Subject Code: 14MBAFM306 No. of Lecture Hours / Week: 04 Total Number of Lecture Hours: 56 Practical Component: 01 Hour / Week IA Marks: 50 Exam Hours: 03 Exam Marks: 100 Syllabus Module 1 (8 Hours) Credit management in banks-Screening of applications-Appraisal of credit-Sanction limit-Post sanction compliance – Monitoring supervision –Review- Government policies for credit extension- Credit institutions- Principles of good lending- Borrower study and bankers opinionCredit policy by banks- Government regulation of credit -Prudential norms. Module 2: (8 Hours) Over view of credit policy and loan characteristics-The credit process –Characteristics of different types of loans- Evaluating commercial loan requests – Financial statement analysisCash flow analysis- Projections-Management of the firm and other factors –Feasibility study – Fundamental credit issues - Credit analysis-Different types of borrowers – Balance sheet analysis for lending – Forms of advances secured and unsecured advances- Short term and long term advances. Module 3: (7 Hours) Evaluating consumer loans – Types- Credit analysis of consumer loans- Risk–return analysis of consumer loans- Customer profitability analysis and loan pricing- Fixed Vs floating rates Module 4: (8 Hours) Loan and advances against pledge- Hypothecation- Mortgage – Lien- Advances against goodsDocument to title to goods – Life insurance policies – Stock exchange securities-Fixed deposit receipts –Book debts- Supply bills- Real estates – Advance against collateral securities. Module 5: (8 Hours) Agricultural finances and Retail lending- Crop loans- Crop insurance schemes- DairySericulture- Poultry- Animal husbandry – Horticulture – Gobar gas – Kissan credit cards – NABARD initiatives – Lead bank schemes – Retail banking advances – Concept – Retail banking products – Consumer credit financing. Module 6: (8 Hours) Financing to small scale industries and large scale industries- Term lending- Syndicated loan system- Role of development banks in industrial finance- Working capital finance- Turnover method – Modified version of MPBF – Cash budget approach- Long term finance-Project financing –Industrial sickness and BIFR. Module 7: (9 Hours) NPA management – Introduction- Identification of NPAs- Asset classification- Prudential norms- Capital adequacy – International Banking Regulation-Basel II – asset classification provisioning – effect of NPA on profitability - Assessment procedure- Pre-sanction appraisal – Post sanction supervision- Monitoring systems for existing and likely NPAs—Tools to manage NPAs –Compromise scheme, Lok Adalats, Debt Recovery Tribunals, Corporate Debt Restructuring, Willful defaulters, SARFAESI Act, Asset Reconstruction Companies-CIBIL
Table of content Modules Content Page Numbers 1 Credit management in banks 3-13 2 Over view of credit policy and loan characteristics 14-26 3 Evaluating consumer loans 27-32 4 Loan and advances against pledge 33-46 5 Loan and advances against pledge 47-53 6 Financing to small scale industries and large scale industries 54-65 7 NPA management 66-75
Module 1 Credit management in banks Loan application Document that provides the essential financial and other information about the borrower on which the lender bases the decision to lend. For a business loan, it normally requires a detailed business plan that includes current and projected (usually for 3 years, or for the period of the loan) income statement (profit and loss account), balance sheet, and cash flow statement. The applicant firm must specify the loan amount and purpose, period and means of repayment, and guaranties and/or collateral offered. For consumer loans, banks generally use standard forms for the applicant to fill-in the information. A loan application entails neither a pledge by the applicant nor a commitment by the lender. Also called credit application. Loan Application Process Stage 1: Loan applications from applicants in eligible countries (i.e. with less than 10 registered CDM activities at the time of application) will go through initial screening as first step. This will include a) review of basic eligibility criteria and b) basic due diligence on the applicant. It will also include screening of the proposed CDM consultant. UNOPS/UNEP DTU may not process applications if the proposed CDM consultant does not meet the basic eligibility criteria. In such cases, the loan applicant is encouraged to select another pre-approved consultant (within given timeline). Stage 2: Once deemed eligible and in absence of any integrity concerns or concerns regarding the project’s potential registration as a CDM project activity, applications may, if necessary, be further verified , through a site visit usually conducted by a designated country team. Stage 3: Based on the initial screening and information collection a detailed technical assessment will be undertaken, i.e. thorough evaluation of the proposed methodology, the expected emission reduction and the feasibility of the proposed approach, as outlined in the Loan Application Form. Stage 4: Having assessed the application, the loan secretariat will submit a recommendation for a decision by the Technical Review Committee (TRC) at its next meeting, if the application has been submitted in time. Otherwise the application will be evaluated at the following TRC meeting. The TRC, comprised of external and independent CDM technical experts and UNOPS, will decide if the loan shall be approved or not. The above stage-based structure with independent parties involved throughout the process shall ensure best possible screening and selection formation.
CREDIT APPRAISAL PROCESS 1. Receipt of application from applicant 2. Receipt of documents (Balance sheet, KYC papers, Different govt. registration no., MOA, AOA, and Properties documents) 3. Pre-sanction visit by bank officers 4. Check for RBI defaulters list, willful defaulters list, CIBIL data, ECGC caution list, etc. 5. Title clearance reports of the properties to be obtained from empanelled advocates 6. Valuation reports of the properties to be obtained from empanelled value/engineers 7. Preparation of financial data 8. Proposal preparation 9. Assessment of proposal 10. Sanction/approval of proposal by appropriate sanctioning authority 11. Documentations, agreements, mortgages 12. Disbursement of loan 13. Post sanction activities such as receiving stock statements, review of accounts, renew of accounts, etc (on regular basis) LOAN ADMINISTRATION – PRE SANCTION PROCESS Preliminary appraisal: 1. Sound credit appraisal involves analysis of the viability of operations of a business and the capacity of the promoters to run it profitably and repay the bank the dues 2. The company’s Memorandum and Articles of Association should be scrutinized carefully to ensure that there are no clauses prejudicial to the Bank’s interests 3. Towards this end the preliminary appraisal will examine the following aspects of a proposal. Bank’s lending policy and other relevant guidelines/RBI guidelines: Industry related risk factors Credit risk rating Profile of the promoters/senior management personnel of the project List of defaulters Caution lists Government regulations impacting on the industry 4. Whether the project cost acceptable or not 5. Debt/ Equity ratio whether acceptable 6. Organizational set up with a list of Board of Directors & indicating the qualifications & experience in the industry 7. Demand and supply projections based on the overall market prospects together with a copy of the market survey report 8. Estimates of sales, cost of production and profitability