Beruflich Dokumente
Kultur Dokumente
&
MANAGEMENT
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
Approach for safety of loans
• Two-pronged approach
• Pre-Sanction appraisal
• To determine the ‘bankability’ of each loan proposal
• 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
• Credit Report (CR) needs to be regularly updated
• Appraisal should reveal whether a loan proposal is a fair banking
risk
Post-Sanction appraisal
• Credit Risk
• Market Risk
• Operational Risk
Credit Risk
• Organizational Structure
• Banks should have an independent group responsible for
the CRM
• Responsibilities to include formulation of credit policies,
procedures and controls extending to all of its credit risk
arising from corporate banking, treasury, credit cards,
personal banking, trade finance, securities processing,
payments and settlement systems
• Board of Directors should have the overall responsibility
for management of risks
Policy Framework (Contd.)
• Operations / Systems
• Credit process typically involves the following phases:
• Relationship management phase, that is, business development
• Transaction management phase to cover risk assessment,
pricing, structuring of the facilities, obtaining internal approvals,
documentation, loan administration and routine monitoring and
measurement, and
• Portfolio management phase to entail the monitoring of
portfolio at a macro level and the management of problem
loans.
Credit Risk Rating Framework
• Also within the limit as per RBI, i.e. not more than
15% of capital to individual borrower and not more
than 40% of capital to a group borrower
• Threshold limits are set which are dependent upon
• Credit rating of the borrower
• Past financial records
• Willingness and ability to repay
• Borrower’s future cash flow projections
Risk Mitigants