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Credit Investigation and Selection of Borrower

Credit Investigation:

Sanctioning credit is the main function of a bank and it is the prime source of earning of a bank. So, a banker must sanction credit. But only sanctioning a lot of credit will not serve the purpose of the bank. It is only good credit that will serve the purpose of the bank. It is even better not to sanction any credit rather than sanctioning a bad credit. Selection of good  borrower is the starting point of the process of creation of good credit. Before sanctioning credit, a banker wants to be sure about the repayment.

 

For ensuring loan repayment a bank can go for preventing measure or curative measure or both. But curative measures are always costlier than preventive measures in terms of both time and money. So credit investigation as a preventive measure is required for selection of good borrower. Credit investigation and selection of good borrower may substantially help a bank in the recovery of extended credit.

 

Investigation, Credit Investigation:

 
Credit is defined as the confidence of the lender on the ability and willingness of the borrower to repay the debt as per the schedule of payment. As per this definition, we must build confidence on the borrower’s ability and willingness. An in-depth analysis and investigation is a pre-condition for building confidence on the borrower’s ability and willingness. Investigation refers to the careful and official examination of facts about something. It is also defined as a process of collecting information and evidences about something that helps to form an opinion about the subject under investigation.
 
 
Credit investigation refers to a process of carefully examining and assessing credit proposal and other information from different dimensions for the purpose of collecting information and evidences that will help forming an opinion regarding the credit. Credit investigation helps greatly in the process of selecting quality borrower.

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