Indian financial system in Darwinian mode, only the worst lenders survived: Uday Box

MUMBAI: Bankers notices Uday Box on Tuesday said the country's financial system is currently in a Darwinian mode as only the fittest lenders can survive. The managing director and chief executive officer of Kotak Mahindra Bank also said that historically, whenever there was a problem with a private lender sector, it was consolidated with a state bank.

India is in a very Darwinian mode of what I call the survival of the broadest.

The sector has seen this sector become more integrated than ever before. Aggregation of the Indian economy is occurring more in mortality and in less than combinations, Kotak says.

He also noted that historically, whenever there was a problem with a private lender sector, it was merged with a state bank.

According to him, the government would have to rework the Financial Resolution Deposit Insurance (FRDI) Bill because an exit route is important for troubled lenders.

The FRDI Bill, which has raised concerns about protection for depositors, has disappeared and the government has yet to introduce a new bill.

As you allow access to banking, we should think more about exit policy. And one of the first bills proposed earlier was the FRDI Bill. We have to work again, says Kotak, speaking to the Times Network that the Indian Economy has fixed here.

The comments come at a time when many lenders, especially non-banks and cooperatives such as PMC Bank are walking through waterways, emphasizing the need for a law to take care of release of participants in the financial sector.

Kotak also accepted the rules introduced under the Insolvency and Bankruptcy Code (IBC) under which the DHFL mess was referred for resolution.

About the infra-lender IL&FS, which is in the process of resolving the debt resolution of the RS 94,600-crore that he led, Kotak said the company is confident of recovering more than 50 percent of its dues.

He said the biggest challenge in solving IL&FS was the distribution mechanism, which was defeated after the Supreme Court ruling in the Essar Steel case.

Kotak said there was a complex web of over 340 companies in the IL&FS team created over two decades that resulted in a lot of time being taken by the new board.

He said the time had come to dramatically increase the flow of domestic savings entering into averse assets such as fixed deposits and gold, to capital risk that would help the economy better.

Further, Kotak said the government should select a set of six major state lenders, and mark three more where its stake would drop below 50 percent through market sales and have remaining three runs as a public private partnership.