Essays on rational absurdity of banking
Bias is an inherent human tendency, and recognising and minimising it requires deliberate effort. No matter how advanced the financial models or how experienced the analysts, Credit Risk decisions are inevitably influenced by personal experiences and context. The challenge lies in identifying when this reliance on past-experience crosses the line into bias.
While there are no set parameters on how many credit covenants should be there in a Sanction Letter, one has to keep in mind that ratios tend be inter-linked. One does not become a better banker by stipulating multiple covenants. Two covenants are sufficient to trigger any recourse against the borrower.
Risk officers and Relationship managers are always at each other’s throats owning to difference in their perspective, often missing out what lies beyond the optics. Sumit Kakkar draws from his experience to share some key things that both should look at.