40+ ICICI Bank Credit Manager Interview Questions and Answers

The most important ratios to analyze balance sheet and profit loss statement of borrower are liquidity, solvency, and profitability ratios.

• Liquidity ratios measure the borrower's ability to meet short-term obligations

• Solvency ratios measure the borrower's ability to meet long-term obligations

• Profitability ratios measure the borrower's ability to generate profits

• Examples of liquidity ratios include current ratio and quick ratio

• Examples of solvency ratios include debt-to-equity...read more

Important clauses in 3CD for loan sanctioning

• Clause 4 - Purpose of loan

• Clause 5 - Amount of loan

• Clause 6 - Repayment terms

• Clause 7 - Security for loan

• Clause 8 - Interest rate

• Clause 9 - Default and consequences

Key skills of a credit manager include financial analysis, risk assessment, communication, and negotiation.

• Strong financial analysis skills to evaluate creditworthiness of potential borrowers

• Ability to assess and manage risk effectively

• Excellent communication skills to interact with clients and colleagues

• Negotiation skills to establish favorable terms and conditions

• Knowledge of relevant laws and regulations

• Attention to detail and ability to work under pressure

• Proficiency in f...read more

Operating cycle and working capital cycle are measures of a company's efficiency in managing its cash flow.

• Operating cycle is the time it takes for a company to convert its inventory into cash. It is calculated as the sum of the inventory holding period and the accounts receivable collection period.

• Working capital cycle is the time it takes for a company to convert its current assets into cash to meet its current liabilities. It is calculated as the sum of the operating cycle...read more

No, someone earning less than EMI should not take a loan.

• Taking a loan when earning less than the EMI can lead to financial strain and difficulty in repayment.

• It is important to have a stable income that can comfortably cover the loan repayment.

• If someone is already struggling to meet their financial obligations, taking on additional debt can worsen their situation.

• It is advisable to explore alternative options such as increasing income or reducing expenses before considering...read more

Documents required for a term loan file.

• Loan application form

• Income tax returns

• Bank statements

• Financial statements

• Credit report

• Collateral documents

• Legal documents

Concurrent audit is conducted during the course of business operations, while statutory audit is conducted at the end of the financial year.

• Concurrent audit is performed concurrently with the operations of the organization.

• Statutory audit is conducted to ensure compliance with legal and regulatory requirements.

• Concurrent audit helps in detecting and preventing frauds and errors in real-time.

• Statutory audit provides an independent opinion on the financial statements of the com...read more

The classification of borrower accounts into SMA0, SMA1, and SMA2 is based on the number of days the account is overdue.

• SMA0: Account is not overdue

• SMA1: Account is overdue for 1-30 days

• SMA2: Account is overdue for 31-60 days

Current Ratio is a financial ratio that measures a company's ability to pay its short-term liabilities with its short-term assets.

• Current Ratio = Current Assets / Current Liabilities

• It indicates the liquidity of a company

• A higher current ratio is generally considered better

• Standard current ratio varies by industry

• For example, a current ratio of 2:1 is considered good for most industries

DSCR is Debt Service Coverage Ratio, a measure of a company's ability to repay its debt. It is calculated by dividing net operating income by total debt service.

• DSCR is a financial ratio used by lenders to assess the creditworthiness of a borrower.

• It measures the cash flow available to cover debt payments.

• The formula for DSCR is: DSCR = Net Operating Income / Total Debt Service.

• A higher DSCR indicates a better ability to repay debt.

• An ideal DSCR ratio varies depending on the ...read more

Profit and loss ratios are financial metrics used to assess the profitability of a company.

• Profit ratio measures the percentage of profit earned on sales.

• Gross profit ratio is calculated by dividing gross profit by net sales.

• Net profit ratio indicates the percentage of net profit earned on sales.

• Operating profit ratio measures the profitability of core operations.

• Return on investment (ROI) is a common profitability ratio.

Repo rate is the rate at which RBI lends money to banks, while reverse repo rate is the rate at which RBI borrows money from banks.

• Repo rate is higher than reverse repo rate

• Repo rate is used to control inflation

• Reverse repo rate is used to control money supply

• Example: If RBI increases repo rate, banks will increase their lending rates to customers

The repayment capacity of the borrower is the most important yardstick in assessment of Term Loan.

