FINOMENAL 2016: Day 2: ECHO- Panel Discussion- “Impact of Increasing Risks and Regulations in the financial industry”

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Mr. Sandeep Hosurkar, VP at IL and FS, Renewable Energies

Mr. Sandeep Hosurkar, VP at IL and FS, Renewable Energies, started the panel discussion by stating that risk and returns move together rather than the usual norms wherein we tend to look for more returns and ignore risks across all the markets. He said that risk and regulation has come back into predominance and that domestic banking portfolio has seen challenges on asset quality of many banks and financial systems. He further quoted that “Asset development play important role in financial markets”. He elaborated the importance of asset reconstruction companies (ARC) by stating how banking structure is undergoing a change. He concluded by classifying Indian banking into new age banks that capture higher margin and structure a deal so as to sell the assets down to other banks and old banks that maintain a lend and hold strategy.

Mr. Tamal Bandyopadhyay, Advisor on Strategy on Bandhan Bank and consulting editor of Mint

Mr. Tamal Bandyopadhyay, Advisor on Strategy on Bandhan Bank and consulting editor of Mint, stated that being a non-banker on the panel, started off by classifying banks into two categories- small financial banks, which do everything that a universal bank does and payment banks- that transfer money for migratory labors. The small banks have a maximum of 1 Lakh deposit, wherein 75% would be in zero risk government bonds whereas the rest are deposited in other banks. They are restricted by 15% capital adequacy ratio (CAR) set by RBI, which means a lot of capital set aside for risk, as compared to Bandhan and IDFC banks of 13% CAR. He emphasized that for payment banks, the bigger risk is operational risk. He stated “Biggest risk to banking sector comes from people and technology”. He elaborated that there is a need to have the right kind of people and technology which is rightly depicted, as the microfinance firms which convert to banks have a problem of managing people. He stated that many Indians either understand technology or banking, but only a limited understand both. He concluded that all banks should have a ground approach for finding risks and mitigating them.

Gaurang Trivedi, Senior Investment & Management Consultant

Mr. Trivedi started the discussion by quoting that “Regulations lead to reforms.” He stated that currently, the regulators are looking forward to principle-based regulations and to get more people under the regulations and acts. New investors are emerging and a number of companies provide markets for these investors. Thus, it becomes important for regulators to come up with cost-benefit analysis.

Harsha Upadhyaya, Chief Investment Officer of Equity and Fund Manager at Kotak Mahindra Asset Management Company Limited.

Mr. Upadhyaya started off by stating that in 1996 Mutual Fund Regulation was only 10% of what it is today which shows market has evolved tremendously. But with this evolution of the market, we are posed with humongous risks as well. There have been various credit issues in the recent past due to the same such as the asset management issue. Keeping in mind such volatilities and intricacies, SEBI has come up with new rules like the one that states that you cannot hold more that 12% of the assets. Mr. Upadhyaya concluded by mentioning that there is tremendous growth in mutual fund industry.

Bharat Gupta, 2nd Vice President (Team Lead), Model Risk Management at Northern Trust Corporation

Mr. Bharat Gupta began the discussion by telling how US banks have progressed since the 2008 financial crisis. In 2016, the capital level of the top 33 US banks has increased by a high margin. The main concern in the US is of low-interest rates.  If interest is low yield, it can never attain high values. As a consequence, banks are struggling with maintaining their capital levels. He also talked about how risks cannot be quantified. Risks keep cropping up but along with these risks, there are also opportunities. With augmented levels of risks and regulations and banks reworking on their model, there are opportunities for a B-school graduate in fields like risk management, model validation, and compliance management. He concluded by saying that the world is becoming a difficult place due to low-interest rates and cost pressures.

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