IFMR Digest - December 2018

DIGEST
ISSUE 6 - December, 2018

The Challenge of Non Performing assets in India’s
banking sector
Can Manufacturing change India’s demographic
destiny?
Developing a Toll-Free Support System to Facilitate
Digital Data Collection in Haryana

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CONTENTS

Happenings 1
News from the B-School 20
Expert Article
Developing a Toll-Free Support
System to Facilitate Digital Data Collection in Haryana
BY VIDHI SHARMA

Expert Article 26
Can Manufacturing change India’s demographic
destiny?
BY SHUBHRANKA MONDAL AND PRATIBHA JOSHI

Cover Story 32
The Challenge of Non Performing assets in India’s
banking sector 38
BY C KRISHNAN 42
47
Food for Thought & Campus smiles
Alumni Corner
Obituary

Inside : Event photos by IFMR Photography Club ;
Stock images from vecteezy.com
IFMR Digest

Editor’s desk

Hello!

This Quarter has been one of transformation and change at IFMR, as
the institute became part of Krea University, and a New Dean took over
the reins. As Calvin Coolidge once said, “All growth depends upon ac-
tivity. There is no development physically or intellectually without ef-
fort, and effort means work.” In accordance with that, festivities and
events dotted the calendar which the student body was busy organizing
and indulging in, while balancing studies and placements.
Presenting to you, a crisp edition of the Digest, which evolves and con-
figures in tandem with the exuberant nature of the institute.

Happy Reading!

IFMR becomes IFMR GSB under
Krea University

IFMR B School is now IFMR Graduate School of Business at
KREA University
The Institute for Financial Management and Research (IFMR)
has an impressive and long record of contributing to the expan-
sion and enrichment of the knowledge base in the financial ser-
vices industry. While applied research and executive education
activities flourished since its inception in 1970, IFMR launched
its flagship 2-year full-time Post-Graduate Diploma in Man-
agement in the year 2000. It is embarking on a new phase now.
From the batch of 2017-19, IFMR Business School offers a two-
year post-graduate Masters in Business Administration (MBA)
degree under the auspices of the KREA University.

i

KREA University, promoted by IFMR Society, aims to provide
liberal arts education to high potential individuals so that they
would learn to create positive and catalytic impact in a dynam-
ic and diverse world. World over, universities offering business
and management education are asking hard questions of the pur-
pose of their MBA programmes. KREA University’s liberal arts
education provides the answer. MBA graduates must be compe-
tent in functional areas, must be decisive and effective managers
and leaders, with a strong moral compass and a firm sense of
purpose. That was the original vision of the founding fathers of
business and management education in the late 19th century in
the United States of America.

IFMR Business School will continue to retain its strong core
competence and competitive edge in Finance and in particular,
catering to Banking, Financial Services and Insurance (BFSI)
sectors. At the same time, KREA University’s liberal arts educa-
tion will provide a strong liberal arts and ethical foundation to
build a host of functional and behavioural competencies. In oth-
er words, there is a big change with a strong sense of continuity.

Signalling this important shift to the world, IFMR Business
School has decided to rebrand itself. Henceforth, it will be IFMR
Graduate School of Business at KREA University.

IFMR Graduate School of Business at KREA University aims to
provide top-quality management education that prepares
students to be ethically grounded, be highly skilled in
integrated reasoning and be effective leaders of enterprises.

ii

New Dean at IFMR

IFMR is very happy to welcome Dr V Anantha Nageswaran
as the new Dean who would steer the B-School in its next
phase of growth and development. He assumed his duties
on Thursday, October 4, 2018.
Anantha-Nageswaran graduated with a Post-Graduate
Diploma in Management (MBA) from the Indian Institute
of Management, Ahmedabad in 1985. He obtained a doc-
toral degree in Finance from the University of Massachu-
setts in 1994 for his work on the empirical behaviour of
exchange rates.
Between 1994 and 2004, he worked for Union Bank of Swit-
zerland (now UBS) and for Credit Suisse in Switzerland
and in Singapore. In July 2006, he joined Bank Julius Baer
& Co. Ltd. in Singapore as the Head of Research for Asia.
In March 2009, he was appointed as the Chief Investment
Officer for the bank. Since July 2011, he has been a writer,
consultant and teacher.

