Basic principles of financing

• Advances are the major revenue generating activity carried out by the banks.

• Therefore, this activity demands adequate expertise and attention for the efficient and effective operation of the procedures.

• The financing facilities are divided into 2 main types.– Funded facilities.– Non funded facilities.

Credit risk management

• The prime objective of the credit policy is to ensure higher returns on finances while also improving the quality of Bank’s credit portfolio.

• Reducing as far as possible the risk of bad debts/ stuck up loans.

Marketing strategy

• The bank’s field officers and executives should be constantly engaged in evolving market strategies in their particular areas of operations, in order to identify and capture lucrative business opportunities.

• Clients having credible market reputation and standing of at least 5 years in their specific line of business should be encouraged to established a borrowing relationship.

Identification of clients

• A list of potential and prospective customers should be prepared and regularly updated.

• Periodical visits should be made to them and proper follow up to made.

• Visits to market at regular intervals are most essential for keeping up to date information about business trends and developments in local trade and industry.

Credit investigation

• Particular care and attention should be focused on the aspect of credit investigations and the choice of customers seeking financial accommodation.

• Their antecedents, credit worthiness, standing and expertise / capability in running their business(experience in their line of business) should be thoroughly investigated.

• Details of proposed customer’s financial position and earning, future earning potential, securities should be obtained in addition to details about their business interest.

Track record

• Customers with a good, spotless track record, known over the years to be honest and of high integrity with business repute in the market to be encouraged to establish / broaden their borrowing relationship with the bank.

Purpose of credit facility

• The purpose of credit facility should be clearly discussed with the customer.

• It should be specific and not general like working capital.

• The purpose of the credit facility should neither be for any speculative activities nor for hoarding and illicit or unethical trade practices and should not be for a purpose other then customer’s normal sphere of business.

Marketability

• The present market value of securities offered/ held should be carefully evaluated and, thereafter, constantly reviewed so that such securities could be easily realized / sold in the market in the event of financing being stuck up at any future date.

Defaulters

• No credit facility, whatsoever, should be allowed to those customers or to any of their associates or family members, allied or connected concerns who are in default with any bank or financial institution or who have been allowed waivers or write-offs or gone into liquidation during the preceding 10 years.

Bank’s credit standards

• Facilities to be well aligned with customers’ credit structure and specific needs.

• Credit facilities to be properly secured, with all security documentation perfected prior to allowing the facilities.

Bank’s credit standards

• Facilities to be well diversified into the various industrial/trading sectors, so that the credit risk is not concentrated and is well spread.

• Customer’s liquidity and repayment capacity to be determined by careful analysis of their latest balance sheets/ profit and loss account and more importantly cash flows.

• Cash flows should be the main source of payment for bank dues.

• Profit aspect to be reviewed, but the risk involved be also monitored.