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Billionaire Uday Kotak said he’s shocked at the record losses posted by Indian banking, both private as well as state-run, and said that the decades-long argument that diversely owned banks and state-ownership of lenders provide better financial stability and fairness stand punctured.
“As reflected by events around us, it is naïve for policy makers to believe that diversified ownership/ state ownership is the way to good governance in banking,’’ Kotak, the founder of Kotak Mahindra Bank told in his annual letter to shareholders.
“Banks deal with other people’s money.
The issue is 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.’’ Kotak’s dig at ownership argument comes amid scandals rocking the banking sector in the form of Nirav Modi scam where Punjab National Bank has been defrauded for about 13,000 crore, or thousands of crores of rupees defaults caused by fraudulent businessmen.
Governance issues are raised at diversely-owned, professionally run ICICI Bank where its chief executive Chanda Kochhar is charged with favouritism in sanctioning loans in quid pro quo deals.
Kotak whose bank has among the lowest bad loans in the industry doesn’t seem to be convinced that the worst is over.
Also, Kotak who owns 30% in the bank has been ordered by RBI to lower it to 15 percent by March 2020.
“The shock of recent losses incurred by banks looks unreal,’’ wrote Kotak.
“This reality looks like it is a culmination of years of kicking the can.
Are these heightened provisions a short-term phenomenon for the next few quarters It seems so as of now.’’ Bankers have compromised customer service and long term sustainable growth for personal benefits, he said.
“In this era of short-termism, bankers are driven by targets, incentives and ESOPs.
Trade-off between customer centricity and achieving targets leads to perverse behaviour,’’ said Kotak.
Subdued growth in public sector banks due to stressed asset woes and capital crunch will help private sector banks to increase their market share to 50% of the banking system from 30% now in the next five years, he said.
Kotak said the bank is on course to double its customer base to 16 million by September 2018 as targeted when it launched its digital account 811 in March 2017.
“I am happy to share that we are on course to achieve the target.
As of 31st March, 2018, we have crossed the 13 million mark (which includes our 811 customers as well),” Kotak said.
Higher oil prices and increase in US Fed rates this year, are putting pressure on India’s macro economy, he said.
“India’s current account and fiscal deficit will both face challenges.
At the same time, our micro economy is doing better.