iii

He has been an adjunct faculty with the Singapore Management
University and with the Wealth Management Institute at the
Nanyang Technological University. He is a member of the Board
of Directors of several companies in India, including
TVS Logistics and Aparajitha Corporate Services (P) Limited. In
Singapore, he is a co-founder and member of the Board of
Directors of NPS International School.

He helped co-found Aavishkaar Venture Capital (Venture
Capital Investor in Social Enterprises) and the Takshashila
Institution (a public policy think-tank cum teaching institute).

His co-authored book, ‘Economics of Derivatives’ and
‘Derivatives’ were published by the Cambridge University Press
in March 2015 and October 2017 respectively. Another
co-authored work, ‘Can India grow?’ has been published by
Carnegie Endowment for International Peace in November 2016.
‘The rise of Finance: Causes, Consequences and Cures’ is forth-
coming with Cambridge University Press.

He writes a weekly column for MINT, an Indian financial daily,
on Tuesdays (www.livemint.com).

iv



Guest lecture on Valuation of Young
Growth Companies

On 22nd September, 2018, Mr. Nakul Verma, an Alumnus
of batch 2012-2014, visited the campus to give a lecture
on “Valuation of Young Growth Companies”. The guest
lecture was attended by students of both batch-18 and
batch-19 and was a huge success. Mr. Verma, who works
for McKinsey & Company as an Analyst, was able to use
his expertise in the area to give the students a thorough
and engaging lecture on valuation. The interactive session
went on for 90 minutes after which interested students
were able to pose some questions to Mr. Verma who was
more than happy to answer the questions on the topic.

1

Durga Pooja

Durga Puja was celebrated in a grand manner at IFMR this year,
with the Durga Puja committee putting in the hard hours to en-
sure that everything went on smoothly.
The ‘Bodhon Pujo’ was held on the morning of 15th while the
Drama Club of IFMR (Abhinay) put up an excellent skit in the
evening. Maha Saptami was on 16th and a Saptami Puja was held
in the morning. The next day, the Sandhi Puja, took place at 12
noon.
On the 18th, Samarthan conducted the Kumari Bhoj which was
a part of the Devi worship. The last day, 19th October, was the
day of the Maha Dashami, with a Puja being held in the morn-
ing. The Murti Visarjan, immersion of the Maa Durga idol, was
done on the afternoon of the 20th, bringing a closure to one of
the grandest events in IFMR.

3

Onam Celebrations

Onam, a traditional festival of Kerala is celebrated in the
first month of the Malayalam calendar “Chingam”. This
festival marks the homecoming of the mythical king Ma-
habali.

At IFMR Onam is celebrated every year with enthusiasm
and joy. Students turn up in large numbers to enjoy the
ceremonies and participate in the games organised by the
Onam committee of the college.

This year, the celebrations were delayed due to the terrible
floods in the state of Kerala. The institute had contributed
financially and supported the Kerala fund initiative.

IFMR Digest 4

Time Trek Quiz

With much delight amidst the inquisitiveness to explore the
ideas around the world, the theme based quiz named
“The Time Trek Quiz” was conducted by the IFMR Quiz Club.
It was an unique theme based quiz, moving from the point-
based conventional quizzes to space-based year rating sys-
tems. It was an intense battle with all the teams showing active
interest and enthusiasm. It proved to become one of the most
enjoyed and widely appreciated events in the recent months.
Ameesh, Aditya and Sanjay of Team Odiyans bagged the first
place and the team of L-Mao comprising the trio of Praveen,
Sagar and Girish bagged the second place.

