Liquidity management has become top priority for financial institutions in the post pandemic period replacing maximisation of leverage for enhanced profitability, according to Dinanath Dubhashi, managing director and chief executive officer of L&T Finance Holdings, while solvency, asset quality, profitability and growth remain in focus.
“Risk management is in its entirety has been fully understood in these last two years. Today in the risk management, actual stress testing has come to fore. Being from a non-banking finance company (NBFC), liquidity management comes first, second is solvency, asset quality, profitability and growth,” Dubhashi said, speaking at the financialexpress.com CFO Connect Conclave 2022.
In a risk management perspective, companies have to be ready for crisis management, D Sundaram, vice chairman of TVS Capital (P) Ltd said at the event. During the pandemic, financial leadership was focused on liquidity management by ensuring cash flows and collection of receivables and also optimisation of capital allocation, he said.
In the pre-pandemic period, focus of organisations was on maximising leverage to increase profitability, which has changed to maintaining an adequate capital buffer, Dubhashi said. In this scenario, data analytics plays an important role by aiding in improving collection efficiencies and eventually liquidity management. The role of a chief financial officer (CFO) becomes important as treasury management and strategy becomes important, he added.
The role of CFO today in terms of risk management includes probability of occurrence, severity of the event, mitigation and residual risk is important, Sundaram said, adding that CFOs need to have key role in talent development to secure perpetuity of the company and also have a meaningful dialogue with audit committee. A CFO must have accessible, affordable, accurate and assured data to ensure business sustainability, especially after Securities and Exchange Board of India (SEBI) has mandated business responsibility and sustainability reporting, he said.
“I never look at CFO as a support function. I look at CFO as a partnership function,” Sundaram said while highlighting the relationship of the position to that of chief executive officer. While pandemic was very stressful, there are going to huge opportunities going ahead, K V Subramanian, president of Reliance Life Science said, adding that the technology has an important role to play for molding the role of CFOs. While there are internal and external aspects of technology, the top management needs to understand how digital services will impact business, he said. For a pharmaceutical company, there are going to be different set of complexities such as currency fluctuations, nature of partnerships with foreign companies and bringing growth in a price-regulated environment.