To The Point with Uday Kotak, President, CII and Managing Director & CEO, Kotak Mahindra Bank

Delighted to be on this platform, Kriti, in this whole new world.

Today we are really working on two important tracks. Track number one is around COVID-19 itself, which began somewhere around the third or fourth week of March with the lockdown from the 24th of March. And we were all hoping for a quick revival out of the COVID situation itself. But COVID obviously has lasted longer across the world and including in India. At this stage, we still continue to see positive cases, but the good news is we are seeing a lot higher recovery ratio and the mortality rate in India is much lower than most other parts of the world. So there is good news, but there is also a challenge that ongoing infections still continue. So we are now trying to find a solution in the world of economics and finance for what is essentially a problem of science and health, and that is always a challenge. So in the world of economics and finance, I think there is some good news. We are all beginning to adjust ourselves to the new reality, and we can use different words for it. There are people who have used the word 'new normal', there are some others who have used the word 'never normal' world in which we are all in, and we've got to navigate our way through this never normal world. And I'm seeing, as we get adjusted to the new reality, I'm seeing a lot of data getting to be better than what we were seeing in, of course, the months of April and May. So we are happy to report progress. For example, our exports in July are now 91% of last July. We are seeing an increase in car sales, we are seeing other parameters which are improving. But I do believe that there is still some way to go to get to full normalcy. I would like to believe that we should get close to 90%, somewhere between 90 and 100% by the end of this year, only next year on the overall basis. But there are some sectors like hospitality, tourism, travel, hotels, malls which are still going through a little bit of rough weather. On the other hand, essentials like pharmaceuticals, food products, daily use consumption, electricity consumption, movement of goods across states and on highways and railways, all that is getting better. So it is getting to be better, but we have still some way to go.

I think two things have happened. One, the world has pumped huge amount of liquidity. Therefore, whether it's the U.S. Federal Reserve, whether it's the European Central Bank, whether it's the Japanese Central Bank, or even the Chinese Central Bank, each of the central banks around the world have opened up the taps and flooded the world with liquidity. We have done the same thing in India. Therefore, there is a massive global liquidity flow which is moving money across the world. Some of it is coming into India as well. On the other hand, I think India's external account, balance of payments, and current account situation is positive. So the price of oil has come to around $40 odd, we have had a significant reduction in our gold imports. So the foreign exchange, external balance of payments position of India is actually very comfortable. And with global liquidity gushing, I think on the external account India is much more comfortable than we were in, say, for example, either 2008-09 or even in 2013. Therefore, our challenges and opportunities are more internal and less worried about the external side of India's balance sheet.

You know, we have a situation where COVID is a real big elephant in the room. And if you look at RBI's restructuring framework, the RBI has been careful to say, ensure that the restructuring framework is only available to companies or businesses which are impacted by COVID. Therefore, if a business was in a problem prior to March 1, that restructuring facility is not available to those businesses because they said maximum overdues prior to March 1 cannot exceed 30 days. Therefore, only if you were less than 30 days overdue on March 1 are you eligible for a restructuring in the post-COVID era. Further, RBI has put in place checks and balances on the basis of which banks do the restructuring. And I do believe that this time around banks will be more responsible compared to the way they had done it in 2008-09-10 in terms of how they restructure. The objective is to protect units who have temporary impact because of COVID and who are likely to come back to normalcy. And post the impact of COVID, those are the businesses which must get the advantage of restructuring. And it cannot be a way for allowing evergreening. The additional check with the RBI is that even if you restructure, though you do not call the account an NPA under restructuring, the banks will have to make a 10% provisioning as a potential provisioning even in those loans. Because some of these things are well thought through, and I hope this time around restructuring does not deteriorate the way it did in the 2010 era.

The restructuring facility effectively allows a de facto moratorium, and the RBI has mentioned it will be eligible for up to two years. Therefore, you have had two moratorium schemes, which is three months plus three months, which expires on September 1. There, banks were permitted to evaluate based on COVID impact and other facts on the viability of the borrowers to consider the moratorium. But now, my belief is restructuring will replace moratorium from September 1.

You know, we should first look at risk aversion by business itself. Yes, a number of borrowers to whom we would be delighted to lend are actually drawing down or using lower part of their facilities as a part of the slowing turnover. The one reason is turnovers have slowed down, which is why many borrowers are using less working capital limits. Number two, a lot of companies who may have had projects on hand are waiting and pausing before they start investing in projects. In fact, my view is they should be investing now, opportunities now rather than wait for it too long. So that is a behavior of the borrowers themselves which has got more conservative. And then in terms of lending, I think the banks will be very happy to lend to projects on a prudential basis. But you must keep in mind, Kriti, that at a time like this the banks also have to ensure that they are managing depositors' money. And they must, while they must lend and lend actively, they've also got to ensure that they lend prudently.

