Saving Credit Raguram Rajan, Governor, RBI p.18 CFO Profile Harak Banthia p. 26 Lounge Cars Audi RS7 P. 42 Volume 02 Issue 02 75 FEBRUARY 2015 CFO India Raghuspeak : Saving Credit CFO Profile : Harak Banthia Lounge Cars: Audi RS7 volume Indian banks, especially the public sector banks, are being asked to do more than ever before. CFO India maps out the changes that are on the anvil. 02 Issue 02 A 9.9 Media Publication CFO February | 2015 12 raghuspeak 18 saving credit Inside Credit needs to be saved from creditors, says Dr Raghuram Rajan, Governor, Reserve Bank of India in practice - arbitration 30 why Indian firms prefer to go abroad to fix legal woes? Speedy dispute resolution and fewer legal hassles prompt Indian firms to opt for arbitration proceedings overseas. Leaders World 40 key questions for leaders in 2015 Asking the right questions is often the key to discovering the path ahead to progress. in practice - technology 36 Governance gets a tech impetus Two separate projects show the way on how present day governance models can gain from technology inputs. ProfileOn the fast Lane Harak Banthia When a venture achieves steady state, he believes it is time for him to look for new opportunities. 26 Indian banks, especially the public sector banks, are being asked to do more than ever before. CFO India maps out the changes that are on the anvil. Cfo lounge 42 on wheels | Audi Rs7 45 gizmos | Gionee elife s5.1 46 Book | Coping with mid-career crisis Regulars policy capsule 24 us promises $2 bn 04 LETTERS TO THE EDITOR 48 NOT JUST THE LAST WORD for clean tech PM Narendra Modi and Barak Obama, US President to callaborate in the area of clean energy and combact climate change. Event 44 The CFO Board Cover design Peterson PJ AD index Bharti Airtel IFC | Lease Plan 3 | Alcatel 5 | Sodexo 9 | ANZ Bank 11 | Epson ibc | Accenture BC from the MANAGING editor Shalini S. Dagar [email protected] @shalinisdagar Volume 02 | Issue 02 | FEBRUARY 2015 Managing Director: Dr Pramath Raj Sinha Money & Its Managers One character repeated endlessly in the Hindi films of certain era. It was the nasty money lender in the 60s. An Indianised Shylock. The nationalisation of Indian banks put paid to these villains who gave way to the nasty industrialist and villains of other hues and other reasons. As the government and the Reserve Bank of India try another dramatic transformation of the banking system, it is time to look for another version of the Indian villain. In the 21st century, while Wall Street and the Western world found their 1%, India is still searching. It is perhaps going to be the large borrowers who have subverted the banking system in the past lending weight to the phrase ‘crony capitalism.’ The gloves are coming off. In a recent interview to the New York Times, Reserve Bank of India governor, Raghuram Rajan said, one of the big focuses of the last few months has been, “How do we get the big promoter to absorb the losses and not shove it onto banks? And how do we make sure that the system works for everybody in the same way?” Our cover story this month trains the lens on some of the radical changes that are in the offing. Please do check it out and let us know whether we captured the spirit of the transformation. In tune with the times, we have a fabulous speech by the RBI Governor as part of the package. Another very interesting article is around the urgent need for India to develop arbitration processes that work effectively. For inspiration check out our CFO Profile of Harak Banthia who has made some big moves in his career. Leadership coach and motivation speaker David Lim as always sparkles. Last month, CFO India was involved in another pathbreaking initiative known as the CFO Board. Liked-minded senior finance professionals have come together under the chairmanship of former SEBI chairman, M. Damodaran to form a think tank for finance-related issues. Check out our coverage for more on this inspirational idea. February is a good month to get inspired. Over to North Block. We are ready and waiting, Mr Jaitley. Editorial EDITOR: Anuradha Das Mathur managing editor: Shalini S. Dagar reporting team: Monica Behura & Vartika Rawat PRINTER & PUBLISHER: Kanak Ghosh Design Sr. Creative Director: Jayan K. Narayanan Sr. Art Director: Anil V.K. Associate Art Director: Anil T. Sr. Visualisers: Shigil Narayanan & Sristi Maurya Visualiser: N.V. Baiju Sr. Designers: Haridas Balan, Charu Dwivedi, Peterson P.J, Dinesh Devgan & Manjith PB & Pradeep G. Nair Designers: Vikas Sharma ONLINE & MARCOM DESIGN Associate Art Director: Shokeen Saifi Sr.Designers: Rahul Babu & Manoj Kumar V.P Web Designer: Om Prakash PHOTOGRAPHY Chief Photographer: Subhojit Paul Sr. Photographer: Jiten Gandhi The CFO Institute General Manager, Nine Dot Nine Mediaworx Pvt Ltd.: Seema Menon (+91 9740394000) Brand Manager: Nisha Anand Senior Manager, CFO India: Alolika Savant MANAGER: Dr Leena Narain Assistant Manager, CFO India: Himanshi Rathore Sales & Marketing Vice President – Sales & Marketing: Naveen Chand Singh (+91 9901300772) National Head – Special Projects: Arjun Sawhney (+91 9582220507) Senior Manager (South): Anshu Kumar (+91 9591455661) Manager- Business Development: Lokesh Anand Business Development Manager: Sukhvinder Singh (+91 8802689684) Production & Logistics Senior General Manager (Operations): Shivshankar Hiremath Manager Operations: Rakesh Upadhyay Manager Logistics: Vijay Menon Executive Logistics: Nilesh Shiravadekar Assistant Production manager: Vilas Mhatre Logistics: MP Singh, Mohamed Ansari officE addrEss Nine Dot Nine Interactive Pvt. Ltd. Office No. B201-B202, Arjun Centre B Wing, Station Road, Govandi (East), Mumbai 400088 INDIA. Published & Printed by Kanak Ghosh for the owners, Nine Dot Nine Interactive Pvt. Ltd. Published by him at A-262, 2nd Floor, Defence Colony, New Delhi – 110 024 and Printed at Tara Art Printers Pvt. ltd., A-46-47, Sector – 5, NOIDA (U.P.) 201301 EDITOR: Anuradha Das Mathur All rights reserved: Reproduction in whole or in part without written permission from Nine Dot Nine Interactive Pvt. Ltd. is prohibited. subscriber services: Call +91-120-4010999 Visit CFO India’s Website www.cfo-india.in 2 CFO india F A B R U ar y 2 0 1 5 CFO INDIA February 2015 Letters Well done The articles are very informative and well written. Continue the good work and look forward to reading more such articles this year too. – Ujwal Ravi Kadri General Manager, ERIEZ Magnetics India 02.15 Your voice can make a change: Share your viewpoint on what’s happening in the community and your feedback on the magazine at [email protected] civil society role in ppps good for update The articles on PPP in the January issue of CFO India certainly capture the zeitgeist of the Modi era. I feel the involvement of the civil society is critical in the successful implementation of the PPP projects. Also the government should be willing to share the risks associated with large PPP projects instead of making the private sector solely responsible for the outcome. – K. Raghupathi Director, Avasarala Tecnologies Ltd The January issue of CFO India was very useful. It helped us update some data for quick decisions. – RS Kartick Baabu Finance head, GoFrugal Technologies ANNIVERSARY WISHES The anniversary issue was outstanding and is testimony to what can be done with a magazine. Congratulations and please do not stop. – Hemant K. Ruia CFO & Head, IS & Legal, Agrotech HAPPY READER The January issue was very insightful. – DD Jalan CFO, Vedanta Resources Plc ANOTHER HAPPY READER The January issue revealed an eclectic mix of topical, newsy, therapeutic and infotaining articles. The writing was crisp and the style was racy. Good stuff! – Ranjeev C. Dubey Managing Partner, N South Advocates Yet another... Your team is doing a great job. – Sudip Mehta DGM, Corporate Affairs, M&M Financial Services 4 CFO india February 2015 And some MORE... Hearty congratulations on completing an extremely impactful five years. The magazine has clearly evolved into a thought provoking medium for various finance, corporate governance and business matters. I quite liked the format of the anniversary issue and the specific opinions that were solicited for each. India is on the cusp of a possibly fast and steep upswing and the business environment is no exception. The thoughts you have raised are integral to keep in mind as the country pursues this positive thrust towards sustainable growth. – Sathya Kalyansundaram Director of Finance & administration Bally Technologies India Plus Plus/DEC/2014 We offer complete technology solutions & services under one roof ! 02.15 environment 2014: The warmest year for Earth since 1880 LAST YEAR was the hottest on earth since record-keeping began in 1880, scientists reported The New York Times, underscoring warnings about the risks of runaway greenhouse gas emissions and undermining claims by climate change contrarians that global warming had somehow stopped. Extreme heat blanketed Alaska and much of the western United States last year. Records were set across large areas of every continent. And the ocean surface was unusually warm virtually everywhere except near Antarctica, scientists said, providing energy that fueled damaging Pacific storms. In the annals of climatology, 2014 surpassed 2010 as the warmest year. The 10 warmest years have all occurred since 1997, a reflection of the relentless planetary warming that scientists say is a consequence of human activity and poses profound long-term risks to civilization and nature. “Climate change is perhaps the major challenge of our generation,” said Michael H. Freilich, director of earth sciences at NASA. 6 CFO india February 2015 Of the large land areas where many people live, only the eastern portion of the United States recorded belowaverage temperatures in 2014, in sharp contrast to the unusual heat in the West. Some experts think the weather pattern that produced those extremes is an indirect consequence of the release of greenhouse gases, though that is not proven. Scientists said the most remarkable thing about the 2014 record was that it had occurred in a year that did not feature a strong El Niño, a large-scale weather pattern in which the Pacific Ocean pumps an enormous amount of heat into the atmosphere. Skeptics of climate change have long argued that global warming stopped around 1998, when an unusually powerful El Niño produced the hottest year of the 20th century. But that temperature is now being surpassed every four or five years, and 2014 was the first time without a significant El Niño. Gavin A. Schmidt, head of NASA’s Goddard Institute for Space Studies said the next strong El Niño would probably rout all temperature records. What’s AROUND ZONE Earth hottest in ‘14 ...............................................Pg 06 CFO Book: ........................................................... Pg 08 Jargon Buster: Turbo Charge................................ Pg 08 CFO Movements...................................................Pg 09 THE CFO POLL 62% Yes result 33% No Is your company ready for GST? 5% Still need work current POLL question Do you think your demands will be fulfilled by FM in the Union Budget? Vote now at www.cfoinstitute.com/poll HEALTH Nytol risks Alzheimer Space thinkstockphotos.in Ever Seen a Green Comet? If you were looking up at the sky the past couple of weeks you may have noticed a greenish glow. That was Comet Lovejoy, also known as C/2014 Q2, passing through the solar system more than 50 million miles away from our own planet. Astronomer Terry Lovejoy from Queensland, Australia is the man who discovered the comet and four others like it in previous years. Various astrophotographers point their cameras towards the sky to catch a glimpse of the passing comet this month. Lane’s photograph of Lovejoy was created using a series of three long-exposure shots from rural Kansas. The comet was visible throughout the Northern Hemisphere since last month and was expected to reach its peak visibility in mid-January. OVER-THE-COUNTER sleeping aids and hayfever treatments can increase the risk of Alzheimer’s disease, a study recently found. The sleeping medication Nytol and anti-allergy pills Benadryl and Piriton all belong to a class of drug highlighted in a warning from researchers. The Guardian reports that each of these drugs has “anticholinergic” blocking effects on the nervous system that are said – at higher doses – to raise the likelihood of developing Alzheimer’s and other forms of dementia significantly over several years. Other drugs on the risk list include older “tricyclic” antidepressants such as doxepin, and the bladder control treatment Ditropan (oxybutynin). Many of these medicines are taken by vulnerable older people, according to the scientists, who say their findings have public health implications. Anticholinergic drugs block a nervous system chemical transmitter called acetylcholine, which can lead to sideeffects including drowsiness, blurred vision and poor memory. People with Alzheimer’s disease are known to lack acetylcholine. For those taking the highest doses of anticholinergic drugs over the study period, the relative risk of dementia was increased by a statistically significant 54% compared with no use. Risk of Alzheimer’s alone was up by 63%. The researchers pointed out that anticholinergic effects in animals had been shown to increase levels of beta-amyloid protein in the brain, one of the hallmarks of Alzheimer’s. They concluded: These findings have public health implications for the education of older adults about potential safety risks because some anticholinergics are available as over-the-counter products. February 2015 CFO india 7 O-ZONE cfobook jARGON BUSTER J K GUPTA Wall Info Boxes PHRASE: TURBO charge + What’s on your mind? Attach Share J K Gupta likes to read the Economic Times & Hindustan Times January 15 at 06.20 · 10 comments · 16 people like this WORK J K Gupta likes to spend time with his family Chief Financial Officer at CMC- April 2002 till date Chief Financial Officer & Executive Vice preseident, Access Group, Zee Network - March 2000 to April 2002 Manager- Fianance & Investor Relations, SAIL May 1985 to March 2000 January 25 at 17.20 · 20 comments · 30 people like this J K Gupta wishes to coach kids for future challenges January 29 at 18.45 · 31 comments · 25 people like this J K Gupta spent time with Sahapedia, (a society which intends to create digital information base relating to Indian heritage) EDUCATION MBA - Faculty of Management Studies, Delhi University LLB - Delhi University Associate’s Degree - Institute of Cost and Work Accountants of India Bachelors in Commerce - Shri Ram College, Delhi University I Listen... Bollywood Music 29 comments · 38 people like this Recent activity J K Gupta recently visited Europe with his family Is listening to his favourite singer Arijit Singh January 8 at 10.13 · Comments · 22 people like this HEALTH THE MEANING Term used to sell a super-expensive yet totally useless idea to a client. THE USAGE “We’re going to turbo charge your pet food campaign by live-casting happy marmots dancing on the moon on your custom YouTube channel! You know the Internet loves funny animals.” Life is less stressful thanks to technology Among New Year’s resolutions shared on Twitter, unplugging digitally came right after losing weight and quitting smoking. People are flocking to digital detoxes, screen-free bedrooms and apps that nudge you off your phone. New York Times reported that such resolutions are in response to the notion that digital technology — like