credit is considered to be the key to economic growth and financial stability

of the economy. Credit is the aggregate amount of funds provided by commercial banks
to individuals, business organizations and government. Commercial banks perform the
act of financial intermediation that collect money from the surplus sector in the form of
deposits and lend it to various sectors of the economy.

Loan is an asset to any financial institution. That is why it is very much necessary to ensure
that a loan does not become bad. The first step in ensuring good loan is to ask for proper
documentation of the loan applicant. Lending money is one of the main functions of a Bank.
In the lending process, selection of borrower is the most crucial and vital job for a banker

Lending is the term which is used by overall Banking and Financial Institutions (BFIs) in
providing the funds to the other commercial banks and financial sectors, to individuals,
corporations, business related organizations and often to the government in need. Commercial
banks acts as the financial mediator that collects the deposits from the surplus sector and hence,
utilize the surplus at the deficit sector by lending with some specific interest rate. As lending is
one of the most important function of all commercial bank

Lending is regarded as the one of income generating sources in commercials banks. Lending is
the credit provided by financial institutions to their client. Further, lending is regarded as the
heart of the commercial banks in the sense that; it occupies large volume of transactions; it
covers the main part of investment; the most of the investment activities based on lending; it is
the main factor of the creating profitability; it is the main sources of creating profitability; it
determines the profitability. It affects the overall economy of the country. It also affects on
national economy to some extent. Since, it provides loan to corporation and industry,
government. It is proved from very beginning that lending is the shareholder’s wealth
maximization derivative. Thus, effective management of lending should seriously be considered
by commercial banks. The lending function is considered by the banking industry as the most
important function for the utilization of funds. Since, banks earn their highest gross profits from
loans; the administration of loan portfolios seriously affects the profitability of banks. Indeed, the
large number of non-performing loans is the main cause of bank failure. With respect to
performance, banks now use various measures to assess bank 18 efficiency and related functions
in the bank lending process. Traditionally, banks determined operating efficiency by using
measures of bank profitability, such as return on equity, return on assets, and return on
investment; also, banks used operational ratios, such as monetary output per staff member, and
total operating expenses per unit of output. Lending management is the system, which helps to
manage lending effectively. In other words, lending management refers management of credit
exposures arising from loans, corporate bonds, and credit derivatives. Lending exposures are the
main source of investment in commercial banks and return on such investment is supposed to be
main source of income.
Lending is regarded as one of the income generating sources in commercial banks. Lending
is the credit provided by financial institutions to their client. Further, lending is regarded
as the heart of the commercial banks in the sense that; it occupies large volume of
transactions; it covers the main part of investment; the most of the investment activities
based on lending; it is the main factor of the creating profitability; it is the main sources of
creating profitability; it determines the profitability.

Granting of credit should follow predetermined processes:

1. Assessment: credit proposal assessments should be performed at relevant levels

according to the bank’s organization and structure. Credit assessment should follow
procedures, methodology and operating guidelines describing the necessary nature and
extent of due diligence and collection of relevant supporting documents and
information based on their risk profiles.
2. Review:  before submitting them to the approval person, unit and/or committee, the
bank should undertake a review and analysis of loan proposals by a person independent
from the initial assessment. While the credit risk management department/unit should
generally be given responsibility to organize such a review, in smaller organizations an
independent review could be done by any appropriate official not involved in credit
appraisal and approval process.
3. Approval: the designated level of approving authority takes the approval decision,
including the approval of specific terms and conditions, based on the initial credit
assessment, independent review and analysis.
4. Disbursement: following the notification of the approval decision, disbursement is made
by the designated unit/person, following procedures to ensure that all terms and
conditions are verified and guarantees, if any, are taken.
5. Administration: the credit administration function is responsible for maintaining credit
files and ensuring they are kept up to date, and for follow-up on necessary actions
(renewal notices, updating information, etc.)