Balanced Scorecard Approach for Credit Appraisal

Quality and efficiency of credit appraisal play a key role in the overall credit risk management framework of banks by addressing the troika of adverse selection, exposure risk, and default risk. Traditional approaches for credit appraisal primarily use techniques of financial statement analysis for assessment of the creditworthiness of potential borrowers. However, such analysis fails to provide a 360-degree view of the potential borrower and therefore, requires the implementation of better, incisive, and comprehensive methods. Use of balanced scorecard in credit appraisal expands the horizon of analysis and provides a holistic view about the risk, repayment capacity, and future prospects of the potential borrower