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INTRODUCTORY ISSUES

Chapter -1

1.1 Introduction:

In general sense we mean “Bank” as a financial institution that deals with money.
But when we use the term bank it generally means ‘commercial bank’ that collects the
Deposit from surplus unit of the society and then lends the deposits to the deficit units of the society. From very first emergence and inception of modern civilization, Bank plays a pivotal role in case of overall financial and socioeconomic development of any modern country.
The basic functions of bank are deposit extraction and credit extension. Credit is the nub of banking business. It helps this kind of organizations to earn around 80% of the total revenue. Managing credit operation, thus, is the crying need for any bank. In case of failure in credit management, a bank may face extinction. It is, therefore, necessary that a bank has a proper credit profile that guides the credit operation of the bank in an effective manner. For proper management of credit each and every bank follows the profile for smooth approval, direction, monitoring and review of lending operation.

Bank’s may fall into engulfing crisis or may wind up with consumption of capital if they do not practice proper Appraisal and approval process and loan classification and provisioning system on their advance. Appraisal and approval process of a bank loan application involve a series of activities. These activities reveal a true element of banking intermediation ranging from establishing relationship with a stranger (walk-in customer) to structuring a credit line for the existing clients. In order to manage the risk inherent in lending, banks across the world developed many tools. The central bank, as a controller of financial discipline, usually issues guidelines on loan appraisal and approval as well as loan classification and