Credit Appraisal Procedures for Urban Cooperative Banks

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Questions and Answers

What should Urban Cooperative Banks (UCBs) include in their credit appraisal processes according to the text?

Issuing credit cards to all customers

Obtaining CIRs from Credit Information Companies (CICs) (correct)

Establishing branches in rural areas

Investing in real estate

What is the significance of UCBs reporting data to Credit Information Companies (CICs) as per the text?

Enhances the speed of loan processing

Increases the profit margins of UCBs

Allows the CICs to populate their databases with corporate borrowers' data (correct)

Helps in reducing the interest rates charged to borrowers

What should UCBs do after a period of six months according to the text?

Start using data available with the CICs for commercial / corporate borrowers (correct)

Merge with other UCBs

Close down operations

Stop using data available with the CICs

What is the purpose of standardizing the data format for submission to CICs according to the text?

To streamline the submission process by UCBs to CICs Signup and view all the answers

What would be the data format known as, as mentioned in the text?

'Uniform Credit Reporting Format' Signup and view all the answers

Why are UCBs advised to start using data available with the CICs for commercial / corporate borrowers under a Board approved policy?

To ensure credit decisions are informed by comprehensive data Signup and view all the answers

What would a common Data Quality Index help UCBs with?

Identifying gaps in data and improving performance Signup and view all the answers

How long is the recommended time period for UCBs to make efforts towards improving data quality?

6 months Signup and view all the answers

What should UCBs consider when formulating or reviewing policies under the CICRA?

Best practices from Appendix - C Signup and view all the answers

Why should every UCB get the approval of their Board of Directors while formulating policies?

To ensure compliance with regulations Signup and view all the answers

What is detailed in Appendix - A for UCBs to follow?

Uniform Credit Reporting Format for Borrowers Signup and view all the answers

What information should be obtained about existing loans from other SHGs where the individual is a member?

All of the above Signup and view all the answers

What is the criteria for obtaining a CIC report from the bank?

The CIC report is not required if the group loan is up to ₹1,00,000 Signup and view all the answers

What are the possible statuses of the SHG account mentioned in the text?

Regular, Defaulter, Settled, Sub-judice Signup and view all the answers

In Phase I, when should the status of the SHG member's loan account be inquired?

Only if the SHG account is in default Signup and view all the answers

What information should be obtained about the SHG member's loan account in Phase II?

Both a and b Signup and view all the answers

What document is required to obtain information about the proposed loan amount from the group loan?

Letter from the SHG President/Secretary Signup and view all the answers

What system can banks utilize to address the issue of delay in realizing bills?

Structured Financial Messaging System (SFMS) Signup and view all the answers

When should banks open letters of credit (LCs) and deal with bills under LCs?

Only in genuine commercial and trade transactions with borrower constituents sanctioned credit facilities Signup and view all the answers

Which type of borrowers should banks avoid providing fund based facilities like opening LCs to?

Non-constituent borrowers Signup and view all the answers

From what date were UCBs allowed to negotiate LCs drawn under a specific UCB's restriction for non-borrower beneficiaries?

March 30, 2012 Signup and view all the answers

What condition allows UCBs to negotiate LCs for non-borrower beneficiaries?

If the UCB has granted the regular credit facility to the beneficiary Signup and view all the answers

What is the purpose of value dating of clients' accounts by banks?

To expedite bill realization Signup and view all the answers

What is the significance of the No Objection Certificate according to the text?

It ensures the borrower is not enjoying credit facilities from multiple banks. Signup and view all the answers

Why do banks insist on a declaration from account holders regarding their credit facilities at other banks?

To ensure the account holder isn't enjoying credit facilities from other banks. Signup and view all the answers

What information should banks obtain if an account holder is a member of another cooperative society?

Details of shares held in the cooperative society. Signup and view all the answers

What should a bank do if a borrower is already enjoying credit facilities from another bank?

Inform the lending bank and obtain a No Objection Certificate. Signup and view all the answers

Why is it important for banks to insist on obtaining a No Objection Certificate from the existing financing bank?

To ensure coordination with other lending banks. Signup and view all the answers

What was the key change regarding foreclosure charges / prepayment penalties for individual borrowers as of June 26, 2014?

Banks were no longer permitted to charge these penalties on floating rate term loans for individual borrowers. Signup and view all the answers

Study Notes

Credit Information and Reporting

Urban Cooperative Banks (UCBs) should obtain Credit Information Reports (CIRs) from one or more Credit Information Companies (CICs) for all lending decisions and account opening.
UCBs should report data on corporate borrowers to CICs in a timely manner, and start using CIC data after six months under a Board-approved policy.

Standardization of Data Format

A standardized format for data submission to CICs, known as the "Uniform Credit Reporting Format", has been introduced to streamline the process.
The format will be used for both consumer and commercial borrowers.

Letters of Credit and Bills

Banks should only open letters of credit (LCs) and purchase/discount/negotiate bills under LCs for genuine commercial and trade transactions of their borrower constituents.
Banks should not extend fund-based or non-fund-based facilities to non-constituent borrowers or non-constituent members of a consortium/multiple banking arrangement.

Data Quality Index

A common Data Quality Index will help UCBs identify gaps in their data and improve their performance over time.
The index will also enable UCBs to rank their performance against their peers and identify their relative position.

Best Practices for UCBs

UCBs should adopt best practices while formulating or reviewing policies and procedures under the Credit Information Companies (Regulation) Act, 2005.
The practices should be approved by the Board of Directors.

Uniform Credit Reporting Format

The format includes information on existing loans, loan account status, borrower details, and loan amounts.
The format also includes information on defaulted loans, settled loans, and loans under litigation.

Foreclosure Charges and Prepayment Penalty

With effect from June 26, 2014, UCBs are not permitted to charge foreclosure charges or prepayment penalties on all floating-rate term loans sanctioned to individual borrowers.

Financing and Credit Facilities

UCBs should not finance a borrower already availing credit facility from another bank without obtaining a 'No Objection Certificate' from the existing financing bank.
UCBs should insist on a declaration from account holders regarding their credit facilities with other banks, and ascertain whether they are members of other co-operative societies or banks.

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Description

Learn about the credit appraisal processes and loan policies for Urban Cooperative Banks, including obtaining Credit Information Reports (CIRs) from Credit Information Companies (CICs) for informed credit decisions.