round-the-clock email and friends’ envy-inducing Instagram photos — is stressing us out and making us unhealthy. But a new study by researcher at Pew Research Center and Rutgers University found the opposite: Frequent internet and social media users do not have higher stress levels than those who use them less often. And for women, using certain digital tools decreases stress,” said Lee Rainie, director of internet, science and technology research at Pew. 8 CFO india February 2015 GIVE MORE GET MORE Benefits Dissatisfaction Inconvenience Performance BENEFITS AND REWARDS SERVICES Give More benefits to employees and Get higher performance Employee happiness has got a new formula. Sodexo Benefits and Rewards services offer great tools to keep your employees motivated and engaged. Employees across more than 10000+ corporates and Top PSUs have benefited with Sodexo as a part of their Employee Benefit Plan. Do you have it in yours ? Tangible HR Tax friendly benet Hassle Free, Flexible and Customizable Great Choice across fast-food chains, restaurants, cafeterias, food courts etc. Substantial Cost Savings Multi-location delivery Accepted in 20,000 Outlets across 1500 cities For Sodexo Benefits, please call us at 1800 102 2423, Email us at bene[email protected], Visit us at www.sodexobenets.in O-ZONE CFO movements Economy Ebola: Depressing African Economy It has almost completely vanished from the news in the United States, but Ebola persists in three countries in Africa: Liberia, Guinea, and Sierra Leone. The World Health Organization’s update puts the case toll at 21,171 in those three countries, with 8,371 deaths. The uncomfortable reality is that the impact of Ebola reaches far beyond those individual cases. The World Bank predicts that the disease will cripple the economies of these countries in the future. Households across Liberia have undertaken various mechanisms to cope with Ebola’s socio-economic effects. Eighty percent of those surveyed had either sold assets, sold or slaughtered livestock, borrowed money, sent their children to live elsewhere, spent savings or delayed investments since the start of the Ebola crisis — all of which can have negative long-term effects on their welfare. If the epidemic continues in the three worst- affected countries and spreads to neighbors, the two-year regional financial impact could range from a “low Ebola” estimate of $3.8 billion to a “high Ebola” estimate of $32.6 billion, says the report in Wired. Etc. How the Smell of Rain Bubbles From the Ground A FAMILIAR scent fills the air after a dry stretch is broken by a summer rain. There is even a word for this fresh, earthy smell: petrichor. The term was coined in the 1960s when scientists reported that the smell came from chemicals in the surface that the rain landed on, reports NYT. Somehow the rain brought out this smell, but the exact process wasn’t known until two M.I.T. scientists captured the process in high-speed video. They were testing the absorption of drops by various artificial surfaces, later including the natural soils. They found that at the right velocity on the right kind of soil (sandy clay works, but sand doesn’t) a falling water drop can trap tiny air bubbles under it. Those bubbles capture molecules in the soil. As the water drop deforms, the bubbles scoot up through the drop and jet out into the air, like champagne bubbles or spray from a crashing wave. 10 CFO india February 2015 Vippy Spinpro gets new CFO Vippy Spinpro Ltd has informed BSE that Ms. Sanju Patel has been appointed as Company Secretary (CS) & Chief Financial Officer (CFO) of the Company. Jarigold Textiles appoints CFO Jarigold Textiles announced the appointment of Haresh M. Bhavsar as Chief Financial Officer (CFO) of the Company. ETT Board appoints new CFO ETT announced has appointed Puniti Sharma, Company Secretary as Chief Financial Officer (CFO) of the Company. TRF has a change in CFO TRF Ltd has Mr. Mani Kumar Jha as the new Chief Financial Officer with designation of Chief, Finance & Accounts of the Company. Daftary CFO at ABG Shipyard ABG Shipyard Ltd has appointed Mr. Hasmukh D. Daftary as the new Chief Financial Officer (CFO) of the Company. New finance heat at Oasis Securities Oasis Securities Ltd has appointed Mr. Narendra Thanvi as Chief Financial Officer of the Company. Ikab Securities has new CFO Ikab Securities & Investment Ltd has informed BSE that Mr. Abhishek Bagi has been appointed as Chief Financial Officer (CFO). 12 CFO india February 2015 Cover Story Bank overhaul Indian banks, especially the public sector banks, are being asked to do more than ever before. CFO India maps out the changes that are on the anvil. Shalini S. Dagar Illustration: Peterson PJ, Design: Vikas Sharma A couple of years ago, when Ruchir Sharma, emerging markets head at Morgan Stanley Investment Management came out with his book Breakout Nations, one of the key themes in the book was the desirability of churn among the top companies in a country. The idea simply was that a high degree of churn, in say, the benchmark stock index is reflective of a higher degree of health, entrepreneurship and innovation. Sharma’s contention was that while liberalisation did unleash a great churn in India, it was limited to the decade of the 90s. The churn slowed down considerably in the decade and a half that followed. Now under a new political regime in India, there is a political mandate for change that extends to the economic sphere as well. That need for change and churn permeates the financial architecture too. The signal for the banking industry which is at the fulcrum of economic change is clear when the Prime Minister begins the year with a large gathering of bankers—mostly managers of public sector banks, but also a clutch of high profile private bankers. Following the retreat, Minister of State for Finance, Jayant Sinha was quoted in a business paper as saying, “no government has done such fundamental banking reforms in last 45 years.” He reiterated the same message at the launch of The CFO Board a few days later. (See story on Pg 44) It is not going to be business as usual any longer for the public sector banks which still command over 70 per cent of the market share in India. The signs have been there for some time. And as former deputy governor of the Reserve Bank of India, KC Chakrabarty says, “an overFebruary 2015 CFO india 13 Cover Story Bank overhaul haul is inevitable.” Even as India rises up the scale on economic growth and is poised to overtake China in such sweepstakes, Indian banks are not noticeable in the big league of global banks, with the State Bank of India, India’s largest lender the only Indian bank in the top 100. (See table) need for change The triggers for comprehensive banking reforms are various. With business and financial risk increasingly becoming more volatile, uncertain, complex and ambiguous (VUCA), the global challenges are accentuated in the case of India where the largely public sec- Change in the Air “Government has no vested interest. And public sector banks can derive strength from this fact.” Narendra Modi Prime Minister of India at the two day bankers’ retreat in Pune “Banks should take all commercial decisions in the best interests of the organisation, without any fear or favour.” arun jaitley Finance Minister of India “We need a change in mindset, where the wilful defaulter is not lionised as a captain of industry, but justly chastised as a freeloader.” Raghuram rajan Governor, Reserve Bank of India 14 CFO india February 2015 tor nature of banking and an embedded oligarchy lead to a special kind of problems. However, there were some real, hard and immediate reasons for PM Modi to spend time at the two-day bankers’ retreat called Gyan Sangam. The last few years of sluggish economic growth has manifested these issues in stressed banking assets. For a sense of perspective, sample these figures nearly 79 per cent of total bank provisions are held by public sector banks. As of December 2013 Indian banks collectively held loan provisions for Rs 98,593 crore, with nearly a third being held by the SBI group. Even as policy glitches, judicial cancellation of telecom and coal licenses caused some misery, these years have also exposed the underlying systemic issues in the sector. Issues of imprudent corporate leverage and inadequate credit appraisal methods go hand in hand to create large spills of red ink on the balance sheet of banks. The arrest of the Syndicate Bank head in a bribe-for-credit scam was another sign of the rot. The businessman-banker-politician nexus was at the root of the arrest. The other story that is still playing out is that of Kingfisher Airlines where banks have been trying to fix the label of willful defaulter on the company and its directors. In the following article, RBI Governor, Raghuram Rajan in a speech outlines in detail the pernicious influence that deliberate defaults by large borrowers have on the overall climate for funding. (See story on Pg18) However, much of the systemic grief comes from the state-owned banks which still constitute a bulk of the total assets in Indian banking. Last summer, the high level panel on bank reforms chaired by former Axis Bank head, PJ Nayak grimly said in its overview: “The financial position of public sector banks is fragile, partly masked by regulatory forbearance. Capital is significantly eroded with the proportion of stressed assets rising rapidly.” The weakening of the public sector banks can cause much fiscal trouble. Cover Story Bank overhaul haul is inevitable.” Even as India rises up the scale on economic growth and is poised to overtake China in such sweepstakes, Indian banks are not noticeable in the big league of global banks, with the State Bank of India, India’s largest lender the only Indian bank in the top 100. (See table) need for change The triggers for comprehensive banking reforms are various. With business and financial risk increasingly becoming more volatile, uncertain, complex and ambiguous (VUCA), the global challenges are accentuated in the case of India where the largely public sec- Change in the Air “Government has no vested interest. And public sector banks can derive strength from this fact.” Narender Modi Prime Minister of India at the two day bankers’ retreat in Pune “Banks should take all commercial decisions in the best interests of the organisation, without any fear or favour.” arun jaitley Finance Minister of India “We need a change in mindset, where the wilful defaulter is not lionised as a captain of industry, but justly chastised as a freeloader.” Raghuram rajan Governor, Reserve Bank of India 14 CFO india February 2015 tor nature of banking and an embedded oligarchy lead to a special kind of problems. However, there were some real, hard and immediate reasons for PM Modi to spend time at the two-day bankers’ retreat called Gyan Sangam. The last few years of sluggish economic growth has manifested these issues in stressed banking assets. For a sense of perspective, sample these figures nearly 79 per cent of total bank provisions are held by public sector banks. As of December 2013 Indian banks collectively held loan provisions for Rs 98,593 crore, with nearly a third being held by the SBI group. Even as policy glitches, judicial cancellation of telecom and coal licenses caused some misery, these years have also exposed the underlying systemic issues in the sector. Issues of imprudent corporate leverage and inadequate credit appraisal methods go hand in hand to create large spills of red ink on the balance sheet of banks. The arrest of the Syndicate Bank head in a bribe-for-credit scam was another sign of the rot. The businessman-banker-politician nexus was at the root of the arrest. The other story that is still playing out is that of Kingfisher Airlines where banks have been trying to fix the label of willful defaulter on the company and its directors. In the following article, RBI Governor, Raghuram Rajan in a speech outlines in detail the pernicious influence that deliberate defaults by large borrowers have on the overall climate for funding. (See story on Pg18) However, much of the systemic grief comes from the state-owned banks which still constitute a bulk of the total assets in Indian banking. Last summer, the high level panel on bank reforms chaired by former Axis Bank head, PJ Nayak grimly said in its overview: “The financial position of public sector banks is fragile, partly masked by regulatory forbearance. Capital is significantly eroded with the proportion of stressed assets rising rapidly.” The weakening of the public sector banks can cause much fiscal trouble. cover story According to Fitch Ratings, Indian banks need around $200 billion to bolster their capital adequacy. Such levels of recapitalisation can be challenging for any government, not just one trying to claw back its path to fiscal prudence. In any case as Udayan Bose, veteran banker and former chairman of Lazard India points, “investors would also like to invest in cleaner banks.” A massive clean-up and overhaul is therefore an imperative to lighten the government’s load. Private banks are no strangers to evergreening of assets but then they are exposed more harshly to market realities. road to change The Nayak committee alluded to Schumpeterian ‘creative destruction’ which characterises any industry and changes in market structure. While the private sector banks in India have cornered an additional 9 per cent market share between 2000 and 2013 largely at the expense of public sector banks, in the Indian banking system such creative destruction has been underpinned by government ownership of a large share of the industry. And therefore as former central banker Chakrabarty points out the first cornerstone of reform will be an ownership-agnostic regulatory regime. “Regulation should be ownership-neutral. The guidelines for ‘fit and proper’ cannot be different for public sector banks. There is no scope for regulatory forbearance,” he adds. Public sector banks are therefore going to be held accountable to the same norms and standards as are expected of the private sector and foreign banks. No wonder that the Prime Minister promised that the bank managements would get no phone calls from his government, but that free hand comes with accountability. Simultaneously, the government is also working on putting in place a bankruptcy code for companies with failed businesses. Predictably, the second item on the reform list will be appropriate governance standards and framework. The Nayak Committee report was scathing when it said, “it is unclear that the boards of most of these banks have the required sense of purpose, in terms of their focus on business strategy and risk management, in being able to provide oversight to steer the banks through their present difficult position.” The committee highlighted the inadequate focus that was placed in many boards on long term strategy. Again the public sector banks appear to be more susceptible. CFO India got in touch with the heads of some of these banks. Most remained tight-lipped, but as Bose says the quantum of desired change is a huge ask. Lack of appropriate talent and also constraints around compensation structures hamper the PSU banks. Yet again the ball is in the government’s court. Some bankers believe that talent is often a red herring. “All that one requires is good governance,” says one while adding that the appropriate grooming can tide over the crisis fairly quickly. “Our problems are quite simple. And they are not lack of knowledge or skills, but