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.

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Bounded Rationality, Day-4: ‘The Role of Empathy in Altruistic Behaviour: Evidence from Sequential Dictator Games’ – Prof.Sujoy Chakravarty, Professor (Economics), Jawaharlal Nehru University

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Prof. Sujoy Chakravarty, Professor of Economics at Jawaharlal Nehru University spoke about “The role of empathy in altruistic behaviour: Evidence from sequential dictator games.” He said that economics is a field that isn’t hijacked by crazy people, it is what we have. Even when a lot of things seem. To introduce the topic he differentiated between selfish and non-selfish motive. When it comes to warm glow or altruism, these are non-selfish behaviour. Whereas, reciprocity is a selfish behaviour but indirect reciprocity is more dependent on empathy and could be fuelled by empathy.

Prof. Chakravarty jokingly remarked that reciprocity is the oil that greases the wheel of capitalism. The concept specifies that an individual will be generous to another individual only when that individual has been good to him before. He talks about three types of reciprocity: downwards, upwards and indirect. He explained that in downstream reciprocity, “B helps A, C observes B. as a result C is more generous to B.” Whereas, in upstream reciprocity, “A helps B. B is more generous to C if has been generous to B.” But according to him, indirect reciprocity functions differently, it leads to an individual helping another one who has not interacted with him nor is there a chance of interacting with him in the future. According to Prof. Chakravarty, in indirect reciprocity “A helps B, this observed by C.  C will behave generously with B if A hasn’t.” In this case B gets two chances to play this game. C’s action will act as a compensation for A’s action.

Prof. Chakravarty has conducted his research on a large sample. He told the audience about the methodology of the study and how he has come to the conclusion of his research. He said the control conditions are empathy, randomness and information. His work is still underway and he said that he is still finding faults in his own research and trying to tease out other alternatives. He welcomed the audience to critique his work. It was an enriching and learning experience to go through the entire process o how the research is growing.

Bounded Rationality: “Introduction and Heuristics in Decision Making”, Professor Gerd Gigerenzer, Director, Max Planck Institute for Human Development; Director, Harding Center for Risk Literacy in Berlin

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On the 9th of January, T. A. Pai Management Institute was honoured to have Professor Gerd Gigerenzer, Director at the Max Planck Institute for Human Development and Director of the Harding Center for Risk Literacy in Berlin to give a lecture on Bounded Rationality. His work is renowned globally and participants and students got to hear about his work directly from Prof. Gerd.

He said that if one looks into a book on rational decision-making, good decisions follow logic and their goal is to maximize utility. Although he says it is a beautiful theory, it does not truly capture the essence of how we make decisions. Prof. Gerd’s main objective is to dispel the darkness in which much of our decision theory is based on. Simple heuristics that make us smart because it gives us the basics, and alternatives to think while making a decision.

There are times when we do not know what the consequences of a decision will be. These uncertainties according to Prof. Gerd are mainly when the situation is regarding whom to trust, where to invest and whom to marry. When the consequences of our decision is unknown, rationality cannot be counted as a factor for decision-making. This is when heuristics is used to evaluate our decision making. Optimisation may be a very good model but it gives us the illusion of certainty, thus heuristics is not a second choice.

Prof. Gerd spoke about ecological intuition and toolbox method of thinking as a part of heuristics. He even introduced a concept called Hiatus Heuristics. These concepts and theories were broken down for our convenience and delivered with high simplicity. It was an enriching experience to be sitting in the audience and watch such complex ideas delivered so simply

 

 

FINOMENAL 2016: DAY 2:”CAREERS IN FRM”-Mr. Lalit Taneja, Regional Director, Global Association of Risk Professionals

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In an interactive session with students Mr. Lalit Taneja, Regional Director, Global Association of  Risk Professionals gave the students insights about the various career prospects in the field of Financial Risk Management. The session started off with him telling the students about the key forces driving the demand for risk managers. Before 2008 financial crisis market was driven by sales then post the crisis operations took over and presently the focus has completely shifted to regulation. This demand is the result of many historical drivers some of which are globalisation and integration of markets, increased product complexity, technological advances, regulations and market crisis. Sovereign risk, commodity market volatility, increased focus on organizational risk are some of the factors that have recently further accelerated the demand for risk managers.

He further stated why people are increasingly shifting to jobs in the field of FRM. Financial Risk Management assesses an individual’s ability to measure and manage risk in a real-world environment. What sets FRM apart is reliability, maintenance, validity, and acceptance. In the recent years, new trends have been constantly emerging in FRM. Due to current issues like cyber risk, liquidity risk, and regulatory stress, FRM has become a prerequisite for every organisation. GARP plays an active role in monitoring the work of certified FMR practitioners.

