Uday S. Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank, speaks to NDTV's Namrata Brar about the mood of the economy, outlook for 2013, FDI in insurance and key issues being discussed in Davos 2013.
Here is the edited transcript of the interview:
NDTV: Pleasure to have you, Mr Kotak.
UDAY KOTAK: Great to be here.
NDTV: Let me start by asking you about how great is it to be in Davos 2013 versus 2012 because many people I speak to say that India's fatigue has set in?
UDAY KOTAK: I wish the global interest in India was as much as the size of Indian contingent because we are the biggest contingent in Davos, so Indian's love to be here is a lot more at this stage, as compared to how much the rest of the world seems to be liking in India.
NDTV: So that is the problem already, because I am seeing only four sessions with Indian speakers on the panel; there is only one session solely on India. Is there a problem? Why are China and Africa getting so much more importance than India?
UDAY KOTAK: I think China is a different ball game. So, I have no doubt that the World Economic Forum would do anything to get Chinese participation in Davos, and it is fully understandable. It is time that we, as India, begin to recognise that China is on a different planet compared to what we are today.
NDTV: Has part of the reason been the government policies? The fact that yes, there are reforms coming in but they have been a little late in the year and there has been massive amount of yo-yoing in terms of tax investment for foreign investors for instants?
UDAY KOTAK: I frankly feel that Indian businesses are becoming too dependent on what the government does or doesn't do. It is time for us in business and in enterprise to really think about how we too can make India more efficient and competitive. In the current situation, India is highlighting the fact that we import a lot more than we export. It means we aren't competitive. We better get more competitive rather than asking the government to fix everything for us.
NDTV: Talking about possible banking license coming in as early as this year, how do you as Kotak Bank react to foreign banks coming in and competing with you?
UDAY KOTAK: There are two parts to your question - One is foreign banks and the second is new Indian banks. Let me address your second part, we welcome competition, but we need to keep in mind that banking is a very high systemic stability area. Therefore, as new banks come in, there has to be reasonable profit and structure, because we are talking about very-leveraged institutions coming into the business. Therefore, we need to be sure that there are enough processes in places within our system to ensure that banking is continuing to be as well regulated as it has been as far as Indian banks are concerned. With respect to foreign banks, frankly, the world has changed since 2008 and we have seen a very sharp drop in competiveness of foreign banks.
NDTV: So you feel, even if they come in, it's never going to be the same. They are focusing more on their domestic market, rather than wanting to venture out, that is something that you see?
UDAY KOTAK: I think foreign banks are focused on the creamy layer of the market place. It's time that when we give them presences in India, they better go deep in India as well.
NDTV: So when people talk about penetration rates for banking services in India, they say 32 per cent for urban centre, and 18 per cent for rural India. There is a tremendous opportunity, but there aren't enough local banks like yourself, which are managing to crater to the great customer base and that is reason that the government explains for an FDI?
UDAY KOTAK: No, I will be very happy if a foreign bank is going to open a fair share of rural branches, but at this point of time they don't want to do that. So they just want the creamy layer.
NDTV: So that is where you say, there should be a policy, clearly marking out both the areas?
UDAY KOTAK: Ya, I think you allow more foreign banks more branches, no issues, but let them have the same rule as we have to play in local markets. The best answer is subsidisation and same rules.
NDTV: You know when you start your company -- I have been reading couple of interview where Vir Sanghvi is saying there are couple of people who have invested Rs 1 lakh in your company and now are sitting on Rs 100 crore right now -- there is a huge success story there. Do you feel, it's time to do something different now? There is still so vast a customer base, where there is a same potential returns coming in.
UDAY KOTAK: I think India is deep and it's wide; it's a continent in itself and what we need to do is go out there and capture pretty large opportunity, and yes there are other opportunities globally in other countries. We will look at it on margin, but the biggest opportunity by far is deep in India.
NDTV: So you are not going to focus of acquisition right now?
UDAY KOTAK: That is a part of the game that could still be much more local.
NDTV: You know acquisition in economic zone etc...
UDAY KOTAK: Not at this stage.
NDTV: ...or emerging markets?
UDAY KOTAK: Not at this stage, but we will be open in the future. We first have to become really strong and really big for us to be doing things like that. I think the Indian economy will give that opportunity in the next 5 to 10 years.
NDTV: Your numbers have shown good amount of growth in different segments be it investment banking; loan growth customer base is picking up. But the bigger question is that with GDP at 6 per cent, how will you be able to sustain that growth?
UDAY KOTAK: See you got to keep in mind, what matters is nominal GDP and if nominal GDP continues to grow 14 per cent, the real GDP plus inflation, good banks can grow at two-times the GDP and that is what we are focused on.
NDTV: What about insurance as a theme? A lot of people are saying that it is an area you want to see more FDI coming in and you can regulate it better?
UDAY KOTAK: 26 (per cent) is allowed. The government is trying to push it to 49 (per cent). We are open to what government wants to do.
NDTV: You think the Union Budget will come up with that?
UDAY KOTAK: I think more than the Budget, Parliament needs to approve it.
NDTV: So in the Budget, what are your expectation?
UDAY KOTAK: In the Budget, in my sense, the finance minister is going to focus on the fiscal deficit. I will be very happy if the fiscal deficit for next year will be 5 per cent and current year below 5.5 per cent. The Finance Minister has spoken about 5.3 per cent for the current year and 4.8 per cent for the next year. But frankly, am okay to up to 5.5 (per cent) in the current year and below 5 (per cent) in the next year. So macro is something that will be the focus, and investors, who are playing India's macro theme, would like that. There will be some micro pain because when you cut Budget deficit, the government will collect revenues and tax. In few sectors, there will be pain, but the macro India story will get better.
