CREDIT ADMINISTRATION

WHAT One of the primary function of banks is FINANCING (to part away cash) to prospective borrowers on repayment (to get the funds back) on a future date. The Bank secures the FINANCING by taking certain undertaking(s) / indemnity(s) (repayment surety), [CHARGE DOCUMENTS], and acquiring either PHYSICAL or TITLE DOCUMENTS of valuables and Guarantee etc. as [SECURITY(s)]. The indemnity (repayment surety), available to the bank is the obtaintion of Agreement(s) [CHARGE DOCUMENTS] and [SECURITY(s)] from the borrower. These agreement(s) [CHARGE DOCUMENTS] create legal bindings of borrower for repayment of FINANCING which the Bank establishes through completion of certain legal documents, Retaining/holding, either control over Title Documents of valuables or physical custody of belongings and guarantee is the (SECURITY(s)] to FINANCING. a) As per general perception, the first recourse of repayment of banks FINANCING is the Cash Flow generated by the business to which bank has financed. b) However in case of any adversity in the business financed by the Bank, the fall back for recovery of FINANCING is the security {indemnity (repayment surety)}, obtained from the borrower. Since repayment through security is enforced by invoking legal remedies available to the Bank through charge documents and security(s) obtained at the time of institution of the lending facility. Hence main objective of CAD is to ensure that the borrower is in the position to repay financing in the event of call back either from Cash Flow Generated through business financed OR through enforcement of indemnity(s) Charge Documents obtained and disposal of Security(s) held.

This function is discussed in Quran too Translation of relevant Ayats would be as When you LEND some one, write it, notorised it and get it witnessed with two MEN or one MAN and two women and support the LENDING with documents. If you do not have any thing to write, hold (as mortgage) documents (TITLE) of value till lending is written down and (Notorised).

WHY It provides support to lending activities of the Bank and The day to day monitoring of Banks exposure is carried out by CAD insuring proper credit discipline and provides support to lending activities thus makes the Bank a sales and service organization. It effectively removes the back room work from the loan platform, supports lenders and provides them with additional time to focus on sales. Hence the primary objectives of CAD are to be aware of that: 1. The Charge Documents obtained from borrower are complete so to be legally enforceable. {LEGALLY PERFECT]. 2. The Security(s) held is CLEAN; the submitting entity is the legal owner. 3. The value of Security dose not DETERIORATES. 4. The borrower A/C is OPERATIVE. 5. Repayments of financings are REGULAR. HOW TO SUM UP WE CAN SAY THAT IT IS CADS RESPONSIBILITY TO MITIGATE RISKS WHICH FOLLOWS CREDIT MANAGEMENT [PROCESSING] FUNCTION. HENCE BANKS LENDING / FINANCING ACTIVITIES ARE MONITORED THROUGH FOLLOWING FUNCTIONS: 1 Proper checks and balance are maintained with regards to correct utilization (viz. amount, tenor, collateral, pricing, etc.) of credit facilities are according to the terms of credit approvals. All loan documents are scrutinized to be legally enforceable. Collateral (Cash) Securities are effectively controlled and monitored. Customers outstanding are accurately recorded. Effective follow up system is in place and all irregularities are recorded and reported as required. Deterioration in Security(s) or inactive (dormancy) in borrowing account is identified at its initial stage.

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Nature of charge documents ? A) Finance (Standard) Acknowledgement / Agreement / Undertaking to repay finance B) Security Establish legality of submission of valuables or Title to valuables as supporting to financing.

Why documents are obtained? 1. Establish borrowers identification. 2. Establish credit worthiness of borrower. (Repayment ability) 3. Monitor performance of borrowers business. (Active account operation) 4. Establish the legal right for liquidation of valuables (security) in case of default. (non re payment of financing on due date with return) 5. Legally bind borrower to repay financing, on expiry or as per terms of financing, along with return thereon.

Type of Documents Primary Documents which establish borrowers: Relationship with Bank, Identification, (entity constituency) Credit worthiness and Financial Standing. Continuity of operation. Financing Agreements Critical Guarantees Security(s) perfection documents

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O you believers, if you borrow from each other until a future date, then write it down. And let a scribe amongst you write impartially, and the scribe must not

refuse to write as Allah has taught him; so let him write, and let the one who owes dictate and let him beware of Allah, his Lord, and not omit anything of it. And if the one who owes is mentally unable or weak or cannot dictate, then let his guardian dictate impartially. And let two from amongst your men be witnesses, and if there are not two men then one man and two women of those whom you are content with as witnesses, so if one of the two forgets, the other one reminds her. And the witnesses must not refuse to be called. And do not consider it a bother to write it down for the future, whether it be small or big, as that is more just before Allah and more stable in evidence and less likely to cause you doubt. Except when it is an immediate exchange you conduct amongst yourselves, then there is no sin upon you if you dont write it down. And have your trade transactions witnessed and let no harm come to either the scribe or the witness. Should you do that, it would be immoral of you, and beware of Allah, and Allah will teach you, and Allah knows everything. 283 And if you are on a journey and cant find a scribe, then a tangible security, and when you entrust something to each other, then the one who has been entrusted must return what he has been entrusted with, and let him beware of Allah, his Lord, and do not hide the evidence, for the one who hides it has a sinful heart, and Allah knows what you do.