Credit Management


Loan Policy Adherence to Delegated Authority Credit Appraisal Credit Supervision NPA Management Portfolio Management Credit Risk Management

Loan Policy
Should have a policy for all major activities Should articulate the business model / thrust of important areas – negative lists Should have a detailed operational guidance / Manuals Policy should be adhered to – exception ratification procedures Frequent change of policy guidelines, risk limits, ‘fit’ between policies and business plans / risk appetite, deliberate flexibility

Common Irregularities – Loan Policy
Lack of articulation – overall approach – category wise thrust Which comes first – activity or policy? Areas which get low coverage – Derivatives, Securitization, sale of NPAs, compromise settlements, ALM, IPO financing Flexibility vs. rigidity Scope for exit

Adherence to delegated authority
Delegated powers – delegation vs centralisation Overdelegation leading to credit indiscipline and NPAs? Over centralisation leading to lack of focussed monitoring, delays in decision making and NPAs / loss of business? Big ticket lending to have centralised decision making and SME / Retail to have flexible , branch level flexibility Adherence to delegation – reporting of excesses, analysis , ratification , action on lapses. Tendancy to resort to frequent adhocs – difficulty in justifying enhancements – unorganized borrowers preferring high cost adhocs to more disciplined / planned growth of business and bank lending – camouflaging of NPAs and delaying the slippages Practices in PSBS – Old Pvt. Sector banks and NPvtSBs Distribution of sanction powers among Board, its committees, committee of executives, top functionaries – Credit Governance Standards

Credit Management Model
Credit Appraisal – selection of borrowers dictated by policy, portfolio, rating profile, cross selling benefits /overall account income, take over norms, hurdle rating, minimum benchmarks, rating and pricing etc with an objective to maintain and increase asset quality Credit supervision – Monitoring the quality- retaining good quality customers - steps to identify incipient sickness - provide timely finance –prevent slippages – exit policy NPA management – focus on recoveries, restructuring/rescheduling, upgradations of sub standard assets, technical write off for tax planning – pursuing legal cases

Credit Appraisal
Methods of assessment of working capital Project finance Rating – design issues, coverage, consistency , skills , independent review Pricing – whether aligned with rating – extent of Sub – PLR lending – process of BPLR determination

Credit Supervision
Direct monitoring vs outsourcing Tools of monitoring – unit visits, analysis of returns, stock audits, review/ renewals, drawing power Tools of securing bank’s interest – documentation, adherence to terms of sanction , insurance Monitoring of impending NPAs

NPA Management & Compliance
Review of NPAs Recovery Management Write off and Compromise Analysis of ageing Analysis of quick mortality Legal cases

Adherence to IRAC norms – Misclassifications, Underprovisioning, Evergreening, repeated restructuring Priority sector lending targets – misclassifications, misinterpretations Prudential norms – wrong calculation of risk weights, wrong treatment of capital items, single/group exposure limits, sensitive sector exposures

Portfolio Management
Portfolio buyouts Securitization of assets Sale of assets /NPAs

Credit Risk Management
Architecture Identification Measurement Control Basel II

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