Apart from the credit evaluation procedures and the lending rates, the loan policy of a bank also has various other components. Discuss these components.

The Components of credit evaluation procedures and lending rates in banks are as under: Loan Objectives: Due to the presence of multifarious objectives like profitability, liquidity, volume of business, risk levels, etc. there will be prioritization of objectives while drafting the policy. But due to certain conflicting situations, reconciliation / trade-off between different objectives may become necessary. Volume and Mix of Loans: The policy should specify the targeted composition of the loan portfolio, such composition being in terms of industry/location/size / interest rate/security. Geographical Spread: There will be various locations from where a bank conducts its operations. Of these locations, some may be weak credit demand areas with a considerably high deposit potential and vice versa. Loan Administration: Efficient administration is the key to the success of the lending policy and for improving its efficiency, the authority of the loan executives should be clearly stated as also their responsibilities. The loan policy should state the sanctioning powers of the loan officers regarding the credit limits. Credit Files: The contents of the credit file should include all details of the borrower including detailed financial statements and analysis, collateral provided and the value of the same, details of compensating balances, non-rate clauses, etc. Other issues/ parameters that the loan policy may contain: Type and extent of collaterals. Compensating balances. Statutory limits for different types of loans. Monitoring mechanism. Loan-Deposit ratio. Incentive schemes for the loan officers. Loan repayment pattern. Communication practices. Extension of renewals of past-due installment loans (rescheduling the loan). Loan-loss reserves. Consumer laws and regulations. Role of credit and recovery department.