5

BAL VIKAS

IFMR Digest 6

Bal Vikas – an initiative of Samarthan to impart education to
young children. Every week, the committee along with volun-
teers visit the nearby government school for students aged be-
tween five to ten years. Each week, they come up with innova-
tive ideas to engage them in the joy of learning while having
fun at the same time. The kids are given opportunities to build
their talent repertoire by in dancing, singing and the occasion-
al origami or painting. Most importantly, the volunteers ensure
they had a wonderful time. The smiles on their little faces and
the shine in their eyes mean everything to what the committee
stands for.

7

8

Fun Fiesta

A fundraising event with the throughout the campus in

main aim to enhance aware- search of clues to solve the

ness of the role of Samarthan. case. The next to follow to

The event focused on various continue was “Not Fast Just

fun games and activities. All Furious”, the relay race. Not

the funds collected from the to miss the attention seek-

event were to be used for a er for the day “3D Snakes

meaningful purpose. & Ladder”. The zeal with

The catalogue of events for which the participants went

the day started with the most ahead with the games was

exciting and electrifying proof enough of the success

game for the day “Criminal of the event.

Case”, a treasure hunt. Stu-

dents mobbed and sprinted

9

IFMR Digest 10

Worker’s Day

Truly adhering to the quote “Gratitude is a sign of noble souls”,
Samarthan dedicated a day for the unsung heroes of IFMR
who make our lives easy and stay happy – The workers who
work round-the-clock to get things moving at our college.
This year, the Worker’s Day event was celebrated with a blend
of cultural programmes and games to the delight of the work-
ers. The event started with a welcoming note through cultural
performances dedicated by Music and Dance club of IFMR
followed by volunteered and eye-catching performances by
workers. Games were organised for themto entertain them
inclusively. Finally, as a token of love and gratitude, special
gifts were distributed.

11



Kumari Bhoj

In the presence of Maa Durga during the Durga Puja Celebrations,
on the eve of Navami, kids are considered as Gods and are served
our offerings as to Maa Durga. Hence, following the values, we
celebrate Kumari Bhoj where we host kids from the nearby govern-
ment school and welcome them by washing their tiny legs as our
service to the Maa Durga. The kids were then made to sit and pray
in front of the Durga Idol. In order to make their visit special and
memorable, we organized games, played and danced with them.
This energetic and tiring session was followed by a special lunch
treat which was specially made for the kids. After spending some
quality time with them, the students were presented with gifts.
With a plentiful stomach, enjoyable day, loads of love and smile
on everyone’s face, the kids were bid farewell before we get to host
them again for the Samarthan’s annual event Lakshmi Bal
Mahotsav.

Looping the loop

“Looping the loop” – an out of the box, case optimisation
competition was conducted on the 20th August 2018 at the
H.C Kothari Hall. It focussed on resource allocation, time
management, and shortest path algorithms. It was a one of
a kind event which was designed on the lines of strategis-
ing followed by the Indian Armed Forces.

The participants were given a one page case, full of facts,
time-distance combinations. Then the participants were
shown a map pertaining to the case. They were not given
any access to the case once the map was on the screen. They
were given 15 minutes to recollect and assimilate the data
which they saw in the case and relate it to the map.

IFMR Digest 14

The main motto for the participants was to spot the
hidden resources as all conventional methods of com-
munication were unavailable. They had to prioritise
the problems, allocate appropriate resources and had
to ensure that all the problems are resolved before the
deadline. They were marked for their ingenuity,
improvisations, resource allocations and time manage-
ment. The success of the event was in seeing people
actually come out of their shells giving unconvention-
al, out-of-the-box solutions to the problem at hand.

15

Guest Lecture- “60 minutes with Internet
of Things”

Sanchalan, the Operations Committee of IFMR conducted a ses-
sion “60 Minutes with Internet of Things” by Mr. Vinod Ven-
kateswaran, who has an experience of more than 20 years across
technology consulting, engineering management and opera-
tions delivering business results, and currently is the Industry
Principal, executing projects in the IoT area at Infosys. Students
got the exposure and the essence of IoT from an industry expert
and learnt how it is being used in the operations and production
department of several multinational companies.

