2016: Make Or Break Year?
That was 2015, now what about 2016? Will it be a Make Or Break Year for India Inc? To answer that, CNBC TV18’s Menaka Doshi is joined by CFOs of 3 of India’s best known companies – P Balaji, CFO & ED - Hindustan Unilever, Jaimin Bhatt, Group CFO & President - Kotak Mahindra Bank, VS Parthasarathy, Group CFO & President - M&M.
P Balaji, CFO & ED - Hindustan Unilever
Jaimin Bhatt, Group CFO & President - Kotak Mahindra Bank
V S Parthasarathy, Group CFO & President - M&M
Below is the transcript of P Balaji, Jaimin Bhatt and V S Parthasarathy's interview with CNBC-TV18's Menaka Doshi.
Doshi: I do want to start by focusing on the key takeaways of 2015. It has been an interesting year at the bank. You have also done a mega deal so to speak. So, I am sure that the challenges have been manifold. What will you remember 2015 for?
Bhatt: From our point of view we are the fourth largest private sector bank. That clearly has been the highlight for us for 2015.
Doshi: But besides that when you look at the regulatory environment, the policy and legislative environment, the tax environment, what will you remember 2015 for?
Bhatt: A number of regulations. You rattled off a lot of them which came along and that is going to continue.
Doshi: But which were the toughest ones to deal with. Was it the listing regulation that requires several disclosures, was it the insider trading regulations, was it the fact that we still have only a half notified Companies Act and then you have got this changing equation between audit committees, independent directors, Corporate social responsibility (CSR)?
Bhatt: If I look at each of them, let us say the Companies Act the good thing about whether it is the Companies Act or the insider trading has been yes, possibly there were flaws or there were wrinkles around what came out initially but the good thing is there were people willing to listen to it, looked at representations and have ironed out, come out with a lot more clarifications. So, today if one looks at it yes, it is much better than what it started out with.
Doshi: Many company officials I have spoken to have told me that the Companies Act has changed the dynamic in boardrooms, has changed how independent directors look at their roles, maybe even made them a little uncomfortable to some extent, liabilities and responsibilities on audit committees, what would be the highlights of 2015 for you?
Balaji: For us from our point of view the first is the first time we changed the auditor after many years. So, a new auditor coming on board and we are quite thankful that we did it last year because if I again go and see, I change the auditor and then have a new International Financial Reporting Standards (IFRS) standard to comply with together then you are going to have a bit of fun in the company. So, we are happy that we managed to change the auditor first. So, we got them on board. Now the new accounting standards, we get that changed and off we go. Along with that if you see the whole IFC, the whole element of controls, what is the role of audit committees, role of auditors, role of management, these are all great steps towards governance, but the only thing as a challenge as company we face is the simultaneity of it because everything is happening together in a very short time frame. So, everybody will take that little bit of time to just go up the learning curve, get prepared with it. So, what it ends up in the boardroom is a lot of clarificatory discussions saying what does the rule actually mean and what are the positions that you need to take against it because as Jaimin rightly put it sometimes you do have a lack of clarity on it. For example we started by saying all frauds have to be reported, all hell broke loose. Because they were saying that companies will operated in a way and then of course then the clarification came through saying, yes, let us be pragmatic about it. So, that is probably how I see the dynamics going.
Parthasarathy: I kind of think about last year in two ways, old is giving way to the new. So, that is broadly how I see it. You now have many new things as if you want to talk about Make in India, Digital India from a point of view. From a point of view of everything what you change nothing is the same, whether it is Companies Act, whether it is the listing agreement, anything you take and say, oh! new. And if you look on a very broad basis and then turn back and look and I knew you asked the question. So, I would say, 'thoda hai, thode ki zarurat hai, zindagi yahaan phir bhi khoobsurat hai'. So, I was just thinking which part of the world you want to go and live in and so seven percent is not so bad when the rest of the world all together had this one.
So, honestly last year was challenging in many respects but on a macro basis it was good and on a personal basis I was just thinking that when I would ever get challenged like this, my team would get challenged like this to look at all these complications coming in and still be at the top edge of governance and that was something that proved that the team has it in them to kind of come to the fore and do it. So, that was a great thing.
