Bank Credit Management

What is the main objective of managing a quality loan portfolio in a bank?

To minimize credit risk and ensure a strong credit culture (correct)
To attract more customers and increase market share
To reduce the bank's operating costs
To increase the bank's profit margin

What has led to increased competition in the banking industry?

Less financial products offered
Reduction in banking services
Entry of new banks in the credit market (correct)
Decrease in new bank entries

What is a major challenge for banks in disbursing quality loans?

High interest rates
Limited financial products
Selecting the right borrowers (correct)
Decreased financial inclusion

How have mobile banking and online banking platforms impacted the banking business?

Changed the banking business environment (D) Signup and view all the answers

What is a recent focus area for banks, in addition to their traditional services?

Financial inclusion and extended SME banking services (D) Signup and view all the answers

What is the primary purpose of ratio analysis in financial statement evaluation?

To evaluate operating and financial performance of a firm (A) Signup and view all the answers

What does a ratio express in financial statement data?

A mathematical relationship between two figures (C) Signup and view all the answers

What is the purpose of growth ratios in financial analysis?

To measure a company's potentiality and performance (B) Signup and view all the answers

Why is it necessary to analyze financial ratios to understand a company's financial condition?

Because a company's financial condition cannot be immediately understood from its financial statements (D) Signup and view all the answers

What is the limitation of evaluating a company's financial performance based on a single financial figure?

It may not provide a complete picture of the company's financial health (C) Signup and view all the answers

What does the Gross Margin ratio measure?

Profit margin of sales (D) Signup and view all the answers

What is the rule of thumb for the Net Margin ratio?

Higher is better (B) Signup and view all the answers

Which ratio measures earning power on shareholders’ equity?

Return on Equity (C) Signup and view all the answers

What does the Operating Profit Margin ratio measure?

Profit before tax and extra income (C) Signup and view all the answers

What is the rule of thumb for the SG & A ratio?

Lower is better (B) Signup and view all the answers

What is the primary purpose of financial analysis in the loan application process?

To judge the financial feasibility of the project (C) Signup and view all the answers

What happens after the loan structure, price, tenure, and nature are finalized?

The bank proceeds with documentation and disbursement (C) Signup and view all the answers

Why is it essential for the bank to consider socio-economic aspects of the project?

To ensure the project's viability and potential impact on the community (A) Signup and view all the answers

What is the outcome if the financial analysis based on historical data is unsatisfactory?

The bank rejects the loan application (C) Signup and view all the answers

What is the final step in the loan application process?

Disbursement of loan (C) Signup and view all the answers

What is capital budgeting in the context of a firm?

A process of analyzing projects and deciding which are acceptable projects (A) Signup and view all the answers

What does the term 'capital' refer to?

Fixed assets used in production (B) Signup and view all the answers

What is the payback period in capital budgeting?

The length of time to recover the initial investment without interest (B) Signup and view all the answers

What is calculated to compute a project's payback period?

The cumulative value of expected cash flows (D) Signup and view all the answers

What is the purpose of capital budgeting techniques?

To analyze and select the best project (D) Signup and view all the answers

What is the primary goal of the discussion between the banker and the customer regarding credit facilities?

To ensure the proposed credit is for a permissible and expected credit facility (C) Signup and view all the answers

What is the purpose of collecting a Credit Information Bureau (CIB) report?

To determine the customer's creditworthiness (A) Signup and view all the answers

Why is selecting a good borrower important for the bank?

To reduce the risk of loan default (D) Signup and view all the answers

What is the primary difference between preventive and curative measures in loan repayment?

Preventive measures are less costly, while curative measures are more costly (D) Signup and view all the answers

What is the ultimate goal of a banker in the credit sanctioning process?

To ensure loan repayment (A) Signup and view all the answers

Why is credit investigation necessary for selecting a good borrower?

To determine the customer's creditworthiness (D) Signup and view all the answers

What is the benefit of ensuring that the proposed credit is from an expected business segment or sector?

It reduces the risk of loan default (A) Signup and view all the answers

What is the primary purpose of the loan application format provided by the bank?

To collect necessary information from the customer (B) Signup and view all the answers

Why is it better not to sanction any credit rather than sanctioning a bad credit?

It minimizes the risk of loan default (D) Signup and view all the answers

What is the primary focus of the credit sanctioning process?

To select good borrowers (D) Signup and view all the answers

What is the primary objective of credit planning at the bank level?

Maximizing profit (A) Signup and view all the answers

What is one of the key factors to consider when formulating a bank's credit plan?

Government priority set in the 5-year plan (C) Signup and view all the answers

What is the ultimate goal of a bank's credit plan in relation to regulatory limits?

To comply with regulatory limits (D) Signup and view all the answers

What is a key benefit of a well-planned credit portfolio?

Diversification of credit portfolio (B) Signup and view all the answers

What is the relationship between a bank's credit plan and national priority?

The bank's credit plan is in line with national priority (B) Signup and view all the answers