SUFYAN RAZA BUTT

1. CREDIT MANAGEMENT
Group Member
Rashid Riaz 15525
Hamza Imran 15569
Qammer Abbas 15505
Sufyan Raza 15519
Shah Nawaz 15531
Submitted to:
Dr.Jhanzaib sultan

2. OUT-LINES ABOUT PRESENTATION
 2.1 Introduction
 2.2 Concept of Credit
 2.3 Credit Definitions
 2.4 Characteristics of Credit
 2.5 Types of Credit
 2.6 Credit Classification
 2.7 Credit Instruments
 2.8 Advantages of Credit
 2.9 Disadvantages of Credit
 2.10 Role of Credit in Economy

3. OUT-LINES ABOUT PRESENTATION
 2.11 Concept of Credit Management
 2.12 Principles of Sound Lending
 2.13 Formulation of Loan Policy
 2.14 Administration of Credit
 2.15 Influencing Factors of Loan Policy
 2.16 Evaluation of Applicant
 2.17 Credit Monitoring
 2.18 Organization of Bank Lending (A
Flow Chart)
 2.19 Credit Process (A Flowchart)
 2.20 Loan Pricing

4. OUT-LINES ABOUT PRESENTATION
 2.21 Classification of Securities
 2.22 Concept of Credit Risk Management
 2.23 Credit Risk Rating
 2.24 Basel II (Accord)
 2.25 An NPA Concept
 2.26 The RBI Directives on Advances
 2.27 Various Credit Committees
 2.28 Priority Sector Lending
 2.29 Conclusion

5. 2.1 INTRODUCTION:
 Every country has to undergo from the
continuous process of development. Banks
play a vital role in this process. The Indian
banking system has progressed as a
powerful mechanism of planning for
economic growth. Banks channelize savings
to investments and consumption. Through
that, the investment requirements of savers
are reconciled with the credit needs of
investors and consumers.

6. 2.2 CONCEPT OF CREDIT:
The word ‟ credit ’’ has been derived from the
Latin word ‟ credo’’ which means ‟ I believe or’’ ‟I
trust’’ which signifies a trust or confidence
reposed in another person. The term credit
means, reposing trust or confidence in
somebody.

7. 2.3 CREDIT DEFINITIONS:
1. Prof. Kinley
2. Prof. Gide
3. Prof. Cole
4. Prof. Thomas
5. Vasant Desai

8. CHARACTERISTICS OF CREDIT:
1. Confidence:
2. Capacity:
3. Security:
4. Goodwill:
5. Size of credit:
6. Period of credit:

9. 2.5 TYPES OF CREDIT:
 TRADITIONAL CREDIT PRODUCTS:
 1. Cash credit:
 2. Overdraft:
 3. Demand loans:
 4. Term loans:
 5. Bill purchased:
 6. Bill discounted:

10.  INNOVATIVE CREDIT PRODUCTS:
1. Credit cards:
2. Debit cards:
3. Housing loans:
4. Auto loans:
5. Personal loans:
6. Educational loans:
7. Loans against securities:
8. Consumption loans for purchase of durables:
9. Hybrid loan products:

11. 2.6 CREDIT CLASSIFICATION:

12. 2.7 CREDIT INSTRUMENTS:
 1. Cheque:
 2. Bank draft:
 3. Bill of exchange:
 4. Promissory note:
 5. Government bonds:
 6. Treasury bills:
 7. Traveler‟s cheque:

13. 2.8 ADVANTAGES OF CREDIT:
 1. Exchange of ownership:
 2. Employment encouragement:
 3. Increase consumption:
 4. Saving encouragement:
 5. Capital formation:
 6. Development of entrepreneurs:
 7. Easy payment:
 8. Elasticity of monetary system:
 9. Priority sector development:

14. 2.9 DISADVANTAGES OF CREDIT:
1. Encouragement of expenditure:
2. Encourage weakness:
3. Economic crisis:
4. Dangers beyond limit:
5. Evil of monopoly:
6. Encourage inefficient:

15.  2.10 ROLE OF CREDIT IN ECONOMY:
 2.11 PRINCIPLES OF SOUND LENDING:
1. Safety:
2. Security:
3. Liquidity:
4. Suitability:
5. Risk diversification:
6. Profitability:
7. Purpose:
8. Nature of business:
9. Margin:
10. National policies:

