Question : The process of verification of the documents and collateral by the bank is called ___________.
Option 1: Credit appraisal
Option 2: Loan sanctioning
Option 3: Credit monitoring
Option 4: Risk management
Correct Answer: Credit appraisal
Solution : The correct answer is (a) Credit appraisal.
The process of verification of the documents and collateral by the bank is called credit appraisal. It is a crucial step in the lending process where the bank assesses the creditworthiness of the borrower and evaluates the risks associated with granting a loan. During credit appraisal, the bank examines various factors such as the borrower's financial statements, credit history, income, collateral, and other relevant documents to determine the borrower's ability to repay the loan and the suitability of the collateral provided. Based on this appraisal, the bank makes an informed decision regarding loan approval, loan amount, and terms and conditions. Loan sanctioning refers to the formal approval and acceptance of the loan by the bank. Credit monitoring involves ongoing supervision and evaluation of the borrower's creditworthiness and loan performance. Risk management encompasses the broader process of identifying, assessing, and mitigating risks within the banking operations, which includes credit risk, market risk, operational risk, and more.
