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CREDIT MANAGEMENT

Credit management is the management of the credit portfolio of bankers and financial
institutions. The expression Credit refers to short term loans and advances as well as to
medium/ long term loans and off balance sheet transactions. Management includes within its
preview pre-sanction, appraisal sanction, Documentation, disbursement and disbursal and post
lending supervision and control.

The main functions of the Banks are mobilization of the resources i.e. deposits, especially low
cost deposits and exploitation thereof in the most profitable manner within the frame work
stipulated by the Reserve Bank of India. The major portion of the deployment of resources is
through credit dispersion and safety of these funds and returns thereon are of paramount
importance. Banks are having their separate loan policies designed for the sanction of credit
facilities without compromising the quality of assets.

Debt Instrument:

Bond: Debenture - Corporate bond - Government bond Municipal bond

Loan: Usury Consumer lending Predatory lending Loan shark payday loan

Managing Debt : Debt management plan Consolidation Debt- snowball method-Bankruptcy

Debt collection and evasion : Debt compliance Collection agency Garnishment Tax refund
interception Debt bondage Debtors prison Phantom debt Charges-off Strategic default.

Debt market : Fixed income Consumer debt Government debt Corporate debt money
market Deposit account Debt buyer Securitization.

Debt in economics : Debt levels and flow External debt - Internal debt Consumer leverage
ratio.

Interest : Interest rate Default Insolvency.

MANAGEMENT :
It is a art of getting things done through people.( or )

IMPORTANCE OF MANAGEMENT :

Achievement of common goal.


Stability in society.
Social benefit.
Solution to complex problems.
Change and growth.

Classification of Advances

The loans and advances sanctioned by the banks are broadly classified into

1) Priority Sector Lending


2) Non-Priority Sector Lending

1.Priority Sector Lending

Indian banks contributing towards economic development of the country by subsidizing


the business activities undertaken by entrepreneurs in the areas that are considered Priority
Sector by RBI, priority sector lending means those sectors that the central government considers
to be given priority over other lending sectors, as they are important for the development of the
basic needs of the country. The priority sector has been classified as:

Primary Sector: This constitutes Agriculture and allied activities dairy farming, poultry
farming, goat rearing, pisciculture, etc.

Secondary Sector: This sector constitutes small scale industries (SSI), Small & Medium
Enterprises (SME), ancillary industries, village & cottage industries, tiny Industries and small
scale service and business enterprises.

Tertiary Sector: In this sector are small road and water supply operator, professional and self
employed, retail trade, small business, education, housing, state sponsored corporations for
SC/ST

2.Non-Priority Sector Lending


These advances include the advances under general category not included in the Priority
sector lending. These advances are mainly personal Loans, Consumption Loans, advances to
traders other than Retail Trading, Advances to Contractors and any other advances for non-
productive purposes.

The borrowers are broadly classified into;

Individuals
Joint Individuals
Proprietorship
Partnership Firms
Hindu Undivided Family
Public and Private Companies

Types of Credit facilities

The credit or lending has been divided in to two broad categories i.e. as follows;

A) Fund Based
B) Non Fund Based

A. Fund Based

Fund based means actually the cash is credit to the customers Account. In fund based
there are two types.

1. Working Capital

Working capital for any enterprise refers to the total amount of circulating funds
required for the continuous operations of the unit on an ongoing basis. It refers to the
total funds required for financing the minimum total current assets to remain viable &
operate above the breakeven level to earn profits. A firm should have adequate working
capital as much as needed by the firm. which ultimately result in product ion
interruption and lowering down the profitability. The working capital facility is short
term in nature for a period up to 12 months. This facility is provided through-
Cash Credit
Over Drafts

2. Term Loans
Term Loans means loans are payable after 1 year to 10 years. It is availed for
acquisition of Fixed Assets, setting up of Business units, Expansion/Modernization etc.
These are financed by way of term loan is repaid by the borrowing concerns in
installments out of profits earned. The schedule of repayment and duration of loan are
fixed on the basis of the assessed ability of the undertaking to generate surpluses for
making repayments.

