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Known as an institution builder, Uday Kotak is one of the most respected names in India’s banking space. The Founder and Director of Kotak Mahindra Bank recently transitioned to a non-executive role after leading the bank for about two decades. In an exclusive conversation with Rahul Kanwal, News Director of India Today and Aaj Tak, and Executive Director of Business Today, at the India Today Conclave in Mumbai, Kotak—who had been appointed Chairman of beleaguered infra lender IL&FS after the government took it over— talks about the economy, the banking space in India, artificial intelligence, succession, and his plans after hanging up his boots. Edited excerpts:
A: I think in the last three years, India has come out remarkably better than what I would have thought at the beginning of Covid-19… Simultaneously, if you look at the Russia-Ukraine situation, India has positioned itself beautifully from a geopolitical point of view… [it is] getting [lower-cost] energy for India, [and] at the same time standing up to say, ‘India will think for its own interests versus anything else’. These two are the most outstanding developments from an economic point of view in a fast-changing geopolitical landscape... I do believe from a temperature check point of view, India is in a good place. However, the world is not in such a good place.
“ I do believe from a temperature check point of view, India is in a good place. However, the world is not in such a good place "
And the reason I say this is because the US has lived off the world’s money for a long time because most of the countries around the world keep their sur - pluses with the US... At the same time, US deficits are very high... from zero interest rates, [they] have moved up by more than 500 basis points and don’t seem to be stopping. If the world’s reserve currency pays 5.5 per cent on its money overnight, then the rest of the world has to adjust on the interest rates. The second is China. I frankly cannot figure out what is happening inside China... the Chinese economy is not in the shape it should be in for getting the world out of trouble. And then, of course, you have Russia [and] the other issues… the world, both economically and geopolitically, is not in a good place. India is in a good place, but we are in an interdependent world.
A: This is a great time, from the point of view of Indian banking. However, a lot of the Indian bank lending, if you look at the last decade or so, has moved away from corporate lending to much more retail lending—a lot more consumer loans… On the other hand, corporate lending businesses are not growing at the same time. And there could be two or three reasons [for that]. One, I wonder where are the animal [spirits] of all the corporates? What is it that is holding corporations from going ahead and expanding at speed? My view is a lot of the global uncertainty may be weighing on corporates’ minds... We [also] have to ask the tough question that despite China going through all its troubles, why does India have a net trade deficit with it? Why is it that we in India cannot manufacture and find it cheaper to import from China? India pays a $100 billion a year to China in terms of net imports…
“ I wonder where are the animal [spirits] of all the corporates? What is it that is holding corporations from going ahead and expanding at speed? ”
A: From the late ’70s to 2020, China was focussed on pragmatism in economics… I think China is moving away from pragmatism on economics to ideology, which is working against Chinese entrepreneurship. I think it’s a very important opportunity for India to grab and grow at 9-10 per cent, not at 6 per cent.
A: Over the next 10-20 years, go for 9-10 per cent growth, unleash Indian entrepreneurship, have great guardrails for fair competition and encourage free and fair markets with enterprise to transform India not just to the third-largest economy but to a much higher per capita income.
“ My advice to the younger generation is, think out of the box, and take those bold calls, which the computer will never [take]. AI is a left brain competitor, [not] a right brain competitor. So, use your right brain a lot more in the future ”
A: We are doing the right thing by increasing government spending... On the back of it, we need to create an environment where corporate India is ready to take big calls on investing in the future... There is a significant concentration of new investments happening by only a few groups...
A: From a policy point of view, and I’m not saying the policy is skewed, my sense is policy must encourage many flowers to bloom… Let me give you a few examples... In the airline industry, you’ve consolidated effectively to two and a quarter [players].In the steel sector, two big guys and a lot of small guys. So massive consolidation has happened and continues to happen. And with that, [there is] the risk of concentration of business power… in a few hands, which, in the short run, can give us results. But [in the] long run, you want many businesses to flourish.
A:I think most important, free and fair markets, backed by policy that allows a competitive market place. I would want to see a stronger role of the Competition Commission [of India] to ensure there is fair play in the marketplace… It’s good to see a few big successes, but how do we multiply them exponentially?
A: I just want to clarify that I have great respect for what Reliance or any of these big houses have built. They’ve created world-class institutions… But I believe that in addition to what they’ve done, India needs a lot more… Specifically with reference to Jio’s entry into financial services, I think that’s a very good thing. Because you want people in any sector to always be on the edge; [the] moment you get complacent, things don’t move. And being on the edge is critical for any company’s future. And I believe in the line, ‘only the paranoid survive’. And if you’re paranoid, you will survive. If you’re not, you don’t need to be in the business.
