Preliminary inquiry: The credit managers must perform the following tasks as part of their preliminary investigation, specifically:
Scheduling visits to the industries and units;
conducting an interview with the company's management, and use this opportunity to obtain as much information as you can;
It's important to comprehend how businesses operate;
The credit manager should educate themselves on the industry's operational cycle because it varies from one company to the next;
It is important to extensively research the company's history, background, management's capabilities, and, if applicable, the promoters' net worth outside of the business. The necessary data should be obtained and
Wherever necessary, other bankers' necessary OPL should be gotten.
Analyzing the financial results
The credit manager needs to spend enough time reviewing the annual reports that the company has provided. He should meticulously review the schedules of the balance sheet, profit and loss account, and account notes before such a test. Additionally, he ought to adjust or divide the information as needed.
Analyzing quantitative data using spreading and common sizing:
The following tools—income statements, details of sales performance over the period, balance sheet, profit and loss account, receipts and payments account, funds flow statement, cash flow statement, and details of ratio analysis like liquidity ratio, solvency ratio, and marketability ratio—are found to be very helpful in understanding and analyzing the quantitative performance of the company.
The following information may be easily ascertained during the course of the contact with the top management and credit managers, namely; historical trend, industry comparison, prediction, and current trend, etc.
The resumes submitted by the borrowers, audit reports on the financial reports, and the instruments used to calculate different credit risks, such as management risk, financial risk, business risk, and market risk, among others, can all be used in this interface.
Interpreting data:
The following tools, trend analysis, variance analysis, comparison analysis, analysis of social accounts, and surrogate analysis, are found to be very helpful in gathering enough information for the interpretative analysis.
Establishing the limits:
The credit manager must make sure that need-based limitations are approved, and to that end, the credit request must be skillfully written so that it corresponds with sources of payback and sources of income.
The directors' personal guarantees may be spelled forth if needed.
A follow-up
A specific task force can be used for this purpose. The loan accounts should be adequately followed up on and strategic plans should be created so that the loan accounts are reviewed on a monthly basis.
The credit manager needs to place more emphasis on recovery-related issues, and there shouldn't ever be any compromises made in this regard.