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A Credit Policy spells out how a business handles lending money or extending credit to customers. It sets clear rules for who can get credit, how much they can borrow, and what happens if they don't pay back on time. Indian banks and financial institutions must align their policies with RBI guidelines, particularly around loan classifications and recovery procedures.

The policy helps organizations manage risk by establishing credit limits, interest rates, and collateral requirements. It also defines the collection process and steps for dealing with defaulters under India's debt recovery laws. A well-crafted credit policy protects lenders while ensuring fair treatment of borrowers in line with banking regulations.

Your business needs a Credit Policy when you start offering payment terms, credit lines, or loans to customers. This becomes crucial for Indian businesses extending credit beyond 30 days or dealing with regular B2B transactions. It's especially important when your monthly credit sales exceed ₹10 lakhs or you're expanding into new market segments.

Put this policy in place before your first major credit transaction. Financial institutions must have it ready before RBI licensing, while non-banking companies need it when credit exposure grows beyond casual sales. The policy becomes vital during economic downturns, when managing payment delays and recovery actions requires clear, documented procedures.

• Credit Note Policy: Focuses on rules for issuing credit adjustments and refunds, typically used by retail and wholesale businesses to handle returns, price corrections, and GST implications.
• Commercial Credit Policy: Sets lending terms for business customers, including credit limits, payment schedules, and collateral requirements.
• Consumer Credit Policy: Governs retail lending to individuals, aligned with RBI's fair practices code and consumer protection guidelines.
• Microfinance Credit Policy: Specialized framework for small-ticket loans to underserved segments, following RBI's microfinance regulations.

• Finance Directors: Create and oversee the Credit Policy, setting overall risk appetite and lending guidelines for the organization.
• Credit Managers: Handle day-to-day implementation, evaluate credit applications, and monitor compliance with policy terms.
• Legal Teams: Review policy alignment with RBI regulations, debt recovery laws, and fair practice codes.
• Sales Teams: Follow credit limits and terms when negotiating with customers, getting approvals for exceptions.
• Collection Officers: Use policy guidelines for payment follow-ups and recovery actions against defaulters.
• Borrowers/Customers: Must comply with credit terms, payment schedules, and security requirements outlined in the policy.

• Business Profile: Document your current credit exposure, customer segments, and typical transaction values.
• Risk Assessment: Map industry-specific risks, past default rates, and your risk tolerance levels.
• RBI Guidelines: Review current central bank regulations on credit management and fair lending practices.
• Credit Limits: Define approval thresholds, evaluation criteria, and escalation procedures.
• Recovery Process: Outline collection steps, default triggers, and legal recourse options under Indian law.
• Internal Controls: List required approvals, documentation needs, and monitoring procedures.
• Policy Review: Set up periodic review dates and amendment procedures to keep the policy current.

• Policy Scope: Clear definition of credit types, customer categories, and applicable business units.
• Credit Assessment: Detailed evaluation criteria, documentation requirements, and KYC procedures.
• Risk Parameters: Maximum exposure limits, industry restrictions, and security requirements.
• Payment Terms: Credit periods, interest rates, and penalties aligned with RBI guidelines.
• Default Procedures: Steps for handling late payments and legal recovery actions.
• Governance Framework: Approval authorities, reporting requirements, and review mechanisms.
• Data Protection: Guidelines for handling customer information under Indian privacy laws.
• Compliance Statement: Declaration of adherence to RBI regulations and banking laws.

While a Credit Policy and a Credit Agreement might seem similar, they serve distinctly different purposes in Indian business operations. A Credit Policy is an internal document guiding how an organization handles all credit-related decisions, while a Credit Agreement is a specific contract between lender and borrower for a particular credit arrangement.

• Scope and Application: Credit Policies provide company-wide guidelines for all credit transactions, while Credit Agreements detail terms for individual lending relationships.
• Legal Enforceability: Credit Agreements are legally binding contracts enforceable in court, whereas Credit Policies are internal governance documents.
• Content Focus: Credit Policies outline assessment criteria, risk limits, and procedures; Credit Agreements specify loan amount, interest rates, and repayment terms.
• Parties Involved: Credit Policies guide staff behavior internally, while Credit Agreements bind external parties in a specific transaction.