A study on Bank of India’s

CREDIT POLICIES and

CREDIT RISKS
 OBJECTIVE OF STUDY
• To study the credit polices offered by Bank
of India to SME’s.
• To study procedures related to Loans.
• To study Risk related to credit provided by
banks.
• To study the intricacies of corporate
finance – identification, analysis, appraisal,
sanction, disbursement, follow-up &
recovery
 SME’s(Small & Medium
Enterprises
Enterprise Engaged in Engaged In
Manufacturing / Providing/
Preservation of Goods Rendering of
Services
Micro Enterprise Not to Exceed Rs. 25 Not to Exceed Rs. 10
Lakhs. Lakhs.

Small Enterprise More than Rs.25 lakhs More than Rs.10

but does not exceed Rs. lakhs but does not
5 Crores. exceed Rs. 2 Crores.

Medium More than Rs.5 Crore More than Rs. 2

Enterprise Rupees but does not Crore Rupees but
exceed Rs. 10 Crore. does not exceed Rs. 5
Crore.
 INITAITIVES OF BANK OF
INDIA FOR SME’s
• Quick decision with least Turnaround Time
through specially constituted SME Cells, and
above all
• Better service. Cluster- based Schemes are
also on the list of the Bank’s initiatives
• Provision of timely and adequate credit to the
SME’s
• Proactively detecting sick and viable units in
time so as to nurse them back to health
through appropriate re-structuring
LOAN SCHEMES FOR SME’S
• Star Channel Financing catering to our
manufacturer/trader customers in the SME
sector.
• Retail Trade
• Scheme for Solar Water Heaters.
• SME Business Card.
• Star Laghu Udhyog Suvidha Scheme
CREDIT APPRAISAL
PROCESS
 PRE-SANCTION PROCESS

• PRELIMINARY APPRAISAL

  Application for working capital Finance

  Audited financial for the previous three years
  Details of existing borrowing arrangements
  Reports from existing Banker on the application
copy
• DOCUMENTS REQUIRED
• L-516,
• Letter of guarantee
• L-515(in case Inland guarantee)
• Demand Promissory note(In case of Demand
loan)
• SCRUITNIZING OF DOCUMENTS
• Examine the following:-
• Bank lending policy/RBI guidelines
• Industry exposure restrictions
• Industry related risk factor
 DETAILED APPRAISAL

• Working capital
• Credit Rating
• Opinion reports
• Review of Proposal
• Proposal of Sanction
 •CREDIT RATING
• CREDIT RATING depends upon various
Parameters:-
 Financial Risk
 Management Risk
 Market Risk
 Compliance
 Contingent Risk
 Security Value
 Capital Market Perception
• Risk rating
• Parameters Maximum Maximum

applicable score
score
(B) (C)
• ---------------- ----------------- -------------------
• Financial risks - Static 20
• Financial risks - Dynamic 17
• Market risks 09
• Managerial risks 09
• Security Value 06
• Capital market perception 04
• Contingent risks 05
• Compliance 10
• Total - 80

Percentage on risk factors =C/B x 100

Score obtained Rating to be
assigned
 

80% & above AAA

65% to 79% AA
50% to 64% A
Below 50% B

AAA-Quality of lending is considered to be high and risk is at its

minimal
AA-Well established borrowers with financial liquidity, strength
and stability
A-This group belongs to the lower end of quality range
B-Borrowers of average liquidity, financial strength and stability
 POST-SANCTION PROCESS
• FOLLOW UP:-
• SUPERVISION:-
• MONITORING & CONTROLLING:-
 CREDIT RISK ASSESSMENT
MODEL
• Credit Risks
• These have been categorized broadly
into:
        Financial risks
        Business risks
        Industrial risks
Management Risks
• FINANCIAL RISK
• the assessment of financial risk involves
appraisal of the financial strength of the borrower
based on performance and financial indicators.
The overall financial risk is assessed in terms of
static ratios, future prospects and risk mitigation
(collateral security/ financial standing).
• BUSINESS RISK
• a.       the following are the important parameters
associated with business risk:
         Technology
         Consistency in quality
         Consistency in cash flow
• Compliance of environmental regulation
• INDUSTRIAL RISKS
• a.       the following characteristics of an industry which pose varying
degrees of risk are built into the Bank’s CRA model:
         Competition
         Industry outlook
         Regulatory risk
• Contemporary issues like WTO etc.
• MANAGEMENT RISKS
         Integrity (corporate governance)
         Track record
         Managerial competence/commitment
         Expertise
         Structure and systems
         Experience in the industry
           Credibility: ability to meet sales projections
         Payment record
         Strategic initiatives
 COMMITTEE ON BANKING
LOAN SYSTEM
• TONDON COMMITTEE
• NAYAK COMMITTEE
• CHORE COMMITTEE
CONCLUSION