Uday Kotak Says Financial Sector Stress Is Hurting The Real Economy
Billionaire banker Uday Kotak has said the challenges faced by India's financial sector are significant as they've started hurting the real economy.
“For many years we have discussed about the challenges in the real sector to the financial sector. This time we are talking about the challenges in the financial sector and the impact of that to the broader economy,” Kotak, managing director and chief executive of Kotak Mahindra Bank Ltd., said at the post-earnings press conference. “I do believe the next six months will be crucial in terms of how India handles its financial sector.”
We would need to have a very strong approach from the point of view of practitioners, as well as policy, to take this financial sector into safer waters.Uday Kotak, MD And CEO, Kotak Mahindra Bank
A spate of high-frequency indicators like vehicle sales and industrial activity in India have been pointing toward a slowdown in the economy. Non-bank lenders, too, have been hit by tighter liquidity conditions, leading to fewer financing options for businesses. This has been exacerbated by banks' reluctance to lend after last year's IL&FS crisis, which hurt confidence.
The IL&FS crisis portended the stress that the financial sector is facing now, said Kotak, who is also the chairman of the board tasked with fixing the problems at the systematically important infrastructure financier. “In many ways what happened at IL&FS last year was the first signal about the challenges that the financial sector is likely to be having as we go forward,” he said. “That is something you are now seeing more closely as liquidity in the system gets tighter.”
In an attempt to deconstruct the situation, Kotak said demonetisation was an important event. Banks were flushed with liquidity after Prime Minister Narendra Modi banned the circulation of high-denomination currency. That also led to money flowing into mutual funds and insurance companies. From there it went to housing finance firms and non-bank financial firms, Kotak said.
“What we are now seeing is that there has been a significant increase, in the last few months, in the currency in circulation. A lot more cash has gone out (of the financial system),” he said. “Overall liquidity situation, too, has been for a while remained tight.”
A combination of all these factors have taken out easy money which was sloshing around in the broader financial industry.Uday Kotak, MD And CEO, Kotak Mahindra Bank
Kotak said when liquidity is tight, the financial companies whose balance sheets are funded by “wholesale liabilities” are put under significant pressure on the asset side. “That is something which is playing out as we talk. This is a classic case: the chain is known by the weakest link,” Kotak said. “For the weakest link, when liquidity gets tighter, they start seeing the pressure. That is the time when the quality of a balance sheet of a financial player gets to be very very crucial.”
-
Talking Points This Week: Tech Nerves, FII Buying, And A Faraway Banking Shock
The global markets are not shining this Diwali. The exception in the large markets is, India.
-
Midterm Rally Lasted A Day. The Hard Reality Of A Divided US May Last Two Years | Opinion
Between a contested AI boom, a debt ceiling that arrives in 2027 and a president with every incentive to act alone, the next two years may prove more volatile than the first day's rally suggests.
-
Blue Wave Will Derail the AI Trade but Won't Dismantle the AI Era | Unhedged Position
The Democrats' sweep of the US Congress will see politics collide with economic forces both over the long and short term.
-
It's Time To Take The GST Council's Bet On Trust Global
Payment records can prove India's services exports, and clear, proportionate rules can bring foreign digital sellers into the tax net.
-
Opinion | India at 38: From Innovation Overperformer to Innovation Powerhouse
India now has 453 VC-backed deep science startups, 18 of them late-stage, after 117 percent growth since 2020. Laurus Labs, at USD 9.3 billion, is the most valuable deep science company in any middle-income economy outside China.
-
Navigating Energy Crossroads: S Jaishankar's Call For Diversified Supply Chains At G20 Ministerial Meeting
As geopolitical fault lines continue to test maritime trade routes and commodity flows, Jaishankar's message remains pertinent: true economic resilience requires open markets, protected transit lines, and a genuine commitment to multilateral cooperation rather than coercion.
-
Indians Are Travelling, But Not Every Journey Is A Holiday | The Week In Whys
Pilgrims, patients and working women are the real travellers, and the system hasn't quite caught up with them.
-
Getting To Work Costs Women More | The Reason Why
It is not just about women paying more than men. It is about women paying much more in cities than in villages.
-
AI Bias In Investing Cannot Be Eliminated, But It Can Be Governed
Framing is a particularly important example as identical financial information presented in terms of gains rather than losses can lead an LLM to reach a different assessment.