B.Non-Fund based

In this type of loan the actual fund in not transfer to the customer account, but the bank
will give the guarantee, if in case any default from the customer the bank will give the amount.
The non-fund based limits are normally of two types .

1. Bank Guarantees
There is no standard formula for assessment of bank guarantee limits. However, details
such as the nature of the guarantee, the purpose of the guarantee and the particulars of the
contract period for which guarantee is sought and amount of the guarantee are to the collected
first and these have to be considered viewed from the aspect of creditworthiness of the customer
and his relationship with the banker and decision has to be taken as regards sanction of the limits
requested by the customer. This facility is required by the Borrower to meet following
transaction;
Participate in tenders for expanding market.
Security deposit for participating in tenders expanding market.
For giving Guarantee for performing contracts.
To avail concessions in duty.

2. Letter of Credit
The borrowers have to acquired fixed assets & purchase different types of raw material &
finished goods & make payment for services in the course of business. The suppliers allow the
buyers to make purchases with the help of LCs issued by the bankers. The LC is issued on
documents against payment or documents against acceptance.

Credit Management
The credit management generally involves the following major components

1. Pre-sanction Process
2. Post-sanction Process

1. PRE-SANCTION PROCESS

In general words pre-sanction means Taking the precaution before the activity is carried
out. The pre-sanction process involves some activities like;

Appraisal and Analysis of information given by borrower by exercising due diligence.


Proper assessment of need based limits as per laid down norms & policies of Bank.
Sanction.

Documents generally required for Pre Sanction Process

Prescribed Loan application form duly completed and signed.


Name, Address, brief bio-data and details of assets & liabilities of
Individuals/Proprietors, Partners, Directors Trustees, Guarantors etc.
Track record of the promoters, their managerial and technical expertise and financial
flexibility.
Particulars of the securities other than primary being offered, along with copies of
document of title.
Statutory clearance from various Govt. Dept/ Agencies.
Credit information form duly filled in by the Individual Proprietor/ Partner of the firm/
Directors of the company

CREDIT ADMINISTRATION

The norms for disposal of credit proposal and credit refusal, the bank is complying with the
guidelines relating to issue of acknowledgement for receipt of proposals and time norms for
processing and disposal as contained in the fair practices code formulated by the bank, which is
in force.

METHODS OF ASSESSMENT

Assessment of Working Capital Requirement

The working capital assessment depends upon the level of business, segment of the
borrower, prevailing guidelines of RBI, trade & industry practice prevailing and other objective
factors. The assessment shall be based on a total study of borrows business operations, the
processing and production cycle of the industry, financial and managerial capability of the
borrowers and other parameter relating to the unit and the industry.

The assessment of the working capital the following four methods;

Turnover Method.
Flexible Bank Finance. Method
Cash Budget Method.
Net Owned Fund for NBFCs.

Turn over Method

20% of the projected realistic turnover for limits up to Rs 1 crore for all advances and up
to Rs 5 crores for SSI advances.

Flexible Bank Finance Method

This is an extension of maximum permissible bank finance method (MPBF). In this


method current ratio is taken at 1.17%. This method is applicable for A/c with credit limits of Rs
1.00 crores and above for other advances & Rs 5.00 crores for SSI advances. The assessment of
credit requirement should be made based on the projected turnover, level of inventory,
receivables and sundry creditors in relation to past performance, market developments and
individual outlook.

Cash Budget Method

This method is adopted in The required finance is worked out from the projected cash
flows & not from the projected values of assets & liabilities. Besides cash flow, other aspects
like borrowers projected profitability, liquidity and fund flows are also to be analyzed

Net Owned Fund Method

This method is used for the assessment of credit needs of Non-Banking Finance
Companies [NBFC] on Net Owned Funds Method based on the formats prescribed by RBI.

Assessment of Term Loans Requirement

The assessment here includes the projected appraisal; cost of project, means of finance
and the sources from which such loan is expected to be liquidated is net cash generation form
year to year. All this needs a detailed appraisal of the project to establish its long-term viability.
The technical and economic viability of the project is examined and analyzed with reference to
the following;

Whether cost of the project is acceptable.


