Credit and Lending Practices
What the exam tests
This domain examines appraisal, documentation, disbursement, monitoring and recovery. Questions often test whether you can spot a policy breach before money leaves the bank.
Core rules
- Appraise repayment capacity, not just collateral. Use DSCR for projects and EMI-to-net-monthly-income for retail loans. Check CIBIL or equivalent credit information, existing obligations and wilful-default status.
- Verify title, valuation and charge creation before disbursement. A mortgage or hypothecation must be properly registered where required, and the asset must be insured.
- Follow sanction conditions exactly: promoter contribution, margin, tenor, moratorium and end-use. Disburse in stages against bills or progress, not as a lump sum.
- Classify NPAs and provision as per RBI norms. Cooperative banks must also meet priority sector lending targets and park any shortfall with NABARD's RIDF where applicable.
- Monitor through stock statements, insurance renewal, post-disbursement visits and early-warning signals such as overdue interest.
Worked example
A borrower earns ₹80,000 net monthly, pays an existing EMI of ₹15,000 and proposes a new EMI of ₹20,000. Total EMI/NMI is ₹35,000 ÷ ₹80,000 = 43.75%, above the bank's 40% policy. Options are a lower loan amount, a longer tenor within age limits, or a verified co-applicant income. Sanctioning at 43.75% without documented exception approval is a breach.
Traps that cost marks
Disbursing before mortgage or charge creation, accepting a valuation from an unapproved valuer, ignoring credit-bureau warnings, evergreening a stale overdraft and misclassifying an NPA are frequent mark-losers.