Tamil Nadu - Coimbatore   

‘Changes needed in financial issues’

COIMBATORE: Emerging from the economic downturn, the aim now should be for structural innovation and improvement in finance-related issues, P. Thiagarajan, Managing Director of PTR Capital Advisory Services, said here on Wednesday.

At a meeting organised by the local chapter of the Confederation of Indian Industry, on “Evolve, Enable, Excel – Emerging from the Downturn” he said that some factors such as securitisation, derivatives technology and globalisation had led to access to capital for growth and development and an interesting scenario in the capital market.

Securitisation had led to efficiency and lower cost of capital. The concept of securitisation, if done right, had many benefits. The derivatives technology and approach brought in new players. It brought in the concept of two-way market and improved market efficiency. He said that when risks were spread in a system, individual risks were not relevant. There were only systemic risks.

There were at least three or four signs of the recession coming. For instance, every asset (including treasuries, gold and real estate) saw significant appreciation and at a short period.

Between 2005 and 2007, access to credit was significant and there was “unhealthy” availability of credit.

“Yet, nobody wanted to stop the party.” Consumers felt rich, access to credit was as never before, banks made historic profit, asset managers increased their returns and GDP growths were high.

With the recession, the lessons learnt were on structural weakness in rating methods, criticality of central banks behaviour and problems from separating underwritten and eventual risk folders. Mr. Thiagarajan said India was unscathed; but this had led to a false sense of security.

Buffers should not be unproductive. Corporates should think of long-term, stable funding source, the government should provide infrastructure to deal with bad times and companies should have access to finance at every stage of growth. “We should think of right financial models, transparency and have a systemic firewall,” he said.

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