20+ Credit Manager Interview Questions and Answers for Freshers

I will check liquidity, profitability, and solvency ratios before granting a loan to a company.

• Liquidity ratios such as current ratio and quick ratio to ensure the company has enough short-term assets to cover its liabilities

• Profitability ratios such as return on assets and return on equity to assess the company's ability to generate profits

• Solvency ratios such as debt-to-equity ratio and interest coverage ratio to evaluate the company's long-term financial health

• Examples of ...read more

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

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

Yes, I have some information about tractors.

• I know that tractors are commonly used in agriculture for plowing, tilling, and planting.

• Tractors come in different sizes and types, such as utility tractors, row-crop tractors, and compact tractors.

• I am aware that some tractors are equipped with attachments like loaders, backhoes, and mowers.

• I also know that tractors require regular maintenance and repairs to ensure their optimal performance.

Lending policies are guidelines set by financial institutions to determine who can borrow money and under what conditions.

• Lending policies are based on factors such as credit score, income, debt-to-income ratio, and collateral.

• Financial institutions use lending policies to manage risk and ensure that borrowers are able to repay their loans.

• Lending policies may vary depending on the type of loan and the institution offering it.

• For example, a mortgage lender may have stricter l...read more

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

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

Debt Service Coverage Ratio (DSCR) is a financial metric used to assess a borrower's ability to repay debt obligations.

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

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

• A DSCR of 1 or higher indicates that the borrower has sufficient cash flow to cover their debt obligations.

• Lenders often require a minimum DSCR before approving a loan.

• For example, if a borrower has a net op...read more

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

The number of cases handled in a month and the Turnaround Time (TAT) are important metrics for evaluating performance in credit management.

• The number of cases handled in a month indicates the workload and efficiency of the credit manager.

• A lower TAT signifies quicker processing and resolution of cases, which is beneficial for the company.

• Tracking these metrics helps in identifying bottlenecks and improving overall credit management processes.

• For example, if a credit manager h...read more

A credit manager is responsible for assessing the creditworthiness of potential customers, setting credit limits, and managing the collection of overdue payments.

• Assessing the creditworthiness of potential customers by reviewing their financial history and credit scores

• Setting credit limits based on the customer's creditworthiness and financial stability

• Monitoring and managing the collection of overdue payments to minimize bad debt

• Negotiating payment terms with customers to e...read more

The 5 C's of credit are character, capacity, capital, collateral, and conditions, used by lenders to evaluate a borrower's creditworthiness.

• Character: Refers to the borrower's reputation and credit history.

• Capacity: Refers to the borrower's ability to repay the loan based on income and existing debts.

• Capital: Refers to the borrower's assets and net worth.

• Collateral: Refers to assets that can be used as security for the loan.

• Conditions: Refers to external factors that may affe...read more

Customer potential can be determined by analyzing their financial history, credit score, payment behavior, and industry trends.

• Analyze customer's financial history to assess their ability to make payments on time.

• Evaluate customer's credit score to understand their creditworthiness.

• Monitor customer's payment behavior to identify any red flags or potential risks.

• Consider industry trends and economic factors that may impact customer's ability to pay.

• Use predictive analytics and...read more

A policy is a set of guidelines and rules that govern the decision-making process of an organization.

• Policies are created to ensure consistency and fairness in decision-making.

• They provide a framework for employees to follow and help to minimize risk.

• Examples of policies include HR policies, financial policies, and IT policies.

• Policies should be reviewed and updated regularly to ensure they are still relevant and effective.

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.

Net worth is the value of an individual's or company's assets minus liabilities.

• Net worth is a measure of financial health and indicates the value of an entity after deducting its debts.

• It is calculated by subtracting liabilities from assets.

• Assets can include cash, investments, real estate, vehicles, and other valuable possessions.

• Liabilities encompass debts, loans, mortgages, and other financial obligations.

• A positive net worth indicates wealth, while a negative net worth s...read more

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

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

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

• It collects credit-related information from various financial institutions and creates credit reports for individuals and companies.

• The credit report includes credit score, credit history, and other relevant information that helps lenders assess the creditworthiness of the borrower.

• CIBIL plays a crucial role in the loan ap...read more