IILM Institute for Higher Education

Course Manual
Bank Lending and Credit Appraisal
BA-302

PGP 2009-11

1
I. COURSE FACILITATORS (names of faculty teaching in LR and GGN, along with
contact details)
a. Prof Sandhya Prakash: sandhya.prakash@iilm.edu
b. Prof Leena Kinger Hans: leena.hans@iilm.edu

Course Objectives:
This course is aimed at imparting knowledge on the Banking system in India which covers
understanding balance sheet dynamics and financial management of banks and institutions which
in turn helps in understanding the balancing acts of liquidity and profitability and risk
management. Additionally, the objective is to understand the Credit Appraisal system in the
Indian banking industry.

Learning Outcomes:
This course is aimed at imparting knowledge on the balance sheet dynamics and financial
management of banks and institutions so as to understand the balancing acts of liquidity and
profitability and risk management.

At the end of the course students will be able to have a grasp and knowledge of the following
key areas:
1. Macro Aspects of Banking
2. Structure of Indian Banking & Financial Institutions
3. Financial deregulation and its implications for banking strategy
4. Understanding of the Indian Bank’s & Institution’s Financial Statements. Components
and schedules of the Bank Balance sheet
5. Role and components of RBI functions –CRR and SLR requirements
6. Sources of Bank Funds – All products of Banking for Wealth Management
7. Credit Appraisal-Types and lending & Credit management
8. Asset Classification & Management of Credit Risk (Loans)
9. Treasury functions, VAR model and Operational risk management
10. Management of Interest Rate and Liquidity Risk. Asset Liability Management
11. Credit Risk Management, Basel II Accord and its implementation. Credit and
Operational Risk Management) Prudential Norms on Capital Adequacy.

II. BOOKS AND REFERENCES:

a. Banking Strategy, Credit Appraisal and Lending Decisions: A Risk-return Framework by
Hrishikesh Bhattacharya, Oxford Publishing
b. Bank Management & Financial Services by Peter S. Rose and Sylvia C. Hudgins, Tata
McGraw Hill
c. Bank Management by Timothy W. Koch and S. Scott Macdonald, Thomson Press
d. Projects by Prasanna Chandra, Tata McGraw Hill
e. Introduction to Banking by Vijayaragavan Iyengar, Excel Books

2
 f. Bank Finance for Industry and Trade by N.S.Toor, Skylark Publications
g. Handbook of Banking Information by N.S.Toor, Skylark Publications
Journals:
Online Resources: www.livemint.com (Tamal Bandhopadhyay’s column: Banker’s
Trust)
III.ASSESSMENT CRITERIA:
Session No. Parameter Weightag
12 Mid term 40%
24 End term 60%
Session NoParameter Weightage
8Group Presentation 20%
12Mid term 20%
24End term examination 60%

Please ensure that you all have a minimum of 75% attendance in order to sit for the end
term examination.

3
 IV. SESSION PLAN
Session Topic Pre- Readings Chapter/Activit
1 Overview of banks and Page 3-22 Rose-Hudging Chapter 1 Rose and
Financial Service Sector Hudging
2-3 Regulations in the Page 31-90 Rose-Hudging Chapter 2-3Rose an
banking sector & Hudging
Organisation and
Structure of a bank
4-6 Understanding Financial Page 129-185 Rose and Hudging Chapter 5-6 Rose a
statements of a Bank Hudging
7-8 Asset-Liability Page 207-300 Rose and Hudging Chapter 7-9 Rose a
Management Techniques Hudging
and Hedging against
Risk
9-10 Managing the Investment Page 307-375 Rose and Hudging Chapter 10-11Rose
Portfolios and Liquidity and Hudging
Position of Banks
11-12 Manging the Sources of Page 387-502 Rose and Hudging Chapter 12-15 Rose
Funds for Banks and Hudging
13 Lending Policies and Page 516-532 Rose and Hudgins Ch 16 Rose and
Procedures Hudgins
Ch 15 Koch and
Macdonald
14 Consumer Loans/ Retail Page 583- 605 Rose and Hudgins Ch 18 Rose and
Banking-1 Hudgins
‘Why sub-PLR lending should be banned,
- Types of Loans now’ Banker’s Trust- Tamal
- Subprime Loans Bandyopadhyay, Mint (April 12, 2009)
- Credit Cards

15 Consumer Loans/ Retail ‘Now, loan defaulters can run but not hide’
The Economic Times (April 09, 2010)
Banking-2
- Evaluation: ‘ET in the classroom: Credit info bureau’ The
Economic Times (January 27, 2010)
Judgemental and
Credit Scoring
‘A Man Who Governs Credit Is Denied a Toys
- Role of CIBIL
‘R’ Us Card’ Wall Street Journal (December
14, 1995)
16 Business Page 544-552 Rose and Hudgins Assignment: page 5
Loans/Corporate Internet sources Rose and Hudgins
Banking
4
 - Types of business
‘Next decade’s theme: credit substitution’,
loans: short-term Banker’s Trust- Tamal Bandyopadhyay,
and long-term Mint (December 27, 2009)

17 Credit Appraisal- Page 83-120 N.S.Toor

Working Capital Page 390-470 Hrishikesh Bhattacharya
- Finance for
working capital
- Data/information
for assessment
- Determining the
quantum of bank
finance

18 Questions on credit Page 576- 580 Rose and Hudgins

appraisal
19 Non-fund based lending Page 121- 139 N.S. Toor
20 Project appraisal and Page 544-583 Hrishikesh Bhattacharya
financing-1
- Non-financial
appraisal
- Financial
appraisal
21 Project financing-2 Page 584- 629 Hrishikesh Bhattacharya Chapter 11, Project
- Risk analysis Page 11.2- 11.39 Projects by Prasanna
- Sensitivity Chandra, Tata McGrawHill, 7th Edition
analysis
22 Priority sector lending, Chapter 23 and 24, Vijayaragavan Iyengar
SME lending, agri-
lending and Non-
performing assets
23 Microfinance ‘Financing microfinance – the ICICI Bank
partnership model’-
Bindu Ananth
24 IT in Banking RBI speeches: ‘Information Technology and
5
 Banking’, Keynote address delivered by Dr.
D. Subbarao on May 18, 2009
http://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/
GOVSPC1805.pdf

Session Details:

Session 1 covers: What is a Bank; What is a financial institution; Role of FI in the economic
development, Introduction to type of Banks, Various Terminology used in banks.

Session 2-3 covers: Regulations affecting Banking sector, Role of RBI, Reserve and Monetary
policy of India and its evolvement since liberalisation. Special mention to Sarbanes Oxley
Accounting Standards act (2002). The organisation and structure of Commercial Banking
Industry; Internal Organisation of a banking firm; Concept of Efficiency and Cost-Do bigger
banks operate at Lower cost? Role of Mergers and Acquisition in Reshaping the structure of a
bank.

Session 4-6 covers: Basic Concepts; Introduction to Assets and Liabilities in a Bank, balance
sheet format, Analysing Banks balance sheet; Camel's Rating. Evaluating Performance using
Financial Ratios.

Session 7-8 covers : Recent developments in the banking sector, eg PLR, BPLR, Base rate, Basel
I and Basel II

Session 9-10 covers: Investment Instruments available to financial firms, popular money market
and capital market investment instruments, investment maturity strategy. Liquidity and Reserve
management strategies.

Session 11-12 covers: Types of deposits and different interest rates offered on them; Pricing
deposits, using marginal cost to set interest rates on deposits; Key Risks in Banks; How much
capital is really required; The Basel Agreement-Basel I and II.