lack of courage.” However, the fast pace of change in the operating environment for banks especially on the technology side is creating a sharp edge to this overhaul. Mobile banking and virtual currencies Need for reform Indian banking system needs to change urgently if it has to keep up with the aspirations of 8-9% economic growth. India has the lowest number of banks per 100,000 people at 0.01, while the median number in a WB survey is 0.4. It is estimated that rural India had only 7 branches per 1,00,000 adults in 2011 in sharp contrast with most of the developed and even BRICS economies having over 40 branches. Even with 157 domestic banks operating in the country, including 26 Public Sector Banks, 7 New Private Sector Banks, 13 Old Private Sector Banks, 43 Foreign Banks, 4 Local Area Banks, 64 RRBs, just about 40% of the adults had formal bank accounts in 2013. In the global league table for 2014 based on the size of assets, State Bank of India at 54th position is the only Indian bank in the top 100 banks. Rank of Indian banks in the global league Name of Indian bank Rank SBI 54 ICICI Bank 107 HDFC Bank 133 Axis Bank 178 February 2015 CFO india 15 Cover Story Bank overhaul Gross NPA vs GDP in India GDP 11.4% 9.6 9.5 10.4% 8.8% 9.3 7.0 4.2 8.4 8.4 8.0 7.2% 5.4 6.7 6.5 5.2% 3.9 3.3% 2.2% FY02 FY03 FY04 FY05 only mark some of the more dramatic changes occurring in this landscape. “Even the basics of banking today are technology-led,” says Saurabh Tripathi, Partner and director at Boston Consulting Group who heads the financial services practice. PSU banks which are considered to be a generation behind their more nimble competitors are also hamstrung by the vigilance framework that they operate under such as Central Vigilance Commission or the Right to Information requirements. “How do you run a commercial enterprise with such constraints? It is no way to compete in the market,” he says. And the third piece in the transformation will eventually involve the regulatory market. As Dr Chakrabarty points out, “discretion-based regulation has to end.” For public sector banks, in addition to the Reserve Bank of India as the regulator, the government also acts as something more than powerful shareholder. Acting on the Financial Ser16 CFO india February 2015 FY06 4.9 4.5 2.5% FY01 GNPA FY07 FY08 FY09 The onus for radical change lies with the government. A new regime sans political baggage is better equipped to solve problems. vices Legislative Reforms Commission (FSLRC) will bring in accountability into the regulatory process too. short run In the immediate future, the onus for radical change lies with the government. A new dispensation without any political baggage is better equipped to handle many of these challenges, reckon most observers of the banking industry. FY10 3.1% 2.5% 2.4% 2.3% FY11 FY12 4.5% 3.6% FY13 FY14E So far the noises emanating from the government quarters are encouraging, yet as Tripathi points out many of the reform items that have been promised are quite difficult. “They can open up a Pandora’s box. The crucial question is how high up the government’s agenda is banking reform?” he asks. The unspoken question in the air is whether the government can trade this reform piece off for a pragmatic and more achievable reform measures. Dr Chakrabarty agrees. “Reform cannot happen piecemeal. It has to happen as a package deal. More than the financial sector, it is the real sector which needs more reform,” he adds. And the true test of the appetite for reform will come from the way in which some of the existing cases of defaults are treated. So far it is only the bankers who have been hauled up. The other players of the game are still free. Keep watching this space. Cover Story Saving Credit Credit needs to be saved from creditors, says Dr Raghuram Rajan, Governor, Reserve Bank of India. r. Kurien was a pioneer in the co-operative movement. He not only was instrumental in bringing about the White Revolution but he also built a variety of institutions, including Amul, Indian Institute of Rural Management (IRMA) and National Dairy Development Board (NDDB). In creating the means by which farmers could get remunerative, stable incomes, even while professionals managed their interactions with the modern market economy, Dr. Kurien created a uniquely Indian model that has brought millions out of poverty. A man of strong convictions, determination, and integrity, he truly is a giant of postindependence India. Dr. Kurien showed people the way to remunerative livelihoods, perhaps the best form of economic inclusion. I have little expertise on the technologies and institutions he pioneered, so I will not opine on them. Instead, I want to focus on another instrument for expanding human well-being, credit. At a time when demand for bank credit is weak, even while we are likely to have enormous demand for it if investment picks up, we have to ask if India’s system of credit is healthy. Unfortunately, the answer is that it is not. We need fundamental reforms starting with a change in mind set. A public lecture in the memory of a great Indian who did much to change our mind sets is a perfect place to make the case. 18 CFO india February 2015 cover story The Debt Contract The flow of credit relies on the sanctity of the debt contract. A debt contract is one where a borrower, be it a small farmer or the promoter of a large petrochemical plant, raises money with the promise to repay interest and principal according to a specified schedule. If the borrower cannot meet his promise, he is in default. In the standard debt contract through the course of history and across the world, default means the borrower has to make substantial sacrifices, else he would have no incentive to repay. For instance, a defaulting banker in Barcelona in mediaeval times was given time to repay his debts, during which he was put on a diet of bread and water. At the end of the period, if he could not pay he was beheaded. Punishments became less harsh over time. If you defaulted in Victorian England, you went to debtor’s prison. Today, the borrower typically only forfeits the assets that have been financed, and sometimes personal property too if he is not protected by limited liability, unless he has acted fraudulently. Why should the lender not share in the losses to the full extent? That is because he is not a full managing partner in the enterprise. In return for not sharing in the large profits if the enterprise does well, the lender is absolved from sharing the losses when it does badly, to the extent possible. By agreeing to protect the lender from “downside” risk, the borrower gets cheaper financing, which allows him to retain more of the “upside” generated if his enterprise is successful. Moreover, he can get money from total strangers, who have no intimate knowledge of his enterprise or his management capabilities, fully reassured by the fact that they can seize the hard collateral that is available if the borrower defaults. This is why banks offer to finance your car or home loan today at just over 10 percent, just a couple of percentage points over the policy rate. to finance the enormous infrastructure needs and industrial growth that this country aims to attain. The reality is that too many large borrowers see the lender, typically a bank, as holding not a senior debt claim that overrides all other claims when the borrower gets into trouble, but a claim junior to his equity claim. In much of the globe, when a large borrower defaults, he is contrite and desperate to show that the lender should continue to trust him with management of the enterprise. In India, too many large borrowers insist on their divine right to stay in control despite their unwillingness to put in new money. The firm and its many workers, as well as past bank loans, are the hostages in this game of chicken -- the promoter threatens to run the enterprise into the ground unless the government, banks, and regulators make the concessions that are necessary to keep it alive. And if the enterprise regains health, the promoter retains all the upside, forgetting the help he got from the government or the banks – after all, banks should be happy they got some of their money back! No wonder government ministers worry about a country where we have many sick companies but no “sick” promoters. Let me emphasize that I do not intend in any way to cast aspersions on the majority of Indian businesspeople who treat creditors fairly. I also don’t want to argue against risk taking in business. If business does not take risks, we will not get architectural marvels like our new international airports, the “developed-forIndia” low cost business model in the telecom sector or our world class refineries. Risk taking inevitably means the possibility of default. An economy where there is no default is an economy where promoters and banks are taking too little risk. What I am warning against is the uneven sharing of risk and returns in enterprise, against all contractual norms established the world over – where promoters have a class of “super” equity which retains all the upside in good times and very little of the downside in bad times, while creditors, typically public sector banks, hold “junior” debt and get none of the fat returns in good times while absorbing much of the losses in bad times. In India, too many large borrowers insist on their divine right to stay in control despite their unwillingness to put in new money. There are hostages in this game of chicken. Violating the Spirit of Debt The problem I want to focus on in this lecture is that the sanctity of the debt contract has been continuously eroded in India in recent years, not by the small borrower but by the large borrower. And this has to change if we are to get banks February 2015 CFO india 19 Cover Story Saving Credit Why does it happen? Why do we have this state of affairs? The most obvious reason is that the system protects the large borrower and his divine right to stay in control. This is not for want of laws. The Debts Recovery Tribunals (DRTs) were set up under the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993 to help banks and financial institutions recover their dues speedily without being subject to the lengthy procedures of usual civil courts. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002 went a step further by enabling banks and some financial institutions to enforce their security interest and recover dues even without approaching the DRTs. Yet the amount banks recover from defaulted debt is both meagre and long delayed. The amount recovered from cases decided in 2013-14 under DRTs was Rs 30,590 crore while the outstanding value of debt sought to be recovered was a huge Rs 2,36,600 crore. Thus recovery was only 13 per cent of the amount at stake. Worse, even though the law indicates that cases before the DRT should be disposed off in 6 months, only about a fourth of the cases pending at the beginning of the year are disposed off during the year – suggesting a four year wait even if the tribunals focus only on old cases. However, in 2013-14, the number of new cases filed during the year was about one and a half times the cases disposed off during the year. Thus backlogs and delays are growing, not coming down. Why is this happening? The judgments of the DRTs can be appealed to Debt Recovery Appellate Tribunals, and while there are 33 of the former, there are only five of the latter. And even though section 18 of the RDDBFI Act is intended to prevent higher constitutional courts from intervening routinely in DRT and DRAT judgments, the honourable Supreme Court recently lamented that “it is a matter of serious concern that despite the pronouncements of this Court, the High Courts continue to ignore the availability of statutory remedies under the RDDBFI Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues.” The consequences of the delays in obtaining judgements because of repeated protracted appeals implies that when recovery actually takes place, the enterprise has usually been stripped clean of value. The present value of what the bank can hope to recover is a pittance. This skews bargaining power towards the borrower who can command the finest legal brains to work for him in repeated appeals or the borrower who has the influence to obtain stays from local courts–typically the large borrower. Faced with this asymmetry of power, banks are tempted to cave in and take the unfair deal the borrower offers. The bank’s debt becomes junior debt and the promoter’s equity becomes super equity. The promoter enjoys riskless capitalism – even in these times of very slow growth, how many large promoters have lost their homes or have had to curb their lifestyles despite offering personal guarantees to lenders? The public believes the large promoter makes merry because of sweet deals between him and the banker. While these views have gained currency because of recent revelations of possible corruption in banks, my sense is that Occam’s Razor suggests a more relevant explanation – the system renders the banker helpless vis-a-vis the large and influential promoter. While we should not slow our efforts to bring better governance and more transparency to banking, we also need to focus on reforming the system. Who pays for this one way bet large promoters enjoy? Clearly, the hard working savers and taxpayers of this country! As just one measure, the total write-offs of loans made by the commercial banks in the last five years is 1,61,018 crore, which is 1.27 per cent of GDP. Of course, some of this amount will be recovered, but given the size of stressed assets in the system, there will be more write-offs to come. To put these amounts in perspective – thousands of crore often become meaningless to the lay person –1.27 per cent of GDP would have allowed 1.5 million of the poorest children to get a full university degree from the top private universities in the country, all expenses paid. The promoter enjoys riskless capitalism– even in these times of very slow growth, how many have had to curb their lifestyle despite offering personal guarantees to lenders? 