COBCAM 2017: ECHO: Panel Discussion on “Is the creation of a bad bank beneficial to the banking sector? Can it replicate the advantages as seen in other countries?”

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Mr. Sandeep Hasurkar, Vice President, IL&FS Renewable Energy Ltd.

Mr. Sandeep complemented students for their spirit in banking. He said that there are two to three basic issues in the case of bad banks. He stated that shifting NPA from one balance sheet to another (called structuring) does not address the root problem. He believes the responsibility of recovering money should be on the lender. He elaborated that banking has been at the apex of Indian economy and has helped India on many accounts. He lamented the Indian tendency of depending on government and said that the moral hazard-breaking contract and shift this NPA problem to the government should be solved.

Further, he questioned the accountability of banks and bankers if this is allowed to happen. He believes that some degree should be borne by the banks. He said that banking has largely become a bureaucracy. So he concluded that bad banks only for shifting NPA’s off the balance sheet is a bad idea as it removes accountability from the banks.

Mr. Rajesh Parthasarathy, Managing Director, Growth Trust Ventures Consultancy Pvt. Ltd.

Mr. Rajesh started off by saying that there are various ways of managing a bad bank. He said we need to understand the issues inherent to the problem before tagging them as bad banks. There are different legal systems and kinds of industries, all of which could have different perspectives of viewing bad banks. Customization needs to be done regarding what is suited for each bank in India. Fundamental reasons behind the issue could be infrastructure, transmission losses, road traffic etc. which need to be deliberated carefully. In-depth solutions to core issues need to be done while analyzing the scenario.

Mr. Debashish Sarkar, Chief General Manager, State Bank of India

When Asset recovery companies (ARC) were not working so well, bad banks have come into existence. Many countries like China, Sweden have gone through a phase where ARCs did not work up to the mark.

Mr. Sarkar said that banks will feel free to do business if banking sector is revived. He also stated that many companies have bad balance sheets but have loans approved. Lots of decisions are taken for non-commercial reasons.

You should have the responsibility of what you do but unfortunately, in public sector, this has not been possible.  Banking is like driving a car in a single route but imagine if a truck comes in front you. If you keep on following the same route you may meet with an accident. If you create an environment where processes become more important than decision then decisions loose the value.

Apart from this, nowhere people have been involved in deciding the correctness of the record, but then also a man taking loan can be arrested for fraud. Imagine a situation where one loan which is bad is brought in a bad bank but can be recovered and another loan is brought which is totally unrecoverable. There are no ways to segregate these two types of loans

All these problems occur only because there is hardly anyone available with a project management mindset.

For example, a man has to make 30 km road connecting two states. 28 km is built but last 2 km was not completed due to government rules in the second state. This case, when applied to a bad bank cannot be resolved easily as there is no fault of person or bank. Thus it becomes a dead loan. A proper project management is what is required.

Indian Judicial Academy in Bhopal is the place where all the judicial officials go for training. None of the judges have slight ideas that how their decisions impact NPAs. If these things are taken into consideration, bad banks can do amazingly well.

Mr. Ritesh Kumar Agarwal, Founder & CEO, FonePaisa Payment Solutions Pvt. Ltd

Mr. Ritesh views bad banks in a positive light, arguing that bad banks can correct mistakes while normal banks are capable of only reporting them. He stated that operating in a bad bank would require a different mindset and the employees must behave as “Project Managers” rather than as “bankers”. However, he stands by the opinion that banks should take ownership for the decisions they make.

COBCAM 2017: ECHO: Panel Discussion on “Has excessive regulation in the financial markets disrupted the risk and reward equation?”

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Mr. Supreeth Shankarghal, Hedge Fund Manager, Novo Investments

Mr. Shankaghal kept it simple by stating that regulation is necessary albeit many may not like it. He said that regulation is definitely needed but was unsure if it is excessive. According to him, the current regulation hasn’t been updated. He quoted that “Present regulation is like a speed-breaker, it should be like a speed-camera”.