• Repayment capacity of the borrower is assessed through various financial ratios such as Debt Service Coverage Ratio (DSCR), Interest Coverage Ratio (ICR), and Loan to Value Ratio (LTV).

• The borrower's credit history, income, and assets are also considered in the assessment.

• The purpose of the loan, the industry in which the borrower operates, and the economic conditions of the coun...read more

Banks offer various types of credit including personal loans, credit cards, mortgages, and business loans.

• Personal loans: unsecured loans for personal use

• Credit cards: revolving credit with interest rates and rewards

• Mortgages: loans for purchasing or refinancing a home

• Business loans: loans for small or large businesses

• Lines of credit: flexible credit for businesses or individuals

• Auto loans: loans for purchasing a vehicle

The creditability of a borrower can be determined by analyzing their credit history, financial statements, and references.

• Check credit score and credit report

• Analyze financial statements such as income statement and balance sheet

• Verify references provided by the borrower

• Consider the borrower's industry and market conditions

• Assess the borrower's ability to repay the loan

• Evaluate collateral offered by the borrower

Ideal debt equity ratio varies by industry and company, but generally ranges from 0.5 to 2.

• Debt equity ratio is a measure of a company's financial leverage.

• It compares a company's total debt to its total equity.

• A higher debt equity ratio indicates higher financial risk.

• Ideal debt equity ratio varies by industry and company, but generally ranges from 0.5 to 2.

• For example, a technology company may have a higher debt equity ratio than a utility company.

• Credit appraisal is the pr...read more

Credit Manager should know 3 ratios and its analysis, role of credit manager, cibil and MD of ICICI Bank.

• 3 ratios: Debt-to-Equity, Current Ratio, and Gross Profit Margin. Analysis helps in assessing the financial health of a company.

• Role of Credit Manager: Assessing creditworthiness of potential borrowers, setting credit limits, and managing collections.

• CIBIL: Credit Information Bureau (India) Limited. It is a credit information company that maintains credit records of indivi...read more

The recent budget focuses on healthcare, infrastructure, and digitalization.

• Increased allocation for healthcare sector

• Focus on building new highways and railways

• Investment in digital infrastructure

• Reduction in customs duty on certain products

• Introduction of new tax regime for small businesses

Components of balance sheet include assets, liabilities, and equity.

• Assets: resources owned by the company such as cash, inventory, and property

• Liabilities: debts owed by the company such as loans and accounts payable

• Equity: the residual interest in the assets of the company after liabilities are deducted

• Examples: cash, accounts receivable, inventory, accounts payable, long-term debt, common stock, retained earnings

CIBIL is a credit information company that maintains credit records of individuals and companies.

• CIBIL stands for Credit Information Bureau (India) Limited.

• It is a credit information company that collects and maintains credit records of individuals and companies.

• Creditors use CIBIL reports to evaluate the creditworthiness of borrowers before lending money.

• CIBIL reports contain information on credit history, outstanding loans, defaults, and credit inquiries.

• Credit managers che...read more

Debt service coverage ratio measures a company's ability to pay its debt obligations. Interest coverage ratio measures a company's ability to pay interest on its debt.

• Debt service coverage ratio is calculated by dividing a company's net operating income by its total debt service.

• A ratio of 1 or higher indicates that a company is generating enough income to cover its debt obligations.

• Interest coverage ratio is calculated by dividing a company's earnings before interest and tax...read more

The tools of credit analysis include financial statements, credit reports, credit scoring models, and industry research.

• Financial statements provide information on a company's financial health and performance.

• Credit reports show a borrower's credit history and payment behavior.

• Credit scoring models use data from credit reports to assess creditworthiness.

• Industry research helps to understand the borrower's market and competition.

• Other tools include cash flow analysis, collater...read more

I was previously a Credit Analyst. Current ratio measures a company's ability to pay its short-term obligations, while DSCR measures a company's ability to cover its debt payments.

• Current ratio is calculated by dividing current assets by current liabilities. A ratio above 1 indicates the company can cover its short-term obligations.