16. 2.13 FORMULATION OF LOAN POLICY:
 CONTENTS OF LOAN POLICY:
1. Size of loan account:
2. Credit for infrastructure:
3. Types of loan portfolio:
4. Acceptable security:
5. Maturity:
6. Compensating balance:
7. Lending criteria:
8. Loan territory:
9. Limitations of lending authority:

17. 2.14 ADMINISTRATION OF CREDIT:
1. Appraisal:
2. Pricing:
3. Expiry Terms:
4. Sanctioning:
5. Documentation:
6. Disbursement:
7. Supervision:
8. Monitoring:
9. Recoveries And Rehabilitation:
10. Income Recognition and Provisioning:
11. Internal Controls:
12. Loan Review:

18. 2.15 INFLUENCING FACTORS OF LOAN
POLICY:
 1. Variability in deposit:
 2. Monetary policy:
 3. Capital position:
 4. Competitive position:
 5. Local and national economy:
 6. Ability and experience of loan officers:
 7. Credit needs of the area:

19. 2.16 EVALUATION OF APPLICANT:
The credit evaluation process involves three
steps:
1. Gathering Credit information
2. Credit Analysis (credit worthiness of
applicants)
3. Credit Decision

20. 1. GATHERING CREDIT INFORMATION:
 Interview:
 Financial statements:
 Report of credit rating agencies:
 Bazaar report:
 Report from other banks:
 Other non-formal methods:

21. 2. CREDIT ANALYSIS (CREDIT WORTHINESS OF
APPLICANTS)(5 CS)
1. Character:
2. Capacity:
3. Capital:
4. Collateral:
5. Conditions:
3. Credit decision:

22. 2.17 CREDIT MONITORING
 1. Documentation:
 2. Disbursement of advance:
 3. Inspection:
 4. Submission of various statements:
 5. Annual review:
 6. Market information:

23. 2.18 ORGANIZATION OF BANK LENDING (A
FLOW CHART):

24. 2.19 CREDIT PROCESS (A FLOW CHART):

25.  2.20 LOAN PRICING:
 2.21 CLASSIFICATION OF SECURITIES:
1. Primary security:
2. Collateral security:
3. Personal security:
4. Tangible security:
5. Liquid security:
6. Government security:
7. Stock exchange security:
8. Blue chip security:

26.  2.22 CONCEPT OF CREDIT RISK
MANAGEMENT:
 2.23 CREDIT RISK RATING:
(1) Foundation approach
(2) Advance approach
 2.24 BASEL–II (Accord):
First Pillar : Minimum Capital Requirement
Second Pillar : Supervisory Review Process
Third Pillar : Market Discipline

27. 2.25 AN NPA CONCEPT:
 1. Interest and/ or installment of principal remain overdue for a
period of more than 90 days in respect of a term loan,
 2. The account remains „out of order‟, in respect of an
Overdraft/Cash Credit (OD/CC),
 3. The bill remains overdue for a period of more than 90 days in the
case of bills purchased and discounted,
 4. The installment of principal or interest there on remains overdue
for two crop seasons for short duration crops,
 5. The installment of principal or interest there on remains overdue
for one crop season for long duration crops,
 6. The amount of liquidity facility remains outstanding for more than
90 days, in respect of a securitization transaction undertaken in terms
of guidelines on securitization dated February 1, 2006.
 7. In respect of derivative transactions, the overdue receivables
representing positive mark-to-market value of a derivative contract,

28. 2.26 THE RBI DIRECTIVES ON
ADVANCES:
1. General:
2. Benchmark Prime Lending Rate (BPLR) And
Spreads:
3. Freedom To Fix Lending Rates:
4. Fixed Interest Rates For Loans:
5. Withdrawals Against Uncleared Effects:
6. Loans Under Consortium Arrangement:
7. Zero Percent Interest Finance Schemes For
Consumer Durables:

29. 2.28 PRIORITY SECTOR LENDING:
 SECTORS UNDER PRORITY :
 1. Agriculture
 2. Small scale industries
 3. Retail trade & small business
 4. Road and water transport operators
 5. Professional & self employed persons
 6. Education
 7. Housing

30. THE END