Kotak Bank Founder Uday Kotak believes the world is tilting toward hard power and warns against the creeping comfort that is slowing India’s entrepreneurial spirit. In an interview with Mahesh Nayak and Joydeep Ghosh, Kotak, who is now spearheading USK Capital, says there is a need to rebuild manufacturing like in the 1990s. Excerpts:
In your new year musings a year back, you had placed emphasis on ROTI (Return on Time Invested). How does the ROTI scorecard look like a year later?
The world has fundamentally changed. Even before Donald Trump took charge, I had said the global paradigm was shifting — and today that shift is unmistakable. We are now in an era of hard power, and this is the first time since World War II that the global order has changed so dramatically. For India, this means we must move with speed, purpose, and mission. We must embrace Atmanirbharta and accept that we may have to walk alone. Interests are becoming short‑term, alliances are fluid, and dependence creates vulnerability. That is why I often use the term ROTI. India must invest time wisely and move faster than ever before.
With rising global protectionism, how do you see trade evolving?
Every country is deciding what’s right for itself. India’s tariff deal with Europe is a positive sign, but the broader trend is clear, nations are prioritising self‑interest.
Why aren’t corporates investing despite government incentives?
Private investment is still hesitant, balance‑sheet conservatism has become ingrained, and too many entrepreneurs are choosing the comfort of financial markets over the harder task of building operating businesses. If we become comfortable with this status quo, we lose momentum. That is why the Budget must push policies that nudge entrepreneurs and professionals out of the comfort of financial investing and into building real businesses.
Despite India being a Goldilocks economy, why is the rupee volatile and depreciating more than its peers?
India indeed has a Goldilocks moment — stable inflation, reasonable growth, and a current account deficit of just 1.3% of GDP. But the rupee’s behaviour is not fully explained by fundamentals. To me, the real story lies in the capital account. Nominal GDP has slowed sharply because inflation is low, and businesses plan on nominal, not real, numbers, which creates pressure. Our CPI basket’s heavy food weight adds volatility, and gold imports have been unusually high.
At the same time, Indian equity valuations have been expensive, prompting foreign investors to book profits, while domestic savers turning into investors have supported markets but not the currency. When foreigners exit, they sell dollars, and even strategic investors like Hyundai, LG, and Whirlpool have sold stakes due to high valuations. That’s why I believe the rupee’s weakness is fundamentally a capital‑flow story, not a macro‑fundamentals story.
Is such low inflation necessarily good for India?
Low inflation is a double‑edged sword. The world is grappling with the shrinking gap between real and nominal GDP. Businesses operate on nominal numbers — and when nominal GDP falls from 11–12% to 8.5%, revenue growth slows. Low oil prices help India because of our import dependence. But the high food weight in CPI creates swings. So yes, low inflation helps macro stability, but it also compresses nominal growth, affecting corporate toplines.
India’s FDI has fallen to 0.1% of GDP and we are still seen as a difficult place to invest. What should the government do in the upcoming Budget?
I strongly believe India must revive middle manufacturing — the segment between MSMEs and large conglomerates. In the 1990s, after liberalisation, Indian entrepreneurs like the Tatas, Mahindra’s, Bajajs, TVS and Kalyanis built world‑class manufacturing despite intense global competition, driven by a desire to build India rather than manage family offices.
Today, however, too many prefer financial investing over building factories, and that trend must be reversed. We need the government to create a direct capital‑support scheme for mid‑sized manufacturing projects in the Rs 50 crore to Rs 1,000 crore range, provide 40% preferred capital from the government at low or zero interest, structure this support over 10 to 12 years with a gradual phase‑out, and offer this steroid‑like boost until ease‑of‑doing‑business reforms fully take effect. This will dramatically improve return on equity on the remaining 60% equity and attract entrepreneurs back into manufacturing.
Isn’t the young generation unwilling to take on the hard work of manufacturing?
But they understand returns. If returns improve, capital will flow — like bees to honey. In the 90s, Indian entrepreneurs built manufacturing giants against global competition. We need a rerun of that. Reduce the cost of capital, provide support, and entrepreneurship will revive.
