Management of credit risk in a bank will require alertness on the part of staff at all the stages of credit delivery. Explain various steps for efficient management of credit risks.

Key issue in managing credit risk is to apply a consistent evaluation and rating system of all investment opportunities. Prudential limits need to be laid down on various aspects of credit viz., benchmarking current ratio, debt-equity ratio, profitability ratio, debt service coverage ratio, concentration limits for group/single borrower, maximum exposure limits to industries, and provision for flexibilities to allow variation for very special features. Credit rating may be single point indicator of diverse risk factors. Management of credit risk in a bank will require alertness on the part of staff at all the stages of credit delivery and monitoring process: Appraisal Stage: In addition to following the prescribed guidelines of the bank, the important point is the appraisal of the man behind the project. For this, no rules can be prescribed or formula can be given. Whether the branch has its own network for obtaining reliable information about present and prospective borrowers through some well-known sources like local organizations, lead bank offices, other customers etc. Whether the credit officers keep an eye on local newspapers for keeping track on some developments in some units / industries etc. Whether marketability of the product is assured beyond reasonable doubt. Whether while processing the proposals, a list of all the important references made by the borrowers is kept on record. Whether a small map of the location of the unit, residence of the borrowers / guarantors are kept on record. Disbursement Stage Whether the branch ensures creation of assets and whether the disbursement is made in stages and checked at every stage, wherever possible. Whether the payments are directly made to the dealers. Whether the branch ensures long term availability of the business premises, wherever business premises are on rent. Review/Renewal Whether the branch considers renewal as a ritual or uses the opportunity to review its credit decision. Whether proper follow-up for obtaining financial information is started in time and borrowers are properly educated in this regard. Asset Verification/Inspection / Visits: This is most important aspect of monitoring of a borrowers' account. If done regularly, it gives an opportunity to interact with the borrowers and must be used to ascertain the problems that the unit is facing/likely to face. Remedial steps should be initiated at the earliest. If an eye is kept on the activities of the borrower, there is no reason as to why the account can't be kept healthy.