CREDIT MONITORING

CREDIT MONITORING IS IMPORTANT

PART OF CREDIT MANAGEMENT

CREDIT MANAGEMENT INCLUDES
LOAN SCRUTINY, SANCTION,
DOCUMENTATION, DISBURSEMENT,
MONITORING, REVIEW, RECOVERY

BROAD CLASSIFICATION OF
CREDIT FACILITIES
PERIOD-WISE CLASSIFICATION
Short Term Loans 12 Months
Medium Term Loan > 12 to 60 Months
Long Term Loans > 60 Months

SECURITY WISE CLASSIFICATION
Secured Cash Credit/Over Draft/Term
Loan/Home Loan, etc.
Un-Secured Personal Loans/ Overdrafts.
Loan Registers
Loan application Inward Register
Loan Sanction Register
Documents Register
Mortgage Security Register
Bill Discount Register
Stock Statement Register
Drawing Power Register
Insurance Register
Excess Over Draft/Temp. Over Draft Register
Due Date Dairy
Review/Renewal Register
Suit Filed Register
Stages of Credit Monitoring
Stock/Book Debt Scrutiny
Insurance of Assets charged to Bank
Operation in the account
Inspection of securities
Review/Renewal of accounts
Notifying irregularities to clients
Ensuring rectification of regularities
Follow up for recovery of dues
SCRUTINY OF STOCK/BOOK DEBTS
Please Ensure that:
a) The statement is as per Banks format
b) Record date of receipt of statement
c) It is complete in all respects
d) Is signed by authorized person of client
e) No major deviation in the level of current assets declared by client
compared to the one assessed by Bank.
f) Unpaid stocks and stocks/BDs older than 90 days are shown separately.
g) No slow moving/obsolete stocks are found
h) Stock Opening Balance + Purchases-Sales @ cost equals Closing stock
i) Value of Bills discounted is excluded in Book Debt Statements
j) Clients auditor certifies the Book Debt statement periodically
k) Stocks are stored in proper addresses and proper insurance is taken for
that premises.
DRAWING POWER
Stock Value : Rs. 300.00 lacs
Less: Sundry Creditors : Rs. 80.00 lacs
Balance : Rs. 220.00 lacs
Less: 25.00% Margin : Rs. 55.00 lacs
Drawing Power : Rs. 165.00 lacs

Book Debts : Rs. 200.00 lacs
Less: >90 days : Rs. 20.00 lacs
Balance : Rs. 180.00 lacs
Less: 25.00% Margin : Rs. 45.00 lacs
Drawing Power : Rs. 135.00 lacs
NOTE: The Drawing Power is subject the actual credit limit sanctioned.

Monitoring of CC/OD Account
Account Operations:
Turnover to match limit sanctioned
Turnover to match sales realized
Average Utilization
Minimum Balance Maximum Balance
Servicing of Interest charged in time
EOL Rare/sometimes/frequent
Cheque Returns Rare/Frequent
Cash Withdrawals justification
DP to cover outstanding in account
Diversion Internal/External is observed
Payments are business related.
Whether OD Bills debited to CC account
END USE OF THE FUNDS TO BE ENSURED


UNIT INSPECTION
Unit inspection is warranted to ensure that the
funds lent by Bank is used for the purpose for
which it is lent.
Scope of inspection is beyond mere stock
verification.
Banker to interact with the client about the
present trend in business and also any problem
faced by him to find solution.
To ensure that there is no statutory violation by
the borrower.
It helps to improve client-banker personal
relationship.
UNIT INSPECTION
During Inspection Please Ensure that:
The unit is in authorized premises
Name Board of Party exhibited
Banks Board is prominently exhibited
Stocks charged to Bank is identifiable
Stock/Book Debt Register maintained properly.
Physical verification to match stock records
Random Checking of very old stocks
Proper records/delivery memo for stocks in job work centers
Verify Levels of RM/WIP/FG holdings
Check Production/Purchase/Sales records
No hazardous items are found in the unit
Stocks/Book Debts cover the balance outstanding
Fixed Assets financed are in working condition
Check power/generator meter to ensure working of unit.
Party complies with Pollution Clearance/Renewal
Security arrangements such as fire fighting/flood control available


INSPECTION REPORT
After the Inspection is over compile a report
stating date of inspection and observations
made during inspection.
All positive/negative points to be brought out in
the report.
Process of inspection to assess the
merits/weakness of unit and deviation if any,
with justification thereof.
To address the client of the irregularities seeking
rectification and avoid repetition in future.
INSURANCE
Assets financed by Bank i.e. stocks, Plant and
Machinery, Building to be insured.
Collateral securities wherever required to be insured.
Insurance to be done adequately as under insurance will
result in lower amount of claim being settled.
Bank clause to be incorporated.
Insurance Register to be maintained and timely renewal
is to be done.
Party to be advised about the premia being debited to
his account and to provide adequate funds.
Review/Renewal
All credit limits are to be renewed/ reviewed periodically
normally once a year
Review is to ensure that the account is in order,
financials are satisfactory, no change in the owners of
the unit and even if there is any change it does not affect
Banks interest, no reduction in value of prime/collateral
security, conduct of account is satisfactory, no overdue
in repayment of installment/interest.
Special care to be taken to renew documents.
Acknowledgement of debt to be obtained from the clients
for all outstanding advances to ensure continuity of
principal documents.
MONITORING TOOLS
FORMS
Problem areas
Diversion of Funds Payment to non-business related
purposes, funds being paid to sister concerns/relatives
Misuse of Funds Assets not purchased but only
invoices are produced.
Creation of sub-standard fixed assets
In case of Current Assets slow / non-moving stocks.
Parallel operation in another Bank while working capital
is availed from our Bank.
Non servicing of interest/installments/continuous EOL
Inaccurate stock/book debt details/inflated values.
Frequent cheque returns/inadequate DP/Poor Turnover


Conclusion
Credit Monitoring is a continuous process.
It ensures that quality of assets is
maintained and avoid slippage in to NPA.
It is the responsibility of Credit officers of
the Bank to undertake systematic credit
monitoring process to protect the interest
of the Bank.