Tuesday, June 5, 2012

How far character is important during the course of any credit investigation?


How far character is important during the course of any credit investigation?

It is the duty and responsibility of any banker to ascertain the eligibility of a customer during the course of taking a decision to grant him a loan. Of course, the loan may be for a small amount or for heavy amount involving millions of dollars. However, the criteria for selection of a borrower for the purpose of lending are found to be uniform.
In case of any failure on the part of the customer in repaying his debts to the banker, the credit manager who was instrumental in taking a decision to sanction the loan is found to be indirectly responsible for wrongful selection of the borrower.
Normally the financial institutions and banks are having great hopes on the abilities and capabilities of the credit manager and while dealing with the money belonging to the banks, the credit manager should take utmost care in selecting the borrower and during the course of such selection process, he should explore maximum possibilities in scrutinizing the credentials of the borrower by adopting several strategies.
In fact the purpose of loan interviewing and credit investigation is to determine the suitability of the applicant for availing the loan.
The credit manager should possess the requisite knowledge about the five ”C”s of credit namely; character, capacity, capital, conditions and collateral.
Character:
During the course of any commercial lending, character refers to the client’s willingness to repay the loan. Normally the repayment of any loan is purely dependent upon the willingness on the part of the borrower to repay the debts apart from his determination to repay. A person may be having the necessary willingness to repay; however, on account of some unforeseen circumstances, he may not be in a position to repay the loan and the reasons for his failure may be sometimes beyond his control.
It can be seen that many applicants are making thousands of promises when they are approaching their bankers for the purpose of availing any loan. It has been found out that out of one hundred borrowers; rarely 40 percent of the borrowers try their level best in repaying their dues even during tough times.
An individual of good character is found to be honest and works hard towards generating income through his business and he has the determination to remit the debts due promptly in time. In case of any delay on his part in remitting the debts, he informs the reasons for such delay to the banker well in advance. Of course, honest customers are hesitant and feel quite embarrassed to convey their inability to remit their dues and many times they feel guilty in pleading with their bankers during these circumstances.
As such, they take sincere efforts in finding out some avenues by which they are able to repay the debts in time without any delay.
In other words, the persons who are lacking in character normally assign low priority in repayment of their dues and they are least bothered about the mounting overdue in respect of loan availed by them from their bankers.
The credit manager is in a position to ascertain the character of the borrower by means of the following:
01.            Enquiry with the neighbors, relatives, friends and competitors
02.            By reviewing their past history
03.            By spending requisite time in interviewing the customer through several questions
04.            The customers, suppliers, creditors and others are in a position to provide valuable insight into the character of any prospective customer
In fact, among the five “C”s, character is considered to be the prime factor and for a person having good character, the remaining factors may not pose much problems.

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