Credit Monitoring

By
T.V.Venkitasubramanian
 Credit Monitoring
• The Success of the Credit Administration
depends largely on efficient appraisal of Credit
proposals and constant post – disbursement
monitoring.
• Monitoring and follow up should be an on
going process.
 Credit Monitoring
• Deficiency in appraisal or laxity in monitoring
result in quick mortality of the advances.
• For maintaining the quality of advance the
credit monitoring is important.
 Credit monitoring
• Monitoring of Credit should not be done in
isolation. It is a wholesome exercise which has
to be carried out with a good information
system, financial statements, physical
verification, adequate internal systems, test
checks, surprise checks, third party
consultations, newspaper and magazine
reports and other sources available.
 Credit Monitoring
• At any point the branch should have full
control over the borrower’s account and the
operations.
 Aspects of Monitoring
• The monitoring should be pro active to
ensure that the operations of the unit are
healthy . It should also be ensured that the
stipulated guidelines /norms are adhered to
/complied with.
 Credit Monitoring
• The monitoring is divided into four parts.
• 1) Through physical Inspection
• 2) Through Financial Statements
• 3) Through Operations in the account
• 4) Through MIS and Audit.
 Credit Monitoring
• Physical : Full KYC Compliance should be
ensured before taking the proposal.
• Credit Investigation to be carried out
diligently about the promoters , project and
capability of the promoters.
 Credit Monitoring
• Marketing enquiry to be made about the
product ie continuing demand , no ban for the
products, use of the product , availability of
raw materials etc. Reference and comparisons
to be made from peer group.
 Credit Monitoring
• Standing of the borrowers should be ascertained
from Bankers and Suppliers.
• Godown inspection , verification of purchase
orders , sales invoices, debtors/ creditors register,
excise , sales tax registers sale tax returns
whether the premises rent is paid regularly in
case of leased premises , payment of electricity,
water and other utility bills, payment to the
labour upkeep of the factory premises whether
the godown is having more than one entrance
etc.
 Credit Monitoring.
• In case of Term Loan sanctioned for construction
of a project, whether the physical construction is
commensurate with the estimates and with the
funds released and time scheduled.
• Regular unit visit is to be conducted even in case
of only non fund limits to ensure that the
company is conducting it’s business and the
company will be able to meet the contractual
obligation under the guarantee .
 Credit monitoring
• The insurance Policy of the stocks should be in
force. The Insurance Policy should cover the
entire value of the materials held at any point
of time.
• Name Board of the Company and the
hypothecation Board are to be displayed at
the premises.
• Inspection should be conducted with out
giving prior intimation to the borrower.
 Credit monitoring.
• Financial
• Monthly stock statements
• monitoring statements as stipulated in the
sanction ,
• provisional /Audited Financial statements
should be called for to analyse and ensure
that the progress in business is commensurate
with the estimates
 Credit monitoring
• Operational:
• The operation in the Current/Cash Credit
accounts should be verified at regular
intervals to ascertain whether the dales
proceeds are routed through us or not and
payments are being made for genuine
business purpose or whether any diversion is
taking place.
 Credit monitoring
• If the bills limit are sanctioned it should be
ensured that the bills are routed through us.
• In case of consortium advances it should be
ensured that the proportionate sales or
business is routed through us under all the
facilities.
• If the borrower is importing goods , the
import bills should be routed through us.
 Credit monitoring
• Even where only non fund based limits have
been sanctioned , branch should ensure that
the sales proceeds are routed through us
which will ensure that the company is
performing it’s obligations and it will give a
scope to us to counter the claims if any
submitted under the guarantee issued by us in
future.
 Credit monitoring
• Branches should also ensure that the bills are
submitted to us only where the pre sale limits
were sanctioned by our bank
• Calling for the details of associate /sister
concerns will help us to ensure that the funds
are not diverted to the associate sister
concerns.
 Credit monitoring
• There are possibilities that the borrower
utilises the short term finance towards margin
on Term loan sanctioned.
• Further while evaluating the borrower we
should find out whether the borrower is going
to depend on one buyer or there are many
buyers. If there are diversified buyers then it
will reduce concentration risk.
 Credit monitoring
• In case of non fund based facilities ,the
request for opening LC should ensure that the
LC sought is commensurate with the
estimated sales level of the borrower and is
with in the operating cycle.
• While considering LC for import of raw
material branch should ensure that cash credit
is available to meet the bills received under LC
on the due date /on receipt of the bill.
 Credit monitoring
• MIS and Audit
• The post sanction monitoring is undertaken
on borrowal accounts by Regional Office
/Central Office through CAF-1 review , Review
of watch category accounts , review of
restructured accounts , review of accounts
under Loan review mechanism , continuous
surveillance statement etc in addition to the
various audits both internal and external.
 Credit monitoring
• Effective monitoring at branch level is so
important for the success of credit
administration as the branches are more
closely associated with the borrower.
• The following important steps are required to
be ensured by branch
• 1) Adequacy or otherwise of the finance.
Neither excess or inadequate finance will ruin
the business.
 Credit monitoring
• Every effort should be put in to verify every
detail furnished by the consultant/ Chartered
Accountant in the project report .
• In case the Technique evaluation study is
submitted , the credibility of the outside
agency should be enquired into.
• Independent study of the viability of the
project should be made.
 Credit monitoring.
• Credit report from Bankers, reports on the
suppliers of machinery report from Dun and
Bradstreet should be obtained.
• The appraisal made by the lead bank in case
of Consortium advance should not be
accepted in toto without independently
appraising the appraisal, MPBF etc.
 Credit monitoring
• In the case of CDR restructuring also viability
study should be independently taken though
the decision of the EG will be binding if 75% of
creditors by vale and 60% of creditors by
number accept the restructuring .
• The net worth of the borrowers/ guarantors
should be cross verified with Income Tax
return. , balance sheet etc.
 Credit monitoring
• In respect of Mortgage of immovable
properties obtention of Valuation report from
approved valuer and legal opinion from our
Legal advisors is pre condition.
• Registration of Charge with ROC to be done
within 30 days
• Registration of charge with Central Registrar
should be done with in 30 days.
 Credit monitoring
• The end use of funds to be verified. Intergroup
transactions are to be watched , enquired and
monitored.
• Monthly stock statements
• Monthly statement of Book debt followed by
quarterly Chartered accountant certified
statement on book debts
• Assets charged to the bank have to be insured
 Credit monitoring
• Excess drawing by the borrower is to be
discouraged.
• Excess allowed in case of emergencies should
be promptly reported.
• Ensure that the parties who are dealing with
the borrower are in the same line of activity.
• Periodic review of the account to be
undertaken.
 Credit monitoring
• Movement of rating should be monitored
• Information about the borrower should be
discussed with the member banks in
consortium
• Promoters contribution to be got confirmed
by calling for the certificate from Auditors.
 Warning signals
• Frequest request for excess
• Frequent request for adhoc limits
• Irregular /delayed repayment of dues to the
Bank,
• Entire transactions are not through the
account
• Frquent return of cheques
 Warning signal
• Transactions in round figure
Credit monitoring