Podcast: The Future of Financial Services in India
In the second episode of our podcast series focused on innovation in Asia, Portfolio Manager Justin Leverenz speaks with Uday Kotak, founder and CEO of India’s Kotak Mahindra Bank. While the financial sector may not leap out as a hotbed of innovation, Kotak is interesting because, as one of the largest private banks in India, it manages to strike a balance between being extremely prudent when it comes to risk management, and embracing innovations like digital banking. In a commodity-like business, this is a real differentiator. Below are a few highlights from the episode.

[15:31] In the banking industry, particularly in the Indian context, the downsides are significant versus the upside of a lending spread. You have to be clear that the odds are significantly stacked against you for the risk decisions you take, especially when you're highly levered, and therefore the culture of being able to say no is crucial in the lending process, and the culture which we have built on the risk side within Kotak at every level is a view of bottom-up rather than top-down.

[16:40] We don't think about business as the next quarter or the next year. We think about it as a journey. We believe that the true test of institutions is how you build sustainability and longevity. At the same time, we recognize that managers should not use the long term as an excuse for poor short-term performance. We have to ensure that we are creating value in the principle of a journey rather than a destination.

[21:03] India has challenges in the financial sector. There is also a need for growing private investment faster, but despite all that, India is growing at 7% plus. There is a dynamism in the consumption story of India, which is very evident and, I think, reasonably sustainable. There will be volatility in the Indian markets and economy, but as long as the price of oil is reasonably controlled, the Indian macro situation is also reasonably sustainable.

[22:07] India had a surge of formal financial savings grow post-demonetization and the goods and services tax which was introduced. Inevitably these financial savings moved to a system of intermediation chasing returns. Some of the current challenges come out of this desire for higher returns without fully pricing the risk. And that correction is something which is underway. We think the system will get stronger after this. I do not see at this stage a significant systemic risk.

World Financial Podcast Episode 54:
Special Edition: The Future of Financial Services in India with Justin Levernz and Uday Kotak

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