What is the single biggest economic mistake both the government and policy makers should avoid now?
India must avoid complacency. We are at a moment where the world is shifting back to a might‑is‑right order, and India cannot afford to assume that growth, investment, or global goodwill will continue automatically. We need a mindset of paranoia — survival of the fittest. A united sense of urgency is essential. Comfort is dangerous. A country is built by hard work and dirtying your hands, not by buying and selling shares. The government must avoid any policy or mindset that allows complacency to creep in, because once urgency is lost, catching up becomes far harder.
Banks are struggling to attract deposits. How serious is this problem?
This is one of the biggest structural challenges Indian banking has ever faced. For decades, the system ran on a grand bargain with banks that enjoyed access to low‑cost CASA deposits, and in return, they supported the state through CRR, SLR investments, and priority‑sector lending. That equation is breaking down. Savers today can earn 5.5–6% in liquid funds with a single click, current account balances are migrating to higher‑yield alternatives, and term deposits—taxed at marginal rates of 30–39%—have lost their appeal. Debt funds, meanwhile, are taxed only on withdrawals, not on accruals, and technology has made switching frictionless.
What used to be lazy money has turned into money constantly in motion. To stay relevant, I believe banks must rethink their business models, focus on smaller‑ticket depositors, compete head‑on with brokers, fintechs, and mutual funds, and sharply reduce intermediation costs, especially when banks operate at roughly 250 basis points (bps) versus 50 bps for debt funds. With mutual fund AUM already at 40% of bank deposits, up from 15–16% just a few years ago, it’s entirely possible that both pools could be equal within five years.
Are banks leaning too much on retail lending?
Corporate leverage has fallen, the cost of capital has dropped, and capital markets offer cheaper funds. So, corporates prefer markets over banks. Banks have moved to retail because that’s where demand is, but it creates household leverage risks.
To truly balance growth, there is a need for revival in private investment. The current over‑reliance on retail lending isn’t a sign of consumer strength, it’s a symptom of weak investment demand and limited avenues for productive credit deployment.
Should India revisit its rules on promoter involvement in banking?
India’s regulatory leadership today is outstanding — open‑minded, progressive, and willing to evolve. There is always room for open‑minded review, but the direction is positive.
Why is foreign capital still so interested in Indian banks?
Foreign investors remain keen on Indian banks because countries like Japan operate with structurally low costs of capital, which means their hurdle rates for return on equity are far lower than ours. For them, India offers both superior growth and meaningful diversification of the balance sheet and risk. I welcome this capital, provided the regulatory rules remain consistent, and any potential conflicts of interest are carefully managed.
Should regulations be simplified, especially after retrospective rulings?
As a matter of principle, India must have clear laws, avoid retrospective legislation, and prioritise simplicity and clarity in regulation. This philosophy should apply uniformly across sectors. The broader need for predictability and transparency in the regulatory environment is undeniable.
Kotak Mahindra Bank completed 40 years. How do you see the next 40?
40 years ago, I started a company with Rs 30 lakh capital, in a 300 sq ft office in Fort, Mumbai. Today that company, which I ran for 38 years, is Kotak Mahindra Bank. I had tweeted “tum Jio Hazar Saal.” Institutions must outlive founders. That’s the aspiration.
You’ve begun your second innings with USK Capital. What is the vision?
USK Capital is focused on backing professionals and entrepreneurs to build real operating businesses rather than financial portfolios. Our first overseas investment is in Go Raw, a US healthy‑snacking company, where we hold a controlling stake and have an independent board. We prefer permanent capital over traditional PE/VC cycles, take a long‑term, patient approach, and lean toward consumer and food sectors while remaining open to opportunities across industries. With US valuations outside tech and AI looking reasonable, and Indian valuations in many segments running higher, we intend to invest both in India and abroad.
NBFCs are growing rapidly — some now as large as mid‑sized banks. Should there be guardrails?
NBFCs have performed well, and they are fine as long as they maintain adequate capital and strong risk management. Their business model is naturally attractive because they don’t carry the regulatory burden of CRR, high SLR requirements, or priority‑sector obligations. The key is ensuring these fundamentals stay intact as they scale.