Have you ever wondered how banks decide whom to give loans to? Or why some loan applications get rejected despite having a good income? 🤔
Who should watch this?
- Bankers preparing for CCP certification
- Finance professionals looking to understand credit risk management
- Anyone curious about how banks manage their lending portfolio
🚀 Watch the full video below and engage with us in the comments!
Before we dive in, check out this in-depth video:
Understanding Credit Policy in Banking
What is Credit Policy?
Credit policy refers to a structured set of guidelines banks follow while granting loans and advances. It helps in managing risks and improving profitability while ensuring compliance with RBI guidelines.
Key Objectives of Credit Policy:
- Ensuring responsible lending and minimizing risk
- Maintaining a balance between credit volume, earnings, and asset quality
- Complying with regulatory requirements (RBI Guidelines)
- Enhancing customer satisfaction by offering structured credit solutions
Key Components of a Bank’s Credit Policy
1. Customer Acceptance Policy 🏦
Defines which customers qualify for loans.
- Eligibility criteria like stable income, credit history, and CIBIL score
- Example: A bank may approve home loans only for applicants with a CIBIL score of 750+
2. Know Your Customer (KYC) Compliance 🆔
Ensures fraud prevention and anti-money laundering (AML) checks
- Requires submission of PAN, Aadhaar, and bank statements
Loan Approval Process – Step by Step
Loan Appraisal Standards
Checking salary slips, ITR, and balance sheets for financial stability.
https://learningsessions.in/principles-of-lending-iibf-certified-credit-professional-chapter-1-free-epdf/
Loan Types and Their Purpose
- Home Loans – Financing for purchasing or constructing a home
- Personal Loans – Unsecured loans for personal expenses
- Business Loans – Funds for business expansion and operations
- Overdraft Facility – Allowing withdrawal beyond deposited amount
Risk Management in Credit Policy
Banks must ensure a diverse and balanced loan portfolio to reduce risks. Here are key risk management strategies:
- Risk Diversification: Limiting exposure in high-risk sectors.
- Credit Scoring: Assessing borrower’s financial health.
- Regular Monitoring: Evaluating performance of loans over time.
- Regulatory Compliance: Adhering to RBI norms.
Conclusion
A well-structured credit policy ensures banks lend responsibly while maintaining profitability and minimizing risks.
Key Takeaways:
- Banks follow credit policies to manage risks and maintain profitability
- Loan approval depends on financial stability, credit score, and risk assessment
- Regulatory compliance (RBI guidelines) is crucial for lending practices
- Risk mitigation is key – through credit analysis and borrower assessments
📥 Download Free Credit Policy PDF!
👉 Click below to get a detailed PDF version of this session’s notes:
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