Punishment can’t be meted out for “bonafide financial transactions” that have gone wrong, HDFC chairman Deepak Parekh said on Tuesday, calling on risk-averse banks to get back to the business of lending at a time when certain sectors, such as real estate, are gasping for liquidity to survive.
Speaking at the FE CFO Awards function in Mumbai, Parekh said leverage and liquidity are the two Ls that a smart CFO has to be the guardian of. Leverage is a “double-edged sword” and while it helps scale up businesses and enhances returns, it is the very tool that has caused the downfall of many a business, he said. Liquidity or the lack of it is the other “bugbear”. “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 up and new bankruptcy system has to be strengthened to prevent long overdue and long legal battles,” he said.
At a time when private capex has remained elusive for a long time, partly due to the fact that companies created huge capacities following indiscriminate lending by banks earlier, Parekh said businesses have erroneously believed that “ships can transform themselves into submarines and continue doing business despite being under water”. “So as the CFO, it’s your job to raise the red flag at the right time. Don’t be a silent CFO, assuming things will sort out themselves; neither be a CFO who says I have sounded a warning which nobody followed. You have to show spine; you have to speak up ….”
With the advent of the Insolvency and Bankruptcy Code (IBC), bankers have an excellent tool at their disposal to tackle the bad loan menace and the fear of losing their companies has prompted many promoters to settle cases after lenders have filed for insolvency proceedings at the NCLT, Parekh said.
“In easy liquidity conditions, lot of borrowing took place in the past. The merriment of the party continued as long as there was surplus liquidity and confidence in the system. But when the confidence is shaken, you all see the domino effect of that.”
Although gross non-performing asset ratio in the banking system is expected to ease for the first time in almost a decade, it would still be as high as 10.3 per cent by the end of 2018-19 under the baseline scenario (from as much as 11.2 per cent a year before), according to the latest RBI projection.
“The amount of request (for liquidity) that I have been seeing in the past few months, I have never seen in the last 40 years,” said the HDFC chairman.
Speaking at the event, Anant Goenka, executive director, the Indian Express Group, highlighted the evolving impression of CFOs towards marketing. Asserting that successful brands are much more important than their products, Goenka touched upon the changing focus of the world of advertising and marketing. In the 1950s, he said, brands were associated with products; by the 1990s, they were associated with customers and in the early 2000s, brands started to be associated with emotions. While some of the established brands such as Apple and Google have long resisted bait from fans to speak up against the Trump administration’s policies, Goenka feels brands must also speak up, especially in polarising times like these, to display their human side.
Highlighting the crucial role of CFOs, FE’s managing editor Sunil Jain said these samaritans work behind the scene, away from the limelight, to set things right in trying conditions. Earlier in a panel discussion on whether over-leverage has killed India Inc, moderated by FE’s deputy managing editor Shobhana Subramanian, some of the panelists said a sustained uptick in private capex cycle is still 12-16 months away. Koushik Chatterjee, executive director and CFO at Tata Steel who also won FE’s life-time achievement award, said the IBC has brought about a positive change in the credit culture. Seasonality doesn’t matter much in capex decisions when companies are optimistic about the long-term growth story, he added.
The panelists included Ajay Srinivasan, chief executive officer, Aditya Birla Capital; Vishakha Mulye, executive director, ICICI Bank; Pradip Shah, founder, IndAsia Fund Advisors; and Amit Tandon, founder and MD, Institutional Investor Advisory Services India.