DEVTECH FINANCE

PRINCIPLES OF
CREDIT LENDING
CREDIT MANAGEMENT
 SAFETY
SPREAD LIQUIDITY

CREDIT
PURPOSE PROFITABILITY
LENDING

POLICY
SECURITY VALIDATION
 SAFETY

• The Banker should ensure that the funds lent are safe and would be
repaid by the borrower as per the terms of sanction.

• The credit policy and the guidelines of the bank helps to take proper
decision safety of loans granted.

• Since the major source of loan given is deposit that belong to customers
the banker should ensure that amount lent would be received back with
interest.
 LIQUIDITY

• The ability of bank to convert the assets into cash. Entire amount that a bank
mobilizes as deposits cannot be lent. A portion of the deposits should be kept
with RBI in form of CRR and another sizeable portion as SLR should be
invested in approved securities.

• RBI changes CRR and SLR as part of credit policy announcements to control
the money supply in the economy.

• If money supply is more RBI tends to increase the CRR so that the lendable
funds with commercial banks are reduced and vice-versa.
 SECURITY

• The asset acquired out of bank finance is the primary security for the loan
borrowed.

• If higher risk is involved in the loan, additional security is required in form of

immovable property or securities termed as collateral.

• Collateral security is sold as last resort by the bank in case the borrower
defaults in repayment despite various steps taken.
 SPREAD

• Entire credit cannot be granted to an individual customer or a particular

industry or a particular location.

• Credit should be spread across various sectors and different classes of

people and different geographical areas.

• Diversification to mitigate risk involved in credit business.

• Priority sector lending mandated by govt. for development of economy &

society as whole.
 PURPOSE

• The loan granted should be for an approved purpose and productive activity.

• The purpose of loan should be for a business that is legally permissible and
economically feasible.

• The banker expect from the customer to repay the dues from business
income and thus gives utmost importance to viability of the project for which
credit is granted.
 PROFITABILITY

• Profit as in all the business is the main objective of banking business as well.

• Increase customer base and revenue.

• Cost benefit analysis.

• Capturing market share.

 POLICY VALIDATION

• RBI credit policy

• Banks credit policy

• Priority sector lending

• Not opposed to national interest

• Basel Norms
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FINANCE