Uday Kotak stresses on banking independence, raises concerns over corporate house involvement

Uday Kotak, Managing Director (MD) of Kotak Mahindra Bank on Wednesday ignited discussions about the involvement of corporate houses in the banking sector. Kotak's statements highlighted the historical conflict of interest and potential risks associated with granting banking licenses to business entities.

Kotak, while speaking at the CNBC-TV18 Banking Summit, emphasized the importance of maintaining the independence of banks from corporate houses, a stance that aligns with ongoing debates surrounding the Mahindra RBL Bank deal.

Mahindra and Mahindra's recent acquisition of a 3.53 percent stake in RBL Bank, with plans to increase it to 9.9 percent, has raised questions about the rationale behind the conglomerate's capital allocation strategy.

Analysts from Macquarie earlier expressed concerns over the potential uncertainty stemming from Mahindra's intentions to further invest in RBL Bank. Given Mahindra's primary focus on the automobile industry, the move to acquire stakes in the banking sector raised eyebrows. The acquisition's implications for Mahindra's core business and its capital allocation approach prompted discussions among financial experts.

Kotak's address sheds light on the historical backdrop of large banks formed from institutions backed by corporate houses, resulting in inherent conflicts of interest even without direct corporate lending. These concerns become even more pertinent considering the risks associated with contagion within the banking system.

At the banking summit, Uday Kotak also emphasised the current robustness of India's financial sector and recommended a strategic focus on developing fresh capacities and capabilities, while prudently handling risks. He said that he believes that India can become a $30 trillion economy by 2047 led by the financial sector.