16

He discussed about how this technology is getting the
work done by decreasing the human capital cost and
increasing efficiency all at the same time. He present-
ed some examples in the form of videos that showed
how virtual reality and IoT together can be used in
mending the smallest production error that results in
huge losses. Similarly, he discussed that for a device
or process to be ‘smart’ or be in line with the IoT, it is
necessary to hold the three A’s strong as facts: Aware,
Autonomous and Actionable.
From his experience and understanding he also gave
insights on the future prospects of IoT. It was also a
great opportunity for people who don’t have technical
background to chomp on some insights straight from
an industry expert.

17

Guest Lecture on
“Business Analysis- Requirement
Gathering/ Elicitation/ Engineering”

18

On November 17th, 2018,

Mr. Paras Malhotra, a Batch-10 alumnus of IFMR, visited
the campus to give a guest lecture on “Business Analysis-
Requirement Gathering/ Elicitation/ Engineering”.
Mr. Malhotra who works as Assistant Vice-President of Prod-
uct Management in IHS Market has a wealth of experience in
the field of financial and capital markets. His experience and
expertise on the subject were evident throughout the lecture
which was very interactive and engaging. The session went
on for an hour and half after which Mr. Malhotra took on a
few questions from the audience. Both the Batch-18 and the
Batch-19 students attended the lecture in huge
numbers

19

EXPERT ARTICLE

Developing a
Toll-Free Support
System to Facilitate
Digital Data
Collection in
Haryana

There are two key pathways for improving immunization

coverage in India. One is to address supply side issues such
as increasing the number of trained nurses, improving vac-
cine availability and transport, and conducting regular vac-
cination camps. The second pathway is to generate demand
by informing citizens of the benefits of immunization. The
Haryana government was already doing all of the above but
was not achieving the desired results. In 2007-2008, the im-
munization rate stood at 59.6% (DLHS 3) and by 2012-2013,
immunization coverage had declined to 52.1% (DLHS 4).

Against this backdrop, in 2012 an MoU was signed between
J-PAL and the National Health Mission of Haryana to collab-
orate on conducting randomised evaulations of programs
pertaining to health policy. The Haryana Immunization

20

(HIM) Project has been the first major undertaking of this
partnership. Against this backdrop, in 2012 an MoU was
signed between J-PAL and the National Health Mission of
Haryana to collaborate on conducting randomised evaula-
tions of programs pertaining to health policy. The Haryana
Immunization (HIM) Project has been the first major under-
taking of this partnership.

The purpose of HIM is to measure the im-
pact of three interventions designed to en-
courage parents to fully vaccinate their chil-
dren

• Mobile recharge as incentives
• Tailored reminders via SMS and phone calls to parents
with children due for vaccination
• Mobilizing village networks to disseminate information
on immunization.

21

.The HIM team has trained Since the project did not have

1,397 Auxiliary Nurse Mid- the resources to establish a

wives (ANMs) on how to col- centralized control system,

lect immunization details of the ANMs in each district

children and parents’ phone were provided with a unique

numbers using tablets, to re- phone number which they

place the earlier paper diary could dial to reach a local

system. This data collected by field monitor.

the ANMs was crucial to the An Issue Log was developed

implementation of the pro- to capture the details of every

gram, since the incentives and call made to the support line

reminders – two of the key in- by the ANMs. The Log was

terventions being measured used to identify recurring is-

- were sent to parents on their sues and provide feedback to

mobile phones. the district and state officials

at the monthly meetings.

Monitoring and The support line received a

Support total of 3397 calls (each call re-
solved!) during its 16 months

This was the first time ANMs of implementation. The pat-
were going to enter immuni- tern of issues changed as time
zation data on a tablet, so we progressed. For example, ini-
anticipated the fact that they tially, the issues would most-
would face technical challeng- ly be along the lines of: ANM
es. It was also clear that a fail- forgets the password to log
ure to provide quick solutions into the software, ANM does
to their problems would lead incorrect data entry, ANM
to demotivation. So we devel- forgets the charger, etc. Lat-
oped a toll-free support service er on, as the ANMs got used
to provide quick, continued to using a tablet, the support
support to the ANMs in the calls were more about inter-
net setting issues, software
field.

