This lesson covers the ongoing administration of the loan portfolio, monitoring procedures, early warning systems, and strategies for managing problem credits.
8.1 The Scope of Loan Administration
Loan administration encompasses all activities following loan disbursement to ensure portfolio quality and regulatory compliance. It includes:
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Effective cash planning including preparation and analysis of cash flow statements.
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Identifying financial gaps resulting from loan default.
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Managing inflation and tax implications in loan administration.
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Resolving the liquidity and profitability tangle in loan administration.
8.2 Credit Monitoring Systems
Credit monitoring is the supervision of a loan account on an ongoing basis, keeping a continuous watch over the functioning of a borrower’s unit to confirm that the account conforms to the various assumptions made at the time of sanction. The objectives of credit monitoring include:
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Preventing accounts from slipping into non-performing assets (NPA).
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Ensuring end use of funds.
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Ensuring compliance with terms of sanction.
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Maintaining credit quality for safeguarding bank funds.
8.3 Monitoring Activities
Credit monitoring involves several key activities:
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Financial Monitoring:Â Review of stock statements, bills portfolio supervision, and insurance verification.
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Operational Monitoring:Â Inspection of borrower operations and identification of early warning signals.
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Portfolio Monitoring:Â Oversight of the entire loan portfolio to assess asset quality.
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Account-Specific Monitoring:Â Focused review of individual borrower accounts.
8.4 Problem Credit Management
When a loan shows signs of distress, structured intervention is required. Key strategies include:
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Loan Restructuring:Â Period review, waivers, roll-overs, write-backs, write-offs.
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Debt Recovery:Â Internal efforts, use of professionals, court options and enforcement of court orders.
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Collection Strategies:Â Turning receivables into cash, collecting without hurting difficult customers.
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