37 % of Indian corporate debt a risk: RBI deputy governor S.S.Mundra

Nearly 37 percent of the debt to corporate sector in India is a risk, said Reserve Bank of India (RBI) Deputy Governor S.S.Mundra on Wednesday citing a report by International Monetary Fund (IMF). ”Major concern in the global arena is about the leverage of companies which is enhanced substantially in the corporate world,” he said at the CFO Summit 2015 organised by Confederation of Indian Industry (CII) here.

Mundra said an IMF report of April 2015 states that 37 percent corporate debt in the country is a risk. Tests and reports across the world show that Indian companies are most vulnerable in stress scenarios and this poses a major concern for a chief financial officer (CFO), he said, urging CFOs to understand the interplay of debt, equity and leverage. ”Operating with thin equity is like skating on thin ice. Leverage on the other hand is like blood pressure, it should neither be too high nor too low as both are injurious,” he said, according to a CII statement.

Mundra also cautioned against companies with multiple layers of structure with a holding company on top and several step-down subsidiaries below which confuse the debt, equity and leverage structure of a company. Pointing out the absence of women CFOs in large numbers, he said women would prove to be better CFOs as they are process-oriented while men are result-oriented.

“Truth is process is as important as the result. Hence, I believe, women would prove to be better CFOs,” he said. Export-Import Bank of India chairman and managing director Yaduvendra Mathur said that a millennial CFO needs to be aware of global financial architecture and needs to have the capacity to look at innovative structured deals and have the expertise to leverage the intangibles.

Pointing out the changed role of CFOs, summit chairman and Mahindra and Mahindra’s group CFO and CIO V.S.Parthasarathy said: “In our volatile times, ICE provides solace. ‘I’ stands for the ability of companies to innovate and adapt. ‘C’ is for ‘Climate change’ that will dramatically alter how we do business in the future. ‘E’ is for ‘Experiential commerce’ where business is driven by the kind of experience you can trigger in your customer.” He said a CFO plays a strategic role in scenario planning, and is expected to identify business opportunities and be value creator.