NDTV: When FDI in insurance moves to 49 per cent, how will Kotak take advantage of the situation?
UDAY KOTAK: I think at this point of time, in our life insurance company, our partner is at 26 per cent and we have arrangement to go up to 49 (per cent) if policies allow it to happen, subject to fair market value.
NDTV: Would you be ok with that?
UDAY KOTAK: We will honour our arrangement.
NDTV: You will welcome the investment and hence expand.
UDAY KOTAK: Let's see how it goes. Let's see what it means.
NDTV: Other issue with markets is it that they are playing a very different story from the economy. Ee have seen it in global markets. US markets are at a five year high. Indian markets have made a remarkable come-back coming close to a record high. Are the markets dealing the economy? Is it an indicator right now? Would you see a bull market coming in?
UDAY KOTAK: Globally policy markets are ensuring that markets are in good shape through huge liquidity and low interest rates. So they are trying to hold the economy by ensuring that the markets do well. So in a way, it's like a steroid. Yes, the real economy is weak; give it some steroid by keeping the market economy in good shape at some level. In India as well, markets are ahead of real economy and the real economy has to pick up. Whether the market-led recovery will happen or fundamental macro-correction, system improvement will bring us there. A system improvement is a longer walk to get ourselves more competitive, getting exports to grow it is a long walk.
NDTV: But is it bull market or a drive to market collapse? Since if you are giving the patient steroid, he will sustain, and later when you don't, he will collapse?
UDAY KOTAK: But if the patient recovers through the steroid, then you are ok.
NDTV: It is a very close call.
UDAY KOTAK: It is. That is the key. Whether finally we see capital markets lead recovery or no, it is a risky game.
NDTV: Is the patient strong enough to survive through Chemo (chemotheraphy)...
UDAY KOTAK: In my view, I have this saying - 'India looks very challenging as a photograph, but it's wonderful as a movie'.
NDTV: Okay. So the moving image really comes in; you have to really experience the real strength there, but you are still uncertain then about the stock markets?
UDAY KOTAK: My view is that, this year equity is the game; I will take a call that this year markets will give 15 to 20 per cent returns to investors, and you know bull markets are built on wall of worries. For 2012, everyone was worried Indian equity market has given 25 per cent returns. One more stunning fact is that Indians savers aren't investing in Indian equities; foreign savers are investing in Indian equities.
NDTV: So is that going to decide the term of FDI? So in 2012 when we saw retraction of capital thanks to GAAR and all those controversies, the fact that Indian markets have done so amazingly well...
UDAY KOTAK: You must woo the Indian market saver in Indian equities to save in Indian equities. The Indian saver has been putting too much of money in gold and real estate. It is time the Indian saver be wooed by policies and by practitioners to move away from gold and make equities more attractive to them.
NDTV: So taken on risk this is the year....
UDAY KOTAK: It is the policy's responsibility and practitioner's responsibility to make equities as an alternative asset class more attractive and it goes off gold.
NDTV: So, I am going to make a quick touch on regulation, since, this morning, we had session where Jamie Dimon was very vociferous as always, and he said, "listen, we have come a long way now; we are looking healthy; we don't have mortgage derivatives; there is no hint of subprime in US; stop this over regulation of banks globally."
UDAY KOTAK: I think the global situation is different from India. India always had more regulation. So the Indian system, in a way, has been used to getting regulated, and what I want to see is the balance between making sure that the financial institutions continue to grow and fund the economy, and fair level of regulation.
NDTV: One final question on RBI. Are we doing the right things? Latest in terms of expectation of 50 bps, the move will be..
UDAY KOTAK: My view is this is the first quarter, and not necessary that January should see a total of 50 bps (basis points) policy drop. So it will be in two stages.
NDTV: What about rest of the year?
UDAY KOTAK: Our expectation for the full year is 75 to 100 bps drop.
NDTV: And you think the RBI playing the right cards?
UDAY KOTAK: In my view, the RBI has to get the balance between inflation and growth and it's a very tricky walk and you can always have a view on the other side. But the fact of matter is, the rest of the world has low inflation. India doesn't have the luxury of low inflation either and the current account is stretched.
NDTV: Mr Kotak, anything in your priority for 2013?
UDAY KOTAK: We have just announced results yesterday, and we have had consolidated growth of 25 per cent on earnings. We feel more comfortable with the situation. We would like to see real economy to get better; some of the most stressed sectors in the economy, which is infrastructure, construction and commercial vehicles, are still soft, but rest of the sectors are actually doing fine. So, you really have a bipolar economy - some doing well and some stressed.
NDTV: And finally, in Davos, any interesting meeting line-ups you are looking forward to?
UDAY KOTAK: The sense I am getting this year is that there is no European crisis about extremely slow growth. In fact, the people are more worried about the US fiscal situation and much of US in the short run, and that is the difference in Davos 2012 and 2013. The other issue that is coming up is currencies - are we heading for a war? The euro is becoming strong and the other two weak currencies are dollar and the yen.
NDTV: And that is another opportunity in itself.
UDAY KOTAK: It is a different area and aspect in itself.
NDTV: Thank you so much
UDAY KOTAK: Thank you