Credit control and monitoring, often referred as Loan Review Mechanism (LRM), plays an important role in the following aspects:
(a) To ensure that the funds provided by the bank are put to the intended use and continue to be used properly Any diversion of bank’s funds out of the business or for unauthorized use within the business should be detected and stopped.
(b) To ascertain that the business continues to run on the projected lines. If there is any deterioration from what was projected at the time of appraisal, the same should be noticed and appropriate action initiated by the bank, in consultation with the borrower, to ensure that the business continues to run on viable lines.
(c) if the deterioration of the business continues despite appropriate action, the bank should decide if any harsh action like, recalling the advance or seizing the security, etc. is necessary. In such cases an early detection of the problem is very important as any delay in necessary action by the bank may result in deterioration of the available security and reduce the chances and amount of recovery
Tools for Credit Monitoring
- Conduct of the Accounts with the Bank
- Periodic Information Submitted as per the Terms of the Advance
- Stock/Receivables Audit Conducted by the Bank
- Financial Statements of the Business, Auditors’ Report
- Periodic Visits and Inspections
- Interaction with select creditors and debtors
- Periodic scrutiny of borrowers’ books of accounts
- Market Reports about the Borrower and the Business Segment
- Appointment of Bank’s Nominee on Company’s Board
- Credit Audit
- Legal Audit of title documents in respect of large value loan account