Indian Companies Most Vulnerable to Stress Scenarios: RBI

Indian Companies Most Vulnerable to Stress Scenarios: RBI

“Major concern in the global arena is about the leverage of companies which is enhanced substantially in the corporate world. An IMF report of April 2015 states that 37% corporate debt in the country is a risk. Tests and reports across the world show that Indian companies are most vulnerable in stress scenarios. This is an issue of maximum concern for a CFO and you have to walk the tight rope between many opposites both in your company and the market,” said Mr. S S Mundra, Deputy Governor, Reserve Bank of India at CII’s (Confederation of Indian Industry) CFO summit 2015.

Focussing on start-ups he said, “The role of CFO is of a strategic advisor. In a start-up the question is not just of liquidity but also this immense pressure to scale up rapidly but without the necessary compliance, support and ecosystem. There is need to exercise caution there. They also need to start distinguishing between income and revenue from profit because many companies consider both to be one and the same.”

Mr. Mundra laid stress on the need for more women CFOs when he said, “Despite their stellar academic performances, women CFOs are missing from action. Men are result oriented while women are process oriented. Truth is process is as important as the result. Hence, I believe, women would prove to be better CFOs.”

Mr. Mundra also said, “As CFOs you have to understand the interplay of debt, equity and leverage. Operating with thin equity is like skating on thin ice. Leverage on the other hand is like blood pressure, it should neither be too high nor too low as both are injurious.” He also cautioned against companies with multiple layers of structure with a holding company on top and several step down subsidiaries below which confuse the debt, equity and leverage structure of a company.

Mr. Mundra said, “CFOs have to be very careful in taking or rejecting advice. In days of good liquidity there is temptation to diversify at breakneck speed. But stick to core competence and make the management aware and sensitive about it as well.” He added, “When there is excess liquidity in the system whether generated or borrowed, it finds temporary parking in stock market, commodities market etc. in the hopes of supplementing revenue. Often, that does not happen. Watch out for this.”

Mr Yaduvendra Mathur, Chairman and Managing Director, Export-Import Bank of India said, “A millennial CFO needs to be aware of global financial architecture and needs to have the capacity to look at innovative structured deals and have the expertise to leverage the intangibles. A CFO needs to design a financial architecture that serves not only the Indian eco-system but is compatible with global architecture.”

A CII – Deloitte Report titled ‘Millennial CFO – Driving Performance & Business Value’ was released by the distinguished guests. The report looks at the changing business scenario in India which has moved away from being merely an IT hub of the world to becoming a start-up hub. In this changed climate, the CFO has a significant role to play in the entire spectrum to successfully deliver the value of business venture, playing different roles from the evolution of the business to managing market volatility, acceptance and finally growth.

Mr V S Parthasarathy, Chairman – CII CFO Summit 2015 and Group Chief Financial Officer and Group CIO & President (Group Finance & M&A), Mahindra & Mahindra Ltd., said, “In our volatile times, ICE provides solace. ‘I’ stands for the ability of companies to innovate and adapt. ‘C’ is for ‘Climate change’ that will dramatically alter how we do business in the future. ‘E’ is for ‘Experiential commerce’ where business is driven by the kind of experience you can trigger in your customer.”

Mr. Parathasarathy added, “Role of CFOs have evolved and today play a strategic role in scenario planning and honing their expertise. CFOs today are expected to identify business opportunities and be value creators. Nowhere is it more evident than in a start-up. Today every CFO should act as a start-up CFO because ICE ensure that there are no traditional businesses anymore and every business has to constantly adopt and change.”