You asked about one question and let me just kind of break in. Do you think that the related party transaction had done its day and done. It is just now, it is a pile now, the directors have got used to it, I have got used to compiling that but whether that is the most productive way of using our time and of having governance standards I don't know. It has become a big - if I have four transaction I know every director will go through it at toothcomb. If it is 40,000 transactions, how do they do? So, there are some things which we still have to resolve and I would not say everything. We now have learnt to live with it, not everything is hunky dory but there are other things like Balaji pointed out, the independent directors, it is more fun to engage and more fun for other companies to come up in future.
Doshi: Did I just hear you break into laughter?
Bhatt: One of the things which people talk a lot about Companies Act and getting into a different form of government, but let us face it. This was something which was already enacted 50 years ago. So, after 50 years standards have changed, the world has moved on. So, some of it we need to recognise that there is a need for change.
Doshi: It is how you are coping with that change is what I am interested in?
Bhatt: Coping with that change yes, one has to learn.
Doshi: Would you all say that 2015 was a year of over regulation?
Balaji: I won't say so, because some of these were long overdue. If you are working in an environment where you are looking to attract foreign capital, you are looking for investors, you are looking for transparency, high governance standard it is high time these things came through. Yes, it just happened it came together, so, it just wobbled a little bit but it settled down. Teams have taken on a lot of load, stretched themselves but as the year ends it was needed to be done, that is the way we get it done.
Bhatt: In addition to all of this I come from an industry which is absolutely regulated. In other words there is banking, there is this whole capital market regulation, insurance.
Doshi: So, are you in the camp that says maybe we are a tad over regulated now?
Bhatt: No, if you look at these areas world over there is regulation which is of a heightened level, of very different kinds. So, we are just getting used to it.
Parthasarathy: But would you not see that had you got the chance then two regulations per year rather than all regulation would have proved to have been more useful. So, in a sense all of them did come together and created a little bit of panic.
Balaji: There are two types of regulations, one which is governance related. That for me is the easier one to handle because if your intrinsic governance standards are high you will invariably comply with it, yes a bit of disclosure, it doesn't touch day to day operations. The biggies are coming next. There it is not operationally intensive. Goods and Service Tax (GST) plus IFRS landing together would be operational intensive and organisations need to prepare for it and both of it absolutely is the right thing to do.
Doshi: You all sound sanguine about 2015, maybe simply because the year has passed now, maybe the worst of the year is now a distant memory. So, let us talk about 2016. You have already flagged off the fact that we will have starting the new fiscal, a new set of accounting standards to comply with, the Indian Accounting Standards (IND-AS) which bring us closer to International Financial Reporting Standards (IFRS). We will have new tax accounting standards as well come into force at that point in time. Hopefully through the course of 2016 we will see goods and services tax (GST) become a reality and that will have a business supply chain strategy impact. So, how are you gearing up for 2016?
Balaji: The good part in all this is that we have enough time or announcements are there to say that this going to happen. When? We don’t know. The IND-AS piece is far more robust, we have it all buttoned up.
Doshi: And thankfully these standards were out well in advance, etc.
Balaji: We have had dedicated teams working on it almost one year on it now. Since November last year we had the teams going to sort this out, from 2014 onwards.
Doshi: In fact yours is the only company I have seen so far put out a presentation for its investors saying these are some of the impact areas as we shift to new accounting standards.
Balaji: We have spent about five hours with our investors, actually taking them through the gore of what IND-AS is about. So, IND-AS part of it I am much more comfortable.
Doshi: Will there be a bottomline impact, at least optically?
Balaji: Optically there will be a bottomline impact. Value creation should not make any difference at all but since the ratios turnaround, turnovers change, there will be an issue there.
The GST piece is much more tricky because the rules are not yet clear. I think I can see a lot of right noises coming through now saying that the 1 percent is not going to be there. I don’t know whether it is going to be there or not but at least the sound bites are getting far more positive. I would expect therefore the earlier the rules come out on this, it will be better.
