[Note: This article has been written after consultation with Credit analysts working in the following companies: AU Small Finance (MSME Analyst); Northern Trust (Credit Analyst); HSBC EDP (Analyst - BFSI); Hitachi (Credit Analysis of Debtors); ICRA (Associate Analyst); Axis Bank - SME Analyst]
The job of a credit analyst revolves around determining the creditworthiness of a product, where a product can be a large corporate or a small SME, or even a two-wheeler. Typical task of a credit analyst includes: gathering info from clients, reading financials, financials & ratio analysis, risk analysis through statistical models and making credit recommendations.
Credit Analyst roles can prove to be a good entry point into core-finance roles for finance aspirants. But not every credit analyst role is the same, as the roles are very product-specific. One should always prefer roles in the following order of products: Large Corporate > Small corporates > SME Rating > Retail loans. A credit analyst gets to learn more research & transferable skills working on corporate products. Typically there are 4 different types of roles as a Credit Rating Analyst: Offshore credit ratings for KPOs, Captive Rating Units for MNC Banks, Corporate/SME Ratings for Indian Banks, and Credit Rating Agencies. This is discussed below:
a. Offshore Captive Rating Department - MNC Banks like HSBC, Barclays, etc.
Here, the analyst will be working in the Indian office of an MNC bank and will be handling credit rating assignment for their US/Europe entity. As, this is a middle office role learning gets very limited and the analyst will be focusing on a narrow field of credit analyst (generally only the evaluation part) as the final decision will be taken by the front office team. Nonetheless as the Analyst will be working on corporate loans given to large multinational corporates he will get better exposure compared to working in an Indian Bank. His/her day to day activities will range from Sector/Industry analysis, Ratio analysis of the target entity, drafting credit reports, feeding requisite date into the bank's automated system and to liaison with the front end team. In the MNC banks as a lot of work is system driven and is further departmentalized across different teams, it further limits the learning ability of an analyst. However, working under a MNC bank has some key positives like Brand name, excellent work life balance (40-50hrs per week), helping work culture and decent pay.
b. Credit Rating Agencies - CRISIL/CARE/ICRA/India Ratings
Here the Analyst will be generating Credit Ratings for Large/Mid-size Indian corporates. His typical assignment will be to rate a corporation that wants to take a Term/WC Loan from an Indian Bank or to review an existing rating of that corporation. The day to day responsibility will range from understanding the rationale behind funding requirements, Industry analysis, compare the company with Industry peers, ratio analysis, Interact with Bankers, Auditors & Management for external checks, draft credit reports (50-100 pages) to be reviewed by the rating committee and publish rating rationale report (5-10 pages). During the initial few years, research exposure will be limited as research is generally referred from Industry research reports from another senior analyst. But it will be a good learning experience with some slogging in terms of work-life balance (~60hrs per week)
c. Corporate/SME Rating/Retail - Indian Banks (Axis, ICICI, HDFC, etc.)
As discussed earlier, Corporate Ratings should be preferred over SME ratings. But it is generally difficult to get into corporate ratings as a fresher. SME ratings are doing for various loan requirements like Working Capital loan, LAP loans or Vehicle loans. The day-to-day activity for an analyst here ranges from extracting CIBIL scores of the promoters, bank statement reco, basic financial analysis and other banking related activities with limited research work. Corporate ratings is more research oriented and a analyst can learn more transferable skill here. Initially the analyst won't have power to approve the loan proposal but only once he is promoted to credit manager after 3-5 years of work exp. This SME/Retail rating roles are to be avoided as it doesn’t involves monitoring of financial information and thus no research is involved.
d. Offshore Credit ratings for KPOs like Evalueserve, Aranca, SG Analytics, Kopal Amba, Sutherland
This are typically entry level roles with limited learning opportunities as the Credit Analyst will be working as a back-end support for US/UK credit analyst team. Day to day responsibility revolved around Client Support, Periodic result analysis, excel data entry and bit of financial modelling. This roles are easier to get into because Debt Market in US/UK are more developed compared to Indian markets and also due to higher attritions in this profiles. Salary for an analyst with 0-1yr of experience in this KPOs will range around 4-5lpa.
Typical Interview Questions: Expect most of the technical questions to be around Ratio Analysis, Banking Terminologies & how to evaluate credit worthiness
a. Ratio Analysis (D/E Ratio, Debt Service Ratio, Liquidity Ratios, etc.)
b. Working Capital, Cash conversion cycle and Capital Budgeting (IRR, NPV, etc.); How D/E and WC requirements varies across sectors?
c. Banking terminologies like ALM, CASA, Bank Guarantee, Fund Based exposure, WC Limits, securitization, CIBIL, LTV, PSL, BOP, Commercial Banking, First Lien, Bridge Loans, etc;
d. Banking regulations like BASEL norms, LIBOR, Risk Weighted Assets, NPAs, etc.
e. Speak about the business model of an Industry/company that you have audited on or have made a project on? Recent developments in that sector?
f. How are Credit Ratings derived? What are default grade ratings and other types of ratings? How does credit rating agency functions?
g. What parameters of Financial statement is used to evaluate credit worthiness of a company;
h. How to do financial analysis of a company? What is credit appraisal process; How to analyse liquidity profile of a company?
i. How is the rating of a bond determined? Few question on India's debt capital market;
j. Product knowledge for the role you are applying - like for a role related to WC loans, you need to have basic understanding of products like CC, OD, LC, LRD, etc.
k. Basic questions related to Indian economy like CRR, SLR, GDP growth, Inflation Targeting, etc.
l. Few Basic questions on Ind-AS and few questions on accounting terminology (like Difference b/w operating & financial lease, difference b/w DEPS and BEPS, etc.)
m. Few basic questions on Valuations and treatment of M&A (like what is Enterprise Value)
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