MANTHAN-2013
Finance Summit
Topic of discussion
Rethinking risk in financial institutions: Making CFO-CRO partnership work
Risk
assessment and management is one of the core considerations in the field of
finance, be it lending or investment decision. The topic has acquired greater
relevance in the current financially turbulent times when every institution has
to carefully gauge the various factors contributing to risk. For management student and future leaders, it
is vital to have a sound understanding of the subject. Fortunately students at
DoMS, IIT Roorkee got such an opportunity to learn about the same. The event
was Manthan, the finance summit conducted at DoMS, IIT Roorkee, on the topic of
“Rethinking Risk in Financial
Institutions: Making the CFO-CRO Partnership work” which was scheduled on
29th Sep 2013.
It was organized by Vittarth, he finance club of the DoMS, IIT Roorkee in
association with ISTD Dehradun Chapter. The sponsors include some of the
key brands such as Union Bank of India, Punjab National Bank, Oriental Bank of
Commerce and Bank of Baroda. The student was very enthusiastic about the event
as eagerly waiting for the same.
The event saw participation of
several well known industry leaders as well as distinguished academicians from
the department. The list of guest speakers includes:
·
Mr. Diwakar Pundir – Chief Credit Officer, Bajaj
Finserv-Lending
·
Mr. Anil Kapoor – AGM (HR), BHEL
·
Mr. Gaurav H Talwar – VP & Head-Delivery and Operations,
DCB Bank
·
Mr. Rajiv Saksena – Associate Director & Dy. Head
Corporate Group, North BNP Paribas
·
Mr. Jiwan Jyoti Nayar – Asstt. Regional Manager, Oriental
Bank of Commerce
The event took off with a
welcome note from the students. Then a lamp lightening session was done to
formally start the proceedings which followed by a speech from Dr. Santhosh
Rangnekar, Head of the department. He welcomed all the guests and explained the
vision of the department to the guests and emphasized on the fact that Return
on Investment (RoI) is the key consideration in any management program.
Then Dr. P. K. Ghosh (Dean Finance, IIT
Roorkee) delivered the keynote address where he explained that mobility of
money is related to market growth which in turn is affected by national and
international policies. This describes some of the risks associated with
financial institutions. He also touched on product development and stated that
it require a thinking about the society. He further explained how research and
innovation can make the difference and provide competitive edge. He cited examples
of several nations such as Korea, Vietnam and China how their research efforts are
driving their growth. His thoughts were well received. It was now the turn of
batch presentation where guests were introduced to the strengths and
achievements of the departments.
It was now the turn of the
guests to share their understanding and first one was Mr. Diwakar Pundir. Mr.
Pundir 1997 batch alumnus of IIT Roorkee and also has an MBA degree from IIM
Banglore. His areas of specialization include credit analysis, banking, risk
management and lending. He was also accompanied with his spouse Mrs. Himani
Pundir. Mrs. Pundir is an alumnus of the very first batch of DoMS. She offered
her gratitude for providing opportunity to visit her alma mater. Mr. Diwakar
started by saying that risk and return are the most important aspects from
bank’s perspective and a manager has to make the balance between these
two. On the subject he observed that it
is not CFO-CRO relation but it’s actually CFO-CRO-Management relations as the ultimate
decision is taken by business managers. He then deliberated upon the emerging
trends in financial service industry and how product complexity is increasing
day by day. He focused on regulatory
compliances such as priority sector lending becomes important in context of
RoI. The guest also talked briefly about the global financial crisis and its
impact on financial markets. Overall he made us aware that how complexity of
business is increasing. Then the guest spoke about the risk management and
explained various types of risk viz. credit risk, interest rate risk, currency
risk and liquidity risk. In addition to these, he also mentioned broader
economy risk by taking India as an example. Since Indian economic growth has
been reduced by approx. 50%, this poses extra challenges for institutions. Then
regulatory risk also poses a challenge. After a thoughtful lecture on risk, the
speaker moved to the CFO-CRO relationship. He mentioned that both CFO and CRO have
areas of convergence as shareholders, regulators and management are the common
feature. As for responsibility, CRO responsibility basically lies with risk management and
mitigation where CFO’s scope of work is broader including strategic planning.
He shared an interesting fact that CROs also have to respond to queries for
growing business without taking additional risk. Finally he introduced us to
stress testing and scenario planning by demonstration how changes in an
actionable event affect drivers of business.