• DSCR (Debt Service Coverage Ratio) is calculated by dividing a company's operating income by its debt payments. A ratio above 1 indicates the comp...read more

Deferred tax is a liability that arises due to temporary differences between accounting and tax rules. Bank guarantee is a commitment by a bank to pay a specified amount if the beneficiary fails to meet certain obligations.

• Deferred tax is a result of differences in timing between when income or expenses are recognized for accounting purposes and when they are recognized for tax purposes.

• Bank guarantee is a form of security provided by a bank to a beneficiary to ensure that th...read more

Working capital can be financed through various methods.

• Short-term loans from banks or financial institutions

• Trade credit from suppliers

• Factoring or invoice discounting

• Inventory financing

• Receivables financing

• Crowdfunding or peer-to-peer lending

• Sale of assets

• Equity financing

• Leasing or renting of equipment

• Negotiating extended payment terms with customers

Ratios such as current ratio and leverage ratio are used to evaluate a company's financial health.

• Current ratio measures a company's ability to pay off its short-term liabilities with its current assets

• Leverage ratio measures a company's debt levels in relation to its assets or equity

• Other ratios include debt-to-equity ratio, return on equity, and gross profit margin

• These ratios are important for credit managers to assess the creditworthiness of a company

CRR stands for Cash Reserve Ratio, SLR stands for Statutory Liquidity Ratio, repo rate is the rate at which the central bank lends money to commercial banks, and reverse repo rate is the rate at which the central bank borrows money from commercial banks.

• CRR is currently at 4%

• SLR is currently at 18.25%

• Repo rate is currently at 4%

• Reverse repo rate is currently at 3.35%

DSCR stands for Debt Service Coverage Ratio. It signifies a company's ability to pay its debts.

• DSCR is a financial ratio that measures a company's ability to pay its debts based on its cash flow.

• It is calculated by dividing the company's net operating income by its total debt service.

• A DSCR of 1 or higher indicates that the company is generating enough cash flow to cover its debt obligations.

• A DSCR below 1 indicates that the company may have difficulty meeting its debt obliga...read more

I am expecting a competitive salary based on my experience and qualifications.

• I am looking for a salary that is in line with industry standards for a Credit Manager role

• I am open to negotiation based on the overall compensation package offered

• I am seeking a salary that reflects my skills, experience, and the responsibilities of the position

Working capital is the difference between current assets and current liabilities.

• Working capital is the amount of money a company has available to fund its day-to-day operations.

• It is calculated by subtracting current liabilities from current assets.

• Positive working capital means a company has enough funds to cover its short-term obligations.

• Negative working capital means a company may struggle to pay its bills on time.

• Examples of current assets include cash, inventory, and a...read more

Working capital can be calculated using various methods.

• The Current Ratio method compares current assets to current liabilities.

• The Quick Ratio method excludes inventory from current assets.

• The Operating Cycle method considers the time it takes to convert inventory into cash.

• The Cash Conversion Cycle method combines the operating cycle with the time it takes to collect receivables.

• The Gross Working Capital method calculates the total current assets.

• The Net Working Capital met...read more

Liquidity ratios measure a company's ability to meet short-term obligations.

• Current ratio: current assets divided by current liabilities

• Quick ratio: (current assets - inventory) divided by current liabilities

• Cash ratio: cash and cash equivalents divided by current liabilities

• Operating cash flow ratio: operating cash flow divided by current liabilities

• Net working capital ratio: current assets minus current liabilities

• Accounts receivable turnover ratio: net credit sales divided...read more

Loans and advances are financial instruments provided by banks and financial institutions to individuals and businesses.

• Loans are funds provided by lenders to borrowers, which are typically repaid with interest over a specified period of time.

• Advances are short-term loans provided by banks to businesses to meet their immediate working capital needs.

• Loans and advances can be secured or unsecured, depending on whether collateral is required.

• Examples of loans include mortgages, ...read more

Negative cash flow scenarios include high expenses, low sales, delayed payments, and economic downturns.

• High expenses exceeding revenue

• Low sales leading to decreased cash inflow

• Delayed payments from customers affecting cash flow

• Economic downturn impacting overall business performance

Liquidity ratio measures a company's ability to pay off its short-term debts with its liquid assets.