Further, he elaborated that today taking excessive risk is taken for granted. He believes that there should be more stringent rules instead of large laws which people are unable to understand. He stated that regulation is required not only in capital markets but also in places where investors start investing money. He said that SEBI should work on reducing unnecessary paperwork. Regarding multiple regulators, he said that they are unavoidable but there should be a cooperation between the regulators.

He concluded that algorithmic trading and other advances have kept regulators somewhat incompetent to do proper regulation.

Mr. Nilanjan Das, Deputy Head Asset Management and Wealth Management, Deutsche Bank

Mr. Nilanjan Das expressed concern over the numerous complicated regulations on the market. He laid emphasis on protecting the investors and the customers regardless of the risk environment. He stated that the implementation of current regulations increases operational costs and that more research is needed in the development of a system to estimate risk and return. This will not only save the financial system from incurring unnecessary costs but will also help make the banking system more transparent. The development of such a system will also help price risk according to the customer’s terms.

Mr. Nilanjan Das stated that regulations are the way of life in the fiduciary financial industry. Since there is immense trust between the dealings of the industry and its customers, investors and other stakeholders, he believes regulations are of paramount importance. He also emphasized on the susceptibility of Indian banks to be liable to Federal Laws thanks to the importance of regulatory laws and citizen protection laid down by their financial system. He believes the major factors of regulation in play are the size of the regulation and the smartness with which we handle them.

Mr. Mahesh Chhabria, Vice President (New Projects), SBI Mutual Funds

Mr. Mahesh started the discussion by giving an overview of financial regulations. He said that financial regulations regulate financial stability. Further, these regulations should be optimum, neither too strict nor too lenient, given the state of various other factors involved.

According to him, the government is taking a stance towards outdated regulations and improvising them with several changes, which is adding more and more value to the system. Having said that, he cited that regulator should stand at the signal, not after the signal. Having worked at mutual fund investment, he provided some insights into the industry and its regulatory impacts. Mutual fund industry involves a high market risk, wherein the risk determines the reward. In such a scenario, the role of a regulator is to protect the interests of a retail investor. A regulator should be the advisory for the investor, looking into the risks and rewards associated with his investments. Also, long term investments should be supported by the regulator, taking calculated steps at each point.

Mr. Mahesh ended the discussion by quoting that these regulations are meant to make sure that you apply the break at the correct time.

Mr. Bharat Gupta, Vice-President, Northern Trust

Mr. Bharat Gupta began the discussion by quoting the fact that ever since the regulations have been put, Asset Quality Review has been started. He said, “We are at a point where regulations should be enablers”. These compliance regulations require lots of clean-ups and hence a balance between the time spent and these clean-ups is very important.

He continued the discussion by saying that there is no doubt that these regulations have improved the banking services but currently, it is being overdone.

Moving on, Mr. Gupta gave an example of Financial Analytics Companies. He said that there may be occasions that capital available is scarce; this may lead to charging higher than the consumer’s tolerance limit. Thus, a balance is required to be maintained so that business is not lost. For example, if a customer is a high risk to the firm, he should be handled accordingly. This will help firms in attaining competitive advantage.

 

COBCAM 2017 Inauguration Ceremony

The Inaugural Ceremony of COBCAM 2017 began with the ceremonial lighting of the lamp by the Director, Dr. Madhu Veera Raghavan, Admissions Chair, Professor Aditya Mohan Jadhav, BKFS Representative Mr. Dhanyakumar Malali and the Key Note Speaker of COBCAM 2017, Mr. Deepak Reddy, Group Head HR, Bajaj Finserv.

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Professor Aditya Mohan Jadhav emphasized the grounded industrial exposure the students of TAPMI get by the very structure of the curriculum. Dr. Madhu Veera Raghavan opened COBCAM 2017 by sharing his dream for TAPMI to be one of the top 10 Business Schools in India and for BKFS students to play an integral role in the financial services sector. He stressed on continuous revival and revamping of the curriculum to keep in constant touch with the changes in the industry.

The Key Speaker, Mr. Deepak Reddy refreshed on some of his fondest memories and biggest learnings as a TAPMI student. He urged the students to learn as much as possible in as many diverse sectors and fields. He noted the change in the perception of the consumers towards the banking industry and how that the most important factors that influence the success in the banking service sector are customer’s ease of obtaining information and customer fulfillment.