20 CFO india February 2015 The Consequences Let me emphasize again that I am not worried as much cover story about losses stemming from business risk as I am about the sharing of those losses –because, ultimately, one consequence of skewed and unfair sharing is to make credit costlier and less available. The promoter who misuses the system ensures that banks then charge a premium for business loans. The average interest rate on loans to the power sector today is 13.7 per cent even while the policy rate is 8 per cent. The difference, also known as the credit risk premium of 5.7 per cent is largely compensation banks demand for the risk of default and non-payment. Since the unscrupulous promoter hides among the scrupulous ones, every businessperson is tainted by the bad eggs in the basket. Even comparing the rate on the power sector loan with the average rate available on the home loan of 10.7 per cent, it is obvious that even good power sector firms are paying much more than the average household because of bank worries about whether they will recover loans. Reforms that lower this 300 basis point risk premium of power sector loans visa-vis home loans would have large beneficial effects on the cost of finance, perhaps as much or more than any monetary policy accommodation. A second consequence is that the law becomes more draconian in an attempt to force payment. The SARFAESI Act of 2002 is, by the standards of most countries, very pro-creditor as it is written. This was probably an attempt by legislators to reduce the burden on DRTs and force promoters to pay. But its full force is felt by the small entrepreneur who Raghuram Rajan Governor, Reserve Bank of India does not have the wherewithal to hire expensive lawyers or move the courts, even while the influential promoter once again escapes its rigour. The small entrepreneur’s assets are then? Indeed, Viral Acharya of New York University (NYU) repossessed quickly and sold, extinguishing many a promisand Krishnamurthi Subramanian of Indian School of Busiing business that could do with a little support from bankers. ness (ISB) show in a compelling study that innovation is A draconian law does perhaps as much damage as a weak lower in countries with much stricter creditor rights. Or law, not just because it results in a loss of value on default put differently, the solution to our current problems is not but also because it diminishes the incentive to take risk. For to make the laws even more draconian but to see how we (example), think of a mediaeval businessman who knows can get more equitable and efficiency-enhancing sharing of he will be imprisoned or even beheaded if he defaults. What losses on default. incentive will he have to engage in innovative but risky busiA final consequence of the inequitable sharing of losses in ness? Is it any wonder that business was very conservative distress is that it brings the whole free enterprise system into “Even good power sector firms are paying much more than the average household because of bank worries.” February 2015 CFO india 21 Cover Story Saving Credit disrepute. When some businessmen enjoy a privileged existence, risking other people’s money but never their own, the public and their representatives get angry. I have met numerous parliamentarians who are outraged at the current state of affairs. If the resolution of these issues is taken out of the realm of the commercial into the realm of the political, it will set back industrial growth. Reforms therefore assume urgency. What we need is a more balanced system, one that forces the large borrower to share more pain, while being a little more friendly to the small borrower. The system should shut down businesses that have no hope of creating value, while reviving and preserving those that can add value. And the system should preserve the priority of contracts, giving creditors a greater share and greater control when the enterprise is unable to pay, while requiring promoters to give up more. A better balance How do we achieve this better balance? Let us start with better capital structures. The reason so many projects are in trouble today is because they were structured up front with too little equity, sometimes borrowed by the promoter from elsewhere. And some promoters find ways to take out the equity as soon as the project gets going, so there really is no cushion when bad times hit. Lenders should insist on more real equity up front, and monitor the project closely to ensure it stays in. Promoters should not try and finance mega projects with tiny slivers of equity. We also need to encourage more institutional investors, who have the wherewithal to monitor promoters, to bring equity capital into projects. Banks need to react more quickly and in a concerted way to borrower distress. The longer the delay in dealing with the borrower’s financial distress, the greater the loss in enterprise value. Some banks are more agile (and have better lawyers), so the promoter continues servicing them while defaulting on other banks. In the absence of an efficient bankruptcy process that brings lenders together, the RBI has mandated the formation of a Joint Lending Forum (JLF) of lenders when the first signs of distress are perceived. The JLF is required to find a way to deal with the distressed enterprise quickly, with options ranging from liquidation to restructuring. In this way, we hope to coor- dinate lenders and prevent the borrower from playing one off against the other. The government’s plan to expand the number of DRTs and DRATs is timely, and will be most effective if also accompanied by an expansion in facilities, trained personnel, and electronic filing and tracking of cases, as suggested by the Supreme Court. Also Some monetary incentives to tribunals for bringing down the average duration of cases, without compromising on due process, could be contemplated. Some limit on the number of stays each party can ask for could also be thought of. Appeals to the DRAT should not be a matter of course. Indeed, DRATs should require borrower appellants to deposit a portion of the money ordered to be paid by the DRT as laid down in the law as a matter of course, rather than routinely waiving such deposits as is reported to be current practice. It is worth examining if appellants should be made to pay the real costs of delay out of their own pockets if unsuccessful, where the costs include the interest costs of postponed payments. As suggested by the Supreme Court, Constitutional Courts should respect the spirit of the laws and entertain fewer appeals. It is hard to see what points of law or judicial administration are raised by the standard commercial case and routine judicial intervention favours the recalcitrant borrower at the expense of the lender. Challenging the orders of DRT and DRAT before courts should be made costlier for the appellants. Courts should require them to deposit the undisputed portion of the loan before admitting the case so that routine frivolous appeals diminish. The system also needs professional turn-around agents who can step in the place of promoters. Asset Reconstruction Companies (ARCs) were meant to do this, but they need more capital and better management capabilities. Also, there is a requirement that they hand the enterprise back to the original promoter once they have generated enough value to repay the original debts. Such a requirement is misconceived and needs to be repealed, else ARCs have little incentive to spend effort and money to turn around firms. They will simply The solution is to see how we can get more equitable and efficiencyenhancing sharing of losses on default.’ 22 CFO india February 2015 cover story be liquidators, as they have largely proven to be so far. I should mention that the RBI is open to more firms applying for licenses as ARCs. The government is working on a new bankruptcy law, which is very much needed. Properly structured, this will help bring clarity, predictability and fairness to the restructuring process. Flexibility not Forbearance align them with the project’s cash flows, and for the ability to take equity so as to get some upside in distressed projects. These are more legitimate requests as they imply a desire to deal more effectively with distress. The regulator has been reluctant to afford banks this flexibility in the past because it has been misused by bank management. Nevertheless, recognizing that it cannot micromanage the resolution of distress, the RBI is exploring ways to allow banks more flexibility in restructuring. This is a risk we are prepared to take if it allows more projects to be set on the track to recovery. In sum, the RBI opposes forbearance which simply pushes problems into the future, while it will allow more flexibility so that problem loans can be dealt with effectively today. Let us also be clear that we will be watchful for misuse of flexibility and will deal severely with it if it occurs. Regulatory forbearance, which is a euphemism for regulators collaborating with banks to hide problems and push them into the future, is a bad idea. Finally, let me end on a current concern that pertains to the RBI’s regulation that is not unrelated to the issues discussed in this lecture. Today, a large number of industries are getting together with banks to clamour for regulatory forbearance. They want the RBI to be “realistic” and postpone any recognition of bad loans. This is short-sighted, especially on the part of the banks. Today, the market does not distinguish much between nonperforming loans and restructured loans, preferring to call them both stressed loans and discounting bank value accordingly. Mutilating Shakespeare, an NPA by any other name smells as bad! Indeed, because forbearance makes bank balance sheets opaque, they may smell worse to analysts and investors. The fundamental lesson of every situation of banking stress in recent years across the world is to recognize and flag the problem loans quickly and deal with them. So regulatory forbearance, which is a euphemism for regulators collaborating with banks to hide problems and push them into the future, is a bad idea. Moreover, forbearance allows banks to postpone provisioning for bad loans. So when eventually the hidden bad loans cannot be disguised any more, the hit to the bank’s income and balance sheet is larger and more unexpected. This could precipitate investor anxiety about the state of the bank, and in the case of public sector banks, leave a bigger hole for the government to fill. These are yet more reasons to end forbearance. Or put differently, forbearance is ostrichlike behaviour, hoping the problem will go away. It is not realism but naiveté, for the lesson from across the world is that the problems only get worse as one buries one’s head in the sand. At the same time, the banks have also been asking the regulator for greater flexibility to restructure loans so as to Conclusion Let me conclude. Perhaps the reason we have been so willing to protect the borrower against the creditor is that the hated moneylender looms large in our collective psyche. But the large borrower today is not a helpless illiterate peasant and the lender today is typically not the sahukar but the public sector bank – in other words, we are the lender. When the large promoter defaults wilfully or does not cooperate in repayment to the public sector bank, he robs each one of us taxpayers, even while making it costlier to fund the new investment our economy needs. The solution is not more draconian laws, which the large borrower may well circumvent and which may entrap the small borrower, but a more timely and fair application of current laws. We also need new institutions such as bankruptcy courts and turn-around agents. Finally, we need a change in mind set, where the wilful or non-cooperative defaulter is not lionized as a captain of industry, but justly chastised as a freeloader on the hardworking people of this country. I am sure that is a change in mind set that Dr. Verghese Kurien would approve of. Thank you! — This is the unabridged version of a lecture that was delivered by Dr Rajan at IRMA, Anand on November 25, 2014. February 2015 CFO india 23 policy Capsule Your monthly dose of policy updates. All that you need to know about the policy and regulatory environment. US promises $2bn for clean tech Smart cities on a roll Indian Prime Minister Narendra Modi and US President Barack Obama pledged to collaborate in the area of clean energy and combat climate change. US TRADE and Development Agency (USTDA) pledged $2 billion loan to renewable energy projects. In another association, US Overseas Private Investment Corporation (USOPIC) will lend $1 billion to clean energy projects in India. While Modi and Obama made headway with their announcements on tackling climate change there is no indication as yet that India will change its basic stand in international negotiations of developed countries as biggest polluters paying most. The Indo-US partnership is based on ten specific initiatives, which include broadening the areas for undertaking research in clean energy; addressing urban air quality; expanding policy dialogues and technical work on clean energy and low greenhouse gas emissions technologies; undertaking demonstration and pilot clean energy projects; and developing cooling solutions to replace hydrocloroflurocarbons (HFCs), which contribute to global warming. Experts believe that India needs $200 billion to meet its target. US support is expected to lend support to this ambitious goal. It is expected to also hasten the foreign and domestic fund flow for renewable energy projects in India. 24 CFO india February 2015 EVEN AS the government is yet to roll out the smart cities scheme, the United States Trade and Development Agency (USTDA) signed Memorandums of Understandings (MoUs) with Uttar Pradesh, Rajasthan and Andhra Pradesh for cooperation to support the development of three smart cities. The cities are Allahabad, Ajmer and Visakhapatnam. Under the MoUs, the USTDA will contribute funds for feasibility studies and pilot projects, study tours, workshops or trainings and other projects that would be determined mutually. It will enable US industry bodies to mobilise private sector expertise and resources to address important aviation and energy related infrastructure connected to developing smart cities. On their part, the respective state governments will provide resources in support, coordination and facilitation of the development of smart cities, including technical information and data related to them planning, staff, logistical and travel support. Earlier this year, in the first phase of Smart City programme, Japan extended an investment of $4.5bn to Dholera, Gujarat that will cover 920 Km of the industrial corridor. policy capsule Unshackling business SNIPPETS India’s FY17 growth to pip China’s: IMF ADDRESSING the US-India Business Summit, President Barack Obama and Prime Minister Modi in the presence of over 100 CEO, PM Narendra Modi made a pitch for more bilateral trade that the two leaders said was currently way under potential. “You will find environment that is open and welcoming,” said Modi. He highlighted some of the reforms, including ordinances, that have made it easier to do business in India. Obama acknowledged that there is a lot of ground to cover. “We are moving in the right direction. There is still untapped potential that we have not realised,” he said. “We want to see more trade and more investment between the two countries that will benefit our people,”Obama reiterated. Modi also talked about steps that his government has taken since assuming power in May 2014. These include relaxed foreign investment caps in various sectors such as defence, insurance and pharmaceuticals. “Our aim is to be in top 50 nations in ease of doing business,” he said. That’s an ambitious target given that currently India’s ranking is a lowly 142nd out of 189 countries in the World Bank’s ‘Ease of Business’ report. Bilateral trade between the two countries stood at $61.64 billion in 2013-14. thinkstock photos.in FCI’s major restructuring is underway THE HIGH LEVEL panel headed by Shanta Kumar submitted the report on Food Corp of India (FCI), which said the government’s food subsidy bill can come down by over Rs 30,000 crore a year by reducing coverage of beneficiaries to 40 per cent under the food law and outsourcing major work of FCI to states governments and private players. The panel suggested direct cash transfer of Rs 3,000 per person a year as food subsidy and Rs 7,000 per hectare as farm input subsidy besides revisit of minimum support price (MSP) policy with more focus on pulses and oilseeds. It suggested lowering the coverage of beneficiaries under the food law to 40 per cent, from 67 per cent, to cover more BPL families and increase the quantity of foodgrains supply to 7 kg per person from the existing 5/kg. The panel said that the government should defer implementation