Page 29 - Banking Finance August 2020

ARTICLE

the top-10 urban cooperative banks which had lent over project/proposed activity, technical feasibility of the project,
Rs.6,500 crores to HDIL, forming 73 per cent of total supply and demand gap for the proposed business activity,
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advances of Rs.8,880 crore . projected cash flows and financial viability, credit rating,
margin and securities to be offered etc.
Thus, over the years, the GNPA ratio went up from 7.0 per
cent in 2011-12 to 10.5 per cent in HI: 2019-20. Lastly, the The branch manager has also to study the relevant
third trigger i. e, Profitability ratio too observed information from the secondary sources of information and
deterioration which is measured through different ratios. local enquiry, besides holding an interview with the applicant
One of them is Return on Equity (RoE) which fell down to arrive at a conclusion on authenticity of information
sharply from 10.51 per cent in 2011-12 to 8.71 per cent in provided by the applicant. The quality of lending is decided
HI: 2018-19 mainly on account of below par performance. on how the credit proposal is appraised by the branch
The situation is worst when SUCBs posted losses in H1:2019- manager. For this purpose, he should examine certain critical
20. Bank-specific factors like credit risk, interest and non- aspects of the credit proposal in detail. These include;
interest income and the overall macroeconomic strength of the proposal, suitability of the bank credit to the
environment weigh in as the key determinants of declining borrower, future prospects of the business activity, genuine
SUCBs' profitability. credit requirements of the borrower, projected income
generation, margin & securities offered, valuation of
Thus, despite SAF as an effective tool for monitoring of RBI collaterals, credit history and credit rating of the business
in monitoring of banks, their financial health continued to unit based on financials etc. While doing the credit appraisal
decline which is a matter of concern. The higher GNPA ratio of the proposal, the branch manager should avoid any kind
adversely affects profit performance, capital adequacy, of mediators and hold direct interaction with the applicant.
credit expansion, rating and their reputation. Hence, this is
matter of concern to the bank management, Reserve Bank For credit appraisal, the branch manager should take into
of India, Government and the society at large. Towards, account bank guidelines by referring to the latest circulars
efforts of SUCBs need to be strengthened to step up the issued by the controlling office. For proper assessment of
quality of loan assets for which certain approaches are demand and supply gap, market information and data in
suggested. respect of various credit products offered by the bank should
be made available to the branch managers by the controlling
Good Quality Lending - Suggested office. Further, minutes of credit committee meetings held

Approaches: at the district level should also be made available to the
concerned branches for assessing demand and supply gap.
To start with, a branch manager should scrutinize a credit
More importantly, the controlling office should create a data
proposal carefully & professionally and respect the laid down
due diligence in credit to decide whether to sanction or base to guide the branch managers on the latest
otherwise. For this purpose, he has to verify the authenticity developments in the market.
of important credit information provided by a potential
borrower in the credit proposal. The application form for For this purpose, the data base should contain various items
such as zone-wise studies done on bank credit products,
availing of credit should be simple and the project proposal
industry-wise/ activity-wise data collected by the local
should contain vital information needed for assessing the
feasibility of the project and acceptability of the borrower industry associations/ chamber of commerce, government
plans and developmental activities in the local area, branch-
to the bank based on credit history and local enquiry made
by the branch manager. wise credit growth and loan recovery rate etc. Further, close
review and monitoring of achievement of targets set for
The major items in the project proposal shall include: brief branches for credit should be done by the controlling office
profile of the applicant, purpose and quantum of credit on periodical basis and extend necessary support to ensure
sought for, borrower's experience in the line of activity, that targets are achieved in true spirit.
success rate of the borrower in the earlier business, existing
borrowings, credit history of the applicant, particulars of the To ensure the good quality credit, few more aspects need to

BANKING FINANCE | AUGUST | 2020 | 29