Borrower Appraisal Techniques

Revised
 Borrower Appraisal Techniques

Session objective
To equip the participants understand the different techniques
of borrower appraisal including KYC,Due diligence, A&L
assesment,Credit report computation and CIBIL/EXPERIAN
report verification
 Session coverage

 KYC –verification of Officially Valid Documents

 Due diligence
 Components of A & L Statement
 Computation of Credit report
 Borrower appraisal Techniques -Product appraisal-Borrower – Product
Matrix analysis -Activity appraisal-Security appraisal
 Verification of CIBIL / EXPERIAN Reports
 KYC –verification of Officially Valid Documents (OVD)
 Officially valid document” (OVD) means the passport, the driving licence, the
Permanent Account Number (PAN) Card, the Voter's Identity Card, job card
issued by NREGA, Aadhaar Card.
 Where ‘simplified measures’ are applied for verifying, for the limited purpose of,
proof of address the following documents are deemed to be OVDs :
Utility bill, which is not more than two months old, of any service provider
(electricity, telephone, post-paid mobile phone, piped gas, water bill);Property or
Municipal Tax receipt; Bank account or Post Office savings bank account
statement; Pension or family Pension Payment Orders (PPOs) ; Letter of
allotment of accommodation from employer issued by State or Central
Government departments, statutory or regulatory bodies, public sector
undertakings, scheduled commercial banks, financial institutions and listed
companies; Documents issued by Government departments of foreign
jurisdictions or letter issued by Foreign Embassy or Mission in India.
 Customer Due diligence (CDD)
 Customer Due Diligence (CDD)” means identifying and verifying the customer and the beneficial owner using
‘Officially Valid Documents’ as a ‘proof of identity’ and a ‘proof of address’
 CDD Procedure in case of Individuals - one certified copy of an OVD , one recent photograph, such other
documents pertaining to the nature of business or financial status specified by the Regulated Entity (RE) in
their KYC policy
 CDD Measures for Sole Proprietary firms - a certified copy of an OVD , Registration certificate,
Certificate/licence issued by the municipal authorities under Shop and Establishment Act, Sales and income
tax returns ,Certificate/registration document issued by Sales Tax/Service Tax/Professional Tax
authorities,IEC (Importer Exporter Code), Complete Income Tax Return
 CDD Measures for Companies - Certificate of incorporation. Memorandum and Articles of Association.
Resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to
transact on its behalf. Officially valid documents in respect of managers, officers or employees holding an
attorney to transact on its behalf.
 CDD Measures for partnership firm- Registration certificate, Partnership deed, Officially valid documents in
respect of the person holding an attorney to transact on its behalf.
 CDD -Simplified norms for Self Help Groups (SHGs)

 KYCverification of all the members of SHG shall not be required

while opening the savings bank account of the SHG
 KYC verification of all the office bearers shall suffice.
 Noseparate KYC verification of the members or office bearers
shall be necessary at the time of credit linking of SHGs.
 Components of A & L Statement and
Computation of Credit report
 Components of A&L Statement and their Interpretation
Agricultural Land, Residential/Commercial Land and building,
Shop / Factory – Plant and Machinery , other equipments ,
Liquid Assets and Liabilities
 Credit Report format and guidelines for computation
 Tangible Net Worth and its implications in credit decision
 Borrower Appraisal Techniques

Borrower appraisal
Product Appraisal
Borrower/Product Matrix analysis
 Borrower Appraisal

 KYC –Verification of OVD and Due diligence

 5Cs – 3Ps -3Ms
 Assets and Liability Statement – Credit Report -TNW
 CIBIL Report verification
 EXPERIAN Report verification
 Product Appraisal

 Promoter – Experience and Expertise

 Process flow – Technology used, labour availability,
infrastructure, raw material, power etc
 Production- capacity utilisation
 Sales – demand, orders on hand
 Price- profit and profitability
 Market –competition
 Viability
 Borrower- Product –Matrix Analysis

 Borrower good – Product good – shall be entertained

 Borrower good – Product not so good – can be considered after
scrutiny
 Borrower not good –Product good – can be avoided
 Borrower not good –Product not good – must be avoided
 Credit Information Bureau (India) Limited (CIBIL)

 It is the first credit information company in India, established in August 2000.

