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    Credit Policy in Banks: Policies Are The Result of Values and Beliefs

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    Sumit Kumar Sharma
    Credit policy in banks reflects corporate priorities and determines credit culture. There are four types of credit culture: values-driven with conservative policies, earnings-driven focusing on short-term gains, size-driven prioritizing market share and loan growth, and unfocussed with no clear priorities. A sound credit policy balances credit volumes, earnings, and asset quality while meeting regulatory requirements such as standards for loan proposals, ratings, collateral, pricing, and legal compliance. Credit policy also defines restrictions, prohibited sectors, and provides guidelines to manage risk and enable growth.

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    Credit Policy in Banks: Policies Are The Result of Values and Beliefs

    Uploaded by

    Sumit Kumar Sharma
    140 views3 pages
    Credit policy in banks reflects corporate priorities and determines credit culture. There are four types of credit culture: values-driven with conservative policies, earnings-driven focusing on short-term gains, size-driven prioritizing market share and loan growth, and unfocussed with no clear priorities. A sound credit policy balances credit volumes, earnings, and asset quality while meeting regulatory requirements such as standards for loan proposals, ratings, collateral, pricing, and legal compliance. Credit policy also defines restrictions, prohibited sectors, and provides guidelines to manage risk and enable growth.

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    Credit Policy in Bank

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    Credit policy in banks reflects corporate priorities and determines credit culture. There are four types of credit culture: values-driven with conservative policies, earnings-driven focusing on short-term gains, size-driven prioritizing market share and loan growth, and unfocussed with no clear priorities. A sound credit policy balances credit volumes, earnings, and asset quality while meeting regulatory requirements such as standards for loan proposals, ratings, collateral, pricing, and legal compliance. Credit policy also defines restrictions, prohibited sectors, and provides guidelines to manage risk and enable growth.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    140 views3 pages

    Credit Policy in Banks: Policies Are The Result of Values and Beliefs

    Uploaded by

    Sumit Kumar Sharma
    Credit policy in banks reflects corporate priorities and determines credit culture. There are four types of credit culture: values-driven with conservative policies, earnings-driven focusing on short-term gains, size-driven prioritizing market share and loan growth, and unfocussed with no clear priorities. A sound credit policy balances credit volumes, earnings, and asset quality while meeting regulatory requirements such as standards for loan proposals, ratings, collateral, pricing, and legal compliance. Credit policy also defines restrictions, prohibited sectors, and provides guidelines to manage risk and enable growth.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
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    Credit Policy in Banks

    Policies are the result of values and beliefs 1. Credit policy reflects corporate priorities in lending 2. Credit policy determines the banks credit culture 3. Four types of credit culture Credit culture of a bank could be one of four types If the emphasis is on the quality of loans given, the credit culture will be values driven. The credit policies adopted will be conservative and prudent. If on the other hand short-term gains are the priority of the bank, the credit culture is likely to be earnings driven. A bank concerned primarily about market share would adopt a size and volume driven culture adopting policies that primarily promote market share and loan growth. If there are no clear priorities the culture will be unfocussed.

    Objectives of a sound credit policy: 1. Credit Volumes 2. Earnings 3. Asset Quality Credit policy mirrors regulatory requirements:

    I. Standards of presentation of credit proposals and terms and conditions to be met by the borrowers:
    a. b. c. d. e. f. g. h. Standards of rating loans and advances Prudential limits on large credits and asset concentrations Standards for loan collateral, loan review mechanism Pricing of loans, risk monitoring and evaluation Legal and regulatory compliances Credit policy defines restrictions and prohibitions Credit policy also provides Dos and Donts Credit Policy indicates thrust areas and off credit sectors

    i.

    Policy Deviations challenge of compliance Vs customer friendliness

    II. Summing up credit policy as a Risk Management Tool:


    a. b. c. d. e. f. It serves a Gate Keeping role It defines thrust areas It sets acceptable levels of risk It prevents risk concentrations It provides pricing strategies It covers risks and empowers growth

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