For the Love of the Soil
scripted by Sameer Majli
Precious are those that choose commitment and courage to do their bit for the land rather than fall for the enticing lure of seemingly greener pastures. The nation beckons those that opt to create goodness and well being, rather than embrace lifestyles both lavish and comforting. Heeding this calling of his innermost self was what brought over very own son-of-the-soil Rajendra Belgaumkar, back to the place where he truly belonged.
Raj as he called by his friends holds a B.E. (Mechanical Engineering) degree (1987) from Gogte tInstitute Of Technology, Belgaum. He is an M.B.A. (Finance and Investments) from Baruch College, City University of New York, New York.
Having completed his Management Education in the United States of America, he worked for 15 years in the banking and financial sector with organizations of repute such as The Federal Home Loan Bank of New York, Citibank and American Express.
The year of reckoning was 2005 when Raj along with his wife, Ashwini Belgaumkar,a psychologist, decided to return to India. Their children had to face the challenge of moving to a completely different way of living, culture and education but purpose reigned supreme and they were back and happening in the good old city of Belgaum.
The soft spoken gentlemanly presence soon began to work in the field of education and is making the most of his role as Board Member, Karnataka Law Society, Belgaum. He is actively involved in managing a two wheeler showroom but more than just finds time to do his bit, to address the needs of academic and corporate aspirants in the region. Raj is actively associated with the betterment committee at his Alma Mater, St Pauls High School, Belgaum and a source of guidance and inspiration to several educational institutions in the city.
Just a few moments spent with him and one ends up experiencing both enrichment and purposefulness.
Given his views and commitment to the betterment of education, one can only reach out and offer both prayers and assistance in the accomplishment of his endeavor to do justice to his reason for returning home; for the deep rooted inner calling, “For the Love of the Soil”.
Rajendra shared his views to AAB about studying in the USAand then coming back, here are some excerpts of the interview:
Why did you think of the US for your MBA degree?
Raj ——> I had done my Engineering in Belgaum and during the course of this undergraduate program itself I wanted to move toward Finance via an MBA. There were a few reasons for this interest in Finance. Engineering in totality did not interest me as much as I thought it would. It also happened that at that time my father had moved out of India to improve our family’s finances. I enjoyed managing finances of the home, making investments on my father’s behalf and developed an interest in Finance by initially reading advertisements in great detail for Company Deposits that used to appear at that time in Times of India. I had appeared for entrance examinations in India, and the GMAT for the MBA program in the US. In India I was able to secure an admission to IIFT (Indian Institute of Foreign Trade), a well ranked B-School in India. Somewhere in my nostalgia folder I think I still have an unused Rajdhani ticket to New Delhi. I also got admissions to a couple of MBA programs in the US. In the end, I decided to go to the US because I ranked the exposure that I would get there higher than anything else. I was also fascinated by what I had read about the pedagogical methods employed in B-Schools there – The Case study method, the emphasis on current topics versus just the syllabus, etc. Finally, being in the world’s largest and most dynamic economy was just too attractive a force to resist.
Was Studying in the US a value addition?
Raj ———> Definitely yes! In my case, and I can only speak for myself, studying in the US was very useful because it humbled me and I mean this in a necessary way. Here I was, a relatively privileged middle class boy from a lovely cocoon called Belgaum where many people knew me and I was always someone’s son, or grandson and in some cases great grandson. Things always got taken care of. Never knew what it meant to be an individual who had to fend for himself for everything in life including laundry and cleaning.
The US university system also gave me exposure to a work ethic that I continue to admire to this day and try to adhere to. The hours did not matter. What mattered was that the quality work got done. The infrastructure was phenomenal and it worked at all times and was intelligently put together to allow a student such as myself to spend most time on what I was there to do – study, research and pick up new ideas and concepts.
How was the experience of working in the world’s largest financial market?
Raj ———> Phenomenal since I lived through some heady times of the recent past in the US. While the senior President Bush was ending his sorry one term, I was finishing up on my degree. The period from 1992 to 2000 under President Clinton was really something. The Internet was coming of age, the dot com boom was all around us, and the economic policies proposed by Clinton and eventually adopted by the US Congress turned out to be a boon for the US economy. This was the period when I started working in the US and also got married. Work was good and I learnt so much about risk management and financial instruments. Sep 11 did change the overall mood though.
