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Banks are required to establish responsibility for credit approvals and fully document any delegation of authority to approve credits or make changes in credit terms. In this regard, banks are required to take into account the following factors:
a.
Board of Directors or its relevant sub-committee should approve the overall lending authority structure, and explicitly delegate credit sanctioning authority to senior management (by position/level of hierarchy) and/or the Credit Committee. The Senior Management may assign the delegated powers to specific individuals or positions down the line subject to adherence of the overall delegation of authority and the criteria laid down for this purpose by the Board or its relevant subcommittee;
b.
Lending authority assigned to different levels of hierarchy should be commensurate with the level, experience, ability and character of the person. For this purpose, banks may develop a risk-based authority structure whereby the lending authority is tied to the risk ratings of the obligor;
c.
There should be a clear segregation of duties between Relationship Managers, Credit Approvers, Operations processors and Risk Managers with regard to credit approvals or making any changes in credit terms. Any limitations on who should hold credit approval authority should also be clearly stated;
d.
The credit policy should spell out the escalation process to ensure appropriate reporting and approval of credit extension beyond prescribed limits or any other exceptions to credit policy;
e.
There should be a periodic review of lending authority assigned to different levels of hierarchy;
f.
There should be an appropriate system in place to detect any exceptions or misuse of delegated powers and reporting thereof to the senior management and/or the Board of Directors or its relevant sub-committee;
