JAIIB · PPB · Chapter 2

Appraisal and Assessment of Credit Facilities

Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Principles and Practices of Banking — JAIIB.

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What is credit appraisal in the context of bank lending?

Credit appraisal is the process by which a bank evaluates the creditworthiness of a borrower, including character, capacity, capital, and the overall risk in the proposal before sanctioning a facility.

How many C's are used in the comprehensive credit appraisal framework described in JAIIB PPB?

7 C's: Creditworthiness, Character, Capacity, Capital, Collateral, Conditions, Cash flows

Which of the four 'C's in credit appraisal refers to the borrower's willingness to repay?

Character refers to the borrower's willingness and intention to repay, reflecting their track record, integrity, and past credit behavior.

Under the Tandon Committee First Method, what percentage of Working Capital Gap must the borrower bring as margin?

25% of Working Capital Gap

What does 'capacity' mean in the context of the four C's of credit appraisal?

Capacity refers to the borrower's ability to generate sufficient cash flows or income to service and repay the credit facility being sanctioned.

Under the Tandon Committee Second Method, what percentage of Total Current Assets must the borrower bring as margin?

25% of Total Current Assets

What role does 'capital' play in credit appraisal under the four C's framework?

Capital refers to the borrower's own financial stake or net worth in the business, which indicates the margin of safety available to the lender in case of losses.

What is the formula for Working Capital Gap (WCG) under the Tandon Committee method?

WCG = Total Current Assets minus Current Liabilities other than bank borrowings

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