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Sound risk management and governance by the state, the regulator and banks are crucial to ensure that further defaults do not take place in the banking sector, believes Uday Kotak, Managing Director, Kotak Mahindra Bank.
“As reflected by events around us, it is naïve for policy makers to believe that diversified ownership or state ownership is the way to good governance in banking. Banks deal with other people’s money,” he said in a letter to shareholders as part of the lender’s annual report, adding that the main challenge is that directors and managers with no skin in the game are taking decisions on lending and writing off thousands of crores.
“Sound principles of corporate governance and harmonious functioning between government and regulators are the crucial elements for a sound future of banking,” he noted.
Stressing that bankers must imbibe prudence, simplicity and humility in their dealings, he said that conduct is the key to the future.
Kotak remained optimistic and said heightened provisions by banks seem to be a short-term phenomenon at present, one that will be spread out in the next few quarters.
Though banks are going through turbulent times, the Insolvency and Bankruptcy Code is a “silver lining” and a “game changer”, he said.
“It has changed the game from debtor in possession to creditor in possession in case of defaults,” he said.
Outlining the plans for the current fiscal, Kotak said that all business metrics, including loan growth, quality of loan book and the overall parameters in the private sector lender’s core banking business – insurance, wealth management, securities, asset management – and the overall financial services franchise, are well-positioned.
The bank is also on course to achieve the customer base target of 1.6 crore by September 2018, he further said.
He also predicted three trends in the country’s financial services sector, which include subdued growth at public sector banks due to stressed asset growth and capital crunch.
“Over the next five years, private sector banks will increase their industry share from 30 per cent to 50 per cent,” he said.
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