Credit series – 8- Look beyond clean account Conduct

If a borrower is having a spotless conduct in loan repayment so far that is a good candidate for on boarding  or increasing exposure.

Yes, track record of loan repayment is a good data point to start with and give due weightage.

But then also look for the borrowing pattern of the customer :

• If the majority of the borrowing is in form of revolving facilities where the servicing is only of interest , look from the perspective on ability of company to raise new funds if required .
• If you have lent to the company by takeover with a top up look if that is generating the expected returns in line with end use. This is to avoid situation where due to the purpose being a general the funds are partly / fully used to service  your or other lenders loan.
• With multiple lenders already there and new entrants coming in , multiple loans esp BL/PL with no collateral & end use restriction are being availed at the same time without one knowing about the other loan.

So if the borrowing is showing increase YOY without any commensurate change in business performance ; relook and understand the borrowing need , usage, future plans and overall serviceability which will act as leading indicator for any corrective action plan if required. Deterioration of account conduct is lagging indicator .

( Views expressed here are personal and doesn’t represent any of the present or past companies associated with ).