22

An Auxiliary Nurse Midwife collects immunization data using a tablet. Photo by Vidhi Sharma

23

hanging, software uninstalled, SIM lost, and project supplies
running low.To address these issues, posters with instructions
to correct internet settings and update software were designed
and distributed to the ANMs.
In this way, the toll-free number served not only as a source of
real-time support for ANMs, but also as a monitoring tool and
source of feedback for the field staff as we sought to improve
training resources.

About the author:

Dr. Vidhi Sharma works as a Project Associate (Research),
J PAL South Asia at IFMR. She leads the pilot testing of
software based on mobile health platform to be used for
collecting immunization data at the session site in 7 districts
of Haryana

24

Photographed by Vishal Somani

EXPERT ARTICLE

Can
manufacturing ch
Demographic des

Despite India’s substantial youth population, little
concerted effort has been made by the government to ensure
their accommodation in India’s labour market.
Manufacturing could help partially address this, write
Shubhranka Mondal and Pratibha Joshi.

The current status of employ- sources claim it to be even

ment in India larger. It is therefore vital

that the government aban-

India currently has the world’s dons the self-complacency of

largest youth population. The what was dubbed by critics

working age group of 15-59 following remarks by Prime

years forms an overwhelming- Minister Modi as a ‘pakora’

ly large percentage at around or start-up economy and con-

91% of the country’s popula- sider the most appropriate

tion. The median age in the and definitive policy chang-

country is approximately 28 es to employ its burgeoning

years. However, there has not youth and adult population.

been enough job creation to

employ the youth transition- So far the services led

ing out of education and mov- growth-model has not only

ing in to the labour market. provided limited job oppor-

More than 31 million people tunities, but the poster chil-

in India are currently unem- dren of the Indian service

ployed according to govern- sectors – the IT and the BPO

ment estimates. Independen2t64 sectors, have now system-

hange India’s
stiny?

27

atically started downsizing stones with hands and ham-
payrolls. The MSME (Micro, mers. Manual scavenging
Small & Medium Enterpris- though abolished by law is
es) sector, typically employs still a common practice, and
less than five people and on many middle class house-
average has limited scope for holds still employ maids to
expansion as most tend to perform domestic chores.
remain own-account enter-
prises. Currently only a fifth Growing the manufacturing
of Indians have salaried jobs, sector: challenges and
and half the workforce is in solutions
agriculture.
Although there is no one-
Agriculture, while remaining size-fits-all solution, histori-
the largest form of employ- cally formal manufacturing
ment in India, is no longer has had one of the highest po-
the sector which provides tentials for mass job creation,
the greatest value-add to In- as well as the potential to pro-
dia’s economy. Moreover, vide higher quality jobs with
the youth of today are now fairer pay to a large section
looking towards an tradition- of low skilled people. What
al economic transition model India needs to do immedi-
with greater job prospects in ately in order to bring about
the cities. However, urban manufacturing lead growth is
based occupations remain not to give into the delusion
primarily of the informal sec- that automation is soon go-
tor, day labour variety. The ing to take over much of the
prevalence of manual over manual work. As of 2016, In-
mechanised labour in India dia used three robots for ev-
remains high – coolies carry ery ten thousand workers as
luggage in a railway station, against the world average of
construction workers carry seventy-four. Republic of Ko-
bricks on their head or break rea tops the list of automation

IFMR Digest 28

with 631 followed by Singapore, Germany and Japan at 488,
309 and 303 respectively. China, the global manufacturing gi-
ant is at sixty eighth. It will therefore take India a number of
decades to reach any globally comparable automation level.
The benefits of manufacturing and trade related growth are
substantial. First, creating manufacturing jobs require little
skill training. Empirical evidences show that it requires about
six week’s training for fifth-grade educated adults to earn as
much as Rs 15,000 in low skilled manufacturing like appar-
el, footwear or carpet industry. Second, manufacturing has a
large multiplier effect.

