Expectations were for a rocket, now there’s tempering: Uday Kotak

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April 28, 2015 7:53 AM

We need to fundamentally correct the balance sheets of some section of corporate India says says Uday Kotak.

Uday KotakThe country is witnessing a gradual tempering of expectations with reality moving gradually up and expectations becoming more realistic, says UDAY KOTAK, executive vice chairman and MD of Kotak Mahindra Bank. (Reuters)

The country is witnessing a gradual tempering of expectations with reality moving gradually up and expectations becoming more realistic, says UDAY KOTAK, executive vice chairman and MD of Kotak Mahindra Bank. In an interview with GEORGE MATHEW, Kotak says, “some parts of the corporate sector are having excessive leverage and relatively low equity. That’s what’s creating pressure. We need to fundamentally correct the balance sheets of some section of corporate India.” Excerpts:

Q. How do you assess the performance of the NDA government which will be completing one year in office next month?

For the government, there are two important philosophies: minimum government and maximum governance. Second is the ease of doing business. I think these are really good philosophies and I completely agree with the fact that this is the direction in which we need to go. The execution of these philosophies is very crucial. I am a believer that if the government continues to focus on the execution of these philosophies, we will see significant progress on the ground.

Q. There’re complaints that nothing has moved in ease of doing business at the ground level or for more reforms. Do you agree?

My views are on absolutes … keep aside expectations. Our minds tend to get confused with expectations. If you look at absolute reality, one year ago to today, we have made progress. But the expectations in the minds of people had become very high …. for example, expectations on markets had become high. The real economy is growing gradually but directionally upwards. It’s a gradual gradient up, but not a rocket. Expectations were for a rocket. Now we are seeing gradual tempering of expectations. Reality is moving gradually up and expectations are becoming more realistic.

Q. Projects worth Rs 18 lakh crore have stalled. There has been no sign of revival of many of these projects. How do you assess this situation?

The issue is that over the last 10-12 years, too many project developments in India had involved arbitrage. You get cheap coal, cheap spectrum and have a quick arbitrage. That’s how a lot of businesses were approaching these projects. One side has stopped. I must say it was stopped by both the judicial system and the political system. Now all pricing is more market-linked. This is a very significant correction that has happened. But challenges remain in the past and there’s excess leverage which sits on some of these companies’ balance sheets which need to be corrected. Debt you can’t wish away. There’s this transition time friction which has to get corrected. Somebody has to take the pain and move on. Either it has to be equity owners or the banks or both.

Q. Stock markets are now undergoing a re-rating. What’s your assessment of the market?

Markets are now beginning to factor in the reality. There was gap between expectation and reality. We are moving towards more realistic basis for India’s growth. I’m a believer that India’s growth for sustainability has to rise in a steady gradual gradient rather than a hockey stick. If we move steadily over time, that’s better and more sustainable.

Q. You mentioned excessive corporate leverage. Looking at the huge bad loans, do you think fund diversion has taken place?

I think some parts of the corporate sector are having excessive leverage and relatively low equity. That’s what’s creating pressure. We need to fundamentally correct the balance sheets of some portion of corporate India. This is not a general statement… it’s a pocket. Some part of corporate India has to significantly improve and do what’s right. Corporate governance and the governance of society have to get better.

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