CBI Credit Officer key terms

The structured process a lender uses to assess a borrower's repayment capacity, credit history, collateral and business viability before sanctioning a loan. It combines financial analysis, risk grading and regulatory checks to decide whether credit should be granted and on what terms.

A financial statement showing cash generated and used across operating, investing and financing activities over a period. Lenders use it to judge whether a borrower's operations actually produce cash to service debt, independent of accounting accruals or profit figures.

A statement explaining changes in a firm's working capital between two balance sheet dates by listing sources and applications of funds. It reveals how long-term funds were raised and deployed and whether short-term funds were diverted into fixed assets.

A statement of a firm's assets, liabilities and equity at a specific date, showing what the business owns and owes. Analysts use it to assess liquidity, leverage and net worth, which determine how much credit a borrower can safely absorb.

A ratio comparing a borrower's cash available for debt servicing to total debt obligations, including principal and interest, for the same period. A ratio comfortably above one signals that earnings can absorb repayments even if business conditions weaken.

Earnings before interest and tax divided by interest expense, indicating how many times operating profit covers interest payments. A falling ratio warns that the borrower's margin of safety is shrinking and that a small earnings dip could trigger default.

Current assets divided by current liabilities, measuring a firm's ability to meet short-term obligations from short-term resources. Lenders read a very low ratio as liquidity stress and an unusually high one as possible idle inventory or slow collections.

The ratio of liquid current assets, excluding inventory and prepaid items, to current liabilities. It tests whether a borrower could settle short-term dues without selling stock, which matters for businesses with slow-moving or perishable inventory.

Total outside liabilities divided by shareholders' funds, showing how much of the business is financed by debt versus owners' money. High leverage increases fixed obligations and reduces the cushion available to lenders if the business underperforms.

The excess of a borrower's total assets over total outside liabilities, representing owners' own stake in the business. It acts as a loss-absorbing cushion and is a key input for sanction limits, margin requirements and credit grading.

Net worth after deducting intangible assets such as goodwill, brand value and preliminary expenses, and after adjusting for revaluation reserves. Lenders prefer it because it reflects real, recoverable owner stake rather than book entries that cannot repay debt.

The period between paying suppliers for raw material and collecting cash from customers, covering inventory holding and receivables. A long cycle ties up funds and raises the working capital limit a business needs; shortening it frees cash for operations.

A sanctioned credit facility that funds the gap between a borrower's current assets and current liabilities, usually reviewed annually. Drawing power is set by applying margins to paid stock and book debts, and the account is monitored through stock statements.

The maximum amount a borrower may actually draw under a sanctioned working capital limit, computed after deducting margin from the value of paid stock and acceptable book debts. It changes with stock and receivables, so it is recalculated periodically.

The portion of project cost or asset value that the borrower must fund from own resources, with the lender financing only the remainder. It ensures the borrower carries first loss and demonstrates commitment, and it is prescribed by lender policy or regulator.

An asset pledged or mortgaged in addition to the primary security to secure repayment of a loan. If the borrower defaults, the lender can enforce the charge and recover dues, so collateral strength and enforceability directly shape credit risk.

The asset directly financed by the loan, such as machinery, vehicle or stock, on which the lender creates a first charge. It is the first source of recovery after cash flows, while collateral provides an additional layer of protection.

A charge created over movable assets, such as stock or receivables, where the borrower retains possession but the lender holds rights over them. On default the lender can take possession and sell the assets to recover dues.

A legal charge over immovable property, such as land or a building, created in favour of a lender as security for a loan. It must be registered where the law requires, and enforceability depends on clear title and valid creation.

The legal process of recording a lender's right over a borrower's assets as security, including registration with the relevant registry within prescribed timelines. Failure to perfect the charge can weaken the lender's priority against other creditors.

A structured score assigned to a borrower or facility based on financial strength, industry risk, management quality and repayment record. It drives pricing, sanction authority levels and monitoring intensity, and is reviewed periodically.

A record of a borrower's past and current credit facilities, repayment behaviour and defaults, obtained from a credit information company. Lenders use it to detect over-borrowing, hidden obligations and repayment discipline before sanction.

A loan or advance where interest or principal remains overdue beyond the period prescribed by the regulator, after which it is classified as non-performing. Classification drives provisioning, income recognition and recovery action.

