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A slowing growth in the GDP and the limited fiscal space are some of the challenges that India is facing, and there is a need to take bold steps to reform the financial sector, the real and social infrastructure, remove bottlenecks in different segments and unleash the economy, according to Uday Kotak.
The veteran banker, however, does not believe that the current crisis in some non-banking financial companies (NBFCs) is posing a systemic risk. He stressed the need to repair and nurture the financial institutions.
Pointing to a 10-year cyclical pattern that has marred global financial markets in the last two decades — such as the South-East Asian crisis of 1998 and the global financial crisis in 2008 — Kotak said 2018 witnessed tremors once again in the Indian financial sector.
“I see 2019 and 2020 as the years to cleanse, repair and nurture Indian financial institutions. Both practitioners and policy-makers have the work cut out for us,” he said in Kotak Mahindra Bank’s annual report for 2018-19.
“The major issue talked about is liquidity. However, I see it as the price of liquidity,” said the CEO and MD of Kotak Mahindra Bank. The bank will hold its annual general meeting on July 22.
Kotak, who along with other entities in the promoter group owns, 30 per cent in the bank, received a remuneration of ₹3.24 crore for 2018-19, which was an increase of 10.99 per cent.
Solvency crisis
Kotak also chairs the new board of Infrastructure Leasing and Financial Services (IL&FS), which is mandated by the government to resolve issues there.
Though concerns on some solvency cases are weighing on the markets, Kotak said: “I do not, at this stage, see this as a systemic risk, and am confident that the policy-makers and regulators will take steps to manage the situation.”
Kotak’s comments come at a time when there are concerns over defaults by various NBFCs and expectations that the government and the Reserve Bank of India will take further measures to address these issues.
He said there is a need to bring down the deposit rates of banks for better transmission, but the high rates of government schemes and the distortion in yields due to differential tax treatment on debt instruments pose a challenge.
He also said with a strong and stable government and the “significant structural, political transformation”, it is now the time to focus on “economic transformation”.
“The slowing GDP growth and the limited fiscal space are some of them (the challenges),” Kotak said.
He added that in previous years, the challenges of the real sector had impacted the financial sector, but now the reverse is also true.
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