• Liquidity ratio is calculated by dividing liquid assets by current liabilities.

• It shows how easily a company can cover its short-term obligations.

• Common liquidity ratios include the current ratio and the quick ratio.

• A higher liquidity ratio indicates a better ability to meet short-term obligations.

Credit function is crucial for managing financial risk and ensuring timely payment from customers.

• Credit function involves assessing the creditworthiness of customers and setting credit limits.

• It also involves monitoring customer payment behavior and taking necessary actions in case of delinquency.

• Effective credit management can improve cash flow and reduce bad debt.

• For example, a credit manager may decide to offer a lower credit limit to a new customer with no credit history...read more

Credit managers are responsible for overseeing the credit granting process, managing credit risk, and ensuring customers pay on time.

• Evaluate credit applications and determine credit limits

• Monitor customer accounts and ensure timely payments

• Manage relationships with credit reporting agencies and collection agencies

• Develop and implement credit policies and procedures

• Analyze financial data to assess creditworthiness

• Negotiate payment terms with customers

Working capital cycle is calculated by adding the number of days it takes to sell inventory, the number of days it takes to collect receivables, and subtracting the number of days it takes to pay suppliers.

• Calculate average inventory turnover ratio by dividing cost of goods sold by average inventory.

• Calculate average collection period by dividing accounts receivable by average daily credit sales.

• Calculate average payment period by dividing accounts payable by average daily cr...read more

A bank guarantee is a promise from a bank to pay a specified amount if the person or company requesting the guarantee fails to fulfill their obligations.

• Bank guarantees are often used in international trade to ensure payment and delivery of goods.

• They can also be used in construction projects to ensure completion of the project.

• The bank issuing the guarantee will typically require collateral or a fee from the person or company requesting the guarantee.

• If the guarantee is call...read more

CR stands for Current Ratio, which measures a company's ability to pay its short-term obligations. Quick Ratio is a more stringent measure of liquidity.

• CR is calculated by dividing current assets by current liabilities

• Quick Ratio is calculated by subtracting inventory from current assets and then dividing by current liabilities

• CR above 1 indicates a company can cover its short-term liabilities, while Quick Ratio above 1 indicates a company can cover its short-term liabilities...read more

A letter of credit is a financial document issued by a bank on behalf of a buyer, guaranteeing payment to a seller upon presentation of specified documents.

• Letter of credit is a payment method commonly used in international trade.

• It provides a guarantee to the seller that they will receive payment for the goods or services provided.

• The bank issuing the letter of credit acts as an intermediary, ensuring that the seller will be paid once the terms of the agreement are met.

• Types...read more

OD stands for Overdraft and CC stands for Cash Credit.

• OD is a facility provided by banks to withdraw more than the available balance in the account, up to a certain limit.

• Interest is charged on the amount overdrawn.

• CC is a type of loan where the borrower can withdraw funds up to a certain limit, and interest is charged only on the amount withdrawn.

• CC is usually given to businesses to manage their working capital needs.

Working capital gap is the difference between current assets and current liabilities.

• Working capital gap indicates the short-term financial health of a company.

• It shows how much liquidity a company has to cover its short-term obligations.

• A positive working capital gap means the company has more current assets than liabilities.

• A negative working capital gap indicates potential liquidity issues.

• Formula: Working Capital Gap = Current Assets - Current Liabilities

CIBIL report is a credit report generated by Credit Information Bureau (India) Limited, containing an individual's credit history.

• CIBIL report is used by lenders to evaluate an individual's creditworthiness before approving a loan or credit card.

• It includes details such as credit score, repayment history, outstanding loans, and credit inquiries.

• A good credit score in CIBIL report indicates a higher likelihood of loan approval at favorable terms.

• On the other hand, a poor credi...read more

Working capital is the difference between a company's current assets and current liabilities.

• Working capital is essential for a company's day-to-day operations

• It indicates the company's liquidity and ability to meet short-term obligations

• Formula: Working Capital = Current Assets - Current Liabilities

• Examples: Cash, accounts receivable, inventory are current assets; accounts payable, short-term debt are current liabilities