Uday Kotak: Indian banking’s  ‘weak underbelly’ exposed

Questions if nationalisation of banks served the purpose of checking disproportionate  lending to big businesses, as most of the stress on their books is due to loans to big corporates

New Delhi : Warning of “more bad news” on the stressed loans front in the Indian banking sector, eminent banker Uday Kotak has said its “weak underbelly” has resurfaced strongly and the story is not over yet, though lenders have begun cleaning up their books. Kotak also questioned whether nationalisation of banks served the purpose of checking disproportionate lending to big businesses, as most of the stress on their books is today due to loans to big corporates.

In his annual message to shareholders, the Kotak Mahindra Bank chief also pitched for an ‘exit mechanism’ for the sector, saying forced mergers, as practiced in past, may not be possible for public sector banks anymore due to their huge NPAs. Kotak, who is known as one of the most vocal voices within Indian banking industry including about its own perils, said he sees a “well-settled government” in the country today, but it “could do more to build confidence and trust among businessmen and rekindle animal spirits into the economy”.

“The last financial year saw the Indian economy stretched between two ends of the string, good macro tailwinds but a difficult micro situation,” he said, adding that inflation, current account and fiscal deficit were all under control, but many sectors and individual businesses struggled.

“This scenario is likely to change from hereon. With Brent recovering to USD 50 levels, the benefits of lower prices will reduce, and this has the potential to increase our current account deficit and bottoming out of inflation. “… It is time for the Indian micro to gear up and get back into the game,” he said.

On banking sector, Kotak said, “The weak underbelly of Indian banking, something which I have been consistently pointing out through the years, has resurfaced strongly. Both public and some private sector banks have revealed stress on their balance sheets.

“The story is not over yet, and we can expect to see more bad news on this front. But it is also a fact that banks have started cleaning up their balance sheets.”

Going ahead, Kotak said, the Bankruptcy Code is a good step but it will take at least a year to become fully effective as the entire ecosystem needs to be created.

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