In most foreign banks, a member of the marketing staff makes the proposal or recommendation. This is so because the marketing person is closest to the client. He would then pass it on to the marketing manager or the head of marketing who would, if he is satisfied with the proposal, support and recommend it. Important proposals may even be prepared and recommended by the head of marketing himself. The proposal with the recommendations would then be forwarded to a credit officer or credit manager, who would then vet it from a credit viewpoint.

The approval responsibility or power is based on the amount of the facility required. If the amounts are small, the marketingofficer and a credit officer could within their approval authority probably approve the facilities required. As the facilities required increases in value the person/ persons approving would be higher in the hierarchy. Large facilities would need to be approved by the Credit Committee or the Board of Directors. In several nationalised senior officers have discretionary authority upto a certain limit. Branch managers have fairly small authorities, often upto only Rs 1 lakh. Regional heads or zonal heads are authorised to approve upto Rs 50 lakh or even Rs 1 crore. Chairmen of Banks have authority to approve facilities of upto several crores.

The procedure is that when facilities are approved under unilateral powers of an officer, the next higher authority should ratify the proposal within a reasonable time. The weakness in this system is that there is no credit officer separately from a credit point of view vetting the proposal and even if there is a credit officer, a person in authority can stillapprove the facilities unilaterally even if the credit officer/ manager does not approve or support the facilities being given. Private banks, by and large, work in a manner similar to foreign banks and require facilities to be approved by two persons – a marketing or relationship person and a credit person.

However, often in private banks, approval authorities are not sometimes delegated to branch managers or senior branch officers. This results in all proposals having to be sent to Head Office for approval and this sometimes takes considerable time. I am aware of a private sector bank that had at one time about 100 credit proposals awaiting head office approval as powers of approval had not been delegated. This puts unnecessary pressure at all levels. The approving of a credit by two persons is, from a control purpose, very good. The relationship person knows the client intimately and can therefore make a recommendation based on a detailed knowledge of the strengths and weaknesses of a client.However, he can be partial as he has a vested interest to the extent that he would like the individual/ company (if new) to become a customer. His judgement and recommendation, is to that extent, colored. The credit officer/manager does not know the prospective client at all and he would either support or reject the proposal based on the financials, the management, the external environment and other relevant details. It would be an impartial decision based on facts.

Once the facilities are approved the bank would send the client a letter advising that the facilities that have approved subject to the prospective client complying with certain stipulations and conditions governing the approval. This letter would also normally detail the collateral that would have to be given. This letter would normally be signed by the relationship person and the credit or loans manager. The prospective client would normally sign the offer letter and return it to the Bank. This is in effect an acceptance by theprospective client of the terms of the approval. Then he would work with the Bank to get the security documentation complete. Drawdown is usually permitted after all documentation has been perfected. It is then that the prospective client will, in fact become a client.