Where I worry about is, I don’t think people have really appreciated the whole country needs to change. Corporates, yes, we can be prepared for it but I need to take responsibility for my entire extended value chain on either side and that is going to be a tricky one to go through. So, some of the operational details of it would be challenging as you get everybody to comply with. However, otherwise, again this is absolutely the right thing for the country; earlier we have the clarity the better.
Doshi: You don’t have to deal with new accounting standards as yet.
Bhatt: Not yet, for the parent but we do have.
Doshi: But I think Reserve Bank of India (RBI) has already put out a note on 2018 if I remember correctly right, the GST will have its impact on you and from all the expert commentary I am listening into as I do a sectoral analysis of the impact of GST, the first couple of years are going to seem inflationary because if the standard rate is at 18 percent and a lot of services that were earlier being taxed at lower rates, now come in at 18 percent tax. We are, consumers are going to end up paying more that is if banks or companies pass on the cost and they will at some level. So, how are you preparing for GST?
Bhatt: There are complications around services. Let us make a simple example of a credit card. I am an issuer and I am headquartered here in Mumbai and you may be a customer of mine in Chennai. You go to Delhi and swipe a credit card, where do I pay the tax? Now, those are things which still have to be clearer and hopefully as we go forward some of these things need to be ironed out. Can we have a situation where – today it is very simple, I am paying everything in one place in the country and then I don’t have set off problems and what not, how one deals with a lot of these things which are coming around.
So, areas where you are not into manufacturing, you don’t have depots all around, these are issues which one needs to be looking at and those are operational challenges which not only us, how do I deal with all the people who are supplying to me and what not. So, that is going to be another massive exercise which one will need to go through.
Doshi: You were sounding very sanguine about 2015.
Parthasarathy: 2016 is not going to be so sanguine looking forward but very optimistic. Finally I am very happy IND-AS is happening because I had a team sitting for four years trying to prepare year after year and they were kind of giving up on me saying that boss you must be mad to keep - disband - but I kept on it.
Doshi: So you are really well prepared for this?
Parthasarathy: Yes, so, hopefully we now have got every quarter, the IFRS results also coming in and not in terms of the full details but whatever needs to be done, so, well prepared.
GST there are three aspects. We have a GST team going in now for one year; again a cross functional team. However, what do they prepare for because without detail what is the strategy you will put in place. So, it is not very clear and we are talking about different industries having different kind of issues and with 18 industries I don’t want to be preparing a chart which runs into pages. So, we are waiting.
Just three issues, rules and how would various things transition out, day one impact and that is going to be and I keep thinking and I shudder what is going to be day one impact and how are we going to handle day one? What about the stocks which are left out? So, these are very important and big issues which we will have to deal when we come closer to it. We have done role plays and it is going to be fun.
Doshi: Would you think or would you say that the government could best use the time between now and the time it takes to convince the opposition to pass the Constitutional Amendment Bill to at least start putting these draft rules out, getting opinion on it, creating that discussion and debate so they can use the next three months to do all this. When that Constitutional Amendment Bill passes they can quickly then put in place the other supporting legislation, rules, etc making for a smoother transition for industry, more preparedness is what is required right?
Parthasarathy: I would kind of think like that that they should be ready with the legislation or rules and they should as soon as the amendment is passed, they can give out the rule because then the state council starts getting formed, the empowered committee. The empowered committee is not going to happen over a day, it is going to take three to six months; that is good time for this discussions to emerge so that the committee also gets input from the industry when they are finally deciding out because many of what they are going to pass is also going to determine what the rules are.
Doshi: But is there concern?
Balaji: There are different kinds of people here because take one of the biggest guys who need to be brought on board is someone like an SAP. Because Enterprise resource planning (ERP) platform providers need to be brought on board. Yes, an SAP is already working out, we work closely with them. Migration to let us say TAXINN which is the module which SAP will make it GST compliant there is a big shift. How many of our industries are working on it. How difficult is it worth looking at. Having this conversation way ahead of time, having groups that are working out, open conversations, it is almost like, it should be - whatever happens in parliament is one part of it, there is enough and more work to do outside the parliament. And my sense is we are not getting as prepared for this transition as we could be.
