Components of credit management:::

 Components of credit management:::

The components include (1) Loan policy of the bank (2) Appraisal (3) Delivery (4) Control and Monitoring (5) Rehabilitation and

recovery (6) Credit risk management (7) Refinance.

1. Loan policy : Each bank formulates its own policy for sanction of credit proposals. The policy normally provides for (a) exposure

limits for individual and group borrowers (b) exposure limits for different sectors (c) discretionary powers at various levels within the

bank.

2. Appraisal : It done on the basis of credit history, financial status, market report of the borrower, the prospects of economic

activity being financed. The objective of the appraisal is find answers to following important questions:

a. Whether the borrower is creditworthy and what he is going to do with the bank money

b. What are the prospects of the economic activity to be conducted profitably

c. What are the prospects of repayment of the loan by the borrower.

d. What security will be available to the bank, to recover the loan, in case of need

3. Delivery : This includes formalities relating to loan documentation, creation of charge over securities and formal disbursement of

the loan.

4. Control and monitoring : It involves post-sanction follow with a view to ensure that the conditions of the loan are being complied

with and the economic activity is as planned at the time of sanction. It also involves monitoring the recovery of loan as per schedule

fixed.

5. Recovery or rehabilitation : If an economic activity faces some problem and borrower is unable to repay the loan, the bank may

have to go for re-structuring of the loan. If the normal operations are not possible with rehabilitation etc., bank may have to initiate

recovery action including sale of securities.

6. Credit risk management : Bank has to follow the best practices for credit risk management that include identification of risk,

quantification of risk, pricing of risk, mitigation of risk etc.

7. Refinance : It assumes importance when there is tight liquidity situation. It can be availed from institutions such as NABARD, SIDBI,

RBI, NHB etc. on the basis of eligible loans.