CREDIT APPROVAL PROCESS

The approval process must reinforce the segregation of RelationshipManagement/Marketing from the approving authority. The responsibility forpreparing the Credit Application should rest with the RM within the business unit.Credit Applications should be recommended for approval by the RM team andforwarded to CRM for their review and assessment. The credit should subsequentlybe approved by proper approval committee.FIs may wish to establish various thresholds, above which, the recommendation ofthe Head of business unit is required prior to onward recommendation to CRM andsubsequent appropriate authority for approval. In addition, FIs may wish to establishregional credit centers within the approval team to handle routine approvals.

The recommended procedure for all the business units is as follows:

1.      Application forwarded to Zonal Office or Head Office for review by the ZCRO or HCRO

2.      Advise the review to recommending branches.

3.      ZCRO/HCRO supports & forwarded to Head of Business Units (HOBU) within their delegated authority and to Head of Credit Risk (HOCR) for onward recommendation

4.      HOCR advises the review to ZCRO

5.       HOCR & HOBU supports & forwarded to Credit Committee

6.      Credit Committee advises the decision as per delegated authority to HOCR & HOBU

7.       Credit Committee forwards the proposal to EC/Board for their approval within their respective authority

8.      EC/Board advises the decision to HOCR & HOBU

The approval process may vary among FI’s depending on the types of products and

exposure. For example, lending to Corporate and SME’s is mostly unstructured due to diverse nature of risk exposure. On the other hand, consumer lending is mostly structured by standardizing the product and risk aspects of individuals. As such applications for consumer lending may be done within the head of consumer unit subject to delegation of authority to do so.

CREDIT RECOVERY

The Recovery Unit (RU) of CRM should directly manage accounts with sustained deterioration (a Risk Rating of Sub Standard (6) or worse). FIs may wish to transfer EXIT accounts graded 4-5 to the RU for efficient exit based on recommendation of CRM and Corporate FI. Whenever an account is handed over from Relationship Management to RU, a Handover/Downgrade Checklist should be completed.

The RU’s primary functions are:

      Determine Account Action Plan/Recovery Strategy

      Pursue all options to maximize recovery, including placing customers into receivership or liquidation as appropriate

      Ensure adequate and timely loan loss provisions are made based on actual and expected losses

       Regular review of grade 6 or worse accounts

The management of problem facilities (NPLs) must be a dynamic process, and the associated strategy together with the adequacy of provisions must be regularly reviewed. A process should be established to share the lessons learned from the experience of credit losses in order to update the lending guidelines.