Veteran banker Uday Kotak believes that the NBFC sector, which saw significant pressure in October-November last year, is beginning to breathe a little but remains more fragile than what it was a year ago.

“One has to watch that space carefully in the New Year,” said Kotak in a letter to employees at Kotak Mahindra Bank.

Kotak, who is the founder, promoter and CEO and MD of the private sector lender, said the NBFC sector was hit due to lower liquidity as interest rates began to move up.

“The first major default in that space happened with IL&FS, which was the beginning of serious concerns about whether India would have a Lehman-like mini crisis,” he said, adding that he was “humbled to accept as a national duty” the government’s request to chair as the Non-Executive Chairman of IL&FS.

Kotak is, however, more upbeat about the prospects of the financial sector in 2019 after the significant turmoil of last year.

“We’ve seen challenges to banks’ balance sheets, 11 public sector banks under prompt corrective action, and all these challenges are still playing out. And with corrective action and ensuring that stability and sustainability are the bedrock of our future, I am confident that the financial sector will weather these storms,” he wrote in his letter.

He was also upbeat about the prospects of Kotak. “I was just looking at the numbers, and in a year when the index has produced a return of barely 3 to 4 per cent, even in this tough year, Kotak seems to have done well in the markets through 2018 with returns in excess of 20 per cent per annum.”

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