## Credit policy

Credit policy reflects the wisdoms of banks and their intention about what they are
actually wanted to do and what not. Credit policy helps an institution develop
strategic consistent with the profitability expectations of the institutions within an
expected level of assets quality.
A credit policy gives loan officers and bank management specific guidelines in
making individual laon decisions and in shaping the banks overall loan portfolio.

## Components of a Credit policy1. Corporate Mission statement

2. Analysis of the present credit portfolio
3. Broad objectives of the policy
4. Preferred area of lending
5. Discouraged areas of lending
6. Strategies to achieve the above objectives
7. Exposure limits
8. Liquid Gap analysis
9. Spread Management
10. Credit expansion policy
11.Combating the growing menace of NPAs
12.Industry Wise specialization
13.Pricing strategy

## Credit Interview
It is an education to watch and study a man of real stature as he deals with a top
level customer. The Goal of loan interview primarily is to collect information to
judge the creditworthiness of borrowers. But this is not the only goal of loan
interview. Others-

There is a unique opportunity to convince customer that he has chosen the

best bank in town which ultimately enhances the goodwill of the bank.
It facilitates the collection of necessary information to reach a loan decision.
It gave an opportunity to build new bank business.
Credit interview enables credit officer to obtain enough data and
understanding to ensure that the loan can be collected.

## Credit Investigation
Credit investigation is the process of acquiring enough information from different
sources to determine the loan applicants willingness and capacity to service the
proposed loan. Upon completion of credit investigation The loan officer should have a sufficient idea of the clients reputation,
character and experience.
The companys past and present record and profitable future performance.

## Qualification of a Credit investigator

The educational background of an investigator should include knowledge of
accounting.
An Investigator should be familiar with financial data such as- composition of
assests and liabilities, operating percentages, and basic ratios.
He/she must also have the capability to spot working capital deficiencies,
inventory buildups, equity need, and other sign of problems.
An investigator should be familiar with credit and financial terminology.
An investigator should be knowledgeable with the code of ethics for the
exchange of credit information.
An investigator should be fully aware of the legal ramifications involved in the
exchange of commercial credit information.
An investigator should also be able to contact consulates, embassies and
trade development offices.

## Sources of information
1. Information supplied by the credit Applicanta. Type and amount of loan.
b. Proposed sources of repayment.
c. Plan of repayment.
d. Name of collateral or guarantors.
e. List of primary customers and trade suppliers.
f. Firms account
g. Names of previous and current creditors etc
2. Lending Officers Querya. Characteristics of borrowers market.
b. Sales and distribution channels.

c. Production process.
d. Labor relation.
e. Experience and educational background of principal owner or executives
etc
3. Internal sources of Informationa. Credit file of present or previous borrowers
b. Deposit account of present and previous customers.
c. Past payment performance.
d. Principal customer, suppliers and other creditors.
4. External Sourcesa. Central bank credit information bureau(CIB)
b. Commercial publications
c. Stock exchange publications
d. Special purpose directories
5. Othersa. Banks and trade checks
b. Credit operating agencies
c. Public records etc.

## Centralization versus Decentralized Investigation

The success of banks credit investigation depends largely on the banks
organizational structure and the scope of its responsibility. Structure of investigation
varies from bank to bank. Some uses Centralized and some Decentralized form of
credit investigation.
1) Completely Centralized- In a completely centralized investigation system, one
unit is responsible for all foreign and domestic account investigation and
answering of references inquires on customer accounts.
2) Partially Centralizeda. Foreign Domestic- Foreign investigations are decentralized while domestic
investigations are completely centralized.
b. Accounts-non accounts- Non accounts investigation is centralized but
account investigation and the answering of inquiries on accounts are
decentralized.
c. Centralized with exceptions- These exceptions usually include specialized
departments such as real estate, consumer lending, personnel, financing
companies etc.
3) Completely Decentralized- In this form, Each department or branch service its
own needs and possibly those of its customers, including account and non
account investigations.