As the NPA levels of Indian banks are at multi-year low levels, billionaire banker Uday Kotak believes that most financial institutions now have a clean white shirt after a difficult decade 2009-19.
While speaking at the Chasing Growth 2024 Investor Conference organised by Kotak Institutional Equities in Mumbai on Monday, Kotak told investors that the credit for the success of the financial sector has to be given to regulators, policymakers, and practitioners.
RBI report shows that the scheduled commercial banks’ net NPA ratio fell to a 10-year low of 3.9% in March 2023. S&P Global has predicted that NPAs will drop to 4.5% at the end of FY24 and to 3.5% in FY25.
While discussing capacity building, Kotak stated that he is cautious about building India with 1 or 2 companies in each sector. He prefers having 4-6 large players in banking as well as other sectors. In his opinion, broad-based capacity creation will be important to create a $30 trillion economy.
Stating that India is currently at an important juncture, Kotak said he believes India can reach a $30 trillion economy by growing at a modest 9% in USD terms over the next 23 years and can hopefully be among the top 2 nations by then.
As India is transforming from a nation of savers into a nation of investors, he recalled how back in the 90s investing in equity for savers was perceived to be speculative and was looked down upon.
However, he warned that when disproportionate savings go into low-float stocks, there are risks of bubbles being created. Citing the example of the Nikkei, which touched its high in 1989 and gave no returns since, despite the Yen depreciating over 30 years. Meanwhile, investors also face a conundrum regarding exits, as the bubble may take years to burst; the Nikkei bubble was created between 1982-89, he said.
Looking 25 years into the future, Kotak believes that concentration risk remains a key ponderable. A simple core banking product, which is the technological backbone of the banking system, is dependent on technology from a company, which only derives 2-3% of revenue from this stream. Similar concentration risk remains behind UPI, he said, adding that the system should be robust enough to handle the scale of customer demand over the next 25 years.
Kotak’s comments were published in a report issued by Kotak Equities. The banker retired in September last year and continues to act as a non-executive director at the institution which he founded in 1985 in the form of Kotak Mahindra Finance.
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