A: I find RBI [to be] very flexible and open to suggestions. If I take the liberty of giving suggestions, one area India needs to be ready for is acquisition finance. How can Indian firms get acquisition finance from Indian banks? Today, if a company wants to buy another company in India, they’re dependent on foreign banks or sources outside India. The current limitation of lending against shares, even for acquisition, is a limit which was fixed in 1992 of Rs 20 lakh per individual… Access to finance is going to be one of the most important differentiators for building an India of the future. And we need to make that easily available with guardrails for risk. Risk management is the core of any leveraged finance business. But along with that, we need to make it available for Indian entrepreneurs to get to scale.
A: I must first compliment the Reserve Bank of India for a phenomenal job in the last three years... the way it has navigated India through these difficult times, particularly in the areas of monetary policy and macroecnomic stability. The RBI has played a very significant role in the health of the Indian banking sector... The question we have to ask for the future is what are we doing for our aspirations? And this is where I think there is an opportunity for Indian bankers and policymakers to manage risks but get a little bolder. Yes, we want to minimise accidents on the road. The way to do it is to have better traffic signals, better supervision, and better regulation. But, we must encourage a lot more cars on the road and lot more roads to be built.
A: He [his son, Jay] decided to come back and work in the bank like any other professional, and it’s up to him. It’s professional merit and it is for the bank and its board to decide. I believe that there are two business models in corporate India. One which I call the raja-praja model, where the raja decides what is right for the company and goes ahead and does it. The praja has to accept what the raja does. The raja has tremendous power, and can create disproportionate wealth for the company. The second model is what I call the trusteeship model, where you say that you are a trustee for all the stakeholders and create a fair business model for all the stakeholders. The trusteeship model is not as influential in terms of getting opportunities as the raja-praja model, but it is far more fair to all stakeholders. My instinct has been in favour of the trusteeship model.
“ Jio’s entry into financial services, I think that’s a very good thing. Because you want people in any sector to always be on the edge; [the] moment you get complacent, things don’t move. And being on the edge is critical for any company’s future. And I believe in the line, ‘only the paranoid survive’. And if you’re paranoid, you will survive. If you’re not, you don’t need to be in the business ”
A: AI is a game changer. And it’s going to make it possible for us to be able to provide significantly superior outcomes to customers... It can change society, how we do our work, how do we look at our future... I remember 50 years ago, we were barely seeing the beginnings of television in India. From there to where we are, to where AI will take us, it is another leap from the current level of the digital age… As humans, we need to figure out how we are going to be relevant with competition from a machine. And we need to hone our skills, because otherwise the machine will get the better of us.
A: There are two parts of the brain, there’s the left brain and the right brain. On the left brain, the machine will get the better of humans. The right brain, which is the creative brain, is where humans will always score over machines. And therefore, my advice to the younger generation is, think out of the box, and take those bold calls, which the computer will never [take]. AI is a left brain competitor, [not] a right brain competitor. Therefore, use your right brain a lot more for the future.
A: You’re going to see new industries take off. One of the biggest growth areas for the future is going to be the leisure industry, the gaming industry, sports industry… what we think about as traditional business and industry is undergoing a fundamental change. However, the world will deal with the question of whether there are enough jobs for human beings versus the number of activities the machine will do. And from a long-term political point of view, the question that we will have to address over the next 5-10-15 years is the concept of universal basic income (UBI). It is something that is unaffordable for most countries. But it is an issue that the politicians of the future will have to deal with...
“ Despite China’s troubles, why does India have a net trade deficit with it? Why is it that we in India cannot manufacture and find it cheaper to import from China? ”
A: In the context of sustainability, one of the finest laws India has compared to any other country is the CSR law. Every company pays 2 per cent of its profits every year as CSR. I’ve suggested why can’t every company in the world [do] what India is doing? And in a world where there’ll be fewer companies with large profit pools, the time has come for them to make direct allocation of some of their profits annually for things that are changing the planet—whether it’s climate change, or whether it’s moving in a direction for a minimum income for all.
A: It has been 38 years that I’ve been doing this, and there comes a time to take a view that there are many more things in life that matter. For a founder, it’s very difficult to say I give up. But once you take the call that you want to do things in life in addition to your responsibilities as a board member—I continue to be on the Kotak Mahindra Bank board and [am] a significant shareholder—life has a lot more opportunities. I’m going back to having a plain white canvas so that I can paint the future the way I feel like.
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