harun r khan : taking on risk – the sensible way keynote address by mr harun r khan, deputy governor of the reserve bank of india, at the cii “ confederation of indian industry ” national risk management summit 2015 on “ de - risking the future of india inc. ”, mumbai, 10 february 2015. * * * the speaker deeply acknowledges the contributions of shri. r gurumurthy of the reserve bank of india. shri suresh senapaty, shri richard rekhy, shri deepak parekh, smt. greeta varughese other distinguished guests & invitees on and across the dais. this invitation to give an address at this important cii event gives me a great pleasure. cii seems to have chosen a very interesting theme for this national risk summit – “ de - risking the future of india inc. ” – i am, of course, wondering why cii is thinking of de - risking the future of india inc. though the participants here would appreciate the fact that de - risking would also mean that they have no business to be in “ business ”. risk - return - retribution in a vucap world all human enterprise, more so business activities essentially involve risk taking, in a bid to earn the “ reward ” or “ return ” according to the risk - return trade - off. this relationship is, however, far from simple as the reckless chasing of returns may result in unimaginable levels of risks not only for the individual enterprise but also for the whole system. the risks posing a threat to the financial and economic balance of the world today are far from being properly managed and controlled. i understand that the prevailing evidence of continuing, if not increasing, appetite, for fast returns is one of the major motivations behind the broad theme for this seminar. while developing my thoughts on the much used idea of the risk - return trade - off, i was led to think of a missing “ r ” – requital – in the risk - return conundrum. the tremendously forceful human fascination for reward and the almost irresistible tendency to take or overlook risks in that pursuit has, more often than not, resulted in inevitable retribution or requital, in the long term. in the present context, probably it is the zeitgeist that drives us crazy. having seen the massive impact of the global financial crisis, we may want to take a pledge to de - risk the future. peter bernstein, the american financial historian,

will start with the business community ’ s concerns over legal and regulatory risks. as i could see from your flyer, there is a slot to discuss this and a brief is given thereunder. while it talked about increasing risks faced by companies arising from complex regulatory enforcement and new legislation, it also pointed out, rightly, that, these were brought upon due to the corporate scandals and breakdowns in the past few years. this is also because organizations have been doing more business across boundaries than ever ; thus, adding global regulatory concerns to their local regulatory risks. so, we all understand and appreciate the concerns here – both of the law enforcers and of those who are subjected to these laws and regulations. oftentimes, we get to hear how difficult it is to do business in india. but multinationals, at various points of time, have had similar concerns over doing business elsewhere too. at the dld technology conference in munich recently, nicolas brusson, the co - founder of blablacar, the french ride - sharing start - up, when questioned about the rationale in starting his venture out of france with its 28 sets of laws and regulations, replied : “ when you start from france, everything looks simple ”. i am sure indian companies that ventured overseas in the last one decade or so may now vouch for these sentiments. in the current context, it may make immense sense to seriously look at the “ make in india ” pitch with the government trying to do what it can. we must understand that most of the times regulatory stance follows, rather than precede, the excesses committed by the regulated entities or the overreach of the so called selfregulatory mechanism. their actions in fact emanate from the very nature of the wider mandate that the regulators carry on their shoulders. in what is called as “ regulatory dialectics ”, financial market regulation is an endless process with both the regulator and the regulated making alternative moves in terms of regulation, avoidance and re - regulation. 2 this must be true of other markets, too. what guides the actions of regulators is the need to ensure smooth functioning and stability of the markets that they regulate and not populism. in other words, as john kay, the financial times columnist, often says, crowd - pleasing is no substitute for wise judgement. “ that ’ s why we prefer to entrust the navigation of a plane to a skilled pilot instead of using the average of the opinions of the passengers ”,