I think we need a two-pronged approach in banking. One is at the smaller banks, and we should encourage new banks to come in. And I think that is something which is banks and new entrepreneurs with a reasonable capital base should be permitted smooth entry into the banking business. On the other hand, we must ensure that the larger banks get stronger, bigger, and able to withstand the shocks of the global economy. Therefore, I would strongly encourage six or seven large banks and many, many banks below that who are all gathering up to grow. That's the kind of structure I would envisage for the financial sector.

You know, this is a clarion call made by the Prime Minister of India that India has got to get its act together and truly become self-reliant. And for me, self-reliance and Atmanirbhar is consistent with a competitive India and a globally engaged India. Therefore, at CII we believe that we need to ensure as we get more self-reliant, we are also more globally competitive at the same time. However, we must be careful not to allow imports from countries which are manipulating their prices and especially where it can hurt and destroy domestic industry on unfair competition. That is what we need to stop. But subject to that, we must ensure that domestic industry gets enough time to get stronger. But finally, it must be competitive. We should ensure that import substitution enables strength, and at the same time, the best way of ensuring that strength is our competitive index, competitiveness in the export market. For true strength of a country is its ability to export, and Atmanirbharta coming out of a strong export.

No, I think on that there are two or three things which have happened. Number one, the RBI has flushed the system with liquidity. Therefore, money is available with people. However, there is a psyche amongst consumers and individuals, instead of spending, they are storing money in the bank accounts. Absolutely, we've got to get the mindset change that they should be ready and feel comfortable to go out and spend, to go out and buy a new refrigerator, to buy a new television, maybe buy a new car, including smaller cars. And I think smaller cars are doing better, two-wheelers are growing. So we must get consumers and individuals to feel confident.

It is of course a difficult task, but we must make sure that we make it happen.

No, I think the opportunity for India is not only to become the manufacturing hub of activities beyond China, because China has been the factory of the world, but to simultaneously also push for sharp growth in India becoming the office of the world. We must be able to let people across the world deal with Indians and make them able to go out and actually use Indian labor, Indian skill for anywhere in the world. India becoming the office of the world is a great opportunity.

I think a post-corona world is what I call as an AC world. There are three worlds we are dealing with: BC, which is before corona; DC, is during corona; and AC, is after corona. It is going to be a world where I think there's going to be three or four major things. I think from an India point of view which we should be aware of, number one, I think it's going to be a rebalancing of physical and digital world. Pre-corona, that is BC world, it was 80% physical, 20% digital. In the corona, during corona world, it was 10% physical, 90% digital. I think it settles somewhere around 50-50 in the post-corona world, or the AC world as I call it. So the balance between physical and digital will change compared to the BC world. So that is one change. Second, I believe in many ways, from an economic point of view, geography is history. If I can be sitting in the smallest village of the country and have access to the country and the world, and this makes it possible for us to get people in semi-urban and rural India to have jobs, networks, telemedicine, infrastructure, rural infrastructure provided there. Therefore, over the last 30-40 years the migration which we have seen from rural to urban gets more balanced, and we see a more balanced regional and development growth of India as a country.

See, first of all, there is always a clash between urgent and important. Yes. Therefore, the measures which we must take must be both urgent and important. Okay. And we therefore need to take a medium-term view. And three important areas I would recommend: first is healthcare. U.S. spends 14% of its GDP in healthcare, Germany 9%, China 3%, India is 1.3%. We need to double our healthcare spend in the next three years. So first, healthcare. Second is education, and in that context I welcome the new education policy which is forward-looking, and India needs to dramatically increase its spend on education as percentage of GDP. And third is mother nature. This is a time for us to get our sustainability. We are exposed to the virus, we have been exposed to cyclones on the east and the west coast, we have been exposed to a very, very significant dilution in our environment. And the last three or four months have shown what that environment dramatically gets better if we do the right things. So I would like to see in the post-COVID world our investment is in the medium term, which is healthcare, education, environment as the priorities. Second, we need to find out ways of creating safety nets for people who may be at risk of losing their jobs. And the safety net responsibility should be with both enterprises along with the government. And we need to create that safety net because as the change from the physical to digital world happens, there is likely to be some level of displacement. So we need to get that better. We need to focus on the four major areas of income, which is net exports, consumption, investment, and government spending. We have been too much dependent on government spending. In terms of priorities, I would put priority number one as private investment and along with net exports as a key priority for us to be driving from a policy plan.

I think the private sector must be even further rekindled, its animal spirits. Therefore, when the Prime Minister addressed CII on its 125 years occasion, which was on the 2nd of June, the confidence which he gave was very, very heartwarming. But a constant reiteration of messages followed by government action consistent with those messages will give private entrepreneurs confidence. And I would like to share it through your medium to Indian entrepreneurs and enterprises and businesses: opportunity never knocks when it announces. And I do believe this is the time of opportunity, and Indian entrepreneurs must take it and grab it and take this opportunity to grow out of challenges for their sake and for India's sake.

Thank you very much, and delight to be with you.