Page 44 - BANKING FINANCE FEBRUARY 2016 ONLINE

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in each stage, that the earlier amount is fully utilized
by the borrower as per the purpose of loan.
Frequent visits are to be made by the Credit Officials
and verify the Primary Security (i.e., Asset created with
Banks Funds) of the bank loan.
If any deviations are noticed, further disbursement
should be stopped and informed to the controllers for
further action.
Verify the documents like bills / invoices submitted by
the borrower with bank finance. Rates, quantity and
type of product are to be verified from independent
source and it should be matched with the project
report submitted by the borrower.
Follow-up:
Due to increase in volume of advance accounts, banks are
not focusing on post sanction formalities of loans and
advances sanctioned by them.Post sanction, end use of
funds, follow-up stock statements, and activity is continued
or not results in timely recovery of loan.
Formalities to be fulfilled in Follow-up of
Advances:
Continuous contact with the borrower.
Frequent visits to the units and ensure proper utilization
of funds.
Timely recovery of EMI or Installments of the Loan.
Ensure to submit stock statements etc.
Identify major deviations or irregularities happen in the
Unit and timely action.
Both physical visit and communication should be
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established with the unit.
In case of negative symptoms, legal action is to be
initiated.
Use of various Statutory Acts in recovery processes.
Credit Risk Mitigation Measures:
Credit Risk means default risk. Banks are trustees for the
public funds. Banks sanction Loans and advances with the
help of depositor's funds. High credit risk in the bank means
decrease safety to depositors' funds. Once the depositors'
lose their confidence on the bank, it leads to Asset Liabilities
Mismatch due to heavy withdrawal of funds by them.
Hence, banks should give lot of efforts / energy in minimizing
credit risk. Following are Ten Commandments useful to
mitigate the credit risk:
1. Selection of right personnel in the credit function.
2. Train them on continuous basis to improve credit
appraisal skills.
3. Quality of lending benchmark to be fixed i.e., (99%).
4. Incentives and accountability to officials of credit
function.
5. Post-sanction process should be strengthened.
6. Strengthen internal controls & concurrent audit in credit
function.
7. Instant legal action in slippage accounts.
8. Optimum utilization of technology and communication
credit function.
9. Study on regular basis on credit gaps, credit
requirements, region-wise to develop and to withdraw
of credit products of the bank.
10. "Quality Control" in credit is to be established in each
and every process or step of Credit Management.
Conclusion:
Prevention is better than cure. Instead of putting more efforts
on sideeffects of Credit Risk like providing more provisions,
decrease in net profit and net worth, attracting more Tier-
I and Tier-II Capital to maintain the required CRAR etc., banks
should give more focus on "Quality of Lending". This is only
one way or remedy or best solution to overcome all problems
relating to the Credit Risk in the Banks. 'Quality Control' of
each and every step of credit delivery process is the need of
hour to mitigate the credit risk in the banks.
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