OvRB_Lesson12_Session01.ppt

8/14/2019 OvRB_Lesson12_Session01.ppt

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Retail Loan Life Cycle

Objectives

In this session, you will learn to:

Understand the concept and various stages of retail loan life

cycle


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A retail loan revolution happened in India between 1995 and

2005.

The primary purpose of a loan is that it should earn interest.

Where the repayment is not regular, the banks have to use

collection agents for recovery.The retail loan has a life cycle consisting of the following

processes:

Account acquisition

Account verification

Credit evaluation and sanctionAccount management

Account collection

Retail Revolution


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The following figure shows the retail loan life cycle.

Retail Revolution (Contd.)

1. Account Acquisition

2. Account Verification

3. Credit evaluation andsanction

4. Account Management

5. Account collection



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During retail revolution, the new public sector and foreign

banks made innovative methods for customer acquisition.

The methods used for account acquisition are:

DSAs

TelecallingTie-up with Organisations: Some of the tie-ups are:

Tie-up with housing companies

Tie-up with auto manufacturers

Tie-up with large employers



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The DSA collects the following documents from an eligible

customer:

Loan application form

Address proof

Identity proofIncome proof

Photographs of applicant/guarantor

Documents relating to assets to be acquired



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The documents collected from an eligible customer are

verified using the following methods:

Field verification

Telephone verification

Reference checksDocument verification

Checking against negative list



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The verified documents are forwarded to the credit desk of

the bank for sanction.

The specialised desk officers does the credit appraisal

before sanctioning the documents.

Credit appraisal is of the following types:Appraisal of the borrower/co-applicant

Appraisal of the property/security

The aspects for appraising the borrower/co-applicant:

Applicants capacity to repay the loan

Adequacy of income to pay the instalments of loanAvailable liquidity for repayment of the loan

Past history of the applicant in repaying loans

Adequacy of guarantors income and his credit standing



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The aspects for appraising the property/security:

Market value of the security

Margin stipulation to cover possible fall in prices

Saleability of the security

Technological obsolescenceAfter evaluation, the loan is sanctioned by the designated

officer.

The details of sanction are communicated to the borrower.

Along with the other documents, a set of Post-Dated

Cheques (PDCs) are obtained from the customer to coverthe future EMIs.



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Proper monitoring of the advance is one of the main

conditions for an account remaining healthy.

The account management is as important as account

sanctioning, otherwise there will be increase in NPAs.

The process of account management involves:Ensuring regular repayment of the loan

Keeping the loan documents alive

Periodic physical inspection of property

Keeping a tab on borrowers continued creditworthiness

Portfolio analysis



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Banks classify their advances as:

Standard assets

Non-performing advances

The collection managers play an important role in the bank

for the recovery of funds not paid by borrowers.The action of the collection manager keeps the level of

non-performing loans to the minimum.

The steps in the collection process are:

Collection calling

Demand noticeField collection

Taking possession of security

Filing suit



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Check Your Understanding


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Practice Questions


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Summary

In this session, you learnt that:

The are the five stages in retail loan life cycle are:

Account acquisition

Account verification

Credit evaluation and sanction

Account management

Account collection

Account acquisition involves appointment of DSAs by banks,

tele-calling, tie-up with organisations, such as housing

companies, auto manufacturers and large employers.

Account verification involves checking up the veracity of thedocuments relating to address proof, identity proof, income

proof and photographs of applicant/guarantor.

Account verification also includes documents relating to assets

to be acquired from the prospective borrowers.


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Summary (Contd.)

The process of credit evaluation and sanction involves credit

appraisal, which can be bifurcated into:

Appraisal of the borrower/co-applicant

Appraisal of the property/security.

Account management involves the processes of:

Ensuring regular repayment of the loan

Keeping the loan documents alive

Periodic physical inspection of property

Keeping a tab on borrowers continued creditworthiness and

portfolio analysis

Account collection involves collection calling, demand notice,field collection, taking possession of security and filing suit for

recovery.