Arrangements made for raising Debt/ Equity.
Capital Structure, Debt Component & project implementation schedule.
Cash Flow and Fund Flow.
Industry profile and Prospects.
Technical feasibility, promoters strength.

Assessment of Non fund based limits

1. Letter of Guarantee (LG)


The requirement of letter in line with working capital requirement guarantee
facility should be in line with the borrowers business requirement. The Borrowers past
performance, purpose of the Letter of Guarantee limit and capacity to meet the
commitment is ascertained. Adequate cash margin and securities considering the
Borrowers dealings & experience is obtained. The financial Guarantees are issued with
100% cash margin as far as possible.

The following precautions are taken for issuance of LG

Guarantees are issued for definite period


Guarantees are issued for Genuine Trade/ Business transactions.
The format and working of LG should be sample, unambiguous.
A limitation clause should always be inserted specifying the extent of monetary
liability and expiry date.
2. Letter of Credit (LC)
The borrowers have to acquire fixed assets & purchase different types of raw materials &
finished goods & make payment for services in the course of business. The suppliers
allow the buyers to make purchases with the help of LCs issued by the bankers. The LC
is issued on documents against payment of documents against acceptance.

The financial position of the customer & the resources from which the bills under letter of credit
would be retired should be enquired into. The sanction of Letter of Credit transactions should be
precise and definite with regard to quantum, type of credit like DA & DP revolving or specific
purpose for which credit is to be established, type of documents to accompany the bills for
negotiation. Before granting a letter of credit facility, a credit report of the beneficiary is
obtained. All import LCs is subject to Export Import policies including exchange control
regulations including the Foreign Exchange management Act (FEMA) etc.

Examination of proposal for sanction of Credit facilities

The proposal for credit facility is to be thoroughly examined by the Bank and relevant
information is to be recorded. Generally the credit proposal contains the following basic
information;

a) Borrowers standard/ background


b) Constitution of the borrower
c) Nature of the Business
d) Total Capital
e) Credit report on borrower & guarantors
f) Search report
g) Nature and extent of credit facilities required
h) Security offered being primary & collateral and other terms of sanction i.e. Margin,
interest etc.
i) Purpose and period of advance
j) Source or repayment
k) Guarantees offered
l) Facilities enjoyed with other banks
m) Connected A/Cs & credit facilities enjoyed with the bank
n) Prudential exposure norms

2. POST SANCTION PROCESS

The post sanction process means Analyzing the things after sanctioning the loan. It
involves various factors such as;

1. Documentation
2. No document no loan
3. Disbursement
4. Verification of end use post sanction inspection
5. Follow up
6. Supervision
7. Monitoring and control

Post sanction process in detail is as under

Basically, as long as the borrowers operations and availment of credit are on projected
and approved lines with adequate cash generations and reasonable asset formation, the business
and consequently, banks advances also remain healthy. Any imbalance to the above is of
concern to the bank and it would affect the banks advance. Hence documentation, follow up
functions are primarily aimed at detecting and locating the above imbalances.

1. DOCUMENTATION

In credit management, the importance of proper documentation can at best be placed only
next to a sound credit appraisal system. Documentation is one of the key areas; bank has to take
care, because the documents constitute the primary evidence of the contract between the bank
and its constituents, keeping in view the importance of documentation, resting with Guide on
Documentation. Besides advising the branches regarding documentation, Central Office in no
uncertain terms has time & again reiterated that Advance should not be disbursed without
obtaining Stipulated Documents.

2.SUPERVISION & MONITORING

Regular & close monitor5ing can minimize the incidence of slippages. Deterioration in
asset quality is rarely sudden except when unexpected environmental economic changes occur.
Normally several warning signs surface long before an asset becomes non-performing.

Preventing slippages for Technical Reasons

In view of clarificatory guidelines by RBI making Income Regulation and Asset classification
norms more stringent, Branches shall ensure that the account does not slip to NPA category on
account of the following technical reasons;

Review/ renewal or regular/ adhoc credit facility is not done within 180 days from due
date of review / renewal of account.
Drawings allowed against stock/ book debt statements older than 180 days.

