Banking Needs Simplicity, Prudence And Humility, Says Uday Kotak

What are your expectations from the new government?

I think the economic environment has some challenges particularly in sectors like auto. One of the big challenges for the new government would be to give an impetus to growth and to see that we achieve 7 per cent growth in the 2019-20 fiscal year. I do believe that this is something that should be addressed to quickly by the new government.

Can you elaborate on the sectors which are under severe stress apart from auto which concern you?

There are challenges around the auto industry and rural demand which is leading to implications on things such as home demand. Consumer durables are also facing a certain amount of pressure and I think a significant amount of focus needs to be diverted towards the finance sector.

The financial sector continues to be under stress. So, what’s the way forward?

There is a lot of progress made towards cleansing the financial sectors and strengthening the governance mechanisms. I do believe the different sectors of the financial sector need to be well regulated. One of the things we need to keep in mind is the challenge that housing finance is suffering. The question we have to ask is should housing finance companies be under the regulations of the National Housing Bank? Or should they be brought under the RBI?

The NBFC sector, post demonetisation saw a significant flood of liquidity which came in. The time has come for the NBFC sector to do much better risk management and asset liability management of their balance sheets.

Where do we stand on the IL&FS issue today?

Post the challenge that IL&FS faced, the government of India got a new board where I had to be a member. I think that IL&FS was the first warning signal of the stress and challenges of the financial sector. I think the board of IL&FS has made a reasonable progress towards resolution and we have just announced the first step towards a major resolution which is the wind power assets which Orix has proposed to buy.

We are continuing down the path of resolution ensuring fair amount of money is returned to the creditors. Of course, there are significant challenges under the overall umbrella of the IL&FS group of companies.

Do you have timelines in mind?

We are working on it. Road assets, thermal assets and various other assets have been put on the resolution mechanism and we hope to resolve them as soon as we can.

Do you fear we have more IL&FSs and PNBs waiting to happen?

No, in fact, we have to be alert in the financial sector. This sector is highly leveraged anywhere in the world. High-profile companies need significant amount of monitoring to be done and good governance in terms of risk management. I would want to be extra focused on making sure there are no more accidents in the financial sector and both practitioners and policy makers have a hawk’s eye to ensure no further stress develops from here.

You are the headed at SEBI’s corporate governance committee, and many banking lending decisions have been questioned lately. What do you think that needs to be done to make sure such incidents don’t happen again?

The issue with banking is that is a very highly leveraged business and we must have a system where recovery of money is the number one job of a bank. If you are leveraged at 10:1, you cannot afford loans going back because that wipes out the capital first where depositors need to be paid fully. Therefore, banking has to be a lot more focused towards risk management, process and operations. It is not a glamour business and must be handled with care.

Kotak Mahindra today is the 4th most valuable bank in terms of market cap. We know about its journey from a room after you completed your MBA. How has the journey been since then?

In many ways the journey of Kotak Mahindra Bank is the journey of India’s financial sector reform. I still remember we started in 1985 when the journey of the reform process in India was in its nascent stages. Over the last 33 years, India has made significant progress in the financial sector. Kotak Mahindra Bank’s journey demonstrates reforms in this sector and how the process of reform has given the opportunities for creation of institutions and thousands of jobs.

What have been the learnings from this journey?

There are various learnings we can take from this journey and one of them is: if something is too good to be true, it is. Secondly banking and financial services require three human qualities including simplicity, prudence and humility. At every stage we must walk with our feet on the ground and never get carried away because bankers are not the masters of the universe and are in the business of serving customers.

What will you do to make Kotak Mahindra the most valuable and sought after bank?

We don’t chase a value or valuation target. We chase a customer experienced growing business where we brought together our goals of sustainability. We are focused on doing things which will make India proud. We believe that quality matters much more than quantity.

How do you look at the future of banking?

Banking is a very tough business and people who get excited with it must keep in mind. Banking is known for fundamentally keeping the people’s money for a fair amount of time. We must handle it with care as we handle our own money, and therefore prudence, simplicity and humility will determine how banks of the future will be. And of course there is a very significant change in the digital arena of a bank. Banking as a business is getting a lot more digital and that is something we are very focused on.

How is technology disrupting banking, and what are the trends that we will see 5-10 years down the line?

We are looking at some of the trends right now thanks to the 811 bank account feature. This is where you can open an account in 3 minutes anywhere in the country. That itself is a significant change where you can move money anywhere, anytime at the click of your mobile phone which is a very big plus.

Would ATMs and physical branches become redundant in the near future?

Banks will still matter. The density may reduce but as long as there is cash in the system branch banking will matter.

You once said that you feared in the night that whether still you will have the bank in the morning or not. So is that motivation enough to carry on and march ahead?

One of the most important ingredients for a good banker is paranoia and the digital world is also facing cyber threats. The thing that worries me all the time is that how are we protecting customer’s money. While we are asleep overnight, someone somewhere is working so how are we ensuring the customer’s money is safe at all and the bank continues to function is a growing concern.

How do you think the new fintech revolution impacts banking?

I think it is transformative and banks must adopt & adapt to the digital revolution. They must disrupt themselves and we must be ready to cannibalize ourselves for future opportunities for our customers. Because if we don’t do this ourselves somebody else will.

You often lament that Indian companies don’t figure in the top 10 tech companies or top 50 global companies. What do you think is the reason?

I think we really need to think about scale and size of the Indian economy in the global scheme of things and for that we need to do a lot of stuff in India that is cutting-edge. We need to get out of a mindset that government will protect us. We need to grow and protect ourselves along with being the trusting markets and trusting our ability to be among the best in the world. It is only through that we will get into global quality and global size.

What are the leadership lessons one can take home from Uday Kotak?

I am a believer of building a business from a view of common sense and what doesn’t make sense from common sense then don’t do it. If something is too good to be true, it is, and if what you create does not outlive you then you have failed.

Do your children also believe in these values?

I have two boys. The older one is into investment banking and the younger one is aspirational and wants to grow. This is a professional firm and my son is like any other employee in this firm.

In the last five years what have been the major milestones for the banking industry?

First and foremost, digital revolution is transforming banking in India and globally. The focus on risk management is crucial for banking and importance of risk has been highlighted over the last 5 years. That if you don’t manage risk you are dead so focusing on risks is important. Importance of customer centricity is the third big transformative change happening in the Indian banking industry. Digital revolution, management of risk and customer centricity.

Where do you see yourself five years down the line?

I want to be a good and proud Indian which will make India proud. Kotak Mahindra has a tremendous opportunity to be the world class, high quality banking and financial services institution from India which the world respects and recognizes. The world is a place where our aspirations towards giving more to being Indian will make the world proud.