of food law in states that have not done end-to end computerisation, have not put the list of beneficiaries online and not set up vigilance committee to check pilferage from PDS. The Food law is expected to up the food bill to Rs 1.30 lakh crore. India would beat China to become the world’s fastest-growing major economy in 2016-17, the International Monetary Fund (IMF) forecasted, as it trimmed growth projections for most major economies, except the US. India’s gross domestic product (GDP) is expected to expand 6.3% in 2015-16 and 6.5% in 2016-17, while China, having experienced its worst economic slowdown in 24 years last year, could witness its growth sliding further to 6.8% in 2015 and 6.3% in 2016 . In India, the growth forecast is unchanged, as weaker external demand is offset to the terms of lower oil prices. JDY ACCOUNTS TOUCH A RECORD 11.5 CRORE India has become fully banked, a feat commended by the Guinness Book of World Records for being accomplished in the short span — about five months. It paves the way for the government’s ambitious plan to transfer annual subsidy of around Rs 51,029 crore directly to bank accounts of 15.45 crore beneficiaries in the next year, plugging system leakages. The government has already rolled out direct transfer of benefits for various programmes. This includes the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) in 300 districts that’s expected to cover 4.3 crore beneficiaries with a fund flow of Rs 15,000 crore annually besides transfers under pension and scholarship schemes. February 2015 CFO india 25 cfo Profile hARAK BANTHIA CFO, HPCL-Mittal Energy Harak Banthia, CFO, HPCL-Mittal Energy loves good speed both in cars and companies. When a venture achieves steady state, he believes it is time for him to look for new opportunities and challenges. Vartika Rawat 26 CFO india February 2015 There are many ways to describe Harak Banthia—number cruncher, turnaround man or a fast car aficionado. And he has anecdotes to bolster any of those descriptions. One of his favorite anecdotes of his eventful professional life is around his experiences in Romania when the economy of the country was in a shambles. A primitive barter economy existed in the erstwhile communist country. The privatisation of the country’s largest steelmaker and biggest loss-making plant Sidex was announced in July 2001. Rechristened Ispat Sidex, the company saw a new management. Harak Banthia came in as the Chief Financial Officer (CFO). Recounting those heady days, Banthia recalls that he took a decision of dealing only in cash on the first day itself. “We will pay cash and we will take cash,” was the firm order. He explains, “We were dealing with a substantial barter economy that most of us had read only in books. Nearly 95 per cent of the company’s transactions were in barter format and just five per cent in cash usually to pay salaries or to deal with other European companies.” There was a spate of other harsh decisions which were taken including cancellation of contracts and dealing with threats of legal actions. The company negotiated with past debtors with firm decisions. That and a host of other actions took the company Jitender singh On the fast lane Milestones FIRST JOB Lovelock & Lewes (now PwC) BIG BREAK Experience with Ispat Sidex SA AHA! MOMENT Turning around a loss of $1 million to $ 2 million profit per day A lesser known fact Plays the keyboard DREAM To set up own business February 2015 CFO india 27 cfo Profile back to health. Within a span of four years, the company recovered from making USD $1 million loss per day to a profit of USD $2 million per day. The Romania experience was valuable in the over 28 years of experience that Banthia has garnered over his professional life. “My work experience in various countries has helped me understand the differences in legislation, productivity levels, culture, mind-sets and work ethics,” he says. Banthia’s association with the LN Mittal group goes back to 1995 where he has spent the last 16 years in mergers, acquisitions, finance, commercial and management of various companies. Three years ago, while working in London with Mittal Investment UK, he decided to move back to India drawn by his home country’s nostalgia. The Mittal Group rather than letting him go just changed his assignment to the new start-up refinery in India. That made a full circle back to India. Banthia’s journey in finance started with a gentle nudge from his father who was a lawyer and was involved on the finance side of the family business of tea gardens in Jalpaiguri and Assam. “I was a number cruncher, good at mathematics and often the teacher’s favorite. While my father suggested the stream, I too found my interest here. And I love it,” he adds. He counts Lajpath Hindi High School and St. Xaviers, Kolkata as the institutions that helped set the foundation for his career. Banthia found his first job at Lovelock and Lewes, an audit firm where he had a multifunctional role. “I had interest in every area so I actively participated in whatever happened at the firm. Be it internal audit, dealing with taxes or any special project, I tried to play a key role in every project,” he passionately recollects those days. His experience was so good that he proudly points out that, “in a period of seven years I was promoted five times.” For a man who has spent most of his career life outside of India he still likes returning his home where his whole family lives together. “Work-life balance is difficult to attain and maintain. Krishna, my wife is the reason that I am able to do justice to my work,” he says. Whenever a company needs a turnaround, Harak Banthia seems to be an appropriate choice. Banthia worked in the energy space earlier as the CFO of ONGC Mittal Energy Services. He was also the Managing Director at Escada a luxury fashion and accessories brand, from 2009 to 2013. He brings this diverse experience and more to HMEL, a PPP set up founded in 2000. 28 CFO india February 2015 Favourite Picks Holiday Destination: London book Leadership in the Era of Economic Uncertainity Movie 3 Idiots and Sholay Role Model Creates and adopt best things from everyone and ignore bad ‘external risks do worry banthia on account of the high debt levels Pastime Driving big cars like the latest model of the Jaguar and eating in good ambience As a start-up HMEL has done quite well in a short duration. On its way to clocking $8 billion in annual turnover and soon making profits at the cash and the bottomline level, this joint venture company has been another good experience for Banthia. “The company has stabilised operationally. We are close to positive profits and we will consider a public listing in the next couple of years.” There are external risks that worry Banthia such as currency, commodity and interest rate risks. Issues such as customs duties and pricing of products again are external risks that can affect operations in a major way. cfo Profile HPCL-Mittal Energy is planning a 25 per cent capacity expansion. Each drop in global crude oil prices by $10 adds Rs 450 crore to the bottomline of the company, which expects to go public soon. And the falling global crude oil prices help matters in the long run. A drop of $10 in prices adds $1 to the gross refining margins. And each $1 increase in GRMs is straightaway a gain of Rs 450 crore to the bottomline. I am optimistic about the cash flows in the future,” he adds. The company already announced a 25 per cent capacity expansion to 225,000 barrels per day last year and is expected to go public in the next couple of years. “It is my ambition to make this company the best in the world in all aspects. It is one of the most complex refin- eries in India. We have done many new things here whether they are in terms of accounting, technology or treasury,” says the proud CFO. Yet the restless spirit of surfaces often. “Once the company starts doing well, my role there is done,” he says. Banthia dreams of setting up his own venture, most probably on the trading side as that is quick to set up. “It is a dream. I would want to do it in my lifetime, but let us see.” For now there is certainly enough to do though at the present company. As a parting shot, his word of advice for those starting out in the finance profession is to keep working hard and continuing to retain one’s values. When the road is not smooth and you hit roadblocks then it helps to meet and explain your opinions to the relevant people, he believes. “The important thing is not to lose your cool under pressure. In any case, I generally outperform under pressure,” he says with the elan of someone who has taken the fast lane more than once. We believe that Mr Banthia. February 2015 CFO india 29 in practice Arbitration Why Indian firms prefer to go abroad to fix legal woes? Speedy dispute resolution and fewer legal hassles prompt Indian firms to opt for arbitration proceedings overseas. Sudha Munireddy & Madhavi Ravishankar W ith India carving its niche as an emerging start-up capital, the country is witnessing a steady growth in the number of arbitration cases. Even as the top arbitration institutes around the world have witnessed a huge surge in the number of registered cases year on year, the Indian Council of Arbitration handles a little over 400 cases a year. Many Indian companies prefer to head to international centres for resolving arbitration issues in a fair and amicable manner. While some cite reasons of proximity, others are looking for a fair judgment in a speedy and cost effective manner. Hence, it would seem that the arbitration system in India is falling short. Recently, Sasken had to take the help of the American Arbitration Association (AAA) to resolve a dispute. The experience threw light on the AAA’s inclusion of experts in the subject matter, admission, confidentiality and an inexpensive as well as expedient process. 30 CFO india February 2015 As a result of Sasken’s experience, this paper examines the imperfections in the Indian arbitration system and makes recommendations on improving the structure based on international models followed around the world. Some of the best practices and rules followed by institutes around the world which lend them an edge as compared to their Indian counterparts have also been highlighted in this paper. An Expedient Dispute Resolution In December 2012, Sasken approached the American Arbitration Association’s (AAA) International Centre for Dispute Resolution over non-payment of royalties by a semiconductor manufacturer for a software/IP licensed by Sasken as part of the joint development project undertaken by both the parties. The semiconductor manufacturer failed to meet the obligations to Sasken. This resulted in arbitration which was filed by Sasken before the AAA. During June 2014, the AAA announced its decision to the effect that the contract was valid. It also required the other party to pay past royalties and to further continue to pay royalties for the software provided by Sasken. While Sasken’s experience with AAA has been positive due to certain reasons which set the AAA apart from all other institutions, a close examination of the arbitration system in India throws light on the scopes for improvement within the system. Arbitration, as a mechanism of dispute resolution, has a long history in India. It was formally recognized in India under the Indian Arbitration Act, 1940. However, the most significant phase of arbitration was heralded with the enactment of the Arbitration and Conciliation Act, 1996 which was in an effort to modernize the outdated 1940 in practice thinkstockphotos.in Arbitration in India has been vitiated due to the ambiguous interpretation of the term ‘public policy’ which allows courts to set aside awards. Act. The 1996 Act is a comprehensive statute modeled on the lines of the UNCITRAL (United Nations Commission on International Trade Law) Model Law. Its objective was to encourage arbitration as a cost-effective and speedy mechanism for the settlement of commercial disputes. The Act covers both domestic arbitration and international commercial arbitration. Unfortunately, the 1996 Act itself has not been as effective as originally envisioned. The courts have faced some difficulties in the application and interpretation of the Act and while doing so they have identified some lacunae in the Act which defeat the very object of the law. The Act has so far been subjected to review by the Law Commission of India and there have been many recommendations for amending the Act. Although these recommendations were initially accepted, they were later withdrawn in order to bring about a broader and more effective change. Attempts to bring about this change have been futile so far. That said, it must be noted that arbitration in India is still in an evolutionary phase. One of the principal objectives of the Act was to achieve the goals of inexpensive and expedient resolution of disputes, but the ground realities indicate that these goals are far from being achieved. There is little doubt that the arbitration system in India is flawed and can be improved upon. The quality of arbitration has not sufficiently developed to serve as a quick and cost-effective mechanism for resolution of commercial disputes. We believe, some of the reasons for this are: 1. Retired judges as arbitrators: In India, the law requires the appointments of arbitrators to be carried out by the Chief Justices or designated judges and such appointments tend to be made in favor of retired judges. Unfortunately, the tendency among retired judges is to take up arbitration as a vocation unlike the international practice where such services are rendered by professional arbitrators. 