Delegation of Power

Bank has put in place Scheme of Delegation of Loaning powers, with the approval of the
Board for each delegate, looking to the multi-tier structure, specific business requirements and
RBI directives.
All delegates shall strictly adhere to the operative guidelines governing the exercise of
Delegated Authorit

3. DISBURSEMENT
1. Securities/ mortgages are duly created as per the term of sanction.
2. In case of advances to companies it must be ensured that the charges are noted with ROC.
Within 30 days from the date of availing Credit (Finance from the bank in any form).
3. It must be ensured that no documents are kept blank.
4. Most importantly it must be ensured that the financing Banks name in include in the
Financers clause of the General Insurance Policy.
The following monitoring tools have to be effectively used for close monitoring of the Loan
Assets:

Obtaining of stock statement specifying the details of stocks held.


Book debts statements.
Monthly cash budget.
Periodical reports i.e. monthly select operational data, quarterly performance reports,
fund flow statements.
Physical verification of stocks/ factory inspection reports.
Technical Officers reports.
Audited/ provisional financial statements.
Adverse/ searching enquiries from other banks regarding the borrower/ Guarantors.
Account operation scrutiny (Being in the nature of poor turnover, frequent return of
cheques & issue of cheques unconnected to the main business etc.).
Sales Tax, Excise duty paid/ remitted challans evidencing payment of the same can also
be used to correlate the corresponding sales/ manufacturing activates.
Internal Audit & concurrent Audit Reports submitted by the other auditors to obtain
additional information.

MONITORING PROCESS

Any monitoring information, which in the opinion of its recipient, could impact adversely
credit quality, will require him to initiate immediately monitoring process. Each of the
monitoring information could have different and varied connotations. Depending upon the
background and past behavior on the one hand and also current status on the other, the
monitoring information requires analysis/ interpretation to initiate monitoring process

Stages of Monitoring

There are three distinct stages of monitoring;

1. Pre Disbursement
2. During Disbursement
3. Post Disbursement

Various committees on credit disbursements

The following are the various committees for credit disbursements


1. Tandon Committees (1974)
2. Chore Committee (1979)
3. Laxminarayan Committee (1973) Consortium Arrangements for working capital lending
4. Nayak Committee
5. Vaz Committee (1993)
6. Shetty Committee For Consortium Advance
7. Kannan Committee (1997

1. Pre Disbursement

Not withstanding the credit sanction, disbursements will depend totally upon the
compliance to various aspects such as:

Acceptance of terms, conditions and stipulation by the borrowers.


Ability of all relevant documents, including creation of mortgage etc., as collateral
security and letters of guarantee by guarantors.
Compiling total information on the borrowers others activities, which might have come
to the knowledge at, branch level, subsequent to submission of credit proposal.
Carrying out pre disbursement inspection of the unit.
Maintenance of records to fulfill Banks requirements

2. During Disbursement

Disbursements in loan accounts are different from running accounts. All disbursements,
whether in loan account or running accounts, will be related to actual/ actual/ acceptable
performance of the business and should never deviate from the basic objective of satiety of
Banks exposure. The disbursements should be done taking into account extent of exposure and
also progress of the project/ business activity.

The aspect for monitoring of loan Accounts:

Project schedule vis--vis actual implementation.


Adequacy of arrangements to finance cost overruns.
Verification of Performa invoices with market enquires.
Payment of margin amount through the bank.
C.A certificate or progress certificate from architect/ contractor etc.

3. Post Disbursement

Under this stage the following factors are to be ensuring;


Ensuring compliance to all sanction terms/ stipulations
Undertaking regular check/ supervision of account operations.
Obtaining regular stock/ security statements.
Undertaking periodical inspection of unit, stock and securities.
Arranging stock audit by outside agency whenever applicable.
Scrutiny of monthly, quarterly, half yearly monitoring statements i.e. MSOD, QPR etc,
provisional/ audit statements.
Undertaking periodical review of the accounts.
Follow up for receipt of Audited statements of accounts even when account is not due for
review.

