Credit Appraisal & Assessment from Banker's Point of View in India

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When a lender is offering a mortgage loan to a borrower, he or she has to determine what are the risks involved. In order to determine these risks, the lender uses a process known as mortgage underwriting, in which some parameters are assessed. The underwriters consider risks that fall under the category of credit, capacity and collateral. The decision of the underwriter is the final one to either approve a loan or decline it. This process is so cumbersome that lenders at times contract mortgage underwriting.

The real estate appraisal process is a process that affects nearly everyone who lives in a home. Most people do not have the funding to purchase a home outright and must rely on financing to purchase their homes. Banks require that a real estate appraisal be conducted to determine what the market value of a property is so they know how much the property is worth as collateral for the loan. Therefore the appraisal serves as the basis for factors such as determining a fair market price, how much collateral a property can offer a lender, or in some cases even how much a property should be able to earn in income in a "best use" scenario. This report will outline the basic steps of evaluating the value of property as well as discuss some of the considerations surrounding the appraisal process in general.

Financing comes in different forms and is issued for various reasons. It also comes with different processes and requirements and is stated in different ways. Some financing is secured by company assets where some is unsecured and only backed by unpledged assets in the case of default. Long-term financing measures can range from 10 year to 30 year pay back periods.

The first type of loan that will be evaluated is a term loan. A term loan is a way to borrow money provided from a bank or credit union with flexible interest rates and a specified repayment schedule (investopaedia.com, 2016). It is specifically for newly established businesses, or companies wanting to expand and offer low interest rates with medium term repayment periods. Having a set reimbursement date will give the business a deadline to save the excess money and will ensure the loaning company get their money back within the timeframe stipulated by the contract. Benefits of a term loan are that there is flexibility, minimal risks, and the ability to claim on the interest paid. Banks and credit unions are well established and highly regulated corporations and allow interest rates and payback times to be negotiated where necessary. “If a strong relationship is made between the lender and the borrower, small negotiations can gain access to better interest rates than what is advertised to the general public”. (huffingtonpost.com, 2013). If a good relationship is established, the normal term loan interest rates of approximately just “5%-7%” (westpac.com.au, 2015), the rate of borrowing may be brought down to 4.5%. In addition to flexibility, minimal risks apply with term loans, especially if borrowing

It is identified that internal rate of return is relatively a rate at which the value of net present value tends to be zero. The internal rate of return is an appraisal that is mainly associated with a hurdle cost of either capital or discount rate against which it is compared. The hurdle cost mainly corresponds to the advantage cost of capital. In reference to public projects, the hurdle rate represents to be TDR. The major advantage behind making use of this financial appraisal system is the aspect that internal rate of return is mainly dependent on the percentage of rate of return as well as cash flow in order to effectively access a specific investment with the identification of the time value of money over the life of proposed project and it significantly analysis the risks as well as constraints that are associated with the implication of the project (Götze, Northcott, & Schuster, 2007). In the similar way, when discount rate represents to be anonymous, it is not substantial to make use of internal rate of return in determining whether or not to implement the project, even it is a fact that for IRR estimation which is observed as merit. Along with benefits there are number of disadvantages as well that are linked with IRR appraisal technique. It is not highly suitable for the purpose of ranking of different competitive projects. It is relatively possible that internal rate of return of two competing projects are similar but referred to have distinguishing values of NPV due to distinction in the timing of costs as well as advantages (Haka,

If the business risk of the investment project is different from the organization of investment, the CAPM can be used to calculate a rate discount for a specific project. The procedure for this calculation was covered in the second article of this series (specific discount rates project, Student Accountant, April 2008).

The financing is managed by a Special Purpose Vehicle in Netherlands and Singapore. The SPV’s would avail a loan equivalent to $8.3bn on their balance sheet. This structure is advantageous to Bharti as:

During the interviews, it was understood that Portfolio Theory is difficult to apply to loaning administration. A bank is required to have a flexible credit evaluating process to capture the individuality of each loan. These differences depend on the size of the loan and the different clients’ risks. This makes it difficult to apply loan portfolio diversification compared to a portfolio of bonds or stocks. Nevertheless, more than the fixed principles banks seem to follow the intuition behind it not to expose themselves more than a limit.

The bank follows certain criteria regarding eligibility of the borrower, loan amount, tenure, interest rates, and repayment.

A. The applicant should be a resident of India and at least 21 years of age. They should have a job experience of at least one year. The relationship of the applicant to the bank will be a factor only if the loan amount is above Rs. 2 lakh.

Actually, this financing office is taking into account the exercises of purchasing and offering. Utilizing this agreement, the Islamic bank may back the client who wishes to get a given resource however to concede the installment of the advantage for a particular period or to pay by portion. The advantage that the client wish to buy for instance, are purchased by the bank and sold to client at a concurred cost. A concurred cost will incorporate the bank's imprint up benefit. When the bank and client focus the residency, the way of the portions will then be closed. The client is moreover permitted to settle installment inside a preagreed period in a knot whole. The cost at which the bank offers the property will incorporate the genuine expense of the advantage and will likewise join the bank's net revenue. There is no hobby charged and the additional value repays the bank for its benefit. Portions stay settled over the time of the contract and no conformity is made if interest rates

Confirm commitments of funding from investors to accommodate bank loan, (at least 20% of available funds in cash to secure loan for development and

Participating in a syndicated loan gives banks the opportunity to achieve diversification in their own loan portfolios and liquidity. One of the main advantages of syndicated loans is the fact that participating banks share the risks of the lending, therefore they can participate in a big project which would enhance their name and yet the losses would be shared with other banks and the losses would be less than if they funded the loan alone, that is of course in case of default. In addition, participating banks play an important role by providing informative opinions and expertise and financing options to the

- Can be allowed for in project evaluation by risk and uncertainty analysis. Plans should be made to obtain 'contingency funds ', (bank overdraft).