Project / Credit appraisal is a skill which has to be acquired by study and supplemented by practice. Intuitive guess work has little place in appraising the credit rating or credit needs of a corporate unit. The credit managers of banks and Non Banking Finance Companies (NBFCs) are duty bound to accept or reject a proposal on the basis of its viability or non - viability. TECHNIQUES USED IN CREDIT APPRAISAL
A. BY THE BANKS OR FINANCIAL INSTITUTIONS.
B. BY THE COMPANY (BORROWER).
Project / Credit appraisal is done by banks or financial institutions by obtaining credit information of the borrowing company.
Credit information of the borrowing company can be obtained by the following sources:
1. BANKS AND FINANCIAL INSTITUTIONS:
The source of primary information can be from the banks and financial institutions themselves which are the most original, the most detailed and by far the most trustworthy source, and as much relevant information as possible may be sought from the prospective banks. 2. BANK REFERENCES:
Information about the general financial health of the companies would come from the bankers with whom the company has its account, but also the bankers who might have lent to the company. Getting a reference through the company’s bankers makes it easy to get correct information and the lending banker may remain disguised. 3. TRADE REFERENCE:
They are references from the company’s customers, suppliers, etc. Supplier’s information would be particularly useful because, that would give an idea of the usual payment policies of the company. 4. CREDIT RATING AGENCIES:
Credit rating agencies like CRISIL – Credit Rating Information Services of India Limited, An RBI credit rating agency is CARE – Credit Analysis and Research Limited & other agencies are ICRA – Investment Information and Credit Rating Agency of India, & DCR INDIA – Duff and Phelps Credit Rating India Private Limited, & ONICRA Credit Rating Agency...