At each of the above stages, meaningful monitoring is required needs to be conducted in a


systematic manner. Properly study and alertness in assessing the borrowers performance and
requirements will ensure success of monitoring at the three states mentioned abov

SUCO BANK PROVIDS THE FOLLOWING SERVICES FOR ITS CUSTOMER :

The various services of available in the bank are as followed:

Deposits
Financial facility
Locker facility
Demand drafts all over India

The depository schemes are available in the bank are as followed:

Savings deposit
Current deposit
Term deposit

The most attractive deposit scheme is:

Money saving of RS 1,250.00 for 60 month will repay return of one 1,00,000

The different types of loan are available which are as followed :

Business loan

Construction loan

Consumption loan

Vehicle loan

Education loan

Loan for small sale industry

Gold loan

Dhanya laxmi (Agri key loan)

KanaKavarsha loan

OD/CCL

Gruha vaibhava

SSI

SUCO suggi sale

Mortgage loan

The Cost Processing of the Loan Application :

1. Loan application fee Rs.50.00


2. Bond paper, printing stationery fee Rs.80.00
3. Legal fee is obtained
4. Processing fee 1% on the loan amount
5. Up to 50,000/-Rs.250/-
6. Above 50,000/- to Rs.1,00,000/-Rs.500/-

Above 1,00,000/- to Rs.2,00,000/-Rs.750/

Rate of interest and Loan Details

SUCO Bank provides the rate of interest and Loan Details for economic benefits which are
as followed:

1. Deposit interest rate


2. Rate of interest and period
Deposit Interest Rates:
Savings account = 3.5%
Current account =
Fixed deposit: minimum amount of deposit to be accepted is Rs.1,000/-

Rate of Interest and period:

Period For general citizen For senior citizen

16 days 44 days 3.5% 04%

45 days 90 days 6.5% 07%

91 days 180 days 7.5% 08%

181 days 360 day 09% 9.5%

1 year 2 year 8.5% 09%

2 year above 08% 8.5%


General citizen

18.60% 15.12%
16-44days
45-90days
8.14%
91-180days
181-360days
1-2 years
19.77% 2years above
20.93%
17.44%
The Statement Showing the types of loan and amount and their Rate of
Interest:

Particular
Serial Amount Rate of interest
number
1 Dhanya laxmi (agri key loan) 10L 15%
2 Dhanya laxmi (agri key loan) <10L 15.5%
3 Agri gold loan - 15%
4 Business gold loan - 16%
5 KanaKavarsha loan 01L 16%
6 KanaKavarsha loan <01L 16.5%
7 OD/CCL 10L 15%
8 OD/CCL <10L 15.5%
9 Gruha vaibhav 05L 16%
10 Business loan 10L 16%
11 Business loan <10L 16.5%
12 Consumption 01L 17%
13 Consumption <01L 16.5%
14 Vehicle loan 01L 17%
15 Vehicle loan - 14%
16 SSI - 15.5%
17 LFD & LRD - 1% above deposit rate
18 Education loan - 12.5%
19 Suco suggi sale - 16%
20 Mortgage loan - 16.5%

STATEMENT SHOWING THE LOAN AND THEIR DOCUMENTATION

1. EDUCATION LOAN

Name of the Loan Education Loan (CCL)


Priority/ Non priority Priority sector

Actual interest 12%


Rate of Interest Penal Interest 3%

:
Security Offered Agriculture Land
Plot / Building.
LIC Bonds

60 Months Installment (Repayment


Term of Repayments will starts after one year of the
completion of course / 6 Months
after getting Employment which is
earlier).

Term Conditions .
The entire relevant document to be
obtained as per
SUCO /HO/Circular No.3/2007-08
Dated 17/4/2007.
Obtain signature of co- obligate.
Partly release of sanctioned amount
as per SAP-K the structure for
Education.

2. CASH CREDIT LOAN:

Name of the Loan Cash Credit Loan (CCL)

Priority/ Non priority Non Priority sector


Actual interest 12%
Rate of Interest Penal Interest 3%

Primary Security:
Security Offered Hypothec of stock, Furniture & Fixture.
Collated Security
Building Valve.

