Credit Approval Process

Steps of Credit Approval Process

• Request for credit from the client to a branch

• Credit application form filled out by the client and the collection of

documents

• Scrutinizing the documents

• Analyzing the information

• Preparing the proposal

• The proposal goes to the authority through other necessary steps

• Sanctioning of the credit

• Informing the client, loan disbursement, supervision and monitoring

 Contd.
• The loan request is made in a prescribed form/application by a client to the head
office through the branch office.

• The client is dealt by the credit officer I the branch office. Once the loan
application is made, a preliminary interview is conducted by the credit officer in
order to know the purpose and amount of the loan. At the same time, the credit
officer requests the client to submit some documents.

• When the documents are submitted, the credit officer takes a look on them and
then sent them to the head office.

• The credit and administrative department at the head office scrutinize the
documents and see whether all documents have been attached. This department
is expert in scrutinizing the documents.
 Contd.
• Once the documents are verified, the proposal along with the documents is sent
to the credit risk manager who independently determines the riskiness of the
proposed loans. He finally makes an assessment on the loans.

• Before sending the proposal to the board of directors, it is analyzed by the credit
committee headed generally by Deputy managing director or managing director.

• The final proposal is prepared to send it to the board of directors. There is a

prescribed format for preparing the proposal to be sent to the board of directors.

• The final decision of approval or disapproval comes from the board of directors.
After the loan is approved, it is informed to the client; the client then gives a
disbursement letter mentioning the amount of loan he intends to take. Sometimes
it is seen that a client has applied for five million taka, but then he finds that he
actually needs four million taka. The exact amount of loan could be known after
the disbursement letter is given by the client.
Collateral [Security] of loan and its
Valuation
 Collateral of Loan

• Lien
• Pledge
• Hypothecation
• Mortgage
 Valuation of Collateral
• Liquidity

How quickly an asset can be converted into cash.

• Marketability

The availability of the market to sell a liquidated asset.

• Easy ascertainment of value
• Stability of value
• Storability/Durability
• Cost and labor of supervision
• Transportability
• Ascertainment of title

The borrower’s title to the asset must be clear and undisputed

 Contd.
• Easy transfer of title

The transfer of title should be easy without many formalities

• Absence of contingent liability
• Yield

The ability of the security to generate income regularly

• Depreciability

How rapidly assets lose their value in the market.

• Controllability

The ability of a bank to locate and hold the collateral.

• Environmental risk

Whether the collateral has any potential damage to the environment.

Credit Administration
 Credit Administration

General documents
– Demand promissory (DP) note
– Letter of authority
– Letter of arrangement
– Letter of disbursement
– Letter of revival
– Personal net worth statement
– Copy of national identification card
– Credit approach in business pad of the borrower
– Credit application in prescribed format duly filled in
– Photograph of the borrower
– Up to date CIB report
– Credit report of the borrower
 Documentation
General guidelines for proper execution of documents
– Witness, the manager or authorized officer of the bank.
– Full signature not initials on all pages with dates.
– No addition, deletion or alterations without consulting the bank’s legal advisor.
– Documents must be explained by a lawyer if the borrower is illiterate.
– They should not be attested if not required.
– Adequately and correctly stamped.
– The promissory note must be stamped with revenue stamp not postage stamp.
– Documents should be entered in the document register.
– They should be kept in envelopes as punching may deface some important parts
of them.
– They must be arranged according to serial number.
– Maintaining due diary for the expiry dates of the documents.
– No amount should be advanced until the requisite documents of the borrower and
other parties like guarantor have been executed.
 Contd.
General guidelines…
– Liability declaration of the borrower along with an undertaking that the
borrower has no liability with any bank or financial institution excepting
as declared.
– Undertaking stating that the borrower will not avail any credit facility from
any other bank or financial institution without prior consent of the bank.
– Undertaking stating that the borrower does have any relationship as
director or sponsor with the bank.
– Undertaking stating that the borrower shallnot sell or transfer the
ownership of the business/factory/shop until the bank dues are fully paid
or without NOC of the bank.
– Credit Risk Grading score Sheet/Internal Credit Risk Rating score sheet.
– Post-dated cheque covering the credit facility.
– Acceptance of the borrower to the sanction letter
– Proper stamping.