Deepak Bhawnani, CEO, Alea Consulting

The company has directed assignments for corporations, listed companies, private equity firms, banks, strategic advisory institutions, international finance entities, hedge funds, and sovereign funds over the last 17 years.

Feb 24, 2021 07:02 IST India Infoline News Service

Deepak Bhawnani is the Founder and CEO of Alea Consulting, India’s first (home grown) private global risk and Fraud Mitigation and investigative consulting firm, which helps organizations reduce reputation and operational concerns. Deepak is an industry veteran and successful entrepreneur renowned for his proficiency in forensic due diligence for mergers, acquisitions and joint ventures; FCPA/fraud investigations; international asset searches and; risk and crisis consulting. In a career spanning over 30 years, Deepak has conducted numerous high-profile assignments & investigations in South-East Asia, Europe and India, building a reputation as an industry advocate and thought leader.
In an interaction with Shweta Papriwal, Editor, indiainfoline.com, Deepak Bhawnani, CEO, Alea Consulting said, "A unique service, Alea's Asset Discovery is a proprietary process that includes in-depth research and analysis to identify tangible or intangible assets of significant value, of the defaulter for debt recovery. Its relevance has become multifold in the current business landscape".

What according to you has contributed to Alea's market legacy over the last two decades? What sort of entities is Alea working with?

Alea is India's first independent, global risk mitigation and investigative consulting firm. As an ISO9001:2015 QMS certified company with the international quality standards, Alea has developed unique methodologies of corporate investigations for organizations and industries, including insurance, banking, financial services, telecom, manufacturing, pharmaceutical, mining, real estate, retail, EPC, renewable energy, hotels, education, logistics, healthcare and diagnostics, power and infrastructure.

The company has directed assignments for corporations, listed companies, private equity firms, banks, strategic advisory institutions, international finance entities, hedge funds, and sovereign funds over the last 17 years. Alea has established a reputation for providing reliable and accurate insights for its clients.

Some of the specialized resources of Alea includes:

 Extensive corporate experience in finance, accounting, security, research, journalism, and law enforcement with research capabilities maintained in-house for over 50 countries
 Access to major commercial, global proprietary and local language databases
 A discrete network of senior and confidential sources across industries, chambers of commerce, clubs and the financial community, regulatory bodies and enforcement agencies. Alea also has a unique network of trusted associates in many countries for local insights and intelligence

Take us through your Asset Discovery service arm. What is its relevance for the financial institutions and the investor community in the country?

A unique service, Alea's Asset Discovery is a proprietary process that includes in-depth research and analysis to identify tangible or intangible assets of significant value, of the defaulter for debt recovery. Its relevance has become multifold in the current business landscape.

In Jan 2021, RBI stated that the bad loan ratio of banks in India could rise 600 bps to 13.5% (under the baseline stress scenario) or double to 14.8% by Sep 2021 (under a severe stress scenario) - a 25-year-high. With ever-increasing NPA's, banks and financial institutions are under constant stress from the regulators to clean their loan books and recover monies/debts from defaulters. Discreet research helps identify acquired assets (including those transferred post-sanction) with evidence of ownership, which can be attached via the process of law.

Alea’s Asset Discovery reports have assisted not only financial institutions but also investors in the recovery of their loans through court proceedings. Additionally, it has played a significant role in identifying assets of errant promoters of investee entities as part of a fraud investigation.

While the Government has taken initiatives to provide borrowers with relief from financial distress triggered by the pandemic; banks are struggling to cope-up with steady rise in NPAs. Where do you foresee this situation panning out this year?

The focus is on corporate/large borrowers for 2021 and beyond. Businesses have been impacted negatively by the pandemic, and many will prevail while others will succumb. Finding a balance of supporting those with genuine issues and entities with potential will be a priority for Banks. Issues relating to misrepresentation, opportunistic restructuring, and fraud will have to be evaluated. Loans that some borrowers were unable to repay, but were protected by the moratorium, would likely have to be recognized within the NPA. Banks will remain cautious while giving loans in 2021. Some smaller banks may face insolvency issues due to NPA default.

How can banking and financial institutions mitigate risks associated with non-performing assets?

Banks need to identify risks early, monitor them closely, and manage them effectively. Monitoring Large accounts will allow for effective response to reduce NPA risk, but this should not solely be dependent on financial reviews. Identifying early warning indicators like regulatory or enforcement actions, abrupt departure of senior management or CFO, litigation, and even promoter family disputes, could be seen as indicators. Dependence on financial/MIS disclosures may not suffice.

The risk management function in Banks will continue to evolve and be more in sync with international best practices, as technology becomes all-pervasive. Instilling an appropriate risk culture would need to go hand-in-hand with an appropriate compliance culture. The cost of monitoring should be perceived as an investment, and the board and senior management will have to drive this with effective accountability. Robust processes will provide sound corporate governance and risk mitigation.

To what extent could integrity due diligence help Chief Risk Officers and Chief Security Officers in mitigating situations of frauds and risks which have been/ are being experienced by entities like banks, NBFCs, Large Corporate and investor communities in India (PE and VC Funds)? Please throw some light on Alea's Integrity Due Diligence offering.

Integrity due diligence focuses on reputation risks and entails investigating information regarding regulatory compliance, source of funds, corporate governance, political exposure, sanctions, and blacklists - issues that can adversely impact a financial institution's brand integrity.

According to a RBI report, Public Sector Banks accounted for 80% of the ₹1.85 trillion fraud reports in FY20, followed by private sector banks at 18%. However, there are few strategic steps that institutions could deploy to keep such instances at bay.

First of all, prior to disbursement of high-ticket loans, a core part of the due diligence by financial entities should be to validate and value the collateral assets of the promoters and guarantors. Screening to check for any red flags should include a review of related parties, auditor independence and other conflicts.

With increasing bad loans, identifying risks related to money laundering and terrorist financing becomes a critical yet a tougher task. While an enhanced KYC may not be necessary for all clients, there should be a mechanism to trigger such checks automatically for high-exposure customers. Clients should be subjected to an enhanced KYC each time the financial exposure rises above a threshold.

Last but not the least, other major areas for banks to consider would be the background screening of bank employees holding sensitive roles and managers with high limit approval authority. The PNB scam of 2018, worth over US$2 billion was a classic case of collusion over many years.

Is there any particular service arm of Alea which came to the forefront amidst the onset of the pandemic last year?

Alea received requests from clients for increased volume and depth of qualitative primary source inquiries to compensate for the limited direct exposure to promoters. The volume of asset discovery of guarantors increased to assess and deal with older NPAs due to internal impetus.

Any other information which you'd want to share regarding Alea's growth roadmap for 2021-22?

Alea remains committed to working closely with its existing and potential clients to ensure that various categories of risk are mitigated, managed, and monitored, in order to protect their reputation and assets. Innovating and creating new ways, digitizing systems, and processes, improving turnaround times, and diligently enhancing and augmenting services for delivering the best to the clients will be an integral part of the growth roadmap for this year

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