Uday Kotak calls on Modi govt to set up a committee on ownership, governance and risks

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26 Aug, 2025 12:21

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Billionaire banker Uday Kotak has suggested that the government must set up a full-fledged committee with significant analysis in three areas of ownership, governance and risks in order to tackle the current banking system's woes.

As underwriters of risks, bankers must share the blame, Kotak said in an exclusive chat with Moneycontrol, as he shared his views on the over Rs 13,000 crore-scam at Punjab National Bank, challenges to insolvency resolution, management changes at public sector banks and how Kotak Mahindra Bank is looking at the future of banking.

Kotak, who is also the chairman of government-initiated Corporate Governance committee, believes that even with data and technology is being used to boost his business, the operational and credit risks are keeping him awake all night.

Excerpts from the interview:

What are the top changes seen in the banking system in the last one year apart from Insolvency?

I think the first was demonetisation. This has brought in a huge drive of digitisation and biometric is a crucial part of this transformation. as a result of which we launched 811 (online opening of bank accounts through E-KYC).

Second big transformational change is formalisation of financial savings that is coming through GST, RERA or other steps which is giving a big boost to financial savings coming in an organised structure. This is a more sustainable trend over long term. Third is that finally the industry structure is changing and the whole ratio between public and private sector will be more balanced in the years to come. I believe in next five years, public and private sector share will be 50:50.

What will public sector banks need to do to meet competition from private banks?

I think we need pretty significant management change and an ability to take risks based on judgement and not constantly fear over the shoulder. My view is that finally we need a management who can deliver. Frankly, 25 management teams (of 25 different banks) is a fairly tough job for public sector banks.

So do you think consolidation is the way to go? And what about valuations of the public sector banks?

I think the government probably needs to set up a committee to look at issues on bank and public sector banking, This has to be a full fledged committee of the kind the UPA set up in 2007 on ownership, governance and risks. We need a broad brush with significant analysis of these three areas. What bothers me is that the issue (PNB scam) was in the system for 6 years.

Talking about the scams, do you think a scam like that at PNB is also possible in private sector banks?

I think private sector banks are also following the same rules, they have fraud committees and reporting requirements to the RBI. So, I don't think a public or a private sector bank can hide from it. I would be surprised but in life at times fact is stranger than fiction (smiles).

On digital, you have initiated the ABCD?

We are going back to alphabets ABCD. In this somber and sober mood, we have to look at the future and the future of finance is changing. Now we are saying Artificial Intelligence (AI), biometric, customer experience and data are the four big drivers of finance. And we believe, the finance of the future will not be the finance of the past.

What and how will it change business for Kotak Bank?

We think significantly more data will be the basis of our decision making for risks, more focus on information security, making sure we are more robust on our technology platform and finding operational gaps so that we don't have gaps between technology and manual processes which things seep through. So, this is a whole different mindset for the future.

If you are a banker, if you are in a business where your leverage is 10:1, and when you have the trust of people's money, it is very important to be awake.

Under insolvency, you have been looking at stressed assets for a while without much headway. What are the hiccups still remaining?

We have bid for a few assets. But I think the whole IBC process is just going through its early stages and we will certainly participate on the basis which we think makes sense for us but we don't need to be excessively carried away, If we get returns for the risks we take, we will buy it.

Does that mean pricing is still an issue?

I think there is pricing for known and unknown risks. I think we also need to price in for the unknown risks. Why do you think Indian banking went through the trouble it did, it is because they did not price in the unknown risks, in my view, they did not even price in the known risks. So I think do the diligence on pricing, focus on sustainability and based on that the bidding should be made. So, it is about valuations, conditionalities, the whole IRP process is also learning, the resolution professionals are also learning, so everybody has to think really differently. We have bid for a few assets but we will see how it goes.

Will you look at unlocking value in your subsidiaries?

We have gone reverse. We have bought the stake from our foreign partner. The shareholder of Kotak Bank has the full look through of value.The shareholder at the top will get the value. If we believe the business is valuable and if I list it, I am giving value of Kotak bank's shareholder to the third party. Therefore I don't need to list. The investors of Kotak bank can see value of my insurance business. People have the option of buy and sell in the market. So no listing plans, in fact a significant accretion is happening in our subsidiaries. In fact we are on the reverse model and are one of the rare companies who own 100 percent in our asset management and life insurance business.

How do you view the promoters fleeing the country? How can India avoid it?

My first question is much better diligence by the bankers. We are underwriters of risks. Of course, bankers have to share the blame in that. First and foremost, the accountability lies with the banker for doing the right underwriting. In PNB's case, I have no clue where the investigation is ongoing.

What is in for Kotak bank in the next financial year?

We will focus a lot on micro growth and at the same time we are clear that we have to see how we manage risks better. The one thing that differentiates banking, it is risks. That combined with the digital is the future. We run every risk — operational, credit, etc...and as the holder of public money, I cannot take it for granted and therefore be awake (all night).