Objective

The objective of this course is to provide the students with adequate knowledge about the management of Credit portfolio in banks. It will provide sufficient inputs to enable the student to develop an insight regarding the different phases of Credit management.

Reference Books Author / Publication

Credit Management ICFAI

Practical Banking Advances H.L.Bedi and V.K. Hardikar/ UBS Publishers

The Bank Credit Analysis Jonathan Golin/John Wiley & Sons

Frontiers in Credit Risk Gordian Gaeta/ John Wiley & Sons

Money, Credit and Capital James Tobin/McGraw

Credit Risk Michael Hanke/Springer

Credit and Banking K.C.Nanda/Response

Credit Appraisal, Risk Analysis & Decision making

Mukherjee/Snow White

Detailed Curriculum

Overview: Lending Activity – Basic Requirements for Lending.

Principles of Credit Management: Principles of Lending – Evaluation of Borrower – The 6 Cs – Fair Practices

Code.

Objectives of Credit Management: Credit Allocation – Credit Evaluation – Credit Discipline – Credit

Monitoring.

Credit Policy in Banks: Need for Credit Policy – Components of Credit Policy – Credit Policy Pursued by the

Government – Credit Culture.

Regulatory Framework: Government Regulation of Banks – Institutional Structure – Need for Statutory

Reserves – Cash Reserve Ratio (CRR) – Statutory Liquidity Ratio (SLR).

Credit Deployment: Role of Bank Credit – Types of Credit – Bank Credit for Various Sectors – Credit

Deployment Scenario – Post Financial Sector Reforms.

Prudential Norms: Capital, Adequacy of Banks – Prudential Norms for Ensuring Greater transparency –

Capital Tiers.

Types of Borrowers: Various Categories – Features of a Company as a Borrower – Special Types of

Customers.

Documentation: Importance of Documentation – Security of Documentation – Renewal of Documents –

Security Offered for Documents.

Credit Evaluation: Term Loans: Sources of Finance – Term Loans – Project Appraisal – Capital Budgeting.

Credit Evaluation: Working Capital Finance: Concept of Working Capital – Factors Determining Working

Capital – Working Capital Cycle (Operating).

Credit Monitoring: Financial Supervision – Financial Follow-up – Financial Follow-up Reports –Physical

Follow-up.

Follow up and Recovery Management: Credit Risk – Identifying Problem Loans – Loan Classification –

Contingent Risk.

Debt Recovery Tribunals: Origin and Object of the Act – The Functioning of Debt Recovery Tribunal –

Modes of Recovery – Jurisdiction, Powers and Authority of Tribunals – Authority of Debt Recovery Tribunal.

Securitization Act: Securitization Company – Functions of Assets Reconstruction Company –Powers of

Central Registry.

Suggested Schedule of Sessions

Topic No. of Sessions

Overview 1

Principles of Credit Management 2

Objectives of Credit Management 2

Credit Policy in Banks 3

Regulatory Framework 2

Credit Deployment 3

Prudential Norms 2

Types of Borrowers 2

Documentation 2

Credit Evaluation: Term Loans 3

Credit Evaluation: Working Capital Finance 3

Credit Monitoring 2

Follow up and Recovery Management 2

Debt Recovery Tribunals 2

Securitization Act 2

Total Sessions 33

EVAIUATION OF BORROWER – THE 6CS

CHARACTER – Every lender wants to assimilate what sort of borrower an person submitting application will be in sequence to have smart, protected credit-granting decisions. The longer the association has been in operation, the some-more the remuneration story as great as superb credit exhibit management’s perspective toward debt as great as creation timely payments. Public annals as great as references can come in to play; still, the many arguable thirty-six-inch ruler is the impression of the not as big company’s owners. How they conduct their personal monetary obligations is customarily the arguable indicator of the odds of their creation timely payments. The some-more closely hold the company, the some-more pleasantness since the personal credit story of those in assign as great as their before commercial operation history. No have the difference how plain the commercial operation devise appears as great as how arguable the company’s owners have been in the past, the picturesque lender additionally wants the declaration of personal guarantees from the company’s owners. This might take the form of the signature or the oath of income or alternative collateral.

CAPACITY – Capacity is identical to the football team’s abyss chart. The genius to continue bad times is similarly critical to the association looking funds. Capacity acknowledges which infrequently variable things happen: the pass worker becomes incompetent to work; the vital patron is lost; an mercantile turn-down drastically reduces direct for product or services. Any series of alternative doubtful – nonetheless probable – disruptions can negatively start the company’s income flow. And these disruptions can be proxy or permanent. So, genius measures the company’s capability to compensate off an apparatus loan or franchise with income pot or the capability to fast modify genuine estate, stock, or alternative resources in to sufficient supports to cover debt.

COLLATERAL – How most collateral, upon top of as great as over the apparatus being financed, the association needs to secure the loan or franchise depends mostly upon the inlet of the lender as great as standing of the business. A normal bank mostly requires the sweeping garnishment upon all resources of the commercial operation whilst an apparatus financial association routinely uses usually the apparatus for collateral. A couple of lenders additionally suggest sale-leasebacks as great as refinancing of existent apparatus debt. This allows the association to giveaway up income upsurge or reduce their monthly remuneration by apparatus loans or leases.

Capital ±Capital is an owner's personal investment in his business which could be lost if the business fails. Most lenders want to see at least 25% of capital so that owners are more motivated to make the business a success. y

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Conditions ±Economic conditions at the time the loan is requested. For example if the borrower seeks loan for a specific industry which is in growth. The lender will grant the loan and if condition is reverse, the chances for loan approval are negative.

COMMON SENSE – Every preference to squeeze as great as each preference to accede to financing contingency be formed upon usual sense. A lender needs to assimilate how one more apparatus will enlarge the company’s fortitude as great as growth. Notwithstanding the risk each lender takes as great as the play each association creates when purchasing brand brand brand new equipment, for both lender as great as borrower, the substructure of the preference to financial apparatus starts as great as ends with usual sense.

CASH FLOW – Lenders wish to see which any association requesting for the loan earns sufficient income to encounter payroll, cover bound handling expenses, as great as absolutely have timely payments upon the brand brand brand new apparatus loan or lease. While there have been the series of ways to conclude income flow, lenders many mostly work out the income upsurge accessible to compensate off brand brand brand new debt as net distinction as well as such non-cash losses as amortization as great as depreciation.

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Definition=“Credit refers to granting of money by one party to another generally for a long time period , thereby generating debt.”