Credit Monitoring
Ensure end use, performance, warning signals and action to be taken
Available Tools for Credit Monitoring / L R M
(1) Conduct of the Accounts with the Bank
(2) Periodic Information Submitted as per the Terms of the Advance
(3) Audit of Stocks and Receivables Conducted by the Bank
(4) Financial Statements of the Business, Auditors’ Report
(5) Periodic Visits and Inspection
(6) Interaction
(7) Periodic Scrutiny
(8) Market Reports about the, Borrower and the Business Segment
(9) Appointing Bank’s Nominee on Company’s Board
(10) Credit Audit
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Credit Risk Monitoring
- Operational risk : frauds/disruption of business due to natural calamities
- Market risk : adverse market movement of interest rates, exchange rates
- Credit risk : unwilling /inability to repay
- External factors : exchange/intt rate changes, govt policies, political risks
- Internal factors : overexposure to sector, low quality appraisal, monitoring,
- Lack of efficient recovery machinery
Risk mitigation
- Macro level : review/fixing internal limits for commitments, loan/compr/ rehab policies
- Micro level : appraisal standards, sanctioning powers, credit ratings, scores,
- Credit rating : risk measured : decision to lend, pricing, portfolio evaluation
- Credit rating : management, securities available, financial aspects, business/project risks
- Credit default : inability/unwillingness to meet commitments of repayment of interest /principal, BG/LC, trading settlements
- NPAs : Sub-standard, Doubtful, Loss
Wilful Default
- Default even though the borrower has capacity to repay
- Diversion of funds / siphoning of funds
- Disposal of securities
- Options available for stressed assets:
- Exit, rescheduling/restructuring, rehabilitation, compromise, legal action, write off
CDR Mechanism
- CDR Mechanism: for consortium/multiple banking, outstanding more than Rs.10 cr
- CDR standing forum: formulates policy
- CDR core group carved out of forum to assist standing forum in decisions relating to policy
- CDR empowered group decides the cases
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