Hello I am Eric and i would like to get details on literature review on credit appraisal in banks pdf

INCREASED IMPORTANCE OF CREDIT APPRAISAL PROCESS IN TODAY'S BANKING LANDSCAPE

The recent economic crisis has seen a spate of defaults on loans across banks and one of the key reasons behind this seems to be inadequate credit appraisal processes. Through this interview with Mrs. Ranjana Kumar, Vigilance Commissioner and former Chairperson and Managing Director, Indian Bank, we have tried to examine some of the key issues in credit appraisal in the context of recent events to gauge the place it holds or should hold in today's banking landscape.


Importance of credit appraisal process

As far as the credit appraisal in India is considered, we ask for the balance sheet when we get a new account. If it is an existing concern, we'd go through the balance sheet and the profit and loss statement for the past three years, analyze it, have the project report of the company to see how it has been doing and then, on the basis of the project report, we would assess what the requirement is - whether it is a term loan required to purchase plant and machinery etc. or it is just working capital required for running the concern.It is better that the bank which handles the term loan financing also takes care of the working capital. In the past, organizations like IDBI and IFCI which were basically term lending institutions at that point of time, got into a lot of problems of high non-performing assets (NPAs) because they gave only term loans. They never kept the working capital accounts with them. That was being done by the various commercial banks and they were the ones who had the operation's income from them.

Most importantly, when we now give these types of loans, we take charge of the plant and machinery and the mortgage of the land. The bank can also consider taking some collateral security but this is just a comfort factor, not the main source of recovery for the bank. The main source of repayment to the bank is from the operations of the company.

Over a period of time, there has been an increased emphasis in monitoring the account. For instance, we take monthly information now where earlier it used to be quarterly. Everything is computerized so it's easy for the borrowers to give the required information to us - their actual sales against what their projections were, what they have done etc.