26-11-2012, 06:13 PM
Credit as well as credit risk management in banks
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Bank optimizes utilization of deposits by deploying funds for developmental activities and productive purposes through credit creation process. Deposit mobilization & Credit deployment constitute the core of banking activities and substantial portion of expenditure and income are associated with them. In the case of deposits, baring few stray instances of operational risks linked to the system and human failure culminating in fraud, forgeries & loss, there may not be anything very alarming. But credit portfolio is the real dynamic activity that requires close monitoring and continuous management. This article attempts to focus on not only credit management but also credit risk management.
Lending methods
Even though Tandon Committee norms have been dumped to dustbins, alternative methods being practiced by the banks are yet to pass the test of time. While some banks adopt the method of justifying the sanctionof loan, others follow a combination of Turnover method, Cash
Flow Method, Cash Budget Method, Projected Balance Sheet
method, Net Owned Fund Method & the popular one-size fits all
Second Method of lending. Proper logistics should be built into the method of assessment -be it fund based or non-fund based requirement. What may be lacking is assessment of credit with risk perception.