Question

The banker assesses the credit worthiness of a person on the basis of his

• A. character
• B. capacity
• C. capital
• D. All of the above

Answer 1

Answer:

D. All of the above

The banker assesses credit worthiness on the basis of his character, capacity and capital.

1. Character:

• While assessing the credit worthiness of a person, the first thing to consider is the character of the person concerned.
• The word character includes many personal characteristics of a person.
• e.g. his honesty, integrity, regularity, promptness, sense of responsibility, good habits, reputation he enjoys and goodwill in fulfilling his promises and repaying his dues.

2. Capacity:

• The success of an enterprise mainly depends on the skill, ability and experience of the entrepreneur.
• If the borrower has the requisite technical expertise, managerial ability and experience of carrying on a particular industry or trade, the success of such unit may be taken for granted (barring some unforeseen circumstances) and the banker may consider it a meritorious case for granting an advance.

3. Capital:

• The importance given by the banker to the adequacy of the borrower's capital is not insignificant.
• Banks are repositories of public money and lend borrowed money. Therefore, a banker does not lend money to an entrepreneur who does not have sufficient funds of his own.
• If the business enterprise fails, the banker can recognize the borrower's money if his own capital is sufficient.
• Although all the above factors are important and are taken into account by the banker while assessing the creditworthiness of the borrower, their relative importance varies from banker to banker and borrower to borrower.
• Security is changing now. More emphasis is placed on the ability and capability of the borrower and the soundness of his project. However, unsecured advances will not be allowed to persons of questionable integrity and good character.