Loan Evaluation and eligibility Presentation.pptx

Loan evaluation and eligibility

1. Loan Evaluation – Eligibility, Purpose, Margin, Security, and Disbursement Process Detailed Overview of the Credit Appraisal Process

2. Introduction to Loan Evaluation Loan evaluation is the process by which banks assess the creditworthiness of an applicant before approving a loan. Objectives: • Ensure repayment capacity • Minimize default risk • Comply with regulatory norms

3. Importance of Loan Evaluation • Protects bank assets and depositors’ money • Ensures loan aligns with borrower’s purpose • Determines loan amount, tenure, interest rate • Complies with RBI and Basel norms

4. Steps in Loan Evaluation 1. Loan Application & Documentation 2. Eligibility Assessment 3. Creditworthiness Appraisal 4. Security Evaluation 5. Loan Sanctioning 6. Disbursement 7. Post-Disbursement Monitoring

5. Eligibility Criteria (Overview) Set of conditions to determine borrower qualification: • Age: 21–60 years • Income stability • Credit score ≥700 • Debt-to-Income ≤40% • Indian resident Example: HDFC Home Loan – Min. income ₹25,000/month, CIBIL ≥750

6. Eligibility Criteria (Retail Loans) Home Loan: Salaried/Self-employed – Income & property proof Car Loan: Vehicle quotation & insurance Education Loan: Admission letter, co-applicant Business Loan: Business vintage, ITR, turnover

7. Creditworthiness and 5 Cs of Credit 1. Character – Reputation & repayment history 2. Capacity – Earning ability 3. Capital – Financial strength 4. Collateral – Security offered 5. Conditions – Economic & industry factors

8. Loan Purpose Purpose determines risk & loan type. Acceptable: Home, business, education, vehicle. Unacceptable: Speculation, gambling. HDFC Policy – only productive, legal purposes verified by documents.

9. Documentation for Loan Purpose • ID & Address proof • Income proof (salary slips, ITR) • Property/business documents • Quotation/invoice of asset • Bank statements (6–12 months)

10. Margin (Concept & Importance) Borrower’s contribution to total project cost. Formula: Margin = (Borrower’s Contribution ÷ Total Cost) × 100 Purpose: Ensures borrower stake, reduces risk, promotes discipline.

11. Margin Requirements (Examples) Home Loan: 10–25% (HDFC: 15%) Car Loan: 10–20% Education Loan: 5–15% Business Loan: 25–40%

12. Security in Loan Evaluation Assets pledged to secure loan repayment. Primary: Asset from loan (house, vehicle) Collateral: Additional asset (property, FD) Purpose: Protects lender from default. RBI: Valuation, registration, insurance mandatory.

13. Security Evaluation Process 1. Verify ownership 2. Obtain valuation 3. Assess marketability 4. Check insurance 5. Create mortgage/hypothecation 6. Register with CERSAI

14. Loan Disbursement Process (Overview) Disbursement – release of funds after approval. Steps: 1. Sanction letter 2. Agreement signing 3. Security documentation 4. Compliance check 5. Disbursement to vendor/borrower

15. Loan Disbursement (HDFC Example) 1. Sanction – income & property verification 2. Pre-disbursement: papers, margin proof 3. Disbursement: full/partial 4. Post-disbursement: EMI schedule, monitoring

16. Risk Assessment in Loan Evaluation Risks: Credit, Market, Operational, Legal Mitigation: Credit scoring, collateral, insurance, guarantees

17. Role of Technology & Credit Scoring AI, data analytics, credit bureaus, e-KYC Example: HDFC’s 10-second digital personal loan approval.

18. RBI Guidelines & Compliance • Fair Lending Practices Code • KYC & AML compliance • CERSAI registration • Priority Sector Lending norms

19. Summary Loan evaluation ensures responsible lending. Key pillars: Eligibility, Purpose, Margin, Security, Disbursement. Balances borrower needs with bank safety. Technology enhances transparency.

20. References • RBI Master Circular on Loans and Advances (2024) • HDFC Bank Website • IIBF Study Material • Kothari, R. (2022). Banking Theory & Practice. McGraw Hill.