Credit Appraisal

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  • Topic: Credit, Credit rating, Debt
  • Pages : 6 (839 words )
  • Download(s) : 561
  • Published : February 17, 2012
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Loan Origination
&

Appraisal Techniques
Mathew Joseph
Senior General Manager
Housing Development Finance Corporation Limited - India
confidential

AUHF - 2007 AGM & Conference Program, Ghana - September 2007

Why do we appraise?
Is a Selection Tool Quantifies Risk
confidential

Aids Decision Making Ensure Good Quality business with excellent creditworthiness

What is Credit Appraisal?

ABILITY
confidential

INCLINATION

OBJECTIVE

SUBJECTIVE

KNOWLEDGE

EXPERIENCE

What are we Appraising?
PERSON: Capacity - The ability to service the loan by financial resources/ income streams. Inclination - Willingness to pay. PROPERTY: To check documents for creation of security. To ensure end use. confidential

Basis of Appraisal

Security Based or Repayment Capacity Based
confidential

Appraisal Process
Involves Risks:
Identification # Information Acquisition # Documentation # Customer Interface Techniques Assessment # Identifying key risks # Identifying Mitigating mechanisms # Integration , Collation of data along with information gathered at the personal interview confidential

Appraisal Process

Controls/ Risk Mitigants # Policy related # System related # Level/ Limit related Case Representation # Culmination of the appraisal process confidential

Identification
Information Acquisition Stage # Carefully designed Application Form # Standard Document List # Credit Bureau Report # Customer Credit Verification Reports Documentation # Standard Check-lists # Standard Approach to Scrutiny, Perusal Customer Interface Stage # Rapport Building # Probing Techniques confidential

Assessment
Involves Extensive Evaluation of the following parameters 1] Current Financial Condition & Paying capacity # Income Source # Income Frequency # Income Consistency # Income Continuity 2] Inclination to repay # Family Background # Savings History # Repayment trend on other liabilities # End use of property # Authenticity of information & documentation provided confidential

Assessment
3] Specific Characteristics which may affect loan repayment 4] Current value and relaisability of security 5] Confirmation of the proposal with laid down credit norms 6] Adherence to Financial Ratios confidential

Case Representation
Has to be comprehensive as the representation captures the essence of the loan and forms the basis of approval 1] Output of the appraisal process in a standardized format 2] Describes the result of the credit assessment 3] Details the credit quality and risks 4] Makes the recommendation confidential

Controls - The Need
The credit appraisal process involves multiple steps to arrive at the final decision. It is imperative that the scope for errors/ omissions is minimized/ eliminated. Our controls operate in the current business environment and have to be dynamic in order to be effective. confidential

Type of Controls
Credit Controls:
1] Written polices & procedures for credit risk systems & controls 2] Standard Credit measures 3] Policies designed to identify problem loans confidential

Controls
System Controls:
1] Validations and prompts inbuilt into the loan processing systems confidential

2] System safe guards

3] Escalation mechanisms 4] Exhaustive Information Systems

Controls
Limit Controls:
1] Delegation of Approval powers 2] Mandatory Approvals of senior personnel in cases of loan amounts being greater than loan approvers sanctioning powers confidential

Pre-Sanction
Appraiser’s Responsibility:
Data Discipline Document Validity Loan Feasibility Case Representation confidential

Financial Terms & structure of loan

Pre-Sanction
Appraiser’s Responsibility:
Review of Verification Reports Residence Employer
confidential

Tele-checks on above Validates disclosure made by applicant

Pre-Sanction
Appraiser’s Responsibility:
Review of Credit Bureau Report Comprehensive Credit Information Provides details pertaining to credit facilities...
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