2. Judicial intervention in arbitration: The 1996 Act was framed with the intent to give the parties complete autonomy, maximum judicial support along with minimum judicial intervention. However, due to inherent limitations in the 1996 Act and its unfavorable interpretation, this intent has been largely diluted. Despite promises of non-interference by judiciary, there have been many instances where the judiciary has indeed interfered with the arbitration process; either due to the empowerment of Chief Justices under the Act to appoint arbitrators or due to the wide and ambiguous interpretation of the term ‘public policy’, which empowers the courts to set aside the awards on grounds of public policy. February 2015 CFO india 31 in practice Arbitration 3. Independence and impartiality in arbitration: Questions relating to lack of impartiality of arbitrators and procedural defects in the conduct of arbitration proceedings, which are grounds for setting aside of awards, are the subjectmatter of frequent litigation. This has a cascading effect and adds to the caseload of an already overburdened judiciary. Considering the loopholes in the Indian arbitration enactment, it is evident that there is an urgent need for change in the law. In this regard, the Indian legislature and judiciary have a vital choice to make; either respect a party’s independence and autonomy and accept the finality of arbitral awards as intended by the objects of the 1996 Act or to continue allowing judicial intervention on arbitration and revert to the spirit of the 1940 Act. This choice is crucial as it will lay down the roadmap for the course of Indian arbitration for the coming years. While arbitration disputes can be carried out in either ad hoc or institutional mode, the latter is yet to gain preference in India. Ad hoc arbitration is a mode of arbitration where the parties themselves decide all aspects of the arbitration from the number of arbitrators to the procedure and applicable rules for conducting the arbitration. Institutional arbitration, on the other hand, is a mode of arbitration where the arbitration procedure is conducted by an arbitral institution in accordance with the rules of the institution. Institutional arbitration empowers the institution to appoint the arbitrators and to have its own panel of professionally qualified and experienced arbitrators associated with the institution. In ad hoc arbitrations, the arbitrators often lack the necessary knowledge and expertise and proceedings are usually overseen by persons who are not lawyers. This often results in misinformed decisions being taken especially in resolution of international commercial arbitration disputes. On occasions where ad hoc arbitrations are impeded by a lack of cooperation 32 CFO india February 2015 Institutional arbitration in India “Indian legislature & judiciary have a vital choice to make–accept the finality of arbitral awards or revert to 1940 law.” Sudha Munireddy Head, Legal, Sasken Communication bet ween t he par t ies or t here is delay on the part of the tribunal in conducting the arbitration or passing the award, a party may opt for seeking court intervention, which defeats the purpose of electing alternative forums for resolving disputes. Further, the resulting litigation costs arising out of seeking judicial intervention for resolving the disputes negates the cost advantages of an ad hoc arbitration. In complex cases the arbitral tribunal may also choose to appoint a secretary to deal with the administrative work load. The additional cost of the secretary’s fees adds to the cost burden of the arbitration. Arbitrations which are conducted in India are mostly ad hoc. The concept of institutional arbitration, although gradually becoming popular in India, has yet to make a difference. Some of the arbitral institutions in India include the International Centre for Alternate Dispute Resolution (ICADR), the Indian Council of Arbitration (ICA), the Federation of Indian Chamber of Commerce and Industry (FICCI) and Chambers of Commerce. The advantage of institutional arbitration over ad hoc arbitration in India is well known and seen as being speedy and cost effective. Practices such procedural rules established by the institutions, regulated fees, availability of competent resources, panel of arbitrators and experienced committees to scrutinise the awards prior to their finalisation are some of the examples that provide institutional arbitration an edge over ad hoc arbitration. Although institutional arbitration has many advantages over ad hoc mechanisms more than 90 per cent of arbitration proceedings are conducted through the ad hoc process in India. This is due to various apprehensions regarding the smooth functioning of institutional arbitration with minimum judicial intervention in the arbitration process. Although, prominent arbitral institutions such as the International Court for Dispute Resolution(ICDR) and London Court of International Arbitration (LCIA) have their establishments in India, the country is yet to accept these institutions for arbitrations. Comparision of Indian & foreign institutions The growing trend in arbitration is to opt for settlement of disputes by institutional arbitration, provided such institutions maintain high standards of quality and professionalism in conducting the arbitration proceedings. The in practice factors for determining these standards include the availability of professional arbitrators, infrastructure facilities, time and cost saving procedures and uniformity of rules, regulations and laws. Although there are many institutions in India which promise speedy and cost effective resolution of disputes, they are plagued by multiple loopholes which make them fall short of being at par with international arbitral institutions. A comparative study of Indian arbitral institutions with international institutions reveals the following: Though they may be more cost effective than their counterparts abroad, institutional arbitrations in India are found to be less professional and more time consuming. Although Indian institutions such as Indian Council of Arbitration charge extremely low administrative costs and arbitrator’s fees, it works as a disadvantage. Many established and reputed arbitrators stay away from participating in the arbitrations conducted by the Council, because of the low levels of remuneration paid to them. Indian arbitration institutions lack efficiency and often fail to meet original deadlines which are extended with alarming frequency. In India, retired judges continue to find favor as arbitrators leading to a lot of criticism. On the contrary, major arbitral institutions abroad, such as the London Court of International Arbitration (LCIA), American Arbitration Association (AAA), Singapore International Arbitration Centre (SIAC), and International Chamber of Commerce (ICC) have a panel of arbitrators from different fields who may be selected by the disputing parties. Generally, lawyers form the largest group of these arbitrators, academicians are favored next, followed by other professionals such as accountants, engineers etc. Despite presence of domestic arbitral institutions, the general shift seems to be towards international institutions for resolving commercial disputes. Globally, international arbitration institutions have registered massive growth over the recent years. Statistics indicate that the International Chamber of Commerce (ICC) in Paris has recorded a 51 per cent growth in the number of cases from 2000 to 2009 and International Centre for Dispute Resolution (ICDR) in the USA a 64 per cent growth for the same period. Apart from this, the Singapore International Arbitration Centre (SIAC) witnessed an astounding 208 per cent growth in cases filed with it for the same period, many of them also coming from India, given the advantage of proximity. Advantages of AAA over Indian institutional arbitration Sasken’s experience in the recent past with the American Arbitration Association (AAA) has brought to the forefront a few advantages that can be incorporated in the Indian arbitration system to help companies resolve their issues at home. The AAA is a renowned international institution with a good track record of Therefore, based on the nature of the dispute and the expertise required, the parties in a dispute can choose their arbitrators and can be rest assured that the dispute will be resolved under expert guidance. In India, the Arbitration and Conciliation Act, 1996 provides for appointment of arbitrators by the parties. However, Indian businesses do not appoint arbitrators with the intent of having professional arbitrators to decide the matter and still rely on retired judges to arbitrate their disputes. Further, the AAA respects the freedom of choice of the parties by allowing them to choose an arbitrator who is not from the pool of arbitrators associated with AAA. In contrast, Indian institutions such as the ICA do not cater to arbitrations where the arbitrator is not associated with the institution. 2. Expedient and inexpensive: The AAA arbitration process is smooth and expedient in comparison to Indian Arbitration. The AAA rules have strict timelines for rendering of awards and the same cannot be extended based on the whims of the arbitrators. This is in contrast with the practice in Indian Though it may be more costeffective than their global counterparts, institutional arbitrations in India are found to be less professional and more time consuming. successful dispute resolution through its arbitration process. The following are the advantages of AAA arbitration which makes it a popular institution worldwide for resolution of disputes: 1. Subject matter expertise: The AAA has a panel of arbitrators who are experts in various fields such as engineers, accountants and academicians. institutions, where the matter may stretch for the longest time. The AAA also has a fixed fee structure. Unlike this, Indian arbitrators postpone the hearings thus increasing the number of sittings which results in increased arbitration-related expenses. 3. Confidentiality: Unlike Indian institutions such as the ICA which do not February 2015 CFO india 33 in practice Arbitration However, no such supervision is made over the awards passed by Indian institutions and the only recourse to parties in case of a grievance in the award made is to approach the courts. 6. Admission: Under the rules of few Indian institutions such as the ICA, there are rules which allow the registrar of the institution to either accept or reject an application for arbitration based on their discretion (See Rule 17). In contrast, the AAA provides more comfort to the parties approaching it for resolution as the AAA rules do not allow it to reject applications. 7. Professionalism: Most international have any strict rules governing the confidentiality of proceedings, the AAA has strict canons governing the obligations of arbitrators to maintain confidentiality of the proceedings. The rules require that the arbitrator maintain privacy of the hearings and exclude parties who are not ‘essential’ to the proceeding at hand. As for the parties, under the AAA rules, the parties can decide in advance if they want to keep the decision of the arbitrators as confidential and can even decide that the decision should not be made in writing. 4. Discovery: The A A A rules provide for discovery procedure which Madhavi Ravishankar “The legal system in India has to use its powers to innovate and advance the dispute resolution methods in India.” Senior legal counsel, Sasken Communication allows an arbitrator to direct discovery or exchange of information at the request of a party. This is done in cases which require expedited closure. This can involve directing a subpoena for witnesses or documents as may be required for the proceedings. 5. Supervision: The AAA, although an independent institution, has its proceedings supervised by the ICDR. Due to this, it refrains from taking any arbitrary actions and renders its decisions after seeking guidance from ICDR. The awards made by the AAA are often reviewed by the ICDR which gives scope for correction of any errors in awards prior to it being released to the parties. 34 CFO india February 2015 institutions are very professional and strive to maintain business relations by conducting the arbitrations in a less contentious manner so that it does not adversely affect the business relationship between the parties. Another advantage of international institutional arbitration stems from the level of confidentiality maintained by the institution regarding the dispute so that it does not become a matter of public record or viewed as a bad precedent. Conclusion It must be noted that domestic arbitral institutions should have the ability to support international arbitration positively. The key to this is the capacity of the legal system in India to imbibe the arbitration spirit and process as practised internationally. The legal system in India has to use its powers to innovate and advance the dispute resolution methods in India. The first step towards this is to increase the number of domestic arbitral institutions which are sensitive to the local norms. The next step would be to increase the number of arbitrators and also to invest in developing the skills and expertise of these arbitrators, leading to a more professional and competent pool of arbitrators. Further, there must be a concerted effort to ensuring the enforceability of awards rendered so that they also attract more foreign investment into the country. The parties from developing countries often find international arbitration to be very expensive. Though successful parties are able to recover almost the entire costs of the arbitration, they need to be aware that losing an international arbitration greatly increases the risk of having to bear the entire arbitration costs. This being the case, it would greatly help businesses operating in India and those doing business with Indian entities if the Indian arbitrations institutions are improved and brought on par with the International institutions. It cannot be denied that there do remain certain gaps in the working of the Indian institutions, but if well thought effort is expended to plug these gaps it will go a long way in boosting the confidence among the business community in the Indian arbitration system and institutions. Sudha Munireddy is the head of legal department at Sasken while Madhavi Ravishankar is the senior legal counsel. The above is a extract of a paper written by the two authors on the comparative advanatges of other global centres of aribitration as compared to India. in practice Technology Governance gets a tech impetus Two separate projects show the way on how present day governance models can gain from technology inputs. Sanjay Kumar he Gover nment of India is seriously adopting the latest available technologies to bring responsiveness to the government administrative machine. One uses biometrics to ensure attendance, while the other uses cloud to aggregating services. BIOMETRIC ATTENDANCE As part of “Digital India” program, the government plans to phase out the manual system of attendance in all central government offices, and replace it with an Aadhaar-enabled biometric attendance system (AEBAS). AEBAS is designed to enable an employee record attendance by presenting their biometric identification such as finger print or iris. This will be authenticated online by matching it with the biometric details stored in the UIDAI (Unique Identification Authority of India) data base against the employee’s Aadhaar card number. 