Five – R’s of Creditworthiness

Five – R’s of Creditworthiness

Five – R’s of Creditworthiness

Credit analysis means analysis of the eligibility for getting a loan in the light of applications. At the time of credit analysis, the loan officer should carefully examine the logic and purpose of the credit. Extending credit without analyzing the applicant and the loan applied will be very risky. This is risky in this sense that a major portion of the loanable fund is the depositor’s money. So, if the bank becomes, unable to pay on demand then it may be at the fury of the depositors. On the other hand, loans are the main source of a bank’s profit to make the business viable. Bank takes some necessary information from the borrower for recovery of loan and analysis of his financial condition. This is called credit analysis.

Five C’s are popularly used in many countries around the world. Along with the 5 C’s, three other methods are used in the same perspective. These three methods are CAMPARI, PARSAR & 5 R’s. These 5 R’s are –

  1. Responsibility,
  2. Reliability,
  3. Respectability,
  4. Resource,
  5. Return.

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