Professional Documents
Culture Documents
Credit management is the management of the credit portfolio of bankers and financial
institutions. The expression Credit refers to short term loans and advances as well as to
medium/ long term loans and off balance sheet transactions. Management includes within its
preview pre-sanction, appraisal sanction, Documentation, disbursement and disbursal and post
lending supervision and control.
The main functions of the Banks are mobilization of the resources i.e. deposits, especially low
cost deposits and exploitation thereof in the most profitable manner within the frame work
stipulated by the Reserve Bank of India. The major portion of the deployment of resources is
through credit dispersion and safety of these funds and returns thereon are of paramount
importance. Banks are having their separate loan policies designed for the sanction of credit
facilities without compromising the quality of assets.
Debt Instrument:
Loan: Usury Consumer lending Predatory lending Loan shark payday loan
Debt collection and evasion : Debt compliance Collection agency Garnishment Tax refund
interception Debt bondage Debtors prison Phantom debt Charges-off Strategic default.
Debt market : Fixed income Consumer debt Government debt Corporate debt money
market Deposit account Debt buyer Securitization.
Debt in economics : Debt levels and flow External debt - Internal debt Consumer leverage
ratio.
MANAGEMENT :
It is a art of getting things done through people.( or )
IMPORTANCE OF MANAGEMENT :
Classification of Advances
The loans and advances sanctioned by the banks are broadly classified into
Primary Sector: This constitutes Agriculture and allied activities dairy farming, poultry
farming, goat rearing, pisciculture, etc.
Secondary Sector: This sector constitutes small scale industries (SSI), Small & Medium
Enterprises (SME), ancillary industries, village & cottage industries, tiny Industries and small
scale service and business enterprises.
Tertiary Sector: In this sector are small road and water supply operator, professional and self
employed, retail trade, small business, education, housing, state sponsored corporations for
SC/ST
Individuals
Joint Individuals
Proprietorship
Partnership Firms
Hindu Undivided Family
Public and Private Companies
The credit or lending has been divided in to two broad categories i.e. as follows;
A) Fund Based
B) Non Fund Based
A. Fund Based
Fund based means actually the cash is credit to the customers Account. In fund based
there are two types.
1. Working Capital
Working capital for any enterprise refers to the total amount of circulating funds
required for the continuous operations of the unit on an ongoing basis. It refers to the
total funds required for financing the minimum total current assets to remain viable &
operate above the breakeven level to earn profits. A firm should have adequate working
capital as much as needed by the firm. which ultimately result in product ion
interruption and lowering down the profitability. The working capital facility is short
term in nature for a period up to 12 months. This facility is provided through-
Cash Credit
Over Drafts
2. Term Loans
Term Loans means loans are payable after 1 year to 10 years. It is availed for
acquisition of Fixed Assets, setting up of Business units, Expansion/Modernization etc.
These are financed by way of term loan is repaid by the borrowing concerns in
installments out of profits earned. The schedule of repayment and duration of loan are
fixed on the basis of the assessed ability of the undertaking to generate surpluses for
making repayments.
B.Non-Fund based
In this type of loan the actual fund in not transfer to the customer account, but the bank
will give the guarantee, if in case any default from the customer the bank will give the amount.
The non-fund based limits are normally of two types .
1. Bank Guarantees
There is no standard formula for assessment of bank guarantee limits. However, details
such as the nature of the guarantee, the purpose of the guarantee and the particulars of the
contract period for which guarantee is sought and amount of the guarantee are to the collected
first and these have to be considered viewed from the aspect of creditworthiness of the customer
and his relationship with the banker and decision has to be taken as regards sanction of the limits
requested by the customer. This facility is required by the Borrower to meet following
transaction;
Participate in tenders for expanding market.
Security deposit for participating in tenders expanding market.
For giving Guarantee for performing contracts.
To avail concessions in duty.
2. Letter of Credit
The borrowers have to acquired fixed assets & purchase different types of raw material &
finished goods & make payment for services in the course of business. The suppliers allow the
buyers to make purchases with the help of LCs issued by the bankers. The LC is issued on
documents against payment or documents against acceptance.
