Union Bank tests your knowledge of banking, finance and credit in the examination for the post of Credit Officer (SO) Credit Officer. The main task of a credit officer is to check the loan applications, deciding that the borrowers can pay and manage risks. Professional Knowledge section focuses on your understanding of banking rules, how the loan works, financial basics and borrowings related laws. Knowing these ideas well is not only important to pass the exam, but also to perform well in the actual job.
Union Bank such professional knowledge
This article will explain the important topics that come in the professional knowledge section Union Bank SO Role of Credit Officer. This includes banking basics, various types of loans, rules for following the rules before giving loans, how can a borrower to check, how can one read financial statements and important banking laws. Each subject is explained only to help understand how banks work and you can prepare for the exam with confidence.
Different types of loans and credit
Credit officials should know what kind of loans the banks give. This includes:
Term Loan: Loans given for a certain time period with regular payment. Machines are used to buy or establish business. Each loan type has different risk and rules. Credit officer studies the loan before approved.
- Cash Credit: short -term loans given to businesses to manage daily expenses. It is given against stock or invoice.
- Overdraft: This account allows holders to take more than their balance to a extent.
- Bill exemption: Loan given against bill or invoice before their due date.
- Project Finance and Syndicated Loans: Large loans given to large projects, sometimes shared by many banks.
Rules to follow while giving loan
Banks follow some basic rules to reduce the possibility of losing money when giving loans. These rules are called the principle of loan. Credit officers use these rules to decide whether the loan application is good or not.
- Security: Loans should be secured and repayed on time.
- Liquidity: The borrower must have cash or property that can be sold quickly.
- Objective: Loans should be given with real causes and clear repayment plans.
- Security: The loan must be supported by collateral or something valuable.
- Beneficiary: The loan should help the bank to earn appropriate returns.
- Diversification: Banks avoid giving too much loan to an individual or area to reduce risk.
How to check loan applications and assess risk
The main task of a credit officer is to check if a borrower can repay the loan. This is called credit assessment. This involves studying the borrower’s financial health and commercial plans. By carefully checking these points, the bank can avoid giving loans that cannot be paid back. Credit evaluation process sees:
- Financial Description: To check out the profit and loss, balance sheet, and cash flow to see if the business is doing good.
- Credit Score: A number shows that the borrower is based on previous lending history.
- Collecting Price: How much is the cost of security and if the borrower does not pay it can be sold.
- Industry Risk: How the borrower’s business is affected by market conditions.
- Quality of Management: Check whether the borrower has a good history of business management and repayment of loan.
Important banking rules and guidelines
Credit officers should know the banking laws and rules made by the Reserve Bank of India (RBI) and other officials. This includes:
- Learn your customer (KYC): Rules to check customers’ identity and prevent fraud.
- Priority Sector Lending (PSL): Rules say that banks should give loans to farmers, small businesses and weaker sections.
- Non-Performance Property (NPA): Rules to identify and provide provisions for them.
- Basal Criteria: International rules regarding international rules should be placed in order to cover risks.
- Credit Information Companies: Using Credit Bureau to check the credit history of borrowers.
Why financial ratio matters
Financial ratio helps credit authorities to understand how strong the borrower’s finances are. Credit officials use these numbers to decide whether any loan is safe to give. There are some important ratios:
- Current ratio: Shows whether the borrower can pay short -term loans.
- Loans for equity ratio: shows how much money is borrowed in ownership of the borrower.
- Interest coverage ratio: Shows whether the borrower can pay interest on loans with his profits.
- Return on property and equity: How well the borrower uses his resources to earn measurement.
