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Credit Policy and Procedure Review

ATS Services undertakes a Credit Policy and Procedure Review on a client’s Consumer Loan/SME Loan portfolio to ensure that the expected portfolio performance remains consistent going forward to sustain profitable and robust new asset growth. The objective of this review is to assess the policy and procedure framework and identify potential areas, which may result in portfolio stress with substantial growth.


The review is divided into two Parts:


Part One: Covers three components:


a) Existing Policy and Procedure review: A detailed review of the existing Credit Policy and Procedures across all stages of the credit cycle including product planning, credit initiation, account maintenance, collections, recoveries and credit and collection / legal MIS.
b) Portfolio risk based segmentation: Here we identify key parameters that predict portfolio risk behaviour and assess how these are being dealt within the Policy/Procedure framework.
c) A policy and process control review: This is done covering control procedures, policy deviation, policy change control procedures, credit delegation process /authority decisioning effectiveness review, collection process controls as well as legal.


The output of this phase is a detailed issues tracker wherein the issues are prioritized based on likely risk level.


Part Two: involves the assimilation and consolidation of the information collected from the Review phase to create:

a) A set of policy and process enhancements which will mitigate the identified issues and risks. b) MIS /Tracking enhancements, as required. This is also done with the specific objective of ensuring that the new policy and procedures implemented are monitored effectively, going forward.

Case Study

Client Profile: A large finance company engaged primarily in lending to SME clients had built up a sizeable all India portfolios across industries. The portfolio was performing well be all credit indicators.

Business Need: The CEO wanted an independent advisory as to the adequacy of their policies and procedures. The intention was to strengthen the existing decision matrix; re-verify basic portfolio assumptions and prepare for continued aggressive growth.

Process: ATS Services was approached for executing the above assignment and the riskiest portfolio within the product basket comprising of unsecured loans was selected as the review sample.
We commenced the review by understanding the existing credit policy and procedures. We focused on the entire credit cycle from product planning, underwriting norms, account maintenance and collections.
Along with the above review we analyzed the portfolio. As the number of delinquent accounts was statistically insignificant, we used other leading indicators to risk segment the portfolio. Based on this we took data cuts to predict portfolio risk and correlated this to the company's existing policy framework.

Findings: The above analysis yielded a number of potential risk segments; we correlated the policies and procedures in place for initiating and managing this portfolio, and found some gaps. We recommended critical changes in the credit underwriting and policy parameters.

Result: The Company implemented most key recommendations and has grown this portfolio since our review. The portfolio performance has remained excellent despite deterioration in the macro economy.

Case Studies

  • Evaluation, Procurement and Implementation of a Loan Management System

    Business RequirementIndia’s leading NBFC wanted to upgrade from a legacy system to a new advanced loan management system.

  • Designing Cross-Sell strategy

    Business Requirement: Our client, a leading financial services firm, had been registering robust new account growth. Since the cross sell volume was rather low, the business wanted to focus on their large customer base for cross selling a range of financial products.

  • Creating the credit policy and portfolio health indicators

    Business Requirement: The client wanted us to review the existing portfolio dynamics, credit policy and procedures with a forward looking bias to identify issues which impact credit quality of this portfolio.

  • Ensuring profits through a robust structure

    Business Requirement: Our client, a midsized Private bank, asked us to review their Mortgage credit policy and procedures to ensure that they were robust in supporting profitable and aggressive new asset growth.

  • Identifying underlying risks

    Business Requirement: The portfolio’s credit performance is excellent; however, the mix was changing as larger ticket LAP Loans were being initiated since the yields on these loans are higher vs. those of traditional Home Loans. Accordingly, the client was concerned about any systemic risk that may be building up in this portfolio despite the very satisfactorily portfolio performance.

  • Forecasting losses aided better management and recovery

    Business Requirement: Our client, a mid-sized Private Bank was incurring high credit losses in their loan portfolio. The management was unable to predict the monthly loss run rate and ascertain which segments within the overall portfolio were likely to contribute to disproportionately higher losses.



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