Credit Management
The credit management generally involves the following major components
1. Pre-sanction Process
2. Post-sanction Process
1. PRE-SANCTION PROCESS
In general words pre-sanction means Taking the precaution before the activity is carried
out. The pre-sanction process involves some activities like;
CREDIT ADMINISTRATION
The norms for disposal of credit proposal and credit refusal, the bank is complying with the
guidelines relating to issue of acknowledgement for receipt of proposals and time norms for
processing and disposal as contained in the fair practices code formulated by the bank, which is
in force.
METHODS OF ASSESSMENT
The working capital assessment depends upon the level of business, segment of the
borrower, prevailing guidelines of RBI, trade & industry practice prevailing and other objective
factors. The assessment shall be based on a total study of borrows business operations, the
processing and production cycle of the industry, financial and managerial capability of the
borrowers and other parameter relating to the unit and the industry.
Turnover Method.
Flexible Bank Finance. Method
Cash Budget Method.
Net Owned Fund for NBFCs.
20% of the projected realistic turnover for limits up to Rs 1 crore for all advances and up
to Rs 5 crores for SSI advances.
This method is adopted in The required finance is worked out from the projected cash
flows & not from the projected values of assets & liabilities. Besides cash flow, other aspects
like borrowers projected profitability, liquidity and fund flows are also to be analyzed
This method is used for the assessment of credit needs of Non-Banking Finance
Companies [NBFC] on Net Owned Funds Method based on the formats prescribed by RBI.
The assessment here includes the projected appraisal; cost of project, means of finance
and the sources from which such loan is expected to be liquidated is net cash generation form
year to year. All this needs a detailed appraisal of the project to establish its long-term viability.
The technical and economic viability of the project is examined and analyzed with reference to
the following;
The financial position of the customer & the resources from which the bills under letter of credit
would be retired should be enquired into. The sanction of Letter of Credit transactions should be
precise and definite with regard to quantum, type of credit like DA & DP revolving or specific
purpose for which credit is to be established, type of documents to accompany the bills for
negotiation. Before granting a letter of credit facility, a credit report of the beneficiary is
obtained. All import LCs is subject to Export Import policies including exchange control
regulations including the Foreign Exchange management Act (FEMA) etc.
The proposal for credit facility is to be thoroughly examined by the Bank and relevant
information is to be recorded. Generally the credit proposal contains the following basic
information;
The post sanction process means Analyzing the things after sanctioning the loan. It
involves various factors such as;
1. Documentation
2. No document no loan
3. Disbursement
4. Verification of end use post sanction inspection
5. Follow up
6. Supervision
7. Monitoring and control
Basically, as long as the borrowers operations and availment of credit are on projected
and approved lines with adequate cash generations and reasonable asset formation, the business
and consequently, banks advances also remain healthy. Any imbalance to the above is of
concern to the bank and it would affect the banks advance. Hence documentation, follow up
functions are primarily aimed at detecting and locating the above imbalances.
1. DOCUMENTATION
In credit management, the importance of proper documentation can at best be placed only
next to a sound credit appraisal system. Documentation is one of the key areas; bank has to take
care, because the documents constitute the primary evidence of the contract between the bank
and its constituents, keeping in view the importance of documentation, resting with Guide on
Documentation. Besides advising the branches regarding documentation, Central Office in no
uncertain terms has time & again reiterated that Advance should not be disbursed without
obtaining Stipulated Documents.
Regular & close monitor5ing can minimize the incidence of slippages. Deterioration in
asset quality is rarely sudden except when unexpected environmental economic changes occur.
Normally several warning signs surface long before an asset becomes non-performing.
In view of clarificatory guidelines by RBI making Income Regulation and Asset classification
norms more stringent, Branches shall ensure that the account does not slip to NPA category on
account of the following technical reasons;
Review/ renewal or regular/ adhoc credit facility is not done within 180 days from due
date of review / renewal of account.
