Ever wondered how banks decide whether to approve or reject a loan? Are you preparing for CCP Certification and want to master the art of credit appraisal? Then this video is just for you!
- What is credit appraisal, and why is it important?
- The 8 P’s framework for loan evaluation.
- Traditional vs. Modern credit appraisal methods.
- Financial risk assessment and risk mitigation techniques.
- The role of fintech in credit evaluation.
Before we dive in, watch this video for a complete breakdown:
What is Credit Appraisal?
Credit appraisal is the process banks use to evaluate the creditworthiness of borrowers before sanctioning loans. The goal is to minimize risk and prevent NPAs (Non-Performing Assets).
Key Objectives of Credit Appraisal:
- Ensure the borrower has the ability to repay the loan.
- Minimize credit risk and reduce NPAs.
- Maintain a stable financial system for banks.
The 8 P’s of Credit Appraisal
1️⃣ Project: Purpose of the Loan
Banks first check why the borrower needs funds. Whether for business expansion, working capital, or personal needs, the project should be viable and profitable.
2️⃣ People: Who’s Behind the Business?
Banks assess the promoters, management team, and their experience to ensure they can run the business efficiently.
3️⃣ Process: Operational Strategy
A business needs a well-structured process to generate revenue, manage costs, and remain sustainable.
4️⃣ Product: Market Demand & Competition
The bank evaluates whether the borrower’s product/service has enough market demand to sustain in the industry.
5️⃣ Prospect: Market Potential
Banks analyze the market conditions, potential competitors, and economic factors to determine if the business will be profitable.
6️⃣ Projection: Financial Forecasting
Banks estimate the future revenue, expenses, and profitability of the business to gauge repayment capability.
7️⃣ Profitability: Earning Potential
Without consistent profits, loan repayment becomes difficult. Thus, a borrower’s ability to generate steady profit is critical.
8️⃣ Proposed Repayment: Loan Repayment Plan
Banks check the repayment plan to ensure the borrower can repay the loan on time without financial distress.
https://learningsessions.in/ccp-exam-credit-delivery-chapter-4-free-epdf/
Download the Full Credit Appraisal PDF Guide
For your convenience, download the complete Credit Appraisal Guide in PDF format.
Conclusion
Credit appraisal is a crucial process for banks to assess a borrower’s repayment ability and reduce risks. With modern data-driven approaches, fintech solutions, and robust risk assessment models, banks can make smarter lending decisions.
What do you think about modern credit appraisal techniques? Let us know in the comments!
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Stay tuned for Part 2, where we dive deeper into advanced credit risk management strategies!
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