The Questions Every Credit Committee Should Ask

A strong Credit Committee does more than approve or reject a loan. It tests the assumptions behind an appraisal, challenges the quality of credit risk analysis, and asks whether the proposed exposure makes sense for the bank from a risk-return trade-off perspective. Effective Credit Committee decision making is not about slowing business down. It is about making sure growth is supported by sound, prudent risk management.

When a proposal lands on the committee’s table, asking the right questions can uncover hidden problems that may not always be visible in the credit note. Here are the questions that should form part of a disciplined approval process.

1. Do We Clearly Understand the Borrower?

Before discussing limits or pricing, the Credit Committee should establish a clear picture of the borrower. What does the business actually do? Who are the people behind the project, and what is their track record and integrity? How does the business make money? Who are its key customers, suppliers, and dependencies?

The committee also needs to look at management’s track record. Do their past results support the numbers they are showing now? If the business model has changed, what is driving that change? Are there new risks? These questions need clear answers before anyone gives the green light.

2. Are the Financial Projections Credible?

One of the most important Credit Committee questions is whether estimated and projected revenue, margins, cash flows, and debt service capacity are realistic.

For proposals submitted in the second half of the year, it can be more useful to focus on projected numbers than estimated ones. Estimated figures generally refer to the expected numbers for the coming March, while projected figures refer to the numbers expected for the following March. This distinction gives the committee a better view of the borrower’s likely financial position beyond the immediate year-end.

Challenge the Assumptions Behind the Forecast

How do the assumptions compare with actual past performance? What happens if revenue drops? What if expenses increase or cash comes in late? If the proposal works only under an optimistic outlook, it deserves a tougher review supported by proper sensitivity analysis.

This is where effective Credit Committee decision making connects appraisal with forward-looking risk assessment rather than relying only on past financial statements.

3. What Could Cause the Account to Deteriorate?

Every time a deal is approved, there is some level of risk. The committee should identify what could threaten repayment. This could include excessive dependence on a single customer, commodity price fluctuations, rising interest rates, regulatory changes, project delays, or the loss of key management personnel.

This is becoming even more important from 2027, when the updated ECL norms are expected to come into effect and a 30+ days delinquency could trigger significantly higher provisions.

The real question is not simply whether the borrower can repay today. It is whether the account can withstand reasonable stress, at least in the near future.

4. Is the Proposed Structure Appropriate?

A good borrower can still become a poor credit if the facility is structured incorrectly. The Credit Committee should ask whether the tenor, repayment schedule, covenants, security, margin, and conditions of sanction are appropriate for the underlying cash flow.

Collateral helps, but it should not drive the credit decision. In the true credit sense, collateral is something lenders resort to as a fallback mechanism after default. Therefore, the borrower’s ability to continue generating sufficient cash should always come first.

5. Are We Taking More Risk Than We Realise?

Credit risk analysis should look beyond the individual proposal. What is the bank’s existing exposure to the borrower, group, sector, geography, or connected entities? More importantly, has the bank priced the risk effectively?

Risk-based pricing is critical when assessing whether a proposal should receive the go-ahead. The committee needs to consider whether the return adequately compensates the bank for the level of risk being taken.

It should also look at concentration risk and how different exposures may be linked. Sometimes, a facility looks acceptable on its own, but once it is added to existing portfolio exposures, the overall risk picture can become much more concerning.

6. What Information Is Still Missing?

A useful Credit Committee does not treat an incomplete file as a minor issue. Missing financial information, unclear ownership, unresolved legal matters, weak documentation, or unexplained account conduct can materially change the decision.

If a critical question cannot be answered, the approval process should pause until the gap is addressed. A clear “not yet” can be better risk management than an approval based on assumptions.

7. What Are the Deal-Breakers?

Before approving a proposal, the Credit Committee should be clear about the factors that could make the credit unacceptable. Are there concerns around the borrower’s integrity, repayment capacity, business model, financial performance, security, documentation, or the overall risk-return profile that cannot be adequately mitigated?

The committee should ask: What specific finding or risk would make us decline this proposal?

This helps separate risks that can be managed through appropriate conditions from those that are fundamental to the credit. It also creates room for constructive challenge, rather than allowing a proposal to move towards approval simply because it has already been recommended by the business team.

Better Questions Lead to Better Credit Decisions

A Credit Committee is most effective when it acts as a thoughtful challenge point between business growth and risk discipline. The aim is not to reject solid proposals. The point is to make sure every approval stands on clear facts, realistic assumptions, and a risk-return balance that actually makes sense.

A thorough appraisal, supported by the right questions, gives the committee a stronger basis for making sound credit decisions. It gives business teams clearer expectations, strengthens risk management, and supports healthier lending decisions over time.

At Banking Simplified with Sumanta, the focus is simple: bringing real-world banking experience into the decisions that matter.