Doshi: None of you have complained about the rates suggested and I am going by the CEA or Arvind Subramaniam's rates which is the standard rate of around 18 percent, a low rate of 12 percent and then a demerit rate of sorts of 40 percent I am assuming that at these rates if these do become the final rates you all are broadly comfortable with the impact of GST.
Balaji: It depends. For example the big one that is the discussions are still underway I would expect would be the things on essential commodities, food items. That will be jumping from zero to 18 depending on where they come in.
Doshi: Yes, they will probably come into low rate I would think?
Balaji: Those are things which we are not clear as yet. The philosophy that you expand the base as much as possible to include as much as possible, that is something which everybody is aware of and the earlier we do that the better for everybody.
Doshi: But you are broadly comfortable with this 12 and 18 architecture?
Balaji: For the two kind of businesses around, if you look at my home and personal care business yes, it is a good start conversation but for the foods business I am worried.
Bhatt: A lot of services which we put out is subject to service tax at 14 percent. Mentally everybody was talking about that 14 going to 16. So, for me it is that 16 going to 18. So, it is not completely way off. So, that is manageable.
Parthasarathy: Many different forms will give you different view. Tractors, HS today, zero. Let us take input cost as tax. So, it is about 6-7 percent. So, now what is going to be the new rate and reeling rural consumer. Some more tax on him either way burden is going to be. So, timing wise and inflation. So, automobile depends on what the rates come out. So, various points. So, I am just saying, let us not overreact. There is a rate given, let us get to the specifics. Then it is easy.
Doshi: Are those proposed rates okay with you or are you suggesting they should be even lower?
Parthasarathy: The way I look on a broader level is the net neutrality rate is very close to the rate proposed. So, I don't know what else to propose to. So, I am just saying if those are the rate but that is going to be pain.
Doshi: I want to add to this conversation the potential that in this budget we will see maybe the doing away of some direct tax exemptions and deductions that the industry has benefitted from over the last several years along with the potential maybe lowering of headline corporate tax rate to 25 percent. Now, all of this will not happen at one go, it will probably happen probably over the next 3-4 years but you will have GST coming in, you will have many indirect tax side going away because GST is coming in and then you may have many of the exemptions on the direct tax side also going away though effectively over the long term you will get a lower tax rate. I want to know what the net impact of this is going to be. Not just for 2016 but over the next two or three years?
Parthasarathy: The key thing is that when you talk about corporate tax clearly whatever is the effective rate of tax that we get, I am not talking about after exemption, is not probably the most attractive in the world. It is not the highest but it is not also the most…
Doshi: You are paying what, 20-22 percent?
Parthasarathy: We pay probably 24 percent but every business is very different, so, you have got a range in that. So, it is not very high. So, when they are balancing out and keeping the same rate I am not going to be affected too much if both goes.
Doshi: But that will probably be the net impact at the end of 3-4 years. In the interim 3-4 years it will never be an exact balance.
Parthasarathy: Yes, so, that is why we have to watch the details in the next year but your question was at the end of the day what is it, if the net impact is that it is going to be similar than what it is then no impact. If it is marginally higher then the Profit before Tax (PBT) will be Profit after Tax (PAT) will be a little lower. So, that's what the investor will get. So, very simply put.
Balaji: But there are various inefficiencies. If you see the disallowances, inefficiencies, take dividend distribution taxes, withholding tax. I would probably wait for a fair amount of clarify on this before one can say which way it is going to go because there is no clarity on which is the way it is going to come through. What we know is it seems to be 23 percent, it seems to be the rate which…
Doshi: But they have put out a paper suggesting the deductions that will go away?
Balaji: Exactly, but what is the time phasing of it, how is it going to come to this. To be absolutely fair about it there is a lot of engagements happening but if they pull it all together in a time phased manner then we will be able to confirm.
Doshi: What would you like to see?
Balaji: A roadmap, clarity, year wise what is going on and what is going to be the effective bottom-line rate on that. That will be what I will be looking for which I am hoping in the next budget we will have clarity on that.
