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bankers should verify the flow pattern of credits and or business loans,if operating staff do not follow this
debits in savings bank account or current account important element in credit assessment, then loans will turn
statements to cross check the multiple lending into NPAs due to lack of demand or excess supply for a
repayments etc of the applicant. particular product or activity. Recovery prospectus will
increase whenever there is a demand for the product or
Bank Guidelines on Credit Products / activity in the market. For proper assessment of demand and
Exposure Norms: supply, market information or data in respect of various
credit products offered by the bank should be made available
Based on credit policy guidelines finalized by bank boards, to branches or operating staff of credit department.
guidelines of various credit products, delegation of financial
powers of operating staff and also its exposure norms in For example, in respect of Home Loans, banks should assess
various products are advised to the operating staff or to the potential of 'Home Loans' in the area of operation i.e.,
branches .Credit department officials of the branches should Demand and Supply of Houses. In X Town 'demand for
be well versed with the guidelines in full without any houses' based on population and other factors is around 100
knowledge gaps. Banks should communicate the same on houses. And the existing houses available for living is 80,
ongoing activity (whenever any changes are happening in thereby potential gap for Housing Loans is '20 houses'.
product features, delegation of financial powers and Accordingly, bank should finance 20 Houses in that particular
exposure norms etc). Without good knowledge and updates area. If bank finances 100 additional Housing Loans, then
on these vital areas to the operating staff, it will lead to supply of houses is more than demand, thereby occupancy
high credit risk. problems for the additional home loans sanctioned by banks
will turn into NPAs due to no income to borrowers for
How to overcome the problem: repayment of installments.
Communication on credit management guidelines should be How to mitigate:
on a continuous process in the bank. As changes in credit
management is dynamic and to avoid communication gaps - Bank should arrive at the demand and supply of
to operating staff, changes are to be informed to the products in each area of operation;accordingly advance
Branches or operating staff on regularly by the bank by budgets are to be finalized and advise the Branches or
using technologies like email, e-circulars, dedicated web- operating staff.
sites, SMS (brief information on credit instructions changes)
etc. the following strategies are needed. - Review the same process on quarterly,half yearly
Random scrutiny implementation of latest instructions intervals or yearly intervals and modify or change the
credit business budgets for each product accordingly.
in credit proposals by controllers of the bank.
- Collect the information on 'Credit Gaps' for various
Train operating staff on credit management latest
guidelines and get acknowledgement.
Issue of codified or master circular instructions on credit
management by the bank as and when instructed.
Tighten the Internal Control System or Internal Audit
or Concurrent Audit in credit function.
Usage of Technology, instant communication on credit
management areas or instructions.
Knowledge and communication gaps in credit management
should be minimized, otherwise it leads to higher credit risk.
Demand and Supply Gap:
Study demand and supply is one of the important sub-
functions in credit management process. Whether in a retail
42 | 2016 | FEBRUARY | BANKING FINANCE
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