A) Safety -
(i) 5 Cs of the borrower
Character – Willingness to repay – honesty, integrity, responsibility and attitude / commitment of the borrower to repay
Capacity – Success of the borrower’s business as reflected in financial condition and ability to repay through cash flow and earnings
Capital – The borrower’s stake in business as also his intrinsic financial strength as reflected in his equity capital or net worth
Collateral – The borrower’s ability to offer quality assets to provide adequate protection to the bank against default in repayment
Conditions – Recent trends in borrower's line of activity and changing economic conditions that might impact his financial conditions and thereby the ability to repay
(ii) Purpose
- Working capital finance
- Production & marketing finance
- Busy season finance
- Import and export finance
- Bridge finance, TODs
- Personal loans to entrepreneurs, technicians, self-employed
persons, artisans and professions
iii) Security
| Whether | Whether | Whether | Whether |
| marketable | ascertainable | stable | transferable |
| M | A | S | T |
| Marketability | Ascertainability | Stability | Transferability |
B) Liquidity
| Self | Easily realisable | Whether repayment could |
| liquidating | by sale | be ensured at short notice |
C) Diversification
| Small loans to a | Diversified | Different industries rather |
| large number of borrowers | securities rather than | than to one or one group of |
| rather than | any one type of | industries. Region-wise, |
| big loans to a few | security | group-wise and industry- |
| wise distribution |
D) Expediency (Social necessity)
| Whether | Whether | Whether | Whether | Whether | Whether |
| national | promoting | export | supporting | employment | promoting a |
| and public | an | oriented | production | oriented in | small scale |
| interest is | economic | of wealth in | the backward | industrial | |
| involved | activity | the form of | areas | sector or | |
| aimed at | goods or | supporting | |||
| generating | services | neglected | |||
| surplus | sector | ||||
| 1 | 2 | 3 | 4 | 5 | 6 |
E) Profitability
| Yield should be | Cost of funds and | Other income accruing |
| commensurate with | cost of operation | from business, anciliary |
| the risk | should be low | business if the proposal is |
| entertained. |
F) Suitability
| Source and | Duration of | Purpose - | Nature of | Statutory | Availability |
| mode of | loan – short | whether | security and | restrictions - | of lending |
| repayment | term or long | good or | amount of | RBI | resources |
| term | bad i.e. | loan | directives | and the | |
| productive | prevailing | ||||
| or | local | ||||
| speculative | economic | ||||
| conditions | |||||
| 1 | 2 | 3 | 4 | 5 | 6 |
G) Viability
| Economic | Technical | Financial feasibility | Managerial |
| feasibility - | feasibility – | – | competence and |
| ensuring capacity, | raw materials | cost of production, | availability of |
| demand and supply | supplies, | and profitability, | needed personnel – |
| position, cost of | government | cash flow, | both technical and |
| production, sale | licensing, import | estimated sources | skilled |
| prospects and price | policies, transport | of funds | |
| level | bottlenecks, wage | ||
| levels, labour | |||
| situation, power | |||
| and water supply, | |||
| availability of | |||
| machineries and | |||
| other civic facilities |