A non-performing asset that has remained non-performing for a period up to twelve months. It attracts higher provisioning than a standard asset, and continued default pushes it into doubtful or loss categories.

The amount a lender sets aside from profits to absorb expected losses on loans, based on the asset classification and security available. Higher provisions reduce profitability and are prescribed by regulator norms and lender policy.

A borrower who has defaulted despite having the capacity to repay, or who has diverted or siphoned funds, as determined through a prescribed process. Such borrowers face restrictions on further bank finance and on access to capital markets.

The mandatory process of identifying a customer, verifying identity and address through accepted documents, and understanding the nature of the customer's business. It is the foundation of anti-money-laundering controls and must be repeated periodically.

Ongoing measures a lender takes to verify a customer's identity, assess risk profile and monitor transactions proportionate to that risk. Enhanced due diligence applies to higher-risk customers such as politically exposed persons or cash-intensive businesses.

The natural person who ultimately owns or controls a customer or the account, even if the account is held in another name or through a company. Identifying the beneficial owner prevents misuse of corporate structures for laundering.

A person entrusted with prominent public functions, along with close relatives and associates, who presents higher money-laundering risk. Lenders must apply enhanced due diligence and senior management approval before establishing such relationships.

A confidential report filed with the financial intelligence unit when a transaction appears unusual, inconsistent with the customer's profile, or potentially linked to crime. Banks must file it promptly, and the reporting obligation overrides customer confidentiality.

A regulatory requirement obliging banks to extend a minimum share of credit to specified sectors such as agriculture, micro enterprises, education and weaker sections. Shortfalls are typically met by depositing funds in specified development finance instruments.

Businesses classified by prescribed investment and turnover thresholds, eligible for targeted credit support and priority sector treatment. Lenders assess them using simplified financial information, owner credibility and cash-flow-based lending rather than audited statements alone.

A small group of mostly women from low-income households who pool savings and lend to members, later accessing bank credit on the group's track record. Group liability and social pressure substitute for collateral in such lending.

A group of four to ten individuals who jointly guarantee each other's loans, usually without collateral, under a defined lending programme. Repayment discipline is maintained through peer pressure and group recognition rather than security.

A card-based facility that gives farmers short-term credit for crop inputs and related needs, with limits based on landholding and crop pattern. It also provides for consumption needs and can carry personal accident cover, and is renewed periodically.

Short-term credit extended to farmers to meet cultivation expenses such as seed, fertiliser and labour, repaid after harvest. Repayment is aligned to the crop cycle, and eligibility depends on landholding, irrigation and the scale of finance for the area.

The per-hectare cost of cultivation fixed for a crop in a district by a designated committee, used to compute crop loan eligibility. It standardises lending across lenders and is revised each season based on prevailing input costs.

The loan amount expressed as a percentage of the market value of the asset being financed, such as a home or vehicle. A lower ratio means a larger borrower contribution and greater protection for the lender if prices fall.

The rate at which the central bank lends short-term funds to banks against government securities. Changes in it transmit through the economy to deposit and lending rates, influencing credit demand, inflation and investment.

The share of net demand and time liabilities that a bank must hold as cash with the central bank, earning no interest. Raising it drains lendable resources and tightens liquidity; lowering it releases funds for lending.

The minimum share of net demand and time liabilities a bank must hold in approved liquid assets such as cash, gold and specified securities. It ensures solvency and liquidity but reduces the funds available for credit creation.

The central bank's use of interest rates, reserve requirements and liquidity operations to manage money supply, inflation and growth. Its stance shapes borrowing costs, credit availability and asset quality across the banking system.

A bank's capital measured as a percentage of its risk-weighted assets, ensuring it can absorb unexpected losses. Regulators prescribe minimum levels plus a conservation buffer, and shortfalls restrict dividends and expansion.

Internationally agreed standards on bank capital, liquidity and risk management, adopted in stages by national regulators. They require banks to hold capital against credit, market and operational risk, and to maintain liquidity buffers.

Measures such as operating margin, net profit margin and return on capital employed that show how efficiently a business converts sales into profit. Lenders track them to judge whether earnings can sustain growth and debt servicing.

A periodic statement submitted by a borrower showing quantity and value of paid stock and book debts, used to compute drawing power. Lenders verify it through inspections and insurance cover to prevent over-financing against stale or damaged inventory.