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Uday Kotak warns ‘accidents may still happen’ in financial sector despite protection

Uday Kotak said India needs to move from micro-management/over-regulation and toward ushering growth and competition.

Earlier, between September 2024 and January 2025, the Kotaks bought 12 apartments in the building for Rs 202 crore.(Express Archive)

Kotak Mahindra Bank founder Uday Kotak has cautioned that “accidents may still happen” in the financial sector irrespective of attempted protection even as the sector moves into a challenging credit cycle.

While the liability side (deposits) in banking looks to be improving, the Goldilocks era on the asset side (lending) appears to be over, he said at the Kotak Investor Conference. Some signs of that are appearing in micro-finance and unsecured sectors, he said, adding that that there have already been two minor accidents, in the form of a small housing finance company and a co-operative bank.

Kotak also noted the success of disruptive business models, with three such models challenging traditional banks: PhonePe dominating the Indian UPI market, Zerodha’s profitable model in the securities industry and a Brazilian bank with a $65 billion market capitalisation and only 7,000 employees.

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He emphasised the need for traditional banks to adapt to these new models. On excessive financialisation, Kotak said it can hurt the economy when investors move their savings into equities without understanding valuations.

Kotak also cautioned about the disappearance of animal spirits in India, saying that the next generation of promoters is focusing on managing family offices and investments rather than running operating businesses.

There should be a commitment to hard work and building operating businesses to succeed as a country, he said.

Kotak said many rules of the game have changed in the Trump era and that there are widespread debates on the impact of these changes. “The primary change has been felt in capital flows, with the current strength of the US dollar stemming from increasing investor inclination to hold dollar assets. This is a clear change from previous era, when investors were looking at diversifications across asset classes,” he said.

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Currently, the US stock market accounts for about 70 per cent of the global market cap.

He said India needs to move from micro-management/ over-regulation and toward ushering growth and competition. “India must ensure free and fair markets at all points in time, and tremendous progress has been made toward it,” he said. “Indian markets are resilient and at scale for foreign investors to move in and out.”

Kotak said President Trump’s intent to correct US trade deficit with India may put an additional load on India’s current account deficit. India’s trade structure may thus need to change across economies to rebalance its trade. Tariffs will become another important issue, with India imposing around 10 per cent tariffs on American goods, while the US imposes 3 per cent tariffs on Indian goods, he said.

He also spoke about the implications of artificial intelligence on the education job market and productivity within the financial sector. India should create new opportunities and jobs in the post-technology, post-AI world and to rewire for the new world.