Uday Kotak
Uday Kotak
EY

Asserting that capital is going to be critical amid the COVID-19 crisis, Kotak Mahindra Bank Managing Director Uday Kotak on Thursday said Indian financial sector is heading for consolidation because of the asset risk that it carries.

Speaking at a virtual interaction, he emphasised that the financial sector must have capital risk management expertise and an ability to govern institutions on a sustainable basis.

"Financial sector on a broader basis, without getting into the public sector or private sector, is heading for greater consolidation because of asset risk which it is carrying and over time capital is going to be critical," he said.

Earlier this month, Reserve Bank of India (RBI) Governor Shaktikanta Das had also said that banks need to raise capital on an anticipatory basis to build up adequate capital buffers to mitigate risks arising out of coronavirus outbreak.

Das had said building buffers and raising capital will be crucial not only to ensure credit flow but also to build resilience in the financial system.

Meanwhile, Kotak said the consolidation will happen but what shape it takes really depends on the nature of this pandemic situation and depth of this crisis which will determine the speed of change.

He also stressed on the need to create financial institutions of global quality and size.

Citing an example of US-based J P Morgan, he said it was established some 100 years ago and J P Morgan is not there but the institution carries on.

"We need to think about institutions in perpetuity...We cannot think about our framework as short term," he said.

Noting that the core of banking is protection of depositors money, he said, policy, supervision, regulation and governance have to be ownership neutral and principles of governance should apply to both public and private sector banks in the same measure.

"If equity owners are going to protect their equity interest, depositors interest is automatically protected...if depositors are under water, equity owners are under water much more," he added.

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