Question

1. You have been hired as the new Loan Department Manager in a bank that has been having troubles in the loan department as identified by the federal auditors. You task is to clean the procedures, the lending policies and reduce the problematic loans so that profitability is restored and the CAMELS score improves. Please take me through the process and set up clear policies and procedures

Answer 1

Here, I am assigned with the task of the overall revival of the loan department. Though it is quite a difficult task, through adequate planning and step-by-step procedure, an effective revival is always possible. The steps include:

1. Classification of various types of loans based on their nature such as term loans, secured loan, unsecured loan, etc.

2. Classify all the NPA's and potential loan Non Performing Assets( NPA). Such loans are a potential threat for the profitability.

3. If the NPA's are more than the bank standards , then tighten the rules for loan. If it is less than standards, relax the norms.

4. Form a special expert committee for dealing with NPA's and potential NPA's.

5. Increase the interest rates and installment amounts for the potential defaulting loans inorder to reduce the risks of loss.

6. Introduce policies to reward regular remitters of loan installments.( Like lower interest payments, etc)

7. Make additional efforts to contact businessmen and other potential term loan takers to improve business.

8. Make improvements in the existing loan procedures in such a way that better customer service can be provided. Finally, usage of improved technology and other innovations can be introduced to automate the loan procedures.

Using these policies and procedures, loan department can be definitely revived.