Term of Repayments 3 years subject to renewal every year

Term Conditions Document to be obtained as per HO


Circular SUCO /HO/439/02-
03NOXI/2002-03 Date 7/02/2003.
Share holding should be 2.5% of
limited sanctioned.
Legal opinion & latest tax paid
receipt & EC to be sent to HO for
perusal.
Insurance must be enhanced to the
level of stock hold.
Interest payment to be regular on
monthly basis.
Stock must be inspected before 10th
of every month.
Stock to be insurance for the value.

3. GODOWN CONSTRUCTION LOAN:

Name of Loan Godown Construction Loan (GCL)

Priority / Non Priority Non priority sector


Rate of Interest Actual Interest 15%.
Penal Interest 3%

Security Offered Construction Plot

Term of repayment 12 Half year Installment

Term and Conditions The entire relevant document to be


obtained as per
SUCO /HO/Circular No.3/2007-08
Dated 17/4/2007.
Before disbursement, the above
mentioned property registered
mortgage to be done.

4.CONSTRUCTION LOAN:

Name of Loan Construction Loan (CL)

Priority / Non priority Priority Sector


Rate of Interest Actual Interest 16%.
Penal Interest 3%

Security Offered Plot Document

Term of Repayment 84 Monthly Installment.

Term and Condition The entire relevant document to be


obtained as per
SUCO /HO/Circular No.3/2007-08
Dated 17/4/2007.
Before disbursement, the above
mentioned property registered
mortgage to be done

5. VECHAL LOAN:

Name of Loan Vehicle loan (VL)

Priority / Non priority Non Priority Sector


Rate of Interest Actual Interest 16%
Penal Interest 3%

Security Offered Hypothecation of Vehicle valued.


3 Cheque leaves of Followed Bank.
Fixed deposit of Rs.5000/-

Term of Repayment
36 Monthly Installment

The entire relevant document to be


obtained as per
Term and Condition SUCO /HO/Circular No.3/2007-08
Dated 17/4/2007.
Before disbursement of loan collect
Form 29,30&34(two Sets) .
Hypothecation of vehicle, Bank
name to be noted in R.C. Book.
Insurance copy obtain.
Payment to be named directly to the
dealer copy of the invoice
forwarded to HO.

6. ALLIED AGRICULTURE ACTIVITY

Name of Loan Allied Agriculture Activity (AAA)


Priority / Non priority Priority Sector

Rate of Interest Actual Interest 15%.


Penal Interest 3%

Security Offered Hypothecation of field.


Agriculture Land
Fixed deposit of Rs.30,000/-

Term of Repayment 36 Monthly Installment.

Term and Condition The entire relevant document to be


obtained as per
SUCO /HO/Circular No.3/2007-08
Dated 17/4/2003.
Before disbursement, the above
mentioned property registered
mortgage to be done.
Hypothecation of particular land.

7. DHANYA LAXMI LOAN:

Name of Loan Dhanya Laxmi Loan (DLL))


Priority / Non priority Priority Sector

Rate of Interest Actual Interest 13.5%.


Penal Interest 3%

Security Offered Required bags of paddy which is depends


upon the loan amount.

Term of Repayment 6/12 Months..

Term and Condition The entire relevant document to be


obtained as per
SUCO /HO/Circular No.3/2007-08
Dated 17/4/2003.
Insurance to done..

7. BUSINESS LOAN:

Name of Loan Dhanya Laxmi Loan (DLL))

Priority / Non priority Priority Sector


Rate of Interest Actual Interest 13.5%.
Penal Interest 3%

Security Offered Required bags of paddy which is depends


upon the loan amount.

Term of Repayment 6/12 Months..

Term and Condition The entire relevant document to be


obtained as per
SUCO /HO/Circular No.3/2007-08
Dated 17/4/2003.
Insurance to done..

SCHEMES

Particular Period Rate of Interest


Catch 11 series - 1 46 181 days 11%

Catch 11 series - 2 1 360 days 11%

SUCO easy money _ 08%

_ 06% - 10%
SanKranti Deposit

KanaKavarsha Scheme 181 360 days 09% - 10%