Bhatt: Some of these things will have to lead to simplifications. So, a lot of these deductions, lot of these ambiguities, whether it is distribution tax or let us say, tax on some of these things like ESOPs or whatever some of these are just causing irritants. So, as corporate India we are very clear that we are fine to pay tax it is just very important to make sure that what is the tax, what is the simplicity about it and what is the finality to it. This whole uncertainty about litigation, about fighting in terms of what is the uncertainty, how long will it drag around in terms of what we will have to pay when you will all be called upon to pay additional ones. The thing is if that gets clarified and there will be some interim pain as we go through that process but ultimately one will need to take away a lot of these whether it is exemptions or some of these other irritants and make it simple.
Doshi: I have spoken to other CFOs especially from pharmaceutical industries, infrastructure industry they sound very pained from the possible going away of these exemptions. So, I just wanted to point our viewers the opinion is very divided, not everybody feels so gleeful about a simplified tax system.
Parthasarathy: No, I am also not gleeful and I will tell you why. India as a manufacturing entity is coming towards the world and R&D is a very important investment. So, you take away, it is simple. It makes everybody similar, but whether India needs for Make in India the kind of R&D inputs because you can't do it without products in India, it can't be Make in India. So, there are complications about it but as a corporate citizen we all look to government and say if there is pain on the larger gain then we will all be game for it. But we have to recognise what is the pain and what is the larger gain.
Doshi: I want you to give me a sense of when you look at regulatory legislative policy environment and then you marry that to what your expectations are from the macroeconomic environment, what is 2016 looking like for you? Are we going to see a pickup in the economy this year? Are things going to be better than 2015? Is private investment coming back? Is consumer demand picking up?
Bhatt: Overall if you look at it, that it is a lot more positive. If I look at the fact that there are a lot of things that are going for the country whether it is the fiscal deficit led of course by the fact that overall globally the commodity prices have slowed down, oil is helping us in no uncertain terms and to that extent it is for us to make it happen from here.
Doshi: Will 2016 be better than 2015?
Bhatt: Yes, if you have a clear answer, yes the direction is very clearly there. Whether it is going to be better than 2015? Certainly looks like it. I don’t expect it to be a leap frog to say that will it catapult us to a different league, I think we need to recognise that world over things are not great and to that extent we will do far better than what the world is doing. Certainly looks like better than 2015 on the hope of some of the things happening, some of the reforms happening. We have had two bad monsoons coming in, hopefully that should be doing better. However, overall, if I look at hope of 2016, certainly better than 2015.
Doshi: Is consumer demand picking up?
Balaji: For me this is more about building momentum. It is not so much about what is the velocity at which you take off because the business is building momentum. The markets are building momentum and as more optimism kicks in, the consumer confidence picks up and then you see translating into demand and then you see performance of companies pocking up and in that I think the fact that you have low inflation is very a very good starting point. Stable currency, fantastic starting point and with that when you see the investment cycle also starting to kick in, it is a matter of time before these things start building in. So, companies like us, we position not for a year or we position for the medium to long-term and if I look at it just from FMCG perspective, look at your penetration levels of commodities, look at your consumptions of various goods.
Doshi: I am not asking you for guidance for the next few quarters, I am just saying will it look better? Is it looking better?
Balaji: Has to be. It is building momentum.
Doshi: Considerable momentum, incremental momentum?
Balaji: We will have to see.
Doshi: Are you going to sell more cars, tractors, holidays, finance in 2016?
Parthasarathy: Everything is yes because 2016 year I would put as a year of hope. All things right so far, I think the momentum is what is lacking.
Doshi: Balaji is it is a year of momentum and you are saying momentum is lacking.
Parthasarathy: I think we are both seeing similar things; I would not say the same thing because then I will be putting words into his mouth but what I am saying is that 2015 lacked that momentum. So, now what we are waiting for is that momentum to kick start. So, if anything I would say that, it is not a make or break year, it is a make or bigger make year. So, how much will it be faster growth is what we have to see.
Just divide into two parts, India versus Bharat just to put it simplistically – rural and non-rural, so, the rural is struggling. It will take some momentum for it to come through. So, some of the trickle effects which happen on infrastructure projects starts, how far, how fast is what we have to see. However, there will be momentum. However, what is good thing is that the base effect has already happened. We are talking from a lower base next year. So, that should be from a point of view at least stable if not positive and when the kick in starts, it should be positive.
