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HOW TO DEAL WITH REVIEW LETTERS AS PART OF CREDIT APPRAISAL

You have completed appraising a big proposal, put it up to the sanctioning authority and the loan is sanctioned. As a credit officer, it is a huge relief to see the note getting cleared. This means the pending files on your hand has reduced and now you can move on to the next file. Your credit manager and higher Executives are also happy since sanction means likely disbursement and advance figure will go up.

Not even a week has passed since the sanction, you get a long review letter from your Regional Office or Head Office pointing put the gaps in your appraisal note. The questions may be few, say less than 5 or high, say above 10.

As a credit officer, nobody likes these review letters because :

• We do not like gaps to be pointed out in our work because it means others are of the opinion that we have not done the appraisal thoroughly
• It means additional work. You now need to reply to this review letter which takes time and your time for attending to regular work is adversely affected
• The support you get while processing a process note for sanction is very high. Your credit manager and even the Executives will followup with the customer for submission of pending information. The customer also feels the urgency to submit the called for information otherwise the sanction will get delayed. However in the case of review note, you will not get the same support. The credit manager and Executives will leave it to you to get the information. The party will show no urgency to submit the review information.

Due to the above reasons, credit officers hate review letters. Infact, usually you can find review letters piling up, sometimes even 3-6 months old letters are not replied. You feel guilty and also afraid that one day suddenly Head Office will send a DO letter demanding why the review letters are not sent. Then your superiors will blast you for negligence, when actually they are a big part of the delay.

While the above points play out in every bank and in every branch/ Zonal Office/ Regional Office, as a credit officer it makes your life lot easy if you see the positive side of review letters. Here are a few tips on dealing with review letters :

