One of the profound American economists, Stiglitz, observed that the financial sector constitutes the `brain' of the economy and the banks are a major constituents of the financial sector. As banks play the intermediation role between the depositor and the investor, their role in dispensing credit becomes all the more important. For this, banks have to set up credit departments to handle the credit proposals received by them. This department, at the head office, deals with large credit proposals, focuses on the regulatory compliances and details of financial parameters and looks into the funds position. Clearance of credit proposals below a cut off limit is not handled by the credit department. Various tiers have been created at different levels and the sanctioning powers are delegated to all these tiers.

The system of credit dispensation has been found to be working well as it aids in quicker examination of the proposals. There are merits and demerits of the centralized and decentralized approaches to credit dispensation. However, it has been observed that Financial Institutions (FIs) are not interested in just adding a few more numbers but are more concerned about the rising level of Non-Performing Assets (NPAs). Another issue before the banks is the need to provide the capital to comply with the Basel II recommendations.

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