1.

1 Introduction

Credit appraisal means an investigation/assessment done by the bank prior

before providing any Loans & Advances/project finance & also checks the
commercial, financial & technical viability of the project proposed its funding
pattern & further checks the primary & collateral security cover available for
recovery of such funds. Credit Appraisal is a process to ascertain the risks
associated with the extension of the credit facility. It is generally carried by the
financial institutions which are involved in providing financial funding to its
customers.
Basic types of credit
There are four basic types of credit. By understanding how each works, you
will be able to get the most for your money and avoid paying unnecessary
charges.
 Service credit is monthly payments for utilities such as telephone, gas,
electricity, and water. You often have to pay a deposit, and you may pay a
late charge if your payment is not on time.
 Loans let you borrow cash. Loans can be for small or large amounts and
for a few days or several years. Money can be repaid in one lump sum or in
several regular payments until the amount you borrowed and the finance
charges are paid in full. Loans can be secured or unsecured.
 Installment credit may be described as buying on time, financing through
the store or the easy payment plan. The borrower takes the goods home in
exchange for a promise to pay later. Cars, major appliances, and furniture
are often purchased this way. You usually sign a contract, make a down
payment, and agree to pay the balance with a specified number of equal
payments called installments. The finance charges are included in the
payments. The item you purchase may be used as security for the loan.
 Credit cards are issued by individual retail stores, banks, or businesses.
Using a credit card can be the equivalent of an interest-free loan if you pay
for the use of it in full at the end of each month.

1
Factors like

 Age
 Income
 Number of dependents
 Nature of employment
 Continuity of employment
 Repayment capacity
 Previous loans, etc. are taken into account while appraising the credit
worthiness of a person.

3 ‘C’ of credit are must be kept in mind for lending funds:-

 Character
 Capacity
 Collateral

If any one of these are missing in the lending officer must question the
viability of credit.

Credit can be of two types fund base & non-fund base:

FUND BASED includes:
 Working Capital
 Term Loan
NON-FUND BASED includes:
 Letter of Credit
 Bank Guarantee
1.2 Objectives

 To study the credit appraisal methods.

 To understand the internal steps taken by the bank for scrutinizing the
customer’s details and credentials.
 To understand the commercial, financial & technical viability of the proposal
proposed and it’s finding pattern.
Thank you for using www.freepdfconvert.com service!

Only two pages are converted. Please Sign Up to convert all pages.

https://www.freepdfconvert.com/membership