Kotak Bank's Uday Kotak Warns Indian Banking Sector Of Challenges Ahead, Signs Caution

The banking sector has played a vital role in the progress of any economy for centuries, and the 21st century is no different. Banks are the backbone of the modern economic machinery.

Goldilocks Period Over

When it comes to India, the central bank has reiterated that the Indian banking sector is resilient, and is in a healthy state, while underscoring the need for caution.

One of India's biggest names in the banking industry, Uday Kotak, founder of Kotak Mahindra Bank and former chief executive of the private bank, has echoed these thoughts, and raised some concerns.

According to a report from the Live Mint, while speaking at Kotak Institutional Equities' Investment Conference, the renowned banker said that the Indian banking sector's Goldilocks period is over.

Here, Goldilocks period is usually signified stability, sustained growth, a limited influence of inflation or low inflation in general.

Microfinance Sector In Focus

Kotak did not mince his words, as he warned of rising stress in the unsecured and microfinance portfolios. RBI has also underlined these issues in the past. It has even taken action against small and microfinance companies in the recent past.

He also added that potential accidents are 'unavoidable.'. This is the case, as the sector is moving into a challenging credit cycle, accordin tog Kotak.

In his comments, published by the report, he said, "While the liability side looks to be improving, the Goldilocks era on the asset side appears to be over. Kotak noted that some signs of that are appearing in micro-finance and unsecured sectors.”

Protectionism Will Not Help

Kotak also laid emphasis on the recent galore of tariffs that has impacted the global trade.

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

Kotak is also of the opinion, that under such circumstances, any form of protectionism is not not a viable option.

The Indian government has previously pushed for self-reliance or 'Atmanirbhar Bharat', which according to observers is a form of protecionism.