Mechanical punch presses in operation in a factory. Photo credit: ILO in Asia and
Pacific, Flickr, CC BY-ND 2.0.

29

As per estimates, for each order to realise this change
job created in manufacturing on ground, India’s latest in-
around sixteen more jobs are dustrial policy has to identify
created in the related services and prioritise key sectors of
sector like parlour, restaurants, manufacturing, build proper
schools, colleges, banking, fi- industrial clusters and pro-
nance, transportation, logistics, vide them market linkages to
management etc. These are sell the finished goods both
sectors where even medium inside the country as well as
and high skilled population of abroad and across multiple
the country can find jobs. And value-chain systems. This
third, manufacturing not only also requires significant in-
caters to domestic markets but vestment in infrastructure to
given their tradable nature can mobilise movement of people
expand and grow to cater to and goods.
exports. With this in mind, it
should not be a surprise that However, it is important to
previously China and South acknowledge that the chal-
Korea, and now Vietnam, Ban- lenges to bring about this
gladesh and Ethiopia – recent structural transformation
high growth developing coun- will be considerable and we
tries, have a flourishing manu- cannot ignore the fact that
facturing sector. the global order and process
Manufacturing jobs can pro- for this transformation are
vide an alternative to agricul- not the same as they were de-
ture jobs. Indeed, due to the cades ago, when for instance,
growing unsustainability of ag- manufacturing played a cen-
ricultural livelihoods, demand tral role in China to lift 800
for non-farm jobs is clear from million people out of poverty
the eight million people who in just three decades.
are signed up for MGNREGA
(Mahatma Gandhi National Now that we have proposed
Rural Employment Guarantee to build industries we should
Act) jobs on any given day. In make sure that we have solu-

IFMR Digest 30

tions to the questions of adequate pay which allows upward mo-
bility; good work conditions; the rise of ethical trade; international
competition and trade barriers. India can reap gains of its demo-
graphic dividend if it ensures its human capital is well equipped
with correct training and knowledge, and infrastructure is able to
mobilise human, physical and financial capital.
India therefore, needs to act before its youth bulge starts ageing,
unless of course, it wants to remain in the crack of the epistemic
developmental divide between the East and the West.
About the authors:
Shubhranka Mondal is a researcher with IFMR LEAD and is
working in the field of MSME, financial inclusion, trade, global
value chain, labour and employment related issues. She tweets
@ShubhrankaM.
Pratibha Joshi is a researcher at IFMR LEAD, she has worked on
RCTs related to worker productivity and business training for
small business owners, as well as on topics related to human
capital development.

31

THECOVER ARTICLE
CHALLENGE OF
NON PERFORMIN
ASSETS
IN INDIA’S
BANKING SECTOR

The recent spate of non-performing assets in Indian Banks

(mainly PSUs), especially the latest IL & FS case, has intrigued
me. As a former banker who was a Corporate Relationship
Manager in a major MNC bank handling several large cus-
tomer groups in India and outside and a Chief Risk Officer not
very long ago, my view is that the bulk of these NPAs could
perhaps have been avoided or minimized if only some basics
of credit risk management had been observed. And, that is
very disappointing.

IFMR Digest 302 Photo by Zulfa Nazer on Un-
splash

NG Let me analyse the issue objectively. It is common knowl-
edge among bankers that a high growth phase is also when
stressed assets are generated within the banking sector.
This is mainly due to easy availability of credit and, there-
fore, less strict underwriting and monitoring norms during
such a phase.