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He praised the change from the traditional banking practices to modern digitized methods which vastly reduced the processing speed. While this has greatly increased customer satisfaction, it has simultaneously reduced employment requirements; replacing man with machine. A case in point, he reminded the students that the financial sector is highly volatile with uncertainty around every turn.

On what he expects from students and future leaders, he demands that we find our purpose in life; a field where we can create an impact and lead change. He also stressed the importance of being socially aware and developing capabilities to collaborate with other individuals. He urged the students to work hard and learn continuously.

The insightful and informative speech set the tone for an evening of learning at COBCAM 2017.

Manthan 2017: Day 2: Guest Lecture 2: “How to analyse an investment idea- A true life example”- Mr.Ravi Sundaram, Senior Development Manager, iNautix Technoogies India Pvt Ltd.

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Mr. Ravi S. started the discussion by quoting “Don’t invest for the sake of making money, but to gain an understanding of the market.” By taking the example of the pharmaceutical sector he is closely associated to, he explained concentrated vs. diversified portfolio. According to him, all guidelines need to be strictly followed while considering each of them.

He went on to explain the process related details while making investments. He mentioned that the duration depends on the nature of the investments. The holding period depends on the nature of stocks you are holding in the firm. Right issue needs to be carefully considered while going through with the decision. He further elaborated the investment decisions by citing an example of the life cycle of the drug which goes through various stages namely pre-clinical, clinical, NDA Review, Post marketing, launch, generic.

He went on to explain the road ahead for the pharmaceutical sector, through which he explained the important considerations like “Am I paying too much?.” Here, we mentioned that more than numbers, judgment and expertise matter while making investments.

While considering investments in a start-up, sustenance with consistency is a takeaway. He also explained few standpoints including government’s involvement in policy making. He said that the government looks at it holistically, not based on individual investor’s interest.

He also explained certain concerns while making investment decisions, few of which include life cycle phase wherein it possibly still be in early investment phase involving high R&D cost. Management’s strategy of in-organic growth, low tax%- take has its subsidiaries in countries where they book R&D expenses and outspoken management i.e. the number of media interactions include some of the other concerns. He ended the discussion by quoting wise quoting as an requisite to good investment decisions.

Manthan 2017: Day 2: Guest Lecture 3: “Credit Rating Perspective”- Mr. Shaik Mohammed Haneef, Deputy Manager Business Development, ICRA.

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Mr. Shaik Mohammed Haneef from ICRA enlightened the students about the various types of credit ratings and how it is evaluated from the point of view of ICRA in his session on ‘Credit Rating Perspective’. He stated that ICRA majorly evaluates and provides credit ratings and non-credit ratings which are used by clients for understanding a corporate’s credit state.

He elaborated and explained on various credit ratings such as SME Rating, bank loans, infrastructure projects, and commercial papers. He also put some light on non-credit ratings such as real estate grading, solar grading, ESCO (Energy Services Company) grading which is used to understand energy efficiency, and vendor rating.

Mr. Haneef further elaborated on the four different sources of risk such as industry risk, business risk, financial risk, and management risk. He later gave a practical understanding of the risks to the students through the ICRA website followed by answering some intuitive questions by the students on the same.

Manthan 2017: Day 2: Guest Lecture 1: “Operational risk” – Mr. Lalit Taneja, Regional Director, Global Association of Risk Professionals.

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The topic being discussed in the guest lecture was operational risk. Mr. Taneja explained to the students the concept of operational risk using Basel Committee’s existing definition. It is basically the loss that is incurred due to failed internal processes, people, and systems or from external events. He also explained that individual banks can adopt their own definitions of operational risk if the minimum elements in the Committee’s definition are included. A key takeaway from the discussion was that operational risk is inevitable and cannot be zero.

