Veteran banker Uday Kotak Friday called for an integrated regulatory framework as the financial sector moves towards an issuer-investor model from the saver-borrower model. Kotak, the richest private sector banker in the whole of Asia, also noted that the country is at crossroads between the traditional model which was bank-led, and the emerging intermediation space where the issuer and investors are involved and have a larger say.
Earlier, he noted, bulk of intermediation happened through banks–the saver-borrower model, where people saved their monies, put them as deposits and which in turn was lent by banks with all the checks and balances.
But today there is a significant transition underway where the saver-borrower model is getting replaced by an issuer-investor model, both in equity as well as in debt markets, Kotak, who heads the fourth largest private sector lender Kotak Mahindra Bank, said.
Calling for a similar move on the regulatory front, Kotak said, despite this emerging trend of issuer-investor model, regulations are still rooted in the older saver-borrower model.
“Some of the challenges of the transition between the saver-borrower model to the issuer-investor model are that many entities may be regulated by the format which is normal for the saver-borrower model, but bulk of its liabilities is in the issuer-investor model.
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“This is particularly so in the case of NBFCs, where regulation is in the traditional regulatory framework, but bulk of their money comes from markets such as mutual funds, insurers and debt papers,” Kotak told an industry event organised by the industry lobby CII here.
“This is an important transition period where dramatic need for close integration between both these parts is crucial,” he added. He said as financial sector remains highly leveraged, the role of risk management assumer higher importance.
“Multiple levels of risks in a 24×7-digital world are dramatically changing the way the financial sector is governed and the importance of governance is much higher in the financial sector than any in other as the former is highly-leveraged,” Kotak added.