Five ‘C’s Of Bad Credit

Complacency

   Over reliance on past performance.

Carelessness

   Bad evaluation / documentation. Lack of information.

Communication

       Ignore early warning signs. Not in touch with the client after granting facilities.

       No follow up / monitoring.

Contingencies

       Ignore what the financials told us. Did not say no to the client when we should have.

Competition

 Being in competition with other banks. Lending to the same client doing the same business.

Early Warning Signals through Bank Records.

Cheque returns for lack of funds.

Frequent excesses in the current account.

Request to pay cheques in the morning & agreeing to deposit in the evening.

Loan installments & import loans become overdue.

Frequent request for TOD s

Signs of desperation for enhanced facilities/ agreeing to any rate of interest.

Drawing inter company cheques (Cross Firing).

Issue of cheques for round sums.

Drop in pay-ins.

Hardcore in the overdraft.

Increase tendency to draw against un cleared effects.

Request to convert short term / temporary facilities to a TLN

Other Early Warning Signs.

Sudden resignation of key people.

Disputes among key people.

Customer becoming too friendly or distance from the bank.

Inefficient, untidy & disorderly business premises.

Lethargic attitude of the management & employees.

Dissatisfied employees.

Change in attitude towards risks (Increase risk taking or overcautious).

Diversion of funds.

Change of accounting practice or auditors.

Delay in submitting management information.

Creative accounting / window dressing.

Adverse performance indicators in the financials.

 20 Common Reasons for Credit Loss

1.   Security overvalued / No valuation obtained / improperly margined.

2.   Disbursement of funds prior to completion of documentation,

3.   By pass authority due to personal relationships or gain.

4.   Advances to new ventures with inexperienced owner / manager.

5.   Grant of additional facilities without proper evaluation and/ or without additional Security

6.   Repeatedly rescheduling of facilities to cover over dues.

7.   Non analyzing of borrowers cash flows and repayment capacity.

8.   Failure to review loan status frequently.

9.   Disbursement of funds not being monitored by the bank. Loan proceeds being utilized for       personal use or to pay another bank.

10. Loans granted not in line with the banks credit policy, some times credit officers hiding the purpose if it’s out side the credit policy.

11. Repayment & other terms and conditions not being clearly advised to the borrower prior to agreeing on the facility.

12. Failure to obtain infrequent financial statements from the client.

13. Failure to realize security because the borrower raised nuisance legal defences

14. Bank failure to follow its own written policies and procedures.

15. Undue pressure to grant loans to certain sectors due to political reasons.

16. Ignore of early warning signs.

17. Failure to visit the borrowers business premises regularly.

18. Lending against fictitious financials with no qualified audit verification.

19. Ignoring of negative CRIB reports.

20. Failure to demand repayment or realization or collateral quickly when it has become obviously hopeless