Banking Credit Management

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Questions and Answers

What has changed the banking business environment and given it a new shape?

Entry of new banks in the credit market
Mobile banking and online banking platform (correct)
Introduction of new financial products
Focus on financial inclusion

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

Managing loan recovery procedures
Evaluating borrowers' creditworthiness
Determining loan interest rates
Selecting good/right borrowers (correct)

What is a recent trend in the banking industry?

Expansion of financial services (correct)
Reduction in financial services offered
Focus on traditional banking services
Decrease in competition among banks

What is a key aspect of a strong credit culture in a bank?

Professional and efficient management of all stages of the credit cycle (B) Signup and view all the answers

What is a consequence of new banks entering the credit market?

Fuelled competition among banks (A) Signup and view all the answers

What is the primary focus of capital budgeting in a firm?

Planning expenditures on assets with cash flows beyond one year (A) Signup and view all the answers

What does the term 'capital' refer to in the context of capital budgeting?

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

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

Maximizing profit and diversifying credit portfolio (B) Signup and view all the answers

What is the Payback Period (PBP) in capital budgeting?

The length of time required to recover the original investment (D) Signup and view all the answers

What is a key factor 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 purpose of computing a project's payback period?

To decide whether to accept or reject a project (B) Signup and view all the answers

What is one of the benefits of credit planning at the bank level?

Ensuring the best alternative use of funds (B) Signup and view all the answers

What is the key characteristic of capital budgeting?

Long-term focus on cash flows beyond one year (C) Signup and view all the answers

What is the role of prudential regulations in credit planning at the bank level?

To guide the allocation of loanable funds (B) Signup and view all the answers

What is the ultimate goal of credit planning at the bank level?

To provide credit to the right person at the right time (D) Signup and view all the answers

What is the primary purpose of a bank's financial analysis on a client's historical and projected data?

To assess the financial feasibility of the project (B) Signup and view all the answers

What happens if the bank finds the financial analysis of a client's projected data to be unsatisfactory?

The loan application is rejected (A) Signup and view all the answers

Why is it important for a bank to consider the socio-economic aspect of a project?

To ensure the project is socially and environmentally responsible (B) Signup and view all the answers

What is the final step in the borrower selection process if all aspects of the applicant are satisfactory?

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

What is the purpose of a loan structure?

To finalize the terms and conditions of the loan (B) Signup and view all the answers

What is the implication of a higher Gross Margin ratio?

Higher profitability (A) Signup and view all the answers

What does a lower SG&A percentage indicate?

Lower operating expenses (A) Signup and view all the answers

What is the implication of a higher Return on Assets ratio?

Higher profitability of investments (C) Signup and view all the answers

What is the implication of a lower Dividend Payout Rate?

Lower dividend payments to shareholders (D) Signup and view all the answers

What does a higher Net Margin ratio indicate?

Higher profitability (A) Signup and view all the answers

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

To ensure the proposed credit is from an expected business segment/sector (D) Signup and view all the answers

What is the significance of the Credit Information Bureau (CIB) report in the credit application process?

It provides additional information about the customer's credit history (D) Signup and view all the answers

What is the primary focus of the bank when sanctioning credit?

To ensure the borrower's creditworthiness (C) Signup and view all the answers

What is the difference between preventive and curative measures in credit investigation?

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

Why is the selection of a good borrower crucial for the bank?

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

What is the primary responsibility of the Relationship Manager (RM) during the credit application process?

To ensure the proposed credit is from an expected business segment/sector (C) Signup and view all the answers

What is the purpose of the prescribed format provided by the bank for credit applications?

To ensure all necessary information is collected (B) Signup and view all the answers

Why is it essential for the bank to ensure the repayment of the loan?

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

What is the significance of credit investigation in the credit application process?

It is a preventive measure to ensure the selection of good borrowers (D) Signup and view all the answers

What is the primary goal of the bank when sanctioning credit?

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

What is the primary purpose of ratio analysis in financial statements?

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

What is the main advantage of using ratio analysis to evaluate a firm's financial performance?

It allows for comparison of financial performance over time (D) Signup and view all the answers

What is an example of a growth ratio, according to Financial Spread Sheet (FSS)?

Growth ratios measure the company’s potentiality, performance (C) Signup and view all the answers

What is the benefit of using ratio analysis to evaluate a firm's financial performance?

It helps to understand the actual financial condition of a firm (D) Signup and view all the answers

What is the relationship expressed by a ratio in financial analysis?

The mathematical relationship between two figures (D) Signup and view all the answers

Flashcards

Impact of Digital Banking

Mobile and online banking platforms have transformed the banking business environment.

Challenge in Loan Disbursement

The biggest challenge is identifying and selecting creditworthy individuals or entities.