Uday Kotak expresses concern on excessive financialisation, protectionism

He emphasized the need for India to improve productivity, avoid excessive protectionism and increase manufacturing as a percentage of GDP

Over-financialisation can hurt the Indian economy as investors move their savings into equities without understanding valuations, Uday Kotak, founder and director, Kotak Mahindra Bank, said while expressing concern on over-financialisation.

 

Speaking at Kotak Institutional Equities' investor conference ‘Chasing Growth 2025’, Kotak said the rules of the game have changed, and the primary change has been felt in capital flows.

 

He also said that India cannot afford protectionism and it has to take advantage of the changing times and make Indian industry competitive, rather than protective.

 

He emphasised the need for India to improve productivity, avoid excessive protectionism and increase manufacturing as a percentage of GDP. Kotak also highlighted the importance of execution in both macro and microeconomic policies.

 

 

The Economic Survey for 2024-25 also talked about over-financialisation and observed that such a phenomenon has resulted in unprecedented levels of public and private sector debt in developed economies.

 

The Survey pointed out that India should strive to maintain a fine balance between financial-sector development and growth, on one hand, and financialisation, on the other. This comes as the country was trying to align its financial system with its economic aspirations for 2047.

 

While commenting that Indian markets are resilient and at scale for foreign investors to move in and out, Kotak said India needs to move from micro-management/over-regulation to ushering growth and competition.

 

“India must ensure free and fair markets at all points in time, and tremendous progress has been made towards it,” a report from Kotak Institutional Equities said, quoting Kotak.

 

Since the opening up of the foreign equity portfolio account in 1995, India currently has roughly $800 billion of stock of foreign capital through foreign portfolio investors (FPIs), $900 billion to $1 trillion of foreign direct investment (FDI ) stock and $500-600 billion of foreign commercial borrowings (FCBs), he said.

 

In this context, Kotak also said India has adequate level of foreign exchange reserves, which are around $560 billion, adjusting for forward positions. “Kotak believes that India has more than 2X reserves on repatriable foreign assets,” the report said.

 

He also mentioned that India’s current account is well under control at 1.2-1.3 per cent of GDP ($50 billion of deficit). Meanwhile, India currently has around $40 billion of trade surplus with the US.

 

“Kotak believes that President Donald Trump’s intent to correct the US trade deficit with India may put an additional load on India’s current account deficit (CAD). India’s trade structure may thus need to change across economies to rebalance its trade,” the report said.

 

He also believes that tariffs will become another important issue, with India imposing around 10 per cent tariffs on American goods, while the US imposes 3 per cent tariffs on Indian goods.

 

“As tariffs hit other producing nations, they will have surplus capacity to sell to the rest of the world at a much cheaper rate. If any of the commodities from surplus production countries are 30-40 per cent cheaper than India, Kotak pondered what should India’s strategy be,” the report said.

 

On the recent tax rebate provided to individuals by the Union Budget, he believes that the rebate makes deposit-taking industries more competitive.

 

“However, while the liability side looks to be improving, the Goldilocks era on the asset side appears to be over,” the report said. Kotak noted that some signs of that are appearing in micro-finance and unsecured sectors.

 

He also noted that there have already been two minor accidents, in the form of a small housing finance company and a co-operative bank. In his view, even as we move into a challenging credit cycle, in the financial sector, irrespective of attempted protection, accidents may still happen, the report said.

 

Kotak discussed the disappearance of animal spirits in India, attributing it to the next generation of promoters focusing on managing family offices and investments rather than running operating businesses. He emphasised the need for a commitment to hard work and building operating businesses to succeed as a country.

 

Speaking at the summit, C S Setty, chairman, State Bank of India (SBI), said, India can surprise on growth in FY26 and that India ideally requires a growth rate of around 7-7.5 per cent, with 8 per cent being the target to lift all boats.

 

Setty discussed the change in guard at the Reserve Bank of India (RBI) and the shift towards a more flexible inflation-targeting approach, allowing for a range of 4 per cent to 6 per cent rather than a fixed target. “This provides room for focusing on growth while maintaining inflation control,” he said.

 

On the issue of slowing deposit growth in the banking system and its potential impact on overall growth, Setty noted that the December data from the RBI indicated some equilibrium in deposit growth, which settled around double-digits at 10 per cent.

 

He said there is a structural shift in asset allocation, with a predominant allocation to bank savings likely to decrease. Investors are diversifying into insurance, pensions and other investment options.

 

“SBI has seen a shift from savings accounts to fixed deposits, as customers seek to lock in current deposit rates. This has resulted in lower CASA (current account savings account) ratios across banks,” the report said, quoting Setty.

 

Commenting on unsecured personal loans, Setty said regulatory actions have increased credit risk weights on personal loans, leading to a slowdown in this portfolio across the banking system. SBI has implemented structural improvements in its unsecured personal loan product, aiming to achieve double-digit growth in the near future, he said.

 

Setty said default rates in unsecured personal loans are higher among the new-to-credit customers, with lower ticket sizes (Rs 50,000 to Rs 100,000).

 

Commenting on the pipeline for corporate loans, he said SBI has a clear visibility of almost Rs 4.5 trillion in the pipeline for project financing. This includes both sanctioned loans and those under discussion. The growth is coming from diversified sectors such as renewables, roads, data centres and refineries.

 

He stated that SBI aims to increase its market share rather than just defending it. The bank has never lost market share in its six-decade history and continues to focus on growth initiatives, he added.

 

Speaking at the event, Ashok Vaswani, managing director (MD) & chief executive officer (CEO) of Kotak Mahindra Bank, said, India is at a crucial point in its economic history, with growth driven by deregulation and productivity. The next stage of growth will come from integrating the Indian economy with the global economy.

 

He added that the aspirational goal of the lender is to become the third most profitable bank in India and have subsidiaries among the top five in their sectors by the end of the decade. He stressed on the importance of execution to achieve these goals.

 

Vaswani emphasised the 811 propositions as a full-fledged digital bank for core India, allowing customers to manage accounts and investments entirely through the app.

 

Sharing his views on mergers and acquisitions (M&As) in the future, Vaswani suggested there is a need to focus on strategic fit, that is, evaluating M&A opportunities based on strategic alignment and financial objectives.

 

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(Disclaimer: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd)