Here’s a sneak peek into the world of credit risk management

What’s credit risk management?

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 means managing an optimal trade-off between a 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 different types of businesses, today I’m sharing my experience, which is specific to the lending business. Here’s some insight into my current role at ZestMoney.

ZestMoney already has some of the best practices in the market so what I do is mostly 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 give you 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 a 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. 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 must consider while defining a strategy.

Furthermore, as a credit risk manager, you should bring a lot more to the table than 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 need to 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 have to have the stomach to take some bold calls that will help the business sustain itself in the long run while growing 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 and fix things and, more often than not, you should’ve done them yesterday. According to me, credit risk management is about ownership, a responsibility 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 in your resume at careers@zestmoney.in and our team will get in touch with you.