Credit Appraisal
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Principles and Practices of Banking — JAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is credit appraisal in the context of bank lending?
Credit appraisal is the process by which a bank evaluates a borrower's creditworthiness, repayment capacity, and the viability of the proposed project or activity before sanctioning a loan.
What is the purpose of a 'Sanction Letter' issued after credit appraisal?
It formally communicates the approved loan terms and conditions to the borrower.
What are the five Cs of credit that banks use during credit appraisal?
The five Cs are Character (integrity of borrower), Capacity (repayment ability), Capital (net worth), Collateral (security offered), and Conditions (economic/market environment).
What is the Tangible Net Worth (TNW) of a borrower and why is it assessed?
TNW is net worth excluding intangible assets, showing real financial strength of borrower.
What is the purpose of a Techno-Economic Viability (TEV) study in credit appraisal?
A TEV study assesses whether a proposed project is technically feasible and economically viable, ensuring the bank's funds are deployed in projects capable of generating adequate returns to service the debt.
What is the significance of Inventory Turnover Ratio in credit appraisal?
It measures how efficiently a borrower manages and sells its inventory stock.
What does DSCR stand for and what is its significance in credit appraisal?
DSCR stands for Debt Service Coverage Ratio; it measures a borrower's ability to service debt from net cash accruals, and RBI guidelines generally require a minimum DSCR of 1.5 for term loans.
What is a 'Stressed Asset' in banking credit terminology?
A stressed asset is a loan showing signs of deterioration including NPAs and restructured accounts.
Video classes for this chapter
Credit Appraisal Part 1
Credit Appraisal Part 2
Credit Appraisal Part 3
Credit Appraisal Part 1
Credit Appraisal Part 2
Credit Appraisal Part 3
More chapters in Module B - Lending Operations of Banks
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