Credit and Lending
Credit and Lending tests retail credit appraisal, documentation, pricing, recovery and asset classification. Expect numerical EMI/FOIR questions and scenario questions on when a loan becomes an NPA.
Appraisal framework
- Assess the five Cs: character, capacity, capital, collateral and conditions.
- For retail loans, verify income, obligations, credit-bureau score and loan-to-value (LTV). Housing-loan LTV caps are 90% up to ₹30 lakh, 80% for ₹30–75 lakh and 75% above ₹75 lakh.
- Compute EMI with the monthly rate: EMI = P × r × (1+r)^n / ((1+r)^n − 1), where n is months.
- A loan is an NPA when overdue for more than 90 days; SMA-0 is 1–30 days, SMA-1 is 31–60 days and SMA-2 is 61–90 days.
- SARFAESI enforcement requires a secured loan, default and a 60-day demand notice; it is not available for pure unsecured personal loans.
Worked example
A borrower earns ₹1,00,000 a month, pays an existing EMI of ₹5,000 and seeks a ₹40 lakh, 20-year loan at 9% a year. Monthly r = 0.09/12 = 0.0075; n = 240. EMI = 40,00,000 × 0.0075 × (1.0075)^240 / ((1.0075)^240 − 1) ≈ ₹35,993. At a 50% FOIR, available EMI capacity is ₹50,000 − ₹5,000 = ₹45,000, so the loan fits. If the new EMI were above ₹45,000, the bank would reduce the amount or seek more income.
Traps
Do not use the annual rate as r; do not ignore existing EMIs; sanction is not disbursement; 90 days, not 180, is the NPA trigger; and collateral does not cure a weak repayment capacity.