LENDING RISK ANALYSIS (LRA):

Lending Risk Analysis (LRA) is a technique by which the risk of the loan is calculated. Banker must analyze LRA when loan application is above 1 crore. This analysis is done by experienced people of Credit department of a bank. It is a ranking whose total score is 140. Among this score, 120 is for Total Business Risk and 20 for Total Security Risk.

? In case of business risk, if the score falls ---------                  
 “Between” 13-19, then-------Poor risk
 “Between” 20-26, then -----Acceptable risk
 “Between” 27-34, then-----Marginal risk
 Over 34, then ------------- Good risk.

? In case of security risk, if the score fall --------
 “Between” 0 to 10 then ------------Poor risk
 “Between” 10 to 14, then -------- Acceptable risk
 “Between” 14 to 20, then --------Marginal risk
 Over 20, then ----------------------Good risk.

In LRA, following aspects are analyzed:
1)  Supplies risk
2)  Sales risk
3)  Performance risk
4)  Resilience risk
5)  Management ability.  
6)  Level of Managerial teamwork
7)  Management competent risk
8)  Management integrity risk
9)  Security control risk
10) Security covers risk.

SECURITIES:

Bank charges the following two types of security:
1. Primary security
2. Collateral security.

MODES OF CHARGING SECURITY:

Common methods of charging security:
? Lien
? Assignment
? Set off
? Pledge
? Hypothecation
? Mortgage

Nature of security and way of charging:

Nature of security	Way of charging
Cash, Cash collateral and Documents of title to goods	Lien, Assignment
Moveable stock of raw materials, finished goods, merchandise.	Pledge, Hypothecation
Immovable property	Simple/legal/registered and equitable mortgage
Intangible assets (Goodwill)	Execution of personal guarantee and Letter of Trust Receipt.

DOCUMENT AND DOCUMENTATION:

A document is a written statement of facts of proof or evidence arising out of particular transaction which placement may bind the parties there to answerable and liable to the court of law for satisfaction of the change in question. The execution of documents in proper form and according to the law is known as documentation.

Steps in documentation:
o Obtaining the documents.
o Stamping (Stamp Act-1899)
o Witnessing.
o Execution of Documents.
o Registration of Documents (assignment on the body of an insurance Policy, Mortgage deed, Advance to a limited company etc.)

Common Compulsory Documents:
o Letter of Acceptance about the terms and conditions laid down in Sanction Advice.
o D.P. Note (Depending on the types of borrowers)
o Letter of Arrangement.

Besides, there are other documents that are to be obtained depending on the types of Advance. Such as-

? In case of loan:
1. Letter of Disbursement.
2. Letter of Authority (if required)
3. Letter of Hypothecation (when goods are hypothecated as security)
4. Insurance Policy (if required).
5. Any other document as stated in Sanction Advice.

? In case of overdraft:
1. Letter of Continuity.
2. Letter of Authority (if required)
3. Letter of Hypothecation (when goods are hypothecated as security)
4. Insurance Policy (if required)
5. Any other document as stated in Sanction Advice.

? In case of cash credit:
1. Letter of Continuity.
2. Letter of Authority (if required)
3. Letter of Pledge/Hypothecation.
4. Insurance Policy under Bank’s Mortgage clause.
5. Letter of disbursement incase of renewed godown.
6. Any other document as stated in Sanction Advice.

? Advance against lien of FDR/ Insurance Policy etc:
1. Letter of Lien (1st party/ 3rd party)
2. Letter of Authority (if required)
3. Any other document as stated in Vehicles (in a separate form)

? Transport Loan:
1. Letter of hypothecation of vehicles (in separate form)
2. Photocopy of blue book
3. Photocopy of rote permit
4. Insurance policy under Bank’s mortgage clause
5. Any other  documents stated in Sanction Advice

? Legal Mortgage:
1. Mortgage deed (certified copy)
2. Registration receipt in
3. Chain of documents for title (original if available)
4. C.S, S.A and R.S parcha
5. Up to date Rent Receipt
6. Non-encumbrance certificate
7. Power of Attorney (if asked for)
8. Legal opinion
9. Valuation Certificate
10. Location plan etc./Site plan etc

? Equitable mortgage:
1. Chain of documents for title
2. original title deed
3. C.S, S.A and R.S parcha
4. Up to date Rent Receipt
5. Memorandum of deposit of title deed
6. Registered power of Attorney
7. Legal opinion
8. Valuation Certificate
9. Location plan etc
10. Non-encumbrance Certificate