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

3143 Words Apr 2nd, 2010 13 Pages
The area of credit appraisal and assessment is very vast and each new account poses new challenges and tests our skill. Whenever a proposal is received, what does a banker looks for in it? Answer to this question is not only very detailed but also very complex. Earlier speakers might have already covered the finer aspects of the project/credit appraisal i.e. from the selection of the project to preparation of projected financials and evaluation of the project from the angle of acceptability, more importantly the following points :
1. Commercial , financial, technical viability of the project proposed,
2. Compliance with the laws of the land, guidelines of the various regulatory authorities
3. Funding pattern.
4. Primary and Collateral
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Additional 10% can be taken for the group if the project is for infrastructure project. RBI have advised that ‘exposure’ for this purpose shall include credit and investments and that Credit exposure would comprise all types of funded and non-funded credit limits.

6. Asset liability mismatches are also taken in to the consideration while considering any loan proposal specially the term loan proposal. Normally a bank keeps its exposure in term loans between 35 to 40% of the total advances to avoid any major maturity mismatch between assets and liabilities.

Once the bank is in principle satisfied and decides to consider it further it would be taken up for the detailed assessment.

Term Loan Assessment: If the proposal is for term loan, the bank at the time of assessment of the proposal looks for following:

1. In case of higher value exposure, the proposal should have been appraised by FIs/First class banks or by institutions like /SIDBI/SBI Caps/GITCO etc. and no further technical viability study would be necessary.
2. Period of term loan shall not normally exceed 7 to 8 years (in case of infrastructure projects repayment period of 12 to 15 years also may be accepted(including moratorium)
3. DSCR: bank normally looks for a mninimum DSCR of 1.70 but the lower than the 1.70 2 may also be accepted in otherwise deserving cases.
4. Promoters contribution should be at least 30% in a new project.In case of existing customer with

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