As the session approached its end, he concluded by stating some of the latest trends shaping the role of risk management which includes regulations, technology, advanced analytics and the emergence of newly arrived risks such as model risk, cyber security risk, and contagious risk. With these emerging trends, companies are gearing up to tackle these risks. Organisations are imparting risk education to their employees and are encouraging them to learn by providing benefits like exam preparation leaves, study groups in office and in-house course instructor.

Finomenal 2016: Day 2: Closing Ceremony

The Closing ceremony saw batch address by Prof Animesh Bahadur, Dean of Admissions, Mr. Harsh Upadhyay, Chief Guest, Prof Aditya Mohan Jadhav, BKFS- Area Chair & Convenor & Co-Convenor of Finance Forum, Ms. Shruthi Chander & Ms. Monica Veer.

Prof. Animesh Bahadur appreciated the events of FINOMENAL and explained how the events & guest lectures gave a glimpse of what the practitioners & veterans from the field of finance feel about this discipline. In his opinion, he felt that the events were fruitful and was positive that the students gained a lot from this 2 day event.

Mr. Harsh Upadhyay spoke about how the events must have given perspective to students who wish to make a career in finance and what it takes to be a finance professional. He also mentioned about how this must have been especially important for the BKFS students who are into a specialised finance program. He also mentioned about the importance of communication skills which will go a long way not only during placements but also in the corporate world.

Prof Aditya Jadhav spoke about how the Finance Forum has grown over the last 3 years. He applauded the efforts of the students, members of the various committees and the management for doing an excellent job for the event. He thanked Prof Animesh Bahadur, Ex-Director Prof RC Natarajan, Prof Seena Biju, Prof Madhu Veerraghavan, Prof Vidya, Alumni Relations Committee, Prof Surya Mahadevan & Mr Nayak & Mr Ananth Pai for taking care of all the organisational responsibilities.

The ceremony concluded with Ms. Shruthi Chander & Ms. Monica Veer expressing their thanks to all the participating teams for making the event such a success, Professors of TAPMI and the committees namely, the Student Council, Literary & Media Committee (LiMe), Welfare Committee, Alumni Relations Committee (ARC) & the Logistics Committee for their continuous support.

FINOMENAL 2016: Day 2: “Corporate Bond Market in India”- Mr. Atul Khadilkar, Member- India Management Committee and Head- Financial Institutions Group, South Asia (National Australia Bank)

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Mr. Khadilkar started the lecture with discussing the usual financing options available to the corporates in India and where India stands in terms of the bond market in the global context.

A company starts with investing their own Equity in the business but there are other sources such as debts in the form of loans from banks and the bond market. Both the equity market and the debt market consists of a wide range of market participants. Drawing a comparison between loans and bonds, he explained how banks chose between loans and bonds. Loan in a bank is a bilateral arrangement and has its own risks and challenges attached to it, and is therefore no longer the most attractive source of income for them in today’s market. On the other hand, bonds are more standardized and liquid in nature. Unlike loans, bonds are also rated, which attracts a wide range of investor pool. So, bonds are better than loans in these aspects and therefore there is a need for the development of the bond market in India.

He also gave an overview of the Indian bond market in the global context, in comparison to some of the developed and developing economies like the US and Japan.

Talking about the creation of demand for bonds in the Indian market, he discussed why the country needs it in terms of infrastructure financing, GDP growth and the Government’s take on fiscal discipline. He also discussed the working of the RBI Working Group in the Indian financial market.

In the end, he concluded by discussing the various kinds of bonds avaiable to the investors today in the Indian market, how the bond market is evolving in the financial system and will bring about a sea change in the coming years for banks and corporates, not only in India but all over the world.

FINOMENAL 2016: DAY 1: “CCAR Stress Testing”-Bharat Gupta 2nd Vice President (Team Lead), Model Risk Management at Northern Trust Corporation

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Mr. Bharat started interacting with the students by discussing the 2008 subprime crisis and how it affected the banking industry. He explained the entire phenomenon unfolded by taking examples of certain important banks involved. How the investors, banks, investment banks and the insurance companies in the US were involved in the crisis, which ultimately led to the collapse of the entire financial system.

Comprehensive Capital Analysis & Review (CCAR) is one such supervisory exercise that is being run by the Federal Reserve since 2010 after the sub-prime crisis as a stress test for American banks, in order to keep a check so that they maintain sufficient capital for liquidity. This was because the regulator felt that the banks had inadequate levels of capital planning and the estimation of Risk-Weighted Assets wasn’t proper. CCAR uses sophisticated financial models, which are linked to Macroeconomics to identify the losses that the loans of a bank can make and whether it has sufficient capital to take care of its liabilities in that situation. He also discussed the various banks in the US that have been a part of this CCAR exercise and how the system is becoming less risky because of it. He further explained, how models like the Pre-Provisioning Net Revenue (PPNR) are built by banks using macroeconomics in order to maintain capital under the CCAR regulation.
In the end, he spoke about the various opportunities that the area of CCAR holds for the students of management in the industry.