DSIJ Interview With Prateek Jain CFO , Reliance Nippon Life Asset Management.

"CFO has to create maximum value within limited capital"

Prateek Jain CFO , Reliance Nippon Life Asset Management 

How has the role of CFO evolved over the years? How does a CFO influence the strategies of a company?

The role of CFO has evolved over the years from a role of just preparing financials and containing costs, it has now become more strategic to support organisation stay ahead of the competition. In recent times, with all-round vulnerabilities and internal and external business complexities, the board now sees CFO as an able partner to the CEO in steering the organisation towards long term sustainable growth and profitability.

CFOs have increasing been having far greater influence in the strategic decision-making process in recent years, particularly as their role has expanded into providing insightful analytics. In fact, the biggest challenge facing CFOs right now is dealing with legacy systems and environments; managing the complex needs of stakeholders; new and complex business risks; and supporting increasingly complex operating models.

The pace of advancement in recent years has been so fast that it is difficult to talk about what lies in future, from the changing technology, regulations, faster internet, improving artificial intelligence, big data and enterprise analytics, everything around us is changing so fast. Today, it is difficult for businesses to reach a point where it achieves an ideal operating model. Even businesses like ours, which we believe are more stable and predictable; the operating model continuously keeps evolving. Hence, as a CFO at Reliance Nippon, it is a continuous challenge to keep improvising the business model to achieve a sustained competitive advantage. Also, one has to keep in mind that there is limited capital available within which you have to create maximum value. As a financial gatekeeper, it is therefore important to ensure that capital is judiciously allocated and utilised across various strategic initiatives.

As a CFO, what are the top three challenges which you have faced? How were you able to derive and implement the solutions for them?

The top three challenges in my experience have been market volatility, declining profitability and the frequently changing regulatory environment. Ours is a cyclical business, and as an Asset Manager, we follow the fortune of capital markets. Earlier, our profitability was largely driven by equity assets, which used to be very volatile. To de-risk ourselves from such volatility, we have broad-based our revenues by diversifying into fixed Income, retail debt, alternatives, ETFs, and PMS. Further to strengthen steady equity flows, we are consciously encouraging investment through systematic investment plan (SIP). Today, we receive almost 10% of our equity asset flow only through SIPs.

Lowering of the expense ratio and increased competition posed a significant threat to our profitability, hence it was important for us to remain frugal and be cost-conscious. Therefore, at an organisational level, we embarked on a rigorous journey towards frugality wherein we continuously focused on improving our operating processes, outsourcing of non-core activities and automation of manual processes. Thus, we were able to maintain our profit margins.

In recent years the regulatory landscape has totally changed. We have seen the transition from Indian GAAP to new accounting standards - Ind AS, VAT & service tax to GST, the introduction of new Companies Act and the continuously evolving SEBI’s mutual fund regulations. In such times, for a seamless transition to the changing environment, continuity of the team is paramount. We were able to retain our employee by significantly investing in their personal development programme and appropriately upskilling them by imparting suitable training.

What are the top three skill sets required to be a successful CFO?

In my view the top three skills a CFO  must have i) foresight or vision ii) ability to look beyond the obvious iii) decisiveness. Basically, all three follow a linear pattern.

A CFO must have a clear foresight or vision of what he is expected to do or achieve as part of the key member of the organisation, and the same should be aligned with the vision of the organisation. To be able to effectively contribute, it is very important for a CFO to have complete understanding and alignment with the purpose and objective of the organisation.

Secondly, CFO must have the ability to look beyond the obvious. From the maze of data available, a CFO should identify what are the key strengths and challenges of the organisation? What are the internal and external opportunities emerging, and which can be leveraged? And what are the potential threats that one must remain mindful of? Basis this deep understanding, CFO can help the organisation devise a successful business plan to overcome competition.

Last, but the most important skill a CFO must possess is decisiveness because once a vision is established and the plan is ready; to execute the plan, one has to make multiple decisions at each stage. A CFO who has quick thinking and decision-making capability will be able to execute the plan to perfection.

Do you think that CFOs should be well-versed with digital innovations in the industry?

Historically, the role of the CFO was about ensuring accounting and reporting of past activities and transactions. Standardisation of the financial reporting process and automation has enabled CFOs to dig into the historic data and to have an analytical and predictive approach towards the future. Today, CFOs are more focused on shaping a robust financial future, rather than mere accounting. The increased usage of smart phones and affordable internet has changed the way consumers research and buy products. The medium of reaching out to consumers and point of sales have seen a sea-change. To leverage these changing trends, CFOs need to keep themselves abreast with the latest technology and keep a close tab on emerging digital capabilities and innovations.

At Reliance Nippon, we frequently channelise data from different sources across the organisation and generate a dash board of actionable insights to support business growth. We just don’t focus on the impact of digital innovations on the financial reporting and tax compliances, but also on data analytics, transaction processing and other technology innovations which can improve customer experience, performance or bring in cost efficiencies. At times, these innovations may not result in positive outcomes, but to remain ahead of the competition, we should invest in building these digital capabilities. As a CFO, the primary task is to ensure growth and profitability and we continuously look for digital innovation that can improve our market share, reach and profitability.

What is your outlook on the asset management industry in India?

The mutual fund (MF) industry in India has seen rapid growth in assets under management (AUMs). In the last five years, the MF AUMs have grown three times. The way how we Indians save and invest is changing, the net financial savings have posted a CAGR of close to 10% over the past five years. It will not be a surprise if we see the AUMs growing three times in the next five years.

The total industry AUMs as of May 2019 stood at Rs.25.93 tn (US$ 383 bn) with around 83 million investor accounts as of May 2019. It will be pertinent to note that the industry AUMs have increased five times in the last ten years, and the number of investor accounts has almost doubled in the last four years.

A CFO must have a clear foresight or vision of what he is expected to do or achieve as part of the key member of the organisation, and the same should be aligned with the vision of the organisation. To be able to effectively contribute, it is very important for a CFO to have complete understanding and alignment with the purpose and objective of the organisation. 

Having said that, Indian MF industry is still at its nascent stage and we believe that we are standing at an inflection point. Today, we are at a point where the US asset management industry was in 1983. During 1983, the US AUMs were at $293 bn, and the corresponding AUM-to-GDP ratio was at 8%, it has grown to $18,746 bn, and the AUM-to-GDP ratio has reached 97% in 2017. Today, the Indian MF AUM-to-GDP ratio is about 12% and the AUM growth has been at 20% plus CAGR in the last five years. We believe with the given state of readiness in terms of capability, infrastructure, and regulations, the industry can achieve much faster growth.

As a concluding remark, I would like to say that the expectation of the shareholders, the board and CEOs from their CFOs is rising. With changing times, a successful CFO will be the one who can demonstrate solid business acumen and can help to formulate successful business strategy, rather than merely reporting on what has already happened.