You are on page 1of 30

Loan Origination

&
Appraisal Techniques

confidential
Mathew Joseph
Senior General Manager

Housing Development Finance Corporation Limited - India

AUHF - 2007 AGM & Conference Program, Ghana - September 2007


Why do we appraise?

 Is a Selection Tool

 Quantifies Risk

confidential
 Aids Decision Making

 Ensure Good Quality business with


excellent creditworthiness
What is Credit Appraisal?

ABILITY INCLINATION

confidential
OBJECTIVE SUBJECTIVE

KNOWLEDGE EXPERIENCE
What are we Appraising?

PERSON:
 Capacity - The ability to service the loan by

financial resources/ income streams.

confidential
 Inclination - Willingness to pay.

PROPERTY:
 To check documents for creation of security.

 To ensure end use.


Basis of Appraisal

Security Based

confidential
or
Repayment Capacity Based
Appraisal Process
Involves Risks:
Identification
# Information Acquisition
# Documentation

confidential
# Customer Interface Techniques

Assessment
# Identifying key risks
# Identifying Mitigating mechanisms
# Integration , Collation of data along with
information gathered at the personal interview
Appraisal Process

Controls/ Risk Mitigants


# Policy related
# System related

confidential
# Level/ Limit related

Case Representation
# Culmination of the appraisal process
Identification
Information Acquisition Stage
# Carefully designed Application Form
# Standard Document List
# Credit Bureau Report
# Customer Credit Verification Reports

confidential
Documentation
# Standard Check-lists
# Standard Approach to Scrutiny, Perusal

Customer Interface Stage


# Rapport Building
# Probing Techniques
Assessment
Involves Extensive Evaluation of the following parameters

1] Current Financial Condition & Paying capacity


# Income Source # Income Frequency
# Income Consistency # Income Continuity

confidential
2] Inclination to repay
# Family Background # Savings History
# Repayment trend on other liabilities
# End use of property
# Authenticity of information &
documentation provided
Assessment

3] Specific Characteristics which may affect


loan repayment

4] Current value and relaisability of security

confidential
5] Confirmation of the proposal with laid
down credit norms

6] Adherence to Financial Ratios


Case Representation

Has to be comprehensive as the representation


captures the essence of the loan and forms the
basis of approval

confidential
1] Output of the appraisal process in a standardized
format

2] Describes the result of the credit assessment

3] Details the credit quality and risks

4] Makes the recommendation


Controls - The Need

The credit appraisal process involves multiple


steps to arrive at the final decision.

It is imperative that the scope for errors/

confidential
omissions is minimized/ eliminated.

Our controls operate in the current business


environment and have to be dynamic in order
to be effective.
Type of Controls

Credit Controls:
1] Written polices & procedures for credit risk

confidential
systems & controls

2] Standard Credit measures

3] Policies designed to identify problem loans


Controls

System Controls:
1] Validations and prompts inbuilt into the loan

confidential
processing systems

2] System safe guards

3] Escalation mechanisms

4] Exhaustive Information Systems


Controls

Limit Controls:

1] Delegation of Approval powers

confidential
2] Mandatory Approvals of senior personnel in
cases of loan amounts being greater than loan
approvers sanctioning powers
Pre-Sanction

Appraiser’s Responsibility:
 Data Discipline
 Document Validity

confidential
 Financial Terms & structure of loan
 Loan Feasibility
 Case Representation
Pre-Sanction

Appraiser’s Responsibility:
 Review of Verification Reports
 Residence

confidential
 Employer
 Tele-checks on above

 Validates disclosure made by applicant


Pre-Sanction

Appraiser’s Responsibility:
 Review of Credit Bureau Report

confidential
 Comprehensive Credit Information
 Provides details pertaining to credit
facilities already availed of by a borrower
as well as his/ her payment track record.
External Agent Reports

External Reports validate 4 Basic Types of Information

 Identification Information

confidential
 Employment Information
 Residence Information
 Payment History
 Inquiries raised by other lenders
Pre-Sanction

Double-Checker’s Responsibility:
 Review of Quality of Appraisal of Appraiser

confidential
 Document/ Information Reliability &
Compliance
 Compliance with established norms &
policies.
 Second Level Credit Check
Pre-Sanction

Approver’s Responsibility:
 Final Sanctioning Authorities
 Review of all aspects of loan w.r.t.

confidential
 Financial Terms
 Property Assessment
 Business Risk
 Government Policy
 Industry Outlook
Post-Sanction Processes

Critical as these processes are a key to customer


service and maintenance of a quality portfolio

confidential
 Legal Due Diligence

 Technical Due Diligence


Post Sanction Processes

Legal Due Diligence:


 Specialized in-house team to whet and
scrutinize Property Master File documents.

confidential
 Post Approval, Generation of a unique
property master which can be referred to by
any office all over India.
 Property Database maintained exclusively by
the specialized team.
Post Sanction Processes

Technical Due Diligence:


 Specialized in-house team to assess property
structure and compliance with statutory

confidential
approvals, plan.
 Outdoor, Indoor assessment of property.
 Disbursement subject to the Technical
Approval.
Preliminary Approval

Generation of File No CONTROLS


INCORPORATED

On Line & Physical file created

confidential
Process of Scanning

Detailed Data Entry

Updation of Field Credit Investigations


The recommendation process commences by scrutiny
of the loan file and all supporting documents

Customer credit verification reports & Credit

confidential
Bureau reports assessed & evaluated

Income & property assessment – Simultaneous


procedure. Initiation of technical site visit if the
property has been identified
Income , Obligations , assets , sources of
own contribution updated on line

Updation of special conditions , remarks.

confidential
Review of case with respect to data
authencity , policy compliance

File recommended
Physical file handed over to the double checker

Files reviewed for the following :


1] Document validity , reliability

confidential
2] Data Discipline
3] Quality of appraisal
4] Adherence to norms & polices

File Double checked


Approval Pool sanctions the double-checked loans

confidential
Post sanction process initiated
Thank You!
confidential