctioning, Managing and monitoring credit risk. Striking a balance between high quality assets and profitability. At Micro level Branch level monitoring of loans for recovery, profitability

Two Stages of Credit Management

Pre-Sanction activities Post Sanction Activities. Four Areas: 1. Credit allocation 2. Credit evaluation 3. Credit Discipline 4. Credit monitoring

Credit Management in the recent past

Increased Operational costs Slackness in credit growth Competition to acquire blue chip clients Reduction in interest rates on L&A. Slowing industrial growth Stiff Income recognition norms

Basic requirements for Lending

Banks capital Borrowers Constitution Credit Information Documentation Credit Monitoring Legal remedies Risk Management

Credit Appraisal
Application form/Supporting Documents Collateral securities Nature of Industry Promoters experience/past performance Projects Technical feasibility Market for products and projections Financial viability and funding Sanction terms and conditions

Credit Monitoring
Financial Follow up Physical follow up Legal recourse - Sarfaesi Act 2002 (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act)

CREDIT POLICY

July 2011

Governments Credit policy

National Credit Council Administered by RBI Guidelines relating to Priority sector advances RBI guidelines Guidelines relating to Exposure norms Exposure norms capital market exposure norms Guidelines relating to working capital finance-Margins

Banks Credit policy

Within the frame work of Government policy. Diversification of Loan mix and volumes. Participation in Consortium lending Geographical spread of Advances Evaluation procedures: Industry prospects Operating efficiency Financial Analysis Management of company

Loan/Credit administration
Loan Sanction/Interest rates Documentation Maintenance of Records

Loan Recovery procedures

Policy for pursuing legal process Appointment of Legal counsel Appointment of Collection agents NPA provisioning norms Debt Restructuring

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Credit Culture