1. Summary
  2. Stages in Credit Management in India
  3. Issues of Bad Debts in commercial Banks in India


Banking could be a serious business since it involves transacting together with your customers’ cash and generating returns from them. Thus, banks need to be additional cautious to supply secure returns to their depositors and earn extra borrowers’ returns. This is often wherever the importance of credit management in India arises for the property functioning of any bank. Banks so play a serious role in developing any economy by bridging the gap between the lenders and therefore the borrowers. This monetary intercession between 2 parties is the main performance of any bank. Credit management so becomes a key deciding consider crucial the success of any bank.

Stages in Credit Management in India

Pre-Sanction Stage

  • Know your Borrower: The foremost method during this stage is to urge to understand your receiver utterly. A bank ought to examine the borrower’s profile from all potential angles and conduct background checks on the data provided by him. This may guarantee credit management and problems with bad debts in industrial banks in India are checked through this to some extent.
  • Document Verification: The next step is to analyze all the documents submitted by the receiver. For instance: Double-checking and corroborative ID proofs, checking account statements to confirm they’re not cast goes a protracted approach in making certain that sound credit management practices are followed.
  • Credit Score Evaluation: This can be the primary step additionally, whereby the bank asks for the borrower’s credit data from the registered credit bureaus in India. The credit score is the key element of credit data that tells heaps concerning the compensation habits of a receiver. Merely reject the application if the borrower’s credit score is substandard to confirm high levels of credit management and problems with bad debts in industrial banks in India is tackled with this apply.
  • Financial Statement & Ratio Analysis: The next in line is the analysis of the borrower’s financials to assess his money flows and compensation capability. If it’s an organization, the analysis of its profit-and-loss statement, record, and income statement. Monetary quantitative relations like inventory turnover ratio, current quantitative relation, debt to equity quantitative relation, etc., square measure computed to reach the borrower’s monetary stability.
  • Collateral Valuation/Restricted Covenants: Big-ticket loans square measure sanctioned solely once taking collateral from the receiver. As credit management in India practices, a bank ought to ideally conduct a background check of the collateral for its valuation. The bank can even place restricted covenants that require the borrowing company to hold out sure activities.

Post-Sanction Stage

  • Loan Account Monitoring: The task of sound credit management in India doesn’t finish once the loan is sanctioned. Abundant of it’s there even once the loan is sanctioned that features loan account watching. This consists of trailing whether or not the receiver is pairing the principal and interest on time or not. If the compensation is delayed repeatedly and therefore the loan is disbursed in tranches, then the bank has got to freeze the future tranches.
  • Timely Checking of Project: If the loan is taken by an organization for a project, then the bank has got to visit the project website for scrutiny daily. This is often to confirm credit management and problems with bad debts in industrial banks in India go down.
  • Monitoring Collateral: A high-ticket loan is usually a secured loan that’s backed by collateral. The collateral is a monetary instrument or asset of gold whose price changes over time. Thus, as honest credit management apply, the bank ought to conduct a daily valuation of collateral to watch the modification in its price.

Issues of bad Debts in commercial Banks in India

This section can justify the lingering drawback of bad debts or NPAs (Non-Performing Assets), illustrious within the Indian industry. Several laws and reforms are introduced by the financial institution to curb the menace of bad debts. SARFAESI Act, company Debt Restructuring, Joint Lenders Forum (JLF), Bad Bank, Debt Recovery assembly (DRT), financial condition and Bankruptcy Code, etc. These laws are productive to some extent within the Indian context.

Fortunately, the terrorist group scenario is convalescing compared to however it had been many years past, as per the tally knowledge. All this is often largely thanks to the great policies of credit management in India. However, having aforementioned that, there are still heaps that have to be wiped out to succeed in the terrorist group levels of worldwide standards.

The Internal Revenue Service (IRS) permits businesses to jot down off debt on form 1040, Schedule C if they need antecedent been according to as financial gain. Debt might embrace loans to purchasers and suppliers, credit sales to customers, and bank loan guarantees. However, deductible debt doesn’t generally embrace unpaid rents, salaries, or fees.