Professional Documents
Culture Documents
Management
INDUSTRY BEST PRACTICES
Introduction
Credit Risk: The potential that a borrower fails to meet the obligations on
agreed terms.
Credit Risk Management: A process to proactively manage loan portfolios in
order to minimize losses and earn an acceptable level if return for
shareholders.
Policy Guidelines
Lending Guidelines:
1.
2.
3.
4.
5.
6.
7.
Specifying Industry and Business segment and adding weight to them (e.g.
Textiles: grow, Cement: Maintain, Construction: Shrink)
Indicating types of loans only which are permitted (e.g. Working capital, Trade
Finance, Term Loan etc.)
Defining limits of loans to singular/group limits/syndication
Specifying Industry wise lending caps so that single industry can not be over
concentrated.
Outlining discouraged business types (e.g. Weapon finance, Highly leveraged
transactions etc.)
Clearly stated loan facility parameters (e.g. maximum size, maximum tenor,
covenants etc.)
Cross Border Risks
Mitigating factors
Loan structure
Security
Name Lending
Risk Grading
Grade: 1 (Superior)
Facilities are fully secured by cash
deposits, government bonds or a counter
guarantee from a top tier international
Bank
All security documentation should be in
place.
Grade: 2 (Good)
Borrowers repayment facility is strong
The Borrower should have excellent
liquidity and low leverage
The company should demonstrate
consistently strong earnings and cash
flow.
Risk Grading
Grade: 6 (Substandard)
Financial Condition is weak and capacity
of inclination to repay is in doubt.
Loan payments due for 60-90 days
Not yet considered non-performing as
the correction of the deficiencies may
result in an improved condition.
Grade: 7 (Doubtful)
Full repayment of principal and interest is
unlikely ant he possibility of loss is
extremely high.
Loan payments due in excess of 90 days
Due to litigation, liquidation procedure or
capital injections, assets are not yet
classified as loss.
Approval Authority
Approval authorities must be reviewed annually by MD/CEO/Board.
Credit approval section must be separated from the marketing/Relationship
management function
Role of Credit Committee must be restricted to only review of proposals.
All Credit Risks must be authorized by executives within the authority limit
delegated by the MD/CEO
Any Credit proposal that does not comply with lending guidelines should be
referred to Head Office for approval
Head of Corporate
Relationship
Management/Marketing
Business Development
Procedural Guidelines
Approval Process:
Credit
Application
recommended
by
RM/Marketing
Zonal Credit
Officer
Head of Credit
Managing
Director
Executive
Committee/Boa
rd
Procedural Guidelines
Credit Administration
Disbursement
Custodial Duties
Compliance Requirements
Credit Monitoring
Early Alert Process
Credit Recovery