Meaning of Credit Policy

A credit may be defined as money lent at interest or on profit. It is nothing but temporary parting with one’s [an individual or an institution] resources in order to augment the purchasing power of the receiver of such facility with a promise to return the same with interest profit or otherwise as mutually agreed upon.

2.3 Meaning of Credit Policy

Policy entails projected course of action. Of a Bank has its own policy granting credit although credit is always a matter of judgment applying common sense in the light of one’s experience.

A sound credit policy includes among other things safety of funds invested vis-à-vis profitability of the bank. Encouraging maximum number of small credits is better than concentration in a particular type of advances, which ensures sufficient liquidity with least incidence.

2.4 Recovery of loan

When a bank or other financial institutions distribute a loan to other organization or people, then after regaining from loan it is called loan recovery.