Of course monsoon is a great evener so we will wait for it. The urban, it is starting to come around. Al the things that we have done right, whether it is Make In India, Skill in India, Digital India, JAM Trinity all of them should start to make some impact.
Doshi: I do want to talk about the changing role of CFOs and therefore all of your lives in 2016, how much of your time did you spend last year on compliance, on dealing with Companies Act, insider trading regulations, listing agreements and how much worse is it going to be get in 2016 as you deal with IFRS, GST, tax accounting standards, deductions going away?
Balaji: As a role of a CFO you will any way have two parts of the role. There is one around stewardship part where all this fits in and that I would say in the early part of the year was on the very high side where because you try to get a handle on this and by the time the middle of the year came and we were comfortable, I didn't see much time getting spent there. But the business partnering side, the other part of the role is pretty active because with this kind of volatility in the markets commodity markets getting pricing right, ensuring that your brands are well positioned there and monies are getting deployed into them was almost a full time job that ran for a while. And if I look at 2016 we also need to add to the mix volatility is going to remain, nothing is going to change, it is going to be as volatile.
Compliance, GST, I would say is more stable, GST we will just to be watching out for it but you shouldn't forget technology, talent these are also equally big spaces which will start drawing your time into. Talent always takes time but with the way technology is changing, with the way digital is coming in, digital marketing, be it big data analytics there is a hell of a lot of area which require strategic thinking, it is not just operational and earlier we were able to get a handle on this part of it and nail it as far as the volatility, brand support all that I would assume will move on to - you should have mastered it and therefore it runs on auto pilot, this is a space we will need to start engaging and whether this can change the future of companies, it can radically alter what future looks like. So, I am very keen that we stop looking at just one year and start looking out three years, you will finally realise GST , IND-AS is not my concern area, that will get nailed. There could be risk to business models itself that will start emerging if you don't address it today.
Doshi: If you were to tell me at Hindustan Unilever what exemplifies the impact of these forces on your business and how your business will adapt over the next two or three years?
Balaji: Let me give you one example. Spends that we do, we are one of the highest spenders on television. Some years back we used to be spending about 90 percent of our monies on television. Now, I spend on 70 percent. This will keep moving on in this direction because you will suddenly realise that you are wasting - engage with the consumer is very different and your ability to therefore have new brands, new offerings is completely different, you need different portfolios for this. So, there is a digital capability piece, there is a digital analytics piece and there is a portfolio piece all have to be done with today because that industry is moving at speeds where we need to catch up with that speed.
Doshi: Are you on Twitter?
Balaji: Of course.
Doshi: So, you want to advertise your Twitter handle to all of us so that we can follow you?
Balaji: That is for me and my family. It is not a publication.
Doshi: No, I am curious because you also have to, all of you, personally equip yourself to deal with this changing world.
Balaji: Absolutely, if I want to communicate with my daughter calling her doesn't work, I am talking about my personal ethics, you want to get through to her, put it on Facebook Messenger, chances of hitting her is immediately, instantaneous. So, that is the level to which things have changed. So, same with consumers.
For example let us say when we did the Lakme Fashion Week we almost had to have a full fledged social media nerve centre which was trying to track how audiences are moving and how do you ensure that you give them the feeds that they want. There is a look that is on the stage, how do you decode the look and how do you actually help it. Digital gives you consumer engagement platform at a scale that have never been seen before and we are very excited about it, and we need to learn it.
Doshi: So, personally what do you find most challenging about learning it, I am very curious about that?
Doshi: About learning to deal with this new world, what do you personally find most challenging?
Balaji: It is mindsets. Speed, comprehension of how fast something can move. We are all used to linear speeds, when it moves to exponential speeds we just don't get it. Human brain is not wired to do exponential.
Doshi: At least not after a certain generation?
Balaji: Yes, I am sure it is. I may consider myself on the wrong side of the generation.
Parthasarathy: So, let me just pick up on a couple of things which you said to build on. First is the new - if you talk about how the CFOs - how you look at it as a CFO and above, the biggest things is to say you have to unlearn and relearn. Everything what in the past was okay, are known or you are the functional expert is no more the case.
