Credit Policy and Procedural

Guidelines

1. Credit constitutes the major revenue earnings of a

bank
Banks lend mostly depositors money
Loanable funds have cost implications and repayment
obligations to the depositors have to be managed
efficiently with minimum possible credit risk.
Moreover, credit culture is undergoing rapid changes
because
- Competition
- Disintermediation
- Consolidation
- Liberalization
- Globalization

2. Credit policy guidelines (CPG)

To clearly outline the business development priorities.

To contain the terms and conditions for loan approval.

To update annually to reflect changes in economic outlook
and banks loan strategies.
To be distributed to all loan officers.

To be approved by managing director/CEO and board.

3. CPG includes key elements

Industry and business segment focus

Types of loan facilities

Single borrower/group limits/syndication

Discouraged business types

Loan facility parameters
- Maximum size
- Covenants and securities
- Cross-border or country risk

4. Procedural guidelines to ensure compliance with

above stated credit policies
4.1 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.
4.2 Credit administration
- Documentation and Approval
- Disbursement
- Compliance requirement (BB guidelines)

4.3 Credit monitoring

- Early indication of deteriorating financial health of
borrowers

- Prompt reporting and proactive management of early

alert accounts

Contd.
4.4 Credit recovery
- Functions of recovery unit
- NPL account management
Autonomy of recovery unit
- Account transfer procedures
Downgrade to sub-standard

- NPL monitoring
Reviewing classified loans
- NPL provisioning and write-off

- Incentive program
For RU account managers

5. Credit risk management principles

5.1 Risk assessment
- Business risk
SWOT analysis of industry, size, competition etc.
- Financial risk
Profitability
Liquidity
Debt management
Sensitivity
- Management risk
Experience
Reputation

Contd.

Structural risk
Working capital need
Loan structuring

Security risk
Perishability
Enforceability
Forced sale value

5.2 Risk pricing

Required return for identified risk level
5.3 Risk monitoring
Periodic review of credit risk