Mr. Taneja briefly spoke about internal & external fraud, employee & workplace safety, clients, products and business practices, and process management. He emphasized the importance of operational risk indicators. These indicators are vital in identifying potential losses and tend to be specific to organizations.  They refer to lagging/ex-post measures and information on events that have already taken place (examples include failed trades, settlement errors). It is up to the risk managers to transform lagging into leading indicators. This process can be carried out by changing the focus of the indicators or even by adding new information. Thus, the focus of these indicators could be changed to highlight issues that are still outstanding or remain open after a specified period of time. The transformation of these processes is difficult to implement in reality. He went on to explain three types of risks namely:

  1. Legal risk – It is included in operational risk. It refers to the risk of disruption to operations due to unenforceable contracts, lawsuits, adverse judgments and legal proceedings.
  2. Reputation risk – Although this type of risk isn’t usually considered, reputation risk is very critical to a business. It refers to negative public opinion. A fall in a company’s reputation can result in liquidity difficulties and falling share prices.
  3. Business or strategy risk – It arises from an adverse shift in the assumptions, goals and other features that underpin a strategy.

The next part of the lecture was about the latest trends and approaches. Mr. Taneja spoke of the relevance of frameworks, advanced analytics, strategic planning, stakeholder feedback, advanced management approach and the need to forecast “black swan” events. Post the discussion, Mr. Taneja answered questions which were along the lines of operational risk, risk management, and its applicability. He was able to explain the concept exceedingly well because he was able to relate it to real life examples in corporate organizations and financial institutions.

Manthan 2017, ECHO, Day 2- “The secret of generating Alpha”

On Day 2, Manthan 2017, The panelists engaged the audience in an insightful discussion on the secret of generating alpha, with Mr. Yash Verma as the moderator.

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Mr. Mahesh A Chabria- Vice President (New Projects) with SBI Fund Management Pvt Ltd

Mr. Mahesh Chhabria started the discussion by saying that those who know the secret will not reveal it and those who reveal the secret will not know it. Talking about the secret of generating Alpha, Mr. Chhabria said that it’s important to understand the benchmark and how much more can a portfolio generate over the benchmark. Mr. Chhabria advised the audience to overweight the stocks on which one is bullish and underweight the portfolio on which one is bearish. Mr. Chhabria also talked about the correlation between alpha and beta and advised that to generate alpha one should look beyond the index. Mr. Chhabria continued to say that investors should focus more on mid-cap and small-cap companies instead of large-cap as it is already saturated. When asked about the role of luck in the generation of alpha, Mr. Chhabria said that the luck might be a combination of hard work and research and good active funds beat the expense ratio and give profits.

Mr. Swapnilsagar Vithalani- AVP Investment Banking, JRL Group

Mr. Swapnilsagar started the discussion by comparing the mimic index of today to that of 1993. He said that it is difficult to outperform benchmarks. According to him, to generate an alpha, a company must have a competitive advantage, have intangibles, under-priced, and brand recall. One must focus more on the sustainability of Alpha more than generating it. The period of sustainability depends on the risk profile of the portfolio.

Going on further in the discussion he mentioned that compounding is the 8th wonder of the world. The longer one holds onto a company, the better return one will receive. With the evolution of technology, alpha can be generated using machines and algorithms. But Mr. Swapnilsagar said that a human touch to these machines will add value. Humans are capable of understanding the psyche of promoters by researching on small and mid-cap stocks.

Mr. Manoj Jethva, Senior Adviser PE, VC & Debt Advisory

The introduction started with the discussion of PE funds. PE funds are very specialized & not as mature a market as compared to the US or UK. For a fund to be registered as a PE, there are several criteria to be met. Firstly, its operational cash flow has to be positive. Second, the visibility of the company is important. Third, how the management of the company & the strategies are adopted. Further, on the discussion of humans versus machines, he explained that it is always the prerogative of the managers/humans to generate returns or alpha, not that of the machines. It is the humans who are the decision makers. It is they who are responsible for making superior returns.

Further in the discussion, he shared his views on the topic, whether, in India, the generation of alpha is a result of market inefficiency or the Mutual Fund manager’s skill & whether there was any correlation between the two, he explained that as far as generating return is concerned, the skill of the manager matters more. This is primary. This would be reflected in the decisions made as to when to enter or exit the market. Luck would be secondary. He also gave his opinion on the probable inefficient markets in the world by giving an example.