A prospective borrower said,”He has an ultra modern house worth Rs. One crore to offer as a mortgage for Rs. 80 lac loan.” I visited his home. It was centrally air conditioned, and many modern amenities were installed there. He told me that he would soon make a private movie theater in the house, but I was not impressed at all since he was a bachelor and had spent a huge amount to live alone. It showed his tendency of extravagance.
Moreover, the modern amenities will depreciate to zero in a few years. We only value those assets which go on appreciating. Therefore, modern amenities costing Rs. Twenty Lacs were worthless from a banker’s point of view.
We prefer a person with a tight fist, so that any money going into his fist, finds it tough in getting out.
Bankers also ask many documents such as the balance sheet, PL account, title deed’s photocopy, etc. I value that person who submits necessary papers promptly since an energetic person will complete his projects in time also with same promptness.
The moral character of a person also carries heavy weight before us.
Presanction appraisal is a vast and delicate subject, but all the bankers invariably assess one crucial thing i.e. the man behind the project.