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    CREDIT MANAGEMENT Notes

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    Jenina Rose Salvador
    Credit management involves granting credit, setting terms, collecting repayment, and ensuring compliance with credit policies. The main functions of banks are accepting deposits and lending. Lending is classified by size (retail vs wholesale) and regulation (directed vs normal). Requirements for lending include trained staff, delegation of powers, efficient systems/procedures, and a credit policy. The 6 C's used to evaluate borrowers are character, capacity, capital, collateral, condition, and credit history.

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    CREDIT MANAGEMENT Notes

    Uploaded by

    Jenina Rose Salvador
    32 views2 pages
    Credit management involves granting credit, setting terms, collecting repayment, and ensuring compliance with credit policies. The main functions of banks are accepting deposits and lending. Lending is classified by size (retail vs wholesale) and regulation (directed vs normal). Requirements for lending include trained staff, delegation of powers, efficient systems/procedures, and a credit policy. The 6 C's used to evaluate borrowers are character, capacity, capital, collateral, condition, and credit history.

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    Credit management involves granting credit, setting terms, collecting repayment, and ensuring compliance with credit policies. The main functions of banks are accepting deposits and lending. Lending is classified by size (retail vs wholesale) and regulation (directed vs normal). Requirements for lending include trained staff, delegation of powers, efficient systems/procedures, and a credit policy. The 6 C's used to evaluate borrowers are character, capacity, capital, collateral, condition, and credit history.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    32 views2 pages

    CREDIT MANAGEMENT Notes

    Uploaded by

    Jenina Rose Salvador
    Credit management involves granting credit, setting terms, collecting repayment, and ensuring compliance with credit policies. The main functions of banks are accepting deposits and lending. Lending is classified by size (retail vs wholesale) and regulation (directed vs normal). Requirements for lending include trained staff, delegation of powers, efficient systems/procedures, and a credit policy. The 6 C's used to evaluate borrowers are character, capacity, capital, collateral, condition, and credit history.

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    CREDIT MANAGEMENT (Notes)

    - Introduction to Credit Management


    - Function of Bank
    - Classification of Lending
    - Requirements for Lending
    - 6 C’s of Borrower

    Introduction

    Credit Management is the process of granting credit, setting the term it granted on, recovering this credit
    when its due and ensuring compliance with company credit policy.

    The difference in the rate of interest that a bank charges on the amount lent and the rate it pays to the
    depositors is technically called spread or interest rate spread.

    This spread bank has to use to meet its overheads and interest on deposit but also provide for NPA.

    Function of Bank

    1. Primary Function

     Accepting depositors
     Lending/Credit

    2. Secondary Function

     Remittances
     Cross selling
     Bank Guarantee/Letter of Credit
     Safe Deposit Vault

    Classification of Lending

    1. On the Basis of Size of Advance

     Retail Lending – It refers to the lending by banks to individual customers and SMEs. The ticket size
    of these advances would be small but the number of accounts would be high.

     Wholesale Lending – It refers to financing corporate customer and institutional finance. Here, the
    size of advance is large and the number of borrowers is relatively small.

    2. On the Basis of Regulation

     Directed Lending – Banks are required to lend 40% of net bank credit to priority sectors which are
    necessarily mandated by government for development of economy.

     Normal Lending – Loans and advances other than directed lending is termed as Normal Lending.
    Requirements for Lending

    Sources of Funds

    Efficient System
    Trained
    and Procedures
    Manpower

    Delegation of
    Credit Policy
    Power

    6 C’s of Borrower

     Character – The most important requirement for granting credit to a customer is his integrity.

     Capacity – A prospective client for credit must have knowledge of the business process for which
    loan is being granted.

     Capital – Bankers insist that the client has to bring some portion of total investment which is
    technically termed as margin.

     Collateral – Banks take collateral security in the form of mortgage of property, pledge of shares etc.
    as guarantee for loan repayment.

     Condition – Condition refers to macro-economic factors of country like political stability, demand
    and supply, legal environment etc.

     Credit history – Past records credit transactions of client.

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