 The company collects and maintains credit records of individuals as well as commercial entities. This
includes borrowing and payments related to loans and credit cards.
 CIBIL obtains this information with the help of its associate partners which include members of banks
and credit institutions. Information is provided to CIBIL on a monthly basis based on which CIBIL
prepares a Credit Information Report (CIR) and credit score of an individual. This report is then
provided to credit institutions, when requested, to help them evaluate and approve loan/credit
applications.
 CIBIL plays a major role in India’s financial system by helping banking institutions better manage their
business and be helping customers secure credit on fair terms.
 CIBIL is also referred to as the Credit Bureau. It is licensed by the RBI and governed by the Credit
Information Companies Regulation Act, 2005.
 What is a Credit/CIBIL Score and how to get it?
 A credit score is a three digit numeric summary of credit history of the party. It is prepared based
on the information provided in Credit Information Report. The credit score normally ranges between
300 to 900.
 CIBIL scores are the deciding factor for many banks when it comes to considering the application.
The higher the score, the higher the chance for a review and approval of the loan application.
However, the decision to approve the loan application is completely dependent on the bank; CIBIL
as an institution does not play any role here.
 How to find your CIBIL score ? -An online score request form is available at CIBIL’s official website.
It is both easy and convenient and the entire process is completed quickly by paying a nominal fee.
To initiate the process, the first thing needed is to fill the online application form by entering the
personal details like name, date of birth, address, phone number, income, identity proof, and
address proof of the party. Once, all these details are filled and submitted the requisite fee
payment has to be made either by using credit card, debit card or through net banking.
 After the payment is done, a few authentication details have to be done. Once, authentication is
successfully completed, CIBIL score via e-mail will be received within 24 hours.
 What can affect the CIBIL score of the Party?
 Payment history:The payment history plays a major role in developing a good CIBIL record.
Making late payments on credit cards or delaying/defaulting on EMIs regularly by the party can
negatively affect the credit score, indicating that the party is not serious about or capable of
clearing his/her existing debts.
 Increased credit limit: Increasing the current balance of the credit card may negatively affect
the credit score since it is considered to enhance the repayment burden of the party. However,
increased spending on credit card does not affect the credit score as long as the party’s credit
utilisation is in proportion to his/her credit limit.
 Unsecured loans: A high percentage of unsecured loans such as personal loans and credit cards
may affect the credit score. A balanced combination of secured and unsecured loans adds
positively to the credit score.
 Multiple loans & Credit Cards: If the party has multiple loans, credits cards and new accounts,
this may affect his/her credit score, and banks may review their loan application more carefully.
 EXPERIAN Report
 EXPERIAN is a leading global information services company, providing data and analytical tools to
bank’s clients around the world. It helps businesses to manage credit risk, prevent fraud, target
marketing offers and automate decision making. It also helps people to check their credit report and
credit score, and protect against identity theft.
 . The data in the Experian Credit Information Report is based on the information provided by all
member banks, financial institutions and other credit grantors.
 Experian Credit Information Report contains information regarding credit accounts and details of any
credit applications. It contains detailed information of credit/loan history including information about
identity, credit accounts/ loans/ credit cards, payments, recent enquiries, etc.of the party.
 The Experian Credit Score is a numeric summary derived from the repayment history of previous
and/or existing loans, credit cards of the party and from the enquiries performed by banks and
financial institutions based on loan application. Your Experian Credit Score is based on the information
in your Experian Credit Information Report. The higher the score, the more favourably it is considered
by banks and financial institutions.
 Case study

 Shri.Somnath, aged around 40 years is running an oil packaging unit in a place

near Bengaluru metro, Karnataka State. He is residing in a spacious bungalow in
the City.
 He has acquired nearly 25 acres of farm land in Dharmapuri district of
Tamilnadu State adjoining Bengaluru metro.
 As your bank branch is operational near the location of the farm land, he
approached your branch for an agricultural term loan for establishing a
floriculture unit at a cost of Rs.3 crores.
 He has taken you for field visit in his luxury car and shown you the field. You
have come across an aged man in his farm land which he introduced as his farm
Supervisor. You have also noticed that an river let is flowing in the middle of his
farm land.
 Case study ---- contd..
 You have also visited his packaging unit located at the adjoining town of Bengaluru
metro wherein you have noticed a hypothecation board of a Private Sector Bank
based at Bengaluru.
 Since it is a hi-tech proposal you have sought for a field inspection cum feasibility
report from your Zonal office RDO.
 As per field inspection report the following additional information are gathered.
 Shri.Somnath has availed loans from a Private Sector Bank for his Packaging unit and
for purchase of car. The farm land is an ancestral property being managed by his
father. The aged Supervisor introduced to you is the Father of Shri.Somnath.The
proposal is originally referred to by a sitting MP of Karnataka State to a leading
Public Sector Bank operating in Bengalaru City which has not been given clearance
yet.
 Analyse the above case.
 Summary

The contents covered in the session

 KYC –verification of Officially Valid Documents
 Due diligence
 Components of A & L Statement
 Computation of Credit report
 Borrower appraisal Techniques -Product appraisal-Borrower – Product Matrix analysis -Activity appraisal-
Security appraisal
 Verification of CIBIL / EXPERIAN Reports