• Expect it : Advances in banking is risky. You know that. Everyone tries to save himself in whatever way possible. The branch manager tries to save himself by drafting a carefully worded recommendation. You as a credit officer will try to save yourself by stipulating suitable pre-disbursement conditions or by highlighting the negative points in the proposal so that tomorrow nobody can blame you for omitting key information. Similarly, the staff at review departments (usually CMRD i.e. Credit Monitoring and Review Department at Zonal Officr or Head Office) also have to safeguard their career. If they do not point out gaps in the proposal and tomorrow if the account goes bad, they will be held accountable for improper review. So remember this point. Even if your appraisal is 100% correct and of top quality, you will still receive a review letter. Just think from the point of view of the CMRD staff. If they send no review, it means they are accepting that the appraisal is top quality and that there are no gaps. But we all know an account can go bad for various reasons beyond credit reasons. When the account goes bad and it is found that CMRD review has found no gaps, they will get screwed. So review letters are not a reflection of the quality of your appraisal. Whether your appraisal is good or bad or average, the review letter will arrive. So don’t be annoyed or surprised that the letter has come. Expect it to come.
• Everybody escapes except you : In the overall scheme of things where everybody tries to save their job, you will be at risk if you neglect the review letter. Once again, assume that the account goes bad. The recommending authority gets away because he is smart enough to recommend with caveats. Or he may recommend saying “…based on positive points and observations of the processing officer,…..” By being smart in his recommendation, he gets away, The sanctioning authority gets away because usually a Credit Committee precedes his sanction. So a group of 3-8 seniors have perused the file and found it satisfactory. Based on Credit Committee recommendation, the sanctioning authority will sanction the file. So he gets away. The problem comes in the review and monitoring stage. Poor quality of credit monitoring and supervision will be a huge point while fixing staff accountability in bad advances. One such area is compliance to review letters. They will simply say – “The negative points in the proposal were missed by the processing officer in his appraisal. Atleast, when CMRD has pointed out in their review, the officer has not paid attention to them and did not initiate proper action”. So remember – reply to review letters is not an additional task. It is part of the appraisal task. The processing of a file does not end when it is sanctioned. It is an ongoing process where monitoring and supervision needs to be done at regular periods. One of the most important aspects of this process is review letters.
• Dash off letter to branch or company : Some points need clarification from branch or customer. For these points, immediately write a letter to the company (if you working in branch) or to branch (if you are working in Zonal Office). Believe me, this letter is 10 times better than just ignoring the letter and piling it up. Even if you just copy the queries of CMRD and paste it in the letter to customer, it is alright. The point is you should be seen to have taken some action instead of just piling it. This does another important function. It shifts the action to the customer so it gives you some breathing time. Unless the customer replies, you can argue that because I have not received full and satisfactory answer, I have not sent the reply to CMRD. It is therefore also important to send a reminder letter to the company, say after 15 days as a followup action.
• Reply – even if not 100% information is not available : The key point you need to keep in mind in the review letters is that you should reply. You cannot say that the company has not furnished reply and so I am waiting for their reply. This is not accepted at higher levels. You should know the art of dealing with review letters. Say the review has pointed out 10 observations/ remarks/gaps, there will be atleast 3-5 of which you can furnish reply without seeking information from the party. You now need to wait for say, 3-4 days after getting the letter and reply to the 3-5 points you can answer. Regarding the other points, you can say “The reply to the other points need clarification from the company. We have vide our letter no._____dated _____sought the information from the company and we note to furnish reply to the remaining points within 10 days.
• Do not panic if mistake is made by you : Sometimes you might have made a mistake as a processing officer. For example, you assigned incorrect marks in credit rating under some parameter. Because of this error, the rating was arrived at ‘A’ instead of ‘B’. This changes the rate of interest to be charged. Unfortunately, by the time the review was done and you received the letter, the disbursement was done and interest applied at the incorrect rate. Do not panic if you the CMRD review points out mistakes which were done by you. Mistakes do happen. Sometimes very serious mistakes do happen. However always remember that banking is hundreds of years old. Some lakhs of bank employees have worked till now. Some lakhs of credit proposals were processed till date. Every possible mistake you made, or will make, or can make or about to make – even mistakes which you think are impossible to make – every possible mistake is already made in the past. It is a new mistake to you but not to the banking sector. Every mistake was handled and addressed. For example, if the safe keys are lost it is a serious mistake. It is a mistake that does not happen everyday. It rarely happens. Most bankers careers will not face this risk. It goes on smoothly. But for some unlucky banker, it may turn into reality. The point is this. It is a new mistake to that banker but it is not new to the banking industry. Safe keys were lost in the past and appropriate steps to be taken are laid down in policy manuals. So even though that banker panics, the DGM or GM who has decades of banking experience and who must have seen a similar incident in his experience will direct the steps to be taken in a cool way because he has seen it before. Similarly in credit, when you realise you have made a mistake, it is natural to panic “Oh my God, what have I done – This is serious – I may be suspended”. But in most of the cases there is a way out. Always remember that – every possible mistake in credit is already committed. The mistake which you have done was already done by somebody in the past and addressed successfully. That is why when such error comes up, you have to approach credit superiors with decades of experience such as Chief Manager (Credit) or AGM or DGM. They would have doubtless encountered such mistake in the past and they will guide you. Just one suggestion – never try to hide or suppress the mistake. Immediately bring it to the notice of the superiors. As long as the mistake is not committed with fraudulent intention, there is always a way out.
• Never pile beyond 1 month : It is common that review letters are not your priority in day to day work. It is alright. You give top priority to process notes because your superiors keep pestering you to put up the proposals quickly. So it is natural that review letters are pushed back. It happens all the time. But do not ignore it for a long period, say more than one month. If you do that, you have nobody to put the blame on. You will be held responsible for the delay. So always take some action – even if it just a letter to the company seeking information – within one month.
• Learn from it : While the above tips are targeted at how to save yourself from blame, it misses the most important point. The number one reason review letters should be taken positively is that you can learn from them. The person conducting the review is not a novice in credit. He is an experienced banker who has seen many proposals in his career. Take the review positively. See it as a means of improving your appraisal skills. I strongly suggest that you create a new Word file titled “Appraisal suggestions” and note down CMRD review remarks. Over a period of time, you will have some 40-50 solid observations which, if you take care of in your future process notes, there will be less scope for negative remarks.

In the urgent and taxing job environment credit officers work, it is natural to hate review letters. I agree. I am not saying that you should love these review letters or that you should wait for the review letters as you would wait for a love letter. Yes, we all hate them and we will never love them. But the only point to remember is whether or not you like them or not, you will encounter them. As pointed out, if no review letter is sent, it is a risk to the review department. So even in the best of appraisals, you will get review letters. By following the above tips, you can take one step further in your journey of becoming an effective credit officer.