Kotak Mahindra Bank MD, Uday Kotak has raised alarm on the precarious situation in the banking industry, saying that the current industry structure is not sustainable. He said consolidation is on the cards, either through closure of banks or mergers. In a letter sent to shareholders in Kotak Bank's annual report, he wrote, “The system's inability to recognise the inconvenient truth that banking is an economic and commercial activity with high leverage, and years of 'kicking the can down the road' in high-risk areas, mixing of social objectives and weak governance, have all contributed to bringing this industry to a weak position.”
He said that while entry norms have been relaxed in financial services, including banking, there is a need to give more thought to “morality and exits in this sector with potential systematic risks. The time has now come to bit the bullet. The state, sooner or later, may have to make the difficult choice between putting in more good money after bad or being open to 'strategic' choices. I wonder whether that can happen now or sometime after 2019.”
He highlighted finance sector trends in FY17, saying there has been a “formalisation” of financial savings due to positive real interest rates and demonetisation. Kotak also indicated that his bank would look for growth opportunities. “We will try and play an active role in reshaping the structure of the financial services industry- be it stressed assets or consolidation. On the organic side, we aspire to grow, at least, two times nominal GDP growth in most of businesses. We need to gain share and be relevant.”