36 CFO india February 2015 T he key objective of deploy ing AEBAS is to eliminate the ‘proxy attendance’ arrangement that is widely prevalent in government offices that use the register attendance system. A biometric system will ensure that workers physically turn up for work, and will act as a deterrent to habitual latecomers. Currently, the Central Government ministries, departments, subordinate offices, autonomous bodies and Central Public Sector Units (CPSU) are being covered under AEBAS. In the Phase-I of the project, nearly 148 organisations, accounting for more than 49,000 employees have been covered. The attendance of all employees registered on the system is visible in real time on the common attendance portal. To implement AEBAS, each ministry or department has been asked to nominate a Nodal Officer (at the rank of Joint Secretary or higher) to drive the biometric attendance initiative. Registration Employees have to register online with the attendance portal and the data is verified by the quality-check team of UIDAI or the Nodal officer. After approval, the employee becomes active in the portal, and can mark attendance through the biometric sensors installed at various locations. The portal’s dashboard reports show the location (building) where an employee has marked his/her attendance. In the second phase of the program, the government departments will use the common biometric attendance portal managed by National Informatics Centre (NIC) data centre. Functioning Architecture of AEBAS has been designed by National Informatics Centre (NIC). The system is divided into two major components: front and back end systems. The front-end system (Attendance System) captures the data in practice thinkstockphotos.in Part of “Digital India” the biometric attendance system will change the way government works.” of employees through a BAS terminal like an Android tablet or a desktop PC. The client application running on the terminal prompts employees to provide biometric data via fingerprint or iris scan. The captured data is sent to the back end system. The back-end system (Attendance Server) performs authentication and response using the Aadhaar authentication API (Application Program Interface) requirements. It is connected to the UIDAI for real-time biometric authentication. The government has planned alternatives for ensuring seamless connectivity of biometric devices. The first is to use the GPRS/Wi-Fi connection on NIC network (NICNET)/broadband. The second is to employ SIM-based GSM connectivity on tablets. The required Wi-Fi and 3G/2G connectivity systems will be procured through the Directorate General of Supplies & Disposals (DGS&D) rate contract sys- tem by each office. A minimum bandwidth of 1 Mbps is envisaged to handle the load during peak hours (0800 Hrs1100 Hrs and 1600 Hrs– 1900 Hrs). Also, to reduce user frustration and improve system performance, UIDAI has extended the facility of Best Finger Detection. CLOUD COVER T he Gover nment of India (GOI) Cloud project (Mehgraj) is an ambitious cloud computing architecture for government department and agencies. The first phase of the project was launched on February 4, 2014 and is being implemented by the National Informatics Center (NIC). Currently, 61 departments are using services of the National Cloud. According to the Strategic Direction Paper, Meghraj will address issues such as standardisation, under-utilisation, and interoperability and amalgamation of e-services. The government is also expected to use the services of private cloud operators based on demand and security considerations. Managed Service Providers (MSPs) will be contracted for operating and managing the Meghraj system. GOI Cloud will provide a single directory of services and will help government departments eliminate the lengthy procurement processes for ICT (Information & Communications Technology) infrastructure. According to Renu Budhiraja, Senior Director, e-Governance, Department of Electronics & Information Technology (DeitY), “Meghraj is an extremely important and relevant technology to create a paradigm shift in the way government procures IT and deploys e-governance applications.” To support the project, an ‘eGov AppStore’ was also started on May 31, 2013 to provide user departments with a variety of “pre-canned” solutions. These applications are customisable and reusFebruary 2015 CFO india 37 in practice able for multiple government agencies. Currently, 42 applications are available in the AppStore. To create seamless operating infrastructure, the plan is to have inter-connected network and data centers across the country, and link up with the existing network systems such as State Wide Area Network (SWAN), National Knowledge Network (NKN) and the National Optical Fibre Network (NOFN). Services & Benefits Presently following cloud services are available: Infrastructure-as-a-Service (IaaS): Meghraj offers on-demand storage and network facilities. Platform-as-a-Service (PaaS): Programming languages and tools have been made available for developing and testing of applications. Software-as-a-Service (SaaS): Core and regular applications such as payment gateways & messaging platforms are available in the eGov AppStores. ‘Meghraj is a relevant technology to create a paradigm shift in the way government procures IT and deploys e-governance applications.” Storage as a Service (STaaS): Meghraj is expected to expand user mobility through shared data and applications stored in the cloud. Governance Structure A high level committee chaired by the Secretary, DeitY has been formed with representation from central ministries and departments, state governments and other institutions. This body provides strategic direction and guidance on key matters of GI Cloud. An Architecture Management Office (AMO) is being created under DeitY to define guidelines for security and risk-mitigation. “Additionally, capacity building programs will create essential awareness regarding security related aspects among cloud users and service providers,” says Budhiraja. The government is also developing an accreditation mechanism for private players, and is examining potential revenue models. Further, the focus is on developing applications for the e-Gov AppStore in tandem with private players. These cases first appeared on the CIO& Leader website. At the end of the day, beyond the meetings, the smooth talk, the frills and the fights. Have you made BUSINESS IMPACT yet? Let the world know Apply for the Business Impact Awards 2015 leader’s world Key Questions for Leaders in 2015 Asking the right questions is often the key to discovering the path ahead to progress. The new year has been upon us for a few weeks now, and depending on your organisation’s financial year, most of us will be looking forward to the latest news, trends and issues that will matter most to us in 2015. Four questions may be key to how you respond to 2015’ challenges. And in a simple and succinct manner these are: 1) your role & purpose in one word ABOUT THE AUTHOR David Lim is Asia’s Leadership Coach, and best known for leading the 1st Singapore Mt Everest Expedition. Since 1999, he has helped organizations build teams and grow leaders. Send him a note today at david@everestmotivation. com to subscribe to a no-cost leadership e-newsletter. 40 CFO india February 2015 The time is right to revisit why you do what you do. It may seem simple, but in the crush of the daily commute, firefighting and pressing meetings it is important to describe exactly how you see yourself in your role. Are you an “accelerator” of business; helping the group move faster with on-time reports on their finances, and delivering means to leverage your organisation’s cash flow? Or perhaps you are an “enabler”? Someone who uses finance and the associated tools to ‘enable’ others to expand, build, create and deliver solutions to better the condition of their customers. A simple, yet powerful way is to imagine you’re speaking to an intelligent 10 year old, and needing to explain, in the shortest, simplest, yet most truthful manner, exactly what you do at work. Understanding your deep purpose in your own context is immensely powerful. It gives you leadership clarity at every stage of action, and helps you persist when you encounter obstacles and setbacks. leader’s world 2) your biggest concern from internal perspective? According to 2015 Finance Priorities Survey from the Financial Executives Research Foundation and consulting firm Protiviti, the five key concerns from an internal perspective are strategic planning, budgeting, compliance with regulations, profit analysis and cash forecasting. These seem to be the most pressing concerns for top executives. Even as leader of large expeditions to the great peaks in the past, no one is immune to these key issues. What would be our strategy and approach to reach the summit? Would we be employing lightweight and swift alpine style approaches, or adopting a more resource-intensive siege–style approach? What are our funds prior to the expedition? Would we need to hedge some funds in light of major currency swings? Will the recent changes to the permit system in assessing mountains in Nepal have an impact on our plans? However of all the major concerns, the greatest number of the 372 respondents identified strategic planning as the biggest concern. And so it should be. Strategy planning helps you align and deploy resources, sets a way forward with the constraints and resources that you have. The biggest red flag though, should be the extent to which you and your team can execute the strategy. In many cases, strategy planning with an unclear path to execute leads to confusion, backtracking and utter failure to deliver the result wanted. Do you share a similar set of concerns? Far too much energy goes into goal setting when the right focus should be on processes. thinkstockphotos.in 3) biggest concern from global perspective? For many, it comes down to volatility whether it is in the form of geopolitical upheavals in the Middle East, tension in East Europe because the Ukraine conflict; the case of OPEC oil versus shale oil from the USA; tensions from reforms in India to create a more sustainable economy and the impact of currency fluctuations on trade and an export-driven economy. Some of you are already aware of and use SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis to help create a path for the year ahead. However, at the geopolitical or external concerns level, it may be better to use a PEST analysis (Political, Economic, Social and Technological) – outlining specific aspects that are will affect your unique situation. Taking each in turn, from the Political view, what might the politics and policies of the day do to your 2015 plan? How will compliance play a role to stymie or protect gains made? Economic: interest rates that will rise, taxes, financial reforms, your hedge/bets and inflation that will play a part. Social: what are your customers asking for in their ever-increasingly connected lifestyle and expectations? Technology: Patents, licensing, Big Data, Cloud – how will these have an impact on your business . I see maybe 10 times more SWOT analysis than PEST ones and getting the analysis right in the PEST exercise goes a long way in helping you gain clarity. 4) What will you do at the process level to get your goals? It is the last but not least important question. Process determines the series of steps, habits, behaviours and daily action that you and your team will need to consider and take in orde to achieve your goal. I feel far too much energy at this time of the year goes into goal-setting when the right focus should be on the steps and processes you are committed to take or do to get what you want. And this includes winning the buy-in for these processes from your nearest and closest team. February 2015 CFO india 41 Lounge 02.15 CFO It is already February 2015. If work is keeping you busy, do consider a few minutes for the sheer power of the Audi RS 7. And in a more reflective mood, check out what a fellow finance professional takes you towards reflectionn. Audi rs7 Stealth Fighter Did you know? RS7, the most powerful production Audi, is one really fast car to drive in the real world. Amit Chhangani Fast means different things for different people. And the reference point keeps changing perennially. I think I am, after a fair bit of time, writing about something which I really believe is a remarkably fast car. The Audi RS7, the most powerful production Audi, has made some alterations to my previous definition of fast; the reference point has changed, yet again. The RS7, then, is an earth shatteringly fast car, in a beguilingly and unflappable way. You cannot do justice to an RS7 review without talking about its monumentally incredible output figures. Testing the fortitude of 42 CFO india February 2015 German engineering is the 4.0 TFSI, pushing the pistons relentlessly to dish out an extraordinary 560 HP of peak power between 5,700 and 6,600 rpm. Trying its best to bend the metallic components it has any association with is 700 Nm of inexorable torque, available between a super wide 1750-5500 rpm rev band. A 0-100km/h sprint time of 3.9s for this near 2-ton leviathan is impressive, but inconsequential. There are other cars which log a quicker time. The RS7, however, delivers an experience which no other car its size possibly does. The response from that 4.0 liter twin turbo German auto maker, Audi’s name is the Latin translation of the founder’s surname. August Horch was the founder. Horch means listen in German and translates to Audi in Latin. cfo LOUNGE on Wheels petrol unit is stupefying to say the least. The deluge of that gushing torque launches this quadruped to psychotic speeds before you even realize it. On a humid Mumbai afternoon as you drive the RS7 on the wide, open straight on the expressway to Pune, it just taken a brief moment when you press the right pedal a little more than gently and the next thing you know is that the car has breached the double ton mark. Even at that pace, the RS7 is showing no signs of letting up. What adds to the tranquillity inside the cabin is the 8-speed Tiptronic auto transmission. While it isn’t the quickest auto boxes around, and most definitely not as blazingly fast as Audi’s very own dual clutch S-tronic, it’s not a slouch by any definition. In manual mode, the shifts take a wee moment before getting executed, but there really isn’t anything to complain. The RS7 also comes equipped with an active cylinder deactivation tech, what Audi likes calling cylinder on demand (COD). At low to moderate load and engine speed, the system disengages four cylinders by closing their valves and shutting off fuel injection. So you can bring down fuel consumption by up to 10 percent. Audi claims an overall fuel efficiency of 10.2 kmpl. Of course, that’s not what you get in the real world. During our enthusiastic run to and back from Lavasa, we managed to get a little less than 6 kmpl from the car. All that power and torque produced by that 4-liter twin-turbo motor is put down on the tar by the quattro permanent all-wheel drive system. The system transfers the drive 40:60 to front and rear axles respectively. When required, it can immediately distribute up to 70 percent of the torque to the front, or up to 85 percent to the rear. And that technology come together sublimely to accord the RS7 grip levels which are exceptional in every sense of the word. That complex drive architecture absolutely ensures that those 275/30 Z1 Pilot P-Zero tyres never wail it is a powerful car. the rs7’s suspension in comfort mode offers absorption QUALITIES & SUSPENSION IS MILDLY STIFF. IT is INCREDIBLY FAST FOR THOSE WHO LOVE TO LIVE LIFE ON the FAST TRACK. audi Price : ` 1.31 crore (ex- showroom) Tech Specs Engine : 3993 cc, twin turbo, petrol V8 Max Power: 560 bhp @ 5,700 - 6,600 RPM Max Torque: 700 Nm @ 1750 - 5500 RPM Mileage (ARAI):10.2 kmpl Transmission: 8 speed automatic Drivetrain: Quattro AWD or squeal. If you had to bet your life on the traction offered by a road going car, the RS7 has to a forerunner. Inside the cabin, like most Audi cars, you can choose from Comfort, Dynamic, Auto and Individual modes with the twist of the central controller knob. For the RS7, however, you also get to modify the sport differential, engine sound and tension on the drive belt. For such an enormously powerful and fast car, the RS7’s suspension in Comfort mode offers absorption qualities which are as good as it gets. For the driver, the suspension is mildly stiff, but manages to absorb all the adversities that a paved Indian surface may throw at it. Only the sharper ridges manage to filter inside the cabin. The ride at the rear is a bit more bouncy though, and while the driver would not have anything at all to complain about, the passengers would more often than not whine about the stiff springs. The predictability and composure of the RS7 is the stuff legends are made of. The only downside is, it wouldn’t titillate, excite and enthral you along the way as well as probably an M5 or a Jaguar F-type would. There’s one thing the RS7 does better than almost any car we have driven. It’s fast. Incredibly, monumentally and unforgettably fast. February 2015 CFO india 43 CFO India Events think