Credit Appraisal

Topics: Credit, Credit rating, Debt Pages: 6 (839 words) Published: February 17, 2012
Loan Origination

Appraisal Techniques
Mathew Joseph
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

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

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

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

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

2] System safe guards

3] Escalation mechanisms 4] Exhaustive Information Systems

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

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

Financial Terms & structure of loan

Appraiser’s Responsibility:
Review of Verification Reports Residence Employer

Tele-checks on above Validates disclosure made by applicant

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