Here’s a sneak peak into the world of credit risk management
Credit risk management? What’s that?
Credit Risk Management is all about mitigating losses by understanding the adequacy of a financial institution’s capital and loan loss reserves at any given time. Textbook definition aside, it simply is an optimal trade-off between safe and risky pool of borrowers to achieve the best possible risk-revenue curve for the business.
What’s it like to be a credit risk analyst?
I think credit risk management demands a whole different level of multitasking compared to other parallel functions of a business. What’s really interesting is the fact that you get to be the owner of everything that is right as well as wrong in a lending business. It’s super fun and very challenging at the same time. While the role requirements vary with the type of business, today I’m sharing my experience, which is specific to a lending business. Here’s a small insight into my current role at ZestMoney.
At ZestMoney, the company already has some of the best practices in the market and what i do mostly is an optimisation exercise between the business risk and everything else. We take a multidirectional approach that encompasses everything that will be impacted by a specific strategy.
To lay down an example of the spread of aspects that one needs to consider while building a credit risk strategy, consider this scenario — the company has a highly strategic business partner called ‘X’ who drives significant percentage of monthly volume. However,’ X’ also brings a lot of risky customers who end up defaulting on the loans.
If this portfolio is priced correctly, post quality assessment, the risk can be offset by the revenue and the strategic partnership with the merchant can also be maintained well. And, to top it off, if the marketing and collection strategy can be optimised with some extra cost, in addition to offsetting risk, the business can profit and grow. So, partner relations, cost, risk, revenue and growth are 5 important aspects of the business that a credit risk manager should consider while defining a strategy.
Furthermore, as a credit risk manager, you should bring a lot more to the table apart from data driven solutions. There are a lot of solutions that can work very well economically, but cannot be supported by data. That’s when you should use your intuition. The primary challenge is to be able to take a call on whether, as a credit risk manager, you want to take that risk and bear the onus if things go south or fall flat. So, at times, as a credit risk manager you should have the stomach to take some bold calls that will help the business sustain in the long run and grow in the short run.
When you are trying to do all of the aforementioned things in a fast growing startup, it gets even more challenging! You need to build & fix things, and more often than not you should’ve done it yesterday. According to me, credit risk management is about ownership, it’s a responsibility and something that you should manage end-to-end. There is always so much to do and you are running short of time.
At the end of the day, my mantra is quite simple — breathe, think, prioritise, action and repeat.
Cheers to all the fellow credit risk management folks out there.
Meanwhile, we at ZestMoney are looking to expand our credit risk team! If you happen to be one of those crazy ones obsessed about credit risk, then feel free to drop your resume at careers@zestmoney.in and my team will get in touch with you.