tank of CFOs In early January, top notch finance professionals came together to form The CFO Board. Former SEBI chairman, M. Damodaran is the chair for The CFO Board. Minister of State for Finance, Jayant Sinha addressed the inaugural meeting of The CFO Board. In a unique initiative, senior finance professionals came together on January 9 to institute the CFO Board (TCB), a think tank to engage with policy makers on substantive economic, financial and governance issues. Conceived by CFO India and KPMG, the board will be chaired by M. Damodaran, former SEBI chairman and leading voice for corporate governance. The working group which has 23 members with over 500 years of combined experience expects to effect policy change through dialogue and sharing of information, insights, effective practices and international benchmarks, whenever and wherever required. Setting the tone for the expectations from the TCB, the inaugural meeting was addressed by Jayant Sinha, minister of state for finance. Sinha outlined the urgent need to share ideas for nation building. “The government is serious about restarting the investment cycle and sustainable job creation. The CFO Board is a great initiative. We hope it will allow the government and other 44 CFO india FEBRUARY 2015 stakeholders to tap into the considerable expertise of the finance sector veterans in an unbiased manner,” he said. The board members were pleasantly surprised by the candour of the minister. And they were hopeful that the Board would allow them to make serious and unbiased interventions in the interest of nation-building. The CFO Board intends to emerge as the most credible, informed and non-partisan view of the CFO community. It will choose its circle of work carefully on the basis of the value that it’s interventions can bring to national discourse. “We expect this initiative will allow us to share our expertise with policy makers and other stakeholders in a manner that has impact and is non-partisan,” said YM Deosthalee, CMD, L&T Finance Holdings. Mr Damodaran summed up the feelings of the room when he said “India is moving towards fulfillment of its potential. The CFO Board has come into being with the intention of using the collective wisdom of the group in the large national cause.” The CFO Board has been envisioned with a view to lead engagement with policy-makers and other stakeholders on matters that impact fiscal, monetary and governance matters. Its experience, wisdom and insights could serve policy-making by providing well-informed, implementable, non-partisan inputs – beyond company and industry specific agendas – given the criticality of private enterprise to India’s growth. Anuradha Das Mathur, Editor, CFO India articulated the need for TCB when she said, “despite the critical role played by the this community, senior finance professionals have had no share of voice. While they are the most impacted by developments in the economy for a variety of reasons, the CFO community faces a vacuum in dialogue.” cfo lounge GIZMOS new launches Nokia Lumia 830 The last of the Nokia Lumia phones, the 830 features a sharp metal frame with an anodized finish giving it a flagship feel. The 5-inch display is sharp and bright, the contrast is great and the colours look rich thanks to the adoption of AMOLED display technology. The smartphone runs on Windows Phone 8.1 with the latest Denim update. Somehow it doesn’t justify the price. Price 26,835 Hot Spot Gionee Elife S5.1 Beauty, not a beast. Prasid Banerjee It’s not often that we’re wowed by the design of a smartphone, but this one did it. The Gionee Elife S5.1 is one of the slimmest smartphones in the world and leaves no stone unturned in terms of design and build. The device is like a flattened Xperia smartphone, which makes the iPhone 6 feel bulky. It weighs only 97.7 grams, making it lighter than most other phones. The glass back makes it a bit slippery, but slapping on a cover takes care of that and pretty much everyone does that. On the build and design front, the Elife S5.1 is actually one of the best we’ve seen in a long time. Sadly though, the design doesn’t go with what’s inside. At 18,999, the phone is grossly overpriced. The MediaTek MT6592 octa-core is available on much cheaper devices, all of which perform better than the Gionee Elife S5.1. The processor doesn’t perform well and the phone is underpowered, both on regular usage and on benchmarks. Even 1 GB of RAM feels a bit less given that Gionee’s AmigoUI consumes a fair portion. In addition, the battery life, though better than what we expected, is nothing close to what its competitors come with. The 4.8-inch display doesn’t feel lacking but we’d have liked it better had it sported a resolution of 1080p instead of 720p. The 8MP camera is pretty good in normal light but fails under low light conditions. While the camera is acceptable, the performance overall isn’t. The brilliant design doesn’t make up for a laggy experience and we can’t quite recommend this smartphone. Specifications Display: 4.8 inch 720p HD IPS; Processor: 1.7 GHz MediaTek MT6592 octa-core SoC; Battery: 2050 mAh; Operating System: Android 4.4 KitKat; RAM: 2GB; ROM: 16GB Price 18,999 Xiaomi Redmi Note 3G When you price a phone at 8,999 and give it specs that would otherwise cost 20,000, you’ve created something fit for the Indian market. The overall design is too plasticky and feels very cheap. The 13MP rear camera is impressive. Redmi Note is strictly a value for money smartphone. HTC Re digital camera HTC’s peculiar looking device called the ‘Re’ is an attempt by the Taiwanese OEM to take a shot at the action camera market. The camera is portable, quite easy to use and looks like an asthma inhaler. There are just two button, one to take pictures and record videos and the other to activate the slow-mo mode. For the price, the Re is a decent package. Price 9,999 powered by cfo lounge Books pick of the month Coping with Mid-Career Crisis A finance professional looks at the inevitable turmoil that typifies midcareer years. Netherlands-based Partha Sarathi Basu works as a guest lecturer, author and a columnist apart from being a seasoned finance professional with over 25 years of experience across various organisations such as Coca-Cola, Whilrpool, IFB and the Tata Group. Currently Global Director for finance operations with AkzoNobel NV, here Basu in an email interview shares his thoughts about his new book on ‘Mid-Career Crisis’ recently published by Collins Business. Excerpts: Why is it important to be aware of the mid-career crisis? Last many years, I have been closely studying people, listening to their stories to understand why some powers ahead in their career while for the rest progress slows down sometime during their mid-career years. I wondered why do only a few people reach the top while others fall behind after a good progression in the first few years of their careers? Are professionals who continue to grow in their careers different from the rest? Do they possess superior knowledge, sharper leadership skills or better educational qualifications? Or is it sheer luck that helps some sail through at work while others start experiencing a plateau as they reach these middle years? Over time, I realised that mid-career is a stage where many of us go through some confusion (C) in mind which 46 CFO india February 2015 Number of pages: 192 pages Publisher: HarperCollins Language: English Cost of the book: Rs 500 leads many changes (C) in our behaviour in our corporate life leading us to a less effective way of delivery. The problem is most of us, do not even recognize this change in ourselves and start sliding down hill which leads us to a sense of misery (M), a sense of self-pity and a loss of confidence that pushes us towards more difficulty. It is like a disease that needs to be detected early to cure. And hence it is important that we be aware of our Misery Changes & Confusion (MCC) and work on it. How can finance professionals proactively deal with their version of this crisis? We are first humans and only then finance professionals. Thus like any other professionals, we finance professionals too need to deal with MCC proactively and address it in time. A person can steer his way when he or she is aware of an issue and thus the first step towards dealing with the situation is to recognize the symptoms and be ready cfo launge Books to embrace the change. As I mentioned earlier, mid-career crisis starts with certain confusion in mind and can finally lead us to a sense of misery. Or it can be vice versa. And in between, due to this state of mind, many myths play in our mind which affect our attitude and effectiveness. I have spoken about 14 myths and 14 effects in the book. As finance professionals, we need to be aware of such myths and arrest any negative change in us. How does this largely individual phenomenon mesh with the overall organisation-wide issues around appropriate talent at senior levels? A corporation cannot progress without motivated individuals. The success of a corporation largely depends on the talent they nurture. And hence logically, if individuals can avoid a mid-career crisis, they would do good for themselves as well the corporation at large. What advice would you offer younger finance professionals? When we think of our corporate career life cycle, we can divide it into five stages: The first stage is when we prepare ourselves for our corporate journey. The second stage is the first few years of our career when we learn new things and achieve new heights. The third stage is when we pass through these middle years of our career. The fourth stage is when we pass through the last years of our career. By then we almost know whether we are heading towards the goal we had set for ourselves many years ago. And the last stage is when we decide to hang up our boots, sit back and look back on our journey. While all these stages are equally important in one’s life, a sense of crisis is palpable in most professionals’ lives around mid-career. Around this time, we have spent a considerable number of years at work and achieved good amount of success. We start leading teams and our opinions are valued. At this stage, we have an idea about what is next in our career but are seldom clear on when and how we can reach there. It is a point of inflection and a stage of transition. And, like any stage of transition, I would advise the youngsters to prepare carefully and navigate carefully through this stage. Why did you include 10 CEO life stories in the book? During this amazing journey to understand the different phases of what I call the MCC, I approached a few senior corporate leaders and discussed my observations with them. I also asked them to share their personal experiences. While some of them refused, most agreed. And they have generously shared their learnings and their experiences and even the moves they made during this stage of their career. I was amazed to find how neatly these personal stories “Logically, if individuals can avoid a mid-career crisis, they would do good for themselves as well as the corporation at large.” Partha Basu Global Director- Finance Operations, AkzoNobel NV fitted into the patterns I had observed and how well they illustrated the theme of this book: why some sail through while others don’t. Hence, in this book I took break from the normal monologue style of a management books. I have explained the issues through near real life corporate stories which professionals can relate to, and if the readers exclaim. I think I know this person or oh my god, this is exactly what has happened to me then my effort will be successful. The book thus has 34 near-life short stories from the corporate world (summarised by management lessons) to ensure that the readers relate to a situation in a practical manner. The views expressed in the interview is personal in nature, and nothing to do with the beliefs of Akzonobel N.V. February 2015 CFO india 47 not just the last word Unpredictable Central Banks: shape of things to come? F or the last several months, Indian industry had been pleading for an interest rate cut to help the economy. The Government of India and the Ministry of Finance, too, gave enough indications of their strong preference–that the Central Bank should consider slashing interest rates to egg growth along. But, to no avail. T h e Re s e r v e B a n k Go v e r n o r, Raghuram Rajan, in his characteristic – polite, seemingly accommodating, but unrelenting style – stood firm. He maintained that the signals in the economy needed to trend positive – consistently – before the Central Bank responded. Not much changed between his last policy statement in late November and the sudden announcement on 14th January reducing the interest rate by 25 basis points. Of course, we aren’t complaining because it was what we were hoping for. But till the cut became public, there was little to suggest that it was on the cards. It was almost like the intention was to surprise. Cut to the scene of the Swiss Central Bank. Three years ago, it fixed a floor for the Swiss franc. The stated and overt monetary policy policy objective was to not let the Swiss Franc appreciate beyond a point – essentially to protect Swiss exporters – known for their highquality, high-value products. Life was chugging along, and suddenly last week – the same time as India’s rate cut – the Swiss Central Bank turned its policy on 48 CFO india February 2015 its head. The Swiss franc soared against the euro by a dizzying 30 per cent. No prior warning, just like that. While there isn’t enough information available, yet, on who will suffer or perish – for example commercial banks that have provided currency hedges and of course, exporters – it would be fair to expect bloodshed in the ecosystem. And maybe that’s fair. It isn’t the job of central bankers to keep businesses safe. If they announced their policies beforehand, the theory of rational expectations would suggest that they wouldn’t be able to achieve their objectives. It is just that central banks over the years have behaved sedately and predictably. If they want to alter behaviour now, to achieve greater impact with their policy instruments, then we must recognise that and build it into our expectations. An article written by Clive Crook, the Bloomberg View columnist argues that Central Banks have only two jobs – keep inflation low and keep politics out of monetary policy decisions. However, with recessionary pressures and problems of unemployment, how bereft can Central Banks remain of politics and the realities surrounding them? The US Fed, over the years, had managed to extract a high degree of autonomy for itself, but their economic and social context has managed to weaken the resolve. At such times, is it going to be possible to keep politics out of Central Bank decisions? The next one on the radar is the European Central Bank and its verdict around Quantitative Easing. As we go to print, speculation is rife around the announcement and its scale. The implications for the Euro and every other related currency will be watched closely – and here too, there is an element of the unknown. Analysts, bankers and CFOs expect to be surprised by politicians, competitors and markets. But Central Bankers? Not yet. Is it time to introduce one more risk parameter into our decision matrices, or is this just an aberration? I, personally, think it is more fundamental than a blip, but what do you think? Anuradha Das Mathur, Editor, CFO India
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