CREDIT MANAGEMENT

Historically banks have prefered to make short-term loans to busness for non permanent addition to theirs working capital. These loans usually were used to finance the inventory-raw materials or finished goods to sell. Such loans take advanntage of normal cash cycle in a business firm. While  banks today make a far wider array of business loans that hust simple liquiditing credits, the short-term load- frequently displaying, may of the features of self liquidiation-continuous  to account for over half of bank loans to business firms. the extension of credit is one of the major fucntions of banking business. Major source of income for the banks and financial institutions comes from their Loans and Advances. Credit Management is the management of loans and advances. Success of banking business depends on the efficient and effective managemanet of credit. Poor credit management has proved to be one of the major cause os bank failures throughout the world. Loan uncollectible due to mismanagement, illegal manipulation of loan, misguided lending policies or unexpected economic downturn are main reasons for a bank getting into serious problem.

Credit  can be offered in variety of types/ categories as per the need of potential market. Credit management  is always a challenging task in the banking business because there are several environmental influences and risks associated with the credit operation and admininstration. Credit riskis the risk which arises the borrower fails to meet the obligation on aggred terms. The volume and impact of credit risk is very high among the various types of risk asscoicted in the banking business. lending fucntion is significant for every as it yields substantial income by means of interest on loan and advances and fee on non- fund based credit activities. Bank lending facilitates the economic development  of a country by extending financial support to industry, agriculture, trade, commerce and other sectors. Bank also invest certain part of their loan in social development in the form of deprived sector lending. Banks lending activities are generally governed by certain principles since the lending activities involve depositors money which is repayable on demand or on specified maturities, Bank adhers to the principle of liguidity, safety and profitability in their lending policies and standard guidelines for the operation. Central Bank bas also stipulates mandatory maintenance of Cash Reserve Ratio (CRR)&; Satutory Liquidity Ratio(SLR) to reinforce liquidity and safety principles. Banks also diversify their loan protfolio across a spectrum of borrowers, industries, sectors, securities as per the prudential norms and also follows other risk management practices.