Description
This is a presentation about need and components of credit policy, credit policy pursued by the government and credit culture prevalent in India.
Credit Policy
Sub-sections
? Need for Credit Policy
? Components of Credit Policy
? Credit Policy Pursued by the Government ? Credit Culture
Deals with :
? Exposure levels
? Credit risk assessment
? Credit appraisal standards ? Documentation standards ? Delegation of powers ? Pricing ? Review and renewal of advances ? Takeover of advances.
Steps in appraisal of a proposal
? Analyzing
? Selecting
? Sanctioning ? Monitoring.
Components of credit policy
? Objectives- need to prioritize
? Profitability ? Liquidity ? Volume of business ? Risk factors
? Fit the framework of regulatory norms
Objectives- need to prioritize
? Profitability
? Liquidity
? Volume of business ? Risk factors ? Fit the framework of regulatory norms
Volume and mix of loans
? Industry
? Location
? Size ? Interest rate ? Security
Geographical spread
? Key trade areas
? Primary focus
? Secondary focus
Loan evaluation procedures
? Industry Prospects
? Industry cycles ? Threat from substitutes ? Shifts in consumer demands ? Regulatory environment
? Operational Efficiency
? Operating margins ? Stability and growth of market share ? Access to key raw materials ? Benefit from economies of scale
? Financial Efficiency
? Financial leverage ? Coverage ratios ? Cost of capital ? Ability to raise funds
? Working capital management
? Interest rate risk management
? Management Evaluation
Study the performance of ? the promoter ? top management ? the performance of group companies
? Fundamental analysis
? Capital structure ? Asset/liability position ? Asset quality ? Profitability
? Sensitivity to interest rate structures, tax policies,
etc
? Loan Administration
? Sanctioning powers ? Credit limits ? Balanced authority
? Credit Files
? details regarding the borrower ? change in the risk-return profile of the customer
? Lending Rates
? Type and extent of collaterals ? Compensating balances/margin ? Statutory limits for different types of loans
? Monitoring mechanism ? Loan-Deposit ratio ? Incentive schemes for the loan officers ? Loan repayment pattern ? Communication practices
? Extension of renewals of past-due installment loans
(rescheduling the loan) ? Loan-loss reserves ? Consumer laws and regulations
? Role of credit department ? Role of recovery department ? Deposits that need to be maintained by the
borrower as a condition for obtaining loan.
Credit policy pursued by the Government
? The National Credit Council was established in
1968
? Two priority areas ? Agriculture ? Small Scale Industries (SSIs)
? Nationalization of banks in 1969 (14 banks)
and 1980 (6 banks) ? Priority sector defined (1972)
Currently Priority sector is ? Agriculture (Direct and indirect finance) ? Small Enterprises (Direct and indirect finance) ? Retail trade ? Micro credit ? Education loan ? Housing loans
? Priority sector advances for domestic commercial
banks
? 40% of Adjusted net Bank credit(ANBC) or credit
equivalent amount of off balance sheet exposure, whichever is higher ? Total agricultural advances - 18% of ANBC ? Advances to weaker sections - 10% of Adjusted net Bank credit(ANBC) or credit equivalent amount of off balance sheet exposure, whichever is higher
? Priority sector advances for foreign banks
? 32% of Adjusted net Bank credit(ANBC) or credit
equivalent amount of off balance sheet exposure, whichever is higher ? Small Enterprises advances -10% of Adjusted net Bank credit(ANBC) or credit equivalent amount of off balance sheet exposure, whichever is higher ? Export credit - 12% of Adjusted net Bank credit(ANBC) or credit equivalent amount of off balance sheet exposure, whichever is higher ? Shortfall, if any , to be deposited with SIDBI @ bank rate
Section I:Small Enterprises Type
Investment limit in Plant and Machinery excluding plant and machinery Not exceeding Rs.5 crores Not exceeding Rs.2 crores Not exceeding Rs.25 lakhs Not exceeding Rs.10 lakhs More than Rs.5 crores but not exceeding Rs.10 crores More than Rs.2 crores but not exceeding Rs.5 crores No limitation
Small (manufacturing)Enterprises Small (service)Enterprises Micro(manufacturing)Enterprises Micro (service)Enterprises Medium(manufacturing)Enterprises
Medium(service)Enterprises
Khadi and village industry sector(KVI)
? Rating Criteria for Banks
? Assets
? Equity ? Profits
? Credit rating
? main tool, to measure the credit risk and facilitates pricing of a
loan
? Credit rating of banks
? Economic and political conditions prevailing in the country; ? Regulatory regime; and ? Credit culture of the banks
? Banking Structure
? Credit culture
The commercial banking structure in India
Private Indian banks (26) Nonscheduled cooperative banks (1807) Regional rural banks (95) State coperative banks (31)
PrivateForeign banks (29)
SBI and Associates (7)
Scheduled urban cooperative banks (55)
Nationalised (19)
RBI
Other public sector bank 1-IDBI Bank
Summary
? Defines responsibility
? Proper system of checks and balances
? Framework of bank lending ? Establishes credit culture ? Contemporary and relevance in changing lending
environment
doc_493325825.pptx
This is a presentation about need and components of credit policy, credit policy pursued by the government and credit culture prevalent in India.
