Exercising due diligence is all the most important before sanction of a loan as the loan amount with interest are to be recovered within the stipulated time. Due diligence begins right from identifying the prospective borrower and ends with the repayment in full. Due diligence is process of verification of facts and figures to take an appropriate credit decision. Due diligence is continuous process starting with the interaction with the prospective borrower and end with repayment of loan.
To make the due diligence process more effective, branch officials can adhere the below mentioned points
o Interaction with the prospective borrower informally to know basic details of the borrower and activity.
o Application in proper format specific for the activity. It is an offer document and a basis of agreement between the Bank and the customer
o Scrutiny of the application thoroughly so that it may be ensured that applicant had filled all relevant columns and also submitted all necessary enclosures
o At this juncture, credit report is to be generated, read and interpreted properly before taking a credit decision
In our country there are four companies registered with RBI that provide credit information about the prospective borrower. 1. Credit information Bureau (India) Limited,
3. Equifax and
4. CRIF High Mark.
Among these, many Banks are using the credit score of Credit Information Bureau (India) Limited (CIBIL) which was founded in the year 2000. CIBIL collects and maintains records of an individual's payments pertaining to loans and credit cards. The records are updated on monthly basis by CIBIL. CIBIL report is one of the tool for exercising due diligence but not the only tool. CIBIL report gives the behavioral pattern of person regarding his commitment for repayment of dues on or before the due date. Credit history in the last 24 months will be considered for arriving credit score.
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