Room to spend more; financial system much safer today, says Uday Kotak

Speaking at the third of a series of online, agenda-setting debates organised by The Indian Express and the Financial Times, he said the economy is not far away from witnessing a strong investment cycle, which may start from next year.

The government has the space to step up spending over the next few months and the financial sector is much stronger now to support the economic recovery, Kotak Mahindra Bank MD and CEO Uday Kotak said Thursday. Speaking at the third of a series of online, agenda-setting debates organised by The Indian Express and the Financial Times, he said the economy is not far away from witnessing a strong investment cycle, which may start from next year.

“After 9.5 per cent (of GDP) fiscal deficit last year, this year’s budgeted deficit is 6.8 per cent. The revenues actually have been more buoyant than what the budgeted estimates were and so far expenditure has been under control. I actually feel that the Finance Minister has created space for herself to be able to do some spending over and above what may have been planned in the next few months,” he said at the event — ‘Banking and Finance: The Key to India’s Recovery’.

“I do believe that India is now getting its fisc much more under control compared to what we have budgeted and there is room for us to be spending more than the target earlier, thanks to buoyant tax revenues as well. In this festive season and beyond till January-February, India has an opportunity to up spending on the fisc within overall budgeted deficit plans,” he said in a conversation with P Vaidyanathan Iyer, Executive Editor (National Affairs), The Indian Express.

The accommodative monetary policy and support measures by the government such as the credit guarantee programmes are helping the Micro, Small and Medium Enterprises (MSMEs). While some companies have become stronger in the economy, by raising capital and reducing their debt levels, middle- and lower-level firms are finding the environment challenging post the disruption caused by Covid-19, he said.

“Most banks and financial institutions in the last 15 months have actually raised capital, therefore, I believe Indian financial system is today much safer to take the knocks and my view is that time has come for us to take the knocks if they come, but go out there and lend. Going forward, I feel positive about the credit cycle in most pockets, and in stressed pockets the government has given guarantees. I am quite optimistic how this turns out and we must be careful not look at the rear view mirror too much but look at the windshield in front.”

Speaking at separate panel discussions at the conference, other financial sector leaders argued that there is good opportunity for the banks to lend and for the capital markets to provide equity capital. IDFC First Bank MD and CEO

V Vaidyanathan said the private sector banks have raised Rs 1.2-1.3 lakh crore equity in last 18 months and state owned banks have also been capitalised. Banking sector is now much stronger even compared to the pre-pandemic period, and the digital ecosystem is presenting lot of opportunities to step up lending, he said. The panel discussion on ‘India’s banks: Will the latest reforms boost growth’, was moderated by Sandeep Singh, Associate Editor, The Indian Express.

Edelweiss Group chairman and CEO Rashesh Shah said credit markets had been very cautious in recent years and need to pick up pace to support growth. Loan market for last 8 years has been fairly depressed due to a number of factors including the Asset Quality Review, NBFC stress, IL&FS shock and others, he said. Credit growth which is usually at 1.5 times of nominal GDP growth has been working at the half the rate, he said, adding that “if the economy has to get to a sustained growth, credit market has to pick up pace.” Benjamin Parkin, Mumbai Correspondent, Financial Times, moderated the session on ‘India’s capital markets: Can they support a recovery’.

Capitalisation of banks, merger of public sector banks to create large lending institutions, along the proposal to privatise PSU banks, have prepared the lending system for the growth of the economy, CRISIL MD and CEO Ashu Suyash said. Data points on retail credit growth and home loans indicate that slowly consumption and confidence are coming back into the economy, she said.

Ribbit Capital General Partner Nick Shalek, Centrum Group chairman Jaspal Bindra, BharatPe co-founder and managing director Ashneer Grover were among the other participants who spoke on venture capital investment opportunities, and banking and capital market issues. Miles Kruppa, Venture Capital Correspondent, Financial Times, conducted the fireside chat with Shalek on ‘The Future of Finance’. Anita George, executive vice president and deputy head, CDPQ Global; Yerlan Syzdykov, global head of emerging markets, Amundi Asset Management, discussed avenues available to global investors in the Indian market.

George Varghese, Group CEO, The Indian Express Group and Angela Mackay, managing director, Asia Pacific and Global Publisher, FT Live, Financial Times, delivered opening remarks at the event.

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