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Outlook cautiously optimistic; expect 2 3 rate hikes in FY23, says Uday Kotak

business | Mar 31, 2022 4:33 PM IST

Outlook cautiously optimistic; expect 2-3 rate hikes in FY23, says Uday Kotak

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Kotak Mahindra Bank's Chief Executive Officer and Managing Director on Thursday said the mood in the industry was cautiously optimistic now that the post-COVID economy is showing signs of bouncing back and that he expects two-three rate hikes in the 2022-23 fiscal, especially if global crude oil remains around the $100 per barrel mark.

Uday Kotak, Kotak Mahindra Bank's Chief Executive Officer and Managing Director, on Thursday said the mood in the industry was cautiously optimistic now that the post-COVID economy is showing signs of bouncing back. Kotak told CNBC-TV18 that he was enthused by Reserve Bank of India Governor Shaktikanta Das' positive outlook and expects two-three rate hikes in the 2022-23 fiscal, especially if global crude oil remains around the $100 per barrel mark.

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"The mood is quite positive, but always with ifs and buts. I was enthused by the (RBI) Governor's positive approach. The US had a 0 percent interest rate with 7.5 percent inflation until very recently; they were very much behind the curve. India is not so much out of line given our inflation. We need to traverse a smaller move compared to developed markets," Kotak said. 
Kotak pointed out to how banking models are significantly changing and touched on the differences between traditional banks and fintech services. He said banks must adapt to the new world order of fintech, but cautioned that the "old world" wasn't going away any time soon.
"In 19th century, when the world was moving from horses to cars, people believed horses would stay forever. By 1950, automobiles took a significant position in the market. Similarly, bankers need to be clear that we are moving from a horse-world to an electric-car world; banks can't only run horses, they have to move to a new world. (The old world) will exist for a while for bankers, but won't last for too long. We must be very careful how we see the new world; talent is the real lynchpin," he said.
Referring to the IL&FS situation, Kotak said the big learning was that policymakers must move fast in a crisis situation. "The government moved reasonably fast in this situation and superseded the board. But even today, there is no legal framework for group resolution," Kotak said.

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He added: "The first big lesson is that there needs to be a  larger focus on conglomerates' structure, which lacks transparency in money movement between entities. The second big lesson is ensuring that state governments honour contracts. Realisations are consistently dropping under the Insolvency and Bankruptcy Codel -- bankers are increasingly accepting lower recovery."
On splitting the chairman and MD-CEO positions, Kotak said, "The corporate governance committee recommended splitting the chair and MD/CEO positions, but we were okay with relatives being the chairperson and MD/CEO. But for whatever reason, SEBI additionally disallowed relatives. In trying to push the relatives rule, we effectively threw out the baby with the bathwater."
Kotak said there is a need for a regulatory framework to ensure fair and transparent disclosures, along with risk factors, for startups. "We have seen exuberance feed the markets from time to time. Let the marketplace find the right levels after fair disclosure. I welcome enterprise and startups; change is the only constant of the future. We are in a world where investors assume 0 percent interest rates for a long time. Only now are they beginning to factor in higher rates. Startups will still be able to raise money but at a price which reflects uncertainty, and the present value of money."
Kotak said the global geopolitical situation has begun to affect prices of commodities. "I'd say wish I had a hotline to Mr Putin. Markets are beginning to factor in geopolitical developments, but we don't know what the future of currency will be. I would watch the commodity space and how it moves. I also see a risk of supply shocks and uncertainty, especially with China closing down due to COVID-19 spread," he said.
He expressed confidence about the bank's growth prospects. "We are very clearly focused on the One Kotak brand. We are quite confident about growth rates; confident that Kotak Mahindra Bank can grow 1.5-2 times of India's nominal GDP. I am confident this growth will sustain and we can gain more market share."
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