loan pricing & credit rating_sep,13

8/12/2019 Loan Pricing & Credit Rating_sep,13

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LOAN PRICING

&

CREDIT RATING

SEPTEMBER,2013


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LOAN PRICING

Main constituents :

Cost of Funds Deposit mix

Servicing costs Retail / Wholesale loan

Risk Premium External Rating / Internal Rating

Desired profit margin Shareholdersexpectation * Capital / Assets


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BPLR / BASE RATE

BPLR :BanksPrime Lending RateCost of funds + Admin cost + Profit margin

Base Rate :Minimum rate at which Bank will lend


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CREDIT RATING - INTERNAL

After analysing the financial statements and due

diligence of the facts gathered, the conclusion reachedhave to be put together and evaluated in a holistic

manner to arrive at a meaningful decision.

Each of the factors have to be viewed in the right

perspective and given the weight age it deserves.

Notwithstanding absolutely wonderful financial ratios, acompany may have to be denied credit facilities because

the analysis of the management capabilities and

competitive scenario reveals weaknesses.


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CREDIT RATING - INTERNALCredit Rating system is developed by studying the data

relating to a large number of accounts and their performancein the past.

All the variables which have predictive value in assessing the

future performance of a company will be identified andappropriate weight ages assigned to each of them.

Each of the factors may be assessed on a scale of 1 to 5, 1

being the best and 5 being the worst.

Depending upon the weight ages, the aggregate score is then

used to arrive at the final rating of the borrower.


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CREDIT RATING - EXTERNAL

I. Analysis of financial statements may give a good

account of a company.

II. Their growth over the years may be better than theirpeers and the company may appear to do well on all

parameters.

III. However, if the industry or the economy is at the peakof a business cycle and a decline is imminent, it may

not be prudent to take on or increase the exposure.


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CREDIT RATING - EXTERNAL

IV. The status and the prospects of industry must be

studied carefully before taking a lending decision.

V. Reports of investment analysts and industry studies

easily accessible on the web can be rich sources ofinformation to take a balance credit decision.

VI. The websites of brokerage houses like ICICI Direct,

India Infoline etc., The Credit Rating agencies likeCRISIL, ICRA and data companies like CMIE are

good sources of information on industries and

companies.


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THANK YOU

loan pricing & credit rating_sep,13

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