Would you just simplify what Risk management means?
Raj ———> Without risk there is no reward. One cannot get more clichéd than that.
Let me take the case of a simple bank that takes in deposits and makes loans. Let us, for the purpose of simplicity, further assume that all deposits are offered at fixed rates for a period of 5 years. Say this deposit fixed rate currently is 10%. Let us now assume that the bank uses these deposits to make loans and all of these loans are made at a floating rate. Let us currently assume that this floating rate is 12%. If the RBI does nothing, the bank earns a spread of 2% and after paying for expenses say of 1% makes about 1% on its asset base.
What happens if the RBI senses a persistent weakness in the economy, and starts gradually lowering rates, which in turn affects the floating rates on loans already made and this rate over say a period of 6 months heads down to 8%. You now have a negative spread of 2%.
It is for the risk manager to assess this situation on a continuous basis and make recommendations to senior management about actions that can be taken to manage the risk inherent in a portfolio such as this while preserving the earnings capacity of the firm on a sustainable basis. At the end of the day, risks taken without an understanding of the magnitude can result in improper pricing of the product which in turn can result in a direct hit to the firm’s capital.
Another example that I can give is that of risk in pricing a warranty program. A warranty program takes in revenues from the sale of such policies. The program incurs expenses when some parts go bad and have to be replaced for free per the program. I am assuming that labor has a zero cost in this example. As long as the value of the total parts replaced does not exceed the revenues taken in from sale of policies the company has a profit from this warranty program. Things can go haywire when quality control has failed and a vendor has supplied sub-standard parts.
Of course there are many risks an entity can be exposed to such as legal risk, equity market risk, interest rate risk, liquidity risk, credit risk, fraud risk, regulatory risk, sovereign risk, etc. A risk management team has to measure each of these risks, at a minimum under a few scenarios, calculate the potential hit to the company’s earnings and/or capital, and suggest mitigating actions.
Your views on risk management in view of:
a.The 2008 crisis in the US
Raj ———> Greed is not good despite what Gordon Gecko famously said in Oliver Stone’s Wall Street. It is my humble submission that it was President Reagan’s desire to starve the beast (government) in order to release the animal spirits of the American economy that eventually led to the systematic degradation of the regulatory effort necessary to keep the market’s excessive animal spirits in check.
The era of greed also bred shamelessness in American corporate boardrooms. CEOs started making outrageous salaries that were celebrated and had to be outdone each year with even more outrageous increases in salaries. This became especially true in the financial sector. You needed even more esoteric ways of making stunning bets on the market to justify these salaries. This heralded the era of cost cutting that affected most employees, obscene salaries for people at the very top, and mathematical quants at financial firms to dream up new ways of taking on positions such as CDOs backed by liar loans that would guarantee even more profits.
Starved regulators simply could not keep up. Add to this, the moral hazard created by the Federal Reserve’s penchant for lining up financing for about to fail firms such as Long Term Capital Management and you had the perfect conditions for even bigger risks by supposedly too big to fail institutions (Citibank, Bear Stearns, Lehman Brothers, AIG, etc.).
If the recent JP Morgan losses have told us anything it is that the crisis of 2008 has not yet yielded appropriate risk management techniques to deal with institutions of this size. If it were up to me, such institutions would be broken up into smaller pieces that would be more manageable both from a risk management perspective and regulatory oversight perspective.
b.Current European situation
Raj ———> Europe is dealing with a demographic issue in which its population of retirees is vastly exceeding its younger population resulting in a vast mismatch between benefits promised to retirees versus taxes collected from a younger population. There does not appear to be a easy fix to the problem. Other than Germany which is a global export powerhouse, almost no other European economy is competitive enough to come out of this mess without massive cuts in spending which are very unpopular and unpalatable. Even if these cuts are accepted there appears to be no decent solution in sight as it relates to competitiveness of these economies vis-à-vis China, India and other Asian economies. The ultimate question is this – How much is Germany willing to bend or sacrifice in order to help mend the remainder of broken and uncompetitive Europe?
