IIBF CCP Short Notes – Part 1 | CCP – Certified Credit Professional

IIBF CCP Short Notes – Part 1 | CCP – Certified Credit Professional

CCP stands for Certified Credit Professional. Going through this course of IIBF makes an individual acquire measurable skills that are required for a role in credit management. Certified Credit Professionals fall under the cadre of Credit Officers that can effectively perform different credit functions across banks. They have the advanced skills to handle various credit management issues including Working Capital Management, Loan Policy, Project Finance, Credit Appraisal, Credit Monitoring, Export Credits, etc.

While you prepare for IIBF CCP, going through the certified credit professional notes for CCP helps immensely in the preparations! And Learning Sessions has prepared CCP notes (pdf) so that you can easily get an overview of the CCP topics.

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CCP (short notes PDF) has been prepared based on the 5 modules which are further divided into several units.

To check out the detailed syllabus of IIBF CCP click here.

CERTIFIED CREDIT PROFESSIONAL NOTES: Part 1

MODULE-A: INTRODUCTION & OVERVIEW OF CREDIT

Chapter-1: Principles of Lending

In order to protect the interest of all the stakeholders, banks need to adopt 6 basic principles that are Safety, Liquidity, Profitability, Purpose, Risk Diversification, and Security.

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1. Safety

Safety means that the borrower should be able to repay the loan & interest in a stipulated time without any default. Banks are the trustee of the money of the public. Bank deposits are always payable on demand and banks always have to maintain the trust of depositors forever. 

It is just not the borrower’s capacity to repay but also his willingness to repay the loan. The former depends on his tangible assets & his business success while the latter depends on the borrower’s character.

2. Liquidity

It refers to the extent of funds available with the banker for providing credit facilities to borrowers. The things to be seen is that money lent as borrowings is not going to be locked up for a long time & money should return to the bank as per the schedule of repayment. 

This repayment schedule is to be prepared while adhering to the requirement that at any point in time, the banker should possess liquidity to meet the withdrawals by depositors. 

The concept of liquidity involves the banker looking for an easy sale & the absence of risk of loss on the sale of an asset, which has been taken as collateral.

3. Profitability

Banking companies are not charitable institutions. All the banks are profit-earning institutions. The ultimate lending objective is to earn profits. Banks receive interest on loans and advances lent, & pay interest to the depositors of money. 

The difference between the receipts & payments becomes gross profit for the bank. Banks have to earn a reasonable amount as Net Profit so that dividends can be paid to their shareholders too.

4. Purpose of Loan

The Loan purpose has to be productive so that the money not only remains safe but also provides a definite repayment source. Loans may be required for production purposes, trading purposes, agriculture, transport or self-employment, etc. 

A banker should be very much cautious in entertaining proposals that are for non-productive or speculative purposes. Because it is very difficult to ensure that the sanctioned loans get utilized for the purpose for which they were sanctioned, bankers can take follow-up measures to ensure that the fund is getting utilised for the exact purpose for which they have been borrowed.

Important Topic:- CCP – (Certified Credit Professional) EXAMS STUDY MATERIAL

5. Diversification of Risk

Following the concept of prudence, a banker always tries to select the borrower very carefully & takes tangible assets as security for safeguarding banks’ interests. 

While diversification is an adequate measure, there can be some other unforeseen contingencies against which a banker has to guard himself. 

If a bank lends large amounts to a single borrower, then the default by that customer can affect the banking industry as a whole & can affect the basic survival of the banking industry. Banks have to lend to a large no. of industries & borrowers so that the risk can be diversified.

Chapter 2 – Credit Policy

Bank’s Board is usually the apex authority in the credit policy formation of a bank. During the formation of the Credit Policy, the following standards are considered:

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Appraisal Standards:

• Qualitative
• Quantitative

1. Qualitative

A qualitative study is taken about the bank’s past experience with the industry if any, & if there is a track record to go by experience with the promoters is also taken into account. Where there is a new connection for the bank but entrepreneurs are already in the business, confidential opinion reports from the existing bankers and any data that has been published are carefully perused for the purpose.  

2. Quantitative
3. Working Capital

Liquidity: Current Ratio = 1.33 is generally considered as benchmark liquidity level.

Net Working Capital: That part of working capital that is not used for long-term purposes is Net-working Capital.

Financial Soundness: Total Outside Liability or Adjusted Tangible Net Worth ratio of 3.0 is reasonable. Although deviation for understandable reasons may be accepted by the sanctioning authority in selective cases.

Turnover: Study the trend in quality & value-wise turnover.

Profit: Non-operating income is excluded from the turnover as they are usually one-time or extraordinary incomes.

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Credit Rating: There can be a Credit Risk Assessment by an external credit rating agency approved by RBI apart from the bank’s internal credit risk assessment.

Capital Market: Company’s shares that are listed on stock exchanges provide many indications such as the movement of the price of its share, the market value of shares, the response to public issues, etc.

1. Term Loan

Technical Feasibility: For technical feasibility, the credit officer takes opinions from the technical consultancy cell or the consultants of the bank.

Promoters’ Contribution: At least a 20% contribution by the lending bank is normally expected.

Debt Service Coverage Ratios (DSCR): Net DSCR should not go below 2 & Gross DSCR not go below 1.75.

The margin on Security: It depends on Debt-Equity gearing for the project.

Other Parameters: Other parameters like End-use of the fund, Interest rate slab, Credit rating, etc. are also used to keep a check on the credit policy.

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