Credit Policy
Sub-sections
? Need for Credit Policy
? Components of Credit Policy
? Credit Policy Pursued by the Government ? Credit Culture
Deals with :
? Exposure levels
? Credit risk assessment
? Credit appraisal standards ? Documentation standards ? Delegation of powers ? Pricing ? Review and renewal of advances ? Takeover of advances.
Steps in appraisal of a proposal
? Analyzing
? Selecting
? Sanctioning ? Monitoring.
Components of credit policy
? Objectives- need to prioritize
? Profitability ? Liquidity ? Volume of business ? Risk factors
? Fit the framework of regulatory norms
Objectives- need to prioritize
? Profitability
? Liquidity
? Volume of business ? Risk factors ? Fit the framework of regulatory norms
Volume and mix of loans
? Industry
? Location
? Size ? Interest rate ? Security
Geographical spread
? Key trade areas
? Primary focus
? Secondary focus
Loan evaluation procedures
? Industry Prospects
? Industry cycles ? Threat from substitutes ? Shifts in consumer demands ? Regulatory environment
? Operational Efficiency
? Operating margins ? Stability and growth of market share ? Access to key raw materials ? Benefit from economies of scale
? Financial Efficiency
? Financial leverage ? Coverage ratios ? Cost of capital ? Ability to raise funds
? Working capital management
? Interest rate risk management
? Management Evaluation
Study the performance of ? the promoter ? top management ? the performance of group companies
? Fundamental analysis
? Capital structure ? Asset/liability position ? Asset quality ? Profitability
? Sensitivity to interest rate structures, tax policies,
etc
? Loan Administration
? Sanctioning powers ? Credit limits ? Balanced authority
? Credit Files
? details regarding the borrower ? change in the risk-return profile of the customer
? Lending Rates
? Type and extent of collaterals ? Compensating balances/margin ? Statutory limits for different types of loans
? Monitoring mechanism ? Loan-Deposit ratio ? Incentive schemes for the loan officers ? Loan repayment pattern ? Communication practices
? Extension of renewals of past-due installment loans
(rescheduling the loan) ? Loan-loss reserves ? Consumer laws and regulations
? Role of credit department ? Role of recovery department ? Deposits that need to be maintained by the
borrower as a condition for obtaining loan.
Credit policy pursued by the Government
? The National Credit Council was established in
1968
? Two priority areas ? Agriculture ? Small Scale Industries (SSIs)
? Nationalization of banks in 1969 (14 banks)
and 1980 (6 banks) ? Priority sector defined (1972)
Currently Priority sector is ? Agriculture (Direct and indirect finance) ? Small Enterprises (Direct and indirect finance) ? Retail trade ? Micro credit ? Education loan ? Housing loans
? Priority sector advances for domestic commercial
banks
? 40% of Adjusted net Bank credit(ANBC) or credit
equivalent amount of off balance sheet exposure, whichever is higher ? Total agricultural advances - 18% of ANBC ? Advances to weaker sections - 10% of Adjusted net Bank credit(ANBC) or credit equivalent amount of off balance sheet exposure, whichever is higher
? Priority sector advances for foreign banks
? 32% of Adjusted net Bank credit(ANBC) or credit
equivalent amount of off balance sheet exposure, whichever is higher ? Small Enterprises advances -10% of Adjusted net Bank credit(ANBC) or credit equivalent amount of off balance sheet exposure, whichever is higher ? Export credit - 12% of Adjusted net Bank credit(ANBC) or credit equivalent amount of off balance sheet exposure, whichever is higher ? Shortfall, if any , to be deposited with SIDBI @ bank rate
Section I:Small Enterprises Type
Investment limit in Plant and Machinery excluding plant and machinery Not exceeding Rs.5 crores Not exceeding Rs.2 crores Not exceeding Rs.25 lakhs Not exceeding Rs.10 lakhs More than Rs.5 crores but not exceeding Rs.10 crores More than Rs.2 crores but not exceeding Rs.5 crores No limitation
Small (manufacturing)Enterprises Small (service)Enterprises Micro(manufacturing)Enterprises Micro (service)Enterprises Medium(manufacturing)Enterprises
Medium(service)Enterprises
Khadi and village industry sector(KVI)
? Rating Criteria for Banks
? Assets
? Equity ? Profits
? Credit rating
? main tool, to measure the credit risk and facilitates pricing of a
loan
? Credit rating of banks
? Economic and political conditions prevailing in the country; ? Regulatory regime; and ? Credit culture of the banks
? Banking Structure
? Credit culture
The commercial banking structure in India
Private Indian banks (26) Nonscheduled cooperative banks (1807) Regional rural banks (95) State coperative banks (31)
PrivateForeign banks (29)
SBI and Associates (7)
Scheduled urban cooperative banks (55)
Nationalised (19)
RBI
Other public sector bank 1-IDBI Bank
Summary
? Defines responsibility
? Proper system of checks and balances
? Framework of bank lending ? Establishes credit culture ? Contemporary and relevance in changing lending
environment
doc_493325825.pptx