Credit rating is a matter of opinion, Uday Kotak said on Tuesday, a day after Moody's Investors Service downgraded India sovereign rating by a notch.
"As of now, including the global financial crisis, that matter of opinion (rating) has proved that there has been no legal liability for that opinion being right or wrong," Kotak, the managing director of Kotak Mahindra Bank Ltd., said while addressing Confederation of Indian Industry's annual meet in New Delhi.
Moody's has downgraded India's sovereign rating by one notch to 'Baa3', the lowest investment grade, with a negative outlook on worries over growth and fiscal risks.
To be sure, the Big Three ratings agencies—Moody's, Fitch Ratings and Standard & Poor's—have in the past come under heavy criticism for giving favourable ratings to insolvent institutions like Lehman Brothers, which triggered the financial meltdown in 2008. In India, ratings agencies have come under the scanner due to the IL&FS crisis.
"Moody's rating (for India) was higher than S&P and Fitch, so it has brought it down to that level, but with the negative bias,” Kotak said. “The way I would look at is...rather than being in denial, I will go through Moody's report and see where are the areas where we can improve.”
Kotak said he agrees on the fact that India needs to get growth back because there is perception that trend growth or average growth rate is slowing down.
"Unless our trend growth rate goes up, we will have a bigger problem in getting our fiscal deficit down,” he said. “So, the positive message that I would take out of this constructively is not as much as rating downgrade or even the negative bias but what do we do to get trend growth back to a better level.”
The billionaire banker also said that there is a need to strengthen financial institutions at a time when there is a risk of non-performing assets piling up. Public sector banks would need financial support from the government to drive the economy, he said, adding about Rs 3 lakh crore may be required for public sector banks.
"The Covid-19 outbreak and resulting lockdown has impacted adversely the real economy, businesses, individuals, government and financial sector, he said. “While the government is facing the risk of higher fiscal deficit, the banking sector urgently needs recapitalisation to the tune of Rs 3-4 lakh crore to meet the lending requirements.”
Within the private sector, Kotak said, "We have a situation where quite a few banks are in the business of banking but unable to lend.”
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On the growth front, he said, India's gross domestic product is likely to contract during the current fiscal. But the endeavour should be to quickly bring back India on its 7-8% growth trajectory, Kotak said.
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