Uday Kotak Advocates Corporate Shift Towards Capital Markets for Funding

Renowned billionaire banker Uday Kotak has voiced his opinion that major corporations should progressively tap into capital markets to secure funding, rather than relying heavily on banks. In an era where India is witnessing a shift from a savings-centric culture to an investment-driven mindset, the dynamics between savers and borrowers, as well as issuers and investors, are evolving, Kotak observed.

Banking Sector Evolution and Challenges

With the Kotak Mahindra Bank's founding figurehead at its helm, there is a strong belief that as Indian savers become more investment-oriented, the banking industry faces obstacles related to deposit growth, which could lead to increased funding costs. Banks are advised to shift their focus to mid-tier corporates, micro, small, and medium enterprises (MSMEs), and individual consumers to expand their ledgers.

Statistics from the Reserve Bank of India's (RBI) banking progress report underscore this challenge, noting a rise in the average industry credit-deposit ratio, indicating slower deposit growth compared to credit demand.

A Vision for India's Financial Future

The remarks by Kotak come at a time when India aspires to scale its GDP to $30 trillion by 2047, a goal that demands careful consideration of market dynamics post-COVID-19. Numerous domestic investors have entered the equity market, mostly experiencing gains. Kotak, however, warns against complacency by recalling Japan's asset price bubble and prolonged stagnation following the 1989 peak of the Nikkei Index. He emphasizes the necessity to avoid similar bubbles through prudence in policy, regulation, investor education, and the availability of quality investment opportunities.

Addressing the disparity between debt and equity in taxation, with the current vast difference in marginal tax rates, Kotak suggests the need for revitalized debt markets to ensure balanced economic growth.

Reforms and Financial Sector Implications

Kotak also points to the importance of reassessing the double taxation on dividends, maintaining a stable tax and regulatory landscape, and the government's developmental and regulatory responsibilities. Streamlining the Insolvency and Bankruptcy Code (IBC) and the National Company Law Tribunal (NCLT) process, alongside prioritizing acquisition financing, are other areas that require urgent attention.

Concluding his discourse, Kotak highlights that as India aims for greater economic heights, the financial sector will be crucial in this journey. While technology's impact on finance is a topic for another discussion, he believes that both traditional banking models and modern investment approaches will coexist, necessitating a comprehensive view of the financial landscape.

finance, banks, markets