Second thing is every business is changing, some of them slowly, others more fast, but everybody is changing. So, you are going to learn more from start up CFOs. You have got to learn from them than to teach them. So, the first thing is I am telling all my CFOs, hey learn more from the start up CFOs otherwise we will not be in the game for long.
And the second is in terms of virtues, and there is a very interesting analogy I said. What is the virtue of a new CFO, I said it is going to be a five star CFO.
Doshi: Five star?
Parthasarathy: Yes, so at a 5.0 version. 3.0 was the business partner, 5.0 was the value creator and how is he creating that value is because the new world is ice. Climate change on one end and experiential commerce on the other end is going to change every company’s business model sooner or later, but it is going to change. So, innovation and adaptability to manage C and D is going to be the future.
So, how has the CFO got to change? He has got to first at least fail at something. If he has not fail then is he going to be able to handle the future? It is going to be a very different world. So, I am kind of advocating to each of them to at least stumble and learn from the start up CFOs because they have been habituated to kind of business failing, something failing and they learn and adapt very quickly.
Bhatt: Lot of technology changes are happening, how do you adapt to that, the business changes which are happening, how do you contribute there.
Doshi: In your business, banking has changed so dramatically.
Bhatt: Let us take some of these stuff which earlier - five years ago and even two years ago - one would have looked at setting up new branches as the number of branches was signifying how large you are. Now, as I go forward do I need real branches. How many times have you visited a branch, possibly not for a long time.
Doshi: Yes, in the last six to eight months or eight months never.
Bhatt: So, to that extent how does one slow down the pace of growing branches because again that is a cost which you are looking at and how does one deal with servicing the consumers on a different wicket? You also have other digital plays coming in and getting into new products. So, how do you deal with them. Payment banks for example, they may take away some of the businesses which you are doing, say, for example, transactions. Moving money from one to the other. So, are you going to be competing with them, how do you maintain the trust of the customer with you, also at the same time your bottom-line from the fees which are going to be charged are going to be under stress across world. A lot of the easy money where across businesses what people were making is going to be under stress as more and more people come in.
Balaji: Let me give two instances. Look at the magnitude, if an RBI publication calls out Bitcoin block chain control as an area which was like a big disruption, they allow it the regulator says we don't like the Bitcoin, but we like the technology for it, fascinating. I would never have imagined a few years back, that is one.
Take the price of solar power sold to Orissa government 4.3, that is cheaper than what we are getting on the grid. This is monstrous disruption. These are not small things and if as CFOs we do not see that because somebody has to see three years out, else life becomes only a 2016 conversation we are into some seriously exciting times where we need to, as he rightly put it, unlearn, relearn, scrap stuff that is not relevant to you but really hook on to the bandwagon, there are some winds blowing, if you don't unfurl your sails you are not going to go anywhere.
Doshi: I know this sounds like a poppish question but I am going to ask it anyways. What did you do in 2015, one thing that you did that you were surprised at yourself but it was a response to the changing environment. One thing that you didn't think you would ever have to do as a CFO or was never required as part of your skill set in your previous years. Digital advertising is now fairly talked about, so, we understand that or whether it is online banking or consumer experience. Something novel that you did in 2015, that surprised you as well?
Balaji: If I look at the finance function as such for us to suddenly turn around on e-commerce and then say, actually no, the way you need to evaluate credit for them is very different compared to what you do in normal trade that took us by surprise.
Doshi: So, what did you do?
Balaji: Our entire evaluation of it, how do you take decisions on this on the fly, how do you resource up well ahead of time those were new things where we had to actually throw people at it and saying let us see how it goes and then start by saying don't give an annual plan, just start looking at it month on month. We are a company that we believe in year-on-year (Y-o-Y) growth and suddenly realising o, forget Y-o-Y, I want to look at sequential and I don't want to get quarter-on-quarter (Q-o-Q), I want to do month-on-month (M-o-M). Then you suddenly realise you wire up very differently.
Doshi: I want a non-traditional experience?
