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ARTICLE

To improve appraisal skills of credit department officials,
banks should provide training or workshops on a continuous
basis.

Important aspects of Credit Assessment: banks to recover the dues in case of default or failure
of the business or loan. Accurate valuation of the
a) Credentials of the Promoters / Individuals: collaterals is another area to reduce the credit risk of
lending process. Valuation of collaterals should be on
Determining the character of the prospective borrower present value and under the circumstances of forced
is a big challenge in the lending process. If the sale and not the future appreciation value etc. Forced
character is good, then 20% of the quality of advance sale value is different from present value. In forced
is assured and willful defaulter's percentage will reduce. sale, the banker may not get even the present value
Here, character means when he enjoys a loan from the of the property due to lack of bidders and demand etc.
bank, his primary responsibility is to utilize the loan for
the purpose he had applied and repay it as per the A margin of the proposed loan is another important
terms and conditions of the loan.Hence, while area in mitigating the credit risk.100% bank financed
appraising loan proposals, bank should thoroughly verify in certain projects is always dangerous due to
the loans taken from other banks by the applicant and borrower's contribution is zero in the activity. Margins
his credit worthiness. To check this aspect, CIBIL report are useful in case of fluctuations in collateral security
is one of the important tools which has market and also in case forced sale of primary security.
information about the borrower.Due to free availability
of finance from different sources in the financial market,
applicants tend to borrow amounts from different
sources / banks and some of them do not repay the
existing loans and apply fresh for loans in other banks.
This aspect should be cross checked by the bank in an
intelligent way from the various sources available.

b) Projections or Estimations:

Projections of sales and revenues in case of business
organizations and projected income in case of
individuals are to be thoroughly checked by credit
officials. Over projections or estimates lead to wrong
credit appraisal thereby bringing disgrace.

For example, industry growth rate of a particular d) Credit Rating:

product is 5% average on year-on-year basis. But The rating of Business firms depends upon the strength

prospective borrowers who apply for a loan of same of balance sheet or financial statements, future growth

product will mention 40% to 50% projections. These of business, surplus generated from business operations,

areas are to be scrutinized by the Bank with authentic timely repayment of loans enjoyed by them earlier and

data available in the market. Otherwise excess finance the experience and charter of the promoters or

leads to misappropriation of funds and at a later date borrowers. Higher Credit Rating is an 'Extra Collateral

it is difficult for the bank to recover loan. Security' to the Bank. In case of individuals, the rating

is depending on the annual income and net income,

c) Availability of Collaterals and Margins: existing savings, financial obligations etc.In case of

Collaterals for the proposed finance by the bank are individuals,banks normally obtain Form 16 to determine

very important in fixing responsibility to repay the loan the income level of an individual. As borrowings are not

by the borrower and to create an interest in the reflected in IT Returns and personal finance from

proposed line of activity. Collaterals are useful to the private lenders are not reflected in CIBIL report, the

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