The stressed assets scenario gets camouflaged by strong
credit growth. Therefore, stressed assets appear to look
very low during this growth phase of the economy. In In-
dia, GDP grew around 9.5% between 2006 and 2008, credit
growth as much as 28-30% but the gross NPAs were only
around 3%. A period of downturn reverses this trend of

R

33

low stressed assets levels and is practically feasible in PSU
asset quality concern increas- Banks is questionable.
es as the growth in stressed
assets outpaces credit growth Anyone who has been in-
in the banking system. volved in lending or credit
And, this is proved by the fact risk knows that it is not only
that growth in stressed assets important to do a proper
increased by 40.2% in 2013 as credit analysis of the borrow-
against a 15.1% credit growth. er in terms of borrower risk
and business risks, but equal-
When we look at the causes for ly important to monitor a cus-
the unacceptably high level of tomer’s account conduct and
NPAs in the Indian Banking performance continuously so
sector, it is not only because that early warning signs of
of excess credit growth in the credit weaknesses can be de-
system and subsequent eco- tected and timely corrective
nomic slowdown witnessed action taken. In addition, mis-
in 2012-13 that made it diffi- takes made in the past should
cult for companies to honour not be repeated. Sadly, that
their commitments to banks. does not seem to be the case
It is also because many large when we analyse the NPA sit-
borrowers did not think it was uation in Indian banks. The
necessary to repay banks. In same basic mistakes of poor
other words, there was ability credit evaluation, inadequate
to honour their obligations but monitoring of usage of facili-
not willingness. That trans- ties and overlooking obvious
lates to borrower risk and not early warning signals contin-
business risk. Banks should ue to be made.
have done a lot more due dili-
gence on the character (the first It is, of course, impossible to
C of Credit) of the borrower. have a completely clean lend-
However, to what extent that

IFMR Digest 34

ing portfolio. In other words, to resisting any pressure to influ-
have a portfolio without a sin- ence credit decisions. It is very
gle bad debt. After all, banks important to carry out the initial
are in the business of risk and credit assessment of a customer
they must take ‘bankable’ thoroughly and, as mentioned
risks. To quote William Shedd, earlier, if the customer happens
“A ship is safest in harbour, but to be a start-up or new venture,
that’s not what ships are for.” a much more rigorous analysis
If at the time the lending deci- is necessary. Credit assessment
sion is made, all available and would relate to analysing quan-
foreseeable information have titative and qualitative data. For
been properly analysed and larger publicly listed companies,
found satisfactory, one cannot information related to the cus-
blame anyone if the borrower tomer’s Balance Sheet is likely
defaults at a later date. It could to be quite reliable. Hence, a lot
be due to black swan events. of emphasis is placed on quanti-
tative data - prior years account
So, how does a bank minimise statements, projections and as-
its NPAs portfolio? In India, sumptions behind the projec-
most of the multi-national and tions. Qualitative information
good private sector banks have like the profile and credibility of
managed to keep their NPA the promoters, industry, com-
book below 3 per cent of their petition, market share, outlook
asset book (it is 10.2 % overall for the company and industry
as at December 2017 exclud- must also be studied in detail.
ing stressed assets - NPAs in
the making - which stand at In the case of smaller borrow-
12.8%). There is no secret for- ers, more emphasis is placed
mula or magic wand to achieve on qualitative information than
a good quality asset book. Es- Balance-Sheet numbers mainly
sentially, it is making sure that because the financial manage-
the basics of credit risk man- ment of these companies may
agement are adhered to and not be as good or transparent as

35

those of the larger listed com- Company auditors are no
panies. less culpable. The annual ac-
Unfortunately, many public counts of IL&FS and its close
sector banks depend mainly to 200 subsidiaries were au-
upon credit appraisal reports dited by some of the biggest
prepared by outside con- names in the profession. Yet
sultants or Rating Agencies none thought it fit to red flag
instead of doing their own the growing dependence on
independent and objective ap- short term debt and the ex-
praisal. This can hardly safe- cessively high leverage.
guard the bank’s interests as
Rating Agencies do not deal Therefore, it is clear that only
with a client on a day-to-day the bank’s Relationship Man-
basis and, therefore, cannot ager or Credit Manager who
critically assess their ongo- has, or should have, an inti-
ing financial performance. We mate knowledge of his cus-
have seen cases where ratings tomer can assess a compa-
have been rapidly downgrad- ny’s financial performance
ed; in many cases, after the objectively. That puts a lot of
event. Rating agencies are responsibility on them to re-
technically under the Securi- main objective and alert con-
ties and Exchange Board of In- stantly. If they have their ear
dia (Sebi), but are not subject to the ground, they can detect
to close regulatory oversight. signs of weaknesses and take
Worse, under the current rat- corrective steps quickly. That
ing model, fees are paid by the may not prevent an account
rated entities. There is, thus, a becoming a non-performing
huge incentive to give gener- asset but at least the loss giv-
ous ratings for fear of losing en default can be minimized.
business.
Given the enormity of the
NPA challenge, what lies
ahead? Brookings India re-

