Preparing for time to come

The pandemic has not been hitherto a pleasant experience. More so, for us Indians, who despite not being affected adversely in the first wave, went through a long lockdown and most people faced economic hardships. The second (or is it the third or the fourth as some wise being mentioned), has been far more disastrous. But hopefully, we will learn from it all (and I am being optimist here).

 We will hopefully learn, to be prepared for the mitigating risks arising out of uncertainties. Yes, we don’t have a crystal ball to predict the future events, but seemingly infrequent events that can lead to potential problems needs to be identified and the risks mitigated. The optimist that I am (and I can see the smile of my friends, not out of joy I assure you), I hope that we will tide over this pandemic as the country now focuses on increase in vaccination drives.

But the economic fallout is what we need to be ready for. The impact of the localised lockdowns will be felt for many businesses more severely. Let us also be prepared for the impact of rising inflation caused by rise in prices of  fuel and commodities (with the exclusion of gold), not to speak of rising unemployment, on the standard of living of people en-masse. What impact could the consequent currency fluctuations and central bank’s policy on interest rates have on the economy are best left to the economists to predict. The oncoming monsoons will, as usual, be a sedate affair for the consumer durable and automobile or the already battered hospitality and textile industry, which have already seen a drop in revenues. With what we have gone through, festivities would be probably be more subdued (presumably) than usual, especially in the rural segments where the growth opportunity for the Corporate sectors are focussed on. Rising defaults are probably being witnessed by the microfinance sector and most financial institutions on the corporate lending side will definitely be bracing for events to unfold ( or should I say data to unfold) once the credit restructuring requirements are more pronounced and demanded by borrowers.

Credit risk Managers across globe may need to give a thought  on how to recalibrate their Credit Models , to ensure that their fresh lendings are based on an more informed study. A one size fit all model may not truly reflect the economic impact across geographies that the pandemic will leave behind. It is not going to be a simple “extraordinary year to be ignored” solution that Credit experts suggested few months back.  I don’t have a fool proof ready answer as of now. This is a challenge that will need more brainstorming by Credit Risk Managers.

From an operational risk perspective, lenders (both the traditional banks and the fintechs) will have to brace for more financial and transactional frauds as there will be bid by borrowers to hide the financial difficulties, hits taken through derivatives and try to re-salvage what they have lost in business.

From a tech perspective, larger organisations, both in the Corporate and Banking world, needs to brace for the inevitable cyber crime. If events over the last few years are to go by, more and more large Organisations have been impacted by Ransomware.  The recent event of Continental Pipeline being a case in point. What is worrisome, is the inability to identify the perpetrators behind the crimes and therefore the lack of conviction will only goad the hackers to undertake more audacious attacks. I shudder to think what could happen it hits institutions which countries depend on protecting or securing it.

Did I mention I was an optimist? Yes, I believe that there is enough acknowledgement of these risks and each organisation will prepare itself for it. But a more coordinated effort and sharing of information would be required to ensure that challenges are met headon. As the oft mentioned cliché saying goes – Hoping for the best, preparing for the worst and unsurprised by anything in between