Given the shortage of liquidity in the economy, bankers have to get back to the business of lending and punishment can’t be meted out for bonafide transactions that have gone wrong, HDFC chairman Deepak Parekh said Tuesday at the FE CFO Awards function in Mumbai. Delivering the keynote, Parekh said the shortage of liquidity was evident from the fact that he had got more requests in the last two weeks than he had received in 40 years at HDFC.
Parekh said that the lack of liquidity was a ‘bugbear’ for the economy presently. “See what has happened in the market, everyone is gasping for liquidity during the last two weeks. There is not a single company that doesn’t want to borrow money because they want to square off their debts and want to get their shares released as promoters,” he said.
“The amount of requests that I have been getting over the last two weeks, from practically everyone, I have never seen in 40 years in HDFC. So things are really not so good so far as liquidity is concerned,” Parekh added.
The HDFC chairman pointed out that the RBI has put enough liquidity in the system, but banks have been very cautious in their lending and are not lending to certain sectors.
“Punishment cannot be meted out for bonafide transactions that have gone wrong. Bankers have to get back to the business of lending. Companies have to get back to expanding and building India with financial discipline. Unviable institutions must be allowed to wind down and the bankruptcy system has to be ringfenced to prevent long overdues and long drawn legal battles,” he said.
He said the number of cases being resolved outside the bankruptcy system was a reason for cheer, and the implementation of the act was an excellent move that would help the banking system.
Parekh said that leverage is a “double-edged sword” and while it helps scale up businesses and enhances returns, it has caused the downfall of many.
“The movement from leverage to over-leverage is a very fine line. Equity has to be raised when the ship is in calm waters. Sometimes equity comes as a rescue mission. But nowadays very few are lucky to get the emergency rescue,” he said.
Parekh said businesses have erroneously believed that “ships can transform themselves into submarines and continue doing business despite being underwater”.
“As the CFO, it’s your job to raise the red flag at the right time. Don’t be a silent CFO, praying that things will be sorted out. Neither is it good enough for a CFO to say I sounded a warning but no one listened. You have to show spine; you have to speak up, you have to stand up, you have to hold your ground,” he said.
The HDFC chairman said that the sphere of influence of CFOs has changed over the years, as have the risks that they need to manage. “However, in my years and years of experience I have observed one aspect of a CFO’s job that has not changed at all: when things go wrong, the first one to be blamed is a CFO,” Parekh said.
“In boom times and easy liquidity there’s always the boss taking the credit. When the cycle changes, funds dry up, and financial results don’t meet expectations then no guesses who bears the brunt of it? So my advice to all CFOs is that if you can’t change who gets blamed, try to ensure you don’t get into trouble in the first place,” he said.