Raj ———> India did not go through the mess that the US had to deal with in 2008 because the RBI never allowed a loosening of lending standards that was permitted in the US.
India does not face a demographic issue that Europe and Japan are facing. It has one of the youngest populations on the face of this earth and will continue to remain young even through 2050. China will face an ageing population issue in the next 10-15 years.
Despite the strengths that India is blessed with – an RBI that has stuck to its guns, and a demographic mix that is the envy of the world – India has issues from a risk management perspective that are prevalent at the highest level relating to poor governance and management of its resources. Selling shares in SAIL to the tune of Rs. 4000 crores and then using this money to take care of the deficit is like selling your home to pay off excessive credit card bills. Where do you go to live the following month or do you sell another home? Solving infrastructure problems such as food storage, electricity production, water, etc. are very important in the face of persistent negative views about India from rating agencies. This is a long term risk to investment in India.
The greatest risk that India faces, in my opinion, is the un-employability of the millions of graduates that our university system persists in producing each year. This massive group could cause social turmoil in the years to come unless steps are taken to retrain these young minds.
What would you advise budding professionals in the field of risk management?
Raj ———> Keep it simple.
Understand the basics of Finance, and accounting thoroughly.
Brush up on mathematics to understand valuation of various financial instruments such as options, futures, swaps, bonds, etc.
Read a lot. Read up on financial history and books such as “When Genius Failed”, “Liar’s Poker”, “The Big Short”, “The Black Swan”, “Irrational Exuberance”, etc. You can never read enough.
Learn to be skeptical of anyone making claims that seem out of the ordinary. Better yet, learn to be generally skeptical.
Was coming from a small town like Belgaum a hindrance in your career ?
Raj ———> Without wanting to sound arrogant, I have to say that in my case it was not. Let me explain. While my parents were never wealthy, they sacrificed a lot of their time and hard earned money to make sure that my sister and I got exposure to things in life that would build a capacity in us to scale up. What do I mean by this? From a young age, we were introduced to reading. My mother used to read with us in the beginning. We were also introduced to music and the arts thanks to my mother and grandfather. We used to play Badminton and Table Tennis at the Club almost each evening. We were encouraged to take part in extra-curricular activities such as debates, singing competitions, acting in school plays, and quiz competitions. We were taken to concerts and plays regularly. The fact that my parents had lived in the UK for close to a decade before they returned to India in 1966 also helped in maintaining a cosmopolitan outlook in our home. It all added up in making me and my sister very comfortable in almost all settings here or abroad. Ashwini and I are trying to replicate the same thing for our children. Luckily my mother’s presence adds value to this effort.
What was the reason to come back to Belgaum again?
Raj ———> Let me begin by saying that I miss walking around the city of New York with Ashwini, especially on Sundays, very much.
Yet, one has to make choices in life that are appropriate at a particular stage in life. Right or wrong, I wanted to raise my children here. I also did not want to uproot my parents in the evening of their life and ask them to come and live in the US. Finally, my only sibling, Neeta, and her family were here.
What are your future plans?
Raj ———> To work on an entity that will add tremendous value to the lives of citizens of Belgaum on a sustainable basis. This could be in the form of an art gallery or museum. This could be in the form of a healthcare organization that reaches the masses. This could also be in the form of an educational entity that is sufficiently different from those that already exist in Belgaum. I really don’t know. Of course I don’t have the resources personally to do anything like this. I am working with a group of friends, benefactors and well wishers to accomplish some of these ideas. My investment will be my time away from the business I manage to keep the fires burning at home.
Your favorite place in Belgaum ?
Raj ———> Kamal Basti. It is amazing that this Jain temple has survived many invaders and changes in our society. Once in a month or two, I just go there and sit for about 15 minutes and leave. I hope the keepers of this temple do not modernize it and make it a theme park like attraction.
In your view is this website(AAB) doing good for Belgaumites in the past 5 years ?
Raj ———> It is very necessary to have AAB for Belgaumkars such as myself. It has become a wonderful platform for stories that the local press does not appear to have an appetite for. I like the fact that no story is sensationalized. It has a clean interface that makes reading it a pleasure. On a virtual basis, this is my favorite go to place in Belgaum.