After the fascinating discussion,
the next speaker was Mr. Anil Kapoor. Mr. Kapoor is also a 1982 batch alumnus
of IIT Roorkee (then University of Roorkee). Mr. Kapoor walked us through the
timeline of BHEL. He shared the information that today BHEL has 17
manufacturing divisions, 4 power sector regional centres, 8 service centres and
4 overseas offices. It also has 48000 strong workforces building the nation.
Financial performance of BHEL is also presented. The speaker then deliberated
on the key challenges faced by the organization as listed below:
·
Slowing global and Indian economy
·
Indian power sector is in stagnation
·
Rising competition
·
Decreasing margins
·
Critical raw material BoP vendor skill deficit
·
Major retirement in next 5 years
·
Technology shift in major production unit
From there, he took us to BHEL
Haridwar and also spoke
about certain issues having financial implications. The
main reason
is backing out of the customers. In some other situation,
BHEL
itself halts the work due to non-payment from client. Additionally, as the
competition is growing, BHEL has concentrated on new products which demands intensive
research. According to the speaker, the situation of R&D in India is
insufficient and we still depend upon other countries. He explained that even
with borrowing, some amount of customization is needed which calls for
research.
The third speaker was Mr.
Gaurav H Talwar. Meanwhile Dr. J. L. Gaindhar, President of Alumni Association
of IIT Roorkee also joined. Mr. Talwar showed the gap between Indian economy
and USA economy. He stated that USA is 3 times bigger than India but has only
one third of the population. USA is also the biggest importer as well as
exporter of the world. Even 2/3 of entire world currency and around 60-70% of
trade is in dollars. USA is also the 3rd largest producer and
largest importer of oil. USA is also way ahead in terms on innovation and
research. All these factors give it an unparalleled weight and make it a world
leader. Hence, if USA sneezes the world gets a cold. The speaker then went on
to compare USD and INR. He stated that in 1947 the dollar and rupee were
equivalent. At that time there was no debt on India which now is in tune of
$300 billion. He also touched about the situation in 1991 when India has to pledge
its gold. After the comparison, he touched on the topic of why the dollar-rupee
gap is increasing. As per his view, it is related to demand supply mismatch.
India has traditionally been having lesser export than import. So far the gap
has been managed through FII but now the decreasing foreign investment is
making situation worse. Oil and gold are the two main imports of India and that
is why there are calls to reduce consumption of them. The speaker shared his
apprehension that India’s credit rating may be downgraded and this again puts
additional pressure. The speaker was concerned about current situation and
wished a speedy recovery.
The fourth speaker was Mr.
Rajeev Saksena. He is also an alumnus of IIT Roorkee and then completed his MBA
from FMS, Delhi. He appreciated the contribution of IIT Roorkee in education
and nation building. He started with defining risk as probability of something
undesirable. Then he touched risk management process which involves pre
due-diligence, due-diligence, post due-diligence and periodic audits. As for the
topic, he suggested that there is a need to rethink over the relationship
between the CFO and CRO. He advised the future managers to always be alert and
never let the guard down. He gave an example of an otherwise normal trade but
using an Iranian vessel for transportation. He then explained how Iran sanction
can play havoc. Another example was given for a $6 billion out of the court
settlement for irregularities in dollar payments. Therefore one must be continually
thinking. There is no harm in raising a doubt and seek clarification if
something is not clear. Adherences to system, compliances and procedures are
essential for everyone. A bonus of few lakhs is insignificant when compared to
40 odd years of career and loss of reputation. He also explained his personal
experience of one case in which a party was found in malpractices.
The last speaker of the
day was Mr. Jiwan Jyoti Nayar. Mr. Nayar specifically talked about risk
management in commercial banks. He observed that banks, as opposed to
sophisticated financial institutions, have to cater to general masses which
need different risk management processes. In case of a crisis (like Uttarakhand
Disaster) banks have to suffer losses. Another aspect is that banks have to
lend to financially illiterate clients and hence the risk assessment becomes
more qualitative. In such a situation, even credit rating could not be taken as
baseline and there is a need to look beyond established methods of financial
analysis.
This marked the end of the
summit. A note of thanks was delivered and the guests were presented mementos
for their valuable time. The summit saw an interactive audience and intelligent
questions. It proved to be extremely useful for budding managers.
