Your Career as "A" Credit Rating Analyst

Introduction:

This article intends to help readers to know more about the career opportunities as Credit rating analyst in India. In this section, I would briefly describe about the process of credit rating / appraisal typically followed in India, the kind of career growth prospects one can expect working as credit rating analysts, and what are the key entry requirements for entering into this industry.

Credit markets historically have played a crucial role in sustaining growth in almost all countries, including advanced countries which have now fully developed capital markets. The credit market in India has traditionally played a predominant role in meeting the financing / investment needs of various segments of the Indian economy. In fact the bank credit to GDP ratio in India has increased from a mere 7.1% to whopping 35% in 2011.Extension of credit, however, also poses some risks, which range from pure credit risk to the risk of over lending. While pure credit risk is the risk of loss due to non-payment by the borrower, the risk of over-lending arises when banks extend loans without appropriate credit  appraisal and due diligence on account of excessive optimism about future prospects. It is here where credit analysis plays a major role in the due diligence of the business or organization.

Credit analysis is a process by which one calculates the creditworthiness of a business / organization or individual. Credit analyst is responsible for assessing a loan applicant’s creditworthiness. Credit analysts are typically employed by commercial and investment banks, credit card issuing institutions, credit rating agencies and investment companies. Crisil, ICRA and CARE are the three major local credit rating agencies in India. Apart from this, PSU and private banks such as IDBI, ICICI, HDFC, SBI, Yes Bank, etc also aggressively hire credit analysts. In addition, global banking institutions such as HSBC, Well Forgo, Deutsche Bank, GoldmanSachs, etc have off shored their global credit appraisal process, in turn creating an additional employment opportunity for finance graduates in credit research in India.

Why rating is useful? 

There are two aspects of this. Credit rating is very critical for investors to gain insight about company business, operating performance, and key risk before they decide to invest or lend money to the organization. Thus credit ratings are essential tools for helping investors to make investment decisions. On the other side of spectrum, credit ratings are equally important for the entities looking for investors. For instance, an investment grade rating can put a security or company on the market radar, and thus can easily attract investments at lower funding costs. Thus credit rating acts to facilitate investments and many companies strive to maintain and improve their ratings.

What are the typical job responsibility or work profile as credit analyst?

Credit analyst jobs often include looking at financial documentation, including bank statements, tax returns and other loan records. From this information, the analyst evaluates whether the borrower demonstrates the ability to repay the credit or loan amount. Analyzing financial statement and performing ratio analysis for assessing is one of the critical aspects in credit rating / appraisal. This also includes projecting the financial standing of the company on the basis of analysis of Balance Sheet, Profit & Loss Account and cash flow statements, writing rating report and rationale for assigned ratings, conducting research on the industry in which the company is operating and keeping a track on the performance of the industry as a whole, and carrying out SWOT analysis.

Apart from this, another integral aspect of credit rating process is interacting with CFO’s and MD’s of companies and visiting company sites for deeper understanding the nature of their business, the operations & risk factors associated with them.

Conflict of Interest

As you might have guessed, here there is a clear conflict of interest as the fees for the rating is paid by the same client for whom the rating is conducted. However, in the industry this is very well managed by creating a firewall between business development and ratings team thus ensuring that the commercial terms (such as fees) does not have any impact on the rating's of the client.

Career path as a credit research analyst

The entry designation in these profiles is usually an analyst/junior analyst depending on your educational background and work experience. The career path usually follows as Analyst-->Senior Analyst-->Manager-->Senior Manager-->Group Head. The roles usually entail more responsibilities as you move up the organization ladder including client relationship management, business development etc. Typically, it takes about 2-3 years at a level post which you can expect to move to a higher level in the organization.  The salary at entry level usually varies from company to company and could be in the range of Rs.3lpa to Rs.6lpa depending on your educational qualifications.

In terms of other career options, after having a solid work experience at a rating agency, you can move to credit department of a bank which is involved in credit appraisal of existing and new clients. You can also move into debt syndication, project financing and consulting domains after you have gained considerable experience in ratings domain.

Recruitment process

The typical recruitment process includes a written test, followed by 2-3 rounds of technical interview and an HR discussion. Usually, a CA/MBA/CFA is preferred for the role of rating analyst, but there is no rank or college preference as such. Hence this is more or less open to  MBA's with any background and not just one of Commerce or Engineering. Further,  certifications such as Financial Risk Management (FRM) or CFA course does enhance prospects of an individual in the industry.

Piece of Advice

Although all sorts of educational background people are out there in the industry, however knowledge of accounting standards, financial analysis, Balance Sheet ratios is a must before one sits for any of these interviews. Typical interview questions would focus on financial analysis, balance sheet, accounting practices, current industry trends and other factors to be considered for credit rating. You will also face questions regarding current work-ex, if any.

For more insights on interview questions visit 

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In terms of work and profile, this is a good industry to be in with good growth prospects. Further, you would get to build strong network as you meet and interact with senior management of big companies in varied industries. This will give you extremely useful insights in the industry helping your overall career prospects. However, please do note that in terms of compensation this is not the best in finance industry; in fact I would say that starting compensation is sometimes even lower when compared to KPO/Captive firms.