NIAS Wednesday Discussion: "Risk Assessment and Management - An Approach" by Prof. R. Srikanth, Lecture Hall, 0930 Hrs
NIAS Wednesday Discussion Meeting
Topic: “Risk Assessment and Management – An Approach”
Speaker: R Srikanth
Professor and Head, Energy and Environment Policy Program, NIAS
Chairperson: P S Goel
Raja Ramanna Chair Visiting Professor, NIAS
Date: 19th October, 2016
Time: 9.30 am
Venue: Lecture Hall, NIAS
All are cordially invited
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Abstract: Indians by nature are one of the most risk tolerant people in the World. Many of us attribute this to Karma. This attitude shows up not only in many of our personal lives but also in our collective behaviour in a group or even in a company. However, this risk tolerance becomes destructive when it is extended to the banking sector which deals with public money. As per a recent report published by Reuters (based on information provided by RBI under RTI Act), the total stressed assets of Indian banks have now increased to $138 Bi by end-June 2016 compared to $121 in December 2015. The Public Sector Banks (PSBs) account for the lion’s share of the stressed assets amounting to $122 Bi, which is concentrated in the metals & mining, power, and infrastructure sectors. Therefore, the PSBs have to be recapitalised heavily in order to retain their credibility which is also linked to the Central Government’s standing. Obviously, a major chunk of the recapitalisation is proposed to be done with public money since PSBs are also unable to recover large loans which have gone sour.
In the above context, the broad details of a risk assessment and management approach are presented. This model is used by a large MNC which has operations and mega projects in about 22 countries. While this model is not the only model in use, atleast it helps the practitioner to understand the risk scenario and develop mitigation plans before the risk actually fructifies. This model is also discussed and updated not only on a project-wise basis, but also at the Business-Unit level and Company level. In some cases, it is also discussed with the company’s bankers at a broad level so that the lenders have comfort in the risk profile of the company and can price the company’s debt accordingly.
It is high time that Indian financial institutions start insisting that their large borrowers (esp., for project loans) start using such risk assessment & management tools and share the results thereof with their current (and future) lenders at regular intervals in a transparent manner, since failure of mega projects built with a large debt component may lead to lumpy stressed assets for the lenders resulting in larger repercussions on the country’s industrial growth as a whole. Needless to say, a comprehensive risk management system will be of great utility in all projects, even for the equity holder or the borrower.