Significant consolidation in the financial services industry is quite possible in the next few years, either through mortality or combinations, Uday Kotak, managing director and executive vice-chairman of Kotak Mahindra Bank, said in its FY17 annual report.
According to him, the current structure of the banking industry is not sustainable. The system’s inability, he said, to recognise “the inconvenient truth that banking is an economic and commercial activity with high leverage, mixing of social objectives and weak governance have contributed to bringing this industry to a weak position”.
Kotak said the bank will try and play an active role in reshaping the structure of the financial services industry, be it stressed assets or consolidation. “Further, we must grab the digital space.”
“We must never get complacent and always remember that if we are not paranoid, others will eat our lunch,” Kotak said.
He said while India has relaxed entry norms in many areas of financial services, including banking, one needs to give more thought to mortality and exits in this sector with potential systemic risks.
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“The time has now come to bite the bullet. The state, sooner or later, may have to make the difficult choice between putting in more good (tax payers’) money after bad or being open to ‘strategic’ choices,” Kotak said.
He added that the industry is one of the few where errors of commission are significantly more expensive than errors of omission.
“I also see a diversification of the financial services industry structure, moving beyond the current ‘bank-led’ structure. Digital, combined with Aadhaar, is a powerful combination which has the potential and has already transformed the contours of many industries in India,” Kotak said.