Worst not over for Indian banks, capital is going to be a big challenge: Uday Kotak

While an absolute rate of growth is important, sustainability is even more important, Uday Kotak, Managing Director, Kotak Mahindra Bank, tells ET Now in an exclusive interview.

Edited excerpts:

What is your view on corporate governance and its implications vis-à-vis corporate India?

Corporate governance is core to ensuring that companies are well run. However, we need to ensure that very fundamentals of governance like ensuring that there are no conflicts of interest, that companies govern for the entire body of shareholders and independence of independent directors is maintained.


But we have to be careful. The board of directors would have independent directors, whole-time directors and non-independent directors. But finally, when the board functions as a cohesive board, it is one board. There are no three separate boards of directors. The role of the independent director is to ensure that there are no issues about conflicts vis-à-vis the executive directors or the non-independent directors. High quality corporate governance is all about ensuring that the board performs its role as a cohesive board, keeping in mind the principles of 100% of its shareholders.

GDP numbers are out. Clearly once again everyone is gung-ho with the 8.1% GDP growth. How do you look at this figure? Is the best times ahead of us with the worst getting over and GDP on an upswing?

Micro India, in terms of growth, is looking very good. We are seeing companies beginning to look at investment opportunities and we are seeing a certain level of spirit of growth coming back into the economy. However, global macro winds are getting tougher and we have to keep in mind whether it is global interest rates, oil prices or current account. For example, if you look at the Indian point of view, it is about the competitiveness of our exports. The size of our electronic imports is going up. Therefore, there are challenges in the external macro environment. But micro India is in a very good shape.

Give us two to three things you feel the focus should be on, looking at the way global things are panning out. Rupee has been a worry because of the way it panned out in the last fortnight or so. Two things that you feel focus should be on to maintain that the momentum continues?

We must work towards building a stable and a sustainable economy. While an absolute rate of growth is important, sustainability is even more important.

IBC is something that we have seen panning out. There have been changes. It is a learning curve. How do you see the glass -- half full, or half empty? Where do the challenges lie?

IBC has given us a very clear path for achieving resolution. The country has struggled to find an appropriate resolution mechanism and therefore I would like to congratulate all policymakers -- both government and RBI -- for having moved forward systematically in the area of IBC.

We will have to see how it works for mid-sized companies where we may face the risk of a huge number of companies coming in and where there may not be adequate number of buyers. Another point we need to keep in mind is because of a very significant concentrated supply of companies which are going to go into IBC together, there could be some impact on the resolution price. Subject to these things which we need to be aware of, I think IBC is a great step forward.

Is the worst over when it comes to Indian banks’ balance sheet?

No. My view is that we are still in the process of recognition and there is more provisioning for the next two or three quarters for the Indian banking system. Capital is going to be one of the big challenges for many of the Indian banks and we are going through what I would call as six to nine months of serious navigation at this stage. Keep in mind simultaneously that the government securities’ yields are also moving up.

We all know that foreign inflows are once again coming back to the Indian markets. How do you see this trend in the coming couple of quarters? Also, do you think the FPI jitters debate that is going on, is a matter of concern and perhaps Sebi should sort this out?

While I welcome foreign investment, the challenge with foreign investment is that it has got certain negotiating leverage on the sovereign system as well. It is absolutely crucial to build up the domestic savings base simultaneously and I am not a protectionist. We must keep financial markets open for global investors to come but keep in mind that we cannot be at a point of mercy where our sovereign policies are found difficult to implement.

What about the FPI circular? Is this is something where communication gap has occurred?

Sebi is applying its mind. I am confident Sebi will find the right solutions and I would not worry from the point of view of policy.