Drawings allowed against stock/ book debt statements older than 180 days.
Delegation of Power
Bank has put in place Scheme of Delegation of Loaning powers, with the approval of the
Board for each delegate, looking to the multi-tier structure, specific business requirements and
RBI directives.
All delegates shall strictly adhere to the operative guidelines governing the exercise of
Delegated Authorit
3. DISBURSEMENT
1. Securities/ mortgages are duly created as per the term of sanction.
2. In case of advances to companies it must be ensured that the charges are noted with ROC.
Within 30 days from the date of availing Credit (Finance from the bank in any form).
3. It must be ensured that no documents are kept blank.
4. Most importantly it must be ensured that the financing Banks name in include in the
Financers clause of the General Insurance Policy.
The following monitoring tools have to be effectively used for close monitoring of the Loan
Assets:
MONITORING PROCESS
Any monitoring information, which in the opinion of its recipient, could impact adversely
credit quality, will require him to initiate immediately monitoring process. Each of the
monitoring information could have different and varied connotations. Depending upon the
background and past behavior on the one hand and also current status on the other, the
monitoring information requires analysis/ interpretation to initiate monitoring process
Stages of Monitoring
1. Pre Disbursement
2. During Disbursement
3. Post Disbursement
1. Pre Disbursement
Not withstanding the credit sanction, disbursements will depend totally upon the
compliance to various aspects such as:
2. During Disbursement
Disbursements in loan accounts are different from running accounts. All disbursements,
whether in loan account or running accounts, will be related to actual/ actual/ acceptable
performance of the business and should never deviate from the basic objective of satiety of
Banks exposure. The disbursements should be done taking into account extent of exposure and
also progress of the project/ business activity.
3. Post Disbursement
Deposits
Financial facility
Locker facility
Demand drafts all over India
Savings deposit
Current deposit
Term deposit
Money saving of RS 1,250.00 for 60 month will repay return of one 1,00,000
Business loan
Construction loan
Consumption loan
Vehicle loan
Education loan
Gold loan
KanaKavarsha loan
OD/CCL
Gruha vaibhava
SSI
Mortgage loan
SUCO Bank provides the rate of interest and Loan Details for economic benefits which are
as followed:
18.60% 15.12%
16-44days
45-90days
8.14%
91-180days
181-360days
1-2 years
19.77% 2years above
20.93%
17.44%
The Statement Showing the types of loan and amount and their Rate of
Interest:
Particular
Serial Amount Rate of interest
number
1 Dhanya laxmi (agri key loan) 10L 15%
2 Dhanya laxmi (agri key loan) <10L 15.5%
3 Agri gold loan - 15%
4 Business gold loan - 16%
5 KanaKavarsha loan 01L 16%
6 KanaKavarsha loan <01L 16.5%
7 OD/CCL 10L 15%
8 OD/CCL <10L 15.5%
9 Gruha vaibhav 05L 16%
10 Business loan 10L 16%
11 Business loan <10L 16.5%
12 Consumption 01L 17%
13 Consumption <01L 16.5%
14 Vehicle loan 01L 17%
15 Vehicle loan - 14%
16 SSI - 15.5%
17 LFD & LRD - 1% above deposit rate
18 Education loan - 12.5%
19 Suco suggi sale - 16%
20 Mortgage loan - 16.5%
1. EDUCATION LOAN
:
Security Offered Agriculture Land
Plot / Building.
LIC Bonds
Term Conditions .
The entire relevant document to be
obtained as per
SUCO /HO/Circular No.3/2007-08
Dated 17/4/2007.
Obtain signature of co- obligate.
Partly release of sanctioned amount
as per SAP-K the structure for
Education.
Primary Security:
Security Offered Hypothec of stock, Furniture & Fixture.
Collated Security
Building Valve.
4.CONSTRUCTION LOAN:
5. VECHAL LOAN:
Term of Repayment
36 Monthly Installment
7. BUSINESS LOAN:
SCHEMES
_ 06% - 10%
SanKranti Deposit