Appraisal and Assessment of Credit Facilities | PAPER II – PRINCIPLES & PRACTICES OF BANKING | MODULE B: FUNCTIONS OF BANKS
Credit Appraisal and Assessment of Credit Facilities Credit Appraisal and Assessment of Credit Facilities 1. Credit Appraisal Credit appraisal is the process by which a lender assesses the creditworthiness of a borrower before extending credit. This includes evaluating the borrower's financial health, repayment capacity, credit history, and the nature of the proposed project or requirement. Example: If a company applies for a term loan of ₹50 lakh to buy machinery, the bank will evaluate its past financials, repayment ability, and viability of the project before approving the loan. 2. Credit Appraisal Techniques Common techniques include: Financial Statement Analysis: Examining balance sheets, income statements, and cash flow statements. Ratio Analysis: Analyzing liquidity, solvency, profitability, and efficiency ratios. Risk Assessment: Identifying industry, borrower, and external risks. 5 Cs of Credit: Charac...