Uday Kotak, at a CII event, hailed India’s transition from savers to investors, stressing the need to nurture capital markets alongside banking stability. He urged rationalization of taxation to bridge the gap between debt and equity, emphasizing sustainable fundraising. Acknowledging the strength of the Indian banking system, Kotak cautioned against compromising stability in the pursuit of bolstering capital markets.
In an interview with Business Today, Kotak shared insights into the evolving landscape of financial services in India. He also talked about the shifts in consumer behaviour, the transformation of Indian capital markets, and challenges faced by banking institutions.
“The large corporate sector has to meaningfully move to capital markets (debt and equity) and away from banks. Banks will become distributors of corporate debt rather than storage houses. They will need to penetrate mid-sized corporates, MSMEs and consumers,” Kotak said in his year-end musings titled A Financial Sector Model for India’s dream: 9 per cent annual growth, $30 trillion GDP by 2047.
“India is transforming from a nation of savers to investors. The tussle between the saver/ borrower and issuer/ investor model is underway,” he said“Some of us highlighted this phenomenon to SEBI. That began the private placement market (QIP) in the early 2000s. Hence FIIs could also buy on Indian markets. The Indian saver’s interest in markets improved after the global financial crisis.
That saver is now savouring the joys of investing. Mutual fund platforms, cash equities and derivatives markets, insurance funds, global private equity in India, other platforms like AIFs, the lower tax regime for equity, have all converted a saver to an investor,” Kotak added.
He said that double taxation on dividends needs relook. A shareholder is like a partner. There is no additional tax when money is moved from the partnership to the partner’s capital account. Same principle applies to shareholders. Low-cost leverage through derivatives can distort financial markets. This needs attention.
“You have to keep in mind what is your customer’s need. I am happy to say that from a situation where we were all concerned that the Indian capital markets were getting exported, we are now seeing a very robust market where the nation of savers has become more and more a nation of investors,” said Kotak.
“We should avoid a retrospective tax and regulatory regime. We will need to balance developmental and regulatory role. Two areas which need urgent focus for India’s aspiration are acquisition financing and streamlining of the IBC/ NCLT process,” he said adding that the financial sector will be the key engine for delivery and it is time for a wholistic financial sector view.
Regarding the outlook for interest rates, Kotak suggested that if inflation comes to around 4.5%, a moderation in interest rates could be anticipated, possibly in the latter half of 2024-25.
“If the inflation is at 4.5%, we could see some moderation in interest rates. My expectation is that it will happen closer towards the second half of 2024-25, and we could see some moderation from the current repo rate of 6.5%. However, we should not count on this happening soon because we are also watching what’s happening globally,” said Kotak.