IFMR Digest 36

cently organised a roundtable in Mumbai on NPA resolution; par-
ticipants ranged from a former Deputy Governor of the RBI, to
bankers from public and private sectors, asset reconstruction com-
panies to rating agencies, IMF representatives to financial journal-
ists and academics.

In a wide-spanning discussion, a few key themes emerged:

- the privatisation and governance of public sector banks
- the governance and regulatory practices of the RBI and
- re-engineering of banking practices
One cause for optimism is the functioning of the Insolvency and
Bankruptcy Code. The Code was passed and implemented in
13 months, which is faster even when compared to Singapore’s
amendments to its insolvency law. The Code is also being imple-
mented in full speed- 50 per cent of all NPAs are currently being
resolved through the Code, another 25 per cent will soon be. The
judiciary has been following the tight timelines prescribed by the
Code.

About the author:



Mr.C. KRISHNAN serves as the Executive Director of Krea University. A se-
nior banking professional with over 36 years of hands-on banking expe-
rience and specialization in Credit & Enterprise Risk Management. He has
headed senior management roles in various banks in India, Saudi Arabia,
Bahrain, Qatar and Kuwait. Last full-time role was General Manager &
Senior Head-Enterprise Risk Management, Gulf Bank, Kuwait.

37

Food for thought

A man went to a Guru and asked, “What’s the value of life?”
Guruji gave him one stone and said, “Find out the value of this
stone, but don’t sell it.” The man took the stone to an Orange
Seller and asked him what its cost would be. The Orange Seller
saw the shiny stone and said, “You can take 12 oranges and give
me the stone.” The man apologized and said that the guru has
asked him not to sell it. He went ahead and found a vegetable
seller. “What could be the value of this stone?” he asked the veg-
etable seller. The seller saw the shiny stone and said, “Take one
sack of potatoes and give me the stone.” The man again apolo-
gized and said he can’t sell it.

38

Further ahead, he went into a When the precious stone’s seller

jewelery shop and asked the saw the big ruby, he lay down

value of thE stone. The jeweler a red cloth and put the ruby

saw the stone under a lens and on it. Then he walked in circles

said, “I’ll give you 50 Lakhs around the ruby and bent down

for this stone.” When the man and touched his head in front

shook his head, the jeweler of the ruby. “From where did

said, “Alright, alright, take 2 you bring this priceless ruby

crores, but give me the stone.” from?” he asked. “Even if I sell

The man explained that he can’t the whole world, and my life, I

sell the stone. Further ahead, won’t be able to purchase this

the man saw a precious stone’s priceless stone.”

shop and asked the seller the

value of this stone.” Stunned and confused, the

man returned to the guru and

told him what had happened.

“Now tell me what is the value

of life, guru ji?” Guru said, “The

answers you got from the Or-

ange Seller, the Vegetable Sell-

er, the Jeweler & the Precious

Stone’s Seller explain the value

of our life... You may be a pre-

cious stone, even priceless, but

people will value you based on

their financial status, their lev-

el of information, their belief

in you, their motive behind en-

tertaining you, their ambition,

and their risk taking ability. But

don’t fear, you will surely

find someone who will discern

your true value.”

39

Cam
Sm

IFMR Digest 40