2023-12-29 04:51:06
In so called year-end musings, Kotak highlighted a changing landscape where savers are transforming into investors, presenting challenges for the banking sector regarding deposits and funding costs.
“As savers become investors the banking sector faces challenges on its deposits and cost of funds. The large corporate sector has to meaningfully move to capital markets (debt and equity) and away from banks,” Kotak wrote on a Twitter post.
“Banks will become distributors of corporate debt rather than storage houses. They will need to penetrate mid sized corporates, MSMEs and consumers,” he added.
He also said that we need to keep Japan of the 80s at the back of our mind.
Kotak urged vigilance once morest market bubbles. Referring to the prolonged stagnation of Japan’s Nikkei Index even following 34 years, he stressed the importance of policies, regulations, education, and the supply of high-quality investments to prevent similar situations.Addressing taxation issues, Kotak pointed out the need for a relook at double taxation on dividends, drawing a parallel between shareholders and partners regarding taxation principles. He also stressed the necessity of bridging the gap between debt and equity tax rates to encourage market growth.Expressing concerns over the potential distortion caused by low-cost leverage through derivatives, Kotak highlighted the importance of attention to prevent market imbalances.
Moreover, Kotak flagged the importance of maintaining a balance between developmental initiatives and regulatory measures. He specifically highlighted two critical areas needing immediate attention in India’s financial sector: acquisition financing and streamlining the Insolvency and Bankruptcy Code (IBC) process.
“As India aspires, the financial sector will be the key engine for delivery. Impact of technology is a separate subject of discussion for a future date. The saver/ borrower and the issuer/ investor models will coexist. It is time for a holistic financial sector view,” said Kotak.
Reflecting on India’s evolution from a nation of savers to investors, Kotak noted the historical reluctance of Indian savers toward financial assets, preferring gold and land investments. However, over time, there has been a gradual shift towards bank deposits, UTI, and LIC.
In the 1990s, investing in stocks was viewed as speculative, leading companies seeking capital to approach foreign institutional investors (FIIs). While FIIs saw opportunities and invested in companies, Indian savers remained hesitant. This resulted in companies raising capital through the lesser-known Luxembourg stock exchange, essentially exporting India’s capital market.
Recognising this trend, some individuals raised the issue with SEBI, prompting the inception of the private placement market (QIP) in the early 2000s, Kotak said. Consequently, FIIs gained access to Indian markets, and the interest of Indian savers in the stock markets grew notably following the global financial crisis.
Highlighting the growth trajectory in the financial landscape, Kotak commended the transformation of savers into investors through mutual fund platforms, equities and derivatives markets, insurance funds, and global private equity in India, among other avenues.
The journey from a risk-averse saver to an eager investor has been a significant evolution, with various financial avenues paving the way for a more vibrant investor ecosystem in India.
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