Solvency fears weigh on markets: Uday Kotak

MUMBAI: Kotak Mahindra Bank vice-chairman and managing director Uday Kotak has said that concerns of solvency of some institutions are weighing on markets. There is, however, no systemic risk yet, he added.
On liquidity crunch, Kotak said he saw the much-talked-about crisis more as “a price of liquidity”. In his letter to shareholders, Kotak said that a key issue in reducing the price of liquidity was to bring down the cost of deposits for banks so that they can pass it on to the system.“However, high rates on government savings schemes, distortion in yields due to differential tax treatment on debt instruments, are the challenges in the reduction of deposit rates,” said the banker.
While not hitting the panic button, Kotak said that there was a tendency for a crisis to repeat every 10 years. In 1998, following the Asian currency crisis from a universe of 4,000 non-banking finance companies (NBFCs) barely 20 survived. “In 2008, we witnessed the global financial crisis — which shook the foundations of all economies. India, too, did not escape, which again establishes the point that the country cannot remain insulated from events impacting global economies,” he said.

The letter, which comes a few weeks ahead of the Budget on July 5, also calls for tax relief on equity. “Multiple levels of taxation on equity are leading to a high cost of equity. Time has come for Indian entrepreneurship to get back some of its animal spirits. At the same time, this is a new India where governance and transparency will be the pillars of progress,” he said.
Kotak, who has been chosen by the government to manage the default crisis at IL&FS group by taking on the role of chairman, said that the financial markets had witnessed tremors in 2018. “I see 2019 and 2020 as years to cleanse, repair and nurture Indian financial institutions. We have work cut out for both practitioners and policymakers,” said Kotak.