Senior General Manager
Housing Development Finance Corporation Limited - India
AUHF - 2007 AGM & Conference Program, Ghana - September 2007
Why do we appraise?
Is a Selection Tool Quantifies Risk
Aids Decision Making Ensure Good Quality business with excellent creditworthiness
What is Credit Appraisal?
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
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
Controls/ Risk Mitigants # Policy related # System related # Level/ Limit related Case Representation # Culmination of the appraisal process confidential
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
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
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
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
1] Written polices & procedures for credit risk systems & controls 2] Standard Credit measures 3] Policies designed to identify problem loans confidential
1] Validations and prompts inbuilt into the loan processing systems confidential
2] System safe guards
3] Escalation mechanisms 4] Exhaustive Information Systems
1] Delegation of Approval powers 2] Mandatory Approvals of senior personnel in cases of loan amounts being greater than loan approvers sanctioning powers confidential
Data Discipline Document Validity Loan Feasibility Case Representation confidential
Financial Terms & structure of loan
Review of Verification Reports Residence Employer
Tele-checks on above Validates disclosure made by applicant
Review of Credit Bureau Report Comprehensive Credit Information Provides details pertaining to credit facilities...