Dy governor says Indian cos failed to do homework before opting for foreign M&As
V S Parthasarathy, Chairman, CII CFO Summit 2014 and CFO & Group CIO, Mahindra & Mahindra Limited interacts with H R Khan, Deputy Governor, Reserve Bank of India (RBI) during CII's 8th CFO Summit 2014 in Mumbai on Friday. (Photo: PTI)
Mumbai: RBI deputy governor H.R. Khan cautioned the Indian corporate sector against increasing leveraging of their balance sheet, failure to hedge foreign currency debt and intra-day trade.
Addressing CII’s 8th CFO Summit on Friday, Mr Khan, the deputy governor of Reserve Bank of India, chided the corporates for rushing to invest abroad without doing due diligence. He said everyone talks of foreign direct investment (FDI) but not about the outward bound investments that increased to $52 billion in 2013-14. He said that corporates went out of the country at the wrong time and have also struggled with the funding aspect, which has complicated the whole situation.
“You went out at the wrong time, when the global demand was small and you were not hedged. You thought that you would get funds but you were not able to get funds because the banks overseas were not lending, and domestic banks were not lending because you were already over leveraged and your product pick-up was not there. So now there is large scale disinvestment happening and is adding to your vulnerability,” he said.
Corporates were also over leveraged. According to the June 2014 report of RBI, the leverage by corporates has gone up; India ranks high with 83 per cent of corporate leverage and sound hedging policies are advisable to corporates going forward, he said
Mr Khan who was speaking on “Surviving and succeeding in a VUCA (volatility, uncertainty, complexity and ambiguity) world, said the VUCA world is the new normal surrounded by black swans (unexpected incidents).
VUCA demands stake holders to adapt to changes arising from growth opportunities, technology transformation and disruptive business models.
On inflation, Mr Khan said there was a long way to go, particularly in rural inflation with rising food prices and rising demands.
He cited the instance of a person he met from a village in UP who said the prices of vegetables were extremely high and more expensive than in cities. This was because of transport costs to distant places. He said there were structural issues that had to be sorted out. On the domestic front he said, the growth recovery is tepid but the growth sentiments are good.
( Source : dc correspondent )
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