Real estate, financial services in India poised for consolidation: Uday Kotak

Uday Kotak: 'My view is it’s never as good as it looks and it is never ever as bad as it looks' (Abhijit Bhatlekar/Mint)

Singapore: The real estate and financial services sectors in India are set to witness a significant consolidation in the next two years, according to Indian billionaire banker Uday Kotak.

India has already seen a wave of consolidation in its aviation sector, where four airlines have gone out of business, and its telecom market.

Speaking at the HT-Mint Asia Leadership Summit in Singapore on Friday, Kotak said banks need to be very alert because no one knows “who’s going to eat your lunch the next day.”

“One of the things we’ve got to consider ourselves lucky is that globally, Google and Amazon have decided not to go into banking,” he quipped.

Drawing an analogy between the banking sector and a Bollywood film, Kotak said private banking in India is currently “seeing a love story developing but there’s a villain in the middle.”

“I think the villain is slowing growth and Indians who are scared to invest (into the economy) because they are worried things might not get better. It’s a classic thing I’ve seen so many times over – we go through it every few years. Look at the 1998 Asian Financial Crisis, then 2008 and 2018,” he said.

And what have these cycles taught him? “My view is it’s never as good as it looks and it is never ever as bad as it looks,” he said.

Kotak recommends that interest rates be cut further and that the Indian rupee be allowed to depreciate a little. There is also ample work to be done on the governance front.

“I think on the governance framework side, there is an issue with six layers of checks and balances that are not working – the management, board of directors, institutional investors, auditors, regulators and rating agencies. Quality of governance is also an extremely important part (of all this),” he said.

The banker said the Indian financial sector is currently going through an “evolution phase”, pointing to the country’s insolvency resolution process as an example.

“When it was first ushered in, we believed that we were going to have a fantastic cleaning up of the system quickly. But it has taken longer going through different courts and all. So that’s the first issue. Once you’re doing a clean-up, a speedy clean-up is as important.

“Second is that I don’t think India is fully ready for challenges in the financial sector resolution. And an example is DHFL. So how do we resolve the financial sector when the insolvency and bankruptcy court don’t apply to the sector? We need a fourth financial sector resolution mechanism,” he said.