Bank Loan Policy
To conduct loan operations efficiently and successfully it is important to formulate a clear-cut and comprehensive loan policy. Without an adequate loan policy, even the efficient loan officers very often fail to run the loan activities properly. Bank Loan is mainly an agreement between the borrower and the bank about a definite amount of money that the borrower will borrow and then pay back in definite increments at a particular interest rate.
Bank Loan is the extension of money from a bank to another party with the agreement that the money will be repaid. The loan activities will be prone to error and mistake if the directions regarding the availability of loanable funds, the guidelines about the sectors for which loan to be made available, duration & maturity of loan besides nature of collaterals are clearly spelled out & prefixed. The loan policy should evidently communicate the considered goals and objectives of the bank, as well as define the types of loan exposures suitable to the institution, loan approval authority, loan limits, loan underwriting criteria, and several other guidelines. On the other hand, loan officers may be absent, ill, transferred, dismissed or retired in that case written policy, the guideline will facilitate the new officers replaced in such positions. Under these circumstances, if there is no specific loan policy, management will suffer a lot in taking many of the loan related decision or even remain confused. Traditionally, policy loans were issued at a very low interest rate, but that is no longer universally true.