Vice-chairman and managing director of Kotak Mahindra Bank Uday Kotak believes that acche din(good days) have certainly come for the country.
In an exclusive interview to Mihir Bhatt, Uday Kotak talks about boosting India`s growth, combating inflation, PSU bank funds and much more.
Excerpts...
Congratulations for wining the world entrepreneur of the year award?
When I won the award I said that this award is on behalf of 1.2 billion people. An Indian has got this after 11 years. Narayan Murthy had got it when it was the fag end of NDA government in 2004 and now I have got it when it is the beginning of NDA government in 2014.
The NDA government`s campaign was acche din aagaye hain... Do you really feel good days have arrived?
I feel that acche din aa gaye hain. Acche din for share market has arrived. Share market is above 25000 level. The good thing is, the new government, which is still in its initial days, has not taken any missteps. People have high expectations from the government and to deal with these expectations is a challenge for the new government. My advice is, be patient and give some time to the government.
This will be the first budget of the new government. Our theme is `Abki baar sapne sakaar`. Because somewhere we feel that tone for the next five years will be set in this budget...
This is an important Budget, but the focus will be to control fiscal deficit. People should be ready for tough measures in the short-term for long-term benefit. The most important thing in the Budget will be to encourage financial savings. From 2008-13, a lot of savings of Indians was routed towards real estate and gold. Now whatever policies government will bring in, it should be to encourage savers.
Do you think government will have to take bitter pills to boost the economy?
Yes. The focus of the government should be karega, and not NREGA. The government should move towards supporting aspirations and not entitlement. Subsidies supporting non-productive growth should be reduced. There is still a wide gap in the market price and product price of diesel. There are two options with the government -- either hike diesel price by 50 paise every month or by Rs 3-4 at one go. Once and for all, take the decision and get it behind us. The government should take some of these tough measures and control fiscal deficit. That is the key to control inflation. Unless inflation is controlled, the RBI will not lower interest rates.
There are lot of challenges in front of the finance ministry as the last government has kept a lot of payment of subsidies pending and many such things. How much flexibility will finance ministry have to juggle?
The government has a lot of assets. They have Hindustan Zinc, Suuti and Balco which can be monetised. Simultaneously, public sector banks have non-core assets, some of which could be sold and monetised. With this, the gap of fiscal deficit can be filled.
Do you see listing of LIC?
Listing of LIC should not be done in the first year but over the next 2-3 years. The government owns 100 percent stake in LIC. What difference will it make if the ownership comes down to 90 percent? If LIC is listed, it will be India`s biggest company.
When do you see a revival in the investment cycle on a sustained basis?
If companies are able to raise equity from the market, then their problems for financing incomplete projects will come to end. Investment cycle in the capital market can kick-start with the money of savers and investors.
Recent initiatives from the government could be diplomatic. Have the perceptions changed about Indian economy?
Foreign investors are looking for a consistent and stable policy in India. If we change retrospective taxations policy involving Vodafone and if the solutions are quick then it will send a positive signal to the global investors which will bring money in the country.
There are concerns regarding balance-sheets of PSU banks. What is the ground reality when you look at those balance sheets?
A lot of infrastructure projects were stalled or left incomplete, and banks have lent money to those projects. We need solutions for these stalled projects. Projects that are viable must be completed. For that, PSU banks will need capital to fund these projects. PSU banks can dispose of their non-core assets and bring ownership down to 51 percent. In five years, new capital should be infused and the governance mechanism has to be made positive.
How far is a genuinely sustainable rate cut?
What we have to be careful is that if we drop interest rates where the rate of interest is lower than inflation then savers will not put money in financial savings and move it to gold and real estate, which is bad for India. Therefore, the ability to drop interest rates is linked to inflation, and to the fact that savers money should come in financial savings. It is extremely important to see interest rates from both savers and borrowers side. Unless inflation comes down, interest rates won`t come down.
By when do you see inflation coming down?
At the earliest inflation can come down 2015 and not before that.
What is your view on inflation?
We need a lot of supply side action from the government but there are two dangers--Monsoon and Iraq and oil price. Subject to these factors, we should see inflation dropping by the year-end or by early next year.
What are your views on revival of sentiments? When will growth cycle and revival pick up? Do you see it reviving in this financial year?
My estimate of GDP growth this year is about 5.5 percent. Last year it was 4.7 percent. The average of next 5 years is above 6.5 percent. Hopefully, we end the period at more than 7 percent.
If you were a finance minister which would be the three basic areas you would focus upon?
Fiscal deficit should be reasonably controlled. Second, stop all wastages, third-- create an environment where savers make money.
What is your view on NPAs. Do you think NPAs, will peak out in next 2 quarters?
Old problems are there in the system. New problems are happening slower. Old problems need to be solved first.
Is Kotak Mahindra bank calibrating its growth strategy?
Kotak Mahindra Bank is very optimistic about India`s future. Our motto is that we look forward to be a bigger bolder better India and a bigger bolder better Kotak.