Bhatt: Broadly to try and make sure that the teams which are working with is equipped across board. You had to break mindsets of people to say, look I am a tax expert or I am an accounting expert or I am doing just secretarial work, we just make sure that is one.
The other one is to make sure that you use technology to do a lot more analytic work than what you were doing just a pure accounting and that is something one needs to get into a situation and which one has initiated things to make sure that you are then looking at more business support than just a pure role of - and how are you going to be seeing trends and helping out what is happening in the business.
Parthasarathy: I have got three mentors and all of them are under 30.
Doshi: That is non-traditional, that is lovely.
Doshi: Last question, key opportunities, a short brief list, point wise of key opportunities and challenges that 2016 will bring up and since I cannot run away from what the budget will bring up in a couple of months from now, what do you hope to see there. In point form will be good enough.
Balaji: Opportunities is what we saw all along. Consumer opportunity is phenomenal, don't see a difference there. Low inflation, great opportunity; stable rupee, great opportunity, clarity of how future is looking like in terms of this is how tax will move, GST will come, it is a matter of time but this is what we can mentally prepare for great stuff. So, my mind from an FMCG perspective, regulation is not the big one for us but for me the consumer story is really starting to come together once again, that for me is a great opportunity.
Doshi: Challenges and budget expectations?
Balaji: Challenge for me is the simultaneity of some of the changes that are coming through and particularly on GST I really do worry about the lack of clarity on the operational side. As much as the strategic conversation we can still have but let us get this one out of the way would be my…
Doshi: So, would it be fair to say that in the budget then you hope you will see clarity on all these things, at least a roadmap of things?
Balaji: GST may not be coming in the budget but as far as the budget itself is concerned as long as it is continuity and simplifying some of the more complex areas of compliance as you rightly put it across the boards, we have GST but you still have c-forms? Can we really get over some of these things and brutally simplify the country then nothing will really be fascinating.
Doshi: One quick question on the budget which you like to see the government maybe delay fiscal targets by a bit to be able to continue pump starting the economy?
Balaji: Personally speaking there is discipline and growth. You cannot be indisciplined and grow. We will lose the credibility that we have taken a lot of time to get to this credibility. I don't think we should ever let that go.
Parthasarathy: 2016 if I were to phrase it, it is an year for implementation and co creating and that is what the entire economy, the corporate, the government, all have to kind of do. Whatever you have done last year, implement that much more and it is not a question of new investment but whatever has been said how can that bring to fruition in this year all the contracts that has been given. So, that is there, that is a big - so, I see that as a big opportunity. The challenge I see is how fast can we revive rural market and a balanced growth approach is not to lose discipline. It is not going from zero to 100 but how can we kick start that. We have the tailwind of fuel and commodity price. We cannot blame later something else if we don't kick start it in 2016. So, that is the big challenge.
Doshi: So, are you saying that you are okay if they defer fiscal responsibility requirements, fiscal targets by a bit to be able to put more money to work as public investment?
Parthasarathy: I am saying that the amount of money that they are getting because of fuel being lower and commodity being lower needs to go into investments…
Doshi: But that shift we have seen a little bit in 2015 take place anyway?
Parthasarathy: Suppose the fuel cost goes up, what happens to fiscal discipline. So, I am just saying there is a balancing act here. I am not saying one or the other and I am going to watch saying rural economic kick start is a big priority in 2016 for everybody.
Doshi: Whatever it takes?
Doshi: That is the bottom-line.
Bhatt: From an opportunity point of view both individually for the company as well as for the economy as a whole we couldn't be placed better. It is for us now to make it happen and execution is going to be the key. If you look at the government a lot more intent has been talked about, a lot more policies have been talked about. 2016 is going to be an year to make it happen, to execute it and to make sure that we get the results of that. Even if we just get that without any big bang new things coming in that will be a lot we have achieved and that is something which we have been lacking around. So, we just have to make sure that a lot of that is translated into action right now.
Doshi: So, that is your opportunity and challenge?
Bhatt: That is the opportunity and in a way challenge because execution has not necessarily been our strength as a country.
Bhatt: Budget, yes I would actually look for not just one year but a roadmap in terms of simplifying things and making sure that this is what the ease of doing business is all about.
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